One thing is for sure: Low interest rates turned some investors’ brains into mush.
By Wolf Richter for WOLF STREET.
We have been discussing here for a while how the massive losses in commercial real estate, particularly in the office sector, have been spread far and wide, spread over equity and debt, landlords and lenders. And those lenders are spread across several big investor classes globally, and they hold the majority of the debt, not banks, thankfully (in multifamily CRE, US government entities hold the majority of the debt). And those losses originated from the crazy deal-making, reckless lending, and ridiculous valuations during the era of ultra-low interest rates. So this here is a deal that went kaputt where the debt was held by a life insurer.
MetLife Investment Management foreclosed on a 12-story, 257,000 square-foot class A office building, completed in 1987, the “1960 East Grand Avenue” in El Segundo, CA, a submarket just south of the Los Angeles International Airport, according to The Real Deal, citing a trustee’s deed filed with Los Angeles County.
Starwood Capital and Artisan Ventures, through a partnership, owned the building and defaulted on the loan in February. A notice of default filed at the time with Los Angeles County said they were $960,800 behind on the loan.
As part of the non-judicial foreclosure, MetLife paid $72.8 million for the building, or about $283 per square foot, and now owns the building.
Starwood Capital and Artisan Ventures had bought the building in February 2020 for $132 million, or about $513 per square foot, from Brookfield, according to the Commercial Observer at the time, citing property records. Brookfield had paid $67 million for it in 2017! That $132 million price was just nuts!
There was quite a CRE frenzy underway at El Segundo at the time. JLL brokered that deal. JLL’s Steve Solomon told the Commercial Observer in March 2020:
“Now you have Blackstone, you have Starwood, you have the big, giant institutional investors here” in El Segundo. “It solidifies its standing as a top market. Look, Starwood used to just be hotels. Now, they own almost 2.3 million square feet in the office market in El Segundo. I think they’ve become the biggest landlord in El Segundo in the past three years, when they were never here before.”
Opps. Since February 2020, the transaction price of the property at 1960 East Grand Avenue has collapsed by 45%, even in thriving coastal Southern California.
“The building is located in the “superblock” in the heart of El Segundo, the premier business center of the South Bay,” LoopNet says (image via LoopNet):
Who lost or made what.
Brookfield: $65 million gain. The Canadian property and PE giant had bought the building in 2017 for about $67 million through Brookfield Premier Real Estate Partners, according to CompStak.
By selling the 30-year-old office building to Starwood Capital and Artisan Ventures in February 2020, for $132 million, Brookfield booked a profit of 97% ($65 million) in three years, which tells us – and we know this for sure now, without a scintilla of doubt – that the low interest rates caused some investors’ brains to go to mush.
Starwood Capital and Artisan Ventures: $47 million loss, 100% of the equity. They bought the building for $132 million in February 2020, financed it with a loan from MetLife for $84.8 million. So they had $47 million in equity in the building at the time of the purchase. And that $47 million in equity officially vanished with the foreclosure sale.
But Starwood Capital and Artisan Ventures are investment funds, they’re investing other investors’ money, and the risk is that they lose other investors’ money, while they extract their fees all along the way. What caused Starwood Capital and Artisan Ventures to pay $132 million for an office building that had sold for $67 million three years earlier? What kind of crazy times were these?
MetLife: $11.1 million loss, 13% of the debt. The insurer appears to have been the prudent entity here, by lending only $84.8 million on a building purchased for $132 million. But its losses haven’t been fully tallied yet until it sells the building. Or it might not sell it, but just keep it, praying that this too shall pass.
By the time of the foreclosure sale, the total loan outstanding was $83.9 million. So if the building is actually worth $72.8 million, the amount MetLife paid in the foreclosure sale, MetLife had a loss of $11.1 million, or 13%, on the loan. And now it owns the building, and the headaches it might bring. The building is about 70% leased, according to the Commercial Observer. The vacancy rate in the El Segundo office market was 25.8% in Q1, 2024, according to CBRE.
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Thanks WR for this article.
Hope this repeats in the residential RE as well, making houses affordable to normal middle class folks.
I remember, few years back, folks saying that these cre buildings in these hot locations would never ever go down in price and today, here we are.
