Reggie Middleton Boom Bust Blog

Continuing my predictive analysis of a global real estate relapse, I bring you today's headlines followed by updated research of company that we see slated for probable bankruptcy. Professional and institutional subscribers should download the latest deliverable, which illustrates the likelihood of a bankruptcy in our most recent forensic analysis candidate if it were to go the foreclosure route -Foreclosure Scenario Analysis. This is the professional addendum to the general subscriber analysis released in the post I Present To You The First Probable US Commercial Real Estate Insolvency Of Many To Come. The next deliverable will outline distressed sales of properties, and after that I will make available valuation models on 27 properties in the company's portfolio to inequivocably demonstrate that this company has nowhere to go but down. Ain't math something else? Now on to the news of (yester)day, as reported by Bloomberg. 

BofA Plaza Goes for $235M in Auction

thumb_Reggie_Middleton_on_Street_Signs_FireReggie Middleton Sets CNBC on F.I.R.E.!!! - Reggie Middleton preaching the travails of commercial real estate in 2012/13 on CNBCBank of America Plaza, the tallest tower in the U.S. Southeast, was sold at a public auction today on the steps of the Fulton County Courthouse after landlord BentleyForbes missed mortgage payments.

The noteholder had a winning bid of $235 million, according to attorney Howard Walker of McGuire Woods LLP, who ran the auction. Holders of commercial mortgage bonds took ownership through a “credit bid” placed by LNR Partners, David Levin said in an e-mailed statement. Levin is vice chairman of Miami Beach, Florida-based LNR Property LLC, the parent company of LNR Partners, the tower’s special servicer.

BentleyForbes, based in Los Angeles, paid $436 million to acquire the 55-story Atlanta skyscraper in 2006 from Bank of America Corp. (BAC) and Cousins Properties Inc. (CUZ) in the city’s biggest property deal. Since the property market peaked a year after the purchase, the 1.25 million-square-foot (116,000-square-meter) building’s value has tumbled with tenants, including namesake Bank of America, reducing space.

Atlanta has the highest rate of late payments for loans on offices bundled into bonds among the largest U.S. metropolitan areas, at 25.3 percent, according to data compiled by Bloomberg. That’s an increase from 10.4 percent a year ago and is more than triple the 7 percent national rate.

The $363 million Bank of America Plaza loan became delinquent in December after BentleyForbes stopped making payments. The loan was partly packaged inside JPMCC 2006-LDP9, which was downgraded by Fitch Ratings in December because of expected losses. 

As I've been warning in many of my previous posts, ie. (must reads if you have not already done so):

1. I Present To You The First Probable US Commercial Real Estate Insolvency Of Many To Come
2. The Real Estate Recession/Depression is Here, Eurocalypse Style
3. An Overview of a US REIT Headed Towards Distress
4. The Greatest Risk To Retail Commercial Real Estate Is? Sovereign Debt! Macro Headwinds! Popping Bubbles! Busted Banks! No, It's The Internet!
5. Prepare For CRE Crash And Burn Marks At A Shopping Mall Near You

The can kicking of the last 3 years will come to a head once those 5 year debt instruments issued in 2007 come due in 2012 and 2013. Do banks roll over what is an obviously losing proposition or do they take the money and run. Here is an excerpt of the professional/institutional subscriber document Foreclosure Scenario Analysis showing what happens when you get to the end of the road in the neighborhood Can-Kick! Click to enlarge...

 thumb_REIT_bankruptcy_candidate_copy

We have culled the portfolio of nearly 30 properties which we individually valued and found who was due for mortgage/loan maturity in the next year. It didn't look pretty...

REIT_bankruptcy_candidate1 

 Of course, this is not just an "American" thing. The CRE crush will be felt word-wide, particularly in the EU, UK, and China.

•  We're At Step 2 Of The Global Real Estate
•  The Swiss Real Estate Bubble?!
•  The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History

What many do not understand is that the real estate crash of the previous decade is far from over, because The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. This is true for not only the US, but the EU countries as well. Unlike our European and Asian counterparts, many US investors are much too detached to what occurs overseas, quite possibly from a hubristic, apathetic or even ignorant stance that what happens over there has littel effect on us stateside. Unfortunately, that is not the case. What do you think, pray tell, happens when the liquidity starved, capital deprived, overleveraged banks fail to roll over all of that underwater Eu mortgage debt?

Slide21

Investors seeking safety in Germany, the UK and France may truly be in for a rude awakening!

Slide22

This is a follow-up post to the Anecdotal Observations On Apple's Recent Quarter article written last week. Those that didn't read it, particularly those who manage institutional moneys should definitely take the time to peruse it before moving foraward. It clearly outlines the "one-time" event status of Apple's blowout quarter just past. This piece goes further to describe how that quarter's performance masks the trends that I have been highlighting for some time now. I will address market trends, network effects and margins later, but upfront let me pose the taboo question... What if Apple lost its cool factor? You see, that's the problem with fads, the followers are simply too finicky. This is screen shot of the recent viral Samsung Galaxy S2 phone.

