Harry Newton's In Search of The Perfect Investment
9:00 AM EST, Tuesday, September 2, 2008: The
local real estate mavens visited on the weekend and opined that the present
commercial real estate mess would last another two years, minimum.
problem at heart is that the present owners had bought at too high prices
and borrowed too much short-term money to finance their buys.
short-term loans are coming due. Normally they would be replaced by long-term
loans. But it's not normal today. Financial institutions (like banks) are not
lending. Desperate owners are scrambling not to lose their properties. They're
offering equity with creative ideas, like bulking up a $100 contribution to
$114 and offering preferred interest and preferred capital return on the deal
(i.e. before the older investors).
There are two
problems: No one knows what the value of commercial real estate is today because
there are no "comps," i.e. sales of like buildings to compare your
building to. There are, of course, no sales, because no one can borrow money
to buy a building.
Worse, no one
knows when there will be a market. Or what the trigger event will be
to cause there to be a market. The theory is that commercial real estate will,
one day, get cheap. Really cheap. And those people with money -- remember my
adage about Cash is King? -- will pounce and suddenly we'll know the
My friends believe
pouncing will come -- but only after the banks take the buildings back,
have endless internal meetings about what to do with them and then ultimately
sell them to their friends or on the market. This hasn't happened yet for commercial
real estate. It's happening for residential real estate. You can buy homes cheaply
already but you have to be real careful. Much of the cheap stuff tends
to be in awful neighborhoods -- places squatters are moving in -- and many of
the houses trashed.
Ten banks have
failed this year, so far. On Friday, Integrity Bank of Alpharetta, Ga., with
$1.1 billion in assets and $974 million in deposits, was closed by the Georgia
Department of Banking and Finance and the Federal Deposit Insurance Corp. was
named receiver. I love the name -- Integrity Bank. No one knows which
one will fail next. The FDIC maintains a list of problem banks It watches. But
the biggest bank failure this year -- IndyMac Bank -- was not on the FDIC's
list. So the FDIC is tightening the rules for all the banks and scaring their
managements into inaction. Thumbsitting is a new occupation.
portfolio into syndicated real estate five years made huge sense. I did. In
hindsight, it might have made more sense to choose at least one of my syndicators
There's a big
lesson here: When your money manager gives you huge returns, take some of that
money out. See if you can ultimately get what you invested in out. The human
tendency is to give that manager, fund, syndicator, (whatever) more of
your precious cash. After all they're doing so well. But they're only
doing well by taking BIG risks. When the tide is rising, big risks pay
off. But when the tide is falling, the risks come home to roost and you can
easily wipe out several years of great gains with one lousy year -- like this
favor of bank reconciliations: This piece came
from Saturday's New York Times.
Account That Sprang a Leak
By DIANA B. HENRIQUES
They are a staple
of consumer-complaint hotlines and Web sites: anguished tales about money
stolen electronically from bank accounts, about unhelpful bank tellers and,
finally, about unreimbursed losses.
But surely customers
of the elite private banking operation at JPMorgan Chase, serving only the
banks wealthiest clients, are safe from such problems, right?
Guy Wyser-Pratte, an activist investor on Wall Street for more than 40 years
who uses his hedge funds war chest of roughly $500 million to wage takeover
fights and proxy battles in the United States and Europe.
Guy Wyser-Pratte has been an activist investor on Wall Street for more
than 40 years.
In May, Mr.
Wyser-Pratte learned that someone had siphoned nearly $300,000 from his personal
account at the private bank through many small electronic transfers over a
Then he was
told by the bank that he could stop the theft only by closing his account
and opening a new one an enormous hassle, he said. And finally, JPMorgan
Chase told him that the bank would cover only $50,000 of his losses.
this is an unfortunate situation, we believe our response has been entirely
appropriate, said Mary Sedarat, a spokeswoman for the private banking
service at JPMorgan Chase.
emphatically disagrees. They never should have approved that first transfer,
financier is getting a taste of what the rest of us have to deal with
all the time, said Gail Hillebrand, the senior staff lawyer for Consumers
Union in San Francisco.
That sour taste
is called automated clearing house fraud, theft involving unauthorized electronic
transfers through the automated networks of the circulatory systems that connect
the worlds bank accounts.
When a consumer
writes a check, the merchant that accepts it is entitled to have the specified
amount taken from the customers bank account and sent electronically
to the merchants account.
But once someone
has certain routing numbers for a customers account, fraudulent transfers
become possible unless the customer carefully scrutinizes all of the transactions
on the monthly account statement.
If the consumer
reports a clearly unauthorized transaction within 60 days, federal banking
rules require the bank to cover the loss, Ms. Hillebrand said. If not, and
if the bank informed the customer in advance about the 60-day deadline, the
bank has no liability.
agree that online purchases and automatic bill-paying arrangements have greatly
complicated the task of catching fraudulent transfers particularly
small ones from busy accounts.
And Mr. Wyser-Prattes
personal account was as busy as his life. Louis Morin Jr., his chief operating
officer, said his boss splits his time between Paris and New York and travels
almost constantly. He is not someone who writes 30 checks a month
more like thousands a month, Mr. Morin said.
And a retail
bank statement is kindergarten arithmetic compared with the monthly statement
for a private banking client. Indeed, Mr. Wyser-Pratte said that the statements
have become so complicated not even a Wall Street veteran like himself could
detect the continuing theft.
complaining that the banks records showed I was overdrawn when I shouldnt
be, he said. Each time, he was assured that the statement was accurate,
even if he could not decipher it.
As for the 60-day
deadline for reporting a theft, I never knew about it, he said.
I opened that account eons ago, it must be 20 or 25 years now. I dont
think I ever signed anything agreeing to that policy.
It all sounds
sadly familiar to Ms. Hillebrand, who said all bank customers even
wealthy private banking customers must know their rights and watch
their monthly statements. It is easier than ever for people to steal
money from your account, she said.
has filed a complaint with the New York City Police Department. A detective
working on the case confirmed that an investigation is under way.
Mr. Morin, the money was sucked out of Mr. Wyser-Prattes personal account
through dozens of unauthorized purchases of computer equipment from Dell.
But so far, police investigators have been able to trace only a single $1,600
shipment of equipment, delivered to a nonexistent business in Brooklyn.
understandably eager to solve the mystery, complained that neither Dell nor
his bankers were giving the police enough help.
cooperating fully with the police, said Jess Blackburn, a company spokesman.
We have been very responsive to all requests for information.
is also cooperating fully, said Ms. Sedarat, the bank spokeswoman. This
is an important reminder that clients are responsible for monitoring activity
in their accounts.
private banking clients probably did not need another reminder so soon. On
July 29, federal authorities in Manhattan announced the indictment and arrest
of Hernán E. Arbizu, who was a vice president in the private banks
Latin American unit and who is accused of embezzling more than $5 million
from his private banking clients.
said that case was completely unrelated to Mr. Wyser-Prattes loss.
laptop locked up this morning: Right in the
middle of writing this column. I could still read the column. But I didn't know
how much I'd saved. Instead of typing everything onto another computer, I photographed
the screen. It worked. How brilliant am I? Please no emails.
good tennis to watch. Watch the tennis in high definition.
My best setup is DirecTV and a 61 inch Samsung DLP (now down to an amazingly
low $1640 on Amazon.)