In those times you are reminiscing about, did the dollar also depreciate by 40% or so in value? In times of inflation and real estate increases, when a drop in real estate came, did the dollar go through a comparable period of deflation. I want there to be a real estate crash to benefit my personal circumstances, as it sounds like you would want similarly. I can’t hold on to that much hope for this time to be like the last two or more real estate crashes / declines as in the past though due to the dollar being almost guaranteed to not revert back to it’s purchasing power prior to what we have experienced in recent years. Real estate could go down, but I just can’t see it declining enough to make things sensical from the perspective of those who were prudent and patient and trying to do the right things financially from a logical perspective. The free money to the federal agencies, grants for universities and social programs, money for state and municipal governments, massive amount of money to any pseudo-business or true business owner who could fog a mirror (PPP and SBA massive money giveaways). ridiculously low interest loans, war spending, tax credits………..it just goes on and on. How would the dollar revert to it’s value of 5 years ago to justify the price of other things going down? I hope real estate does crash but if I were basing my bets on logic, I couldn’t even bet in my own favor at this point. I think I’ll be looking from the outside in until there are riots. Thankfully we have entered a state of mass surveillance and monitoring so riots will be at best about stealing some cool shoes and smashing up cars, not setting things straight. Big Brother I Love You! Thanks for keeping me safe. Inflation was a great antidote to our troubles and I’m so glad I have a big brother looking out for my well being. We’re too stupid to know what’s good for us. We shall wait for those who know better to decide what we need. Praise to the pirates.
We all know that moon pies and penny whistles aren’t reverting back to 25 cents and 5 cents or 1 cent each. Gasoline isn’t going back to the $1.10 a gallon before George Bush the Great II took us into the Gulf War 2.0. We all know that the days of $100 getting you a grocery cart filled above the top of your grocery cart isn’t coming back. So how could we realistically hope that house prices could drop enough to make things okay again. I think my age group got hit with a double whammy of the last recession killing off entry level professional jobs at the time of entering the job market, struggling through the era and doing grunt work and being frugal, keeping heads down, scraping and saving at sub-par jobs and wages, scrimping for down payments, just to be whacked in the face by inflation to wipe a lot of that out. The next generation in some ways got a windfall with wiping out student loan debts, government assistance, massive wage growth for entry level jobs, low interest rates, etc. The generation prior got into their professional jobs before the country hit downturns and they have a slightly better home life with parents that weren’t completely absent due to being only loyal to their jobs and work responsibilities. …………long rant.
You simultaneously state that prices are not going back down while hoping for a crash that benefits you personally; yet lament those that benefited from the last one and don’t see it happening. Correct?
You want to improve? Become ruthlessly aware of this type of dysfunctional thinking. It’s circular, selfish, rationalistic, unproductive, defeatist, and substitutes excuses for action.
There are millions making millions in all markets at all times. Lack of opportunity is not your problem, but rants may be.
No, not that is not correct. I don’t think you understood what I wrote or are purposely oversimplifying what I wrote in order to seem like you are disagreeing with me when your really aren’t responding to anything that I wrote. I don’t think prices are going to come down enough to offset the level of devaluation of the dollar that we have experience. I don’t think the last housing bubble had a comparable level of loss in value of the currency. That is my main point. Me saying that I could hope for housing prices to crash, and it could be to my benefit is the same as saying that I could hope that I’d walk out my door in the morning and trip over a sack of gold coins but I’m not going to delude myself into believing that would happen, even though it would be beneficial, because it is not realistic. That is what I am saying.
So you are saying that you think home prices are going to crater and prices will be comparable to something like 2014 through 2018? I really don’t think see, despite that being something I could benefit from. Me waiting for special circumstances that benefit me is really what would be foolish if they are not likely. Only hoping for house prices to crash and not trying to look for other opportunities if that chance has largely passed is the truly foolish thing.
“There are millions making millions in all markets at all times.”
There are millions who lose money as well, so such a generalized statement is not intelligent and not specific.
Try harder.
Yeah, ” millions making millions” in a world of BILLIONS.
So, yet again it only works out for a small percentage.
Same as it ever was.
