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Capmark Apparently Doesn't Read BoomBustBlog Either!
From Bloomberg: Capmark Increased Office, Hotel Loans as Zell Called Market Top
Oct. 27 (Bloomberg) -- Capmark
Financial Group Inc., the lender that filed for bankruptcy this week,
was making billions of dollars in property loans just as investor Sam Zell was exiting the U.S. office market in early 2007. I find this comment particularly interesting. In 2007 I wrote the following article:
- Will the commercial real estate market fall? Of course it will. December 2007 Excerpt: "Sam Zell, one
of the most successful real estate investors of our time, sold his
Equity Office Properties Trust of Class A and B buildings to Blackrock
for what I assuredely thought was a fools price. When I saw the
numbers, I said easy money or not, there is an ass for every seat.
Well, little do I know. Blackrock found someone to pass the cherry on
to, and in near real time at that - and they paid even lower cap rates
than Blackrock did. Hats off to the Blackrock folk. You found the guys
at the very tip top of the market to drop those cap rates off on.Now,
the problem for the last guys to buy these properties (as Sam Zell sits
there smiling on his $21 billion pile of cash) is that it is going to
be nigh impossilbe to find someone who will pay a ZERO cap rate, and
try as you might it will be damn hard to raise lease rates amongst an
economic hard landing and negative trending earnings... And thus, this
is the fate of commercial real estate. The many guys who overpaid, will
get burnt as values tumble from their peak bubble highs. Old school
real estate guys email me and say they never even heard of 5, 6 and 7
percent cap rates until recently (after 30 years in the biz). Well,
some of these guys are pushing zero (literally 1.5% to 3 and 4%).So
I told my team to find the low cap rate buyers so we can short 'em. We,
of course, started looking at the profile of those who bought from
Blackrock (I mean, who wouldn't?) and then moved on when we saw that
their were some entities that were in some real (and I mean real)
trouble. Here are a couple of companies that we passed on because they
weren't bad enough off:..."
I specifically stated that I didn't think anyone would be dumb enough
to buy CRE from Sam Zell at the top of the market. I was proven wrong,
then stated that there was no one stupid enough to buy properties from
the guys that bought properties from Sam Zell at the top of the market.
I was wrong again. Actually, there were plenty of guys with plenty of
money willing to go shopping at the top of the market (just as they are
doing in the equity market now). Obviously, I need to get to know more
of these people. If I knew them back then, I would have been flipping
CRE!!! Speaking of those CRE guys, this is who I ended up focusing on
in late 2007 - now bankrupt big time:The Commercial Real Estate Crash Cometh, and I know who is leading the way!In 2006 and 2007, Capmark originated $60 billion in commercial mortgage
loans, most for office buildings, according to the Oct. 25 bankruptcy
filing. While Capmark was lending, Zell was selling Equity Office
Properties Trust at the top of the market for $39 billion, including
debt.
And I was buying puts on soon to be bankrupt companies trading at $60
for literally pennies as all of those experts were calling me a fool
for betting against the big money... Yeah, the big money like the
infallible golden guys over at Broad Street...
Capmark collapsed under the weight of the loans it made and the debt that financed its leveraged buyout by a group led by Goldman Sachs Group Inc. and KKR & Co.
By the time of the filing, Capmark had $18.5 billion in corporate debt,
including $6.9 billion due in 2010 and $8.54 billion due in 2011,
according to data compiled by Bloomberg. As commercial property prices
started falling, loan defaults accelerated. Payments were at least 60
days late on $4 billion of the $24.1 billion in loans Capmark listed as
managed assets on June 30. That was up 166 percent from Dec. 31.“They were aggressive lenders and the company was
highly leveraged,” said Jeffrey Rogers, president and chief operating
officer of Integra Realty Resources Inc., the largest U.S. commercial
real estate valuation company. Capmark, based in Horsham, Pennsylvania,
is an Integra client. Whoa fella. Why didn't you tell your client this BEFORE they collapsed???
Growing Challenges
“The Capmark bankruptcy reinforces that, in the case of
institutions with large concentrations in commercial real
estate, current disruptions to the market have the potential to
impact their viability,” said Sam Chandan, president and chief
economist of Real Estate Econometrics, a property research firm
in New York.
