CBTeas

With More CRE Defaults on the Way, Would-Be Acquirers Need Policy Help

Kevin:

The public markets are getting flooded with IPOs for CRE/mortgage REITs that will not be burdened with legacy assets. This will not take care of all of the demand out there, but my point is, there will be lenders willing to make loans at REAL market prices and REAL market rents. These IPOS are proving that no one trusts the pricing of the legacy assets. Everyone wants to start with a clean slate and clean underwriting. There will be debt and equity for actionable assets. We do both agree that there are less "actionable transactions" due to the interference of "non-market" forces in this cycle.

The banks (with government help) remain in denial.

On Aug 14 11:39 AM Kevin Hollins wrote:

> CBTeas:
>
> I agree that at cheap prices there are plenty of buyers. Where I
> respectfully disagree is with the notion that there are willing lenders
> ready to make loans at terms that make economic sense. That is why
> we continue to see REITs tap the bond market rather than using the
> private loan market, which is where over 80% of the (still overwhelmingly
> private) CRE market sources debt.
>
> Perhaps I was unclear. I don't believe there is no market for toxic
> assets; quite the contrary. We have better opportunities than we
> have seen in years, but a lack of financing means that we have fewer
> *actionable* opportunities in the absence of even very conservative
> underwriting and leverage. When acquisitions must be financed with
> 100% equity, simply fewer are possible.
>
> I would rather not prop up artificial prices either; I'm just trying
> to be realistic about the politics involved. At the moment, banks
> are disincentivized to move assets. To face the ugly truth and arrive
> at true market values requires, in the absence of some other form
> of regulatory relief, allowing a string of bank failures that exceeds
> the political will available today.
>
> So, in the absence of political will, it seems worthwhile to at least
> explore a means by which banks can move the assets and lend by another
> means without, as you duly note, having their equity wiped out.
> It does not solve the problem fictitious accounting, as you note.
> Maybe if more politicians and regulators were investors...
>
> Thanks for reading!

With More CRE Defaults on the Way, Would-Be Acquirers Need Policy Help

You are missing the biggest difference between today's real estate crisis and the one that created the RTC: in the prior crisis, real estate prices were allowed to fall to their logical bottom without any artificial government interference to prop up pricing.

Right now, TALF, PPIP, etc... is actually making the problem worse by avoiding getting assets marked to TRUE market. The mistake you and every government official are making is to say there is no market or financing for assets. Nothing could be further from the truth! At cheap prices there are both plenty of buyers and willing lenders.

But the problem: the equity in most of the top tier banks would be wiped out. So we have a banking system in denial. Don't believe it when you read that "there is no market for toxic assets." The problem is the banks just don't like the prices they are offered. There is a market for every real estate asset out there--just as there was in the RTC days.

Even what you are proposing is to prop up artificial prices. Let's do what was done in RTC days: get to the bottom, and encourage buyers into the market, not discourage buyers from stepping up.

Blackberry’s 26 Advantages over iPhone

"Helps while driving..." borders on irresponsible. Anyone who promotes using a PDA while driving loses all credibility with me.


On Aug 10 07:53 AM logicalthought wrote:

> >>Most Blackberries have keyboards, so you can actually type fast
> and with no errors. Helps while driving...<<
>
> LOL... Yes, it's much safer that way!

Cash for Clunkers May Cost Up to $45,354 Per Vehicle

This gentleman has his facts all messed up. He starts with a baseline premise of "in normal times 200,000 cars per quarter are traded in..." There are two problems with this (1) this is a serious recession where people are deferring purchases, so we are not seeing "normal times and (2), which is related to (1), as people hold on to these clunkers longer, these cars are major drains on budgets for repairs and often are much worse than in normally bad fuel efficiency, leaking oil, brake fluid, etc...

So getting these cars off the road faster is serving multiple purposes in what is a very long/protracted recession, not "normal times." Though I agree that there are aspects of the Fed that has run amok, this program was generally well thought out and serving a good purpose.

LobLaws: A Potential Real Estate Player?

Lowlaw's RE story is well known to investors in Canadian stocks as well as any analyst that has written on the company. The problem is the controlling family has shown little desire to monetize the RE value. I agree that the RE value is nice downside protection, but recognize that this is typical, entrenched sleepy Canadian management that controls decisions here--not much will change to maximize value.

