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Developers Diversified Realty Email of Interest
I just received this email and thought my readers may find this of
interest. DDR is the company that was featured in the "bailout" post (Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!), a must read if you haven't done so already:
I am in the premium
xxxxxx business and own a retail store in metro Atlanta. The area that
I lease is in a diverse affluent part of town. I believe that this is
considered a class A shopping center. DDR is the current owner and
this is one of the 28 shopping centers that was put up as collateral
for GS in exchange for a 400 million dollar loan that they are going to
try to roll up into TALF. To the best of my knowledge DDR acquired
this shopping center from Inland a little over 2 years ago.
I
believe that DDR paid 22 million for it. Last I heard(this needs to be
verified) this shopping center is now valued at 17 million. My lease
payments now go straight to goldman sachs commercial mortgage capital.
Three years ago this shopping center was nearly 100% occupied, now its
about 15% remains unleased. The lease signs in the windows now say
short term, seasonal leasing available. This was unthinkable over 5
years ago when I set up shop. All the tenants are up in arms over what
we consider fraudulent bills that we are receiving regarding CAM
charges. In my opinion DDR is so fiscally screwed that they are
resorting to complete slimball tacticts and are possibly truly
commiting fraud regarding these new excess bills that we all recieved
out of nowhere. In my line of work I am very lucky to talk to rather
affluent business people usually higher up the corporate ladder. Many
of my customers are in CRE and all of them say the same thing, "CRE is
dead, no activity, and it slowly keeps getting worse" DDR's attitude
and behavior is repulsive and arrogant towards their tenants. I have
never seen such poor management from any landlord.(I have been leasing
for over 20 years, 5 years at this location) The base rents at our
shopping center are going down, but only when leases expire. They wont
even consider lowering anyones rent if your locked into a lease. Some
of the base rents were as high as $40 per sq ft(usually from people
that couldnt speak english very well I am afraid to say) and as low as
$26. It seems now that you can, through much hard ass negiotations,get
it about $20-$22 per sq ft. Reggie I thank you for your work and if I
can help you in any way please dont hesitate. Thanks.
- advertisements -
The game is rigged - DDR will not fail. The first tarp (as in US Governemnt) loan in RE will bring them $400 million. It will be managed by Goldman (Buffett) Sachs, and at some point mezz financing will be added to the tune of $100 to $150 million, by all the top private guys (Blackstone, Starwood, etc.). DDR has recently issued senior notes, through Bank of America, Citigroup, JP Morgan, Deutsche Bank, Key Bank, and Wells Fargo. They have a stealth equity issuance program with BNY Melon.
Who owns their stock? The Otto family from Germany was issued cheap stock, and sits at the table with around 12% of the stock. Cohen and Steers - 12%, Fido - 9%, and CGM at 5%. Add in 5% for management, and more than 40% of the equity is owned by those who have the stake and the funds to keep this one afloat.
DDR may be junk, but the interested parties mentioned above tell you they are here for awhile.
These DDR Freaks are having more fun:
http://www.youtube.com/watch?v=0gh6hzs_7Kc
We've recently spoken to an old time leasing agent working for DDR in the Midwest. Simply put, he told us that Developers Diversified is essentially bankrupt and on its' last leg.
This leasing agent is exhibiting very 2007 - type thinking; I mean, really, who isn't "essentially bankrupt"?
Insolvency is the new black! ;-)
JTS
You sure can't tell by the action in their stock price over the last 8 months, or even the last week. Up over 4 percent today. Load up on REIT's and short SRS.
I do believe you though. Just shows how disconnected this market is, or in the case of REIT's, one must wonder if bailouts are on the way, transparent or otherwise.
It's Developers Diversified...
Reggie, I believe that you may start seeing more tenant preemptive bankruptcy's after the holiday season (and the usual type). The cost of the legal work/credit hit vs the benefits of renegotiating your lease/space will widen once tenants realize this is a long term economic trend. The big gains in productivity (9%?) tell me there is no more room to cut people. And container traffic down 20%ish says many retailers have already given up on this year. With corporate directives being what they are to cut more, the last place is RE to make any significant reductions in costs. (I am not a lawyer and this in not legal advice)
DDR is protected by the "Reit Mafia". Check their holders list and realise, that as bad as it gets for DDR, they will have access to equity. Marty, Ken, and Steve have, and will protect their investment.
Its probably overvalued at $17 mill. Going from 100% occupancy to 85% occupancy would reduce the value 18%; that's only the physical vacancies. There are economic vacancies (non-paying or partial-payment tenants). Cap rates are definitely higher; with every 50 basis point increase the value decrease 7% so I would figure that this stated value is high.
That's the problem w/ "so called" business people. When you signed a contract/lease agreement at an agreed term, you are OBLIGATED to it. Just because rents have come down elsewhere, tough shit!!! This is what a contract is all about, holding someone to their words, since words mean NOTHING these days. A REAL business professional would simply honor their obligations and expect same from others, that's the best you can expect. DDR or any other landlord has NO obligation to rework, reduce, modify, etc (or any other stupid polite terms) since there is a thing called a "contract".
That is not completely true. In tough rental times, the renter has an interest in keeping his renter in business and reasonably happy. There are a couple of reason for that. One is that if the renter goes out of business, he will be tough to replace. But, the second is at the end of the lease the renter may desert the renter.
So, even if DDR has no obligation, he may have very good business reasons for taking care of his renter.
Why do I think that will be a surprise to you?
Rick
Well then I would say that we have a complete and total vacuum of REAL business people on Wall Street and in the banking industry... if they were REAL business people then they would not have come hat in hand begging for money from the American public. So anon... does your definition of REAL business people just apply to the small businesses... who have little leverage against the massive corporations.
And BTW... people renegotiate in-force business contracts quite frequently... I know I do... if I don't like the current terms from someone with whom we have a contractual arrangement... then I will simply say we either need to sit down and look at where we are with this contract... or next time it is up for renewal we will no longer be interested in continuing our long-standing relationship with you. Most of the time they will sit down and renegotiate to continue that relationship.
DDR owns a mall in the town I live in. At one time it was pretty much full, but now there is only a handful of stores at best. They built a new movie theatre and two restaurants on one end of the mall. The theatre opened a year late, and the restaurants never did open. The rents are crazy high. I can't believe they are making any money.
When the mall was built, my better half who works for a law firm, did all the legal work. The guys from DDR were, how should I say this, mafia looking, for lack of a better word. She told me they were wearing gazillion dollar suits, the fancy shoes, fedora's and sunglasses. She said everyone was afraid of them. Alway's four of them in their big fancy car and always walked around like King shit from turd creek. I think I would be afraid of them too.
I love these emails that just pop up in your inbox. I'm starting to think that you went to Jayson Blair school of journalism.