Archive for the ‘Real Estate Finance’ Category

Home Sales Slip, but Data Show Stronger Quarter

Friday, February 24th, 2012

New single-family home sales in the United States fell in January, but an upward revision to the prior months’ data and a drop in the supply of properties on the market added to growing signs of a budding recovery in the housing sector.

In another report released Friday, a survey reported an uptick in consumer sentiment, surpassing analysts’ expectations.

The Commerce Department said home sales slipped 0.9 percent to a seasonally adjusted 321,000-unit annual rate. December’s sales pace was revised up to 324,000 units, the highest in a year, from the previously reported 307,000 units.

October and November sales also were revised higher. Although sales fell last month, they were higher than economists’ expectations for a 315,000-unit rate. Compared to January last year, new-home sales were up 3.5 percent.

Despite the weak sales last month, details of the report offered further fresh signs of green shoots in the housing market, with the months’ supply of homes on the market falling to 5.6 months the lowest since January 2006.

That compared to 5.7 months in December. A six-month supply is generally considered ideal.

The median price for a new home rose 0.3 percent to $217,100, the highest level since October. Compared to January last year, the median price was down 9.6 percent. The inventory of new homes on the market was the lowest on record.

“The report shows traction for a housing industry anxious to ascend from the bottom,” said Mitchell Hochberg, principal at Madden Real Estate Ventures in New York. “To climb back, the foreclosure overhang needs to clear, prospective home buyers must find it less difficult to qualify for a mortgage and consumer confidence must improve.”

Demand for housing could get a boost from the strengthening economy, especially the labor market, which is helping to lift confidence among Americans.

The Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment edged up to 75.3 in February, the highest in a year, from 75.0 in January.

Consumer sentiment improved a tad in February to rack up a 12-month high as Americans became more confident about the economy’s resilience, a survey released on Friday showed.

The Thomson Reuters/University of Michigan’s final reading of the overall index on consumer sentiment came in at 75.3, edging up from 75.0 the month before. It was the highest level since February 2011.

It surpassed economists’ expectations of 73.0 and recovered from a decline to 72.5 in February’s preliminary reading.

“It is not that surging oil prices, instability in the Mideast, the European crisis or uncertainties about future tax and spending policies could not ultimately derail the recovery, but that consumers expect the pace of overall economic growth to continue to slowly restore lost jobs despite these potential problems,” the survey director, Richard Curtin, said in a statement.

The survey’s barometer of current economic conditions eased to 83.0 from 84.2 but its gauge of consumer expectations rose to its highest in a year, at 70.3 from 69.1.

The market for new homes faces stiff competition from previously owned homes, many of which are selling at a huge discount because of foreclosures.

But economists say house prices may be close to a bottom, citing recent declines in the supply of unsold previously owned homes and the homeowner vacancy rate.

The months’ supply of previously owned homes on the market fell to a near 6-year low of 6.1 months in January.

The homeowner vacancy rate, which is closely correlated to the month’s supply, fell to 2.3 percent in the fourth quarter of 2011 from 2.4 percent in the prior three months. The rate peaked in 2008.

“While still elevated, their current levels are again consistent with stable or even slightly rising house prices,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. “This, in turn, would imply that one important drag on the economy will cease to exist.”

Data this week showed home resales rose to a 1-1/2 year-high in January. Confidence among homebuilders this month approached a five-year high and builders are undertaking more residential projects, mirroring the economy’s generally upbeat tone.

Still, both sales and home construction remain far below their 2005 levels.

The Federal Reserve has suggested a number of ways other policy makers could step in to help the beaten-up market and is considering purchasing more mortgage-backed securities to drive mortgages rates even lower.

New-home sales last month rose in two of the four regions, but fell sharply in the Midwest and the West.

Posted in Mitchell Hochberg, Real Estate Development, Real Estate Finance | No Comments »

Yankees’ Granderson does meet-and-greet as former Miraval Living prepares to unveil new spa operator

Thursday, December 9th, 2010

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Clockwise from top left: Curtis Granderson signs autographs for fans, the indoor rock climbing wall at 515 East 72nd Street, outside 515 East 72nd Street, and (from left) Jim Sheehan, Curtis Granderson and Loretta Bradbury at the event

Yankees center-fielder Curtis Granderson headlined an event last night at the site of his current New York crash pad, 515 East 72nd Street, a new condominium which is revamping its image now that it has ended its association with the Arizona-based resort and spa, Miraval.

