Hedge Fund Implosions
The Ospraie commodity-based hedge fund closed earlier this week and markets today were roiled, in part, by rumors surrounding another hedge fund. It is strange that despite the artificial increase in commodity prices, "smart" money was still fooled. The commodity bull market was a combination of speculation, a commodity bubble and a weak dollar. How could commodities continue to rise when the whole global economy is slowing. Even a causal observer of the economy could see that a continued increase in commodity prices made no sense. Prices are ultimatey demand driven, and when demand drops so do prices. Something had to give, and it did. But still, some of the "smart" money got caught on the wrong side of commodity bets.
Thursday, September 04, 2008
Sunday, August 31, 2008
Wells Timberland Class B Preferred Stock
On Friday, August 29, 2008, Wells Timberland REIT issued 10,700 shares, at $1,000 per share, of Class B preferred stock to Wells Real Estate Funds, Inc. This is a $10,700,000 cash contribution by Wells to Timberland. This presumably allowed Timberland to get its outstanding mezzanine loan down to the required $90 million. The Series B shares are on the same terms as the Class A preferred shares. Timberland issued 32,128 shares ($32,128,000) pf Class A preferred shares to Wells Real Estate Funds, Inc. in connection of Timberland's acquisition of its lone timber property in 2007.
The Series A and B preferred stock accrue interest at 8.5%, with the first interest payment not due until September 2010, and then payable each subsequent September. The first payment coincides with the maturity date of the senior loan. The preferred shares can be redeemed at any time along with any accrued interest. It is unlikely that any redemption would occur before the repayment or refinancing of Timberland's senior mortgage on its property that had an outstanding balance of $209 million earlier in August.
The 8-K does not state this, but the proceeds of the preferred stock had to be used to get the outstanding amount on the mezzanine loan down to $90 million. It is important to note that the mezzanine loan needs to get down to $60 million by mid-October or the entire balance is due. Based on its capital raising track record, Timberland appears unlikely to raise $30 million (plus offering costs) in six weeks, so it's going to need additional capital. As part of the issuance of the preferred stock, Timberland amended its charter to limit Wells' ownership in Timberland to 45%. The 8-K does not state Wells' current ownership amount, but Timberland has raised approximately $100 million and has issued $42.8 million in preferred stock to Wells. Based on these amounts, the use of Wells for further contributions appears unlikely.
I find the additional preferred shares puzzling. This is essentially more debt on an already highly leveraged acquisition. Wells has just committed its capital for at least two years. Timberland was expecting a large cash infusion from a new German Fund that will co-invest with Timberland. I wonder how the new preferred shares will play in Germany, because as I understand the German Fund, while a separate offering, it is investing on the same terms as Timberland's common shareholders, so it too now has more senior securities (although not directly). If the mezzanine debt is not down to $60 million by mid-October, Timberland has to come up with $90 million (as of Friday), which it doesn't have. I can only speculate about Timberland's scenarios at that point if capital is short.
Timberland must be in talks with Wachovia, the lender on the mezzanine and senior debt. The preferred shares investment, to me, indicates that the negotiations are not proceeding smoothly. I have to guess that some other form of financing is in the works. Wells is smart, and I do not see it dropping $10.7 million down a hole, (which is what will happen if Timberland does not get that mezzanine debt retired and it loses its lone property), unless it is confident it can get the mezzanine debt retired.
Timberland is still twisting in the wind until it can get that mezzanine debt retired and the preferred stock is just another stay of execution, while effectively adding to its debt load. If the German Fund does not come through with sizable capital in a short period, Timberland's options narrow.
On Friday, August 29, 2008, Wells Timberland REIT issued 10,700 shares, at $1,000 per share, of Class B preferred stock to Wells Real Estate Funds, Inc. This is a $10,700,000 cash contribution by Wells to Timberland. This presumably allowed Timberland to get its outstanding mezzanine loan down to the required $90 million. The Series B shares are on the same terms as the Class A preferred shares. Timberland issued 32,128 shares ($32,128,000) pf Class A preferred shares to Wells Real Estate Funds, Inc. in connection of Timberland's acquisition of its lone timber property in 2007.
