Commercial Real Estate Finance

Posts Tagged ‘leverage’

Much has been said regarding the economic downturn and its hard-hitting subsequent effects on the commercial real estate industry.  When economic forces such as unemployment, consumer spending, and housing all converge negatively on us, most sectors of income producing real estate were hit hard.  But why did we not see this coming?  Or maybe the better question is: Why were we not better prepared for this? After all, real estate is cyclical and the good times could not have lasted forever. While real estate metrics like cap rates, cash on cash return and price per pound are all very simple, yet static tools, why did the more diverse and complex metrics like internal rate of return, specifically designed to take time and market fluctuations into account, seem to fail us? Read the rest of this entry »

Mark Cuban, an entrepreneur best known for his very hands-on ownership of the Dallas Mavericks, wrote a blog article recently that was essentially a rant on quant traders.  Cuban points out a lot of problems with the regulation, motivation, and morality of Wall Street.  I disagree with most of the solutions Cuban suggests to these problems because I think the solutions he proposes are contradictory to the root of the problem.  To Cuban’s credit though, at least he is trying to think of ways to solve the problems he’s identified.  I don’t think anyone really has a solution to regulate morality in the face of making huge profits.  So rather than propose my own solutions, I will just focus on a particular point Cuban made about systemic risk.  

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Who took my Coke from the fridge? You did it!

Wasn’t me.  Must have been him.

Couldn’t have been him because he wasn’t even here…and you have a Coke in your hand.

Well I may have a Coke in my hand, but I swear I didn’t do it. It had to be somebody else.

If one thing is certain, it is that nobody wants to take the blame for anything anymore, no matter how obvious they are to blame. Maybe we should collectively blame our generation’s parents for coddling us way more than in generations past. Hell, even that was an excuse.  It seems today individuals are so adept at assigning blame to anybody but themselves, they might need their own reality show.  No, not that kind of reality show.  I mean somebody needs to show them reality. Read the rest of this entry »

Week of April 11-17

- As more deals come to market, market observers are getting hopeful the commercial mortgage-backed securities market is beginning to revive.

- Cafaro: It’s possible to make money with low leverage.

- Based on guidance reports and other public statements, public REITs are planning to break ground on $1 billion in new development this year.

- Hedge fund manager James Chanos is concerned the rapid price buildup in China’s property market might burst as soon as this year.

- The Fed fears inflation and price deceleration going forward.
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In past banking crises in Sweden, Britain, the U.S. and Asia, taxpayers picked up the cost of bailing out troubled institutions because the government had to act quickly to contain the problem and the banks had been so battered they couldn’t repay the money. Now, regulators want to tax banks to avoid the worldwide catastrophe that was the credit crisis from ever happening again.  More importantly, should such a thing happen again, governments want to avoid having to go to their constituency and explain why they are using taxpayer dollars to bail the banks out. A plan is gaining momentum both here and abroad.  The bigger question might be: in what form will the tax take, and are there any advantages/disadvantages?

Basically there are four different options: Read the rest of this entry »

Real estate is a competitive industry. Many successful real estate entrepreneurs were former professional sports players. This is because the tenacity, dedication and hard-work necessary to succeed translates very well from the field to the board room. In Part 1 of this two-part series, we asked:

1. Is overpaying to keep an asset away from competitor a sound strategy?

2. How does tenant rollover/free agency affect decision making?

Today, we ask two more interesting questions, starting with:

Does short term reward outweigh longer term risk? Read the rest of this entry »

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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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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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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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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