Lender's Conference in SD, World REIT Conference in Az

A few weeks ago I attended the trigild lenders conference in San Diego California. No reporters were allowed. Attendies where law firms, work-out recievers (which work out nothing), and lots of lenders, and a half dozen commercial brokers like myself. One of the catch phrases before each speaker spoke.... "Um, there are no reporters here, right?" and laughter broke out. Everyone wants lender business. The law firms want to represent on the foreclosure, the reciever wants to hold and deal with the problem asset on behalf of the bank and//or court, and commercial brokers want to get a listing and bring in a buyer. So everyone is all smiles to these lenders. Only a few like me would in private conversation oh so politey bring up how things change with the troubled assets are YOUR troubled assets. Those of us who are 40+ can recall the days when bankers pointed a long finger at the Saving & Loans and said, indeed demanded, they all be liquidated and closed down. When the S&L crises was over, $500 billion was the price tag and a sprinkle of S&Ls where left standing. The Banks SMUGGLY demanded that S&Ls "mark to market" their bad loans, foreclose on problem assets, and through the RTC quickly resell them ALL... each and every one of them... for such harse terms as AS-IS WHERE IS, close escrow in 30 days CASH.

Well that was the fate of the S&Ls.... but oh its a different story when its the Banks.

The speaker (s) would each go on and on and on about where web've been, the troubles now, and the outlook for the future. Lots of vague generalities....lots a pats on the back for their funded political class getting Congress to earlie on pass the NO "mark to market" asset rule. A pleasure that only they enjoy. But in the final analysis, they reasoned their best move on the chest board of high finance and massive private sector commercial debt fall out was to "Extend and Pretent". That is, do not foreclose, for that triggers a cash call to the asset side of their balance sheet out of their skimpy yearly earnings. Do not sell the note at a 30% or 50% on the dollar discount either-- Hell no. Instead, just Extend the loan, and pyle more debt to the back end and "hope for the best" -- that is hope for the market to return and save them. They even had an expert seasoned economist who was half comic to come in and tell them that all was not so glum, chin up, because the bottom is HERE now, and we have TURNED A CORNER! Why by the 2nd quarter of 2010, the whole world will realize that the worst is now behind us. You can speculate the the market will never return to what it once was, but the bottom line is this: Extend and Pretend today and have a job today. Bottom line, we will wait for the heavens to part before we part with our bad loans. A commercial real estate crises in denial is a crises forstalled for another day. Your bank may not be able to make more loans, but at least you have a job.

Today, this Thursday November 12, 2009, I am at the "World Reit Conference of 2009". Its held at the Desert Ridge Marriot Resort in sunny Scottsdale arizona. With a championship golf course, excellent rooms, giant ballrooms, and wonderful swimming pools big enough for the Golly Green Giant himself, the conference is in full swing. REITs from all over are here, and so are all the ancellary businesses, including a few commercial brokers like me. And what is the story here; The worst is now behind us.... the economy will begin pulling out of this mess in the second quarter 2010. REITs, having had their asses in a collective sling in 2008, where able to save themselves by tapping into the pool of public funds. Getting this fresh cash has allowed them to cover their tracks. They have paid down debt and renegotiated short term commercial notes that where comming due in 2010 11 & 12 to now come due 2020, 21, 22. They raised cash, bought time, spread the risk, and now that they are back to profitable, ...... like a cat that stopped in the center of the road only to be lucky enough that each tire passed them by.... they are very wary of "moving forward". Get agressive and shake down the bad banks and shake out the best deals on non performing loans on commercial properties? Not now! Shaken and stirred, they are just happy to be alive. Get agreesive? Are you f*cking kidding? Of course these very white color blue bloods are just here at the convention to RE ASSURE all their pension funds and capital fund sources who invest with them. So the future for REITs is BRIGHT, don't you know. They are "Well poised" to capitalized on "future oportunities". Meanwhile other REITs are trying to unload what they have. They even bring in an Economist who sees the future all ROSY.... shows us a giant graph showing the huge drop in 2008-9, but LOOK, there is the the "up tick" and of course we just extend that little tick straight on back to good economic health. Little to nothing is talked about as to WHY that happened. Little to nothing is mentioned WHY it will be good again other than "It will". Just like Obama can say "Yes we can" and millions believe, so too are capital funds believing the "It will" get better mantra. But as my dad always said, "Actions speak louder than words" and so I asked, so, since we all know the "worst is behind us" and that Phoenix is perhaps the lowest and hardest hit maketplace, are you ready to go "cherry picking" the best deals? "Oh NO!. We do not want to be in the Phoenix market at all. These attendees remind me of my fellow Americans who vacation in "mexico" by going to resorts in Cancun, drink a "margareeeta" and don a sombrarrrrro" and fly back to the USA and tell everyone they were in dangerous "mexico". As if. And as if they are really truly here in Phoenix. Most are from New York, they discuss the fact of that "tri state area" and that is it for the rest of the country. California? Forget it! Florida? Forget it.! Nevada and Arizona? Forget it! Texas? Well maybe we will look there .... but they like the Northeast. Afterall, here we have Goldman sachs, AIG, and every "big swinging dick" in attendance. Vernado Realty Trust is typical. Having swallowed the poison debt before the 2008 crises by buying ToyRUs years ago, they have now -- thanks to wall street and Tarp-- restructed its debt and extended its loans. These guys want Hud securities, protected assets with small simply predictable returns. Future inflation? They have edged by buying a 30 year bond for $460 million with a five year call option. Get aggressive and grab the banks by the throat and turn them upside down and see what falls out of their pockets? No, this group is too blue blood for that. They like buying buildings wth 3-A tenants like Walmart in it. "What is that you say? You know some hot deals in Phoenix? Well we only invest at $50 million and above, really we don't get interested in the assest unless its triple A over $100 million" ----- My reply, "Well gee, do you even think this asset, this sprawling desert resort is worth $100million? I mean at $200 a night, it can't be penciling out" Their answer: "Probably not". So Phoenix, like most USA cities, are "too small" for the REITs.

So there you have it... On the whole most Lenders are NOT going to be forced to write down any commercial assets, instead they will play the Extend and Pretend Game. Meanwhile the heavily funded REITs are going to go after marquee properties in the North East. Life is all roses for them, and they know why, "all praise to the public funds market".... for if it wasn't for that, the "ability to tap capital", we would have been dead in the water like all privately held commercial owners. (nothing is said about the biggest REIT failing just recently--not a peep from ANYONE. Its as if a big fat uncle died and the family suddenly has brain amnesia. No memory, no emotion! Strange how that works) What confuses them is why Washington DC has lots of cranes in the air building space, and New York does not have ONE crane in the air building space. Gee could it be that Washington DC is the last "growth market" in the country?

My prediction: When the bad Chrismas season reports in and American business report their zero income tax returns in March 2010, the "second shoe will drop" on this economy.

What I shall be doing then is still trying to scratch out a living.

In peace & liberty,

Treg