December 29, 2009
National Real Estate Investor
Several major commercial real estate groups are fighting a proposed federal tax provision that they say would have a devastating effect on real estate investment partnerships.
Commercial real estate groups contend that the Tax Extenders Act of 2009 (HR 4213) would more than double the taxes on carried interest received by general partners in real estate partnerships because the carried interest would no longer be taxed as capital gains at 15%, but as ordinary income with rates as high as 35%.
“That’s a huge increase at a time when the industry is on the precipice, so to speak,” says Thomas Bisacquino, president of the NAIOP, the Commercial Real Estate Development Association. “There really isn’t any real estate-related group that supports it. We’re trying to stimulate the industry. We feel it would create a huge impediment.”
The House of Representatives passed the “tax extenders” bill on Dec. 10. It would prolong a number of tax breaks currently scheduled to expire at the end of the year. Although the bill contains elements that benefit commercial real estate, such as an extension of tax credits for owners who conserve energy through retrofits or remediate brownfields, the prospective change in policy toward real estate investment partnerships has many investors seeing red.
NAIOP has issued a “call to action” to its approximately 16,500 members urging them to contact senators to defeat the proposal. If enacted, it could bring about the largest modification to the taxation of real estate in more than 20 years, since the Tax Reform Act of 1986, NAIOP said in its alert.
The group added that the proposed tax change would have an effect far beyond the Wall Street hedge funds whose practices originally gave rise to the proposal.
The Institute of Real Estate Management (IREM), an association of property managers, has sent a joint letter with the National Association of Realtors and the CCIM Institute, urging all 100 U.S. senators not to change the current capital gains treatment of carried interest for real estate partnerships.
Other organizations are expressing similar concerns. “Changing the current capital gains treatment of carried interests would undermine job creation and have a negative impact on commercial real estate values, which would devastate local property tax revenues and put pension fund investments at risk,” says IREM’s senior legislative liaison Vijay Yadlapati. “Just as importantly, such a policy would slow the national economic recovery.”
This week, in IREM’s latest legislative report, the group says the loss of capital gains treatment for real estate investment partnerships would turn long established taxation rules upside down and have a far-reaching effect. “Real estate partnerships, from the smallest venture to the largest investment fund, have a carried interest component. Approximately $1 trillion of commercial and residential properties are held by partnerships.”
The tax measure would put additional pressure on the commercial real estate industry at a time when it already faces heavy burdens, IREM notes, including a rapid rise in delinquencies and foreclosures and restricted access to credit.
Because of the health care debate, the Senate is unlikely to introduce its own version of the tax extenders bill until early in 2010. But the commercial real estate groups fear that the Senate could quietly add the tax measure affecting partnerships to any unrelated bill now under consideration.
The Senate Finance Committee intends to take action on its own “tax extenders” bill shortly after lawmakers return from the holiday recess in mid-January, says Yadlapati. However, it’s not known whether the carried interest provision will be included in that bill.
Tuesday, December 29, 2009
2010 Promises More Deleveraging for REITs, Great Buying Opportunities
Dec 22, 2009 12:11 PM, By Sibley Fleming
On the surface, it’s a bad combination: $1.4 trillion in commercial real estate debt maturing through 2010, limited capital and 7 million job losses since the start of the recession. Despite the sour-tasting mixture, signs of liquidity returning to the market as well as stellar buying opportunities may make next year a bit more palatable for investors.
“Although troubling times are ahead for many investors, lifetime investment opportunities are forming for the real estate cycle players with cash in hand,” according to the most recent PricewaterhouseCoopers Korpacz Real Estate Investor Survey, which polls major institutional equity investors who invest primarily in institutional-grade property. Investors who are patient, but also daring and selective will acquire high quality assets in markets such as Boston, Washington, D.C., San Francisco, New York and Austin.
Compared with the drought of debt in commercial real estate over the past 12 months, there is evidence that capital will be available to refinance 2010 maturities. For instance, Inland American Real Estate Trust, a real estate investment trust based in Oak Brook, Ill., recently announced that it has refinanced or retired $684 million of its 2010 debt maturities. The remaining $90 million, slated to mature in the second half of the year, is currently being marketed.
“This achievement is indicative of the high quality of Inland American’s real estate assets, and the strong interest of lenders in our portfolio,” said Lori Foust, chief financial officer with Inland American, in a statement. “With approximately $500 million in available cash on hand, we obviously have much more liquidity than we need to retire the remaining $90 million with or without financing.”
Equity REITs raise nearly $10 billion
Since March, the 14 Fitch-rated equity REITs have raised $8.3 billion through the unsecured debt market. An additional $3.4 billion has been raised through bond tender offers and issued common equity, bringing the total to $9.8 billion.
However, whether or not REIT managers wish to continue deleveraging in 2010 remains to be seen, according to the agency. Additional stock offerings would hit common shareholders with a “double dose” of stock dilution and per-share earnings growth.
Liquidity also will play a key role in the asset sales that do come to market, Fitch reports. Properties that come to market will likely reflect commercial real estate companies seeking to delever their balance sheets. The aim is to improve cash flow rather than cleaning up portfolios by disposing of lower-quality assets.
Although the ratings agency forecasts greater liquidity and access to capital in 2010, Fitch still maintains a negative outlook for the U.S. equity REIT sector. That is primarily because the firm’s property-type outlooks are either “negative” or “stable” and are likely to remain so until mid-2010 at least.
Broken down by property sector, Fitch expects that multifamily REITs will continue to be negatively affected by the record-setting unemployment rate, now above 10%, the highest rate in 20 years. In addition, vacancy rates will be pressured by greater housing affordability and first-time owner tax credits as well as an expected decline in household formation. The 2010 outlook for multifamily is “negative.”
Retail REITs also received a negative outlook for the coming year as unemployment continues to weaken consumer demand, pressuring retailers and retail REITs’ ability to maintain occupancy and cash flow.
In contrast, Fitch’s outlook for office REITs are “stable” for 2010, an improvement from mid 2009. Improved balance sheets are projected to offset some of the deterioration in property fundamentals. “Moreover,” Fitch reports, “rated REITs with strong liquidity positions may be able to seize revenue-enhancing acquisition opportunities.”
On the surface, it’s a bad combination: $1.4 trillion in commercial real estate debt maturing through 2010, limited capital and 7 million job losses since the start of the recession. Despite the sour-tasting mixture, signs of liquidity returning to the market as well as stellar buying opportunities may make next year a bit more palatable for investors.
“Although troubling times are ahead for many investors, lifetime investment opportunities are forming for the real estate cycle players with cash in hand,” according to the most recent PricewaterhouseCoopers Korpacz Real Estate Investor Survey, which polls major institutional equity investors who invest primarily in institutional-grade property. Investors who are patient, but also daring and selective will acquire high quality assets in markets such as Boston, Washington, D.C., San Francisco, New York and Austin.
Compared with the drought of debt in commercial real estate over the past 12 months, there is evidence that capital will be available to refinance 2010 maturities. For instance, Inland American Real Estate Trust, a real estate investment trust based in Oak Brook, Ill., recently announced that it has refinanced or retired $684 million of its 2010 debt maturities. The remaining $90 million, slated to mature in the second half of the year, is currently being marketed.
