In Straight Talk From the Homebuilder CFO: The tricks builders use to disguise the true losses on their, the impairment game was discussed as a method of hiding losses on builders' balance sheets by taking impairments on what could be considered exaggerated book values. The exaggeration may not be that hard considering how far, how fast, and potentially how long property and land values can continue to fall.

Again, I refer to the comparative chart that shows the appreciation rate of Japan's major city real property values as their GDP started to ramp up and out of a major recession:

In Straight Talk From the Homebuilder CFO: The tricks builders use to disguise the true losses on their, the impairment game was discussed as a method of hiding losses on builders' balance sheets by taking impairments on what could be considered exaggerated book values. The exaggeration may not be that hard considering how far, how fast, and potentially how long property and land values can continue to fall.

Again, I refer to the comparative chart that shows the appreciation rate of Japan's major city real property values as their GDP started to ramp up and out of a major recession:

Wednesday, 11 November 2009 19:00

I am still developing my REIT thesis

Thus, the first of the two reports for subscribers will probably be pushed off until next week. We had a problem sourcing market rents for some of the properties in the REIT's portfolios and I prefer to use actual numbers in lieu of assumptions so it took a little longer to populate the models as well.

I will discuss the rejects from the short list today, though. One aspect of crystallizing the thesis is dealing with the obvious manipulation that is occurring in the REIT space (see Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!) as well as government complicity in the purposeful opacity of the values of the mortgage assets (see the FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th, as reported by the WSJ: Banks Hasten to Adopt New Loan Rules and the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined").

It's bound to happen if regulators don't stop playing hide the sausage and don't start forcing banks to take their medicine. First, a quick recap of the nonsense currently taking place. This post is designed to convince banks that they are considerably better off taking their medicine now than going on with the government endorsed plan of pretending your not sick and risking major surgery, plus chemo and radiation just a year or two later. My next post will be a selection of REITs that didn't make my shortlist, followed by a new REIT report for subscribers that will explicitly show property values of each and every property in said REITs portfolio (and potentially the lender or CMBS/mortgagee pool collateralized by said properties - that's right, someone may be called out).

After dealing with European banks during my work with GGP, I have come to the conclusion that most regional, community and even global banks have no where near the capacity and/or expertise to properly evaluate and value the projects/assets that they have invested in. Well, if that is the case, this is your chance to rectify that problem - on the cheap, at least on a relative basis. So if you are in an appropriate position in your bank, fund or lender - read this evidence that supports the proactive behavior of snatching the big crumbs off the table before there is a mad dash for the micro-specs of bread that may or may not be left if one were to wait it out while playing "hide the sausage games". I'll give you the tools to make a convincing argument, trust me. Here is the broader macro argument for lenders pulling bad debt from under the REIT and CRE industry, thus supporting a bearish thesis for said players.

First: A picture is worth a thousand words...

fasb_mark_to_market_chart.png

Instance asset gains and market value stemming from just a small tweak of truth. Financial stocks fly, moving farther and farther from their fundamental values.

Second: We have the obvious manipulation that is occurring in the REIT space (see Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!). Zerohedge speculates "Is Goldman Preparing To Upgrade The REIT Sector?" 

Third: We have government complicity in the purposeful opacity of the values of the mortgage assets (see the FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th, as reported by the WSJ: Banks Hasten to Adopt New Loan Rules and the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined").

Fouth: We have a false sense of security that nearly everybody believes should make us insecure, yet somehow we have those long in the markets feelng warm and fuzzy. See You've Been Bamboozled, Hoodwinked and Lied To! Here's the Proof. What Are You Going to Do About It?.

Now, for those of you who believe that the government's "pretend and extend" policy has any chance in hell of working, or better yet, that we are not following in the footsteps of Japan, let's take a pictorial trip through recent history. There are nearly no Japanese banks in the top 20 bank category on  global basis by 2003 - NONE (save potentially Nomura, which arguably survived in name, alone). As you can see, they literally dominated 90% of the space in 1990!

Click to enlarge...

top_20_banks.jpg

Source: Cap Gemini Banking M&A

I want the banks that read my upcoming real estate analysis to take heed to history. It truly does tend to repeat itself. If you are an officer in a bank with CRE exposure, reach out to me from your work email and I will supply you with an abbreviated copy of one of the recent reports, gratis. This should  whet your appetite to subscribe for more. 