Samsung_s2_ad

The commercial shows in its entirety belw. Despite very strong market numbers, tens of millions of satisfied users and tech reviews that are superb, the pop media (for some absurd reason) still insists on abject Apple favoritism. A good example is this piece from ZDNet: With Apple's U.S. dominance, smartphone race heads overseas. The article asserts that Apple's lead in the US is a done deal and any competition will be (fleetingly) found overseas. This assertion totally ignores the fact that Apple has been losing market share for nearly every quarter that Android has sold to the mainstream except for last quarter - a recent quarter whose extreme performance probably cannot be duplicated. It ignores the fact Apple has just half the peneratration of Samsung alone (not Android, just Samsung, its main supplier). It also ignores the fact that Android, despite Apple's stellar quarter, continues to march forward as the mobile OS of choice for the majority - to wit: NPD: Android attracting more than half of new smartphone shoppers:

Apple was named the best-selling U.S. handset brand during the fourth quarter, according to a new report from the NPD Group.

However, the findings suggest that while iOS has won this battle, Android is really winning the war.

Take a look at the graph below:

Not only do 48 percent of all smartphone buyers own Android smartphones (versus a close 43 percent on iOS), there is a much bigger disparity for first-time smartphone buyers. Android is attracting more than half of them at 57 percent, while Apple is considerably behind at 34 percent.

The quality of the OS has mythological lore in the pop media as well, as this article jives with my own personal experience with iOS on my iPad (which I ended up giving away) - iPhone iOS Apps Crash More Than Android: Report. App depth, pricing, dversity in offerings and superior tech have led to Samsung, Android continuing its U.S. lead through December, despite the blowout quarter from Apple...

RESTON, VA, February 2, 2012 – comScore, Inc. (NASDAQ: SCOR), a leader in measuring the digital world, today released data from the comScore MobiLens service, reporting key trends in the U.S. mobile phone industry during the three month average period ending December 2011. The study surveyed more than 30,000 U.S. mobile subscribers and found Samsung to be the top handset manufacturer overall with 25.3 percent market share. Google Android strengthened its lead in the smartphone market to reach 47.3 percent market share. Covering the three-month period ending December 31, Samsung remained constant without any changes in its portion of the market share — likely because the anticipated Galaxy Nexus did not make a debut on shelves until nearly the end of the quarter.

The only mobile OEM to post an increase was Apple, which ranked fourth with 12.4 percent of the market share and a 2.2 percent point change. 

Putting this in perspective allows one to see just how far Android has shot ahead in such a short amount of time. Last quarter was Apple's biggest quarter ever for a variety of reasons that are the result of the confluence of a swath of unrepeatable factors. Despite such an outrageous quarter that likely will never be repeated, Apple still has less than than half the market share of Samsung, its largest vendor (we aren't talking Google's Android here, we're talking Apple's own [other] vendor, Samsung). This is relevant for a variety of reasons. For one Samsung's tech is vastly superior to that of Apple's. Marketing and fanboisms aside, practically any objective review agrees with this assertions. We did a head to head comparison of the iPhone 4GS and the Samsung Galaxy 2S during the last BoomBustBlog meet and greet. For those who weren't there, simple peruse YouTube for the many professional comparisons to be found. 

You see, the cool thing about YouTube is that you can interact with the TV audience. There are nearly a million views of their comparison with nearly 3,300 likes/dislikes and 5,000 comments. I invite one and all to go through them cursorily to determine what the actual populace (not the slanted media or Apple's marketing department) feels about the phones, and more importantly, what their next phone will be. 

As for Android, there’s no stopping it anytime soon. The platform now covers 47.3 percent of the U.S. mobile market share. Again, in the top five only Apple saw a surge in its cut as iOS placed second with 29.6 percent.

OEM Market Share

For the three-month average period ending in December, 234 million Americans age 13 and older used mobile devices. Device manufacturer Samsung ranked as the top OEM with 25.3 percent of U.S. mobile subscribers, followed by LG with 20 percent share and Motorola with 13.3 percent share. Apple continued to gain ground in the OEM market with 12.4 percent share of total mobile subscribers (up 2.2 percentage points), while RIM rounded out the top five with 6.7 percent share.

Smartphone Platform Market Share

97.9 million people in the U.S. owned smartphones during the three months ending in December, representing 40 percent of all mobile subscribers. Google Android ranked as the top smartphone platform with 47.3 percent market share, up 2.5 percentage points from September. Apple maintained its #2 position, growing 2.2 percentage points to 29.6 percent of the smartphone market. RIM ranked third with 16 percent share, followed by Microsoft (4.7 percent) and Symbian (1.4 percent).

