not bet against him. He is making a play for a monster busted real
estate deal. I am sure he has if figured out. I can’t make sense of it.
NYC’s Stuyvesant Town was bought by Tishman Speyer back in the good old
days (2006) at a big price of $4.3b. It went into default last year and
the equity and Mez debt got taken to the cleaners.
There was a $3b senior mortgage. $1.5b was taken down by Wachovia and
later put in a $7b CDO. The other $1.5 billion was taken up by our pals
at Fannie and Freddie.
This a political deal and a business deal. There are many rent
controlled apartments in Stuy Town. The city of NY will not let anyone
walk on those people’s rights. And Ackman wisely got ahead of this issue
with a plan he made public last week. (NYT and NY
magazine) He made it clear that he was not going to mess with that
problem. Any of those renters with subsidized apartments were welcome to
stay. With that issue defused the only remaining questions were (1)
what was the price Ackman was willing to pay and (2) how was he going to
finance it.
The price Mr. A put on it is $3b. Exactly equal to the outstanding 1st
mortgage. The way to pay for it? Simple. The existing lenders would
restructure the notes and stay in the deal for a very long time.
Well done Bill. You plan to buy one of the largest properties in NYC
with next to no money down. Here are some of my problems with this
transaction.
I asked The FHFA (the regulator for Fannie and Freddie) sometime ago
about this deal. I will rely on their responses to make some points.
The Stuy Town property is not worth $3b. Fitch recently valued the property at $1.8 billion. When I asked about this the FHFA responded:
BK: Comment on Fitch value of 1.8B?
FHFA:This is Fitch’s estimate. Other firms estimates place the values between $1.6 and $2.2 billion depending on the cap rate.
That’s interesting. The lender thinks their loan is underwater. But Bill
Ackman thinks it is money good. So Fannie and Freddie love Bill. He is
going to bail them out of a problem. He is going to force F/F to lower
the mortgage to a much lower rate and the loss on F/F’s books will just
be moved down the road for a decade or so. Everyone will be happy.
Except me and few hundred million other taxpayers who have to support
it.
It does not have to be like this. The value of the Stuy Town property
does not have to be artificially inflated. F/F do not have to jump
through hoops to avoid an accounting loss. They had credit protection on
their holdings of Stuy Town debt:
BK: Did F/F have other credit enhancement?
FHFA: F/F had enhancements for this deal that were typical for large loan deals. Other investors had the same enhancements.
Color me shocked. They had “enhancements”. In other words
they either had some form of CDS or they put the bonds in a CMO/CDO and
took back senior tranches. They did not do the latter:
BK: Did F/F put the securities in a larger CMO transaction?
FHFA: No, they did not put the securities into a CMO. The GSEs approached this as typical investors.
So they have a CDS or insurance contract that protects them from some or all of the losses relating to Stuy Town.
If F/F can get out whole today there is no reason for them to stay in
this deal. They never should have been in this transaction in the first
place. There was a fat coupon on this, but we now know that that the
coupon was not enough to compensate for the risk. It was a bad deal from
the time it was signed. The evidence of that is the fact that F/F and
“other investors” sought credit protection. The real motivation for F/F
was the “low income housing credits” that the Agencies needed to fulfill
their Congressional obligations. On that subject:
BK: Did F/F do this to get low-income housing credits?
FHFA: They did receive housing goals credits and did so in the context of meeting their standard securities investment criteria.
The silly game of housing credits and the GSE is one of the reasons were
are in a decade long housing crisis. It is/was a bankrupt concept. It
no longer exists. There is no excuse for F/F to roll over and stay in
the Stuy Town transaction.
This is a “story deal” that is going to come to a head in the next few
months. Wilbur Ross is also a player; but he is keeping his cards close.
If Ackman wins this one it will prove once again that he is force to be
reckoned with and that the taxpayers are suckers.
Note: I would love to know if those “enhancements” came from AIG. Wouldn’t that be a kick in the head?
