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John Thomas graduated with a bachelor’s degree in biochemistry with honors and a minor in mathematics from the University of California at Los Angeles (U.C.L.A.) in 1974. He moved to Tokyo, Japan where he was employed by a medium-sized Japanese securities house. Thomas became fluent in... More
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  • The Vultures Are Already Feasting on the Commercial Real Estate Industry 2 comments
    Sep 23, 2009 11:09 PM | about stocks: ARI, CLNY
    The vultures are circling the embattled commercial real estateindustry, ready to swoop down and devour the carrion before it’s dead.A trio of REIT IPO’s have hit the market this week looking to buy realestate for pennies on the dollar, as well as the bargain basement debtof other troubled REIT’s. JP Morgan, Citibank and Barclay’s launchedtheir Apollo vehicle (ARI). Bank of America and Morgan Stanley came outwith a new security called Foursquare (FSQU). Not to be outdone, Bankof America, Merrill Lynch, Goldman Sachs, and UBS followed up withtheir Colony (CLNY) instrument. This is a classic example of new equitycoming in and taking ownership of assets where the previous owners havegone to money Heaven. Commercial real estate lending exploded from $1trillion in 1988 to $3.5 trillion in 2007, and some $2 trillion of thathas to be refinanced this year. Takers are few, with banks reeling inleverage ratios, insurance companies gun shy, and the collaterized debtmarkets in intensive care. The TALF is expiring at year end. Did I hearsomeone shout “Bail Out?” Many listed REIT’s will only survive becausetheir rules limited them to mere 2:1 leverage, and were able to raise$16 billion in new equity since March. That has helped propel the DowJones REIT Index ($DJR) up 84% from the lows. More highly leveragedprivate investors and regional and community banks not so constrainedare choking on their holdings, and many are limping on by letting markto market rules fall by the wayside. This is why I am not recommendingbank stocks or REIT’s at these levels. The new vulture issues may beanother story. I was involved in a strategy at Morgan Stanley to Hooverup Houston office buildings on the cheap in the wake of the earlyeighties oil bust. The lucky investors got a tenfold return on theircapital.
    Stocks: ARI, CLNY
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  • Foursquare (FSQR), along with a host of other proposed REIT ventures, never went public after similar IPOs came up short raising capital in earlier weeks (see article below). I am still waiting to see if any of these REITs will pay out any substantial, and (more importantly) sustainable dividends.

     

    seekingalpha.com/artic...
    14 Nov 2009, 01:59 AM Reply Like
  • There is only one time to buy commercial real estate, which is when the existing owners can't meet their contractual commitments. I see where you're putting in 16 hours a day; covering how many markets? I remember well when the Japanese bought up US real estate, and now spend several weeks a year in a California hotel property they abandoned - picked up for a song by the next investor, who I would guess is doing OK, even in this market. Of course, I'm now waiting to see what the Chinese want to buy. If they're reading Jim Rogers, it will be Iowa farmland, not California hotels or New York office buildings.
    14 Nov 2009, 02:44 AM Reply Like
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