Tuesday, February 26, 2013

Downtown, Revisted

We recently covered an area of downtown New York that got roughed up during Superstorm Sandy.  This past week, the NY Times and WSJ caught up with some of the aftermath and today's post will cover 4 New York Plaza and 199 Water Street.

The news for 199 Water Street isn't all that great.  NYT tries to mollify the status of the building but here are some facts gleaned from the article.
  1. Wells Fargo isn't rolling the lease when it expires in 2015.  They are currently taking up 325K square feet out of 1.1M which is about 30%.
  2. Clean-up and repairs will cost around $50M
  3. The space needed to host the electrical switchboards (replacing the ones damaged from the flood) will cannibalize space that could be used for leasing.
    1. The building is currently 94% occupied so it's not like there's much room to stuff the electrical boards into.
Mind you, the building represents a hefty chunk (~11%) of the collateral in MSC 2007-HQ11.

As for 4 New York Plaza, the 1M square-foot building bought in 2012 for $270M by a joint-venture that includes HSBC, has yet to see it's main tenants move back into the building.  Overhauling the building is likely to cost around $60M.  Concrete Jungle covered some of the aspects of this building this past summer.

The articles try to provide a positive spin on the situation, but as far as I'm concerned, until Flavors Cafe at 175 Water Street is up and running again, this area is a long ways away from it's former glory.

~-Jingle Male

Tuesday, February 19, 2013

Sequestration is already here

Wells Fargo Econ Group was out with a write up yesterday covering which states were at the highest risk of Sequestration related negative business impacts. The city next to the cotton field I grew up in was number seven on their list. Growing up, a lot of friends had parents who were highly trained engineers, they built massive weapons systems and space exploration systems, and cars ;-). Talking with folks back home recently indicates that Sequestration effects are already being felt - weeks have been cut to 4 days, early retirement buyouts are being offered, and real estate owners are trying to hit the eject button.

Someone needs to put out a nice exposure list of properties most likely to be impacted by sequestration.

Monday, February 11, 2013


Fresh from being bought out by Starwood, LNR was recently in the news regarding risk retention in the CMBS stack. Financial Times and Debtwire did a nice job of covering LNR's stance on retaining (or selling) the B-piece in a CMBS structure.
For the uneducated, one of  the ways LNR became great in good times (and  weak, in bad times) was through buying the first-loss portion, also known as the B-piece, in CMBS deals. The B-piece buyers are also known as the "Gatekeepers" in the securitization because since they are first exposed to losses in the trust, they get to have a say as to what assets are included.  If a particular commercial-mortgage isn't up to snuff, then the B-piece buyer gets to "kick-out" the collateral in lieu of something of better quality.
During the euphoria that was 2007, the B-piece buyers could be counted on to keep some kind of credit standard within a CMBS deal.  The shortened version of the role of the B-piece investor is that by purchasing the riskiest component of the CMBS, they get to choose what risks they are exposed to and earn a greater yield, at the expense of being the first to absorb losses.

Look at the chart below.  Typically, LNR will buy the lower half of the middle column which includes the BB tranche, B tranche and the non-rated portion also known as the B-piece.
The FT/Debtwire article goes on to say that with Dodd-Frank's securitization retention rules on the horizon, it is unclear as to how much of the B-piece LNR would have to retain and for how long.  Back in November the WSJ covered a similar issue regarding Rialto and BlackRock.  As this class of investors is known for having "skin in the game" by being long and strong the assets in the trust, they are shrewdly selling down some of their position (The BB & B tranches, for example) while they still can:

"On a notional basis that’s equivalent to about a 7% stake of a new deal. But recently, the BB portion (about 2% of the 7%) has been offloaded into a more liquid secondary market at roughly 8% yields, according to the buysider, a CMBS dealer and a trader.

