Friday Afternoon Reading - Schiff For Brains Edition

Here are two contrasting articles on austerity.  This opinion from Bloomberg argues that world leaders need to look to and learn from the disastrous impact of austerity on Asia in 1997 and 1998.  Peter Schiff, of course is, for austerity, and sort of explains why here.

Lehman Brothers (yes, it's still around) won the bid for Archstone Apartments, which Lehman had bought at the height of the real estate and credit bubble.  Lehman out bid Sam Zell's Equity Residential in a battle that took months.  Equity Residential still comes out a winner with a $150 million break-up fee.  

Bloomberg reports on widening CMBS spreads.  CMBS spreads over comparable Treasuries are at their highest level since last October.

Maimed Meme

I've been hearing a strange and unsettling theory regarding non-traded REITs that list their shares.  The concept is that once a REIT is listed and traded on an exchange, it no longer satisfies the real estate alternative asset classification in a client's portfolio.  A non-traded REIT, after a listing, somehow magically moves to the "stock" asset class, and investors therefore need to either buy another illiquid, non-traded REIT, preferably by selling the newly listed REIT, to preserve the real estate alternative investment portion of their asset allocation.  This bizarre thinking is so full of boloney I am starting to burp as I write this post.

A non-traded REIT that lists its shares on an exchange becomes liquid, that much is true, but that is where the argument ends.  When a REIT lists its shares it doesn't change the underlying real estate investment portfolio.  If a non-traded REIT was a client's real estate allocation before it was listed, it is still a real estate investment after listing.  The fact that a REIT was non-traded and is now a traded REIT has nothing to do with the asset class allocation decision.  It's important to remember that whether a REIT is listed or not, the underling real estate investments still change in value over time.   If you don't believe this just look at the most recent share values for KBS REIT I, some the Behringer Harvard REITs, or other non-traded REITs that have re-valued their assets. 

The idea that an alternative investment has to be illiquid is as false as it is absurd.  I don't know when the terms "alternative investment" and "illiquid" became synonymous.  They are not.  The first REIT was listed on the NYSE in 1965, so the idea of a liquid, listed REIT is not new.  Many other alternative investments are liquid.  Today, you can buy ETFs that track, slice, dice, short, double-short, long, double-long, gold, silver, oil, gas, and many other commodities.  Managed futures, clearly an alternative asset class, are some of the most liquid investments in the world.  Yes there are illiquid alternative investments, but whether an investment is liquid or illiquid is not the sole determinant of whether an investment is an alternative investment.

The negative implication that when a non-traded REIT becomes listed it is now a "stock" and is going to trade and perform like a "stock" is wrong.  Stocks are not generic, even stocks in the same industry.  Stocks ultimately trade and perform based on the underlying companies' fundamentals and future prospects.  REITs, traded or non-traded, will perform based on the strength of their underlying business and assets. 

There are, obviously, reasons to sell a non-traded REIT once it becomes liquid.  A non-traded REIT listing on an exchange and becoming liquid, is not by itself a reason to sell.  If a non-traded REIT was an appropriate investment initially, and still is after it lists on an exchange, any sales decision should be made for reasons other than because it's now liquid.  Non-traded REITs that list their shares own real estate and will continue to own real estate and fulfill any real estate asset class requirement.

Just Like A Non-Traded REIT

Facebook closed at $33.03 today, a staggering 13% off last week's initial public offering price of $38.00.  The outrage from this disastrous plunge is rising and the lawyers are circling.  It's unthinkable that a stock's price would drop after its IPO.  Didn't the executives at Facebook - and especially those greedy, notorious Wall Street underwriters - know that stocks are only supposed to rise? 

The 13% drop reminded me of another investment: non-traded real estate investment trusts.  An initial investment in a non-traded REIT is worth about 12% to 17% less than its offer price immediately after it's sold, after all its initial offering and acquisition costs are deducted.  Non-traded REITs are just like Facebook.

