Daily Drach - A Real Estate Blog

What me worry, I am just a Banker?

dailydrach — Fri, 30 Oct 2009 13:53:00 +0000

So apparently again, there is nothing to see here folks, commercial real estate is going to be just fine, problems will be diverted, just move on and stop complaining there are no transactions and no lending going on right now because everything is fine

http://www.costar.com/News/Article.aspx?id=CC48D83017A426BCDCE4C012D1881BB2&ref=1&src=rss

While I agree that with income producing assets, it is much easier to create a workout strategy with a property that has income coming in as opposed to a loan on land which just collects dust. However, I think some of these banks are failing to see how much the leasing markets have or will deteriorate due to this recession. I have seen lease rates on office & industrial spaces in Orange County at literally half of what it was in 2007. Couple that with many loans were made in 2005, 2006, and 2007, and I see a bigger problem then these banks do. Maybe it is because more of the issues will be coming on the CMBS side since they got more aggressive then these banks.

California Coastal Communities = KABOOM!

I live right near this community they are building, it is really nice but they could not have timed building a luxury housing project in Orange County any worse, it took something like 25 years to get entitled too

http://lansner.freedomblogging.com/2009/10/28/bolsa-chica-developer-files-bankruptcy/41759/

Deal of the Week – Beverly Hills based group buying broken condo project from a bank in Irvine, CA

http://www.globest.com/news/1528_1528/orangecounty/181923-1.html?st=rss

And finally real estate investing is so easy, even Lance Armstrong can do it

http://www.globest.com/news/1528_1528/austin/181920-1.html?st=rss

Real Estate Jobs Coming Back? Heard on the Street

dailydrach — Thu, 29 Oct 2009 18:34:00 +0000

I was talking to an associate of mine yesterday, who is a VP at a pretty prestigious investment firm, which we will call RockPaperStone (RPS). He used to be in the real estate lending origination department at Lehman Bros, but now he is the high yield debt real estate debt section at RPS. He is pretty sure that by the end of Q1 2010, multiple real estate equity and debt groups at RPS will be hiring analysts and associates. They, along with pretty much every other investment firm, cut too many people in the downturn in all departments, so that right now, one person is doing the work of three people.

The VP was recently asked by his boss if he wanted to do workouts, and he now has 14 deals on which he was working. In a regular market, he told me it could take four years to have worked on 14 deals. That said, if you have a few years of workout experience, you can probably get a job right now.

He is also the 10,000th person to tell me that we haven’t seen nearly the worst in the office market yet, and probably won’t see it for another year. His order of product failures and resets is as follows:

Hospitality: you effectively have daily leases and you can track the RevPAR & ADR and calculate the value of the hotel. Essentially, hotels are daily mark-to-market.
Multi-family: typically one year leases, so vacancies and hence, real valuation can’t really happen until about a year after the economic downturn gets under way.
Office: leases are often 10 years, but five at a minimum. So unless the companies in your building are going bankrupt (quite possible) then you might not know the true vacancy and NOI. Many times, companies will contract and sublease out the extra space at something below the “market” rate, which in turn affects your ability to charge market rates for space that you do have vacant in your building.

This goes to why you hear about a lot of people raising distressed funds but don’t see any transactions taking place; a lot of owners are not hurting badly enough because of the situation with long term leases. I don’t know why everyone thinks that this will resolve itself in a year or so, but that’s what I’m hearing.

What, UCLA sees 16% increase in home prices in 2010?

dailydrach — Thu, 29 Oct 2009 13:26:00 +0000

As some of you may know, I always take what an economist says with a grain of salt….especially one from UCLA. Maybe that is my Pac-Ten bias for going to U. of Arizona for undergrad and then USC for Grad school. Or maybe its because I have always thought their forecasts were too optimistic after Chris Thornberg left. Well now there most recent economic report talks about OC home prices going up 16% next year and by 2015 we will almost be back at the peak of 2007 prices. In fact, according to the head writer of the report,

“The train has left the station. It’s going down the track. This isn’t a head fake,” he said.
He added: “Now is the time to buy. (Actually), the time to buy was the spring and early summer.”

http://lansner.freedomblogging.com/2009/10/29/16-percent-gain-forecast/41779/

So I missed the time to buy a house and now will just be buying on the up swing. Funny I thought there was a lot of potential for the market and prices to go down considering the high levels of unemployment and the fact that there is going to be a wave of foreclosures hitting the market next year. Just looks at all the Pre-foreclosure notices which are getting filed in the OC, at some point this will turn into either a short sale or REO property
http://mortgage.freedomblogging.com/2009/10/28/potential-builds-for-foreclosures-and-short-sales/20351/

My point is that making bold predictions on the housing market right now when the government has been the sole reason why the market is improving is really impossible. I know these groups are forced to make predictions but my belief is that they should be much more conservative.