Capmark and its units owe $7.1 billion to the 30 largest
creditors without collateral backing their claims, according to
court documents. The three biggest are Citibank NA, with a
claim of $4.6 billion; Deutsche Bank Trust Co. Americas with
two claims, for $1.2 billion and $637.5 million; and Wilmington
Trust FSB, with a claim of $500 million, according to court
papers.
Of the loans Capmark originated, office, multifamily and
retail properties account for the biggest share of those that
are delinquent. Of the non-performing loans, $444.7 million
were made to office buildings, $282 million to apartment
owners, and $243.7 million to retail properties, as of June 30.
Hotel Properties
“After the new ownership took over in 2006, they got even
more aggressive,” said Dan Fasulo, managing director of Real
Capital Analytics Inc., a New York-based research firm.
Real Capital identified 234 properties with Capmark
financing, 62 of which had fallen into foreclosure, default or
distressed status.
Capmark said hospitality properties accounted for $2.28
billion of its portfolio of mortgages as of June 30 and $78.9
million of those were in default as of that date.
Speaking of which, I need to release my opinion of the Starwood
Properties (HOT) earnings release some time today. Scary reading for a
company that went up 50% in price...
The properties Real Capital identified as “troubled”
include a delinquent loan as of September on the Ontario
Airport Marriott hotel in Southern California’s Inland Empire;
a foreclosure in June on a $95 million loan to Xona Resort in
Scottsdale, Arizona; and a $192.5 million loan to the Maui
Prince resort in Hawaii that’s in receivership.
Capmark’s Creation
Capmark was created in March 2006, near the peak of the
real estate and buyout market. The company listed consolidated
debt of $21 billion and assets of $20.1 billion as of June 30,
according to Chapter 11 documents filed in U.S. Bankruptcy
Court in Wilmington, Delaware. Forty-three affiliates also
sought protection.
Goldman Sachs, KKR, Dune Capital Management LP and Five
Mile Capital Partners LLC bought 78 percent of Capmark, then
called GMAC Commercial Mortgage, from General Motors Co. for
$8.8 billion. The buyout consisted of $1.5 billion in cash and
the repayment of $7.3 billion of debt, before GM’s sale of a 51
percent stake in the rest of its finance business, GMAC LLC.
Using credit provided by Wall Street banks, private-equity
firms announced a record $1.4 trillion of deals in 2006 and
2007, according to Bloomberg data.
Dealmaking collapsed in mid-2007 as debt evaporated in the
global credit crisis. All of that money lost, which could have easily been saved with just a small subscription to BoomBustBlog
. Zell sold Equity Office, the largest U.S.
office landlord with 540 properties, in February of that year
to Blackstone Group LP. He made $900 million from the deal and
went on to purchase the Tribune Co. for about $8.3 billion.
Tribune, owner of the Los Angeles Times and Chicago Tribune
newspaper, filed for bankruptcy in December 2008.
Good CRE timing on Zell's part, but it was obviously a bad time to get
into print media, even at what was percieved as a discount.
As the economy soured, buyout firms were left to manage
assets they bought and companies from retailer Linens ‘n Things
Inc. to carmaker Chrysler Group LLC sought bankruptcy
protection.
Commercial Property Values
Commercial property values in the U.S. have plunged. The
Moody’s/REAL Commercial Property Price Indices fell 3 percent
in August from July, bringing the decline to almost 41 percent
since October 2007, Moody’s Investors Service said Oct. 19. Of course, the poster child of CRE failures due to over leverage in an over-inflated market is... "GGP and the type of investigative analysis you will not get from your brokerage house".
Vacancies at U.S. office buildings are at a five-year
high, a 23-year record for apartments and the highest since
1992 for retail centers, according to real estate research firm
Reis Inc. All that unleased space makes it harder for landlords
to pay their mortgages to lenders such as Capmark.
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This cannot bode well for ZION then, i mean Zion invested at the wrong place, the wrong time and in the wrong sector, CRE.
Always great information, but the self-aggrandizement can be a little grating.
whaddya mean? I admitted that I was proven wrong twice in one paragraph :-0