“This achievement is indicative of the high quality of Inland American’s real estate assets, and the strong interest of lenders in our portfolio,” said Lori Foust, chief financial officer with Inland American, in a statement. “With approximately $500 million in available cash on hand, we obviously have much more liquidity than we need to retire the remaining $90 million with or without financing.”
Equity REITs raise nearly $10 billion
Since March, the 14 Fitch-rated equity REITs have raised $8.3 billion through the unsecured debt market. An additional $3.4 billion has been raised through bond tender offers and issued common equity, bringing the total to $9.8 billion.
However, whether or not REIT managers wish to continue deleveraging in 2010 remains to be seen, according to the agency. Additional stock offerings would hit common shareholders with a “double dose” of stock dilution and per-share earnings growth.
Liquidity also will play a key role in the asset sales that do come to market, Fitch reports. Properties that come to market will likely reflect commercial real estate companies seeking to delever their balance sheets. The aim is to improve cash flow rather than cleaning up portfolios by disposing of lower-quality assets.
Although the ratings agency forecasts greater liquidity and access to capital in 2010, Fitch still maintains a negative outlook for the U.S. equity REIT sector. That is primarily because the firm’s property-type outlooks are either “negative” or “stable” and are likely to remain so until mid-2010 at least.
Broken down by property sector, Fitch expects that multifamily REITs will continue to be negatively affected by the record-setting unemployment rate, now above 10%, the highest rate in 20 years. In addition, vacancy rates will be pressured by greater housing affordability and first-time owner tax credits as well as an expected decline in household formation. The 2010 outlook for multifamily is “negative.”
Retail REITs also received a negative outlook for the coming year as unemployment continues to weaken consumer demand, pressuring retailers and retail REITs’ ability to maintain occupancy and cash flow.
In contrast, Fitch’s outlook for office REITs are “stable” for 2010, an improvement from mid 2009. Improved balance sheets are projected to offset some of the deterioration in property fundamentals. “Moreover,” Fitch reports, “rated REITs with strong liquidity positions may be able to seize revenue-enhancing acquisition opportunities.”
Budding Housing Recovery Fails to Bolster Broker Commissions
Dec. 29 (Bloomberg) -- A surge in home purchases by first- time U.S. buyers is doing little to help real estate agents and brokers who close the deals.
Commissions in 2009 fell to the lowest level in seven years, driven down by sales of low-priced homes to first-time buyers using the federal tax credit. Commissions through November dropped 6.2 percent from a year earlier to $40.6 billion, according to Bloomberg calculations based on the average commission rates from Real Trends Inc. and on home price and sales data from the National Association of Realtors.
The tax credit strengthened only the low end of the market and reduced agents’ pay, according to Steve Murray, president of Real Trends, a residential property research company. The tax benefit and foreclosure sales may lower the national median home price by a record 13 percent this year to $172,700, according to the Chicago-based Realtors’ group. Last month almost 75 percent of sales were for $250,000 or less, the Realtors said.
“The impact of the tax credit has been huge,” Murray said in an interview. “The average commission rate inched up this year and the number of real estate sales have gone up too, but the average price has dropped significantly because of the bulge of first-time buyers.”
The dollar value of commissions fell to the lowest amount since 2002 even as the average U.S. rate per transaction rose to about 5.29 percent this year, the fourth consecutive annual gain. The average commission rate was 5.26 percent in 2008, according to Real Trends, based in Castle Rock, Colorado.
‘No Trivial Number’
Commissions earned by real estate agents typically are computed as a percentage of a property’s sale price. Agents negotiate with sellers to set the rate and are required to pay a portion of it to the brokerage they work for.
Income from commissions at Realogy Corp., the largest U.S. residential brokerage and franchiser, fell to $2.1 billion during the first nine months of 2009 from $2.8 billion a year earlier, the Parsippany, New Jersey-based company said in a Nov. 10 regulatory filing.
“Income from real estate commissions is not a trivial number,” Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “In a very weak economy, every little bit helps strengthen GDP.”
During the five-year real estate boom, commission rates dropped as agents competed for clients and surging prices boosted income from each transaction, according to Murray. By 2005’s record low of 5.02 percent, the average commission had tumbled more than a percentage point from 1992’s 6.04 percent.
Charging More
When home prices declined in 2006 and properties began sitting on the market for longer periods, agents started charging more, Murray said. Real Trends commission data is based on surveys of the largest 500 U.S. real estate brokerages.
“When the market was super-hot, getting a listing was like cash in the bank and there was a huge amount of competition,” Murray said. “Listings are not scarce anymore and, even if priced right, they’re not easy to sell.”
Sales of previously owned homes probably will total 5.15 million this year, a 4.8 percent gain from 2008, according to an estimate on NAR’s Web site. In November, sales rose 7.4 percent to a 6.54 million annual rate, the highest level in almost three years, as buyers rushed to meet the tax credit’s original Nov. 30 deadline, the trade group said in a Dec. 22 report.
Leaving the Business
“I had the busiest November I’ve had in five years, which made up for lower prices and lower commissions, but I know some people who left the business altogether or took second jobs because they were making so much less for each transaction,” said Karen McCormack, co-owner of McCormack & Scanlan Real Estate in Jamaica Plain, a Boston neighborhood.
The number of U.S. real estate brokers and salespeople as of Sept. 30 fell 9.2 percent from a year earlier to 850,000, according to the Bureau of Labor Statistics in Washington.
Housing demand probably will drop in December, even though Congress extended the home-buying tax credit to April and expanded it to include some move-up buyers, according to Lawrence Yun, chief economist at the National Association of Realtors.
“We expect a temporary sales drop while buying activity ramps up for another surge in the spring when buyers take advantage of the expanded tax credit,” Yun said in last week’s NAR report.
There are already signs that the real estate market is slowing again. The Mortgage Bankers Association’s index of loan applications decreased 11 percent to 595.8 the week ended Dec. 18, the lowest level since October, from 667.3 the prior week, the bankers’ trade group said last week.
“Starting this month, home sales are going to take a hit,” said Global Insight’s Newport. “The first credit used up the pool of first-time buyers by moving 2010 sales into 2009. We may not get much of a kick from the extension.”
Commissions in 2009 fell to the lowest level in seven years, driven down by sales of low-priced homes to first-time buyers using the federal tax credit. Commissions through November dropped 6.2 percent from a year earlier to $40.6 billion, according to Bloomberg calculations based on the average commission rates from Real Trends Inc. and on home price and sales data from the National Association of Realtors.
The tax credit strengthened only the low end of the market and reduced agents’ pay, according to Steve Murray, president of Real Trends, a residential property research company. The tax benefit and foreclosure sales may lower the national median home price by a record 13 percent this year to $172,700, according to the Chicago-based Realtors’ group. Last month almost 75 percent of sales were for $250,000 or less, the Realtors said.
“The impact of the tax credit has been huge,” Murray said in an interview. “The average commission rate inched up this year and the number of real estate sales have gone up too, but the average price has dropped significantly because of the bulge of first-time buyers.”