Our situation in Canada is multiple times worse. Average household income is in the $70k range. Any house below $500k is a handyman’s special. A mechanic is $150/hr, plumbers and electricians all over $100/hr. New home buyers pretty much all get a HELOC equivalent to 65% of their equity. That’s because after paying for your house and living expenses the only way you can replace your car or broken down fridge is with credit. Many Canadians live on revolving credit.
RE: SBA and other “funny” gov’t munny programs, a text I received today:
“Hi John this is Sara following up with AFG. Interested in an SBA advance up to $540k?”
Of course, this program is intended for small businesses to gain opportunity. I don’t think the terms are as favorable as the PPP (forgiven) loans, BUT it’s your big brother, attempting to stimulate your economy!
No declared recession (until POST election!)
I’d benefit a lot if asset markets keep going up including real estate.
I did benefit from FED’s easy policies for last 10 years.
I do want home prices to go down so that normal working class can afford house for shelter. Although crashing pome prices would decrease my net worth. I do have few properties in So Cal , I don’t see them as investment though and does not really impact me if it goes down.
Great writing again!
What middle class? It has shrunk and is not coming back. I would say in the future you will need to be in the upper middle class (earning above the median family income) to afford a home. It is just an effect of inflation and how corporations are becoming monopolies in various industries. When you buy something from Walmart, Amazon, Walgreens, Target, Chipotle, etc. The money leaves your community and goes to the city where those headquarters are located and to their investors.
It used to be that if you bought a shovel at your local owned mom and pop hardware store, the money went to that owner. Then that owner than took the profits to the local restaurant and bought a steak dinner. The owner of the restaurant than went to the local owned clothing store which was owned by you and bought some pants at your clothing store. Then you took the profits and went back to the hardware store and bought a gallon of paint. wash, rinse and repeat.
Now when you buy your shovel at Walmart and the profits go to Bentonville Arkansas and WallStreet. When you buy something on Amazon, the profits go to Seattle. You hope one of those Walmart or Amazon exec’s drive through your town and buy a McDonalds happy meal where you work flipping burgers so you can make your minimum wage. Then you go to Walmart and buy a pair of pants and the profit go to Bentonville when it used to go to you.
ru82 – this! A good observation (see Ruskin) of the long-running struggle of small ‘Main Street’ vs. corporate ‘Wall Street’ ‘capitalism’-they aren’t synonymous…
Lets see, Buy a fancy building in a burg where almost a quarter of the city is taken up by a giant oil refinery. What could go wrong.
Proximity to LAX and the beach are plusses. 405 and 105 freeways are right there. A short commute from Palos Verdes and marina del ray. 9th circuit Judge Milan Smith chooses to have his chambers there when he could locate anywhere in CA so there must be something good about the place.
Nice looking building.
Yeah it is. Wonder if it has thin film coating on windows to be selective about light wavelengths transmitted/reflected? When I left the thin film coating biz they were planning a REAL long machine to do windows…..the MAC….damned if I know how they were going to keep hi-vacuum. We were heavy on aerospace and defense (60-70% ?) so they wanted more commercial stuff. We already did Xerox mirrors and reflectors for dental lights, cameras, etc. 70’s.
Good article…NO re-read req’d AT ALL……just wanted to be in first article for a change, too. Seems to be the “in” place to be……WHY? Why not let some thought and counter thought accumulate and then read? Guess someone has to start……
Concerns over post I read by Greg P. a few articles back where I operate caused it……don’t feel any different FWIW, though.
I would love to see the $72.7M value drop by another 50% and see the same thing happen across the country, Nice looking building or not. Asset prices from CRE, residential homes, & stock market are all out of whack, resulting from years of the Fed’s mucking with markets. Get the Fed out of MBS by forcing them to sell their holding over a three-year period. Bar them from lending to the treasury for anything more than 7Y notes. The rest of the bond sales should be left to the market & not the Fed’s intervention. With $35T in debt and long-term inflationary issues coming, the Treasury has not business selling 20 & 30 year bonds & locking us into paying higher rates for that long. It’s just crazy!
