News
ULI: THE SQUEAKQUEL
April 16, 2010
| There's a reason Alvin and the Chipmunks 2: The Squeakquel made $220 million. Everyone loves a sequel. Yesterday, we took in ULI Summit: Day 2, including a monster session on investing in distressed assets and mortgages. Who's selling? Who's buying? | |
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| We snapped debtX?s Tom Goodwin, who's optimistic about good times ahead to buy distressed assets and notes. He says sellers include banks and other lenders that are earning more, raising capital, and tired of holding but don't want to own assets. Often they're led by a CEO who wants to put the troubles in the past and start lending again. They may also be special servicers and ?some senior bond holders who are dusting off paper that's been on the shelf.? Meanwhile, buyers include IBs, wholesale banks, and private equity funds raising capital from real estate investors who took money off the table before the crash. | |
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| ULI?s Stephen Blank ran the all-day session. Tom says the biggest mistake buyers are making is over analyzing a deal or overpaying. He also back tracked to size up the extent of bank problems. From ?08 to '09, he says, their non-performing assets have doubled. In Florida, he estimates half of the banks are insolvent because they're holding paper on assets now worth 20 cents on the dollar. Golf resorts are one property banks often run from. ?They know they can't manage them,? Tom says. | |
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| That's just what William Phillips, a resort real estate investor based in Orlando, wants to hear. Though he sees "a big opportunity to buy well." Regions he's looking at include Asia and ?anyplace that's warm, wet, and sandy.? Still a believer in Florida, the places to be are south of Vero Beach including, of course, global destinations like South Beach. | |
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| Next up were the lenders: Prudential Mortgage Capital's Dave Twardock, Emigrant Bank?s Patricia Goldstein, and MetLife?s Mark Wilsmann, with moderator AlixPartners' Dennis Yeskey. Dave said he had ?pretty good news?: there's new debt at relatively attractive rates. While Mark said his firm is spending time extending and refinancing loans already in MetLife?s portfolio, also ?it's a good time to invest.? After the recent correction, there's ?a low chance of default.? Pat said banks don't look as ?bright? as insurers because they did more short term construction and bridge loans. Now, there are some banks doing a little lending if the real estate has ?stabilized cash flow.? | |
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| While some on her panel said fundamentals were worsening, Pat sees improvements. She says condo sales are stronger in NYC where she's based, hotels are in better shape than they were last year, and multifamily cap rates are coming down. One thing that's not happening is construction lending. Pat says banks won't do that until they have more confidence in the economy. ?There's still a lot of risk in the market. Interest rates may go up; there may be a double dip.? | |
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| City Investment Fund?s Tom Lydon, Walton Street Capital's Ira Schulman, Houlihan Lokey?s John Schoenfeld, and Dune Capital's Cia Buckley as they gave private equity?s view. Tom says he likes the debt market for the next 24 months where he thinks he can earn a fixed 8-10% on first mortgages. Ira says they're investing in fully improved single family house lots for 30 to 50 cents on the dollar in ?transactions smaller than we?d like.? John says with complex capital structures and no market clearing, it's tough to determine values. Cia adds she's ?encouraged because I have money to invest.? 2010 is a different market than '09. She says it feels like ?there's an absence of panic and more liquidity.? |
