Tag Archives: distressed assets

Politics and Personality

You would have to be a complete loser to not be able to hold on to the democratic senate seat held for the past half century by the late Ted Kennedy in liberal Massachusetts.  Turns out, all you had to be was Martha Coakley.  Nothing against Scott Brown, who proved to be an astute politician, tapping into a disgruntled blue-state electorate with the right message at the right time, but the odds were against being the first Republican to be elected as a Senator from Massachusetts since 1972.  The election of Brown was fueled by an electorate that is disillusioned by the direction that the country is taking at the helm of our Democratic leaders in Washington. While the prior Republican Administration has been rightly blamed for the policies, deregulation, actions, and positions that created our current economic turmoil, the current Democratic Administration now owns the problem, as usually happens when you take over in the middle of a mess.  The current leaders in Washington have been in charge for a year now, and they have not engendered confidence and support for their agenda of  “change”.  Against that backdrop, Democratic Senate candidate Martha Coakley faced a restless electorate, and snatched defeat from the jaws of victory. Hers was one of the most listless, uninspiring, and misguided campaigns that I have had the displeasure of watching.  Martha Coakley, the Attorney General, clearly showed that she has very limited political skills. Hers was a botched campaign of massive proportions, a complete and utter failure to read the political landscape, the will of the people, and to energize an overwhelmingly democratic electorate that were still prepared to hold their noses and vote for her if she could have even showed one ounce of personality, one iota of a spark, one tiny inkling of political leadership.  She, however, showed nothing. Even a glimmer of personality would have shown she could interact on an inter-personal level with the other Senators in Washington, and represent us adequately in Congress.  She couldn’t figure out that the youthful, dynamic, vibrant and personable Scott Brown could beat her during this time of disillusionment with government, so she spent the Holidays with her family.  No need to run a campaign. 

My point being that politics and personality are inextricably mixed, and that even in one of the most liberal states in the nation, a democratic candidate with the personality of a Martha Coakley could lose a Senate seat held by her party for almost fifty years. 

From a business perspective, this, once again, is proof positive that we are in unchartered waters.  People are not confident in the path we are travelling, so they are holding back, whether it be from consumer purchases, investments, or on the institutional side, banks are holding onto, rather than lending money.  Taken together, these factors are more evidence of the point that I have made in many previous posts that we are nowhere nearly out of the recession woods yet, and that for the majority of the populace these remain treacherously difficult times.  From difficulty, we must, however, make opportunity, and to me it looks like 2010 will continue to present us with investment opportunities in the distressed asset marketplace.

Holidays 2009: Distressed Asset Investment Letter

Dear Friends:

With year-end traditionally being a time to slow down and reflect, this post is intended to be a review of the past year, and a prognosis of sorts for what the transactional deal marketplace may show us in 2010.

However, slowing down and reflecting on this year only gives me that post-roller coaster sickness feeling. This was one of the most challenging years in business for most of us. Although it ended up being a positive year from a business standpoint, it required a wholesale reinvention of what we do, as most of our business models were affected by many polar opposite, sometimes unintended and varied influences that converged in a dizzying array of confusion. It was humorous to read that many prognosticators declared that the end of the recession was near, or even that the recession was behind us, because, contrary to the statistical reports showing declines in unemployment figures and upticks in consumer confidence, in reality the fundamental problems that grounded the economy in 2007 are not significantly different from those prevalent now. Other than runaway bank profits and the gilded age of Wall Street bonuses, our world is now as it has been for the past 2 years. We have made forward progress, but what the economic landscape has in store for us in 2010 will prove to be a mixing pot of small explosions that together will concoct a distressed asset stew full of nutritional values that we may only be able to sample if we have the coupons. Well, friends, we are the manufacturer of those coupons.

Let me try and catch you up on all that has happened in this busy year! Continue reading

Preserving Affordable Housing

 

The Boston Globe, on November 26, 2009 reported that Governor Deval Patrick had signed into law a recently enacted statute dubbed the “expiring use” bill.  This new law will have the effect of preserving as affordable, thousands of units of housing in Massachusetts intended to be used by low-income residents.  In a November 30, 2009 press release announcing the new law, the Patrick Administration stated that the bill “creates a regulatory framework to keep affordable rents in properties where long-term publicly subsidized mortgages are paid off and affordability restrictions can then expire.”  The press release also claims that as many as 90,000 housing units in Massachusetts could be affected by expiring affordability restrictions, with about 17,000″ of those units at risk of losing their affordability through expiring use over the next three years.”  These numbers are simply staggering, so, understandably, this new law, if it does what they say it does, could be a very significant arrow in our quiver of affordable housing preservation tools, and may even present distressed asset investment opportunities. Continue reading

Setting up a Distressed Asset Investment Fund

I have been approached many times to explain how a Distressed Asset Investment Fund is set up.  Clearly, you need legal advice and consultation every step of the way in this process, and the laws, disclosure requirements, and particulars of each Fund will be different, but in general, below is a Legal Guide that I published on the website http://www.avvo.com, which is a site that gives consumers guidance, background information, including ratings in their selection of an attorney.  While this Legal Guide is meant to be educational and informative, it is posted for informational purposes only and discusses general legal principles, trends, and considerations; it is not intended as specific legal advice .  This post does not establish an attorney client relationship.  For legal advice, you should retain legal counsel in your state for advice regarding your specific circumstances:

That being said . . . Assets have become distressed due to above-average vacancy rates, inability to refinance existing debt, depletion of reserves, and disrepair. While these assets are now more affordable, the capital funding needed to acquire, rehabilitate and reposition these assets is more difficult to obtain.  The following are the basic steps and principles involved in the set-up of a Distressed Asset Investment Fund. Continue reading

A year in the life . . .

wall street

It’s been about a year since the meltdown on Wall Street, and it’s good to hear that Ben Bernanke thinks the recession is over. 