Did Starwood and Artisan expect interest rates to never rise again or they assumed can time the market and offload prior (ie quick flip)? Did they assume CRE prices to rise in perpetuity? wtf were they thinking? Hard to believe they completely care nothing about investors’ $$$
sadly this…
Back then I remember people were still talking about possibly going into negatives with interest rates like some other countries. I don’t really know how serious that was or if it was just agenda driven word vomit, but I do remember people discussing it. Honestly I was wondering myself what the US would do if it ran into a recession with rates as low as they were at the time, but everything changed pretty quickly since then lol
“Hard to believe they completely care nothing about investors’ $$$”
They made a risky bet… and it didn’t go well.
I imagine Starwood, like so many others in that herd, envisioned a big pop in those markets based on continued cheap credit (recall, Powell was backed down on normalizing rates), and this was before the pandemic and work from home came so swiftly. Firms were rushing into these kinds of properties. It reminds me of certain past manias, such as American bankers obsessively pushing into foreign loans, or domestically, shoveling money to a certain very trendy operator who was starting an airline and a football team, and over-developing in Atlantic City.
Re: “ , they’re investing other investors’ money”
This is heart and core soul of investing today — do you really wanna trust dumb shmucks with your cash?
A money market is safely paying monthly returns, but everybody and their grandma wants to find a hedge to make a higher yield in something — FOMO.
The future looks bleak to me, but imho, it makes no sense to jump into stupid situations that might be like a Starwood blunder, with a random REIT or corporate bond fund — but people easily talk themselves into opportunities where morons bet on wrong horses,
For the time being, there is no alternative to money market income.
Some utilities are spinning off even better dividend rates than money market funds, if you have the appetite for such things.
MW: Investors trying to pull money out of commercial real-estate funds are hitting a wall
Some quick “cowboy” math applied to valuing the building currently. I went online to check lease rates and availability. Smaller spaces (e.g., 4k SF) listed at $51 SF/YR (or $4.25 per month). A larger space of 22k SF was being listed at $18 SF/YR (so the lease rates are all over the place). For ease of math, let’s assume the building has an average effective lease rate of $36 SF/YR on a look forward basis. That is, as old leases roll off and new tenants are added (if they can find them), competition for quality tenants will be fierce so pricing must be aggressive. So I landed at $3 per month per square foot (assuming most leases are triple net) illustrate how this building may be valued today.
Total available SF is 257k which is 70% leased, this nets to 180k of actively leased space. Assuming the $3 monthly lease rate is reasonable and the building can get to 80% leased (a big if), this would produce monthly lease revenue of $617k (206k of space leased at $3) and annual lease revenue of roughly $7.4 million. Now, the tricky part as estimated annual operating expenses (e.g., property taxes, management fees, repairs, maintenance, etc.) need to be calculated which I’m assuming to be roughly 45% of the generated revenue. This would leave 55% or roughly $4.1 million of annual operating income (i.e., cash flow before debt service, taxes, etc.) on which to value the building.
Finally, a cap rate must be applied to the operating income to value the building. Back in the crazed days from 4 years ago (as WR called out, when interest rates dropped to zero), cap rates were at historic lows of let’s say 3.5 to 4.5%. Dividing $4.1 million by a cap rate of 4% produces a gross building value of roughly $102 million. Juicing the figures above (back in 2020) by elevating assumed SF lease rates to $4 PSF Monthly and occupancy levels to closer to 85 to 90%, you can see how quickly CRE owners and lenders calculated a value of $130 million plus.
Now to reality, and applying market data including lease rates, occupancy levels, and cost of capital (the cap rate). Today, cap rates for CRE buildings are all over the place but for older buildings, with an average tenant mix, and a “B” location, a cap rate of closer to 8 to 9% would be reasonable (especially when targeting distressed properties). Applying a cap rate of 8.5% to $4.1 million of operating income produces a gross value of roughly $48 million, a far cry from $132 million.
Based on these figures, you can see why the owners bailed and why also the lender may still take an additional bath on this property. Further, assuming a 25 year fully amortized loan (of $84 million) on the building was structured in 2020, at an interest rate of 4.5%, the annual debt service payment would $5.6 million (or $467k per month) which is well below the $4.1 million of annual operating income. So even before calculating any required cash outlays for capital improvements and other expenses, this property appears to be bleeding cash badly.