Residents at the condo formerly known as Miraval Living, which started sales in 2007, have waited a long time for the building’s much-hyped spa facilities to open. The sponsor, River Terrace Apartments, has a new spa operator lined up and plans to announce it to residents within the next few weeks, the sales team told The Real Deal.

In the meantime, Granderson appeared to provide a welcome distraction.

At the River Terrace-sponsored event, the developer presented a check for $15,000 to Granderson’s charity, the Curtis Granderson Grand Kid Foundation, which promotes education and athletics for urban children. The building had pledged to donate $1,000 to the foundation for every home run the slugger hit, starting Aug. 1.

Popcorn and pigs-in-a-blanket were served at the kid-friendly gathering, where Granderson signed autographs and took pictures with excited building residents. Many of the pint-sized fans sported “Granderson” T-shirts and carried baseball gloves. One youngster asked the center-fielder to go outside for a game of catch. Another, nine-year-old Rianna Doolaramani, said her brother “screamed” in excitement upon hearing that Granderson was downstairs signing autographs. She proudly showed off her mobile phone, which the ballplayer had autographed.

Granderson, who just completed his first season with the Yankees, joked that he was “homeless, per se” at the beginning of the season, since the team had had only a few home games. Since taking up residence at the 72nd Street building, located between East End and York avenues, he said he has enjoyed the views and extensive-square-foot fitness center, though he doesn’t use it much during the season.

He said he’s heading home to Chicago now that the season is over, and “hopefully” would be returning to the building in the spring, but will have to “wait and see.”

It is unclear whether Granderson is a buyer, renter or merely a guest of the developer at the building. The Post reported this spring that Granderson was “test-driving” the apartment and thinking about purchasing it.

Jim Sheehan, project manager of 515 East 72nd Street, said Granderson has signed a purchase agreement, but hasn’t yet closed. He declined to comment further on Granderson’s arrangement with the building.

Most new condo buyers, of course, aren’t allowed to live in their units before closing on them, unless they are in a rent-to-own program. But Granderson isn’t just any buyer.

In recent years, it’s become common for new development condos to court celebrity residents — often offering them free or greatly reduced accommodations — in hopes of generating buzz. In one notorious example, 42nd Street’s the Atelier reportedly gave actress Lindsay Lohan use of an apartment in exchange for hosting events at the building.

In recent months, 515 East 72nd Street has also turned to other methods of increasing its profile in hopes of jump-starting slow sales. A Bravo reality show called “Double Exposure,” about fashion photographers who live in the building, is filmed there.

After several years on the market, more than half of the building’s 365 units remain unsold.

Mitchell Hochberg, who was hired by the project’s lenders to help turn 515 East 72nd Street around, told The Real Deal this summer that “the creative team came up with new ideas for increasing the property’s profile, and one was to film commercials there, as well as the show.” He added: “No one is buying in the building because it’s featured on a TV show, but it can increase awareness.”

Regarding Miraval’s departure from the building, Granderson said it “doesn’t bother” him, although it may be a disappointment to visitors, like his mother.

For her part, nine-year-old Doolaramani said living at Miraval is “a lot of fun.”

Designed in collaboration with Miraval, it has a pool, indoor rock-climbing wall and half-court for basketball and racquetball. A number of treatment rooms for spa services are completed, but are currently sitting empty.

Unprompted, Doolaramani said: “I’m depressed that the spa is gone.”

The situation is a little more complicated than that, of course.

This fall, River Terrace Apartments ended its partnership with Miraval. The reasons are disputed; while Miraval has said that 515 East 72nd Street didn’t make payments on time, the building has said Miraval was responsible for delays in the spa’s opening.

Jim Sheehan, project manager at 515 East 72nd Street, told The Real Deal that problems with the spa had to do with turnover in personnel at Miraval, as well as the company’s inability to “make up their mind.”

The new spa will be “on par if not better in terms of service,” said Corcoran Sunshine Marketing Group’s Loretta Bradbury, the building’s sales director.

The new operator already has a presence in New York, which the team said is one advantage it has over Tuscon-based Miraval.

When asked if the building’s buyers have complained that Miraval is no longer associated with the building, Sheehan said it’s the opposite. Residents were disappointed that the spa hadn’t yet arrived, and are now hopeful some progress can finally be made, he said.

Under the auspices of the new operator, the spa is slated to open in the first quarter of 2011. A café will also open in the building with a different vendor, Sheehan said.

Things may be looking up, however; the building has done about $8 million worth of sales in the past six weeks, Corcoran Sunshine said.

