Some folks made a fortune after the S&L buying up commercial property for a song, tidying it up, holding it for a few years and then cashing out.
Will history repeat itself?
It’s a tough call; plenty of people lost their shirts this time around trying to catch the falling knife.
There again anyone who was in the game in London six to nine months ago did very well, a good example of a transaction that turned some heads was the purchase of Canary Wharf’s landmark building (former HQ for Bear Stearns) which was just sold for £208 million even though it was valued at £170 million last June. But it was a pretty narrow window focused on premium end (“quality prevails”) and dominated by foreign money. But still there are mutterings of “Dead-Cat-Bounce”.
The other issue is that real estate is always a local business, to play as an outsider you need to be with someone who can (a) source the deals (no one sells anything at a loss unless they are forced to), (b) knows the difference between a deal and a lemon (c) knows when to pull the trigger – the windows can be short..
The problem right now is that many of the folks that know the business who didn’t do a fire-sale in 2007 are (reluctant) sellers not buyers; and they are feeling rather sorry for themselves. The ones that actually saw it coming, and offloaded, are a rare breed.
This time it’s different
The S&L was caused by over-building, that’s a project financing issue and there the vulnerability for the developer is in the first five years after completion. Making it through until the DSCR is solid so the thing can be sold-on as investment grade is tricky if you hit the market at the same time as everyone else.
Traditionally, once there are predictable long-term revenues it’s a simple play on the cap-rate, whether you go with a sale or securitize.
But for that to happen it helps if there is a securitization industry, which currently, there isn’t. In 2007 about $250 billion of commercial backed securities (CMBS) were written in USA (source Thompson Reuters), nowadays that’s a big fat zero.
The chances of that industry re-booting without some…
