Guest Post: The "Other" Real-Estate Issue Revisited

Tyler Durden's picture

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Anonymous's picture

Moin from Germany,

from London via FT

Nomura Gets 6 Years Free Rent For London HQ -

Japanese investment bank Nomura has secured a rental deal on its new London headquarters allowing free rent for almost six years, the Financial Times reported, citing the terms of a deal to be announced on Tuesday.

The FT said the bank will confirm plans to move its UK business, including the staff taken on as part of the Lehman Brothers acquisition, into a new office development on the Thames.

Up to 4,000 banking staff will move into the 12-storey Watermark Place next year, many relocating from the former Lehman Brothers building in Canary Wharf.

The landlord, Oxford Properties, is the property arm of an Ontario pension fund and UBS

zeropointfield's picture
zeropointfield (not verified) Sep 1, 2009 11:00 AM

That wouldn't be the same pension fund that buys a stake in Skype?

The group buying Skype also includes London-based Index Ventures and the Canada Pension Plan, in addition to Silver Lake and Andreessen's firm Andreessen Horowitz.



Anonymous's picture

The Ontario Pension Fund mentioned is a provincial provincial teacher's pension fund.

The Canada Pension Plan is the equivalent of Social Security in the US.

so no, they aren't the same pension funds.

Anonymous's picture

So does The Law require corporations to maximize profits to their stockholders, but not require pension funds to protect the savings of the workers whose pensions the funds are managing? If so, then The Law appears to be purposed at stealing from the poor to give to the rich.

sigmadelta's picture
sigmadelta (not verified) Sep 1, 2009 2:46 PM

This was clear to me when reading the Economist's interpretation of the annualized growth rates in Asia a couple of weeks ago.

good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

Anonymous's picture

The real damage occurs when tenancy drops below 85%. Equity, evaporates, cash flow dwindles and landlords can't even afford to pay the property tax and insurance.

This should happen mid-2011.

Strom's picture

Not sure where you got that occupancy number, but plenty of properties operate at 85% or less occupancy and cash flow just fine (even after debt service).

Granted, there are many owners who overleveraged from 2003-2007, but there's no hard and fast rule on occupancy as compared to cash flow.

Assetman's picture

And if this were not enough, we can tell you from first hand knowledge that bank regulators have been crisscrossing the country examining bank CRE loans intently.  They do not want another mortgage debacle as was residential real estate on their current watch.  Like they have a choice, right?  In many cases current CRE appraisals are being conducted against existing bank property loans and capital calls are going out to CRE owners who have always been model credits and have never missed a payment in their lives. 

That's a primary reason why you are seeing so many banks on the FDIC Problem List.  A lot of these are smaller Federally chartered community banks that have to get their CRE portfolios in shape in a hurry.

Ironically-- because entities like the OCC are being so proavctive in pushing for new CRE appraisals-- many of these banks are having to provision for loan losses very conservatively and are pressed have reserve ratios in the 12% to 14% range.  Those that can't get there will likely be in deep kimchi.

And yeah, we've seen some "capital calls" on CRE owners with not only good payment histories-- but with sizable trust (investment) accounts.  After telling a customer his loan is not good enough, it's nearly impossible to keep any other earning asset.

Just as ironic, is that it's likely that many of these smaller community banks are in much better shape than their larger brethern.  Why?  Because the government has (1) been more proactive on CRE risks and forcing the issue on reducing CRE portfolio exposures and provisioning for losses; and (2) they are simply not going to bailout smaller banks.

What gets overlooked are all the STATE chartered banks that should make the FDIC Problem List but don't-- due mainly to many state regulators being way behind the 8-ball on tracking CRE portfolio risk (though a handful of state regulators are doing okay). 

It's these banks that are likely to make the headlines, in a not so good way. 

bbbilly1326's picture

Wow, this is a dynamite presentation of data that not many people apparently have thought to look at.


