Wednesday, November 28, 2007

Didn't Get My Memo
Apparently the housing market and the market experts did not read my last post. Look at this chart:

Not too encouraging. The housing correction started in August 2005 when the Fed started to raise interest rates. The slump has been in full swing for over two years now. Reading the above articles, while negative, show that lenders are starting to lend again. The spread on jumbos is now approximately 80 bps, lower than over 110 bps in August. Most of the data in the above articles is based on data from last summer. For now, I am sticking by my previous post.

Monday, November 26, 2007

Housing Market Turn?
You heard it here first. The ten-year Treasury is now 3.85%. This is going to spur home buying. While prices may not rise, it should stop the slide. It will also help ease the subprime mess as all the non-subprime borrowers (urr.. speculators) who used subprime debt because of the low teaser payments, can now refinance into a more affordable mortgage due to the lower rates. The demand for loans is going to increase and banks are going to have to lend.
Interest Rate Buy-Downs
The credit crisis has spawned interest rate buy-downs where TIC sponsors use proceeds from a TIC offering to "buy down" interest rates. Does this make sense? I am not sure if there is a correct answer, but I am using Net Present Value calculations to determine whether the present value of the savings (increased distributions to investors) is greater than the cost. The trick is the discount rate. I just looked at a deal where the cost made sense if the ten-year Treasury was used for the discount rate. It did not make sense when the bought-down rate was used to discount the savings. Both were close to the cost (i.e. within approximately $10,000) and given the disparity between the two discount rates (4% v. mid-6%) I give the nod to the buy-down.

Wednesday, November 21, 2007

I Like It
Another title could be "Sharing the Pain." I just say my first TIC deal where the commission has been dropped to 5%. This is amazing. It is from a good sponsor, so I hope it goes over well with advisors. If the advisors are looking out for their clients, it should because the yield starts at 6.73% and then rises to over 7% in later years. I have heard of another plan to pay a smaller up front commission (like 3%) and then a trail commission (like 1%) over several years. I like that plan, too.

Monday, November 19, 2007

Musicians I Never Want To Hear Again
Andrew Sullivan is doing a survey of the best and worst videos of the 80s. I voted for Duran Duran's Girls on Film, in a slight edge over Peter Gabriel's Sledgehammer. The Girls on Film video sums up the 80s, plus its Duran Duran's best song. I liked Robert Palmer's videos and thought they would have made the list. I have not voted for the worst yet, but on so many levels, who can be worse than Lionel Richie?

I have been thinking of musicians and bands I never want to hear again. At the top of my list is David Bowie. I just groan every time one of his songs comes on the radio. I know he was a trend setter in the 70s, but do we still have to be subjected to his music? Another is Steve Perry and Journey - simply horrible - I am glad I don't listen to stations that play this drivel. And talk about worst videos of the 80s, Steve Perry's Oh Sherrie is hands down the 80s' worst video. It takes two minutes before the torture even starts!

UPDATE: Foreigner has to be added to the list of bands never to be heard again.
UPDATE UPDATE: Foo Fighters. Is this the worst band name ever? I have Sirius Radio and it seems like the Foo Fighters get more airplay than any other band. Enough already! Geez, it's not like they're Radiohead.
WSJ As A Tabloid
I am not sure whether it has to do with News Corp's acquisition of the Wall Street Journal, but the new layout for the Wall Street Journal Online looks and feels like a tabloid with its sensational headlines. I don't care that the Bancroft family sold the Journal, they appeared (except for a few) to be either uninterested or slackers looking to cash in, but I always liked and appreciated the Journal's understatement and serious approach to news. If a news item needed hyperbole it was important. Now every title has a snappy heading "Economy Conspires to Dog Cerberus," and "Home Woes Hit Lowe's Again," as examples. I guess I will have to read it closer to determine news and noise. The Journal needs to be careful, because its readers know BS and will look other places for reliable news if its journalistic standards slip. It is still the business paper of record and a great national paper, but this is not assured going forward. I have already started to view the Financial Times as a backup.
Must be Nuts
I made my first post on a stock chat website - I must be crazy. It was on Grubb and Ellis and I alerted the stock gurus that NNN is a real estate syndicator and that some of the assets on NNN's balance sheet they were raving about flows through to NNN's syndications and is not directly NNN's.
Ten-Year Yield
The yield on the ten-year Treasury is approaching 4.00%. At these levels the housing market may start seeing some activity and prices may slow their slide. It will also help the banks.