It should also be noted (and again, as WR has harped on for some time), that attempting to refinance these types of properties with new debt in today’s market is damn near impossible. BTW, it doesn’t take much imagination to quickly realize just how many similar properties are in basically the same economic shape as this one (across the country). The only real issue remaining is a.) just how big the losses will be and b.) who will take the biggest hits. With the CRE market just beginning to clear these properties (as it will take years to resolve this mess), the firework show is just beginning.
Good analysis!
You state NNN lease terms then deduct 45% for expenses. That ain’t right dude. What about parking income? Even if they throw in parking in the short-term, there is still the future income potential for the parking. Further, the nominal lease rate is likely well above the effective lease rates after concessions and you make no allowance for TIs, brokerage commissions and down-time. The larger module you included is a sublease offering and likely well below market and the lease term is for less than a year. It’s a throw away data point and the sublease includes furnishings for the module that has a large open-bay area. The building is 70% “leased” but say 10% is offered for sublease so 40% availability rate at a minimum.
Had MetLife loaned at a 50% LTV they likely would have been “OK.” No idea on the age of the building systems and specifics. its really hard to do a cocktail valuation in situations like these… no idea when supply/demand will reach stabilize and at what level. At this point, the building is probably worth no more than what MetLife “paid.” I wonder if there is a major tenant in the building? Hughes Aircraft used to be a big tenant in that area.
Keep in mind that the lender (Met Life) benefits by early termination of the low interest loan. It won’t offset the entirety of its loss, but it’s not insignificant.
Good analysis.
I think the main losses would be eaten by investors and some by banks.
Great analysis. Commercial real estate sales are so slow and “chunky” that they make it somewhat difficult to see the overall slow-motion meltdown underway — lots of furious can-kicking behind the curtain in an effort to avoid crystallizing losses that are still held in suspension.
Go long popcorn futures …
I agree with Tage’s value analysis on today’s value estimate.
I have been a CRE lender for big banks for 35 years, before moving to a debt broker role last year. One of my smartest developer client’s learned a valuable lesson in the late 1990’s, when he developed a 5 story office bldg in Ft Myers. The anchor tenant was a tech company that blew up with the 2000 Nasdaq collapse. He faced feeding the property with TIs and LCs, which essentially were 18 months of free rent. Based on his experience, I have steered clear of the office segment since that time.
I’m a partner is a small SoCal CRE firm that specializes in CRE lending. Regarding foreclosures and write-downs, you ain’t seen nothin’ yet!
I believe you. Because you have all this experience would you mind sharing your thoughts on what the “ Big Bust” will look like? I find it lots of fun to hear peoples thoughts on the future.
Being right or being wrong doesn’t matter to me. What matters is their thoughts and why they think it.
Thank you!
I find it fun as well.
They will tear down the buildings then they will build parks, no crime parks, where the good people can relax..let their worries fade.
Many good ideas for these spaces. Just let them sit there for 50 years empty… The rats can hang out in the lobby… make a nest..a rats nest.
I think that’s a realistic outlook of what will happen to office buildings. I’m not buying the hype of repurposing them. I don’t see it as technically or financially feasible I don’t see many good future uses for them. If they were warehouses sitting empty, I could think of an endless amount of uses for them. Office buildings really do only have a narrow range of uses, which is mostly people sitting in chairs at desks. I can think of a great amount of uses for enclosed and weather proof spaces but many of those uses would require supporting a lot of weight, something that the structure of office buildings were not designed for. They won’t make good data centers, they won’t make good storage facilities, they won’t make good residential housing, they won’t make for good homeless or transitional housing. Maybe they could be made into vertical malls, but malls are dying. They could be made into multi-level night clubs but that doesn’t sound more fun than a real financially sound operation. They’ll be extremely expensive to tear down if they are close to other buildings.
I suppose with inflation, the building materials such as steel and maybe even the expensive glass windows could be resold. They’d make reasonable temporary FEMA shelters for people displaced from natural disasters. A few could be turned into space for new museums and fine arts. A few could be turned into multi-discipline art centers such as music recording studios, photography studios, film editing studios, talent management, etc. all in one complex on the different floors. A vertical food court type of arrangement with different floors have a few different restaurants would be cool, but would probably go bust pretty quick. The probably is that most of the potential ideas that are physically possibly are all things that are for entertainment and discretionary spending, and not things that produce things that people actually need. It starts to sound like the rest of the country and the types of businesses and employment that we already have, which is frivolous entertainment and services that rest on a rotted foundation of no true production of necessities.