From one of the comments in the article

Let’s see what UCLA has ‘predicted’ in the past . . .

Published on: 10/11/2007 “Sales and transactions have been so horrifically slow that we’re due for a bounce,” UCLA said, but adding that it’s possible sales could remain low if credit woes continue and financing remains difficult.
“I don’t think that’s going to happen,” UCLA said.
FAIL
5/2/2008 “I think there’s more and more evidence to support that we may not be in a recession, but this slowdown may make it feel like one,” UCLA said.
FAIL
12/24/2007: “We don’t think the housing sector will create the kind of calamity that will drag us into recession.”…Still, UCLA contends, “the deficit isn’t going to be enough to derail California.”
FAIL
11/42007: After showing a thorough Powerpoint presentation, complete with graphs and charts detailing median home sales and employment numbers in the Santa Clarita Valley over the past few years, UCLA concluded that an economic recession will be averted in 2008.
Although there won’t be a recession, growth will continue to remain sluggish through 2008.
FAIL
9/7/2007: An economic recession could occur if there are widespread layoffs and the economy slows down, but that is not very likely, UCLA said.
FAIL
9/7/2007 “The subprime problem is not going to be a big issue going forward,” UCLA said.
FAIL

But maybe they will be right this time…….

Home Prices – Going Up or Going Down

dailydrach — Wed, 28 Oct 2009 16:55:00 +0000

Goldman sees a False Bottom (can you really trust anything Goldman says though) for Home prices across the US

Bank of America sees the opposite

http://www.bloomberg.com/apps/news?pid=20601206&sid=aJA4qY0M7Xyw

I tend to agree with Goldman as I think the entire reason why we have seen any uptick on the residential side of the business is due to government intervention through FHA financing, the Home Buyer Tax Credit, and forcing groups to pursue loan modifications first before they foreclose.

To me this has led to the biggest extend and pretend scenario in the past 50 years. I think we are still going to see substantial price declines especially in the higher end markets for the following reasons

1. The Home Buyer tax credit will go away especially when a lot of the fraud behind people using it comes more to light (but will be around for at least the next 6 months, http://www.bloomberg.com/apps/news?pid=20601087&sid=aE4U2k3Pf5oo)
2. Loan modifications will not work as well as the government hopes by any means which will eventually cause banks to have to liquidate inventory
3. Job Losses and high unemployment will continue for the foreseeable future (If you don’t have a job, chances are you will not be paying your mortgage)

What do you think (use the comment tool below)?

Buckle your Seat Belts, this could be a bumpy ride

dailydrach — Tue, 27 Oct 2009 23:21:00 +0000

I thought the below article from Calculated Risk was pretty interesting regarding Liberty Property Trust’s 3rd quarter numbers. You can see that the changes in rents and cap rates are just taking place for office & industrial properties and how much of a lag factor there really is with these properties.

I can say from working on a couple lease deals in Orange County right now, that rates are FAR below where they were before I started Grad School in 2007. Almost shocking how low they have fallen. To me, it is probably not a great time to be buying either Office or Industrial buildings unless you are getting a great price because until rents stop falling you will just be catching that falling knife.

http://www.calculatedriskblog.com/2009/10/cre-liberty-property-trust-conference.html

Can not believe I missed this but here is a story on a Office Developer/Landlord

Mammoth Equities = KABOOM!
http://www.ocregister.com/articles/loans-commercial-million-2591443-new-mammoth

I love Stan Ross’s quote in the article

Stan Ross, board chairman of the USC Lusk Center for Real Estate, said that in addition to bank financing, $200 million of commercial mortgage backed bonds are coming due by the end of 2009 and about $275 million going into 2010.
“Since there’s no liquidity in the market, there is no known direct source of replacing those commercial mortgage backed bonds,” Ross said. “So far we haven’t seen a big dumping of commercial portfolios on the marketplace for discounts. But standby.”

I agree with Stan, buckle your seats belts because this could be a bumpy ride when it comes to commercial real estate…but will offer great opportunities

Capmark = KABOOM!

dailydrach — Mon, 26 Oct 2009 00:14:00 +0000

Been a couple weeks since we have had a KABOOM! but in this market the beauty is that you never have to wait to long

Capmark Financial went BK this afternoon, this was not a real shock but still I believe it is the sign of things to come on the Commercial side. No matter how much the FED, FDIC, Government, or major banks want to believe they can extend and pretend through this problem, the market is showing that will not be the case. As more groups like Capmark go KABOOM it will continue to put pressures on pricing as eventually their assets will have to sell for what the market will bear.

