2houndz

CB Richard Ellis Group (CBG +14.5%) leads all S&P 500 constituents today after announcing plans to raise $550M through share and bond sales, including a $100M share sale to high-profile hedge fund Paulson & Co. The commercial property broker has $310M in debt due next year, and another $2.28B in 2011.

Sounds like a private bailout plan. The money willing to chase CRE never ceases to amaze me.

The House passed the controversial cash-for-clunkers bill Tuesday, which would give car owners $3,500 to upgrade to a car getting 4 mpg more than their current car, and $4,500 if it's 10 mpg more efficient. And BoneYard wonders: Might this have something to do with the government's stake in two of the Big Three?

So every $600 gas guzzler just became worth at least $3,500 at our expense. Sweet!!!

DDR to Sell Malls at 30% Discount...to 2004 Prices

If these eleven assets represent FMV for the industry as a whole, then we are clearly screwed, but it would be impossible to jump to that assertion. Real Estate is lumpy and illiquid, and it changes hands for all sorts of reasons. A seller who has his back against the wall will do some semingly stupid things, but one transaction does not usually tell a clear story. I'm not saying we are not screwed, but we can't divine that opinion from this deal alone.

The story that seems to be coming into focus is that many of the public REITs are getting hammered, while the smart, patient private investor is finding golden opportunities. The fact is that real estate, being lumpy and illiquid, is a terrible platform when chasing quarterly profits to report to Wall Street. Time and time again I see the REITs fall into one trap after another and spin stories on the quarterly call that don't make long term sense, while many of the private companies have a long term horizon and do what is expedient looking out for the next five years or for the life of the asset. Kimco once had the long term approach, and it was a good, steady income generator that promised less than it could deliver. Then they started promoting people who knew little to nothing about actual real estate, but knew (or thought they knew) how to grow the business exponentially because they possessed financial genius.

Some of the analysts I have spoken to over the years don't understand the business well enough to really get it, so they can't help watch the henhouse - they are part of the problem. Maybe this industry should get back to the basics of understanding real estate and having a long term plan and objective for a portfolio BEFORE they close the deal. Highly leveraging cash flowing assets just because they can borrow the money is not a solid reason to risk stockholder equity. My fear is that most of the people who understand this are either retired or working for private capital.

As an aside, I heard about a guy last night (investor, not a real estate guy) who bought quite a few centers from a company where I once worked. He bought his portfolio at a 6% cap average, levered with a personally guaranteed mezz loan to 95%. A good offhand guess at the current value would be a 10% cap. Obviously this guy is about to lose everything he has. Even the private money is getting crushed if they didn't go into this for the right reasons, with solid plans, sensible leverage and realistic purchase prices.

CRE is going to get a lot uglier before it gets better. When this is over, my hope is that the industry can winnow away the people who don't know what they are doing. Also, I hope the investors buying the new offerings know what they are doing, because it seems like folly to me.

Latest Spin on Collapsing REITS and Taxpayer Subsidies

Much of the REIT business has more to do with offering great marketing to investors than offering sustainable investments. It has been that way for 5-5 years, but like a Ponzi scheme, it is hard to detect until the investment dollars stop flowing (or in this case, the refinancing dollars).

Employment Rebound? Certainly at Wal-Mart

22,000 sounds like a lot relative to last year when you consider they are opening fewer doors? Does your information specifically state what these people will be doing? Are they staffing stores better or is something new happening? Either way, it's a good thing, but I am curious.

Retail Chain Store Sales Take a Dive

No - I was not at all serious. Frustrated with the lack of common sense in the market maybe, but not serious.

I hate to be so critical, but either get a sense of humor or get a clue.


On Jun 04 03:19 PM Stock Market Sage wrote:

> "The reason I know it is lagging news is because it is bad news"
>
>
> Are you serious?
>
> That is the definition of bad news you are going to stick with?<br/>
>
> So, by your definition, all good news is leading news, because all
> leading news is good?
>
> WTF?

Banks No Longer Need FDIC's Legacy Loan Taxpayer Bailout

Good point. I am asking myself some of the same things.

Is it possible that in opening these assets up for inspection, scrutiny and sale if they were afraid someone would realize the value is even less than we expect? This could start the cycle of distrust all over again.