The dollar value of commissions fell to the lowest amount since 2002 even as the average U.S. rate per transaction rose to about 5.29 percent this year, the fourth consecutive annual gain. The average commission rate was 5.26 percent in 2008, according to Real Trends, based in Castle Rock, Colorado.
‘No Trivial Number’
Commissions earned by real estate agents typically are computed as a percentage of a property’s sale price. Agents negotiate with sellers to set the rate and are required to pay a portion of it to the brokerage they work for.
Income from commissions at Realogy Corp., the largest U.S. residential brokerage and franchiser, fell to $2.1 billion during the first nine months of 2009 from $2.8 billion a year earlier, the Parsippany, New Jersey-based company said in a Nov. 10 regulatory filing.
“Income from real estate commissions is not a trivial number,” Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “In a very weak economy, every little bit helps strengthen GDP.”
During the five-year real estate boom, commission rates dropped as agents competed for clients and surging prices boosted income from each transaction, according to Murray. By 2005’s record low of 5.02 percent, the average commission had tumbled more than a percentage point from 1992’s 6.04 percent.
Charging More
When home prices declined in 2006 and properties began sitting on the market for longer periods, agents started charging more, Murray said. Real Trends commission data is based on surveys of the largest 500 U.S. real estate brokerages.
“When the market was super-hot, getting a listing was like cash in the bank and there was a huge amount of competition,” Murray said. “Listings are not scarce anymore and, even if priced right, they’re not easy to sell.”
Sales of previously owned homes probably will total 5.15 million this year, a 4.8 percent gain from 2008, according to an estimate on NAR’s Web site. In November, sales rose 7.4 percent to a 6.54 million annual rate, the highest level in almost three years, as buyers rushed to meet the tax credit’s original Nov. 30 deadline, the trade group said in a Dec. 22 report.
Leaving the Business
“I had the busiest November I’ve had in five years, which made up for lower prices and lower commissions, but I know some people who left the business altogether or took second jobs because they were making so much less for each transaction,” said Karen McCormack, co-owner of McCormack & Scanlan Real Estate in Jamaica Plain, a Boston neighborhood.
The number of U.S. real estate brokers and salespeople as of Sept. 30 fell 9.2 percent from a year earlier to 850,000, according to the Bureau of Labor Statistics in Washington.
Housing demand probably will drop in December, even though Congress extended the home-buying tax credit to April and expanded it to include some move-up buyers, according to Lawrence Yun, chief economist at the National Association of Realtors.
“We expect a temporary sales drop while buying activity ramps up for another surge in the spring when buyers take advantage of the expanded tax credit,” Yun said in last week’s NAR report.
There are already signs that the real estate market is slowing again. The Mortgage Bankers Association’s index of loan applications decreased 11 percent to 595.8 the week ended Dec. 18, the lowest level since October, from 667.3 the prior week, the bankers’ trade group said last week.
“Starting this month, home sales are going to take a hit,” said Global Insight’s Newport. “The first credit used up the pool of first-time buyers by moving 2010 sales into 2009. We may not get much of a kick from the extension.”
Biggs, Faber Predict Dollar Rally as S&P 500 Extends 67% Surge
Dec. 29 (Bloomberg) -- Barton Biggs and Marc Faber, who recommended buying stocks in March when investors were dumping them, are again united as they predict gains for U.S. equities and the dollar.
Shares in the largest equity market and the U.S. currency may add 10 percent as economies improve around the world, Biggs of New York-based hedge-fund firm Traxis Partners LP said in a Bloomberg Television interview yesterday. Faber, publisher of the “Gloom Boom & Doom” newsletter, told Bloomberg TV that the dollar may rise 5 percent to 10 percent against the euro while stocks gain, reversing the inverse relationship that existed between March and November.
Biggs and Faber’s advice nine months ago proved profitable as the Standard & Poor’s 500 Index surged 67 percent in the biggest rally since the 1930s. They saw a buying opportunity as investors speculating the financial crisis would cause a depression drove stock valuations to the cheapest level since 1986. Now, Biggs, 77, and Faber, 63, see gains as the economic recovery accelerates and investors shift money from Treasuries.
“History would suggest that after such a severe economic shock like we’ve just had that the odds are that we’re going to have a pretty good burst of growth in 2010, 2011,” Biggs said. “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”
GDP Recovery
U.S. gross domestic product will increase 2.6 percent next year after contracting 2.5 percent in 2009, according to the median economist forecast in a Bloomberg survey. GDP will expand 3.5 percent next year, the most since 2004, as spending increases and companies boost investment, said London-based Barclays Plc’s Dean Maki, the most-accurate forecaster.
Equities started rebounding after investors paid a 23-year low of 11.9 times earnings at S&P 500 companies on March 9, according to data compiled by Yale University’s Robert Shiller, who adjusts valuations for inflation and uses a decade of profit to smooth out short-term fluctuations.
Shiller’s earnings multiple has surged to 20.3, matching the level before New York-based Lehman Brothers Holdings Inc. collapsed in September 2008, after the U.S. government lent, spent or guaranteed more than $11 trillion to end the recession.
The rally in stocks was accompanied by a 17 percent retreat in the Dollar Index between March 5 and Nov. 25, the biggest slump since 1986. The measure tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc.
Stocks, Dollar Rise
The S&P 500 has added 1.5 percent since Nov. 25 while the Dollar Index advanced 4.7 percent.
Biggs, the chief global strategist for Morgan Stanley until 2003, said in a Bloomberg interview on Feb. 18 that the S&P 500 was poised to rise because economic indicators were starting to improve. Biggs reiterated his optimism in the March issue of Newsweek. His bullish bets during the worst of the credit crisis are giving his six-year-old firm its best returns ever.
Faber advised investors to buy U.S. stocks on March 9 when the S&P 500 was at a 12-year low.
Stocks may rise as Federal Reserve Chairman Ben S. Bernanke is forced to inject more liquidity into the financial system, spurring inflation that prompts investors to shift assets to equities from Treasuries and cash, Hong Kong-based Faber said.
The yield on Treasury 10-year notes has increased 0.64 percentage point this month to 3.84 percent, approaching the seven-month high of 3.95 percent reached in June. The 100 largest taxable U.S. funds returned an annualized 0.06 percent during the past week, according to data compiled by Westborough, Massachusetts-based Crane Data LLC.
“The worst investment will be U.S. Treasuries and cash, which has no return at present,” Faber said. “That money will shift into other assets, and this is the one reason that I am moderately positive about equities.”
Shares in the largest equity market and the U.S. currency may add 10 percent as economies improve around the world, Biggs of New York-based hedge-fund firm Traxis Partners LP said in a Bloomberg Television interview yesterday. Faber, publisher of the “Gloom Boom & Doom” newsletter, told Bloomberg TV that the dollar may rise 5 percent to 10 percent against the euro while stocks gain, reversing the inverse relationship that existed between March and November.
Biggs and Faber’s advice nine months ago proved profitable as the Standard & Poor’s 500 Index surged 67 percent in the biggest rally since the 1930s. They saw a buying opportunity as investors speculating the financial crisis would cause a depression drove stock valuations to the cheapest level since 1986. Now, Biggs, 77, and Faber, 63, see gains as the economic recovery accelerates and investors shift money from Treasuries.
