Thursday, May 08, 2008

The Wall Street Journal had an article yesterday on the departure of a Wachovia real estate executive. The executive built Wachovia's real estate lending business, and one of his specialties was the mezzanine loan on top of a more traditional real estate loan. This is exactly how the Wells Timberland REIT financed its lone timber transaction - first loan and mezzanine loan (in additional to the issuance of preferred stock that can be viewed as more leverage) and no initial equity. The REIT is struggling to repay its mezzanine debt and needs to get it down to $60 million by mid-October to extend the final payment to February 2009. Based on Timberland's filings, I estimate that the REIT has approximately $125 to $135 million outstanding at the end of April on its original $160 million mezzanine loan. I wonder how the departure of this executive will impact Timberland REIT if the REIT's equity comes up short and it needs to extend or refinance. The executive's departure does not change the facts and terms of the transaction but may have repercussions for investors.

1 comment:

Anonymous said...

Suggesting a client buy Wells Timberland for their portfolio must take incredible brass on the part of a "financial professional".
First you have to explain why Leo Wells is collecting a 8.5% dividend on the preferred stock when common stockholders are getting zip. Then you have to explain that these guys are so smart they are paying 11% interest to Wachovia on money they don't have. Then you have to explain why you are worth getting a commission. The financial press needs to shine some light on this deal and help investors make an informed decision. The risk/benefit ratio on this fund is poor for common stockholders.