Mobile Content Usage

In December, 74.3 percent of U.S. mobile subscribers used text messaging on their mobile device, up 3.2 percentage points. Downloaded applications were used by 47.6 percent of subscribers (up 5.1 percentage points), while browsers were used by 47.5 percent (up 4.6 percentage points). Accessing of social networking sites or blogs increased 3.8 percentage points to 35.3 percent of mobile subscribers. Game-playing was done by 31.4 percent of the mobile audience (up 2.6 percentage points), while 23.8 percent listened to music on their phones (up 2.9 percentage points).

For those of you who claim that Android can have majority market share as long as Apple enjoys the marjority of the profits, I fear you may not understand how Apple garnered those above market profits in the first place. Keep in mind the power of the "network effect"  which exponentially increases the value of a service or product as more people use it, often creating universal standards where there were none. Apple created a defacto standard through its ecosystem, thus used the network effect to boost margins. Google is attempting to do the same, and if it succeeds, will eat heavily into Apple's margins as the network effect will no longer serve Apple, but its new master (until dethroned), Google. This is why Google's onslaught must be stopped by any means necessary - hence the legal assault team at Apple.

Click here for a full explanation of how the network effect works in the smartphone industry.

The second factor is that Apple's biggest advantage over its competitors is its "Cool" factor. That is, Apple is simply better at marketing than its competition - all of its competition. Of course, this begs the question "How long will it take for said competition to get a clue?" Well, this may answer that question.

Samsung moving up on Nokia as Apple passes LG for 3rd place in global phone share

Samsung cut Nokia's worldwide lead from 10% to just 4% in 2011 and Apple passed up LG. 2012 will likely see continued rise of Samsung and Apple in the global phone market. 

Samsung closed the gap with Nokia from 10% to just 4% though and we may soon see them take the lead. Apple moved up, actually doubled their market share in a year, and passed up LG in 2011.

Apple's smartphone business now generates more revenue than all of MSFT's software businesses, compbined. Taking note of this, it is impossible not to consider Apple a smart phone/tablet company. Apple's primary profit machine sales were off the charts. Apple is, from a revenue and profit perspective, essentially a smartphone company (subscribers reference  Apple – Competition and Cost Structure)

So, what happens when your primary product, revenue and earnings driver is banned from being sold? Crash???!!! 

Motorola wins iCloud injunction; iPhone, iPad temporarily pulled from online store

This is a big deal. You see, while this ruling was temporarily suspended (ex. more litigation) it displays the power the world' largest and deepest mobile phone patent portfolio holder wields under the guidance of Google. This combined with Apple fighting its largest vendors cannot be considered a good, nor safe bet for the company. If you shut down, or significantly hamper Apple's smartphone sales, you practically shut down or significantly hamper the company itself. After all, it esentially a smart phone company.

Now A Question To Get The FanBois Riled Up

Which CEO had the greatest effect on the world to date, Steve Jobs or Bill Gates? I welcome all opinions and answers, just stay polite and professional.

Remember, I never said Apple will go out of business, I said they will have to spend more to remain competitive against Google's less than free business model, see Looking at the Results of Google's "Negative Cost" Business Model Employed Through Android.

Cook has even said himself that one shouldn't expect the margins Apple exhibited last quarter again, and the reason he said it wasn't because he was reading BoomBustBlog that morning - How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue or Sliced Apple Margins For Dinner? or Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! 

Other links of interest...

 reggie_speaks

A 7 minute video of my opinions on Greek haircuts, US and Manhattan real estate overvaluation, China bubble busting and hard landings, Case Shiller shortcomings and Germany's penthouse suite in the EU roach motel.

 Below I have aggregated hours worth of related content via video, blog postings and subscriber research...

 Related Videos

The First Major Real Estate Collapse In Europe? I've Found The EU Equivalent Of GGP, The Largest Real Estate Failure In US History Monday, 19 December 2011

What many do not understand is that the real estate crash of the previous decade is far from over, because The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. This is true for not only the US, but the EU countries as well. Unlike our European and Asian counterparts, many US investors are much too detached to what occurs overseas, quite possibly from a hubristic, apathetic or even ignorant stance that what happens over there has little effect on us stateside. Unfortunately, that is not the case. What do you think, pray tell, happens when the liquidity starved, capital deprived, overleveraged banks fail to roll over all of that underwater Eu mortgage debt?

Slide21

Investors seeking safety in Germany, the UK and France may truly be in for a rude awakening!

Slide22

Interesting Documentary on the Power of Rating Agencies, Reggie Middleton Excerpts

 Subscriber Research

•  Insurer at Risk Report_122511 - Professional/Institutional edition
•  Insurer at Risk Report_122511 -Retail edition