Well, are we following the Japanese "Lost Path". Notwithstanding the damning evidence of hide the truth and hide amongst lies linked to above, ponder the following rather dated, but still quite poignant data... 

Wednesday, 11 November 2009 19:00

Diversified Development 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.

Wednesday, 11 November 2009 19:00

I am still developing my REIT thesis

Thus, the first of the two reports for subscribers will probably be pushed off until next week. We had a problem sourcing market rents for some of the properties in the REIT's portfolios and I prefer to use actual numbers in lieu of assumptions so it took a little longer to populate the models as well.

I will discuss the rejects from the short list today, though. One aspect of crystallizing the thesis is dealing with the obvious manipulation that is occurring in the REIT space (see Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!) as well as government complicity in the purposeful opacity of the values of the mortgage assets (see the FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th, as reported by the WSJ: Banks Hasten to Adopt New Loan Rules and the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined").

It's bound to happen if regulators don't stop playing hide the sausage and don't start forcing banks to take their medicine. First, a quick recap of the nonsense currently taking place. This post is designed to convince banks that they are considerably better off taking their medicine now than going on with the government endorsed plan of pretending your not sick and risking major surgery, plus chemo and radiation just a year or two later. My next post will be a selection of REITs that didn't make my shortlist, followed by a new REIT report for subscribers that will explicitly show property values of each and every property in said REITs portfolio (and potentially the lender or CMBS/mortgagee pool collateralized by said properties - that's right, someone may be called out).

After dealing with European banks during my work with GGP, I have come to the conclusion that most regional, community and even global banks have no where near the capacity and/or expertise to properly evaluate and value the projects/assets that they have invested in. Well, if that is the case, this is your chance to rectify that problem - on the cheap, at least on a relative basis. So if you are in an appropriate position in your bank, fund or lender - read this evidence that supports the proactive behavior of snatching the big crumbs off the table before there is a mad dash for the micro-specs of bread that may or may not be left if one were to wait it out while playing "hide the sausage games". I'll give you the tools to make a convincing argument, trust me. Here is the broader macro argument for lenders pulling bad debt from under the REIT and CRE industry, thus supporting a bearish thesis for said players.

First: A picture is worth a thousand words...

fasb_mark_to_market_chart.png

Instance asset gains and market value stemming from just a small tweak of truth. Financial stocks fly, moving farther and farther from their fundamental values.

Second: We have the obvious manipulation that is occurring in the REIT space (see Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!). Zerohedge speculates "Is Goldman Preparing To Upgrade The REIT Sector?" 

Third: We have government complicity in the purposeful opacity of the values of the mortgage assets (see the FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th, as reported by the WSJ: Banks Hasten to Adopt New Loan Rules and the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined").

Fouth: We have a false sense of security that nearly everybody believes should make us insecure, yet somehow we have those long in the markets feelng warm and fuzzy. See You've Been Bamboozled, Hoodwinked and Lied To! Here's the Proof. What Are You Going to Do About It?.

Now, for those of you who believe that the government's "pretend and extend" policy has any chance in hell of working, or better yet, that we are not following in the footsteps of Japan, let's take a pictorial trip through recent history. There are nearly no Japanese banks in the top 20 bank category on  global basis by 2003 - NONE (save potentially Nomura, which arguably survived in name, alone). As you can see, they literally dominated 90% of the space in 1990!

Click to enlarge...

top_20_banks.jpg

Source: Cap Gemini Banking M&A

I want the banks that read my upcoming real estate analysis to take heed to history. It truly does tend to repeat itself. If you are an officer in a bank with CRE exposure, reach out to me from your work email and I will supply you with an abbreviated copy of one of the recent reports, gratis. This should  whet your appetite to subscribe for more. 

Well, are we following the Japanese "Lost Path". Notwithstanding the damning evidence of hide the truth and hide amongst lies linked to above, ponder the following rather dated, but still quite poignant data... 

Wednesday, 11 November 2009 19:00

Diversified Development 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.

