Friday, May 22, 2009


This will serve as the final notice that the Llenrock Blog has moved to We have undertaken advice from our readership to redesign the site in a new, more user-friendly format. Please check it out by clicking the link above, and don;t forget to update the bookmark for this site!

Thursday, May 21, 2009

The Real Cause of the CREDIT Crisis

And you thought real estate was to blame for the credit's all in the name! CREDIT! Now only if Barack Obama created a news conference to tell us to spend, rather than VISA, we might get out of this recession...


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Wednesday, May 20, 2009


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Tuesday, May 19, 2009

The Next Big Shoe to Drop?

Martin Cohen, Chairman and co-CEO of Cohen and Steers Capital Management, and pioneer in real estate securities investing, gives his outlook on commercial real estate.


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Monday, May 18, 2009


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Light at the End of the Tunnel?

When I asked a colleague recently if he thought there was light at the end of the tunnel for this whole credit crisis debacle, he paused, looked at me calmly and replied, "Yeah, there's a light at the end of the tunnel...and its coming from a train that's about to run us over."

Tongue-in-cheek? Yes.

Truthful? Maybe.

Either way, it hasn't stopped Boston Properties from doing something none of us thought was possible in the current environment last week. Mort Zuckerman's firm obtained a $215 million construction loan to complete a mixed use project currently underway in Boston called Russia Wharf.

Just as you might have suspected, there was no mysterious white elephant to be found, no secret source of capital that the rest of us did not know about. In fact, it took the form of a much smaller deal, where community banks whose legal lending limits aren't big enough to take down the entire loan might pool together and participate with several other financial institutions.

A group of five banks, in this case, led by New York Mellon Corp. provided the financing. That being said, the terms of the loan are about as tough as they get.

Friday, May 15, 2009

The Top 5 Largest Delinquent Loans

The following loans are the largest loans in Fitch’s loan delinquency index. The index consists of loans 60 days or more delinquent in addition to those characterized as nonperforming matured loans, in foreclosure, or REO.

Resorts Atlantic City, CSMC 2007-TFL2

The $175 million loan is secured by a 942-room hotel and casino in Atlantic City, NJ. The loan transferred to special servicing in December 2008 due to monetary default. The property has exhibited declining performance since issuance as a result of the overall negative performance of the gaming industry. The special servicer and sponsor continue to discuss workout options.

Macon Mall/Burlington Mall, Wachovia 2005-C20

The $136.7 million loan is secured by two cross-collateralized regional malls in Macon, GA, and Burlington, NC. The Macon Mall is a 1.4 million-square-foot two-level enclosed super regional mall and the Burlington Mall is a 419,194-square-foot one-level enclosed mall. The borrower, Lightstone, indicated it could no longer continue to fund the debt service shortfall. It also agreed to the appointment of a receiver with the ability to sell the properties. The special servicer appointed a receiver to manage the properties and has initiated foreclosure.

Bethany Portfolio, MLMT 2007-C1

The $130.5 million loan is secured by a portfolio of 11 multifamily properties comprising 2,904 units across Georgia, North Carolina and Virginia. The sponsor of the loan at issuance was The Bethany Group. The loan transferred to special servicing in February 2009 due to payment default. The borrower abandoned the properties in early March. The special servicer appointed a receiver, which is in the process of stabilizing the assets and assessing their financial condition.

The Promenade Shops at Dos Lagos, JPMCC 2008-C2

The $125.2 million loan is secured by a 34,847-square-foot lifestyle/entertainment retail center in Corona, CA, built in 2006-2007. The center is the central portion of a master-planned community that has not been completed due to the residential market decline. Many tenants have asked for rent reductions and many also have lease provisions allowing them vacate the property should occupancy fall below a threshold. These thresholds are likely to be triggered in the next year.

Senior Living Properties Portfolio, GMAC 1998-C1

The $112.2 million loan is secured by a portfolio of health care facilities and has been in special servicing since October 2001. Senior Living Properties experienced extensive operating losses beginning in 2000 due to lower revenues as a result of changes in Medicare and Medicaid reimbursements and filed a voluntary Chapter 11 bankruptcy in May 2002. 48 properties in Texas remain as Senior Living Properties management works to improve operations and consolidate locations. The special servicer recently extended the maturity date of the loan again until Feb. 1, 2010.

Thursday, May 14, 2009

Jokes of the Day

1. A bank worker calls a colleague.

"Hey, how's it been going?"

"Not so bad."

"Oh, sorry, I've definitely called the wrong number."

2. In the face of the financial crisis, I have bravely stood up and am marching forward! That's because ... I can't pay back my loans and the bank has repossessed my car.

