REITBull

Moody’s: Few Signs of Recovery in Demand for U.S. CRE

Big deal, John. In 2007 their stock was trading around $120-$140. Today it's at $40. If you value their price based on an equity cap rate here is what you come up with:

10%- $38.50
9%- $50.00
8%- $64.00
7%- $83.00
6%- $107.00

And these rates are based on very conservative NOI. I'm not saying 6% cap rates are coming. But with a high-barrier to entry portfolio, SLG should be trading at 7% within the next 3 years. If you wait for Moody's to tell you it's a buy, it will be too late.


On Oct 28 01:14 AM John Gault wrote:

> Apparently I've been censured. Congrats Reitbull and Tasker - you're
> right. Real estate is undervalued. Buy! Buy! Buy!
>
> FO - out forever.

CMBS Bonds Downgraded on Special Servicing Action

My apologies if I am reading this wrong, but in the last sentence, did you mean to say CAP rates are headed up?

Ackman Explains Why He's Short REIT Realty Income

Ackman may be trying to play the decline in the lower end of CRE. According to their 10K, Realty Income has "average leasable retail space per property of approximately 8,130 square feet". There seems to be an abundance of small box CRE property on the market. This should put pricing pressure on their rents for the foreseeable future. Also the smaller box tenants tend to have less credit availability.

Decline in REIT Prices Is Likely to Continue

What are you using as a cap rate to get to $20-$27 on IYR?


On Sep 26 12:36 PM Anthony Alfidi wrote:

> Forget about the 50-day MA and look at the cap rate instead. Evaluate
> a REIT or ETF like a physical piece of property. Fair value IMHO
> for IYR is somewhere between $20-27 depending on how you calculate
> the yield.

Could Securitization of Debt Be Unraveling on Legal Grounds?

I'm not qualified to interpret law but to me all this ruling says is that MERS cannot foreclose on behalf of the servicer. It does not seem to have any effect on the servicer's right to foreclose, assuming they have the appropriate paperwork. Most borrowers sign an agreement in their loan paperwork that the loan can be sold to another servicer (I believe it is on the Truth-in-Lending page). I don't know that this ruling will really be a game changer in the securitization world. It probably just requires the servicer to do the dirty work themselves.

Real Estate in the Midst of Bull Market

I'd still be buying IYR or URE. The recent IRS ruling on REMIC makes loan mods on CMBS more feasible. Longer term, supply-demand fundamentals would favor rent increases on many of the properties held by the REITs in IYR, with the Residential REITs being the exception.

XHB looks dangerous to me. The Fed buying up bonds has propped this market up as other readers have pointed out. Not to sound like a broken record, but the supply-demand fundamental on the Res side is a mess.

Regency Centers Would Be Lucky Just to Maintain Present Levels

Overall, I think it's a pretty good analysis. I'd only question the 8% cap rate given their tenant base.

General Growth: Progressing on Schedule

I hear ya, but if the SPE's stay intact, I'm not sure that the secured lenders on performing properties will have to modify their loans and may opt to foreclose instead.


On Sep 03 09:18 PM Brian McMorris wrote:

> REITBull:
>
> I would counter your argument by making the point that as long as
> GGP is in bankruptcy court, the court will supervise the process
> of loan "workouts" and will put pressure on the lenders to get a
> reasonable deal done. That is the entire point of going into Chapter
> 11. Remember, GGP is cash flow positive and very solvent from an
> operational perspective (they reported profits last Q). They don't
> need charity, just fairness.

General Growth: Progressing on Schedule

Just to play devil's advocate...I think item (B) could be detrimental to GGPs reorg. An improved credit market would increase the lenders' leverage when negotiating with GGP on modifications. There is a greater likelihood that the loan amount could be recaptured in a foreclosure sale later on down the road if financing loosens up.

When GGP filed, they arguably held all the leverage. Credit markets were frozen and there were no potential acquirers for the properties. A lender's best option at the time was to rework the debt. However, now spreads have come in and Simon Property Group been raising cash at a feverish pace. They now have over $3 billion burning a hole on their balance sheet. A lender could view Simon as a potentially able and willing buyer and choose not to rework the debt. If Simon is interested in some of these properties, and they have stated so in the past, the lender could potentially recapture the loan amount and Simon would acquire Class A, infill properites while potentially weakening a rival. This could wipe out a good chunk of GGPs equity. Just this possibility increases the lender's leverage in negotiations. Again, just playing devil's advocate here. Both yourself and Todd Sullivan have been spot on to date. But I get the feeling that Simon could throw a wrench in GGP's revival.

Judge Strikes a Blow to SPE Game

Thanks for the clarification Thurston. With that quote, I was probably getting ahead of the current ruling and looking down the road to when these maturities will be coming due.