The Series A and B preferred stock accrue interest at 8.5%, with the first interest payment not due until September 2010, and then payable each subsequent September. The first payment coincides with the maturity date of the senior loan. The preferred shares can be redeemed at any time along with any accrued interest. It is unlikely that any redemption would occur before the repayment or refinancing of Timberland's senior mortgage on its property that had an outstanding balance of $209 million earlier in August.
The 8-K does not state this, but the proceeds of the preferred stock had to be used to get the outstanding amount on the mezzanine loan down to $90 million. It is important to note that the mezzanine loan needs to get down to $60 million by mid-October or the entire balance is due. Based on its capital raising track record, Timberland appears unlikely to raise $30 million (plus offering costs) in six weeks, so it's going to need additional capital. As part of the issuance of the preferred stock, Timberland amended its charter to limit Wells' ownership in Timberland to 45%. The 8-K does not state Wells' current ownership amount, but Timberland has raised approximately $100 million and has issued $42.8 million in preferred stock to Wells. Based on these amounts, the use of Wells for further contributions appears unlikely.
I find the additional preferred shares puzzling. This is essentially more debt on an already highly leveraged acquisition. Wells has just committed its capital for at least two years. Timberland was expecting a large cash infusion from a new German Fund that will co-invest with Timberland. I wonder how the new preferred shares will play in Germany, because as I understand the German Fund, while a separate offering, it is investing on the same terms as Timberland's common shareholders, so it too now has more senior securities (although not directly). If the mezzanine debt is not down to $60 million by mid-October, Timberland has to come up with $90 million (as of Friday), which it doesn't have. I can only speculate about Timberland's scenarios at that point if capital is short.
Timberland must be in talks with Wachovia, the lender on the mezzanine and senior debt. The preferred shares investment, to me, indicates that the negotiations are not proceeding smoothly. I have to guess that some other form of financing is in the works. Wells is smart, and I do not see it dropping $10.7 million down a hole, (which is what will happen if Timberland does not get that mezzanine debt retired and it loses its lone property), unless it is confident it can get the mezzanine debt retired.
Timberland is still twisting in the wind until it can get that mezzanine debt retired and the preferred stock is just another stay of execution, while effectively adding to its debt load. If the German Fund does not come through with sizable capital in a short period, Timberland's options narrow.
Friday, August 29, 2008
Timberland
Wells Timberland REIT just filed an 8-K. It does not look like the German capital has arrived. Timberland issued $10.7 million in Series B preferred stock to Wells Real Estate. I will summarize and comment on the 8-K over the weekend. You can access the 8-K on the SEC's website.
Wells Timberland REIT just filed an 8-K. It does not look like the German capital has arrived. Timberland issued $10.7 million in Series B preferred stock to Wells Real Estate. I will summarize and comment on the 8-K over the weekend. You can access the 8-K on the SEC's website.
Tuesday, August 26, 2008
Housing Market and the GSEs
The most recent Case-Shiller housing data is out today with some mixed messages. The bad news is that home prices in twenty markets dropped 15.9% from a year earlier, and the second quarter's 15.4% decline was worse than the first quarter's 14.2% drop. The good news is that declines in later months in the quarter have slowed and inventory declined, which indicate that housing declines may be easing. Nine of the twenty regions showed positive returns. The areas that continue to look bad are Miami, Phoenix and Las Vegas.
The article in the Wall Street Journal (linked to above) says that one issue holding back housing is uncertainty around Freddie Mac and Fannie Mae, the two Government Sponsored Entities (GSEs) that buy the vast majority of mortgages. The market's reluctance about the two companies has caused their cost of capital to increase that has kept mortgage rates high, as overall interest rates have declined in recent months. Until the GSEs' financial situation is resloved mortgage rates are going to stay high and the housing market is going to muddle along. I suspect that a .50% decline in mortage rates would give the housing market a boost, maybe more so than the recent housing bill that was passed. Solid GSEs, acquiring mortgages, would also allow banks to resume lending.
The most recent Case-Shiller housing data is out today with some mixed messages. The bad news is that home prices in twenty markets dropped 15.9% from a year earlier, and the second quarter's 15.4% decline was worse than the first quarter's 14.2% drop. The good news is that declines in later months in the quarter have slowed and inventory declined, which indicate that housing declines may be easing. Nine of the twenty regions showed positive returns. The areas that continue to look bad are Miami, Phoenix and Las Vegas.
