Wednesday, November 12, 2008

DBSI In Today's Wall Street Journal
DBSI's bankruptcy made today's Plots & Ploys section of the Wall Street Journal. Here is a link to the article. A couple of bullets stood out:
Complicating DBSI's unwinding, the company is unique among TIC sponsors for structuring deals with master-lease agreements in which DBSI guaranteed rental proceeds to the investors. DBSI also used its corporate balance sheet to guarantee each property's underlying mortgage. Lenders can prevent the TIC investors from canceling the master-lease agreements, according to people involved in the case.
I don't see how DBSI can guarantee mortgages and these TIC deals still qualify as a real estate exchange and not a partnership.

And here are the last two paragraphs:
Only 18 of the 237 properties aren't meeting debt service, but overall DBSI wasn't generating enough revenue to pay investors. DBSI ran into problems when fees from originating new deals evaporated as property markets slumped. Then underlying properties saw rental income drop as the economy tanked.

DBSI attorney Stephen Burr, of Foley & Lardner LLP said: "We expect that the bankruptcy proceeding will allow us the time for an orderly transition of the properties to the investors or to new TIC sponsors."
These two paragraphs are huge. Only 18 under water properties triggered the bankruptcy? DBSI is obviously worried about something else. The quote from the attorney is troubling. How can the bankruptcy proceedings allow for an orderly transition of the properties to investors? These were TIC deals, the investors already own the properties. If investors somehow don't own the properties this debacle is going to go from bad to horrendous. Finally, last part of the quote from the attorney indicates DBSI is shopping deals to TIC sponsors. This would have been much easier before a bankruptcy filing.


KD said...

Do you have any opinions on Clearwater based in Boise, and witht Inland (sponsor of the Inland American real estate trust)?

Rational Realist said...

I am not familiar with Clearwater. I have recent posts on Inland's Western Retail REIT. Inland's upfront and ongoing fees are high compared to its competitors. I would look at Inland American's current offering price, $10 or so, and question if it reflects the value of its portfolio. I would also look at Inland's public REIT, symbol IRC, before investing in Inland American. IRC does reflect the market's impression of REITs.