The fire marshals are going to love getting asked to approve all the potential new uses. I’m sure firefighters are going to be happy about risking their lives to secure and clear a building that is being used for such spurious purposes.
(free flow thought rants lacking the helpful formatting of paragraphs and proper spell checking, sorry)
Why not repurpose them as private schools, especially vocational? Seems like a nail meets hammer opportunity.
Widespread repurposing isn’t happening without significant government intervention, waiving or changing code restrictions and funding. But the last waves of ‘free’ COVID $$ from Uncle Sam are spent or committed. Hmm, how many more prisons could we use?
Tearing down the buildings would make the most sense, but I doubt it will happen except in extreme cases.
Too much “civic pride” in shiny office towers and too much hopium.
Maybe if a building sits vacant for 10 years and the taxes get so burdensome that the owner just throws in the towel.
Cupcake, you hit on a very important point: these buildings are expensive to tear down. Which means no one is going to do it since there is no return on the investment (with the exception of a few densely populated places where the land value would make it worthwhile).
So they will just sit there and slowly decay. A type tenants become B type tenants, which become C type tenants if any tenants can be found at all. It’s awfully hard to arrest this downward spiral once it begins.
The same is true of strip centers. We see this all the time in Texas.
Didn’t MetLife sell it’s auto and home insurance business in late 2020 to Farmers for just under $4 billion?
METLIFE COMPLETES SALE OF AUTO & HOME BUSINESS TO ZURICH INSURANCE GROUP SUBSIDIARY FARMERS GROUP, INC.
Companies to operate a strategic partnership through which Farmers Insurance will offer products on MetLife’s leading U.S. Group Benefits platform
NEW YORK, April 07, 2021
MetLife, Inc. (NYSE: MET) today announced the completion of its sale of Metropolitan Property and Casualty Insurance Company and certain wholly-owned subsidiaries to Farmers Group, Inc., a subsidiary of Zurich Insurance Group, for a purchase price of $3.94 billion in cash.
In addition, MetLife and Farmers Exchanges have established a 10-year strategic partnership through which Farmers Insurance® (Farmers) will offer personal lines products on MetLife’s industry-leading U.S. Group Benefits platform, which reaches 3,800 employers and approximately 37 million eligible employees. Farmers assumes responsibility for MetLife’s previous retail property and casualty customers.
Would the CRE market still be booming if there were no Pandemic? Heck yeah. And housing and rent wouldn’t be so high priced. Go figure.
Brant – history’s highway is littered with the wrecks of empires, large and small, that might still be around “…if there were no…(and not only pandemics)”.
may we all find a better day.
The only sure thing is that there will be more pandemics and that the interval between them will become shorter until global populations drop and international flights are reduced in number and frequency.
Experts,
Curious, how long are the terms on many CRE mortgages? Is it all short term financing just to trade these monopoly properties? Are any locked in at low rates for years and can existing loans be assumable at purchase? Or, are the purchases that are made with ‘other people’s money’ (funds) are always for the entire amount? The article shows there is an immediate adjustment to the sellers account balance. Just curious, as years ago several friends made some huge windfalls selling CRE in Toronto. Maybe 20 years ago? They were part of a specialised consortium as opposed to participating in a fund. Kind of a word of mouth thing. They never even looked at the properties, just backed the purchases enough for financing.
cre mortgages are usually 7 or 10 years. they can be floating rate, which means it varies based on market rates, or it can be fixed rate. sometimes they’re interest only, meaning when it matures, you have to repay or refinance the whole amount you borrowed, and sometimes they partially amortize, so that like 60-80% is left.
but they rarely pay down entirely the way residential mortgages do. that’s why a drop in value is so catastrophic. holding to maturity doesn’t work. you need to be able to repay or refinance the loan when it matures, and if you can’t, because the value has dropped or rates have increased enough that you can’t service the higher debt payments, you default.
that’s a lot of what’s been happening.
Thank you!!
Franz:
Essentially a method for creating (and destroying) money?
