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)
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.
Has to be seen to be believed
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?
And so reality, and realty, starts to catch up (with commercial real estate at least, if not with the market). Bloomberg reports that Sperry Van Ness and Guardian Real Estate Services LLC will conduct auctions on various commercial real estate properties in California, Idaho and other western states.
First it was Extended Stay, which filed for bankruptcy last week (and whose unexpected filing may make life for CMBS participants very complicated as the law of unintended consequences strikes again). Today, it is budget hotel chain Red Roof Inn. The company, which owns 210 hotels, defaulted on $367 million of mortgage debt, has a total of $1.2 billion in total debt, including mezz loans and other notes. The company was purchased a mere 2 years ago by Citigroup (yep, the same phenomenal deal makers who wouldn't know how to find their gluteus maximum with a magnifying glass, bought a 79% stake in yet another toxic piece of garbage) from Accor SA for $1.3 billion.
Moody's has released its April Moody's/REAL Commercial Property Price Indices (CPPI) update and it is a doozy: -8.6%, after what many had expected was a shooting green reading of just -1.7% in March. The problem that many don't grasp, that even Moody's has finally caught on, is that once capitulation in CRE sets in, the bottom will be torn out.
First it was Extended Stay, which filed for bankruptcy last week (and whose unexpected filing may make life for CMBS participants very complicated as the law of unintended consequences strikes again). Today, it is budget hotel chain Red Roof Inn.
Moody's has released its April Moody's/REAL Commercial Property Price Indices (CPPI) update and it is a doozy: -8.6%, after what many had expected was a shooting green reading of just -1.7% in March. The problem that many don't grasp, that even Moody's has finally caught on, is that once capitulation in CRE sets in, the bottom will be torn out. Furthermore, after the Madison random walk last week, this weekend I did a comparable one for 5th Avenue.
As if anyone needed more confirmation just how bad commercial real estate is. Also includes a brief survey on the collapse of the SoCal regional market.
hat tip Alex