Posts Tagged ‘leverage’
Questionable Brokers: Real Estate Metrics
February 16th, 2010 | 
Author: 
Editor’s Note: Several of us at Llenrock Group have been teaching a course on the capital markets for commercial real estate broker’s continuing education requirements for the states of Pennsylvania and Delaware. As part of a three week blog series, Questionable Brokers will posit questions we have received in such classes from various brokers from the Tri-State area regarding the capital markets. We felt it would be useful for other brokers to see the kinds of questions their peers are asking, and a useful tool to our other readers who may have some of the same basic questions on the capital markets. We will divulge names and companies for a fee. Just Kidding. On second thought…it depends on how much you offer. The first part of the series will examine questions regarding Real Estate Metrics. Next week, we will feature questions regarding Types of Capital, and the following week, we will examine questions regarding Deal Structure. Enjoy!
Q: Does the IRR metric still carry the same weight as a measurement for property valuation given the state the market today?
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What Happens if (or when) Fannie/Freddie reduce their support for Multi-Family?
The very insightful Annaly Salvos blog provide a interesting graph on the level of support the GSE’s have been providing the residential mortgage market via a all-out domination of the origination market. Just as we over-shot the natural level of home-ownership in the United States through misguided policies built up over centuries of well-intentioned programs, the GSE’s, and the Pols that back them find it hard to find a way to stop funding the market. After all, it is easy to argue they all own massive homes, and anything closely related to affordable housing is easy politics.
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A Real Estate Ditty that isn’t so Pretty
An analysis of the housing crisis by Karl Case:
For the last few years, we have shed many tears
Living through a recession.
The economy’s broke and it’s not a joke,
When we talk of another depression.
Fifteen million without a job,
Foreclosures and banks that fail,
401K’s became 201K’s,
And everything’s up for sale.
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Posted in Economy, Entertainment/Humor | 
Tags: borrow, buyers, Countrywide, credit crisis, default, default swaps, Fed, Fed Funds rate, Fico score, Foreclosures, Goldman Sachs, housing bubble, investors, Lehman, leverage, liquidity, loans, LTV, MBS, Merrill, option ARM's, origination, rate, risk, traunches | 
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Risk vs. Reward vs. Hindsight
In her latest blog entry, a woman named Megan McArdle took a brave stance! She said that Tishman and Blackrock’s collective decision to buy Stuyvesant Town for $5.4 Billion was a “…breathtakingly stupid deal.”
Well, if it was the largest commercial real estate trade of all time, then she’s about the biggest Monday-morning-quarterback of all time.
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Posted in Banking & Finance, Owners & Developers |
Tags: BlackRock, cap ex, closing costs, CMBS, leverage, maturities, Megan McArdle, NOI, outcome, per unit, rent control, reward, risk, risk adjusted returns, Stuyvesant Town, Tishman Speyer, un-levered return |
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Is Paul Krugman Wrong?
Those of you generous enough to follow along with my weekly rants know I often like to go on about macro economics. So, while I clearly have my own thoughts on the matter, it’s good to check in with the experts every now and then; even it it means blogging about another blog.
In this blog piece you can get the Real McCoy as it relates to economic analysis of commercial real estate. Written by a professor of economics at the University of Chicago, the piece takes issue with another blog entry by the illustrious Paul Krugman. ”Economists writing about economists? Sounds a bit wonky,” you might say. And, you might be right, but it’s still worth the discussion.
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Posted in Economy |
Tags: Bloomberg, borrowers, bubble, CDO, cds, CMBS, CPI, Fannie, Fed, high-yield currencies, investment grade bonds, junk bonds, landlords, leverage, MBS, Paul Krugman, Real McCoy, Subprime Crisis |
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RE-flections on ROE
When I first started my career as an investment sales broker, a mentor taught me an effective method to have property investors reconsider their position in their properties. While my goal was essentially to coax them into a selling frame of mind, there were myriad instances where selling simply did not make sense. Yet, that didn’t mean there was no opportunity to do business with such a client. Instead of focusing on cap rates and price per square foot numbers, I could instead shift their focus from the stability of cash flow to the meager return they were receiving on the equity they had invested in the property.
“Mr. Property owner, I understand your building is full, you are free and clear of debt, the property is cash flowing well, and you want to pass the property down to your grandchildren. But what is your return on equity?” Read the rest of this entry »
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Why the Banks Won’t Return Your Calls
From a recent article on Bloomberg:
“Among 35 of the biggest regional lenders that retain TARP funds, commercial real estate and construction loans average 37 percent of total loans, compared with 9.5 percent at Citigroup Inc. and Wells Fargo & Co., the two biggest U.S. banks that haven’t announced plans to repay the government, according to data compiled by Bloomberg.”
In a word, “Oy!!”
Folks, if 37% of the loans currently on the books of regional banks are commercial real estate and construction loans… well, it’s not a good thing for the banks.
What do I mean by ‘not good’? How does wiping out 1/3 of bank capital without breaking a sweat sound?
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Wilbur Ross Sees “Huge” CRE Crash
If you’re reading this, I can’t imagine you’re exactly blown away by Mr. Ross’s ‘vision’. We in the commercial real estate world have been living the slow motion train wreck for many, many months. Ross’s comments are especially interesting, however, when you consider he participated in the purchase of $0.5 Billion of real estate debt on October 6th. Perhaps it was the $1.39 Billion loan from the FDIC that made him more comfortable with the asset class.
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Posted in Politics/Government Programs |
Tags: capital, Citi, Corus Bank, CRE crash, FDIC, Goldman Sachs, IndyMac, Lehman, leverage, real estate loans, Starwood Capital, TARP, Wilbur Ross, zero-coupon debt |
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Hurry up and Wait!
Landlords are scrambling to find tenants and buyers at a reasonable price. Buyers are scrambling to pool funds together to buy distressed assets. Over the last 6 months or so, we here at Llenrock have been approached by a variety of would be investors seeking equity to start, in some form or fashion, a distressed asset fund. The simple logic is that with asset values plummeting, there will be opportunity. There HAS to be opportunity. Its the basic “sell high, buy low” mentailty of Wall Street. We hear pitches like, “I have an opportunity to buy a Class A building in a good submarket for only $100 per square foot! It’s a steal! It’s a no-brainer that its a good buy!”
Well, it may be a no-brainer…not because its a good buy, but because the people aren’t using their brains to properly assess the market. Read the rest of this entry »
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Posted in Owners & Developers |
Tags: brokerage community, buyers, capital, carrying costs, CRE sector, debt, distressed assets, leverage, negative returns, opportunity costs, sellers |
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Real Questions with Dave Weinstein
How does 28:1 leverage sound?
Traders like to say the market tends to cause the most amount of pain to the greatest number of people. If everyone you know is long Yen, you can bet Yen are about to go down.
More broadly, as we have all learned in recent years, the markets have a way of testing - if not outright obliterating - commonly held beliefs. Remember when we were told not to worry about government guarantees (implicit or otherwise) for Freddie and Fannie? Talk about maximum pain!
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Posted in Banking & Finance |
Tags: failed banks, Fannie Mae, FDIC, Fed, Freddie Mac, government guarantees, insurance premiums, leverage, private equity, systemic risks, Treasury Secretary, Yen |
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