By Candace Taylor

TheRealDeal.com

Posted in New York Real Estate, Real Estate Development, Real Estate Finance | No Comments »

Madden Real Estate Ventures: What Went Wrong at Stuy Town

Friday, July 16th, 2010

Mitchell Hochberg is the principal of New York-based Madden Real Estate Ventures, a developer advisor to financial institutions, real estate private equity and investment funds, and private owners.

Hochberg was founder of Spectrum Communities and served as its president and CEO for more than 20 years. While he was there, Spectrum became the preeminent luxury residential builder in the Northeast, recording $2bn in residential sales and winning numerous awards from the National Association of Homebuilders. He has been consulting as an advisor to financial institutions, real estate private equity and investment funds, and private owners on restructuring loans and implementing development and operating strategies.

For this edition of In This Corner, Hochberg sits down to discuss the health of these private equity firms and what exactly went wrong with efforts to keep Stuyvesant Town out of foreclosure.

Private equity firms are bringing in more consultants with real estate experience. Is this a sign that these firms are changing their perspective from finance and to real estate?

Not at all. It indicates private equity firms, which have historically looked at real estate investments from a financial perspective, now understand that sophisticated real estate analysis is essential, given the soft real estate market and the fact that many projects are faced with unforeseen problems. They are acknowledging the need for real estate expertise in order to evaluate and work their way out of those challenges.

So what sort of real estate expertise is needed?

In this difficult market, hands-on operating experience is essential in many situations in order to adequately evaluate and execute workouts on troubled projects. It is not enough to be a consultant. These times require someone who has been tested and challenged as a principal in every facet of the real estate development process.

How would you describe the overall health of these private equity firms? Some have said their failures could lead to another financial crisis. Others have said they’re the only ones with the cash to absorb these distressed assets. What do you see?

The vast majority of private equity firms are financially stable and able to withstand the impairments in their real estate portfolios. Many of the projects whose values were impaired during the financial crisis have already started to recover. They have enough capital, are sufficiently diversified and able to weather the storm.

You have some experience restructuring billion-dollar transactions with several lenders and owners at a time. So, from your perspective, what went fundamentally wrong with the efforts to save Stuyvesant Town from foreclosure, and what struggles are there in restructuring loans of that size?

The fundamental issue with Stuyvesant Town was the amount of debt on the property and the precipitous decrease in value. All of the equity was impaired, so there was no reason for the lender to do a workout with the equity holders. In addition, it is an existing income producing property, as opposed to a development project, which did not require continuity of ownership in order to preserve value.

For example, foreclosing on a project while under development is difficult because it is in the middle of the development process. There are construction issues, marketing issues and tenant relationships, all at a very precarious time in the development process.
A development like Stuyvesant Town is up and running and cash-flowing.  Who the owner is not significant. From the residents’ and from an operational perspective, the owner is immaterial. There was no reason for the lenders to do a workout with the equity holders when they could wipe out the equity themselves.

Typically, one of the challenges of loans of this size is that they are frequently commercial mortgage-backed securities. Then, you have to deal with a special servicer who has significant constraints on what they can do. Many of them have a substantial backlog of projects and are not addressing the distressed projects in a timely manner.

Another challenge is a property that has a large group of lenders. In those instances, it is difficult to gain a consensus from a group who may have disparate individual goals, deadlines and requirements.

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Q & A with Miraval Living turnaround artist Mitchell Hochberg

Friday, July 2nd, 2010

The Madden Real Estate Ventures managing principal talks about the Lindsey Lohan effect, Miraval Living’s exposure in “Double Exposure” and partnering with Ian Schrager in hotel line

From the Real Deal

July 02, 2010 11:30AM By C. J. Hughes

Miraval Living and Mitchell Hochberg

Over a 30-year real estate career, Mitchell Hochberg has worn many hats, but the one he’s strapped on lately might be described as a helmet, as in what would be worn by a knight in shining armor.

The managing principal of Madden Real Estate Ventures, an investment and development group, was tasked with rescuing Miraval Living, a 365-unit Upper East Side condo at 515 East 72nd Street styled after the Arizona spa of the same name, with a whopping 20,000 square feet of amenities.

From the fall of 2006, when marketing of the one- to three-bedrooms in the converted 39-story apartment tower began, sales dragged, which forced developers C&K Properties and Zamir Equities to cycle through two sales teams: the Marketing Directors, then Prudential Douglas Elliman.

So in 2008, Square Mile Capital Management, one of the project’s lenders, hired Hochberg, 57, who’s also an attorney and accountant, to turn the project around, which he worked to do until the end of 2009. Sales aren’t robust — the condo has sold just 43 percent, according to its sales office — but Hochberg is convinced that steps he took positioned the building for success.