HTA Listing

Healthcare Trust of America (HTA), a non-traded REIT that raised approximately $2.2 billion in its equity offering, plans to list its shares on the NYSE on June 6, 2012.   It plans to list its shares in four stages, called tranches, which are defined as Class A, Class B1, Class B2 and Class B3, rather than list all its shares at the same time.  The Class A tranche, representing 25% of HTA outstanding shares, will trade initially, making a quarter of HTA's shares liquid.  The remaining three tranches - Class B1, B2 and B3 - will convert to the liquid Class A tranche in three stages, at six-month intervals.  All HTA shares will be fully liquid within eighteen months.  

HTA, as part of its listing announcement, also announced a reduction in its distribution.  The new distribution is $.575 per share, or a 5.75% yield based on an initial $10 per share purchase.  The previous distribution was 7.25%.  

HTA raised approximately $2.2 billion in its offering, so the first tranche will represent approximately $550 million of liquid shares.  HTA is offering a $150 million tender offer, through which HTA will purchase shares at a range of $10.10 to $10.50 per share.  If the similar tender offer for American Realty Capital Trust shares is used as a reference, investors that tender their shares can expect to receive $10.10 per share, not a higher amount.  The $150 million tender is only being made available for the initial tranche, not subsequent tranche releases.  The tender offer represents approximately 27% of shares being made available for trading in the first tranche, so investors that tender their shares are not assured of having their shares accepted in the tender offer.  Investors that do not have their shares accepted in the tender, if any, will still have the ability to liquidate their Class A shares on the open marekt.

It is important to note that ultimately the market will determine HTA’s listing price, although the tender offer may temper downward pressure in the short-term.

The Valuation Is Too Damn High - Part II - Garbage Example

Cole Credit Property Trust IV filed an update to its prospectus last Friday, May 18, 2012.  The update included information on the track record of the REIT's sponsor.  The language below discussing Cole Credit Property Trust II's (CCPT II) valuation is worth noting.  Here is the passage:

In determining an estimated value of CCPT II’s shares of common stock in July 2011, the board of directors of CCPT II relied upon information provided by an independent investment banking firm that specializes in providing real estate financial services, and information provided by CCPT II Advisors. In determining an estimated value of CCPT II’s shares of common stock in June 2010, the board of directors of CCPT II relied upon information provided by an independent consultant that specializes in valuing commercial real estate companies, and information provided by CCPT II Advisors.

The valuation periods are July 2011 and June 2010.  The July 2011 valuation was $9.35 per share and the June 2010 valuation was $8.05 per share.  CCPT II used a consultant in 2010, and an investment bank in 2011 to provide information.  Both valuations relied in information provided by CCPT II's advisor.  There is no other disclosure on the methodologies.  The increase of $1.30 per share, or 16% is sizable for a REIT that is not trading.  It'd be interesting to know what inputs were changed in 2011 to bump the value of a REIT that has a mainly fixed portfolio.  It's not the valuation methods, its data and assumptions that are put in the valuation models.

Cole adds the following disclosure after discussing the valutaion:

The statements of value were only an estimate and may not reflect the actual value of CCPT II’s shares of common stock. Accordingly, there can be no assurance that the estimated value per share would be realized by CCPT II’s stockholders if they were to attempt to sell their shares or upon liquidation.

There is no truer sentence in the entire filing.  It's time for CCPT II to execute the liquidity event it disclosed it was going to seek within twelve months back in June 2011. 

More Entries Into Home Rental

The Wall Street Journal's Developments Blog had a post today on Colony Capital's push into the mass home rental market.  Sounds like Colony is going about the business the right way.   It's buying properties at cap rates of 7% to 9%, and has brought the property management in-house.  The exit strategy is still fuzzy to me - liquidation is still one home at a time - but owning the homes in a REIT gives a sense of permanence.

