Posts Tagged ‘foreign capital’

Michael Jackson’s Finances Illustrate Investor Over-exuberance

Wednesday, July 1st, 2009

The tragic death of the “King of Pop” provides an interesting insight into how hedge funds and private equity groups buy loans  in anticipation of future earnings. Michael Jackson made real money during his 40 years as an entertainer; unfortunately, he also lost a lot of money, especially over the last 10 years.1df5e0555199fd3d53bd84a1e6ab4

Reports are that Jackson died $500 million in debt.  The crushing debt-service payments – combined with losses totaling millions, due to bad investments and money spent to finance his lifestyle – wiped out his fortune and he ended up in hot water with private equity creditors (it should be noted that Jackson was an extraordinary philanthropist, donating $300 million to a multitude of charities during his career.)

In 2003, Fortress Investment Group purchased some of Jackson’s loans from the Bank of America.  Jackson’s failure to repay caused Fortress to threaten to call in the loans.  Citigroup rode to the rescue and refinanced $300 million of Jackson’s debt.  After he fell behind on payments, Fortress moved to foreclose on the Neverland Ranch.  Yet another potential savior – Colony Capital – purchased his loans from Fortress and created a joint venture with Jackson to purchase Neverland for $22 million and renovate it for sale.  Colony was also backing Jackson’s 50-concert London comeback which had $85 million in sold-out ticket sales at the time of his death.  Clearly, Jackson’s brand was perceived to be so valuable (he sold 750 million albums during his career) that the assumption of risk was deemed to be worth it.

Student Housing Flexes its Muscles with Illini Tower Sale

Tuesday, July 22nd, 2008

In a transaction that demonstrates the inherent strength of the red-hot student-housing market, an Australian firm recently purchased the 725-bed Illini Tower in Champaign, IL, for approximately $60 million.  Do the math and you’ll find that the cost-per-bed adds up to a whopping $82,758.  The building serves students of the University of Illinois at Urbana-Champaign.

The 16-story structure’s purchaser is Campus Living Villages, a Sydney, Australia-based firm that owns 10,000 student beds in Australia and New Zealand, and an additional 30,000 beds in 41 properties in the United States.  The seller was Chicago-based Walton Street Capital, LLC, which had purchased the building just five years ago for $29.6 million, and spent approximately $6 million on capital improvements.

The significance of the transaction is that despite the fastest rising inflation in almost 30 years, the relative weakness of the dollar and of American securities on global exchanges, foreign capital still sees the United States as a safe haven in the right categories.  Student housing cap rates continue to be strong, outpacing inflation and showing no signs of abating as college enrollments top 17 million a year.