They include new contractors, a revamped website emphasizing the condo’s address, a new public relations firm and a third sales team, Corcoran Sunshine Marketing Group. Separately, he has an ongoing role shepherding 184 Kent, a 339-unit rental from JMH Development in Williamsburg, to market. And, Hochberg’s cooking up plans with longtime business associate Ian Schrager, which he also discussed with The Real Deal.

What was the real problem at Miraval Living?
I think a number of things had not been handled properly. The lobby wasn’t finished when they started sales. Neither were the amenities. They were selling throughout the building, which made delivery difficult, when they should have focused on specific areas. There wasn’t a coordinated marketing focus in terms of what the building offered, which was a great space, attractive properties for the Upper East Side, and great views of the East River and city, too.

A new Bravo show called “Double Exposure,” about fashion photographers who live in the building, debuted this month. Your idea? How key is a TV tie-in to market a property?
The creative team came up with new ideas for increasing the property’s profile, and one was to film commercials there, as well as the show. Lindsay Lohan filmed a commercial there and met Indrani [one of the photographers], which is her girlfriend if you read ‘Page Six.’ No one is buying in the building because it’s featured on a TV show, but it can increase awareness.

But if the gossip is too seamy, won’t that turn off families?
I think you need to consider the client. The show is a brand that works for the clientele, who’s fashionable. I don’t think we would have filmed “Jersey Shore” there, or an MTV show. This building appeals to the broadest array of buyers I’ve ever worked with. Families like it because it’s on a cul-de-sac [the eastern end of East 72nd Street] and close to schools, but the one-bedrooms and studios are good for pied-a-terres. Then there’s the spa, which is good for people from the suburbs and foreigners.

What’s your role at 184 Kent? Was that troubled, too?
Very early on, before the market started to deteriorate, JMH saw that there was going to be a glut of condos, [and] they converted it to a rental. They were really, really ahead of the curve. I was brought in by the developer, whom 184 Kent I know well, because he had a lot on his plate. I was asked to assist him on the development process, because we were dealing with complicated entitlement issues with the National Trust. This is going to be an extremely financially successful project for the owner. We started leasing in January, and it is over 50 percent leased.

Any thoughts on what should happen with Brooklyn’s unsold inventory? Are these good assets to invest in?
I think it depends on the market. Williamsburg is becoming more and more attractive day by day. Now you have more dry cleaners and drug stores, in addition to the great restaurants and clubs already there.

[But], first, there needs to be a restructuring so that the prices would be lowered. All the equity will evaporate but the lenders will get paid back a portion or all of their money. Second, there could be a restructuring to convert condos into rentals, which requires patience, but the market may be deeper for rentals, which we have proven with 184 Kent. Third, if the bank is patient, they could sit and wait it out, until things come back.

You were COO and president of Ian Schrager Company. Now you’re a partner with Schrager and Marriott in a new line of boutique hotels called Edition. Tell us about it.
The first one will be in Waikiki and will be open in October, followed by one in Istanbul at the end of the year. Barcelona, Mexico City and Bangkok after that. Edition would love to have a property in New York and is actively looking for one. Each of the individual properties Ian has done have been great successes, and by teaming with Marriott, it really gives him the ability to be more prolific, to do a greater number.

You also sit on the board of Orient Express hotels, which had planned on building its first property in Midtown, at the site of the former Donnell library. What happened to it?
It’s been delayed because of the economy, but they are in the predevelopment phase and working on financing. New York is probably the strongest market in the country in terms of supply: Tourism is way up, by 11 percent in the first quarter of this year. Hotels had to drop their rates to maintain 80 percent occupancy, but it’s coming back very, very strongly.

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Posted in Hospitality, Hotel Development, New York Real Estate, Real Estate Development, Real Estate Finance | 5 Comments »

Home Buyer Tax Credit Extended to Sept. 30

Friday, July 2nd, 2010

Home buyers caught a break Wednesday night.

After weeks of bickering, Congress extended the $8,000 tax credit for first-time homebuyers and the $6,500 tax credit for second-time buyers by three months to Sept. 30.

Legislators beat the existing June 30 deadline by only a few hours.

President Barack Obama was expected to sign the legislation today or on the weekend.

