CoStar Seeks Your Input On The Truth Behind Commercial Real Estate

We have so far avoided discussing this weekend's most tragicomic news, which undoubtedly is the Mortgage Bankers' Association selling their headquarters for a huge loss in less than two years. The building which was acquired for $76 million was sold to CoStar for $41.25 million. How the MBA is in any way supposed to provide insight on sentiment and market perspectives after a slap in the face such as this is beyond us. At best, they should start a $2.95 newsletter titled "How to top tick the market and never look back while waiting for the Dow 36k." The other implications of this transaction are self-explanatory. Yet courtesy of diligent readers, we have received some other very amusing information, which however focuses on the buyer in this transaction, specifically CoStar, which on its website brands itself as the "#1 Commercial Real Estate Information Company." Apparently the validity of this branding is only as good as the (un)solicited hot tips CoStar receives every day. A letter sent out earlier by an editor of CoStar's Watch List Group seeks to expand on the groupthink permeating the permabullish CRE investor landscape (we hope they approached Cohen and Steers with their query for an objective and unbiased perspective), with a set of questions that makes one question the validity of CoStar's self-branded characterization.

We present the letter in its redacted entirety and request that helpful readers will provide their CRE perspectives to an otherwise confused CoStar:

From: XXXX
Sent: Monday, February 08, 2010 7:31 AM
To: XXX
Subject: Comments sought for upcoming Watch List story on CRE Loan Sales

Judging by FDIC numbers, 2009 was a huge year for sale/purchase of CRE debt. The FDIC alone sold about 3,500 CRE loans with a book value of more than $6.1 billion. That compares to CRE loans sales in 2008 of just $153 million.

I am preparing a story for an upcoming Watch List article sort capsulizing that activity. Any color or insight on any of the following points you could provide would be greatly appreciated.

How active is the market for CRE debt right now?

What is the outlook for 2010?

In a nutshell, what is the profile of the most active buyers in the market? And most active sellers?

Does there seem to be a preference for performing or nonperforming debt and does the quality dictate the type of buyers and sellers.

Does there seem to be a preference for loans by property type? And if so why?

Thanks in advance for taking the time to consider this request.

Sincerely

XXX
The Watch List Newsletter
CoStar Group

Comments

[WaterWings]

Does there seem to be a preference for loans by property type? And if so why?

Productive farmland away from missle silos: a) Soros is doing it b) Because of the missle silos.

[WaterWings]

Oh, and whatever loans it would take (who cares what kind!) to fix Burj Khalifa's "electrical problems".

http://www.guardian.co.uk/artanddesign/2010/feb/08/burj-khalifa-closed-p...

[Hephasteus]

After discovering Ohms law they quickly stripped out the 14 guage wiring and ordered some 0 guage. Quadrupling the cost of the building. LOL

[pros]

These guys are good at tracking the market.

Heschmeyer publishes a piece every week..

His most recent highlights some nefarious goings-on by Apollo Real Estate..

that's Bill Mack/Leon Black, now calling themselves:"AREA"---a type of predatory landlording in NYC:

http://view.e.costar.com/?j=fe8d13777462057b73&m=fec415707d610d79&ls=fde...

There's a "smoking gun" here because it seems that NYC's "blue chip" landlords, including Apollo...and Blackrock/Tishman Speyer at PCV/Stuytown, were seriously bad guys and managed to blow up the CMBS market as well.

Mark provided raw material to see this disaster coming.

[Bam_Man]

If the building was purchased with the kind of 110% LTV financing that was s-o-o-o popular back in 2007, then it is not The Mortgage Bankers Association's problem.

Maybe some pension fund in Norway holding the CDO.

Don't forget, with these guys it's always "other people's money".

[Anonymous]

DRV Baby!

[Anonymous]

Possibly, since he told ABC that “he wasn’t worried that tighter financial regulation would put U.S. banks at an international disadvantage. ‘I’m very confident we can make sure that we are working very closely to raise global standards around the world so we have a level playing field,’ Geithner said.” His motivations are only slightly suspect. Why?

Under IFRS, assets are overstated as derivatives are measured in gross exposure, as opposed to GAAP which concerns itself with net value. More magic financial reporting; of course Geithner would want to see banks magically healed by a change in accounting. If we’re going to do it, let’s also restate years 1999 – 2009 so we can compare at least.

http://www.jrdeputyaccountant.com/2010/02/tim-geithners-secret-ifrs-endo...

[Lndmvr]

Bama was giving his wish list the other day and said something to the effect of.......... The SBA will lend money for mortgages of commercial buildings. Back door man.

[litoralkey]

This is how the CRE market functions, how it has functioned for decades, and will continue to function for at least another decade.  CCIM, CRE Counselors of Real Estate, SIOR etc operate through massive social networks and CoStar is one of the nexus points with the sponsorship of conferences and other social events.  CoStar isn't writing to the audience of masters of the (CRE) universe, rather to the career brokers/agents mortgage/finance pros, and smaller private CRE owners out there in the US.

For non-packaged CRE mortgage debt, there aren't many functioning reporting metrics, almost every deal being closed is outside the existing listing services (CoStar, LoopNet, CCIM new's venture www.stdb.com, CBRE's new listing service etc) and what is tracked takes months to be registered and collected.
 When the FDIC suddenly became the largest player in the market the existing networks of CRE professional got thrown off kilter.  THE FDIC is also attracting new entrants on the buyer side, the market dynamic has shifted and still in a transitory phase.

The CoStar subscribers are in many ways trapped in fishbowls, outside of the major finance center metro areas it's not particularly easy to start developing relationships with the new whales in the sea, . CoStar caters to the agents and brokers.  These new deals through the FDIC are cutting out the brokerage networks in favor of a small group of insiders, most of the insiders are not part of CoStar's subscriber base.

Some examples, Major strategic gambles related to transport and fuel costs are changing the buyers of warehouse space in flyover country.  Existing well known CRE groups blew up due to topping the market, and the new entrants purchasing properties at lower cost basis are many times relatively unknown players from other geographic regions.  Vulture capital is scooping up various stripmall types in certain markets on gambles on a long term turnaround in retail foot traffic and consumption levels.  Many of these capital funds have financiers with no CRE experience and are run by a handful of CRE pros following formulas or their gut, god only knows cause the supply of stripmalls is endless.

Anecdotal insight is valuable in the CRE brokerage social networks.  everyone is looking for the next meal ticket, let alone the next big thing.

rambling response...

[Anonymous]

My favorite for the weekend was the auction of Hanover Mall.

Purchased in 2007 for $99.4m with a loan of $87.5m the owner defaulted on the loan and has now bought it back for $36.7m.

There's a good reason why the rich get richer:

“The people that were holding the mortgage were the high bidder,” auctioneer Paul Saperstein said. “Nobody had any information regarding what the rental income and so forth was, so nobody would bid.”

http://www.bostonherald.com/business/general/view/20100205hanover_mall_a...