Time Flies

Its been nearly a year since Cole Credit Property Trust II, a $3.4 billion non-traded REIT, announced in an 8-K the following:

On June 28, 2011, Cole Real Estate Investments announced that it is actively exploring options to successfully exit CCPT II’s portfolio within the next 12 months, and that the potential exit strategies it is looking at include, but are not limited to, a sale of the portfolio or a listing of the portfolio on a public stock exchange. 

CCPT II's first quarter 2012, 10-Q, released yesterday, May 15, 2012, had the following passage:

On June 28, 2011, the Company disclosed that its sponsor, Cole Real Estate Investments, is actively exploring options to successfully exit the Company’s portfolio. The potential exit strategies the Company is evaluating include, but are not limited to, a sale of the Company or all or a portion of its portfolio, a merger or other business combination, or a listing of the Company’s stock on a national securities exchange. The targeted liquidity date has not yet occurred, and the Company has not finalized a plan for, or had, a liquidity event. 

The two passages contain similar language, but with two differences.  CCPT II has not yet set a liquidity date, despite saying nearly a year ago it expected liquidity within twelve months.   The first quarter 2012, 10-Q appears to back away from the one-year time frame.  The 10-Q also added the possibility of a merger or other business combination.  CCPT II can still list its shares or have an IPO within the twelve-month period announced late last June, but I'd expect an S-11 filing soon.  I should also note that I don't expect CCPT II to provide too much advance notice on its plans, especially if a merger or acquisition is the final exit strategy.

Updates

The auction price for the Newport Beach mansion I blogged about here, and here, was $18.5 million.  Here is a Wall Street Journal article on the sale.

Last month I wrote about a loan on a Florida retail property that was kicked out of a CMBS deal.  The loan is being shopped again for another CMBS.  (Hat tip to The CRE Review.)

The Valuation's Too Damn High - Part II - Garbage In, Garbage Out

There was an article last week in InvestmentNews on non-traded REIT valuations.  The article discussed the split between non-traded REITs that want outside firms to value their shares and non-traded REITs that prefer to value their own shares.  This passage with a quote from Martel Day, the chairman of the non-traded REIT industry's trade group, Investment Program Association, sums up the problem with valuations:

One of the private-investment industry's leading trade groups, the Investment Program Association, for example, wrote: “The [pending Finra] rule should not dictate that the estimate be based on an "appraisal' of the issuer's assets and liabilities.”

The letter, signed by IPA chairman Martel Day, said: “Many non-listed REITs and DPPs use very common and highly accepted methodologies to estimate value. Many issuers have engaged third parties to estimate value, while others have engaged third parties merely to analyze the methods and reasonableness of the assumptions used and conclusion arrived at in estimating value.”

The IPA's letter added that it is developing uniform valuation guidelines.

Martel Day is right, most non-traded REITs that value their shares - rather than using a third party firm - use commonly accepted methodologies to estimate value.  The methodologies non-traded REITs use to determine value are not the concern, the worry is the inputs that non-traded REITs plug into their valuation models, because small changes in assumptions can result in big changes in valuations.  Some non-traded REITs use third party firms to confirm the REITs' internal valuation methods, but this should not be confused with an actual third party valuation, because non-traded REITs are still determining their own values and just having the third parties verify their processes.

There are a few accepted valuation methodologies, which include discounted cash flow analysis, comparison to public REITs using Price-to-Funds from Operation multiples (similar to P/E ratio comparisons for stock valuations), and property cap rate analysis.  Non-traded REIT valuation disclosures I have read included the use of some or all of these methods, so the non-traded REIT trade group's defense of internal valuations because of the use of these methods, or having a third party firm affirm these methods, does not allay valuation concerns.  Just because a non-traded REIT uses an accepted methodology doesn't mean the final valuation is accurate.

The discounted cash flow analysis - which combines a REIT's properties' estimated income for a certain period, usually ten years, and then multiples each year's projected income by a discount rate, adds the results to derive a current estimated value - is one big assumption.  You have to estimate nearly every input - growth rate, expenses, discount rates  and more.  The more variables in a REIT's business - lease expirations, debt maturities, expenses - the more the assumptions for these variables can impact value.  Then you have the assumed discount rate which will impact the final value.    Discounted cash flow analysis is a basic valuation method, and anyone who had a basic business class in college learned some form of discounting cash flow, but I am not convinced of its relevance related to valuing non-traded REITs. 