One of the few real estate professionals who predicted the extension was Mitchell C. Hochberg, a principal at Madden Real Estate Ventures, LLC in New York City.  Hochberg told Real Estate Channel on April 12:

“Congress will extend the credits to mitigate the impact of two recent events:   The Federal Reserve ending its program of buying mortgage backed securities and the recent rise in mortgage rates (30 year fixed rate mortgages climbed to 5.31% from 5.04%) both of which will have a negative impact on home sales.”

Termination date is April 30. The eight-month program, first announced in February 2009 and scheduled to end Dec. 1, 2009, was extended in November 2009 to April 30, 2010.

Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.

The bill only allows people who already have signed contracts to finish at the later date.

The House approved the measure on Tuesday. Legislation in the Senate, sponsored by Majority Leader Harry Reid, was approved Wednesday night by unanimous consent.

Congress had tried repeatedly in the past month to extend the deadline by putting the measure into a big bill that would have extended expiring tax provisions and unemployment benefits, but that bill kept failing test votes in the Senate.

At the 11th hour, Congress put the measure into a separate bill, the Homebuyer Assistance and Improvement Act, H.R. 5623.

The extension only applies to people who had ratified contracts in place as of April 30 that have not yet closed. It does not create a new tax credit.

The newly purchased home must be used as a primary residence. Other restrictions apply.

The new legislation makes the extension of the credit retroactive.  However, some buyers could face unexpected complications, according to industry sources.

That is because contingency clauses in purchase contracts and the expiration of interest rate locks were based on the June 30 expiration date for the tax credit, and the closing of many properties may be more complicated even though the credit will be extended.

The National Association of Realtors estimates as many as 180,000 homebuyers who were under contract by April 30 missed the closing deadline, including 17,700 in California, 15,340 in Texas, 14,830 in Florida and 9,130 in New York.

Many of the transactions involve short sales, which require the lender to agree to take a loss on the seller’s mortgage, and generally take much longer to close than standard sales.  As many as 15 percent of distressed property sales currently are short sales.

Some new home sales also are taking longer than normal to close because of demand. New-home contracts rose 30 percent in March and 15 percent in April, the biggest two-month gain in records dating to 1963, according to the Commerce Department.

About a third of the April signings were for homes under construction, and a quarter were for those that weren’t started.

Builders have been working day and night to complete homes before the deadline. A third group of delayed closings were caused by the extraordinary demands on lenders, appraisers and escrow agents by the numbers of closings tied end of the credit in some markets.

The U.S. Treasury reports that through March 27 some 2.2 million people had filed for the credit and the cost to the Treasury was nearly $16 billion, according Real Estate Economy Watch.com

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Posted in Housing, Real Estate Development, Real Estate Finance | No Comments »

GIC Bids for a Landmark Singapore Fund Could Pay Record Price for London Hotel

Wednesday, June 2nd, 2010

Hotel values are beginning to roar back. One interesting example is the Grosvenor House, currently on the market for £500 million pounds and being pursued by some major investors, including the government of Singapore Investment Corporation (GIC).  If the deal is closed at his price, it would be the largest single European asset sale in history.

http://online.wsj.com/article/SB20001424052748703961204575279721682507014.html

The Wall Street Journal

By ALISON TUDOR
TOKYO—Government of Singapore Investment Corp. is among a handful of cash-rich buyers seeking to buy Grosvenor House Hotel, a London landmark, from Royal Bank of Scotland Group PLC, people familiar with the matter said.

The hotel was expected to fetch a record price for a European hotel and flag the return of trophy asset sales to overseas buyers. The Grosvenor House Hotel carries a price tag of about £500 million ($727.1 million). This would make it the biggest amount garnered for a single European hotel, according to consultancy firm HVS.

But the sale process may be extended over the coming months if the euro-zone crisis deepens, causing bidders to drag their feet over paperwork in the hope the price will drop.

Singapore’s sovereign-wealth fund is among the final bidders for the hotel, the people said. GIC has teamed up with Host Hotels & Resorts Inc., a U.S. lodging and real-estate investment trust. GIC’s real-estate investments include the Franklin Center in Chicago and the Bluewater Shopping Centre in the U.K.

The global financial slowdown prompted a reduction in investment by sovereign-wealth funds in 2009, though their pace of spending picked up at the end of year, according to recent reports by the Monitor Group, a consultant in Cambridge, Mass., and by Fondazione Eni Enrico Mattei in Venice, Italy. Among the biggest-spending funds last year were the Qatar Investment Authority and China Investment Corp.

Hotels typically bounce back more quickly than other commercial real estate in an economic recovery.

“The sale could help unblock the current impasse in the European high-end property market and release some hotel stock,” said Russell Kett, managing director of HVS’s London office.

