Our discussion today was based on the Capital Markets, Emerging Markets, and essentially where the real estate finance world is headed. These articles described below are pretty interesting, but have a lot of negativity (unless you're Brookfield Asset Management), so reader beware!
“Home Sellers Slashing Prices, While Banks Mow the Lawn”
Since the First Time Homebuyer Tax Credit has expired, the newest problem that has transpired is that people are over the “one time high” that it created. Banks are now faced with high foreclosure proceedings and will be liable for asset management responsibilities as they hold these properties on their books. Ouch! Cities like Los Angeles are fining banks that let properties fall into disrepair in order to incline them to sell the properties for a discount and “mark to market.” Please stop the “pretend and extend” people!!!
“Non-Public REITS”
Private REIT helped get us out of the S&L crisis as they scooped up a high percentage of the distressed assets created by that era. For those that have the net worth enough to invest in these types of investment vehicles, it is a very interesting to set your timing correct. At point of investment, distressed properties could not be producing any profit for an X amount of periods, but then may realize the upswing after the properties have been realigned and create cash flow from operations and high reversion prices.
“Two Addison Circle Article”
Toronto based Brookfield Asset Mngmnt is set to acquire the LEED Silver office building, sitting vacant at 15725 N Dallas Pkwy in Addison. The building has 200,000 sq ft of Class A space, and the firm is picking it up at $80sf, compared to the close to $250sf spent on the building to build. This shows how much of a discount the investors are getting on this property, meaning they can inherently set rents much lower than the general submarket office buildings around it. Logically, situations like these create a horrible domino effect driving down rents all the way through, and creating more foreclosures in buildings that lose the tenants that are garnered by buildings like this one (low basis cost going in=ability to set rents low). Also, it is very interesting to see how much tax base revenue is going to be lost on the school district, city and state levels. Ouch!
“Colony Capital JV deal wins $1.85B FDIC portfolio”
New York-based Colony Capital has acquired its second $1B+ portfolio this year, clearing properties off of the FDIC’s hands originated from 22 failed banks. The firm is obviously well capitalized and had foresight to plan for deals of this size, but is it the right time to strike just yet? A lot of the value that will be created will be by those that wait it out long enough to buy at extremely low prices, prices that are closer to the true value of these income-producing (or NOT producing) properties. Hmmm?
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