On Jun 04 03:00 PM thehonesttrader wrote:

> I am not surprised by this as I never thought the program would work
> as banks would not price their assets at a point where investors
> would buy them (low bid / high ask - no trade!). Additionally, if
> banks sold into this Legacy Loan Program it would not have provided
> capital (contrary to what the media puppet heads would tell you)
> unless they sold their assets for more than they were on there books
> at (which is unlikely). The program would have freed up some liquidity,
> but not increased capital. In fact, it would have more likely decreased
> capital as they would have had to sell at a price below the booked
> value and take a loss. That's why this program was DOA although the
> financial media got giddy about it. It's interesting though as this
> was one of the catalysts for the monster bank rally and now that
> the banks have been able to raise capital there is no need. Was this
> all in the script?
>
> the honest trader
> thehonesttrader.blogsp.../

U.S. credit card delinquencies (-0.07 pts. to 4.37%) pull back from four straight months of record highs in May, but chargeoffs (+0.77 pts to 9.66%) hit a new high for the third-straight month. Issuers usually charge off receivables after 180 days.

So is the total amount of bad debt better or worse? Delinquencies are slightly improved, but the accounts they gave up on collecting were worse. Without seeing the actual numbers it is impossible to tell.

Retail Chain Store Sales Take a Dive

This is lagging news. The reason I know it is lagging news is because it is bad news. Lagging news is presumably built into the market, suggesting that it is OK to go long the market.
If it were good news it would be leading news, suggesting that now is a good time to go long the market.

Seriously - thanks for posting so many helpful charts. This is excellent info.

According to a new report, the average U.S. home price is undervalued by 12.2%.

A home is worth what it can be sold for on the open market.

Brett Arends: More on Residential Real Estate's Real Returns

I have been renting for awhile after selling my house in November 2007 (thank God). Up until recently I would have disagreed with anyone who says you are better off renting. Clearly for my generation at least, renting is better financially for most people.

It all comes down to lifestyle, and how you want to live. That being said, I do plan to buy another home eventually, but we will be looking at it as a place to live, and as opportunity costs lost to my investment portfolio, not as an investment itself. Rather than the 4,000 sqft McMansion we sold, we are hoping to buy an 1,800 sqft townhouse, and use the money we were dumping into mortgage payments, taxes and upkeep to do something we actually want to do, like travel. What a novel idea. Wish I'd thought of it ten years ago.

Now if I can figure out what to do with all the stuff we've accumulated to fill the McMansion....


On Jun 04 02:39 AM Fighting Yoda wrote:

> Home is a place to live and not an investment. If you think of it
> as an investment do the math and the right math to figure it out.
> If home price less than the interest rate you lose. As Brett points
> out the rates have been higher (despite being very low) than home
> appreciation over the last 20 years (the boom and the bust).
>
> “From 1994 through 2009, according to the Case-Shiller index, U.S.
> home prices produced an annualized return of 4.7% a year. The picture
> since 1987 has been even less appealing. Homes have only gained about
> 4.1% a year since then.” Against interest rates of 5% and above.
>
>
> Most pople do the simple (incorrect) math bought home for 300 sold
> for 450 made 150. They need to count the interest they paid in between
> (+ maint costs etc etc)

High End Home Market Still Has Further to Fall

Even the NAR economists are saying now that there is a 4 year supply of homes priced over $750K. And keep in mind that the NAR spins everything to the most positive direction they possibly can.

Today's Yellow Shoot: The MBA Mortgage Report

John Mauldin points out in this week's column that Fitch estimates that 75% of the people getting the Obama mortgage relief program will be in default anyway in just a few months. Remember that the program is supposed to lower mortgage payments to 31% of household income, which is historically a sensible number, so this failure rate doesn't make sense, right?
John called Fitch and they said that no one is taking into acount the enormous amount of debt in these households OTHER THAN the mortgage. Apparently their research shows that with credit card debt, car loans, 2nd mortgages and so forth, this new program will not save 3/4 of the recipients. More money shot down the rathole directly to the bankers thanks to those benevolent grandchildren.

SSS #3: American Apparel (APP) -10% vs. -4%. Bon-Ton Stores (BONT) -12.1% vs. -8%. Abercrombie (ANF) -28% vs. -23.4%. Aeropostale (ARO) +19% vs. +10.1%. Gap (GPS) -6% vs. -5%.

Ouch!!!

Kudos for Aero - the lonely winner in the category.

Counterintuitive: Proximity to a Wal-Mart (WMT) store is associated with lower body-mass indexes and a lower probability of being obese. (via)

If this were true there would be inner city WalMart stores across the southern states and other Right to Work states where unions are without their elected-official-spoke...
I agree with your sentiment, but I worked for a company that had hundreds of old, inner city locations across America (yes, it's a big REIT and you probably know them). We tried for years to do Wal-Mart deals, but an old A&P or Big Bear parcel was not big enough, and assembling more land was a nightmare. Most of the time the cities wanted to help us because they wanted ANY viable business generating tax revenue.


On Jun 03 12:40 PM mattfinance wrote:

> WMT isn't in many inner city locations primarily because the unions
> go in an uproar when WMT announces plans to build there. They'd adopt
> a smaller sized store in more urban areas, but the unions own all
> the typically liberal inner city politicians.