Friday, July 9, 2010

Road Under Repair

Are you also trying to figure out what the heck is going on in the real estate industry; I’ve been looking at more and more publications and talking to more and more people but then, finally, this morning, the lightbulb went off while I was walking my dogs.  While there seem to be a few property deals going on the types of deals that are most popular are of the people type:  switching jobs, leaving jobs, starting their own firms (what is the definition of a boutique anyway?) I’ve never liked the word ‘poaching’ when one firm hires people from another firm (sometimes groups of people) but that’s just a personal preference.  And most of these changes are probably personal choices of the employee as opposed to the notification from their employer that their services were no longer needed (I also never liked the term ‘redundant’ as I’ve felt that it’s a chicken-shit way of saying you’re being fired). But it looks to me like there's a lot of thinking and planning going on in many of the real estate private equity shops; looking into the crystal ball to see where the next opportunities will be and deciding when to strike.  In the case of investors, well, they're taking their time too.  Starting early this year many told me that it might not be until 2011 that they were going to put new money out into real estate and as the year moves on it looks like that just might be the case.

A Fourth of July BBQ at someone’s house.  It was a small get together at a very large house that a good friend of mine was the architect on.  I only knew a couple of the people but it was a friendly and diverse group.  The one person that got most of my attention was the 94 year old father of the woman that hosted the party.  I’ve always been interested in people but especially hearing the stories  old folks and the wonder and amazement of the young people.  In this gentleman’s case, he told me his life story which revolved around his career as a haberdasher and retailer.  His exploits, moving from city to city as he took on more and more of a challenge and risk (and debt:  he told me that to open a 16,000 sq.ft. store in the early days of enclosed malls he had to borrow $250,000 to build it out.  He moved forward bought larger and larger stores which grew at one point to him operating several what used to be called Junior Department Stores (Are they still?).  I listened intently. After all isn’t experience the best source of learning?  He told me that his wife died two years ago and that until a couple of months ago he was still living on is own (he now lives with his daughter).  He spends most of his day watching sports and CNN on TV and misses having something to be busy with.  During his story, I asked a few questions but at the end I asked him this one, “When you think back over your life is there anything you wished you had done differently.”   “I don’t regret anything I did”, he said.  “When I look back I only remember the good things in my life and that’s part of what keeps me going.”  I thought this was really good advice.  It sort of plays into some of the things that I’ve recently found that work for me:  forgive myself for things I did in the past, forgive others for things they did in the past, focus on today and don’t worry about yesterday or tomorrow. Listening to Jack I realized that the road many of us take is curved, twisted, under construction, closed or has fallen rock zones.  But that’s what makes us who we are and if we hit a “Dead End” on our road we have choices to make and as he told me about some of his decisions I realized that this man, who never made much money (in his own words) had something more than money can buy:  integrity and courage.  I hope that when I’m 94 and someone asks me to describe my life I’ll be able to keep it short and also have that person take away something that helps them, even if it’s a little thing like I took away from Jack on the Fourth of July.  

I was reading "Four Recovery Stories" on RCA's website today.  These are detailed descriptions of four actual deals involving troubled assets.  Some months back I asked you guys what you felt the difference was between the early1990's (aka RTC days) and this era and published the results.  But having been involved in workouts before they were fashionable and with the RTC and then being part of the team that worked out a large (for it's time) troubled real estate loan portfolio for a major commercial bank, our stuff was simple compared to these deals today.  I had some of the more complex deals back then and I used to put up large sheets of paper on my office walls to diagram the deal (to the amazement of my colleagues at the bank).  But fuggedaboutit, today there are so many parties, so many tranches, so much to unravel and then reconstruct, debt looking like equity and vice-versa.   Real expertise is needed for all of these sort of deals, whether they're troubled assets, troubled portfolios, troubled funds.  As some of what is going on involves what some call "rescue capital" I poked around the web and found this gem (which I've adapted to our industry):  "One of our main priorities is to be a source of rescue funding for real estate deals, portfolios and/or funds  that are in need of urgent, time critical support.  We will look at providing funding for management teams on condition that a new and clearly profitable strategy can be presented. A new business model, combining positive aspects of the previous model with evidence of changes to be made, which tackle the issues that caused the previous model to fail, would need to be presented."  No question:  the underwriting not only of the deal but of the management team is crucial when making a decision to invest new money.  And, does the strategy still make sense or have things changed enough that a new one needs to be implemented?  Lots of questions in these type deals, eh?


These are my views and not that of my employer.

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