Posts Tagged ‘financial institutions’

Investors Still Wary of Distressed Assets

Wednesday, September 23rd, 2009

Commercial real estate investors are taking a wait-and-see attitude before jumping in and buying distressed assets, according to an Ernst & Young study.  “We haven’t seen many portfolio transactions so far,” says the study’s author, Chris Seyfarth, who is national director of E&Y’s non-performing loans.  “Given the size and the magnitude of the untitledproblem with banks, I think the expectation is that at some point we’ll start seeing sizable portfolio transactions.”

According to the E&Y study, 53 percent of respondents have purchased distressed or non-performing loans in the last 18 months.  Another 45 percent believe it is too early to even think of buying non-performing loans.  Distressed assets are “piling up faster than they’re being resolved,” Seyfarth says.  “The broad view is that commercial real estate assets are getting worse, not better, and that’s going to impact financial institutions.  The issue is that the price expectations are different between the two players, and in some cases significantly different.”

Only 35 percent of those investors claim to have return requirements above 20 percent, and an equal number actually are shooting for returns in the 10 percent to 15 percent range,” Seyfarth concludes.  Once the anticipated tsunami of distressed assets his the market, it could be met with a rush of pent-up capital, all trying to get the best deals at the same time – which may, ironically, further cushion price declines, resulting in a more competitive investment market.

News about the spike in housing starts and the buoyancy of the stock market, which has recaptured $3 billion in value in just a few months, suggests that the recession has at least stabilized and economic recovery is near.  This should encourage increased liquidity in the credit markets, eventually supporting the commercial real estate investment market.

FDIC Walking Away from Leases of Failed Banks

Friday, June 26th, 2009

Troubled Los Angeles-based office REIT Maguire Properties is facing default and currently is in discussions with a special servicer to resolve its financial woes.  The goal is to have the special servicer take over Maguire’s $106 million CMBS financing covering the Quintana office campus it owns in Orange County, CA.  fdic-moneyThe campus’s major tenant was Washington Mutual Bank, which failed last year.

As receiver for WaMu, the Federal Deposit Insurance Company (FDIC) gave up its majority of the Quintana lease effective in March and does not have to pay rent or other compensation connected to the lease termination.  A little-known provision  gives the Federal Deposit Insurance Corporation (FDIC) the authority to break leases between the bank and the landlord once a financial institution has been taken over.  One side effect of this provision could be that we’ll see fewer branch banks in the future as the FDIC breaks additional leases inked by failed banks.

As a result of the FDIC’s ending the lease, the Quintana campus’ occupancy was reduced approximately 250,000 SF to 40 percent.  According to Nelson C. Rising, Maguire’s president and CEO, the FDIC’s rejection of the leases was “a highly unusual and unfortunate event.”

The Federal Government Takes First Steps to Bail Out Banks

Tuesday, October 21st, 2008

The Treasury Department is spending the first $250 billion of the $700 billion rescue bill that Congress recently approved in an attempt to defuse the financial crisis that has dominated the headlines for weeks.  According to a recent article on GlobeSt.com, the move – which partially nationalizes the banking system – is seen by some as conflicting with the free-market principles that typically have characterized the American economy. To shore up the United States banking system, the Treasury Department is partially nationalizing nine banks by using $125 billion to purchase minority stakes in major financial institutions.  Although the banks haven’t been named, they are believed to include Citigroup, Goldman Sachs, Wells Fargo, J.P. Morgan Chase, Bank of America, Merrill Lynch, Morgan Stanley, State Street and Bank of New York Mellon Corporation.  The Treasury Department is also expected to make the remaining $125 billion available to banks and thrifts across the country to purchase their preferred shares.

According to Treasury Secretary Henry Paulson, “Today’s actions are not what we ever wanted to do, but are what we must do to restore confidence to our financial system.  The needs of the economy require that our financial institutions not take this new capital to hoard it, but to deploy it.”  Just weeks before the presidential election, outgoing President George W. Bush sees the move as a short-term measure.  “The government’s role will be limited and temporary.  These measures are not intended to take over the free market, but to preserve it,” Bush said.

The question now is whether the banks will use the capital as the government intends – lend it to businesses and consumers again – or will they use it to sweeten their own balance sheets?  The government, no doubt, intends to exert significant pressure on the institutions to loosen credit so that people can start buying big-ticket items like houses and cars again.