Commercial Real Estate Finance

Posts Tagged ‘government’

A US District Judge has ruled that a group of lenders can foreclose on Peter Cooper Village and Stuyvesant Town (from now on collectively referred to as Stuy Town). There are quite a few interesting substories to this latest chapter in one of the largest (and worst) real estate deals ever executed. So now what happens? The properties will be sold either together or in two pieces. The highest bidder will be chosen by a formal federal bankruptcy judge. But, who is going to buy it?

Well that brings us to interesting substory number one. Are the tenants going to lose out on another shot to buy the property. In 2006 a group of renters were outbid by a joint venture consisting of Tishman Speyer and BlackRock Realty. Now they potentially face competition from the current lenders. While it hasn’t been confirmed, a viable option for the creditors would be to make the high bid and hold onto the property until prices rise and they can recoup more or all of their losses. Currently the property is projected to be valued anywhere between $1.6 and $2.2B, down from the 2006 purchase price of $5.4B. The loan originally taken out was for $3.0B and in the lawsuit, it was deemed that the lenders are owed $3.76B. Along with the offer from the group of owners, which will be backed by CWCapital and others, there is probably going to be an offer from a team of investors including Wilbur Ross and the LeFrak Organization. This auction should be very interesting, and potentially heated as the group of tenants want to convert part of the property to condos, and have a non-eviction policy to protect themselves and other tenants from rent increases (something that was supposed to happen the last time around, but apparently didn’t. There is an ongoing lawsuit).

Let’s assume that the creditors don’t win or don’t offer a bid (no clue what the chances of this are, but just for giggles). This leaves the mortgage bond holders at risk for quite the loss given the current value of the property. Who owns half of the total loan worth of mortgage bonds? None other than Fannie Mae and Freddie Mac. So Fannie and Freddie stand to lose a lot of money on this deal, right? Well, according to a statement in January they weren’t going to lose anything. How did they accomplish this? Apparently Fannie and Freddie bought credit default swaps, protecting themselves against default. There must’ve been a thought in the back of their minds that this deal was bad from the beginning. I think it can be assumed that the only entity that this deal was beneficial for was MetLife, who sold the building at the wildly inflated price. Fannie and Freddie surprisingly played this one extremely well (for once?).

So who can lose from this? Well, obviously BlackRock and Tishman Speyer lost, as did the equity and mezz partners who have already quit.  But the lenders and mortgage bond holders still stand to lose a lot, especially if the government starts lobbying as it did last time. It’s no secret that Senator Charles Schumer (D-NY) personally called the CEO of MetLife to pressure him into accepting the tenant group’s offer. Whether or not the government will have more clout this time around or not remains to be seen, but accepting a lower price just so the tenants can win is ludicrous. It would burn the lenders, and the other investors, as well as set a dangerous precedent for the government to interfere in a private business transaction.

Best case scenario: the tenant group is the highest bidder, and everyone gets what they want/deserve. The tenants finally get rent stabilization, the lenders get some of their money back, and BlackRock and Tishman Speyer get nothing. Meanwhile, MetLife is probably laughing and sipping mai tai’s from their private box above the fray, because they can afford that.

As colleges around the United States hold their commencement ceremonies, there is always a lot of talk about keynote speakers. For example, Michigan had Barack Obama, NYU chose Alec Baldwin, and Tulane welcomed Anderson Cooper. A great many high profile people are in high demand from universities across the country. So when the International Council of Shopping Centers (ICSC) were searching for a keynote speaker for their Global Retail Real Estate Convention (REcon) pickings may have been slim. Whoever was going to be this year’s speaker had some big shoes to fill as previous speakers have included Former President Bill Clinton, and 7-time Tour de France winner Lance Armstrong. Who could ICSC get to follow these two high-powered speakers? None other than Sarah Palin.
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The 10 Biggest Bailout Recipients -

10. Tulsa (projected vacancy rate in 2010: 19.2 percent, up 2.2 percentage points from 2008). The oil and gas sector was an albatross in the 1980s, when Tulsa suffered from a severe energy bust. But in recent years energy (along with healthcare, aerospace, and government) has helped sustain Tulsa’s economy. Employment and economic growth are much better than national averages, and unlike in other cities, most big construction projects have stayed on track. With new buildings coming online, the overall vacancy rate will stay high until the economy fully rebounds. But it will worsen only slightly in 2010 and probably start to improve by 2011.

9. Pittsburgh (17.3 percent, up 2.4 points). This once industrial city wriggled out of the Rust Belt years ago, and the economy now revolves around medicine, technology, and higher ed. At 7.7 percent, the unemployment rate is nearly 2 percentage points lower than the national average. Few people got rich in Pittsburgh during the real estate boom, which seemed to pass the city by. But the bust has spared Pittsburgh as well, with home prices remaining more stable than in most other markets. That leaves the Steel City primed for a recovery. Read the rest of this entry »

In the past few months there has been a lot of press coverage on the government sponsored recapitalization of failing banks. Many taxpayers are rightfully upset about the issue, but the government relief program took effect nonetheless, albeit forcefully in some cases. Amidst all the media coverage however, there is one issue I think analysts and industry “experts” could do a better job of providing insight on: the ownership structure of banks in the U.S. banking system. I think there needs to be a discussion in the banking industry about whether or not the corporate model is the best organizational structure for U.S. banks.

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Why Ratings Agencies Who’ve Failed, Get A Pass

There was a recent article in the NY Times that asked a question most people haven’t had the time to think about, but is a great question nonetheless.  With the entire banking industry, AIG, the government, the auto industry, and the credit card industry all taking a serious blow both financially and in image, one question remains. How have the ratings agencies, who misrepresented the creditworthiness of massive pools of residential and commercial subprime mortgages, which  got our economy into the mess its currently in, escaped similar ridicule, regulation, and oversight? Read the rest of this entry »

Real Questions…

…. and Unintended Consequences

Question 1:

If you are a buyer of real estate (and actually have capital), what sort of IRR are you looking for? 20%? 30%?

Question 2:

If you are an owner of real estate, why on earth would you sell into this market unless you absolutely had to?

These questions succinctly sum up the entire commercial real estate market. Other statements examine facets of the problem, but they all revolve around this problem we’ll call, “The Bid/Offer Spread”.

Every day, the fund managers who still have jobs wake up, read the Wall Street Journal and say to themselves, “If I’m going to buy a property, I deserve a discount.” Any possible ‘green shoots’ notwithstanding, unemployment is high, the economy is in recession, global icons are getting destroyed (or taken over by the government), and the banking system as a whole is only viable because the Feds have stepped in with HUGE assistance programs. You can also throw in the fact that recent liquid market action (rally in gold, commodities and TIPS while the 10yr notes sells off ) is telling us we might even have an inflation problem in the not-so-distant future. Read the rest of this entry »