Thursday, April 26, 2007

Speaking Thoughts...
I am on a panel about crisis management when a deal goes bad this Monday and here are some of my ideas:
  • Communication helps broker/dealers and sponsors - don't hide from bad news. Sponsors, broker/dealers and advisors should view each other as allies not adversaries.
  • Don't underestimate clients' ability to understand and deal with unpleasant news. I would bet most clients owned stocks and mutual funds through the stock market correction in 2000 through 2002.
  • Investors today are more diversified than in the 1980s and hopefully real estate part of the allocation. Diversification used to be three or four different limited partnerships, now it's a variety of investments.
  • Clients (hopefully) have more assets with an advisor than just the TIC deal, and the real estate needs to be put in context of the overall portfolio. Clients want to believe and trust their advisor - give the advisor the tools and information to keep this trust
  • Avoid bad deals. This sounds simple, but basic review of a deal's financial projections and assumptions can give a good idea from where the problems will come. Its not 2004 and you don't have to do a deal. Be selective. Don't be blinded by yield - look at what is behind the yield - operations or financial engineering. If something is too good to be true, it is.
  • Know the difference between a crisis and a problem deal.
Democratic Debate
I can't think of anything more boring - not even more Anna Nicole stories.
Speaking Gig
I've been asked to be on a panel next Monday (April 30) at the Orchard Securities Conference. I will be talking about Preventing Crisis Management and how to prepare and avoid problems. I will have to dig into my past experiences to make my talk interesting.

Wednesday, April 25, 2007

The end of the last post alluded to a rumor I heard last week. (Email me if you know the sponsor.) I will not perpetuate the rumor here, but will try to verify it next week at the Orchard Securities Meeting and have a post then.
I received the latest quarterly newsletter from Omni Brokerage, TICTalk, over the weekend. It had references to deals not meeting their projections but was light on specifics. I need context. A ten-year deal that is off projections is nothing to worry about because it is impossible for any deal, except the cleanest of single-tenant triple net properties, to match its pro forma. A little above or a little below is to be expected. The trouble is wide variations based on aggressive projections. Or worse a group of deals that were master leased that are under performing and the master tenant is running short on cash.
Housing Data
The housing data released today and yesterday did nothing to provide direction on the housing market, despite the data-mined headlines. To me, it shows a market going sideways not in any definitive direction. I still think that sale price data is more relevant to homeowners than statistics on the number of homes sold, which is what the two reports showed.

Monday, April 16, 2007

Solid Ground
The stock market has regained what it lost in late February's and early March's mini-crash, and the Wall Street Journal had an article today about investors getting back their taste for risk. I am not convinced, although I don't think another mini-crash is in store either. I don't think all the mortgage news is out yet and this will continue to affect the market. The Journal's Deal Journal blog said today that Countrywide is in play. Saturday's (April 14) Financial Times Weekend had an article on GE's quarterly numbers and its exposure to subprime mortgages. The GE executive quoted for the article said that its Alt-A (a step up from subprime borrowers) loans are exhibiting the same characteristics as its subprime loans did. If this is widespread look for more volatility and investor jitters.

Saturday, April 14, 2007

Drop In Rates
I listened to a somber podcast from Pimco's Bill Gross. It's also available here. In it he goes into housing and its affect on the economy. He predicts that because housing is so important to the economy, rates will drop to keep housing values from falling. He (Pimco) predicts that rates need to drop 120 basis points to keep home values at current levels. If rates stay where they are, than home prices will drop 20%. He believes that the Fed will not allow a 20% drop in values - it would be too devastating to the economy - he expects rates to drop by 60 basis points the "sooner the better." Read or listen to the whole thing.

(The podcast is approximately thirteen minutes long, with four minutes (of the thirteen minutes) at the end describing Pimco's required legal disclaimers and disclosures. Got to love the Gov!)

Wednesday, April 11, 2007

National Association of Realtors Predict a Decline in Prices
This is not a joke. Realtors predict the national housing market to have its first decline since home prices started being tracked in 1960. Realtors are optimistic, and as a group they have never seen a bad real estate market. And the only market better than the current market is next month's. It makes one wonder how bad the real estate slump is if these Pollyannas are looking for a decline.

Tuesday, April 10, 2007

The Central Valley?
This chart and table are surprising. I would not have guessed that California's Central Valley would have the fastest growing mortgage delinquency rate. The Bay Area and Greater Los Angeles do not surprise me, but the stable Valley does.
Wells Taking Steps to Go Public - or Something....
Wells Real Estate Investment Trust proxied investors in late February to purchase its external (but affiliated) management company. This should be the first step in the REIT being listed on an exchange. The REIT will purchase the management company for $168 million in REIT shares. That is a good deal for Leo & company. An investor filed suit a few weeks ago claiming that the price is too high and is hoping to get class certification. Good for the lawyers.

If the price is too high, the market will discount the listing price, and a price below what investors paid for their shares originally would not be acceptable to Wells. Look no further than CNL's abortive attempt to take its hotel REIT public several years ago. The exorbitant price that the hotel REIT paid for its management company scuttled the listing when Wall Street offered $12 to $14 per share for what CNL was targeting for $20 (which was the original price paid by investors). The discount was due in large part to the price paid by CNL Hotel for its management company. It will be interesting as this progresses.
DCT Industrial a Buyout Target?
The Wall Street Journal's Deal Journal Blog - which is cool and informative - quotes from a Bank of America research report on REITs that are attractive buyout targets. The report analyzed eighty possible REITs and lists DCT Industrial as one of the top five companies that would offer private equity firms the fattest returns. DCT went public late last year and has traded near $12 since its listing. It was originally sold to investors at $10 per share in 2002 through 2005 (I think). I am guessing that the analyst picked up on DCT's low debt level and how private equity firms could increase the leverage if it was private. I am not seeing how this would be bad for investors (or for Dividend Capital and its new Total Realty Fund, either).
I Need to Blog More
I have been swamped the past few weeks, hence the light blogging. I will try to do more, shorter posts.