3. A Trader: “This is worse than a divorce. I’ve lost half my money and I still have a wife.”

4. What’s the capital of Iceland? About $20.

5. The problem with Investment Bank balance sheets is that on the left side nothing is right, and on the right side, nothing is left.

6. There are 30 billion prime numbers below 700 billion. The rest are all subprime.

7. How do you define optimism? A banker who irons 5 shirts on a Sunday.

8. What's the difference between Investment Bankers and Pigeons? The Pigeons are still capable of making deposits on new BMW's

9. A bank customer goes to their bank:

Bank Customer: Hi, I had this check returned to me. Could you help?

Teller: Sure let me see it. Ah, right here, it says "Insufficient Funds"

Bank Customer: "I know, I just wasn't sure if you were referring to me, or the bank."

10. An elderly lady receives an e-mail from the son of a deceased (but wealthy) African general, asking whether he could transfer millions of pounds into her bank account in return for a 20% cut. All the son needs is the sort code and account number. Not realizing she is the victim of a Nigerian 419 fraud, she e-mails back the details. A couple of minutes later she receives an e-mail back from the general's son: 'Citibank'! What is this, some sort of scam?"

Wednesday, May 13, 2009

You Make the Call

Dovetailing on last friday's post regarding the collapse of the CMBS market, and who, if anybody is going to pick up the slack, I thought it would be prudent to examine the current thoughts about what the fallout might be if there is no securitization market revival. At the same conference I denoted in Friday's post, a different question was posed:

Will there be a securitization market revival, or is the foreseeable future going to revert back towards balance sheet lending?

The overwhelming response, was that their will be some type of revival, but it will never get back to the level it was at 18-24 months ago, and it certainly will not happen any time soon. The TALF program is still undergoing some changes, but the program should certainly help with single asset deals and will provide shorter terms. Because of the glut of debt maturation ($400 B by 2013), the market has not stabilized, and toxic assets must get taken care off before we will see any revival of the securitization market.

Part of the problem that is often NOT discussed, is the lack of confidence not in the real estate sector, but in the ratings put out by ratings agencies on collateralized debt. Let us not forget that many of the failed CDO's were insured and rated AAA. There will continue to be no, or little investment if the benchmarks being used to value and rate assets are not trusted.

All of this being said, nobody at the conference doubted the intellect and ingenuity of Wall Street. At some point, Wall Street will figure out another creative way to push securities on the open market. Until then, many people thought that mezzanine providers would pick up the slack of first mortgage originations that are only being levered to 60-70% to get to the more traditional, and buyer preferred 75% LTV. The reason this may work is that while mezzanine financing is typically viewed as unnecessarily expensive, because first mortgage interest rates are historically low, the blended rates wouldn't be that bad, somewhere in the 7.5% range. As we battle inflation and interest rates begin to rise over the next few years, pushing rates back to their historically norms of the same range, investors may be okay with this approach.

Another suggested solution to the CMBS mess, is that in the future, originators may have to take some type of first loss position in the loans, as well as actually having to service the loans. Additionally, instead of slicing up pieces of many different mortgages and pooling them together, it has been suggested that they simply pool whole loans together so that owners can go to one lender to service their loan. This way, everybody's interest are more closely aligned with one another.

What do you think about all of this? Are there any other suggestions out there that make sense? We'd love to hear your thoughts!

Tuesday, May 12, 2009

Sam Zell's Take on the Market

The Master offers his take on current market conditions, valuation techniques, and where we are headed. Very informative stuff!

Monday, May 11, 2009

Will Life Companies Step up to the Plate?

I recently attended a conference in which a simple, but intriguing question was posed: Who is, and who will be picking up the slack in the conduit marketplace's absence?

The answers were as follows:

- Savings banks are out lending, doing 5 year deals.

- Life companies are lending to their existing clients at relatively low leverage (50-60%), being more conservative, and not showing interest in new relationships.

- Big banks, on the flip side, are not extending credit to their clients. 10 year fixed deals are near impossible to find anywhere.

- We should continue to see high yield players exploit that gap to get people through refinancing when their notes come due.

- Equity firms are in the market but aren’t looking at highly leveraged deals, but rather those is the 40-50% range.

- Providing recourse is essential in getting deals done today.

- Structural changes are necessary to the CMBS markets to properly align interests so that the originators have first loss position in deals.

- Centralized underwriting via a third party is being considered, as well as forcing originators to service the actual individual loans.