Sunday, November 18, 2007

Goldman Sachs
It is clearly the best firm on Wall Street. Probably the best U.S. corporation, if not the world's best. It's alumni is staggering and it even helped keep A-Rod in New York (and probably salvaged his reputation). This article repeats what I have been telling people. It is amazing - or maybe it's not - that it missed the mortgage mess.
Credit Crunch Curbs Real Estate
This article makes sense. No credit means no deals means real estate values go down. This is not fuzzy math. Banks need to start lending again. This quote is relevant for TIC deals:

Even a slight decline in values could make it difficult for property owners to refinance their mortgages, especially if they have been paying only interest on their existing debt and not paying down principal. Such interest-only mortgages have become increasingly popular.

Every TIC deal I have looked over the past several years has interest-only financing. It was the only financing that allowed sponsors to pay an attractive yield to investors.

Wednesday, November 07, 2007

GBE Is Off Another 8% This Morning

Tuesday, November 06, 2007

Grubb & Ellis and NNN
Here is an interesting chart. It is the one-year performance of Grubb & Ellis (GBE). I wonder what the market is saying about the merger between Grubb & Ellis and NNN. The stock's decline started shortly after the merger was announced in late May.

Another, more positive, way to view the chart is to say the the stock performance mirrors the problems in the credit market more than the perception about the merger, because it does mirror the credit problems. The merger of the broker and the syndicator should be complete in mid-December.
All Gossip, All the Time
I heard this morning that a prominent TIC sponsor fired twenty-four employees today. The TIC slowdown caused by the housing market and troublesome debt market is starting to impact sponsors. The syndication-dependent sponsors will be the first to show cracks. My opinion from the start has been that the real estate guys will fare the best in a downturn. We'll see.

Monday, November 05, 2007

Here is the information I promised in an earlier post on the Piedmont REIT:

Data as of 2Q 2007
  • FFO/Share (six months) $0.291
  • Annualized FFO/Share $0.581
  • Div Per Share (six months) $0.29
  • Annualized Div Per Share $0.587
  • Payout 99.01%
  • Div Yield 6.99%
  • Leo's Shares 19,568,641
  • Leo's Ann Dividend $11,482,878.54
  • Leo's Ownership % 4.07%
  • Leos' Value at Adj. Par $164,180,897.99
  • Adjusted Par Value $8.39
Leo's annual dividend will help ease the headache caused by Piedmont deferring its listing. The REIT returned approximately $1.61 per share in 2005 due to property sales, which is why the adjusted par value is $8.39 and not $10 per share. The yields are based on this adjusted share value. I need to find the REIT's FFO growth rate. I will have to investigate this along with the current FFO multiples for other REITs. A low growth rate would logically put the valuation at the low end of the multiple range.
As Much Scoop As I Know
A large TIC sponsor is talking to two or three smaller TIC sponsors about taking over the management of the smaller sponsors' existing properties. I know the name of the large sponsor but was not told the smaller companies (I am guessing its two not three). If the deals happen, I am told, it will likely be within the next several weeks. I am skeptical, but will wait and see. Apparently, the smaller companies approached the larger company due to their inability to get financing for current deals, and lack of deals impairs their financial viability.

Friday, November 02, 2007

Nailed It
Prince expected to offer to resign from Citigroup. My earlier post's guesstimate proves prescient. My other guesstimate about his "go away" payment was correct, too. He is expected to get $40 million. Citigroup loses more than 20% of its market value in less than a month and gives the CEO $40 million, seems kind of retarded.
All Piedmont, All the Time
I search the filings for the Piedmont REIT every couple of weeks. The latest filings have Lin-Wix, the entity that offered to pay up to $9.46 per share, urging investors to vote no on the planned three-year extension before listing. Another firm, Madison Investment Trust Series 79, is offering to acquire shares at a price of $7.50. Piedmont also filed its proxy statement, officially asking investors for the extension. This saga is taking a strange, albeit predictable, turn. The annual meeting on December 13th should be very interesting.

Thursday, November 01, 2007

The whole mortgage mess, in my opinion, was built on the concept of making money with no responsibility. Mortgage brokers would loan money to any one; bankers provided the financing to mortgage companies and brokers; mortgage companies then sold the mortgages - good or bad - to banks who put the loans into neat securities that were sold to investors. So many hands, so little responsibility. The accountability ship has finally docked. Stanley O'Neal of Merrill Lynch has lost his job (along with all the bond traders he fired), and I am guessing the heads of Bear Stearns and Citigroup won't survive. Mr. O'Neal received $150 million to go away (and people complain about Alex Rodriquez!) and the "go away'" packages for Mr. Purcell and Mr. Prince will be sizable too.

When will the Fed have its accountability moment? It tacitly approved this mess until it was too late. And don't believe for a second the Fed did not know what was happening in the housing market. Not to get political - I trust markets not politicians - but the current administration has not had much of an economic policy, except for a weak dollar (stronger corporate profits), easy credit (see above) to fuel consumer spending and low taxes. The booming housing market and the cash-rich (i.e. leveraged) consumer it spawned was too convenient, despite the wild debt.