Valuing a non-traded REIT based on its Funds from Operation (FFO) multiple is a legitimate valuation method, but one with significant limitations.  Publicly traded REITs all publish their FFO, and its easy to calculate a multiple - stock price divided by FFO.  Non-traded REITs take their FFO and then compare it to multiples of publicly traded REITs.  The higher the multiple used in the valuation the higher the assumed value.  The trick is to watch the multiple.  For example, if a non-traded REIT has FFO of $.60 per share and uses a FFO multiple of 18, its share value is $10.80.  If a FFO multiple of 14 is used, the share value drops to $8.40, a big difference.  In my opinion, the FFO valuation metric is weak for new REITs.  Public REITs that are being used as benchmarks have established track records and a history of FFO, while new non-traded REITs have much less history, making accurate comparisons more difficult.

Cap rate analysis, to me, is the most relevant valuation method, as well as the most common real estate valuation metric.  If done correctly, cap rate analysis takes actual property net operating income, not a projected, "stabilized" net operating income, and divides it by an appropriate capitalization rate - i.e. an assumed return rate - to arrive at a property's estimated value.  Each property value is then aggregated to determine total value.  The lower the capitalization rate the higher the property value.    The assumed cap rate has a large impact on the valuation, and REITs that use too low a cap rate are inflating values.   For example, a REIT that values its properties using a 6.5% cap rate is going to have a higher valuation than if it used a 7.0% cap rate.  I like cap rate analysis because it takes actual property net operating income, and therefore has fewer management assumptions, but the capitalization rate utilized is critical. 

The InvestmentNews article referenced above discusses enterprise value.  The article has a quote that mistakenly calls enterprise value the "brand" value.  The enterprise value is an amount that is added to a REIT's net asset value to adjust the share price as if the REIT was listed on an exchange.  Stated another way, it's a management acumen premium.  This is an arbitrary figure determined by REIT management, then affirmed by the REIT's board of directors, and added to the REIT's net asset valuation.  The article references Dividend Capital Total Return's (TRT) enterprise value that was part of its valuation last September.  TRT is in the process of revaluing itself as part of re-opening its offering period as a NAV REIT.  It has not released a new offer price, but I'd be shocked if its new offer price included a line item for enterprise value.  It would make TRT's new offering a joke and prevent it from obtaining selling agreements.  The inclusion of enterprise value is no longer common, and I suspect industry peer pressure has prevented many sponsors from including this irrelevant, ego-driven figure in their non-traded REIT value estimates.

All the valuation methods use both pro forma and market estimates.  It's naive to think that non-traded REITs that determine their own valuations aren't going to overweight optimistic assumptions that result in higher net asset values.  Non-traded REIT board of directors must turn the valuation process over to third party firms.  Third party valuations should be subject to little, if any, management adjustment.  Independent directors need to step-up, earn their pay, and accept the valuations provided by the third party firms, and most importantly, avoid the pressure from REIT management.  The use of third party firms to confirm non-traded REIT managements' valuation processes and methodologies is insufficient.  All the non-traded REITs use accepted valuation methods, and its not the methods that are question, it's the input to the formulas that make non-traded REIT valuations a subject of concern.

Tick-Tock, Tick-Tock....(cont.)

Chesapeake Energy announced today that it is delaying asset sales and has borrowed $3 billion from a unit of Goldman Sachs and affiliates of Jefferies Group.

Friday Read

Biographer Robert Caro's fourth installment of his Lyndon Johnson biography was released earlier this month.  In 1974, Caro wrote a biography of Robert Moses, the city planner who completely changed New York City.  The book, The Power Broker, won the Pulitzer Prize.  An excerpt of the book was published in the New Yorker in July 1974.  It is a long article, but it's a great read that's still relevant today.  The last five or so pages show Moses' brilliance as he crafts a bill using language with multiple layers of meaning that no one bothered to read closely, but that gave Moses unlimited power.  If you read a lot of legal disclosure documents you'll appreciate this section.