Updated DOW and SP500 charts:
http://stockmarket618.wordpress.com
You can't be considere a true "big shot" int he world of finance if you don't steal from the taxpayers. After all, this is America, right?
Wanna join Buffeet, GS, Gross, BlackRock - you have to rape the taxpayers.
It's like initiation in to the street (TheStreet?) gang.
Look at that picture. That's one hunk of underdeveloped land. I would buy it with zero down. The cap rate is determined by NOI and compared to one off tracks of land throughout Manhattan. A cap rate based on below mkt rents. Is there some CPI rent increase mechanism? Without knowing, I would say Ackerman is forcasting a return to inflation in the medium term.
Is it possible that the Rents for thoes properties are under the amount allowed by Section 8 Hud housing?
If the rents could be raised by 25% and the Government pays the higher rent I think Ackman is probably right and the Property is undervalued. Section 8 Rents are Guaranteed by the Government an they almost always pay above fair value just to get Landlords to accept the Tenants.
YesAckman is smart and he has the Government up his sleve.
So, I guess the Taxpayers "Government" pays for it one way or the other.
It sounds like you know more about our Government meddling in real estate than I do, so maybe you have a point.
But what is sweeter than a free option? And it sounds like Bill's free option could bring the Black-Scholes model to orgasm if he gets it...
This all goes hand in hand with the CRA.
Criminals
Raping
America
There can be no doubt that AIG was the insurer of last resort...bailed out by Timmay at 100 cents on the dollar at the expense of the dollar every American uses.
RICO for thee but not for me personified.
Another outstanding read Bruce.
More rape and pillage of the taxpayer...
Finally, the Rich Are Getting Their Fair Share: Manhattan Condo Dwellers Line Up For FHA Subsidies
http://reason.com/blog/2010/08/13/finally-the-rich-are-getting-t
Manhattan luxury condos embrace FHA backing
After Federal Housing Administration loosened rules last year, at least nine condominiums developments south of 96th Street have sought agency's backing in effort to spur sales.
http://www.crainsnewyork.com/article/20100813/REAL_ESTATE/100819896
Yes, it is insane.....the defunct toxic mortgage originators passed the loose lending baton to FHA. Doctor Bubble has some pretty ugly graphs on FHA's growing delinquencies and dwindling reserves.
www.doctorhousingbubble.com
Terrific analysis. Well done and thanks.
F/F is the new mother-ship-SIV. OBS baby!
+1
As in – A kick in the taxpayer’s heads – if we still have any! FNM/FRE were kept alive with minimal oversight to provide $$$$ to Congress-“people” and other DC insiders like Rahm who took $340,000 out of FRE a few years ago as a Director or something. That loser Raines is collecting $114,000 MONTHLY for life [in Bermuda] http://www.msnbc.msn.com/id/6760080/
dup deleted
Franklin Raines is a member of the Trilateral Commission and the CFR.http://www.nndb.com/people/905/000094623/
Rahm Emanuel is a member of the CFR
http://www.nndb.com/people/484/000037373/http://www.biblebelievers.org.au/cfrall2.htmhttp://en.wikipedia.org/wiki/Rahm_emanuel
And Matt Simmons was part of the CFR. What are you suggesting A T W?
My belief is that a corporatocracy runs the show. Maybe they are trying to bring in a scientific dictatorship (think CIA, EPA, DOD) and an electronic control grid (full naked body scanners, FICO scores, eventually microchips).
The shitty thing about Fannie and Freddie is not the bad loans on the asset side of the balance sheet, but all of the cash that was paid to executives who ran it into the ground. The reason that Fan / Fred were leveraged 100 to 1 was that there was no equity in the company. It was paid to Raines. The Feds need to claw this back, or we'll have a revolution on our hands.
William Ackman on Fannie Mae and Freddie Mac, July 2008
http://www.youtube.com/watch?v=HliKVYip2jA