On Aug 14 01:04 AM thurston wrote:

> Hello, thanks to the above for their comments. One thing that comes
> to mind from reading GGP pleadings submitted prior to this decision
> is that the following, "the SPE lenders should have the right to
> foreclose and sell to satisfy the loan", this may be correct but
> the lenders were not complaining that GGP was behind on or not making
> its payments.
>
> Rather, the lender's concern was that some of the SPE's were in fact
> making their payments on principle & interest AND had money left
> over.
>
> GGP want to "sweep" the excess funds (beyond what was needed to make
> loan payments) back to the mother ship (as it were) whereas the lenders
> did not want the SPE's to remain in BK so that this would not happen,
> so that any excess income not needed to make P&I payments on
> the loans would remain segregated in the SPE adding to the security
> of the lender to that particular SPE. Under these circumstances,
> the lenders were not that concerned about their right to foreclose
> on the property in the SPE because there was no reason to foreclose,
> the loan was performing, they just wanted the SPE to not be diluted
> as a result of sending excess funds to the corporate parent.
>
> REITBull wrote:

Judge Strikes a Blow to SPE Game

"If the assets and liabilities cannot "be substantively consolidated with those of any other entity," does that not imply that each of the SPE's is, effectively, a stand alone bankruptcy?"

That is a good point Lew and I don't know what the precedent is. My personal feeling is that the SPE lenders should have the right to foreclose and sell to satisfy the loan if reasonable terms cannot but reached. I would be suprised if the judge allowed them to be crammed down to satisfy other creditors outside of the SPE, but again I don't know what the precedent is here. Judging by his statement, he was not ruling on that issue at this point. The lenders could ultimately choose to modify the loans which may benefit both GGP and the lenders if it is determined that the property could not be sold for a reasonable price in foreclosure. But you are correct, the ruling only addressed the motion to dismiss made by the SPE's. The only way they could have been excluded is if GGP was found to have acted in bad faith.

Judge Strikes a Blow to SPE Game

I just had the opportunity to read the ruling and it is much more limited in scope than I originally thought. The ruling was limited to whether or not GGP acted in good faith when including the SPE's in the parent company BK. There is a key quote on page 42: "Nothing in this
Opinion implies that the assets and liabilities of any of the Subject Debtors could properly be substantively consolidated with those of any other entity." The ruling, while not ideal for the SPE lenders, does not appear to adversely effect their lien positions.

Judge Strikes a Blow to SPE Game

Lew-Sorry for rehasing your argument. I didn't see it before I posted.


On Aug 13 09:49 AM Lew Richards wrote:

> Again, I would have to disagree with the author. That the lenders
> relied on the integrity of the structure is definitely relevant.
> Previously, a lender would have instituted other protections in their
> pursuit of balancing their risks...whether that be recourse, guarantees,
> or whatever. In these cases, the borrowers agreed to trade the protections
> the SPE's were to provide so as not to allow the lenders to access
> their other assets. The SPE's not only protected the lenders from
> the issues of the parent, they also would prevent the lenders from
> going after other assets of the borrowers should the project fail
> and the SPE default on their loan. This seems like a fair trade to
> me and nothing at all devious. The Judge in this case chose to ignore
> the basis of the transaction in order to favor the borrower...and,
> by extension, the other creditors of the borrower.

Judge Strikes a Blow to SPE Game

Karl,

I would have to agree with the first two posters on this. I do not agree, in this case, that the entire purpose of the SPE was to set up a fiction. The SPE is used to secure the lender's right to the property it is lending against. In turn, it limits GGP's exposure if they were to default on debt service. Had GGP defaulted on a loan, the lenders would only have a right to the property in the SPE and could not go after GGP's other assets. The SPE was suppose to protect both parties. I do agree that seperate funding paths should have been used and is probably what hurt the lender's argument in this case (I haven't read the ruling yet). But I do not think it should have been enough to overrule the loan covenants. Had the tables been turned and GGP walked away from a property, do you think the judge would have allowed the secured lenders to go after GGPs other assets?

Commercial Real Estate - Make Up Your Own Mind

"Almost 60% of the loans out there, at least, were securitized in nature."

User,

I have to disagree with you on this. At the end of Q1 only 21.4% of CRE loans were securitized (MBA). New loans are getting done at 60% LTV for class A, infill markets. I wouldn't take Sam Zell's comments at face value either. Remember that he called a bottom in Residential real estate in Spring 2008.


On Aug 03 09:09 PM User 465743 wrote:

> Good article. But you are missing something. The lending at 60% is
> a fantasy. If you have a Class A office building in a major city,
> you may be 50%. If you have a hotel, a strip mall, a big box retail
> center, an asset located in a small town, etc, forget it. There is
> no financing. The banks are not lending the money that the Feds gave
> them. The only money available, really is money for apartments from
> HUD, Fannie Mae or Freddie Mac. Securitization expanded the credit
> markets so that assets that previously did not get financed were
> financed. Almost 60% of the loans out there, at least, were securitized
> in nature. So, maybe TALF will work, but I don't see the same focus
> on the dangers as I did when AIG was going bust. They focused on
> housing first, because it is politically correct. But they are missing
> the boat on commercial in terms of urgency and this will bring on
> a double dip. Commercial real estate doesn't work without debt. And
> the banks are not helping and the Feds are not helping. If there
> is no debt, there is no market and values are suspect. The jobs multiplier
> for commercial real estate is huge. Big players are taking advantage
> of low Libor rates and sitting on assets. Debt service is being paid
> but their values are in the tank. Zell is right. Eventually assets
> have to be refinanced and it will be a bloodbath. Write your Congressman,
> because they aren't focused on this and are clueless.