I believe that much has been done, and that the steps taken have been positive, but it’s not over by a long shot.  Yes, necessary things have been done to stabilize the economy so that we are now just in a recession as opposed to the “Great Recession”, and it appears that what has been done by governmental design is to shore up, capitalize, and stabilize the banking system.  Although that has left distaste in the mouths of many, it seems to have been a baby and bathwater bailout. 

Nevertheless, let’s not kid ourselves, the fundamentals that led to the “Great Recession” are still with us, and the statistics that are giving us hope are somewhat misleading at the present time.  Continue reading

Pooling of Interests

I believe in real estate.

The current marketplace has made assets available at below-market values for a variety of factors, such as tenant vacancies, owner distress, a financial imbalance in the the property’s value, an unfavorable loan structure, a lack of owner capital reserves, credit restrictions, and a variety of other factors.

Notwithstanding the availability of distressed real estate, it is difficult as an individual, or a small investor to acquire investments on a scale that would allow one to execute, on favorable terms, an investment strategy that will maximize the return on these investments.

Therefore, I am currently advising clients operating in hotbed segments of the commercial and residential real estate markets to complete a private offering that pools investor funds together in an investment entity dedicated to purchase, manage and then sell undervalued or distressed assets when the asset values improve, or to rehabilitate and re-position such assets for year-on-year cash flow. When structured effectively, and managed competently this can be a very lucrative investment strategy.

The pooling of interests is effective because the purchase of distressed assets is time consuming, very risky and capital intensive, and requires industry knowledge to identify, evaluate, secure, close-on, rehabilitate, and then manage, operate, and market these properties. A pooling of interests, whether it be industry expertise and/or financial resources to create the structure, identify, acquire and then manage the assets will be necessary to secure the equity needed to obtain financing on adequate terms. This strategy also creates a well conceptualized business plan, and it shares the risks.

These are tough times, but they present solid opportunities

The end of the first financial quarter of 2008 resulted in a systemic market decline, reflecting Wall Street’s conclusion that the U.S. may be headed toward a recession. Testifying before congress, the Federal Reserve chairman, Ben Bernanke, said, “The American economy could contract in the first half of 2008,” a statement that meets the technical definition of a recession. The Washington Trust Co.’s Winter 2008 Economic Outlook suggested that market performance would be affected by: (a) the decline in consumer confidence to its lowest level since fall 2005, due to the ongoing weakness in the residential real estate market; (b) rising energy and food prices, as well as higher corporate financing costs, which have impacted inflation and challenged the Fed; and (c) the colossal write-downs and losses incurred by the nation’s largest financial institutions. The effect of the collapse of Bear Stearns on market confidence was underscored by Bernanke, who explained that the Fed needed to intervene because, “[w]ith financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence . . . and . . . cast doubt on the financial positions of . . . Bear Stearns’s . . . counterparties . . . .” The Fed guaranteed $30 billion of Bear Stearns’ positions, many of which may be residential collateralized debt obligations (CDO’s). This signals a shift in focus for the Federal Government; an active hand approach. Treasury Secretary Paulson recently unveiled a plan whereby the Federal Government will adopt a stronger regulatory posture in its administration of the financial markets, while Fed Chief Bernanke encouraged congress to help homeowners caught up in the mortgage crisis. Bernanke believes the President’s recently enacted stimulus package will bear fruit in the second quarter of this year, just in time to battle this elusive recession they are grudgingly acknowledging. Perhaps the current economic forces we are facing will be short-lived, perhaps not. The effects of the housing market have stretched into other sectors, from the financial services sector, to the sporting world, which financed stadiums with variable rate public debt instruments. The issue never was solely a sub-prime lending problem, as it was originally billed. The credit-crunch is real, because in order to be a borrower, someone else has to be a lender. Mortgage companies, such as Blue Door Mortgage in Wellesley, MA, have been pointing this out in their client letters for months. When risk-averse investors abdicate the capital markets for treasuries, fearful of the losses that financial institutions have incurred from their CDO positions, the result is higher borrowing costs for those corporate borrowers able to secure capital by offering higher yields relative to the yields on comparable treasuries; and a dearth of capital for other corporate and individual borrowers due to asset class, appraisal/valuation or credit issues.

These issues are not isolated to one sector of the economy; they affect all spheres of the marketplace. Nevertheless, there is opportunity in tough times, and strategic business moves that can be made will position the smart and the street-wise to take advantage of the inevitable boom cycle that will follow. Private businesses and investors can purchase failed projects at reasonable prices and complete them in time for the upward cycle that, with positive consumer sentiment can lead to an increase in consumer discretionary spending, new leases for rental apartments; the opening of new storefront businesses, and the warehousing facilities needed to service the increased consumer demand.