Last Saturday I posted some thoughts on investing, NY real estate, and my macro outlook -  Boo!!! Will Halloween Scare the Market into Respecting the Fundamentals?, and I will continue that rant today since it leads into my most recent endeavors  - gathering shorts and puts in the commercial REIT space again. These positions were very lucrative in 2008 and the first quarter of 2009. Be aware that they are like private equity investments and take time to develop. My first bear positions were in 2007 (residential homebuilders and mall owners). It took about a year and a half to come to fruition, but threw off a blended return of about 400% - Mostly from GGP going bankrupt after I loaded up with puts and shorts at around $60. Well worth the wait in my opinion. Examples of the research that powered this and other related gains are available at the end of this article for those of you who are not familiar with my work.

The recent bear rally has driven most of the solvent, semi-solvent and absolutely insolvent CRE stocks up, quite a few approaching 100%, while their macro outlook has deteriorated significantly, along with their fundamentals. Quite a few have actually acted in cahoots with the banks that held their increasingly worthless debt, having issued secondary offerings basically converting the bank holdings of debt that didn't have an icicles chance in the hottest portion of Hell of getting repaid, into worthless toilet paper, heretofore marketed as stock certificates. They have also begun offering this used toilet paper as dividends. That's right, worthless stock issued in lieu of loans that couldn't be paid back are also being issued as dividends to cash flow investors from companies that can't afford cash dividends out of their cash flow. If this isn't the sector screaming for me to come back and short it, I don't know what is. 

2010 is the first of a series of heavy CRE debt rollover years, and the CMBS market is close to dead. The insurance companies and pension funds are having their own asset/liability mismatch problems (see "This supports both the HIG research and the recent reinsurer research"), and although they have benefited from the most recent market run, I believe it is just a bear market rally that has pretty much run its course. If I am right, they will be seeing devastation in their portfolios that will make March of this year look like a bull market. The banks aren't lending due to the many issues that I have elaborated on in my other articles, such as:

  1. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?
  2. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 - JP Morgan
  3. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 3 - Bank of America
  4. And the next AIG is... (Public Edition)
  5. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 4 - Wells Fargo
  6. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 5 - PNC Bank

Last Saturday I posted some thoughts on investing, NY real estate, and my macro outlook -  Boo!!! Will Halloween Scare the Market into Respecting the Fundamentals?, and I will continue that rant today since it leads into my most recent endeavors  - gathering shorts and puts in the commercial REIT space again. These positions were very lucrative in 2008 and the first quarter of 2009. Be aware that they are like private equity investments and take time to develop. My first bear positions were in 2007 (residential homebuilders and mall owners). It took about a year and a half to come to fruition, but threw off a blended return of about 400% - Mostly from GGP going bankrupt after I loaded up with puts and shorts at around $60. Well worth the wait in my opinion. Examples of the research that powered this and other related gains are available at the end of this article for those of you who are not familiar with my work.

The recent bear rally has driven most of the solvent, semi-solvent and absolutely insolvent CRE stocks up, quite a few approaching 100%, while their macro outlook has deteriorated significantly, along with their fundamentals. Quite a few have actually acted in cahoots with the banks that held their increasingly worthless debt, having issued secondary offerings basically converting the bank holdings of debt that didn't have an icicles chance in the hottest portion of Hell of getting repaid, into worthless toilet paper, heretofore marketed as stock certificates. They have also begun offering this used toilet paper as dividends. That's right, worthless stock issued in lieu of loans that couldn't be paid back are also being issued as dividends to cash flow investors from companies that can't afford cash dividends out of their cash flow. If this isn't the sector screaming for me to come back and short it, I don't know what is. 

2010 is the first of a series of heavy CRE debt rollover years, and the CMBS market is close to dead. The insurance companies and pension funds are having their own asset/liability mismatch problems (see "This supports both the HIG research and the recent reinsurer research"), and although they have benefited from the most recent market run, I believe it is just a bear market rally that has pretty much run its course. If I am right, they will be seeing devastation in their portfolios that will make March of this year look like a bull market. The banks aren't lending due to the many issues that I have elaborated on in my other articles, such as:

  1. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?
  2. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 - JP Morgan
  3. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 3 - Bank of America
  4. And the next AIG is... (Public Edition)
  5. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 4 - Wells Fargo
  6. If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 5 - PNC Bank
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