Before we get started, here are some overviews of JG that are worth familiarizing yourself with.
- Jonathan Gray, Blackstone’s Real Estate Wizard Behind the Curtain - New York Observer
- Jon Gray Skips Party, Afraid Record Buyout Will Fail - Bloomberg
- 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 (lol) else 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.
- The Hotel Hegemony Continues
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
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5 comments:
great post
This lawsuit against S&P is ridiculous. Of course they were conflicted. So was everyone else involved in securitization. If you're going to point the finger at anyone, you have to blame the bond buyers for funding the bad lending.
@Crabsofsteel
You bring up some good points. May I suggest a recent post at Dealbreaker regarding this. Matt Levine does a bang up job and his views partially echo yours and he takes it further.
http://dealbreaker.com/2013/02/some-sp-analysts-werent-happy-with-sps-whole-trying-to-rate-deals-thing/
I'm reading through the actual Docket filed by the DOJ and it's a really good read so far. Basically, it's a primer on the RMBS market.
http://blogs.reuters.com/felix-salmon/files/2013/02/U.S.-v.-SP.pdf
This is from another DB article but I thought you might dig. Via Matt Levine:
"So why would you rely on S&P to tell you what’s a good credit risk? There are two answers, corresponding to two imaginable types of investor. Type 1 investors say, “we relied on S&P because we’re wee naïve investors and don’t have the capacity to analyze credit ourselves.” Particularly for very highly rated and complex structured products, this is an appealing answer. Someone buying a BB bond of an actual company is probably making some sort of relative-value judgment that the credit is better than the rating (really, the spread) implies; someone buying a AAA structured bond with a 500-page prospectus is more plausibly doing so because they just want a safe place to park their cash and they assume that the AAA means that they never have to worry about it.
Type 2 investors say, “we paid attention to S&P because we were forced to.” They don’t necessarily trust S&P’s judgment, but they’re banks or money market funds or whatever and due to capital or other regulation are forced to restrict themselves to AAA securities. They might be quite sophisticated – they might understand that higher returns come with higher risks, and that an AAA rating isn’t a guarantee of anything – but doing their own analysis about whether AAA-rated CDOs or A-rated corporate bonds were a better investment would be a waste of time. If you can’t buy A-rated bonds, the fact that they’re a better investment than AAA-rated CDOs is irrelevant. And if you’re limited to AAA rated things, and you have all the usual comp convexity that comes from being an employee of an institutional investor, why not invest in the riskiest and highest-yielding AAA things you can find?"
people want to blame the borrowers for not honoring their contracts. if someone offered me free money, I'ld take it too. The ratings agencies models are complete bullshit, as they still are, telling people that in a field full of nickels you might find some dimes. Mathematical nonsense. But the ratings agencies are a stupid target, since they have no money. The enablers were the bond buyers, who bought the whole shell game and funded the whole thing.
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