The article in the Wall Street Journal (linked to above) says that one issue holding back housing is uncertainty around Freddie Mac and Fannie Mae, the two Government Sponsored Entities (GSEs) that buy the vast majority of mortgages. The market's reluctance about the two companies has caused their cost of capital to increase that has kept mortgage rates high, as overall interest rates have declined in recent months. Until the GSEs' financial situation is resloved mortgage rates are going to stay high and the housing market is going to muddle along. I suspect that a .50% decline in mortage rates would give the housing market a boost, maybe more so than the recent housing bill that was passed. Solid GSEs, acquiring mortgages, would also allow banks to resume lending.
Saturday, August 23, 2008
Housing Bust
Here is a good article summarizing the housing bust. The housing downturn is going to be longer than anticipated. It is worth reading the entire article. It is funny how no one, still, takes responsibility. Lenders were lemmings and relaxed their standards, borrowers thought home values could only increase and did not worry about payments, and builders did not pay attention to economics or demographics (or speculators buying homes). Here are a couple of standout points from the article:
Here is a good article summarizing the housing bust. The housing downturn is going to be longer than anticipated. It is worth reading the entire article. It is funny how no one, still, takes responsibility. Lenders were lemmings and relaxed their standards, borrowers thought home values could only increase and did not worry about payments, and builders did not pay attention to economics or demographics (or speculators buying homes). Here are a couple of standout points from the article:
“Owning a home is the American dream,” says Jamie Schrole, a Merced real estate agent. “Everybody was just trying to live out their dream.” The belief that this dream could be achieved with no risk, no worry and no money down was at the center of the American romance with real estate in the early years of this decade, and not just in Merced.
As Merced goes, so might go much of the nation. With as many as 2.5 million homes in the United States entering foreclosure this year and, at best, sales of only five million existing houses, the foreclosure price is becoming the rule in many areas. In Los Angeles County, whose 10 million people make it the most populous county in the United States, a third of the sales are foreclosures.
Ouch. Here is one final point that epitomizes the easy finance that lead to the current days of reckoning:
Mr. Seivert is going after a house that the owners bought 13 years ago for $86,000 and refinanced six times, taking advantage of rising values to get cash that, in part, they spent on the house. It has a pool with a small waterfall, a TV room in the converted garage, a deluxe outdoor barbecue setup and a kitchen with all the latest gadgets. The owners, who owe $350,000, can no longer make their mortgage payments. Mr. Seivert is negotiating to buy the house for $170,000 and then rent it back to the couple, who have jobs in the area. (Bold added.)Where is the incentive to keep a house out of foreclosure when all the equity is gone? Hopefully, the people getting deals on foreclosed homes will have some equity in the homes they buy, and a stabilized housing market will help preserve this equity. This will end the housing crisis.
Thursday, August 21, 2008
Big Week For Timberland
Next week is a big week for Wells Timberland. It needs to have its mezzanine debt down to $90 million by August 29th, and it may have its first capital infusion from its new German fund a day or two before. I don't think it will have the capital to reach the $90 million without the German infusion. If the German capital comes up short - I am guessing Timberland needs $10 million to $20 million - Timberland's discussion with Wachovia should be interesting.
Next week is a big week for Wells Timberland. It needs to have its mezzanine debt down to $90 million by August 29th, and it may have its first capital infusion from its new German fund a day or two before. I don't think it will have the capital to reach the $90 million without the German infusion. If the German capital comes up short - I am guessing Timberland needs $10 million to $20 million - Timberland's discussion with Wachovia should be interesting.
Monday, August 18, 2008
Not Going to End Well - Part II
(or, AIG Alum Joins WP Carey)
I was alerted to this news late last week, and got this from Investment Advisor's website:
(or, AIG Alum Joins WP Carey)
I was alerted to this news late last week, and got this from Investment Advisor's website:
Mark Goldberg, the veteran independent broker/dealer executive who most recently ran AIG’s Royal Alliance B/D, has landed at W.P. Carey as president of Carey Financial, the real estate company’s broker/dealer subsidiary. In his new position, Goldberg will be responsible for sales and marketing to B/Ds of the firm’s series of non-traded REITs called Corporate Property Associates.I don't see the fit, and will leave it at that.
