Posts Tagged ‘physician’

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.

Suburban Office Vacancies Rise

Tuesday, July 15th, 2008

According to a recent Crain’s Chicago Business article, suburban office vacancy rates shot up to 13.1 percent during the second quarter of 2008.  That is the highest level in more than two years. According to the commercial real estate services firm, Transwestern Commercial Real Estate, the vacancy rate is at its highest level since the first quarter of 2006, when it rose to 13.7 percent.  There’s no doubt that demand for suburban office space is in lockstep with job growth or loss; we’re not seeing any job growth in the suburbs right now.

Class A landlords are more likely to accept lower rent deals right now than was true in the last year, but this can be risky.  This has the effect of also reducing the building’s value, because this is a function of the in-place income stream.  Sometimes, it is better to pass on a low rent deal and simply “assume” accepting a higher rent to protect the building’s value.

The sales market has been robust over the past several years, so protecting value has been a priority.  With credit now being largely unavailable, building owners are no longer in the sale market because buyers are unwilling or unable to pay top dollar.  Because we don’t know when the office market will stabilize and since selling isn’t viable at present, landlords may take that lower rent to boost occupancy.

A respectable number of transactions will be completed this year, but only because there is so much low-cost sublease space available.  Additionally, some industries are likely to make positive contributions to the suburban office scene.  Companies providing goods or services to hospitals, physician practices and the senior-housing market are experiencing growth, as are data-center operations and some engineering firms, especially those working with energy production or conservation.