“History would suggest that after such a severe economic shock like we’ve just had that the odds are that we’re going to have a pretty good burst of growth in 2010, 2011,” Biggs said. “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”
GDP Recovery
U.S. gross domestic product will increase 2.6 percent next year after contracting 2.5 percent in 2009, according to the median economist forecast in a Bloomberg survey. GDP will expand 3.5 percent next year, the most since 2004, as spending increases and companies boost investment, said London-based Barclays Plc’s Dean Maki, the most-accurate forecaster.
Equities started rebounding after investors paid a 23-year low of 11.9 times earnings at S&P 500 companies on March 9, according to data compiled by Yale University’s Robert Shiller, who adjusts valuations for inflation and uses a decade of profit to smooth out short-term fluctuations.
Shiller’s earnings multiple has surged to 20.3, matching the level before New York-based Lehman Brothers Holdings Inc. collapsed in September 2008, after the U.S. government lent, spent or guaranteed more than $11 trillion to end the recession.
The rally in stocks was accompanied by a 17 percent retreat in the Dollar Index between March 5 and Nov. 25, the biggest slump since 1986. The measure tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc.
Stocks, Dollar Rise
The S&P 500 has added 1.5 percent since Nov. 25 while the Dollar Index advanced 4.7 percent.
Biggs, the chief global strategist for Morgan Stanley until 2003, said in a Bloomberg interview on Feb. 18 that the S&P 500 was poised to rise because economic indicators were starting to improve. Biggs reiterated his optimism in the March issue of Newsweek. His bullish bets during the worst of the credit crisis are giving his six-year-old firm its best returns ever.
Faber advised investors to buy U.S. stocks on March 9 when the S&P 500 was at a 12-year low.
Stocks may rise as Federal Reserve Chairman Ben S. Bernanke is forced to inject more liquidity into the financial system, spurring inflation that prompts investors to shift assets to equities from Treasuries and cash, Hong Kong-based Faber said.
The yield on Treasury 10-year notes has increased 0.64 percentage point this month to 3.84 percent, approaching the seven-month high of 3.95 percent reached in June. The 100 largest taxable U.S. funds returned an annualized 0.06 percent during the past week, according to data compiled by Westborough, Massachusetts-based Crane Data LLC.
“The worst investment will be U.S. Treasuries and cash, which has no return at present,” Faber said. “That money will shift into other assets, and this is the one reason that I am moderately positive about equities.”
Copper, Mining Stocks, Rand Rally on Economic Growth Outlook
Dec. 29 (Bloomberg) -- Copper rose to a 15-month high, mining companies led an advance in stocks and currencies of commodity producers strengthened as investors anticipated faster economic growth next year.
Copper advanced 2.7 percent at 12:45 p.m. in London, extending its 2009 gain to 136 percent. Sugar rose to a two- decade high. The Dow Jones Stoxx 600 Index of European shares added 0.4 percent as the U.K.’s FTSE 100 Index recouped its losses since Lehman Brothers Holdings Inc.’s collapse in September 2008. The South African rand strengthened against all 16 of its most-traded counterparts.
Barton Biggs, a hedge-fund manager at Traxis Partners LP, and Marc Faber, who publishes the “Gloom Boom & Doom” report, predict that stocks will extend gains in 2010 while the dollar will rally. Bill Miller has made 43 percent this year in his Legg Mason Capital Management Value Trust fund, beating 93 percent of similar funds by betting on a recovery. The decrease in U.S. home prices probably moderated in October and consumer confidence improved, economists said before reports today.
“History would suggest that after such a severe economic shock like we’ve just had the odds are that we’re going to have a pretty good burst of growth in 2010, 2011,” Biggs said in a Bloomberg Television interview yesterday. “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”
Mining Strikes
Copper rose $189 to $7,259 a metric ton on the London Metal Exchange, which was closed yesterday for a national holiday. The metal is heading for its best year since at least 1986. Officials in China, the world’s biggest copper user, said the economy expanded more than 8 percent in 2009. Workers at Chile’s Altonorte copper smelter went on strike yesterday and employees at the Chuquicamata copper mine voted to do the same.
White sugar advanced as much as 1.9 percent to $707.20 a metric ton on the Liffe exchange in London, its highest since at least 1989. Crude oil for February delivery fell 0.5 percent to $78.37 a barrel in New York trading. Gold for immediate delivery fell 0.2 percent.
Mining stocks including Vedanta Resources Plc and Xstrata Plc led the 0.5 percent gain in the U.K.’s FTSE 100 Index. The MSCI World Index of equities in 23 developed nations advanced 0.4 percent. China Railway Construction Corp. and Tongling Nonferrous Metals Group Holdings Co. offered C$679 million ($651 million) for Canada’s Corriente Resources Inc., the owner of copper deposits in Ecuador.
U.S. Futures
Futures on the Standard & Poor’s 500 Index added 0.4 percent before reports on U.S. home prices and consumer confidence. Property values in 20 metropolitan areas probably fell 7.2 percent in October from a year earlier, the smallest 12-month drop since 2007, according to the median forecast of 31 economists surveyed by Bloomberg News. The Conference Board’s consumer sentiment gauge probably improved in December for a second month.
Oil-producing nations were the biggest gainers in emerging market stocks, with Abu Dhabi’s ADX General Index advancing 0.6 percent. The MSCI Emerging Markets Index fell 0.1 percent, snapping a five-day rally.
The Australian dollar climbed 1.1 percent to 89.72 U.S. cents, gaining for the fifth successive day, and rose 1.2 percent to 82.23 yen. South Africa’s rand added 1.4 percent to 7.4121 per dollar.
Bonds Fall
U.K. government bonds declined, sending the yield on the 10-year gilt up as much as 11 basis points to 4.11 percent, the highest level in more than a year. The market was closed yesterday.
The U.S. plans to sell a record-tying $118 billion of securities this week, including $42 billion of five-year notes today and $32 billion of seven-year debt tomorrow. Two-year Treasury note yields reached the highest level since September yesterday as an investor class that includes foreign central banks bought the lowest amount of the debt in five months at an auction. The yield was 2 basis points lower today at 1 percent.
Copper advanced 2.7 percent at 12:45 p.m. in London, extending its 2009 gain to 136 percent. Sugar rose to a two- decade high. The Dow Jones Stoxx 600 Index of European shares added 0.4 percent as the U.K.’s FTSE 100 Index recouped its losses since Lehman Brothers Holdings Inc.’s collapse in September 2008. The South African rand strengthened against all 16 of its most-traded counterparts.
Barton Biggs, a hedge-fund manager at Traxis Partners LP, and Marc Faber, who publishes the “Gloom Boom & Doom” report, predict that stocks will extend gains in 2010 while the dollar will rally. Bill Miller has made 43 percent this year in his Legg Mason Capital Management Value Trust fund, beating 93 percent of similar funds by betting on a recovery. The decrease in U.S. home prices probably moderated in October and consumer confidence improved, economists said before reports today.