Thursday, August 07, 2008
AIG Bucks The Trend
Most other financial firms posted better than expected quarterly results that has lead to a rise in stock prices over the past few weeks. Not AIG. It posted a $5.4 billion loss after yesterday's market close, which lead to today's 220-point market decline. AIG's stock dropped 18% and the ratings agencies are looking to cut its credit rating. AIG's new CEO is feeling the heat for not addressing AIG's problems fast enough and dumping assets.
Most other financial firms posted better than expected quarterly results that has lead to a rise in stock prices over the past few weeks. Not AIG. It posted a $5.4 billion loss after yesterday's market close, which lead to today's 220-point market decline. AIG's stock dropped 18% and the ratings agencies are looking to cut its credit rating. AIG's new CEO is feeling the heat for not addressing AIG's problems fast enough and dumping assets.
Thursday, July 31, 2008
When Accomodators Go Bad
Here is an article on a 1031 accomodator who stole investor money. This is the third story like this I have heard in the past two years. The article details the principals' shady past and how they used short-term 1031 proceeds for personal use and nepotism. This is just horrible. One negative point about the article is that it blurs the line between the viability of an exchange and criminal accomodators. It quotes a woman who likely has lost significant sums:
Here is an article on a 1031 accomodator who stole investor money. This is the third story like this I have heard in the past two years. The article details the principals' shady past and how they used short-term 1031 proceeds for personal use and nepotism. This is just horrible. One negative point about the article is that it blurs the line between the viability of an exchange and criminal accomodators. It quotes a woman who likely has lost significant sums:
"If I would have known any of this, I would have paid my taxes instead" of attempting a 1031 exchange, she says.It is important not to mix the viability of an exchange and bad accomodators. Everyone who sells a piece of investment real estate, at minimum, needs to evaluate the benefits of paying the taxes versus the exchange, the exchange property's investement time horizon and the investor's time horizon, and potential estate tax issues. Only reputable accomodators, like large escrow companies, should be used, and sellers need to demand this.
Tuesday, July 29, 2008
Not Going to End Well
Here is a link to the Dallas Business Journal and an article on Behringer Harvard's Opportunity REIT I's investment in Eastern Europe. The fund is:
Here is a link to the Dallas Business Journal and an article on Behringer Harvard's Opportunity REIT I's investment in Eastern Europe. The fund is:
"investing in a portfolio of 15 retail and industrial properties located in the Czech Republic, Poland and Slovakia."I have not reviewed this REIT, but if I was an investor this move would give me pause, especially with such a weak dollar and November's Presidential elections that will give a new Administration. With the mortgage crisis, one would think there is enough opportunity in the United States, rather than looking for deals in developing countries in Eastern Europe. Lone Star sure found some domestic opportunities.
It's About Time
This should have happened years ago. I bought Lucent when tech stocks were crashing thinking it would be a conservative way to play any tech rebound. What a moron. I still own the stock although I think it is pretty much worthless, at least based on what I paid for it. It is hard to imagine why the two heads of Alcatel-Lucent, or whatever it's called, kept their jobs for so long. This company has been abysmal for so long I don't see it ever turning around.
This should have happened years ago. I bought Lucent when tech stocks were crashing thinking it would be a conservative way to play any tech rebound. What a moron. I still own the stock although I think it is pretty much worthless, at least based on what I paid for it. It is hard to imagine why the two heads of Alcatel-Lucent, or whatever it's called, kept their jobs for so long. This company has been abysmal for so long I don't see it ever turning around.
Merrill's Mortgages
Merrill Lynch announced more write-downs yesterday and a dilutive plan to raise $8.5 billion in new capital. The market is trying to make sense of this deal, as Merrill's stock was down early this morning but has now turned positive. I think the market is seeing that despite Merrill selling a $30.6 billion portfolio of mortgages for $6.7 billion there was a buyer for the securities. Buyers have been absent for a year and the tentative return is encouraging. I think it's important to watch (and I don't know if this will be possible) the resale of the securities by the private equity firm. It bought the mortgages for $.22 on the dollar, and I am sure its expects higher resale prices, probably in the near future. These transactions will give buyers, sellers and other market participants important valuation information.