Inland American's Indignant Response

Inland American REIT sent a blast email out today discussing the SEC investigation.  Here is most of the content of the email:

Inland American SEC Investigation Disclosure

On Tuesday, May 8, 2012, we emailed the Inland American quarterly update.  In the First Quarter 10Q filing, we disclosed that the SEC is conducting a non-public, formal, fact-finding investigation of Inland American.  We encourage you to read the entire disclosure here: Inland American First Quarter 2012 10-Q

We believe it is important to note that:

• Inland American has not been accused of any wrong-doing, and is fully cooperating with the SEC.
• Inland American does not believe it has done anything wrong.
• This is a confidential investigation, so we are not able to say anything other than what is in the filing.
• Many companies do not disclose investigations this early in the investigative process.  Inland American, however, has chosen to disclose the existence of this investigation at this time.

Ouch, what a prickly email.  Inland American's initial backdoor disclosure (as if people weren't going to read the 10-Q) and now this pithy, defensive notice is starting to look like a textbook case of how a slow, reactive response blows up a brand.  Inland American and its parent company need to hire a crisis PR firm immediately.

Elephant In The Room

Last weekend the Wall Street Journal ran an upbeat article on daily net asset value non-traded REITs.  These REITs attempt to solve some of the valuation issues facing the non-traded REIT industry by valuing their shares daily.  According to the article, these REITs have positive features in addition to daily valuation, including low fees, improved pricing transparency and better liquidity when compared to the traditional non-traded REIT structure.  The article says that there are four daily NAV REITs being offered and an additional five in registration.  I am aware of three daily NAV REITs open to new investors.  Daily NAV REITs have everything going for them...except sales.  Two of the daily NAV REITs required sponsor investment to break escrow and the third has yet to break its escrow.  For a product type with so many positive features the initial sales of the three REITs are inauspicious.  Why?

Non-traded REIT sales in 2012 are booming, due in large part due to the successful listing in March of American Realty Capital Trust (ARCT) on NASDAQ.  When offered liquidity, many investors chose to sell their shares rather than stay invested in ARCT.  I can see the argument to sell at a profit, but based on the sales figures I am seeing from multiple non-traded REITs, I am guessing that ARCT sales are being recycled into other non-traded REITs.  By recycled, I mean financial advisors are recommending to clients that they sell ARCT, take the gain, and then use the sales proceeds to buy another non-traded REIT.   I don't agree with this strategy.  (Spare me the comments defending the  crap-excuse about clients somehow wanting an illiquid investment.  That rationale is complete nonsense.)   

Financial advisors originally recommended ARCT because they thought its business plan, management skill, high yield, stable income-generating property type or whatever other reason, made sense for clients.  These recommendations were made when ARCT was riskier because it was still a blind pool, didn't have all its equity or debt financing in place, wasn't generating cash to pay its distribution, among other risks.  Now that it's fully invested, it's at a less risky stage of its corporate life and validates the original investment premise.  Instead of holding the investment for its yield, it is being sold, and in many cases the sales proceeds are being reinvested in other non-traded REITs that are still raising and investing capital, and therefore at a riskier stage of their corporate life.   Why?

The one word answer to both questions is the same - commissions.  If a financial advisor chooses to charge a commission in a daily NAV REIT it is tacked on to the price of the investment.  Clients see exactly how much their financial advisor is being paid - for example, the client pays $10 for $9 of NAV.  Awkward.  In a traditional REIT, the commission is built into the price of the REIT and is not broadcast to clients.  As long as clients see how much their financial advisor is making in commissions, and there is an alternative where the client can't see the amount of commission, financial advisors will recommend the option where the client doesn't see the commission.  (In a traditional REIT the commission is disclosed in multiple forms and documents, it just is not immediately reflected in the share price.)