“History would suggest that after such a severe economic shock like we’ve just had the odds are that we’re going to have a pretty good burst of growth in 2010, 2011,” Biggs said in a Bloomberg Television interview yesterday. “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”
Mining Strikes
Copper rose $189 to $7,259 a metric ton on the London Metal Exchange, which was closed yesterday for a national holiday. The metal is heading for its best year since at least 1986. Officials in China, the world’s biggest copper user, said the economy expanded more than 8 percent in 2009. Workers at Chile’s Altonorte copper smelter went on strike yesterday and employees at the Chuquicamata copper mine voted to do the same.
White sugar advanced as much as 1.9 percent to $707.20 a metric ton on the Liffe exchange in London, its highest since at least 1989. Crude oil for February delivery fell 0.5 percent to $78.37 a barrel in New York trading. Gold for immediate delivery fell 0.2 percent.
Mining stocks including Vedanta Resources Plc and Xstrata Plc led the 0.5 percent gain in the U.K.’s FTSE 100 Index. The MSCI World Index of equities in 23 developed nations advanced 0.4 percent. China Railway Construction Corp. and Tongling Nonferrous Metals Group Holdings Co. offered C$679 million ($651 million) for Canada’s Corriente Resources Inc., the owner of copper deposits in Ecuador.
U.S. Futures
Futures on the Standard & Poor’s 500 Index added 0.4 percent before reports on U.S. home prices and consumer confidence. Property values in 20 metropolitan areas probably fell 7.2 percent in October from a year earlier, the smallest 12-month drop since 2007, according to the median forecast of 31 economists surveyed by Bloomberg News. The Conference Board’s consumer sentiment gauge probably improved in December for a second month.
Oil-producing nations were the biggest gainers in emerging market stocks, with Abu Dhabi’s ADX General Index advancing 0.6 percent. The MSCI Emerging Markets Index fell 0.1 percent, snapping a five-day rally.
The Australian dollar climbed 1.1 percent to 89.72 U.S. cents, gaining for the fifth successive day, and rose 1.2 percent to 82.23 yen. South Africa’s rand added 1.4 percent to 7.4121 per dollar.
Bonds Fall
U.K. government bonds declined, sending the yield on the 10-year gilt up as much as 11 basis points to 4.11 percent, the highest level in more than a year. The market was closed yesterday.
The U.S. plans to sell a record-tying $118 billion of securities this week, including $42 billion of five-year notes today and $32 billion of seven-year debt tomorrow. Two-year Treasury note yields reached the highest level since September yesterday as an investor class that includes foreign central banks bought the lowest amount of the debt in five months at an auction. The yield was 2 basis points lower today at 1 percent.
Goldman Sachs Takes Biggest Share of $923 Million U.S. IPO Fees
Dec. 29 (Bloomberg) -- Goldman Sachs Group Inc. won the biggest share of the $923 million in fees from U.S. initial public offerings this year, while Citigroup Inc. fell out of the top five after its revenue plummeted more than 50 percent.
Goldman Sachs made $191.6 million helping take 16 companies from Hyatt Hotels Corp. to Cobalt International Energy Inc. public this year, an increase of more than 60 percent from 2008, preliminary data compiled by Bloomberg show. Citigroup’s share of fees dropped to $68.3 million, making the New York-based lender the only underwriter that participated in at least $1 billion worth of sales to suffer a decline in revenue.
Banks increased fees for initial share sales by 62 percent to 5.63 percent from the lowest level on record, even as the amount that U.S. companies raised from IPOs decreased by almost half to $16.4 billion this year, according to Bloomberg data. While the biggest surge in stocks since the Great Depression revived the IPO market and helped enrich bankers, almost 40 percent of offerings sold by underwriters in the second half of 2009 have left buyers with losses, the data show.
“It was sort of like a feeding frenzy, whatever deal came people wanted to buy it,” said Joe Castle, New York-based head of the equities syndicate for the Americas at Barclays Plc, which climbed into the top 10 among underwriters for U.S. IPOs after doubling its share of offerings this year. In the second half, “there were some aggressive valuations that people have pushed back on” as the performance of IPOs suffered, he said.
Most Lucrative
IPOs are among the most lucrative advisory businesses on Wall Street, with bankers extracting fees from companies that seek initial offerings that are more than 10 times higher than those from mergers and acquisitions or corporate-bond sales.
During the five-year bull market for stock prices that ended in 2007, underwriters on average kept 5.93 percent of the money raised from IPOs by U.S. companies, Bloomberg data show.
This year, fees averaged about 5.63 percent of proceeds, up from a record low of 3.48 percent in 2008, when the worst financial crisis since the 1930s sparked the collapse of New York-based Lehman Brothers Holdings Inc. in September and forced the government to give nine of the largest U.S. banks $125 billion in bailout money, fee data compiled by Bloomberg since 1999 show.
The higher fees helped to limit the decline in revenue from U.S. IPOs in 2009 to about 10 percent from $1.03 billion last year. The amount raised by U.S. companies going public slumped 45 percent from $29.6 billion, as sales evaporated in the fourth quarter of 2008 after Lehman’s failure froze credit markets.
IPO Revival
The drought lasted until September as an average of two U.S. companies a month went public, the slowest pace since at least 1995, according to data compiled by Bloomberg.
The IPO market then rebounded as companies took advantage of a 67 percent advance in the Standard & Poor’s 500 Index from its 12-year low in March. Thirty-two companies completed offerings since the start of September, equal to 68 percent of the 47 initial sales in 2009, Bloomberg data show.
Goldman Sachs, which became a bank holding company last year and took $10 billion in taxpayer bailout money, earned the most from underwriting U.S. IPOs in 2009, after getting shut out of the top three in the prior two years, Bloomberg data show. The firm’s fees rose 62 percent from $118.2 million last year.
The bank’s biggest payday came from managing Hyatt’s $1.09 billion offer last month, for which New York-based Goldman Sachs received about $56 million, data compiled by Bloomberg show.
Biggest Payday
The Pritzker family, which controls the Chicago-based hotelier, sold 38 million Class A shares at $25 each, while its underwriters bought an additional 5.7 million shares on behalf of their clients. Hyatt has advanced 20 percent since its IPO, almost three times the S&P 500’s gain over the same span.
Goldman Sachs also helped manage the sale of 63 million shares in Cobalt, the oil explorer with no revenue or profits that is also controlled by Washington-based Carlyle Group and three other private-equity funds.
Cobalt sold shares at $13.50 each this month after buyers rejected the Houston-based company’s offer of $15 to $17. The price represented a discount of as much as 21 percent.
Goldman Sachs earned $12.2 million from the IPO, while Cobalt’s shares have fallen 0.6 percent since the Dec. 15 sale.
By the total value of U.S. IPOs, Goldman Sachs also led all other lead underwriters. The most profitable securities firm in Wall Street history participated in 21.2 percent of the offerings, or about $3.48 billion, Bloomberg data show. Andrea Rachman, a spokeswoman at Goldman Sachs, declined to comment.
Citigroup’s Fall
Citigroup, which ranked among the top three fee earners from 2005 to 2008, made $68.3 million arranging initial sales, a drop of 52 percent from a year ago and less than half the amount that each of the top three underwriters earned in 2009.
The last of the four largest U.S. banks to raise money to exit a taxpayer bailout, Citigroup relinquished its position as the top underwriter for U.S. IPOs, a title it held in three of the past four years. The lender helped arrange $1.19 billion worth of initial offers, ranking sixth among banks. Citigroup fell out of the top five for the first time since 2004.
