Commercial Real Estate Finance

Posts Tagged ‘GGP’

Commercial Real Estate Week In Review for the Week of July 17-23

- Is Tim Geithner the biggest winner of  financial regulation reform passing this week?

- Meanwhile, Barney Frank is aiming to tackle Fannie and Freddie.

- GGP is finally ready to emerge from bankruptcy…and on strong financial footing.

- Innkeepers USA Trust is readying for bankruptcy.

- Private Equity still seems to be shying away from real estate int he second quarter.
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General Growth Properties (NYSE: GGP) has filed a reorganization plan to get them out of bankruptcy. Much of commercial real estate trades privately, so public trades are good opportunities for price discovery.

What can we learn from this plan? Read the rest of this entry »

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The Week of March 6-12

- Senator Dodd proposed that the Fed continue its oversight of the largest banks.

- The FDIC loan auction could mean trouble for still-healthy banks.

- Dubai World is seeking to restructure $26 billion worth of debt….good luck with that.

- Should the Fed be gradually decreasing its balance sheet? The EVP of the Fed Reserve Bank of New York thinks so.

- Creditors have offered nearly $4 billion in commitments to GGP.
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The Week of December 12-18

- Is all of the loose spending by world governments creating a massive asset bubble risk?

- If Fed funds and interest rate hikes aren’t coming, then we’ve got one confused futures market.

- Dollars from Dhabi to Dubai: One Arab nation is bailing out a neighbor.

- Specialized investment banks are ramping up to prepare for CRE turmoil.

- Fairfield Residential, one of the biggest U.S. apartment landlords, is filing for Chapter 11.
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The Week of November 28- December 4

- $1.3 Billion in TALF funds are set to buy CRE bonds

- Banks are intensely lobbying Congress to not pass legislation that could break them up.

- Wait, what? Retail deals are getting done?

- Dubai World may sell their trophy properties in order to raise cash.

- Interestingly enough, the government of Dubai, UAE has rejected the idea they are responsible for Dubai World’s debt.
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You would think that a real estate investment bank, by definition, would be right in the mix for any mergers and acquisitions deals involving the more than 130 Real Estate Investment Trusts that exist today. Sorry to disappoint, but that’s not really what we do. That being said, there has been more and more speculation, A. D. Pruitt of the Wall Street Journal Online being one of the loudest and most recent, that REITs will go the M&A route.

One of the biggest and most obvious reasons for this is that many REITs are struggling right now, saddled with too much debt from frothy acquisition plays they made during the boom years of 2004-2007. Better positioned REITs, in an ironic twist, may be well suited to acquire the struggling REITs because they are lower levered and can take on some of the debt burden that would come with acquiring such a massive entity.
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Vornado Realty Trust VNO.N, owner of office and retail properties, said last Wednesday it now expects to raise net proceeds of $710 million from its equity offering, up from an earlier $617 million, as underwriters exercised their option to purchase additional shares.

The company, the most recent real estate investment trust to tap the equity markets for capital, said it intends to use the proceeds for general corporate purposes, including repaying debt and funding acquisitions.

Although the debt markets have been reluctant lately to make large loans to commercial real estate companies, equity investors have shown an appetite for new shares.

Property companies that have turned to the equity market for capital over the past month include Simon Property Group Inc SPG.N, AMB Property Corp (AMB.N), Kimco Realty Corp KIM.N and ProLogis PLD.N.

This makes it easier for these big public REITs to acquire, especially to acquire assets of recently bankrupt General Growth Properties.

All of this news of REITs raising equity with public offerings raises an interesting question. Is this the wave of the immediate future? Are REITs better suited than private real estate companies to capitalize on opportunities in the short run, and thus are better poised for success in the long run?

While private real estate companies, much like REITs can be both narrowly focused by product type, as well as well diversified, both have been hit hard during the current economic downturn. There are several advantages each have over the other.

REITs have the clear advantage in the ability to raise capital. In this environment, the astute investor can see an undervalued stock rather easily, since many stocks are based on historical valuations, dividends, growth etc. Since REITs are relatively lower levered than private real estate funds, their purchasing power is higher during the current economic climate. On the flip side, many worried private investors who haven’t seen strong returns from their current and previous investments in private funds may be more hesitant to commit capital in the next fund. As any private operator will tell you, fundraising is as tantamount to large scale success in the industry as finding the right deals to buy. REITs also pay dividends, and are very liquid, which means investors can and will see returns on their investments much more quickly. With funds, capital is promised back to investors within a certain time frame, which if necessary can be many years.

Yet, there are still some clear cut advantages for private companies. The first is return thresholds. Most private real estate funds promise returns in the mid to high teens, sometimes doubling or tripling the returns of many REITs. Private funds are also not subject to the scrutiny of regulators because ownership remains private. As an aside to this fact, private funds aren’t focused on quarterly results, and do not have to meet analysts’ projections in order to stave off a sell off of their stock, and thus, their capital base. Also, unlike with any public company, with many private funds, returns, to a certain extent are promised, and not subject to the fluctuations of the markets. That being said, if a private operator fails and goes bankrupt, how secure are those returns? An investor is taking a lot of faith that the operator knows what they are doing, and is more innovative than the next guy in being able to remain afloat during unforeseen circumstances, like the tumultuous market we know find ourselves in.

One thing does remain clear in this debate. Cash is king. And REITs have more of it.

What are your thoughts on who is better poised to take advantage of current market conditions?

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