Great job, as usual, turning over rocks and pointing out nasty creatures thereunder..........

And even I could understand it, with the pains you've taken to explain.

KeyserSöze's picture

Look for the Accounting cheating to continue UNEBATED well into next year 2010.  I suspect the real value will NEVER be realized as the Fed will put these garbage securities onto its books via the tax payer printing machine.  That is of course if they can't get the perma bull REIT buck shops to continue to issue more equity to dumb institutional money who believe Goldman's call about "the recession is over".

Tyler put the link up in "Frontrunning today" but several things in there are worth pointing out:

(read the full article for the Japan esk spin to the accounting 'change'-yep there is that F**king word again)


From the article:

"In such cases, fair value can be determined only through "unobservable inputs" — information that reflects a company's own ideas about the assumptions market participants would use in their valuations of the asset or liability. "

FASB also cleared it with Wall Street before ANY change is made. 

"FASB did a field test with more than half a dozen financial-statement preparers, most in the financial-services sector."

Conclusion: More upgrades to come from our BFF bank prop desks  to help finance the second biggest ponzi scheme besides the US Federal Debt.

Hephasteus's picture

You guys DO NOT understand the FED. The FED will take these loans good bad or ugly, let the bank fee and pump them at usury rates till the loans get blown to massive make believe losses. Stick them on the national debt balance sheet and pretend that american people owe the money. They made the president pay to rebuild germany during the great depression while americans starved because they wanted germany flushed with cash to build a war machine society.

You just don't get it. Someones $500 credit card that got blown up to a $2500 loss through usuary and fees and then finally allowed to default is going to become national debt. The FED never forgives debt no matter how silly convoluted or scammed those debts were built.

WHY DO YOU THINK THEY WON"T LOAN CREDIT WORTHY PEOPLE MONEY? Because they only want fake debts that have to default to move it to national balance sheets and pretend it's national debt.

Ruth's picture

Besides, aren't all the cre lo's on a private beach right now vacationing? 


ptoemmes's picture

Why do I fear a TALF II...

Anonymous's picture

Wait you're saying there have been 600 billion in new CMBS issuance in 2009? I don't know where you got that number because it's plain wrong.

-- see PDF page 5

And man he really pounds you in the face with his disdain for accounting rules.

ZerOhead's picture

This isn't a pretty picture here... and it doesn't look like it's going to get better anytime soon.

Great report... thanks for the link!



Mos's picture

Enter the Federal Reserve, buyer of all garbage CRE related.

Gilgamesh's picture

Close, but that's a bit off yet.  First the T has to take the losses.  In no small way.

They steal from us everyday's picture

Nothing to see here!!!!!


Move along!!!!!


Green shoots, green shoots, green shoots, green shoots, green shoots...


Come on everybody say it together.....





sigmadelta's picture
sigmadelta (not verified) Sep 1, 2009 2:46 PM

wow look at stocks crash

good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

chumbawamba's picture

Haha, I hope my ex-landlord takes it in the ass on his properties.

I'm trying to find information on the CRE exposure of First Republic Bank (previously acquired by Merrill Lynch in 2007, now a wholly owned bitch of Bank of America).  Since the buyout by ML in 2007 they no longer publish their financials publicly.  Is there some other way to get at this data?

I am Chumbawamba, and I am grateful in advance for a clue.

pros's picture

The NCREIF numbers are submitted by the owners of the properties on a "blind basis" they are always stale


The MIT transactions based index is a little better than NCREIF and tells a much worse story-the below MIT link compares the two:

Lots of Luck

ZerOhead's picture

Mucho gracias amigo...

Anonymous's picture

I wonder if using a warehouse as a parking lot diminishes its value?

Anonymous's picture

Damn, got me beat on that one.

Anonymous's picture


Anonymous's picture

Thanks to everyone. This information is really helpful.

Anonymous's picture

You should make a video about all of this and post it everywhere.