“The franchise is strong,” said John Chirico, Citigroup’s New York-based co-head of capital markets origination for the Americas. “We’re very bullish on 2010 from an IPO perspective.”
He declined to comment on why Citigroup’s share of IPOs shrank by more than half in 2009.
‘Voting With Their Fees’
Citigroup was a lead underwriter in the IPO of Glenview, Illinois-based Mead Johnson Nutrition Co., the maker of Enfamil infant formula, in February. The company raised $828 million selling shares at the $24 maximum price that it sought in the first U.S. initial offering of 2009. The stock has since added 85 percent, beating the 36 percent gain in the S&P 500.
Among the other IPOs that Citigroup helped arrange, three are trading below their offer prices, while five of the nine have underperformed the S&P 500 since their sales.
“When people look at underwriters, they look at the whole package,” said Michael Holland, chairman of Holland & Co., a New York-based investment firm that oversees more than $4 billion. “With Goldman, people have no problem whatsoever with their franchise. With Citi, they’ve faced some very challenging times, so which one do you go with? People are voting with their fees in this case.”
Bank of America Corp., the largest U.S. lender by assets, was second in both fees and market share, as it charged companies less on average than any other bank in the industry.
Biggest U.S. IPO
The company that agreed to acquire New York-based Merrill Lynch & Co. last year collected $158.2 million in fee income, data compiled by Bloomberg show. That equals about 5.28 percent of proceeds from IPOs for which the Charlotte, North Carolina- based lender was a lead underwriter.
Bank of America’s fees were depressed by its offering of Jersey City, New Jersey-based Verisk Analytics Inc. in the biggest U.S. IPO of 2009, according to Lisa Carnoy, the bank’s New York-based global head of equity capital markets.
Bank of America and Morgan Stanley each received $43.1 million after charging the supplier of actuarial data to insurers 4 percent to underwrite Verisk’s $2.16 billion IPO in October, the lowest percentage of any U.S. offering this year, data compiled by Bloomberg show.
Carnoy and JD Moriarty of Bank of America’s equity capital markets group, and William Egan, who runs corporate and investment banking for financial companies, led the bank’s team on the Verisk IPO. The stock has climbed 41 percent since the offering, beating the 6.9 percent gain in the S&P 500.
Private-Equity IPOs
Bank of America also helped arrange the largest number of U.S. initial sales this year, which gave the lender an 18.3 percent share of the value of all deals. That’s less than the combined total of 25.8 percent last year, when Bank of America and Merrill Lynch were counted separately, data compiled by Bloomberg show.
Among the 22 deals for which the bank served as a lead underwriter was New York-based Blackstone Group LP’s $160 million offering of Team Health Holdings Inc., which supplies doctors to hospitals and emergency rooms.
The Knoxville, Tennessee-based company, which was almost 90 percent owned by Stephen Schwarzman’s Blackstone, sold 13.3 million shares at $12 each this month after investors refused to pay the $14 to $16 originally sought, Bloomberg data show. Team Health has added 14 percent, while the S&P 500 rose 1.8 percent.
‘Loud and Clear’
“What investors told us loud and clear based on the pricing performance of these December deals was that the valuation concession they would need to establish a significant position in IPOs was wider than the collective capital markets and banking community thought,” said Bank of America’s Carnoy.
Morgan Stanley more than quadrupled the amount it made from underwriting IPOs to $156.1 million, the biggest increase from 2008 for a bank that took part in at least $1 billion in deals, Bloomberg data indicate. Morgan Stanley spokeswoman Alyson Barnes declined to comment.
JPMorgan Chase & Co., the second-largest U.S. bank, made $105.4 million charging the industry’s highest fees. The New York-based lender received 5.8 percent in fees from the $1.82 billion in IPOs that it helped underwrite, the highest percentage of those credited with $1 billion or more in IPOs.
The 17 companies that JPMorgan helped take public through IPOs have also posted the biggest stock-market gains. Their shares have advanced 26 percent since going public, the highest average among the top eight underwriters, Bloomberg data show.
IPO Performance
Three IPOs that JPMorgan helped underwrite are trading below the offer price. Joe Evangelisti, JPMorgan’s spokesman, didn’t immediately respond to e-mails seeking comment.
U.S. companies that paid Frankfurt-based Deutsche Bank AG $53.7 million in IPO fees this year have fared the worst. Six of eight are trading below their offer price, with the average company falling 4.1 percent since its IPO.
Omeros Corp., the Seattle-based biopharmaceutical company, has lost 28 percent of its stock-market value, the biggest decline among 47 U.S. IPOs this year. Deutsche Bank, Germany’s biggest bank, was the sole lead underwriter of the offering.
“It’s been a tougher market than we’ve seen in some time,” said Mark Hantho, Deutsche Bank’s New York-based global co-head of equity capital markets. “Finding a balance between the value at which a company goes public and also have it trade well in the after-market, that’s a tough balance.”
Based on the number of companies that have filed to raise money through IPOs and have yet to do so, Deutsche Bank ranks fifth with a 7.5 percent share, the bank’s own data showed.
“We’re poised to do better,” Hantho said. “We have a real shot” of rising in the rankings next year, he said.
Goldman Sachs made $191.6 million helping take 16 companies from Hyatt Hotels Corp. to Cobalt International Energy Inc. public this year, an increase of more than 60 percent from 2008, preliminary data compiled by Bloomberg show. Citigroup’s share of fees dropped to $68.3 million, making the New York-based lender the only underwriter that participated in at least $1 billion worth of sales to suffer a decline in revenue.
Banks increased fees for initial share sales by 62 percent to 5.63 percent from the lowest level on record, even as the amount that U.S. companies raised from IPOs decreased by almost half to $16.4 billion this year, according to Bloomberg data. While the biggest surge in stocks since the Great Depression revived the IPO market and helped enrich bankers, almost 40 percent of offerings sold by underwriters in the second half of 2009 have left buyers with losses, the data show.
“It was sort of like a feeding frenzy, whatever deal came people wanted to buy it,” said Joe Castle, New York-based head of the equities syndicate for the Americas at Barclays Plc, which climbed into the top 10 among underwriters for U.S. IPOs after doubling its share of offerings this year. In the second half, “there were some aggressive valuations that people have pushed back on” as the performance of IPOs suffered, he said.
Most Lucrative
IPOs are among the most lucrative advisory businesses on Wall Street, with bankers extracting fees from companies that seek initial offerings that are more than 10 times higher than those from mergers and acquisitions or corporate-bond sales.
During the five-year bull market for stock prices that ended in 2007, underwriters on average kept 5.93 percent of the money raised from IPOs by U.S. companies, Bloomberg data show.
This year, fees averaged about 5.63 percent of proceeds, up from a record low of 3.48 percent in 2008, when the worst financial crisis since the 1930s sparked the collapse of New York-based Lehman Brothers Holdings Inc. in September and forced the government to give nine of the largest U.S. banks $125 billion in bailout money, fee data compiled by Bloomberg since 1999 show.