Merrill Lynch announced more write-downs yesterday and a dilutive plan to raise $8.5 billion in new capital. The market is trying to make sense of this deal, as Merrill's stock was down early this morning but has now turned positive. I think the market is seeing that despite Merrill selling a $30.6 billion portfolio of mortgages for $6.7 billion there was a buyer for the securities. Buyers have been absent for a year and the tentative return is encouraging. I think it's important to watch (and I don't know if this will be possible) the resale of the securities by the private equity firm. It bought the mortgages for $.22 on the dollar, and I am sure its expects higher resale prices, probably in the near future. These transactions will give buyers, sellers and other market participants important valuation information.
Friday, July 25, 2008
Bitten
I don't know anything about Crocs, Inc., the maker of those funny clog-type shoes. A year ago its stock was incredibly hot and now it's in the tank. Looking at its stock chart (from the Wall Street Journal), you'd think it's a supbrime lender:
Last summer people wearing Crocs were everywhere, this summer I can't remember seeing anyone wearing them. People probably looked in the mirror and realized how ridiculous they looked.
I don't know anything about Crocs, Inc., the maker of those funny clog-type shoes. A year ago its stock was incredibly hot and now it's in the tank. Looking at its stock chart (from the Wall Street Journal), you'd think it's a supbrime lender:
Last summer people wearing Crocs were everywhere, this summer I can't remember seeing anyone wearing them. People probably looked in the mirror and realized how ridiculous they looked.
Sunday, July 20, 2008
Private Equity Follies
Here is an article on Mervyn's problems. It was bought by several private equity firms in 2004 and the seller was Target. The retail executives at Target must have laughed their a#$ off dumping dog Mervyn's to the brilliant private equity financiers. The private equity firms did one thing correct when they bought Mervyn's:
Here is an article on Mervyn's problems. It was bought by several private equity firms in 2004 and the seller was Target. The retail executives at Target must have laughed their a#$ off dumping dog Mervyn's to the brilliant private equity financiers. The private equity firms did one thing correct when they bought Mervyn's:
That is because when they bought the company they structured the $1.2 billion deal as two separate transactions -- one for the retailer and a second one for the retailer's real estate.The real-estate arm has been a lucrative investment, according to people familiar with the deal. It leased many of the stores to Mervyn's and has sold and leased certain properties to other retailers. And through sale-leaseback transactions and the appreciation of real-estate values over the past several years, the buyers have more than doubled their money on the real-estate investment. Those profits have far exceeded losses on the retailer, according to these people. In a bankruptcy of the store operations, the real-estate arm would become a creditor.
Not to get philosophical, but I do not see how the private equity purchase improved the business. The firms that bought Mervyn's were supposed to be a turnaround specialists but appear to have been better financial engineers than retail experts. The stores are going to close and employees are going to lose their jobs. Mall owners and other tenants will be hurt. Wal-Mart will benefit, but it likely already has. Other private equity acquisitions of retailers have also soured, and expect more to come.
Wednesday, July 16, 2008
Ich Bin Timberlander
Wells Real Estate may have pulled one out of its hat. Wells Timberland REIT has entered into an agreement with a German fund to raise up to an additional $500 million in equity. The fund will be sold by a German bank to its clients, mostly retail investors. Wells expects big money from this new selling group member, although nothing is assured. This deal is just in time, as Timberland's second and third payments on its mezzanine finance loan are due in late August and mid October. More information on the transaction is available through an 8-K.
Wells Real Estate may have pulled one out of its hat. Wells Timberland REIT has entered into an agreement with a German fund to raise up to an additional $500 million in equity. The fund will be sold by a German bank to its clients, mostly retail investors. Wells expects big money from this new selling group member, although nothing is assured. This deal is just in time, as Timberland's second and third payments on its mezzanine finance loan are due in late August and mid October. More information on the transaction is available through an 8-K.