One of the more interesting points regards life companies. They certainly have the cash to deploy, and while nobody could blame them for being skittish, or at least more conservative in today's environment, the real reason they may not be flooding the market with capital is because of their own recent exposure to the CMBS mess. For example, according to a report by SNL Financial, the top 20 life insurance companies holding commercial mortgage-backed securities held more than $118.67 billion by the end of last year, creating potentially higher exposure for some to CMBS delinquencies.

Hartford Life Insurance Co. held more than $9 billion in total CMBS with $6.29 billion in non-first lien A or lower status, which represented 153.1 percent of capital and reserves. Northwester Mutual held $4.93 billion of its $4.95 billion total CMBS in non-first lien A or lower, but its percentage in capital and reserves was only 36.7%. Allianz held all of its CMBS, $6.85 billion (about one tenth of its total assets), as non-first lien A or lower, 327.1% capital and reserves.


Friday, May 8, 2009

Stress Tests a Mess of Jest?

When you gain some weight, your doctor probably yells at you. When you don't listen to his advice and continue your march towards obesity, he'll likely recommend a stress test in order to ascertain the health of your heart. We've all seen this in the form of the shirtless fat guy running on a treadmill with anodes stuck all over his corpulence (as pictured above).

Similarly, banks have become obese (with bloated books of bad debt rather than donuts and ice cream) and have recently undergone a stress test of their own. Back at the end of February President Obama ordered the 19 biggest banks to undergo a stress test to see how they would fare if the economy was to worsen further.

According to the new Treasury Department guidelines, the banks would have to assume that the economy contracts by 3.3 percent this year and remains almost flat in 2010. They would also have to assume that housing prices fall another 22 percent this year and that unemployment would shoot to 8.9 percent this year and hit 10.3 percent in 2010.

Yet, despite leaked reports that between 10-14 of the 19 banks would fail and be required to raise more capital, their stocks have been surging recently. For example, three regional banks widely believed to need more funding -- Birmingham, Ala.-based Regions Financial (RF, Fortune 500), Cincinnati's Fifth Third Bank (FITB, Fortune 500) and SunTrust Financial (STI, Fortune 500) of Atlanta -- each gained more than 25% earlier in the week. And Wells Fargo (WFC, Fortune 500), considered one of the strongest, also shot up nearly 25% earlier this week -- despite reports that it too may need to raise more capital.

Just yesterday, hours before the scheduled 5pm release of the results, Citgroup and Bank of America stocks rallied further.

Unfortunately, the stock market is exactly that....a market. It is not the underlying companies it represents, it cannot erase the bad bets the banks themselves have made, and their value is only worth what the next guy is willing to pay for it...ya know, kinda like real estate.

As was estimated, 10 banks are going to need to raise more capital. Will you be the first, or second person in line to sell off your bank stock earlier than everybody else this morning?

Thursday, May 7, 2009

FREE Money!!!

Its funny cause its true...of course this guy probably put Matthew Lesko himself out of a job.

Wednesday, May 6, 2009

The Most Interesting Banker in the World

Imagine its 2006. You are a banker. You have tons of clients, and you are happy to finance their real estate transactions. As a matter of fact, its happening left and right. Your boss likes you. You are putting the bank's money to work. Nobody in your portfolio has defaulted in years, so you keep lending more and more money. The bank is making piles of money in interest payments due to your efforts. Life is good. Really good. You think to yourself, "maybe by 2009 I can make Chief Lending Officer...."

Of course, by now you know that those loans you made weren't such smart decisions after all. A good portion of your sponsors have either missed a payment, or you are scared they are going to. You are terrified you are going to lose your job, because your bank isn't lending money anymore. To anyone. Which kind of makes your job obsolete. Its now 2009.

But who could have foreseen such a cataclysmic event in the capital markets? Like a fourth grader caught for being naughty, you can only cling to the "but everyone else was doing it" excuse. Everyone that is, except for banker contrarian, Andy Beal.

Bankers typically graduated from a good university, with a good GPA. Andy Beal was a college dropout. Bankers don't typically like to gamble, certainly not with the bank's money. Andy Beal played in the World Series of Poker in $2 million dollar cash games against poker legends and held his own. Bankers usually rely on mandates, not their gut. Andy Beal didn't make a single commercial real estate loan between 2004-2007. Not one. In fact, for three long years, Beal barely made any loans, period.

While his banking cohorts were cleaning up, he idly sat on the sidelines, biding his time, and waited. Others bankers asked why. Regulators probed why, assuming he was up to no good or insane for not taking advantage. Waited for what, you ask? For this. For the imminent disaster he knew would strike sooner or later. For the credit markets to collapse. For bankers to lose their shirts along with their borrowers. And of course, for the once in a lifetime opportunity to capitalize on all this mess.