Wells Fargo Sows the Seeds for Next Foreclosures Crop

low/no down payment programs were all part & parcel of the idea that underwriting standards were slipping to help the housing game keep rising. homebuilders wanted to build more and more homes and this shell game only worked as long as prices kept going up at an accelerating rate. everyone made rules to keep the game going.

for you to try to parcel out one piece as good and another as bad is crazy. it was all bad and all fed on itself. you don't realize how many people also lied about incomes or applied for "no doc/no income verification" loans during this same time frame. you act as though income was some sort of litmus test. what planet were you living on?


On Jul 09 10:01 AM greedcanbgood wrote:

> While I agree for the most part, zero-down programs were a natural
> consequence of meteoric rises in home prices. Coming up with the
> down payment of 20% or even 10% became more unrealistic as time went
> on. Now, the issue here is whether or not this is a chicken/egg
> scenario. I would submit that appreciation began and continued somewhat
> before zero-down programs became popular.
>
> I don’t agree however with your assertion that the reason that these
> are/were going bad simply because borrowers had no “skin in the game.”
> They had plenty of skin – a good percentage of their income and their
> home. That’s quite a bit of skin if you ask me. No, what happened
> in these cases is that with zero down programs (that were often part
> and parcel to negative amortization and similar low initial cost
> loan programs) borrowers knowingly, unknowingly or ignorantly purchased
> homes that were WAY beyond their means.

Dennis Kneale Takes on Zero Hedge...And Fails

Let's make sure we've got the scorecard right. CNBC is a tool of GE and what they promote is Corporatism. They seem far from pro-Obama, as (at least as it relates to CNBC) this audience is very pro-business and GE feels this station has to compete for the Fox crowd. Kneale is a lap-dog for Paulson, Goldman, etc..., but he and the whole cheerleading crowd of puppeteers on CNBC are cheering on the interests of corporate America--NOT Obama nor progressives. Kneale is a tool, and not the sharpest one in the shed, as they say.

I will not argue with the Pro-Obama bias at NBC affiliates throughout the rest of the GE family (NBC, MSNBC), but CNBC (and Kneale) does not fit the bill.

4 Steps to 1050 for the S&P 500

Vinny: I respect your work, but like many intelligent analysts, you do not respect the ever rising savings rate in this country. This is not a normal recession or recovery. Don't confuse a slowing economic rate of decline with a soon to be expected rapid rise in earnings.

THIS TIME, things will lag badly as consumers have to repair via years of increased savings. There is a better chance of missed earnings...not excessive earnings or rising expectations. Don't compare this recession to anything you have lived through. This is a recession none of us have ever seen. Corporate earnings are just part of a huge economic zero sum game and something has to give...

Torturing Statistics on the Housing Bubble

Everyone wanted to keep their jobs and get re-elected: at both the state and federal level. So no one wanted to blow the whistle on this housing sham. Whether it was Congress, the Fed, State Attorney Generals who saw appraisal fraud, etc...

There is enough blame to go around. If regulators had simply changed the rule to no longer allowing AAA rated companies to post ZERO COLLATERAL when margin went from 50% on stocks to massive margin on derivatives, AIG would never have had the massive leverage of its balance sheet...nor would Lehman, Merrill, Citi (through those SIVs). Again, tons of blame everywhere.

But it was everyone's greed to keep the party going as no one wanted to be blamed for bringing this party down. Housing's lobbying efforts were well placed and well rewarded!

Commercial Real Estate Is Plunging

The question was asked, "what is a retiree to do?"

First, don't believe financial statements from any institution. Earnings on these income statements and assets on these balance sheets are garbage. Second, stay liquid and get more liquid. The stock market will NOT be the answer. Third, get some money in gold and non-traditional (non-correlated) assets. No yield but there is very little you can trust these days and gold won't lie to you.

Grocery Stocks: Fallout Coming in Highly Competitive Industry

"By process of elimination" now qualifies as research? At least in the case of SVU, they have taken advantage of the recent improvement in the capital markets to rework their balance sheet. I am not sure how you come up with your pair trade idea other than throwing a few wet fingers in the air. Pass.

Paulson Bets on Real Estate With CB Richard Ellis

Paulson should carefully analyze how CBG is making their #s right now. Very good senior people are taking severance packages and walking out the door. CBG gets to report this as "one time earnings hits" and a positive to future expensive savings. I think a lot of the past goodwill has just walked out the door while Paulson walks in. Oh well. Good luck.