Westfield, the world's largest mall operator, announced results earlier today, which demonstrated substantially accelerating real estate writedowns, primarily in the US. For the six month period ended June 30, Westfield announced $2.5 billion in property revaluations, after posting $2.6 billion in comparable charges for the entire 2008 year period: the company is finally marking its asset book to something vaguely resembling reality.
In a sign that the REIT market may surprisingly lose its invisible bid, the primary beneficiaries of the IPO pump and dump game, namely Merrill and Deutsche, have announced they are deferring their underwriting fees for REIT IPOs "after buyers balked at the deals" (one doubts Cohen & Steers is part of this group of balkers).
Excluding GGP Trickery, CMBS Delinquencies Hit Another Adjusted Record High Of $30.5 Billion For JulySubmitted by Tyler Durden on 08/25/2009 11:43 -0400
RealPoint has released their July CMBS delinquency report, and if one adds the surprising switch of $4.8 billion in GGP loans which amusingly were returned to current payment status,the July delinquency total has hit a total of over $30 billion - an all time record.
"Many of the issues that are cropping up in the ongoing wave of REIT and real estate restructurings
and bankruptcies are novel, and many of the issues that arise in bankruptcy in the
ordinary course have not been previously applied to the complex real estate financing structures
created in recent years. It is important to appreciate, but not to exaggerate, the hazards now facing
both lenders and borrowers." - Wachtell Lipton
All eyes on Jackson Hole today, as the world's Plutocrats assemble to "discuss issues" related to the safety and stability of the global financial system. When in reality, they were high-fiving, partying, enjoying booze, escorts, and fine food.
RJ analyst Paul Puryear creates new words to describe his enthusiasm. Objectivity and OED butchering ensues, and even Mark Haynes is confused.
"While the worst of the current US recession appears to have passed, we caution that CRE trends are just starting to soften and will remain weak into 2011; as such, REITs should underperform the broader equity markets during the next stage of the recovery (6-9 months). In fact, we anticipate a decline in FFO of more than 10% for REITs next year, on top of the 15-20% expected decline in 2009. Hence, 2011 should be the bottom with growth resuming thereafter. Over the next 12-24 months, we see the combination of rising CRE loan defaults, deteriorating fundamentals (similar to the 2001 downturn), and more stringent lending standards (50% LTV loans at higher rates) resulting in a “challenging road ahead” for REITs." - Goldman Sachs
In April Zero Hedge discussed the potential conflict of interest of secured lenders providing equity financing to companies in which they are the primary secured lender, with a "debt repayment" use of proceeds, in essence using the raised equity to pay down the debt on which the underwriters themselves are on the hook for. Not surprisingly, this was all occurring in the context of REITs - the same companies that face a massive credit crunch as numerous CRE loans come due for refinancing in the 2011-2014 timeframe. It seems this game of "bait and switch" continues unabated.
And thus the original question is how quickly can the accumulated corporate cash buffer be converted into revenue growth? It seems companies don't really care to answer that: the growth will come from "elsewhere" they will be happy to announce, and refer you to the GDP - where all "growth" comes from transfer payments, and other fictitious items indicating "growth" yet all those merely do is sucker more and more people into the stock market at bubble valuations (why are not more companies doing follow on offerings, absent REITs of course? Is it because institutional stock managers know that valuations, which this is all really about, are simply insane?). Absent some investment in CapEx you can kiss your V-shaped revenue (and thus earnings) recovery goodbye. But who honestly cares about how a stable economy works any more when you have trillions in excess liquidity provided by Bernanke Capital LLC?
SL Green's Mysterious Cap Rate Calculations, And Budding Israeli VoIP Operators-cum-Midtown Real Estate InvestorsSubmitted by Tyler Durden on 08/10/2009 21:10 -0400
Today, SL Green announced a preliminary sale transaction (subject to assumable financing, an out wider than VaR exclusion loopholes) which is supposed to herald the coming of the new mid-town CRE renaissance. An ebullient SL Green CEO Marc Holliday had this to say: "This is a first, but significant step towards the sale of interests in 485 Lexington Avenue. If ultimately approved, the transaction would demonstrate that the Midtown Manhattan office market continues to stand as one of the world's top locations and that investor interest is once again on the rise." Zero Hedge is waiting with baited breath for the Holliday mirage to dissipate, while in the meantime Class A office space in 767 Fifth Avenue can be sublet for $60/sq foot.
From Goldman Sachs:
- Residential housing market continues to weaken
- Commercial real estate beginning to take center stage
- CRE equity may have further to fall or be completely wiped out
- Equity valuations driven by the consumer, with the cryptic proviso that "equity value might have downside" - no kidding
- And the best - REIT equity prices have risen... but property values continue to fall
Oddly enough, Jefferson county which got into a dash of trouble buying some interest rate swap or another without reading the prospectus which despite guaranteeing perpetual appreciation distinctly said in the invisible print that total loss of principal is another side effect of transacting with Wall Street, has apparently been unable to participate in today's 175/75 L/S unwind which blew the REITs into the stratosphere and got Bob Pisani's panties in a bunch.
Your Chance To Buy 26,135 Sq. Feet Of "Lipstick" History, And In Other News CRE Insiders "Not At All "Dumping SharesSubmitted by Tyler Durden on 07/31/2009 13:18 -0400
Let the CRE sales begin.
Rare? Medium Rare? Medium? Well Done? S&P? Indeed, as the last peg in the gradation of burnt to a crisp, S&P smells completely done. As in there isn't even left a shadow of a doubt that all S&P does is pander to the solicitations of whatever few remaining clients it may have, or, as the case may be, the U.S. government. Any credibility S&P, which one would be excused for confusing with Sycophantic & Pathetic, may have tried to salvage over the past 6 months has been gutted and left to dry after this most recent fiasco, which is the final straw on theMcGraw-Hill subsidiary's expedited route to the NRSRO utterly discredited trash heap.
David Faber discusses Goldman's real estate losses, and draws some conclusions about the upcoming pain for REITs. And yet, thanks to Goldman, which has been instrumental in upgrading and issuing stock for the REITs (and having a massive blow out quarter thanks in large part to its REIT underwriting activity), the sector is doing unprecedentedly well. Surely one has to wonder just what must happen at this point for people to realize what a ticking time bomb Commercial REITs are?