The funds are granted/funded as credit. This credit is either fully created or partially destroyed, based on the ultimate path of the underlying “asset.”
In the above scenario Brookfield was the immediate beneficiary of the “credit” financing that Starwood (attempted to have) created, multiplying their $47 million into “$132 million” by the agreement with MetLife (the remaining $84.8 million).
The “velocity” of the money moving through was high enough for Brookfield to net $65 million, and in the wrong direction for the other parties, already “destroying” a combined $58 million and counting….
And… I still don’t understand how macro-economics works (and neither does Starwood, somehow?). The jury is still out on MetLife, as it’s a far cry from the company that existed in the post WWII era. (Then, a mutual company).
And don’t forget the consultants. I am sure that at every step along the way in every deal there were some “experts” and “advisors” who made some nice money telling people how wonderful things were going to be if they would only do the deal.
Met Life should know their way around real estate Loans. After WWII the financed, built and owned the largest multi-family residential real estate development in the US, Stuyvesant Town, in NYC. They built it for $50million in 1947 and kept it for 60 years before selling it for $2.1 billion in 2006. Kind of amazing when you see how fast these real estate deals come and go today.
DM: The LL Flooring (Lumber Liquidators) Home improvement chain with 442 locations in 47 states sparks fears of store closures as it mulls bankruptcy
One of America’s biggest flooring suppliers is considering bankruptcy – the latest retailer to face financial problems. LL Flooring, with 442 stores across 47 states, has seen its sales falling over the past year as Americans cut back on renovating their homes. Tom Sullivan founded Lumber Liquidators in 1994 by buying excess wood from companies and reselling it at a discount.
If you don’t have your new floors by now, you missed out on the free money a couple of years ago (or spent it on something else)!
Hey people!!!!!
Good mood and good luck to everyone!!!!!
It does sit on 5.35 acres of land in a prime position.
(Best I can do is six fiddy and you eat the piled up outgoings.)
No It is worth $75/ square foot x 50% tenancy + income from parking and shops at $1.2 million/ year + the land value marked to Zero (but worth a lot) so back of Napkin… $10 million/ year income gross minus outgoings…It is built in 1987, so likely a few issues that need addressing.
I would be in it for $60.500 million, in a heart beat, because there are people in Sydney Australia buying old homes for more than that on 10000 square feet But they are all a Mad as Hatters
It’s true that buying at super low cap rates was crazy. But, I think what sometimes gets missed is that investors (or at least asset managers) really have no choice, unless they wanted to sit in cash at near zero RoR for years at a time. But their customers (investors) simply won’t pay them for that. If they don’t keep moving money, they don’t get paid.
If there is no way to position to make money off the office/retail CRE collapse. And its not affecting the broader economy, stock market, job market, consumer, etc… It almost just doesn’t matter what is going on at all.
I’m in commercial RE, and I’m continually surprised at how quickly the Multifamily asset value correction occurred, versus the commercial.
Obviously a lot of it was pretend and extend, and longer term perm notes allowed that to simmer for longer. But we’re getting on to years of delay in office vs multi. That more operators haven’t broken under the weight of DSCR tests, or just straight out defaulted via missed tax payments or negative cash flows is shocking. Particularly with how badly the insurance market has weighed on P&Ls these past few years.
Lots of value being sucked out of this sector. I wonder how the pension fund positions have suffered. They’re behind so many of these deals and they must be paying a price. Despite that, I hear CALPers is still bullish on getting money on the street. I suppose they have no choice.
The pension fund money often has political pressure to overpay for properties that are owned by the politically connected. CalPERS lost over half a BILLION (a big loss for even CalPERS) in the last 20 years overpaying for apartments. Someone on this thread mentioned Stuyvesant Town in NY one of CalPERS biggest real estate mistakes ever (they “only” lost $100 million on the “little” Page Mill Properties deal down the Peninsula from my apartments). The Page Mill loss was made worse from political pressure that stopped them from splitting up the portfolio and getting top bids from multiple buyers.
Brookfield Premier Real Estate Partners? You got that wrong. Brookfield had bought this building by acquiring a large portfolio from TA Realty Associates. Grand Avenue Courtyard was owned by the Brookfield Strategic Real Estate Partners II fund (BSREP II).