The latest casualty of New York's resurgent (not) commercial real estate market is rap mogul Jay-Z, who had previously guaranteed a $52 million loan for a Chelsea hotel, which subsequently has defaulted and is holding the artist as the responsible party for accrued interest. As a result, Jay-Z is lashing out, and in turn is suing defunct hedge fund Highland Capital (maybe he should have at least picked an adversary that can pay him), which last time we checked was still trying to offload second-lien debt at par plus. Bloomberg reports: "Carter, in his complaint filed yesterday in federal court in New York, claims Highland and co-defendant NexBank SSB are attempting to “bleed” from him funds in excess of those he and two other men pledged to pay when they guaranteed the non- principal obligations of a company planning to build a hotel in Manhattan’s west side neighborhood of Chelsea."
Kanjorski Admits There Is A "Growing Bubble In Commercial Real Estate" As S&P Observes Recognition Of CRE Losses Could Wipe Out Banking SystemSubmitted by Tyler Durden on 02/01/2010 17:49 -0400
Even as ever more Congressmen express concern about the implications of the ongoing CRE "bubble" (yes, this is a quote), S&P comes out with a report noting that should the banking system be forced to take all appropriate CRE-associated writedowns, it likely would not survive. And all this is occurring as REITs probe new 52 week highs. Welcome to the new economy.
Ackman from Pershing Square fame has released a very bullish CRE presentation. I stand diametrically opposed to both the conclusions and the analysis in general, thus have created my own comprehensive CRE outlook for 2010 and beyond. Here you have it: A bulls vs bears debate in the CRE space - both of which are quite well documented and allow for rich reading.
Yet one more nail in the CRE coffin, and another reason why extend and pretend will be with us for years to come, lest investors wake up and find out just how screwed this country's economy really is. In the meantime, IYR is going to the moon. A new McKinsey study looks at the CRE lending industry and finds some very disturbing things. Such as that even in the peak market years of 2006-2007 the European CRE finance industry did not cover its cost of capital!!! One can only imagine what the reality must be like currently in the dead zone that is European Commercial Real Estate financing (and also in those barbaric lands west of the Atlantic). Yet somehow the Euro keeps appreciating every day against the dollar. Let the Kool Aid flow.
Remember those wacky CDO’s that Goldman underwrote, hedged with credit default swaps, then promptly collected 100 cents on the dollar for (courtesy the US taxpayer) after lighting up the AIG switchboard with collateral calls? Kindly, the FRNY released only yesterday its quarterly report on Maiden Lane III.
The land recession, as foretold over two years ago, the Reggie Middleton CRE short list - round two, and the macro argument behind why most pundits are actually still too optimistic regarding CRE
This is aimed at those banking execs that believe that they will be better off hiding losses than taking them now and preempting the guaranteed higher losses to come in the future. Yes, the US is Japan - the "19 year" lost decade, redux!
How bad will the luxury hotel market get? Well,,, Pretty bad. All of those BS, "better than expected" earnings surprises off of severely lowered estimates stem not from top line revenue gains or economic progress, but from hacking jobs and cost cutting. Ya' think those Four Seasons', et. al. hyper-luxury executive suites are included in those cuts somewhere??? Here are all of those pretty graphs and interconnected hyperlinks to help tell the story...
The CRE crunch continues claiming victims, with the latest being the Four Seasons Hotel in New York. And while Stuyvesant Town is some dinky little project somewhere on the East side of New York (or so prevailing thought runs), which few care if it goes belly up or not, the fat cats that frequent the opulent hotel on 58th street next to the brothel, pardon, gentlemen's club, which is Tao in all but name, may be a little more concerned about this one. In addition to the Four Seasons, three other luxury hotels, which back a loan sent to a special servicer 10 days ago include the Four Seasons Biltmore Resort in Montecito, the ritzy Las Ventanas in Cabo, the destination of many a banker closing dinner, and the San Ysidro Ranch in Montecito.
CRE Update: CMBS Deterioration Accelerates, L.A.'s 550 South Hope Tower Appraised At Half 2007 ValueSubmitted by Tyler Durden on 10/25/2009 13:24 -0400
August CRE trends continued their downward trends, with a bevy of trackers of CMBS performance, Moody's, Fitch, Realpoint and TREPP seeing substantial deterioration in September. According To TREPP the August delinquency rate was up to 4.35% from 4.03. Legacy rating agencies Moody's and Fitch indicated a comparable acceleration in delinquency trends, with September 60-delinquencies at 3.64% and 3.58%, up from 3.04% and 3.23% respectively. New CRE NRSRO Realpoint had an even higher September reading at 4.15% up from 3.47% in the previous month.
With the New York's Stuy Town implosion getting picked up by the Wall Street Journal months after being written about on Zero Hedge, the question now is what the next landmark property to go bankrupt will be. According to Real Estate Alert, the iconic Union Square W Hotel may just be it. The hotel, which was acquired by Dubai's troubled sovereign wealth fund, Istithmar, for $285 million in 2006 (one of the few acquisitions of a hotel at a price of more than $1 million per room) has been bleeding cash lately after room rates have declined by 24%. The result has been an inability for the owner to even meet debt service obligations: a sure sign the current balance sheet is doomed, with an outright default just a matter of time.
Steve Sakwa, who we may have had some harsh words for in the past, primarily during his Merrill Lynch tenure, shares some perspectives on Commercial Real Estate. His observation:
"From a financing standpoint things are far worse; from a fundamental standpoint things are certainly getting worse."
It is sad that modern capital markets have gotten to a point when neither fundamental nor technical analysis matters. The only question is how many dollars with the Federal Reserve print tomorrow and how higher will that push stocks. For those deluded amongst you who still believe 10,000x EV/EBITDA is marginally to quite-marginally rich, and don't feel like chasing trends and passing the hot potato to the latest Down syndrome afflicted E-Trade client, here are some observations on arguably the most overbought (by a metric mile) sector, REITs, courtesy of masters of the (metric) universe, Goldman Sachs.
The FDIC keeps auctioning off its busted CRE loan portfolio, most of it remnants collected from failed banks which it had to pick up. With the recent additions of Colonial and Guaranty, look for this list to explode. In the meantime, in June, Sheila's agency saw only 45 CRE loans auctioned off, for a total of $234 million at a $163 million purchase price, a 30.4% average discount, which has been declining over the past 5 months in line with the overall market.
Richard LeFrak on the long, hard path before commercial real estate (and he should know). Also, in a stunning development Ivanka explains CMBS (which she undoubtedly learned from fiance Jared Kushner who knows all about CMBS and 666 Fifth Avenue)