Displaying items by tag: insolvent

This is a corrected and extended update of my glance into the Macerich update. This post was delayed due to material data input errors which have been rectified. I've decided to offer a peak into the ongoing analysis of its property portfolio, which combined with its credit and cash flow situation brings to mind the concerns that I have had about GGP about a year before it collapsed (see "GGP and the type of investigative analysis you will not get from your brokerage house.").

In looking at the data that I am about to display, I want readers to think of MAC as an investment entity that you, yourself, would run as a real estate investor. Think of your ability to make money over time, and the viability of your entity if you would actually lose money. As a property investor, I view MAC's properties in terms of being underwater or being profitable on a capital appreciation and NOI basis. As of 11/09, many of MAC's properties are significantly underwater, the ramifications of which depend on the financing utilized, since the use of debt has literally wiped out all of the equity in some, has made others require an equity infusion to roll over the mortgage, and has simply destroyed shareholder capital in other cases.

Even those properties that are 100% equity financed represent a material loss to shareholders where they are underwater. As you will read below, this has occurred in many instances. Very few publicly disseminated REIT analyses seem to take into consideration the ramifications of REITs actually losing money on investments that don't have large loans against them. They should, though. A loss, is a loss, is a loss.  Leverage simply amplifies the loss. That being said, if I paid $30 million in cash for a property that is currently worth $20 million, I lost $10 million (less the real income derived from that property since acquisition) - no matter which way you look at it. At least with a cash purchase, I may have the option of riding it out to hope that the market returns. If I bought the property with a 70% LTV, $21 million loan), not only have I taken a 110%+ loss, but I would probably be forced to write the property off come time to refinance the loan. The leverage significantly reduces my flexibility. This is what happened to GGP.

The next question is, "Will the market come back to where it was when I made these high priced, high leverage purchases?". Reggie's assertion is, "No time in the near future!". Let's take a look at Richard Koo's chart on the Japanese asset bubble, after GDP started to ramp up...

This is a corrected and extended update of my glance into the Macerich update. This post was delayed due to material data input errors which have been rectified. I've decided to offer a peak into the ongoing analysis of its property portfolio, which combined with its credit and cash flow situation brings to mind the concerns that I have had about GGP about a year before it collapsed (see "GGP and the type of investigative analysis you will not get from your brokerage house.").

In looking at the data that I am about to display, I want readers to think of MAC as an investment entity that you, yourself, would run as a real estate investor. Think of your ability to make money over time, and the viability of your entity if you would actually lose money. As a property investor, I view MAC's properties in terms of being underwater or being profitable on a capital appreciation and NOI basis. As of 11/09, many of MAC's properties are significantly underwater, the ramifications of which depend on the financing utilized, since the use of debt has literally wiped out all of the equity in some, has made others require an equity infusion to roll over the mortgage, and has simply destroyed shareholder capital in other cases.

Even those properties that are 100% equity financed represent a material loss to shareholders where they are underwater. As you will read below, this has occurred in many instances. Very few publicly disseminated REIT analyses seem to take into consideration the ramifications of REITs actually losing money on investments that don't have large loans against them. They should, though. A loss, is a loss, is a loss.  Leverage simply amplifies the loss. That being said, if I paid $30 million in cash for a property that is currently worth $20 million, I lost $10 million (less the real income derived from that property since acquisition) - no matter which way you look at it. At least with a cash purchase, I may have the option of riding it out to hope that the market returns. If I bought the property with a 70% LTV, $21 million loan), not only have I taken a 110%+ loss, but I would probably be forced to write the property off come time to refinance the loan. The leverage significantly reduces my flexibility. This is what happened to GGP.

The next question is, "Will the market come back to where it was when I made these high priced, high leverage purchases?". Reggie's assertion is, "No time in the near future!". Let's take a look at Richard Koo's chart on the Japanese asset bubble, after GDP started to ramp up...

Monday, 09 February 2009 23:00

Update on Lennar

Monday, 09 February 2009 23:00

Update on Lennar