The higher fees helped to limit the decline in revenue from U.S. IPOs in 2009 to about 10 percent from $1.03 billion last year. The amount raised by U.S. companies going public slumped 45 percent from $29.6 billion, as sales evaporated in the fourth quarter of 2008 after Lehman’s failure froze credit markets.
IPO Revival
The drought lasted until September as an average of two U.S. companies a month went public, the slowest pace since at least 1995, according to data compiled by Bloomberg.
The IPO market then rebounded as companies took advantage of a 67 percent advance in the Standard & Poor’s 500 Index from its 12-year low in March. Thirty-two companies completed offerings since the start of September, equal to 68 percent of the 47 initial sales in 2009, Bloomberg data show.
Goldman Sachs, which became a bank holding company last year and took $10 billion in taxpayer bailout money, earned the most from underwriting U.S. IPOs in 2009, after getting shut out of the top three in the prior two years, Bloomberg data show. The firm’s fees rose 62 percent from $118.2 million last year.
The bank’s biggest payday came from managing Hyatt’s $1.09 billion offer last month, for which New York-based Goldman Sachs received about $56 million, data compiled by Bloomberg show.
Biggest Payday
The Pritzker family, which controls the Chicago-based hotelier, sold 38 million Class A shares at $25 each, while its underwriters bought an additional 5.7 million shares on behalf of their clients. Hyatt has advanced 20 percent since its IPO, almost three times the S&P 500’s gain over the same span.
Goldman Sachs also helped manage the sale of 63 million shares in Cobalt, the oil explorer with no revenue or profits that is also controlled by Washington-based Carlyle Group and three other private-equity funds.
Cobalt sold shares at $13.50 each this month after buyers rejected the Houston-based company’s offer of $15 to $17. The price represented a discount of as much as 21 percent.
Goldman Sachs earned $12.2 million from the IPO, while Cobalt’s shares have fallen 0.6 percent since the Dec. 15 sale.
By the total value of U.S. IPOs, Goldman Sachs also led all other lead underwriters. The most profitable securities firm in Wall Street history participated in 21.2 percent of the offerings, or about $3.48 billion, Bloomberg data show. Andrea Rachman, a spokeswoman at Goldman Sachs, declined to comment.
Citigroup’s Fall
Citigroup, which ranked among the top three fee earners from 2005 to 2008, made $68.3 million arranging initial sales, a drop of 52 percent from a year ago and less than half the amount that each of the top three underwriters earned in 2009.
The last of the four largest U.S. banks to raise money to exit a taxpayer bailout, Citigroup relinquished its position as the top underwriter for U.S. IPOs, a title it held in three of the past four years. The lender helped arrange $1.19 billion worth of initial offers, ranking sixth among banks. Citigroup fell out of the top five for the first time since 2004.
“The franchise is strong,” said John Chirico, Citigroup’s New York-based co-head of capital markets origination for the Americas. “We’re very bullish on 2010 from an IPO perspective.”
He declined to comment on why Citigroup’s share of IPOs shrank by more than half in 2009.
‘Voting With Their Fees’
Citigroup was a lead underwriter in the IPO of Glenview, Illinois-based Mead Johnson Nutrition Co., the maker of Enfamil infant formula, in February. The company raised $828 million selling shares at the $24 maximum price that it sought in the first U.S. initial offering of 2009. The stock has since added 85 percent, beating the 36 percent gain in the S&P 500.
Among the other IPOs that Citigroup helped arrange, three are trading below their offer prices, while five of the nine have underperformed the S&P 500 since their sales.
“When people look at underwriters, they look at the whole package,” said Michael Holland, chairman of Holland & Co., a New York-based investment firm that oversees more than $4 billion. “With Goldman, people have no problem whatsoever with their franchise. With Citi, they’ve faced some very challenging times, so which one do you go with? People are voting with their fees in this case.”
Bank of America Corp., the largest U.S. lender by assets, was second in both fees and market share, as it charged companies less on average than any other bank in the industry.
Biggest U.S. IPO
The company that agreed to acquire New York-based Merrill Lynch & Co. last year collected $158.2 million in fee income, data compiled by Bloomberg show. That equals about 5.28 percent of proceeds from IPOs for which the Charlotte, North Carolina- based lender was a lead underwriter.
Bank of America’s fees were depressed by its offering of Jersey City, New Jersey-based Verisk Analytics Inc. in the biggest U.S. IPO of 2009, according to Lisa Carnoy, the bank’s New York-based global head of equity capital markets.
Bank of America and Morgan Stanley each received $43.1 million after charging the supplier of actuarial data to insurers 4 percent to underwrite Verisk’s $2.16 billion IPO in October, the lowest percentage of any U.S. offering this year, data compiled by Bloomberg show.
Carnoy and JD Moriarty of Bank of America’s equity capital markets group, and William Egan, who runs corporate and investment banking for financial companies, led the bank’s team on the Verisk IPO. The stock has climbed 41 percent since the offering, beating the 6.9 percent gain in the S&P 500.
Private-Equity IPOs
Bank of America also helped arrange the largest number of U.S. initial sales this year, which gave the lender an 18.3 percent share of the value of all deals. That’s less than the combined total of 25.8 percent last year, when Bank of America and Merrill Lynch were counted separately, data compiled by Bloomberg show.
Among the 22 deals for which the bank served as a lead underwriter was New York-based Blackstone Group LP’s $160 million offering of Team Health Holdings Inc., which supplies doctors to hospitals and emergency rooms.
The Knoxville, Tennessee-based company, which was almost 90 percent owned by Stephen Schwarzman’s Blackstone, sold 13.3 million shares at $12 each this month after investors refused to pay the $14 to $16 originally sought, Bloomberg data show. Team Health has added 14 percent, while the S&P 500 rose 1.8 percent.
‘Loud and Clear’
“What investors told us loud and clear based on the pricing performance of these December deals was that the valuation concession they would need to establish a significant position in IPOs was wider than the collective capital markets and banking community thought,” said Bank of America’s Carnoy.
Morgan Stanley more than quadrupled the amount it made from underwriting IPOs to $156.1 million, the biggest increase from 2008 for a bank that took part in at least $1 billion in deals, Bloomberg data indicate. Morgan Stanley spokeswoman Alyson Barnes declined to comment.
JPMorgan Chase & Co., the second-largest U.S. bank, made $105.4 million charging the industry’s highest fees. The New York-based lender received 5.8 percent in fees from the $1.82 billion in IPOs that it helped underwrite, the highest percentage of those credited with $1 billion or more in IPOs.
The 17 companies that JPMorgan helped take public through IPOs have also posted the biggest stock-market gains. Their shares have advanced 26 percent since going public, the highest average among the top eight underwriters, Bloomberg data show.
IPO Performance
Three IPOs that JPMorgan helped underwrite are trading below the offer price. Joe Evangelisti, JPMorgan’s spokesman, didn’t immediately respond to e-mails seeking comment.
U.S. companies that paid Frankfurt-based Deutsche Bank AG $53.7 million in IPO fees this year have fared the worst. Six of eight are trading below their offer price, with the average company falling 4.1 percent since its IPO.
Omeros Corp., the Seattle-based biopharmaceutical company, has lost 28 percent of its stock-market value, the biggest decline among 47 U.S. IPOs this year. Deutsche Bank, Germany’s biggest bank, was the sole lead underwriter of the offering.