Put another way, on a cash basis, given the discounted level B-piece buyers pay for their risky bonds, some buyers have retained only the equivalent of about 1% to 1.5% of CMBS deals after stripping away BBs. In doing so, they’ve recouped a major portion of their initial investment, the buysider said."

It's understandable that proponents of the CMBS market would want the league of extraordinary B-piece buyers to match their interests with that of the other investors in the securitization but as long as Dodd-Frank leave this loophole open, then others will keep on driving a truck through it.

*Here is the presale for GSMS 2013-GC10 by S&P, of which LNR bought the E(BB), F(B), G(NR) and R(NR) tranches.  
*Not for the faint of heart: The GSMS 2003-GC10 Prospectus*

Wednesday, February 6, 2013

Getting hacked by Anonymous is the new killing it...

Anonymous posted 4,000 bankers personal info on the Alabama Criminal Justice Information Center website during the Super Bowl. I honestly just skipped over the story at first, why would the Fed have my information and a password to boot, and I generally assume that hackers break into institutions all the time (I've seen that movie) and already have my coveted phone number and super secret passwords I use to protect my highly sensitive family photos.

So, I reached out to the Fed, informed them how important I was, increasing the likelihood dramatically that my information would be on this list of elite bankers. Three days later they let me know that everyone who did have their personal information exposed had already been contacted. I immediately checked my cellphone, personal email accounts, work email accounts, home phone answering machine, and snail-mailbox... Nothing. Needless to say this does of humble pie was hard to swallow, and I plan on sulking through dinner and perhaps even until Law & Order starts (Mike Tyson guest stars tonight). If you did get a shout out from the Fed, please reach out to me as I need to improve my circle of banker friends.

Saturday, February 2, 2013

And the Winner is...

Blackstone, in a bid to spread it's real-estate hegemony to multiple continents and asset classes has made Jonathan Gray a busy man.  Going long and strong real-estate, whether residential or commercial, has been a no-brainer since 2009 but much credit needs to be given to Jon Gray and his crew.  Actually,  the media has been covering his situation pretty thoroughly for a while now so The CRE Review is going to do a synopsis covering Blackstone's dominance in this area.

 Before we get started, here are some overviews of JG that are worth familiarizing yourself with.

  1. Jonathan Gray, Blackstone’s Real Estate Wizard Behind the Curtain - New York Observer
  2. Jon Gray Skips Party, Afraid Record Buyout Will Fail - Bloomberg
  3. Blackstone's Gray Joins Board as Real Estate Rises to 71% of Firm's Profit - Businessweek 

Whether it has been getting involved in GGP's bankruptcy, loaning money to and then owning  Eagle Hospitality (Apollo and preferred shareholders got spanked on this one; more on this story another time), buying Centro, or any other (Emeritus' health-care portfolio) of it's lucrative joint-ventures (Glimcher); Blackstone has acquired an empire that spans beyond commercial buildings.

Jon Gray has also been busy acquiring a massive portfolio of residential houses; often times he is buying them in bulk.  Look no further than the mortgage team at Bloomberg and you will frequently see BX named in a story that excessively celebrates the genius of buying resi when it has never made more sense to do so.
See what I'm saying here?   While not every purchase has been a winner (see: EOP restructurings, Hilton buyout), their aptitude to see trends just a few months before anyone (lolelse tells me that leaving the keys in the mail is just the price of doing business on such a massive scale. 

In case you haven't learned enough already.  A couple more to drive the point home.
  1. The Hotel Hegemony Continues
    1. Blackstone Said to Seek $450 Million for Hotel Financing - Bloomberg
    2. Blackstone Said to Plan Sale of Miami Beach Resort - Bloomberg
    3. Blackstone/Apple REIT Merger Signals New Wave of Private Equity Hotel Investment - CoStar
Maybe in the future we'll do a similar story on CRE investors who recently got it all wrong.  Any ideas?  Maguire, Lightstone, Macklowe might work.  Let us know.

~Jingle Male