Financial advisor compensation is the only reason, in my mind, other than a drastic change in client financial circumstances or a reallocation away from real estate, to sell any newly listed formerly non-traded REIT, to buy another non-traded REIT in its initial offering stage.  ARCT paid financial advisors a nice upfront commission when the REIT shares were initially purchased.  The financial advisor can sell ARCT and earn another healthy commission from another REIT.

Let's be clear, I am all for financial advisors and broker / dealers making money.  I just don't see the point in selling a stable investment, which was sold as a long-term investment, to buy another similar, but riskier, investment except to earn another commission. 

When It Rains, It Pours

It's been a tough six weeks for Inland.  In early April, Retail Properties of America's initial public offering was priced below expectations.   I just read the passage below that was disclosed in Inland American REIT's 10-Q, which was filed on May 7, 2012:

The Company has learned that the SEC is conducting a non-public, formal, fact-finding investigation to determine whether there have been violations of certain provisions of the federal securities laws regarding the business manager fees, property management fees, transactions with affiliates, timing and amount of distributions paid to investors, determination of property impairments, and any decision regarding whether the Company might become a self-administered REIT. The Company has not been accused of any wrongdoing by the SEC. The Company also has been informed by the SEC that the existence of this investigation does not mean that the SEC has concluded that anyone has broken the law or that the SEC has a negative opinion of any person, entity, or security. The Company has been cooperating fully with the SEC.

The Company cannot reasonably estimate the timing of the investigation, nor can the Company predict whether or not the investigation might have a material adverse effect on the business.

Inland American Business Manager & Advisor, Inc. has offered to the Company’s board of directors that, to the fullest extent permitted by law, it will reduce the business management fee in an aggregate amount necessary to reimburse the Company for any costs, fees, fines or assessments, if any, which may result from the SEC investigation, other than legal fees incurred by the Company, or fees and costs otherwise covered by insurance. On May 4, 2012, Inland American Business Manager & Advisor, Inc. forwarded a letter to the Company that memorializes this arrangement.

I am not going to comment on the above, other than to say that the first sentence appears serious.

Update:  Here is an InvestmentNews article on the investigation.  It doesn't have much insight beyond what Inland American disclosed in its 10-Q.

CB Richard Ellis' Big Deal

I noted in a post last week that CB Richard Ellis Realty Trust is beginning the process of preparing for a liquidity event, and as the first step it is internalizing its external advisor*.   In the documents I have read, CB Richard Ellis is not seeking a big internalization pay day **.  CB Richard Ellis is not the first REIT where its advisor waived an internalization fee.  But CB Richard Ellis' lack of internalization fee is important because CB Richard Ellis is not currently offering a new REIT and does not have a new REIT in registration, so it did not have to weigh adverse marketing considerations into its decision.  It could have attempted to charged an internalization fee without a broker / dealer backlash***.  To paraphrase a cliche, CB Richard Ellis' manager could have taken the money and ran.  It chose to do the right thing for investors.  CB Richard Ellis' decision to waive its internalization fee is going to make it harder for other non-traded REITs to charge this fee.

*As a quick reminder, most non-traded REITs, including CB Richard Ellis, utilize a corporate structure where their manager is a separate but affiliated company.  When non-traded REITs seek a liquidity event, they typically become self-managed, which means they internalize their external manager.  Internalization is a euphemism for purchasing.  This internalization process is an opportunity for the non-traded REIT managers' big pay day, because the REITs buy their manager, usually with large amounts of REIT stock at a price mainly determined by the managers.

**The waiver of internalization fees has been a growing trend in recent years, the most prominent of which was American Realty Capital Trust (ARCT) waiver in mid-2010.  Yes, I know ARCT granted its principals large amounts of stock, but these grants were lower than what ARCT could have paid its advisor through a stock-based internalization.  And yes, I also know that other non-traded REITs waived internalization fees before ARCT - which is good - but ARCT is the first of the non-traded REITs that waived its internalization fee to list on an exchange.

