Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
AM EST, Monday, May 4, 2009. My distress
real estate fund is distressed. It keeps losing money. Yet, you'd think distress
real estate should be booming. You'd be wrong. Reasons my fund gives for problems
Banks and other sellers of non-performing commercial real estate
loans have been reluctant to adjust pricing downward to reflect current
economic conditions because of their capital constraints (and other reasons
-- see below).
+ Supply While default rates have increased they still remain
below the levels reached in the early 1990s.
+ Quality Many defaulted commercial real estate loans, including
those for land acquisition, commercial construction and condominium development,
are secured by properties that are illiquid given the current distressed
real estate market.
+ Underwriting Uncertainty Because of falling rents, rising
vacancies and general uncertainty regarding future economic conditions,
it is more difficult to underwrite the value of properties securing loans
put up for bid, or anticipate that such values will not decrease further.
past quarter, three other factors have emerged that also inhibit banks
willingness to sell defaulted debt:
+ PPIP The Treasurys Public-Private Investment Program
(PPIP) was established to provide up to 6:1 leverage for the purchase of
distressed bank debt through FDIC debt guarantees. Thus banks have less
incentive to unload distressed loans today and may prefer to wait for the
implementation of the PPIP program so that buyers can pay higher prices
by taking advantage of government guaranteed acquisition financing.
+ Mark to Market Under industry pressure, the FASB relaxed
the mark to market regulations which guide how auditors value the loan portfolios
of financial institutions. The new regulations allow banks to value loans
on a hold to maturity basis rather than simply looking at recent trades.
This easing of the capital penalty for retaining illiquid loans diminishes
the incentive of lenders to sell at discounted prices.
+ Illiquidity According to Real Estate Alerts Deal Database,
large property sales were down 85% from a year ago and 95% from the 1st
quarter of 2007. The lack of real estate liquidity makes loan purchases
more problematic since there is no longer a clear exit strategy (sale of
the property) following the completion of foreclosure.
remains the key to portfolio management.
upcoming hunger strike. Billions of dollars
are still stuck in the gigantic Wall Street fraud known as auction rate securities.
This morning, the first person, a former Credit Suisse Group broker, will
plead guilty to criminal fraud charges. And now I'm hearing rumblings that
an 80+year old lady with cancer and all her funds locked up in auction rate
securities will begin a hunger strike to focus the regulatory authorities
on the situation. Sad, but likely to attract a lot of attention. Financial
reporters are salivating for this horrible story.
my currency trader: "The 25000, 10 000 and 5000 Iraqi dinar
notes are the best sellers. The best deals are in the largest denomination
which is the 25000. The lower the denomination the harder it is to get. So
the price goes up a lot. Best to stick with the larger notes." -- Bruce
Tupholme. His web site is IraqiDinars.
bunch of readers are excited about collecting currency. For more, see Friday's
never neglect their parents. They
visit for funerals, marriages, birthdays
(sometimes), but definitely when their clothes or their car needs cleaning.
This is me cleaning Claire's car on Sunday:
is Claire banging the dirt out of her mats.
all our work, the car left spotless. How spotless? Before riding in her car,
you now have to remove your shoes!
Garmin Nuvi 350 is on sale at Radio Shack. It's
refurbished, but costs only $109.99. I still like mine. It does its job admirably
-- getting me around the country. I'm guessing you can give it back if it
doesn't work. Personally I like refurbished. Never had a problem.
Here's the link to Radio
"humor" is in vogue. You can buy greeting cards with
such tasteful lines as these.
Each card is "only" $2.75, which includes the envelope. Go to RockScissorPaper.
flu email floating on the weekend:
It was once
said that a black man would be president "when pigs fly."
Indeed 100 days into Obama's presidency. . . Swine flu.
truths little children have learned:
No matter how hard you try, you can't baptize cats..
+ Never ask your 3-year old brother to hold a tomato.
+ You can't trust your dog to watch your food.
+ Don't sneeze when someone is cutting your hair.
+ You can't hide broccoli in a glass of milk.
+ Don't wear polka-dot underwear under white shorts.
+ The best place to be when you're sad is Grandpa's lap.
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
I make my daily column -- Monday through Friday -- freely available for three
reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
Investment." Third, I encourage my readers to send me their ideas,
concerns and experiences. That way we can all learn together. My email address
is . You can't
click on my email address. You have to re-type it . This protects me from
software scanning the Internet for email addresses to spam. I have no role
in choosing the Google ads on this site. Thus I cannot endorse, though some
look interesting. If you click on a link, Google may send me money. Please
note I'm not suggesting you do. That money, if there is any, may help pay
Michael's business school tuition. Read more about Google AdSense,
here and here.