While Andy Beal's story is too long to tell on this blog, read the whole story, as reported in a article here. Here are the highlights:

In the last 15 months Beal has put $5 billion to work, tripling Beal Bank's assets to $7 billion

Beal is building 28 branches from Miami to Seattle, up from 7 at the end of last year

Beal has barely got a dime from the feds

He owns 100% of his bank, aptly named, "Beal Bank"

In 2000 American Banker declared Beal Bank the most profitable bank in the nation as measured by its five-year return on equity of 50%

Beal has offered a $100,000 prize to anyone who can solve a number-theory puzzle

"Every deal done since 2004 is just stupid," Beal says.

If he ever thinks of investing in hedge funds or private equity, he says, "Just shoot me."

His thoughts?

"Banks are on a prayer mission that somehow prices will come back and they won't have to face reality," Beal says. "Unemployment is going over 10%, commercial real estate hasn't even begun collapsing and corporate credit defaults are just getting started," he says. His prediction: depression, without bread lines this time, thanks to the government safety net, but with equal cost to society.

Here's that link one more time....You're welcome.

Tuesday, May 5, 2009

Sesame Street Layoffs

Maybe you can use this to explain what's going on to your kids...

Monday, May 4, 2009


You would think that a real estate investment bank, by definition, would be right in the mix for any mergers and acquisitions deals involving the more than 130 Real Estate Investment Trusts that exist today. Sorry to disappoint, but that's not really what we do. That being said, there has been more and more speculation, A. D. Pruitt of the Wall Street Journal Online being one of the loudest and most recent, that REITs will go the M&A route.

One of the biggest and most obvious reasons for this is that many REITs are struggling right now, saddled with too much debt from frothy acquisition plays they made during the boom years of 2004-2007. Better positioned REITs, in an ironic twist, may be well suited to acquire the struggling REITs because they are lower levered and can take on some of the debt burden that would come with acquiring such a massive entity.

Of course, there is a more prudent approach given the way everything seems to be going more slowly and more judiciously in the current environment. Stronger REITs may elect to simply wait until the weaker REITs fail and go bankrupt so they can simply bid on portions of the distressed assets available at auction in order for the failed REITs to pay creditors. Just like vulture funds, they might have their pick.

However, given that many trophy assets may or may not be available for sale under bankruptcy proceedings, healthy REITs may simply elect to acquire they entire company.

General Growth Properties will be a very interesting case study. While many had speculated that its biggest rival, Simon Property Group, was going to acquire it last month, instead GGP filed for bankruptcy. The courts and creditors will now ultimately determine which properties in GGP's portfolio will be made available to the public for sale.

REITs, which own about $600 billion of commercial real-estate assets, were established in the 1960s to give individuals an easy way to invest in income-producing real estate. If credit markets don't thaw soon with the help of federal aid initiatives, some companies will be hard-pressed to survive if they can't refinance their debt. The outlook gets more dire in 2011 when $500 billion of commercial real-estate maturities come due, according to a report from the National Association of Real Estate Investment Trusts, citing data from Goldman Sachs Group Inc. and Securities and Exchange Commission filings.

With more than 30% of REIT stocks valued under $5 a share, there are certain to be many, especially those who can't raise equity through public offerings, who will bow out of the race.

My question to you is, given that REITs amazingly only own about 6% of the total volume of commercial investment properties nationwide, how much of an impact on the commercial real estate market would it have if 10-20 of them went belly up?

Friday, May 1, 2009

Stick 'em Up. I Want to Apply for a Loan.

Thanks to Mark Stein of Conde Nast Portfolio online...I couldn't have written a better article myself.

Lots of builders are in trouble with their banks these days, but not many try to work out a solution by kidnapping their bankers. That's what one Spanish contractor attempted today in the Mediterranean resort of Malaga.

According to police reports, the unidentified contractor approached his victim in the bank parking lot, pulled a pistol, and forced him back into his car. After threatening the banker's family, the kidnapper demanded a 50,000 euro loan -- and, while, he was at it, the banker's car.

While ostensibly arranging the loan by phone, the banker gave a colleague a coded message suggesting he had been taken hostage. Police were called and arrested the builder.

Kidnapping has become a popular reaction to the recession in Europe. Workers at several factories in France, for example, have held their bosses captive while negotiating severance packages in recent weeks.

The "bossnappings," as the actions are called, have affected plants operated by Sony, 3M, Caterpillar, and a British auto parts company called Scapa Group.

If you kidnapped your boss, what would you hold out for?