However, Mr. Kett warned it still was too early to call a full-blown recovery, and he didn’t expect to see the loan-to-value ratios seen in the past few years again any time soon. Hotel investment volumes hit a low of €3 billion ($3.69 billion) in 2009 across Europe, according to an HVS report. Overseas buyers retreated as familiarity with domestic laws became more important, with currencies fluctuating and banks preferring to lend closer to home.

London hoteliers weathered the financial crisis better than their European peers, helped by the pound’s weakness against the U.S. dollar and the euro, as well as visitors ahead of London’s hosting of the Olympics in 2012.

Grosvenor House Hotel is owned by RBS, and CB Richard Ellis Hotels Group is running the auction.

After two years of sharp declines in real-estate values, U.K. banks such as RBS, which is 84% government-owned, have been trying to reduce their exposure to the commercial- and residential-property sectors as prices have recovered in recent months.

The property, a five-star establishment with 494 rooms over eight floors, has been operated by JW Marriott Hotels & Resorts since 2008, at the conclusion of its £135 million refurbishment.

The hotel, which opened in 1929, is situated in Mayfair overlooking Hyde Park. The hotel boasts the largest banqueting room owned by a five-star hotel in Europe, called the Great Room. The room used to be an ice rink where royalty learned to skate. It is also the first British hotel to have a bathroom in every room.

—Kris Hudson
contributed to this article.

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Stuy Town residents seek CalPERS’ help

Monday, May 17th, 2010

See my comments from a couple of days ago.  It looks like my idea is getting some traction.

Tenants aiming to buy the vast lower Manhattan residential complex turn to the huge California pension fund for assistance; rub is that it lost $500 million last time around.

By James Comtois
The tenants in the sprawling Stuyvesant Town/Peter Cooper Village residential complex in lower Manhattan are seeking an ally in their attempt to buy the property, which is threatened with foreclosure.

The Stuyvesant Town/Peter Cooper Village Tenants Association is requesting a former investor in the 11,000-unit complex to join their cause.

The California Public Employees’ Retirement System had previously invested $500 million in the $5.4 billion acquisition of the buildings by a group led by Tishman Speyer four years ago, a deal whose success hinged on getting rid of many tenants and de-regulating rents on their units. Last month, CalPERS—which lost its entire investment in the deal when the buyers defaulted on their mortgage—announced that from now on it would commit to avoiding any type of investment plan where displacing residents was a component of the strategy.
The Stuyvesant Town/Peter Cooper Village Tenants Association is now asking the huge Sacramento-based pension fund to prove its change of heart. On Wednesday, New York City Councilman Daniel Garodnick sent CalPERS Chief Executive Anne Stausboll a letter inviting the fund to formally join the tenants’ bid on the property.

“CalPERS should consider participating as an investor in our tenant-led restructuring plan,” wrote Mr. Garodnick in the letter. “Joining this bid could offer CalPERS an attractive, stable, long-term investment opportunity and the ability to publicly demonstrate its commitment to its new fiscal policy.”

The letter was also sent to California Gov. Arnold Schwarzenegger, Tenants Association president Al Doyle, and the Association’s legal and financial advisors.

Representatives from CalPERS declined to comment.

Tishman Speyer Properties and a partner defaulted on the $3 billion mortgage of the property earlier this year. CWCapital Asset Management, the special servicer representing the senior debt holders, filed a motion last month asking the court to appoint a referee to sell the complex. CWCapital also requested that the property be offered for sale either as separate portions or collectively as one parcel.

Correction: The letter was also sent to Tenants Association president Al Doyle. He was previously misidentified in an earlier version of the article.

Article can be found at http://www.crainsnewyork.com/article/20100513/REAL_ESTATE/100519913

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Redwood Trust Deal Shows Shifts in Mortgage Market

Monday, May 10th, 2010

Comment from Mitchell Hochberg:.

It’s good to see that the market for mortgage securities without Fannie Mae or Freddie Mac guarantees is coming back.  And even better to see it is coming back with more diligent underwriting.

From the Wall Street Journal:

By JAMES R. HAGERTY And RUTH SIMON
The market for mortgage-backed securities that don’t come with a guarantee from Uncle Sam is finally coming back. But the first deal off the rack in 2010 looks quite different from those sold at the peak of the housing boom.
Redwood Trust Inc. disclosed that it plans to issue about $222 million of bonds backed by home-mortgage loans made by a unit of Citigroup Inc. over the past 11 months. The market for new issues of such “private label” mortgage securities—ones that aren’t guaranteed by Fannie Mae, Freddie Mac or any other government-related entity—has been virtually dead for the past two years since a surge in defaults caused investors to flee.