*** Yes, I know that CB Richard Ellis was distributed by CNL, which is currently distributing other non-traded products.  But when I think of CB Richard Ellis Realty Trust, I don't associate it with CNL and its other products.  If CB Richard Ellis had taken an internalization fee I think the impact on other products being marketing by CNL would have been minimal, just like I think any goodwill in terms of additional CNL sales as a result of the waiver will be minimal. 

**** Sorry for all the ***s.

Tick-Tock, Tick-Tock...

More Chesapeake revelations via finance.yahoo:

(Reuters) - In the weeks before Chesapeake Energy CEO Aubrey McClendon was stripped of his chairmanship over his personal financial dealings, he arranged an additional $450 million loan from a longtime backer, according to a person familiar with the transaction.

That loan, previously undisclosed, was made by investment-management firm EIG Global Energy Partners, which was at the same time helping arrange a major $1.25 billion round of financing for Chesapeake itself.

The new loan brings the energy executive's total financing from EIG since 2010 to $1.33 billion and his current balance due to $1.1 billion, this person said. It was secured by McClendon's personal stakes in wells that have yet to be drilled by Chesapeake - and by his own life-insurance policy.

Reuters has been all over this story, and the entire article is worth a read.

Sunday Reads

Here is more evidence to support my opinion that the housing decline is over and is now set to rebound. 

From Calculated Risk:  Long-time housing bears and have now turned positive on the housing market.

From the LA Times:  A front page article on surging rents for apartments.

The crash has made owning a home more affordable than renting in some markets. An index by the research firm Green Street Advisors compares buying with renting in 79 metro markets; that index hit its most attractive point last year for buying since 1991, when the firm began tracking the data. Researchers calculate that the after-tax cost of a mortgage is only 10% higher than what it costs to rent nationally after taking into account mortgage rates, property taxes and other factors.

Orange and Los Angeles counties remain more expensive for buyers than renters, though that gap has narrowed, according to the index, while owning a home in the Inland Empire is now more affordable than renting.

Rising rents have converted some renters into buyers. Scott Matulis, 48, recently purchased a town home in Oak Park after enduring two consecutive years of rental increases. His mortgage, taxes and homeowner association fees now total $2,200, just $100 more than what he was paying his former landlord.

California's Inland Empire was hit hard by the housing collapse.  

Story To Watch - Part III - Chesapeake CEO

Here is a brief article from yahoo.finance on the latest conflicts of interest revelation about Chesapeake Energy's CEO, Aubrey McClendon.  Here is the the key paragraph from the article:

Reuters says Aubrey McClendon ran a private hedge fund for at least four years that traded in contracts for oil and natural gas — commodities that Chesapeake produces. The report suggests the hedge fund could have influenced McClendon's running of Chesapeake. 

Every time I read a new story on Chesapeake's CEO the theme from Cops pops in my head "Whatcha gonna do when they come for you, Bad Boys, Bad Boys."

Update:  McClendon tells shareholders he is "deeply sorry" his personal finances have come under scrutiny, according to this Bloomberg article.  He is not apologizing for the loans, just that they have become a distraction.  Here is the kicker, and the figure I was looking for, Chesapeake needs $5.00 natural gas prices to meet its 2014 cash flow goal.  Fracking is more expensive than traditional drilling.  Gas today is off its recent lows, and closed today at $2.27 per MMBtu. 

CB Richard Ellis Realty Trust Announces Internalization

CB Richard Ellis Realty Trust announced yesterday in an 8-K that it is beginning the process of becoming self-managed, otherwise known as internalizing its manager.  This is a long filing and I need to delve deeper into it, but on first glance it doesn't look like there is an internalization fee.  There are fees, but I don't see a big stock payday, but need to go through the fine print.  I will post back after I complete reading the document.

Veneer

I've read this InvesmentNews piece a couple of times.  It seems like there is more to this story than just the troubles at Pacific Cornerstone.