I Have To Link To It
A snappy, snarky title eludes me for this story. This guy had a Scottsdale mortgage business where he syndicated loans and raised capital through private individuals. Loans soured and before his little empire collapsed he offed himself. The Wall Street Journal hints that this is a indicative of wider trouble in the commercial lending market. Not knowing anything about this company except what I just read, I bet that when the loans are examined it will show poor loan decisions and possibly affiliated dealings, or at least dealings with associates. More an instance of one guy thinking he was smarter than the market than widespread commercial loan troubles. And I bet that many of the soured loans were residential construction loans, not existing commercial property loans. This is not to say that trouble in the commercial mortgage market is not coming. As long as banks are not lending, even good borrowers with solid properties that need to rollover their loans are going to have trouble.
A snappy, snarky title eludes me for this story. This guy had a Scottsdale mortgage business where he syndicated loans and raised capital through private individuals. Loans soured and before his little empire collapsed he offed himself. The Wall Street Journal hints that this is a indicative of wider trouble in the commercial lending market. Not knowing anything about this company except what I just read, I bet that when the loans are examined it will show poor loan decisions and possibly affiliated dealings, or at least dealings with associates. More an instance of one guy thinking he was smarter than the market than widespread commercial loan troubles. And I bet that many of the soured loans were residential construction loans, not existing commercial property loans. This is not to say that trouble in the commercial mortgage market is not coming. As long as banks are not lending, even good borrowers with solid properties that need to rollover their loans are going to have trouble.
Sunday, July 13, 2008
More Mortgage Meltdown
The headlines for Freddie and Fannie sure are different in the Wall Street Journal and The New York Times. The Journal headlines imply a Treasury and Federal Reserve "bolster" of the two agencies, while the Times implies a government "bailout." The Treasury is increasing the two mortgage companies' line of credit and may buy stock in the two struggling firms. I guess we'll know in a few weeks whether it was a bailout or a bolster. It's kind of like that old song, "You call it bailout, I call it bolster, let's call the whole thing off."
IndyMac is getting the press with its government takeover, but hot on its heals is another pending Orange County banking disaster. Downey Saving's stock closed Friday at $1.69 per share, down from nearly $7o per share at the end of May 2007. At a price of $1.69 per share, I am going out on a limb and guessing that Downey's future looks dismal.
The headlines for Freddie and Fannie sure are different in the Wall Street Journal and The New York Times. The Journal headlines imply a Treasury and Federal Reserve "bolster" of the two agencies, while the Times implies a government "bailout." The Treasury is increasing the two mortgage companies' line of credit and may buy stock in the two struggling firms. I guess we'll know in a few weeks whether it was a bailout or a bolster. It's kind of like that old song, "You call it bailout, I call it bolster, let's call the whole thing off."
IndyMac is getting the press with its government takeover, but hot on its heals is another pending Orange County banking disaster. Downey Saving's stock closed Friday at $1.69 per share, down from nearly $7o per share at the end of May 2007. At a price of $1.69 per share, I am going out on a limb and guessing that Downey's future looks dismal.
More GBE
I posted in February when Thompson left Grubb & Ellis that I thought it was strange that he would walk away from a company where he owned so much stock. Based on the news that came out Friday, my initial instinct was correct. He has been paying close attention and he's now trying to get control.
I posted in February when Thompson left Grubb & Ellis that I thought it was strange that he would walk away from a company where he owned so much stock. Based on the news that came out Friday, my initial instinct was correct. He has been paying close attention and he's now trying to get control.
Friday, July 11, 2008
OC Real Estate Moguls
Who needs OC Housewives when you have the real drama unfolding in Santa Ana. Scott Peters resigned from Grubb & Ellis today, likely he was fired. According to this blog (which is really good) Tony Thompson has been highly critical of Grubb & Ellis' performance since he left it in January. He is now trying to get reinstated to Grubb's board of directors. Here is Thompson's letter to Grubb's board that was filed with the SEC. Grubb's board met earlier this week, but made no announcement about Thompson's request. It apparently did decide on Peters.
Who needs OC Housewives when you have the real drama unfolding in Santa Ana. Scott Peters resigned from Grubb & Ellis today, likely he was fired. According to this blog (which is really good) Tony Thompson has been highly critical of Grubb & Ellis' performance since he left it in January. He is now trying to get reinstated to Grubb's board of directors. Here is Thompson's letter to Grubb's board that was filed with the SEC. Grubb's board met earlier this week, but made no announcement about Thompson's request. It apparently did decide on Peters.
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