A comparison of the latest deal to a similar security sold by Redwood in 2007 shows just how much the market has changed. The new offering contains very high quality loans and more details about the mortgages underlying the securities and the borrowers.

The minimum credit score for borrowers taking out mortgages is 702, out of possible 850. The lowest credit score on the 2007 deal was 547. The mortgages backing the new deal account for no more than 80% of the properties’ estimated values, compared with as much as 100% for the 2007 offering. The weighted average is about 57%.

Also available to potential buyers of the securities are more details on the documentation borrowers provided to verify their income and assets. Redwood also disclosed the portion of borrowers who have second mortgages, or were self-employed when they took out their loans.

Reflecting the uncertain regulatory environment, Redwood said it will hold both the riskiest slice of the deal and a 5% stake to meet potential federal rules requiring companies to keep a share of their deals, known as keeping “skin in the game.”

And in a nod to concerns about loan quality, Redwood and Citigroup agreed to submit any disputes over whether loans were made in violation of representations and warranties to binding arbitration.

The average size of the 255 loans backing the securities is about $933,000. That’s above the maximum for “conforming” loans—those that can be sold to Fannie Mae or Freddie Mac.

Demand for the offering appears strong, and the highest-rated portions of the offering—the bonds with the least exposure to default risk—may yield as little as about 4%, said Jesse Litvak, a managing director at Jefferies & Co., a securities-trading firm. That yield will be determined by the final pricing.

While the Redwood plan is notable, it’s too early to say that the private-label market is set for a major revival.

“This signals that the market is beginning to return, but it certainly does not indicate that the market has fully returned,” said Tom Deutsch, executive director of the American Securitization Forum, an industry group.


At the peak of the housing boom in 2006, private-label issues accounted for 56% of the $2 trillion in U.S. mortgage securities sold to investors, according to Inside Mortgage Finance, an industry publication. Now around 90% of home-mortgage loans are guaranteed by Fannie, Freddie or the Federal Housing Administration.

Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York, said the Redwood deal is likely to be attractive to investors because it is composed of so-called hybrid adjustable-rate mortgages, which carry a fixed rate for the first five years and then reset annually. If the offering succeeds, it could draw more money into the financing of jumbo loans, making them more affordable for consumers eager to buy high-end houses.

“There’s a tremendous demand” for bonds backed by such loans and a dearth of supply, she said. If the offering succeeds, that could spell good news for the mortgage market

The offering’s lead manager is Citigroup Global Markets Inc. and the co-manager is J.P. Morgan Securities. Pricing of the securities is expected later this month.

The changes made by Redwood may not be enough for some investors, who say their contractual rights have been ignored by loan-modification programs in which first mortgages have been restructured without touching the borrower’s second mortgage.

“Although this is a small positive for the securitization markets, it’s hard to get excited about this deal given the current remaining uncertainties surrounding lien priority,” said Scott Simon, a managing director at Pacific Investment Management Co. of Newport Beach, Calif.

Write to James R. Hagerty at bob.hagerty@wsj.com

Posted in Real Estate Development, Real Estate Finance | 16 Comments »

The Man Who Would Rule Stuy Town

Friday, May 7th, 2010

Comment by Mitchell Hochberg:

Wouldn’t it be great if the residents of Stuyvesant Town could convert it into a co-op and leave the first mortgage in place?

From the New York Observer:

It was something to be avoided. As America’s biggest foreclosure waiting to happen, Stuyvesant Town and Peter Cooper Village was viewed by the financial world as a $6.3 billion bet gone bad.
David Tepper saw an opportunity.
Founder of the high-risk–high-yield hedge fund Appaloosa Management, Mr. Tepper is the king of sniffing out the undervalued among the distressed, often realizing fantastic returns. After betting big on banks at their nadir in early 2009, he topped AR: Absolute Return + Alpha magazine’s list of the year’s top hedge fund earners, raking in an estimated $4 billion for himself.
Now, after buying more than $800 million worth of bonds that control Stuyvesant Town within the past year and a half—many of them risky—he is muddying up the giant foreclosure on the property, showing that he has no interest in watching from the sidelines. In late February, he filed legal action to steer the property in a new direction, in a bid to protect—or maximize—his investment, an action being fought by the special servicer organizing the foreclosure.
Whatever becomes of his case against the special servicer, which onlookers characterize as a long shot, Mr. Tepper’s involvement is telling of the curious, irresistible allure possessed by Stuyvesant Town and Peter Cooper Village, as it effortlessly coaxes waves of top financiers and real estate tycoons with its siren call.
Just as a 2006 sale caused the biggest names in real estate, equity and lending to aggressively climb over each other to throw billions toward the property, the distressed asset has brought out one of the biggest names of the distressed-asset world.
Mr. Tepper’s moves show that Stuyvesant Town, with its monotonous 56 red-brick buildings that may never house the rich and famous, is nevertheless still a crown jewel of New York real estate, over which everyone from the vulture fund manager to the third-generation real estate titan are eager to fight.
MR. TEPPER, 52, is something of an unassuming billionaire, offering a contrast with many of the others who swirl around Stuyvesant Town.
The son of a middle-class Pittsburgh accountant, he eschews ties, often wears jeans to the office and, notably, does not seem to have figured out just how to spend his money.
He has only one house, a modestly sized one in Livingston, N.J., that he bought for just $1.2 million two decades ago. He doesn’t own a private jet (he has a share), he has no yachts and his charitable contributions are limited. He has pledged $55 million to Carnegie Mellon, his grad school alma mater; and, other than that, his foundation’s tax filings show he has given away $2 million to $3 million a year to various food banks and other nonprofits. He did buy a piece of the Steelers football team, but only 5 percent.
With all that said, now that the last of his three kids is finishing high school, he says he is ready to start spending, at least a bit more.
“I tell my kids, when they’re all out of the house, I might decide to be rich,” he told The Observer last week. “My thing right now is, I want to get a vacation house to get the family to keep coming back home.”
Mr. Tepper rose to prominence in finance through various analyst positions and, in the 1980s, became a trader on the high-yield desk at Goldman Sachs, dealing with junk bonds. He was known for tremendous acumen.
“He’s a superb analyst,” said Richard Coons, now a managing director at Hexagon Securities, who worked alongside him in the Goldman years. “He never had anything on his desk except a 10Q, and he would look at a 10Q or 10k, and say, ‘Well, this is out of order, this is not right. This security is mispriced.’”
In 1993, after being passed over for partner at Goldman, he left to start Appaloosa, targeting high-risk assets that would, if successful, bring in fantastic returns. 
They did.
Over the years, the funds he’s managed have grown from under $100 million to around $13 billion, as he has targeted many dying industries and businesses in bankruptcy, running toward an asset when everyone else is fleeing from it. He invested in Canadian steel. He was an investor in auto parts manufacturing giant Delphi and nearly came to control the company in 2008 before he pulled out of a $2.6 billion deal to buy it out of bankruptcy, a costly move.
And in 2009, after losing substantially in 2008, he bet big on Bank of America and Citigroup, when they were at their lowest, effectively a bet that the Obama administration would not take over the financial system. This strategy was central to his success last year.
FOR MR. TEPPER, Stuyvesant Town is another Bank of America. His interest in the property was piqued a bit over a year ago, after he began investing in commercial mortgage-backed securities, funds that slice up debt on an array of commercial mortgages and allow investors to buy up bonds with different levels of risk.
Throughout 2009, investors expected a default on the $6.3 billion deal, which had a $3 billion first mortgage and was considered a wildly flawed investment. Analysts looking at the current cash flows put its value at a shockingly low $1.7 billion to $2 billion. Investors were bearish on CMBS, flooding the market with bonds and driving down prices.
Mr. Tepper strategically began to scoop up specific slices of the CMBS trusts that contained Stuyvesant Town’s mortgage, many of which were at a great discount from their initial value. The purchases were a bet that the apartment complex wasn’t worth the low values that were being thrown around—a bet that the markets were overly pessimistic and that traders would eventually come around to seeing that.
“The idea of this thing being worth sub–$2 billion is just as ludicrous and ridiculous as the $6 billion price initially,” Mr. Tepper said. “The bottom line is, people were in pure panic mode, and we weren’t.”
So after a default by the owners in January, it came as a surprise to Mr. Tepper and Appaloosa when the special servicer responsible for figuring out what to do with Stuyvesant Town opted for a foreclosure. That could require two separate rounds of transfer taxes and other fees, Appaloosa has charged, perhaps costing $200 million—money that would otherwise go to the holders in the riskier slices of Stuyvesant Town investments. Mr. Tepper would prefer a bankruptcy and restructuring. In a foreclosure and sale, the holders of riskier slices of debt can be left completely empty-handed.

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Posted in New York Real Estate, Real Estate Finance | 2 Comments »