I know some good people at Capmark and I hope the BK process is smooth.
http://dealbook.blogs.nytimes.com/2009/10/24/capmark-big-commercial-lender-may-file-for-bankruptcy/

Troubled CMBS deals are rising like crazy, but where are the deals. At some point special servicers are going to be hiring like crazy with all the problems they have
http://nreionline.com/finance/news/troubled_cmbs_loans_skyrocket_1023/

Looks like Southern California is doing well in the United States Bank Failure Championships.
http://s.wsj.net/public/resources/documents/info-Failed_Banks-sort.html

Great article about buying distressed assets in this market, time will tell whether investors buying today are getting great deals or catching falling knives, i think it is somewhere in between
http://www.bloomberg.com/apps/news?pid=20601206&sid=aJG1.l7fPiik

It is so easy to make money in real estate, even a 4 year old can do it

dailydrach — Fri, 23 Oct 2009 11:58:00 +0000

I hate the first time home buyer tax credit. Even though it is geared directly towards someone like myself, young, first time home buyer, not exactly making millions right now, I think it is artificially creating this home buyer surge we have seen and are not letting prices hit the floor which will really clear the market. I also believe that there are many signs of fraud with it as it seemed pretty easy for anyone to claim it regardless if they are qualified or not.

How easy was it, a 4 year old apparently claimed the tax credit, yes a 4 year old. No maybe the 4 year old was really smart and used all the money in their piggy bank to buy Goldman stock when it was cheap last fall or buy REIT stocks starting in March. But still, now the good news is that they are going to do everything possible to enforce you must be 18. They say 1 Million people have used the tax credit, and that potentially 100,000 used it when they should not have. I am hopeful this tax credit is removed when it expires Dec 1st as I have never seen how it creates Jobs (which should be goal #1 or any government program right now) or helps clear the market of residential foreclosures since it artificially keeps prices higher then they should be.

http://blogs.ajc.com/political-insider-jim-galloway/2009/10/22/john-lewis-4-year-olds-are-getting-federal-tax-credits-for-buying-homes/

Lets hope the 4 year old continues to make their mortgage payments so that they do not get foreclosed on and are then forced to move back in with their parents.

Workouts, Hotels, NFL Football

dailydrach — Thu, 22 Oct 2009 16:18:00 +0000

Feds Ready To Start Pushing Banks Toward CRE Loan Workouts

Where do they get these titles, I am glad the Feds are going to push banks to do workouts on commercial real estate loans considering Banks have already been 100% focused on doing workout on commercial real estate loans for at least this year. The only thing I read from this article is that bad properties are going to continue to get pushed down the road and hid under the bed. This is bad for all of us trying to either find a job in real estate or make any good money in real estate as we need these bad properties to start trading. Pushing the problem down the road is great for a politician trying to stay in office but in my opinion it does not help the economy at all from a long-term perspective. It looks like we should all get ready for a Japan style lost decade, what fun! I am truly hopefully hopeful this is not the case and that given the poor properties fundamentals which exist for basically everything in every market, it will force more commercial REO’s to happen.
http://www.costar.com/News/Article.aspx?id=4FECA37801786EF2F1D27641500CCDBE

An article about Hotel groups getting their war chests ready. I actually think Hotels will make the most sense to buy earlier in this cycle as they only have 1 day leases and will perform better in the short term. However you will have to get them for huge discounts off current loan balances as they got bid up way to much.
http://www.costar.com/News/Article.aspx?id=C98CC05C658AE9A333E0286CAFD13CE8

Please tell me the raiders won’t be coming back to LA, interesting to see which team we will get. Also great to see the state of California get smart and remove the EIR process from the stadium. They are building it in an area that is almost all industrial so I could never understand why any neighboring residents would be so upset by it.
http://www.costar.com/News/Article.aspx?id=A4F5E5F69832AEFF5105C2B7E826626E&ref=1&src=rss

The First Double KABOOM! for a Single Deal?

dailydrach — Thu, 22 Oct 2009 15:23:00 +0000

As if Tishman Speyer didn’t already have enough bad news in regards to Stuyvesant Town, as The Daily Drach commented on here, now the NY State Supreme Court has said that they must pay $200 million dollars for improperly kicking out tenants and raising rents.

Court Deals Blow to Owner of Manhattan Apartment Complexes

And to think, I tried to get a job at Tishman on more than one occasion; had I been there, I never would have let this deal happen. Or at the very least, I would have already pocketed and spent my nice bonus for doing the “underwriting.”

Tom Barrack, Colony Capital at it again…

dailydrach — Wed, 21 Oct 2009 22:57:00 +0000

providing a loan facility to William Lyon Homes. Apparently Barrack sees a lot of opportunities in owning a home builder and its the first investment from his Colony Financial group. It will be interesting to track this deal and many think homebuilders have seen the bottom and are now looking at good opportunities again. I am personally not so sure with the waves of foreclosures yet to come on the residential side. However, I think Tom Barrack is one of the smarter investors out there who did really well during the last major downturn.

http://www.reuters.com/article/pressRelease/idUS113976+21-Oct-2009+BW20091021?sp=true