“It’s been a tougher market than we’ve seen in some time,” said Mark Hantho, Deutsche Bank’s New York-based global co-head of equity capital markets. “Finding a balance between the value at which a company goes public and also have it trade well in the after-market, that’s a tough balance.”
Based on the number of companies that have filed to raise money through IPOs and have yet to do so, Deutsche Bank ranks fifth with a 7.5 percent share, the bank’s own data showed.
“We’re poised to do better,” Hantho said. “We have a real shot” of rising in the rankings next year, he said.
Monday, December 28, 2009
Top 25 Direct Commercial Real Estate Lenders for 2009
TOP 25 DIRECT LENDERS
NREI Online
The following rankings were originally published in May. The rankings are based on responses to NREI's 18th annual Top Lender Survey questionnaire, and reflect total dollars financed or arranged in commercial real estate during the 2008 calendar year. Listings are presented in two parts. The first listing includes firms financing direct loans, credit lines, CMBS lending and other forms of direct investment to the industry. The second listing ranks financial intermediaries, including mortgage brokers and financial firms that arranged or facilitated transactions during 2007.
In instances where companies utilized their own balance sheet to close loans, or a line of credit to warehouse loans prior to securitization or sale in the secondary market, that volume was not considered production on an intermediary basis. For example, conduit lending and agency lending constituted direct lending for the purposes of this survey.
While NREI made every attempt to ensure the final survey was comprehensive, some companies chose not to participate.
1. Bank of America
Financed in 2008: $129.2 billion
Charlotte, NC 28255
Website: www.bankofamerica.com/commercialre
2. Wells Fargo
Financed in 2008: $31.4 billion
San Francisco, CA 94104
Website: www.wellsfargo.com/realestate
3. Wachovia
Financed in 2008: $13.4 billion
Charlotte, NC 28202
Website: www.wachovia.com
4. Deutsche Bank Commercial Real Estate
Financed in 2008: $11.3 billion
New York, NY 10005
Website: www.db.com/cre
5. PNC
Financed in 2008: $11 billion
Pittsburgh, PA 15222-2707
Website: www.pnc.com/realestate
6. Capmark Financial Group Inc.
Financed in 2008: $7.8 billion
Horsham, PA 19044
Website: www.capmark.com
7. KeyBank Real Estate Capital
Financed in 2008: $7.7 billion
Cleveland, OH 04114
Website: www.key.com/realestatecapital
8. Prudential Mortgage Capital Co.
Financed in 2008: $7.6 billion
Newark, NJ 07102
Website: www.prumortgagecapital.com
9. Natixis Real Estate Capital Inc.
Financed in 2008: $5.1 billion
New York, NY 10019
Website: www.re.natixis.com
10. CBRE Capital Markets
Financed in 2008: $3.1 billion
Houston, TX 77056
Website: www.cbre.com/capitalmarkets
11. Goldman, Sachs & Co.
Financed in 2008: $2.5 billion
New York, N.Y. 10004
Website: www.gs.com
12. TIAA-CREF
Financed in 2008: $2.4 billion
New York, NY 11762
Website: www.tiaa-cref.org
13. Northwestern Mutual
Financed in 2008: $2.1 billion
Milwaukee, WI 53202
Website: www.northwesternmutualrealestate.com
14. Grandbridge Real Estate Capital LLC
Financed in 2008: $2 billion
Charlotte, NC 28202
Website: www.gbrecap.com
15. Principal Real Estate Investors
Financed in 2008: $1.9 billion
Des Moines, Iowa 50392-0490
Website: www.principalglobal.com
16. M&T Realty Capital Corp.
Financed in 2008: $1.4 billion
Baltimore, MD 21201
Website: www.mandtrealtycapital.com
17. GE Healthcare Financial Services
Financed in 2008: $1.24 billion
Bethesda, Maryland 20814
Website: www.gehealthcarefinance.com
18. Walker & Dunlop
Financed in 2008: $1.22 billion
Bethesda, MD 20814
Website: www.walkerdunlop.com
19. The Royal Bank of Scotland (tie)
Financed in 2008: $1.2 billion
Stamford, CT 06901
Website: www.rbs.com
19. Corus Bank, N.A. (tie)
Financed in 2008: $1.2 billion
Chicago, IL 60613
Website: www.corusbank.com
21. Zions Bank National Real Estate
Financed in 2008: $900 million
Salt Lake City, UT 84111
Website: www.zionsbank.com
22. Hudson Realty Capital LLC
Financed in 2008: $836 million
New York, NY 10003
Website: www.hudsoncap.com
23. The Community Preservation Corp.
Financed in 2008: $606 million
New York, NY 10016
Website: www.communityp.com
24. Alliant Capital LLC
Financed in 2008: $433 million
Seattle, WA 98105
Website: www.alliantcapitalllc.com
25. Wrightwood Capital
Financed in 2008: $430 million
Chicago, IL 60602
Website: www.wrightwoodcapital.com
NREI Online
The following rankings were originally published in May. The rankings are based on responses to NREI's 18th annual Top Lender Survey questionnaire, and reflect total dollars financed or arranged in commercial real estate during the 2008 calendar year. Listings are presented in two parts. The first listing includes firms financing direct loans, credit lines, CMBS lending and other forms of direct investment to the industry. The second listing ranks financial intermediaries, including mortgage brokers and financial firms that arranged or facilitated transactions during 2007.
In instances where companies utilized their own balance sheet to close loans, or a line of credit to warehouse loans prior to securitization or sale in the secondary market, that volume was not considered production on an intermediary basis. For example, conduit lending and agency lending constituted direct lending for the purposes of this survey.
While NREI made every attempt to ensure the final survey was comprehensive, some companies chose not to participate.
1. Bank of America
Financed in 2008: $129.2 billion
Charlotte, NC 28255
Website: www.bankofamerica.com/commercialre
2. Wells Fargo
Financed in 2008: $31.4 billion
San Francisco, CA 94104
Website: www.wellsfargo.com/realestate
3. Wachovia
Financed in 2008: $13.4 billion
Charlotte, NC 28202
Website: www.wachovia.com
4. Deutsche Bank Commercial Real Estate
Financed in 2008: $11.3 billion
New York, NY 10005
Website: www.db.com/cre
5. PNC
Financed in 2008: $11 billion
Pittsburgh, PA 15222-2707
Website: www.pnc.com/realestate
6. Capmark Financial Group Inc.
Financed in 2008: $7.8 billion
Horsham, PA 19044
Website: www.capmark.com
7. KeyBank Real Estate Capital
Financed in 2008: $7.7 billion
Cleveland, OH 04114
Website: www.key.com/realestatecapital
8. Prudential Mortgage Capital Co.
Financed in 2008: $7.6 billion
Newark, NJ 07102
Website: www.prumortgagecapital.com
9. Natixis Real Estate Capital Inc.
Financed in 2008: $5.1 billion
New York, NY 10019
Website: www.re.natixis.com
10. CBRE Capital Markets
Financed in 2008: $3.1 billion
Houston, TX 77056
Website: www.cbre.com/capitalmarkets
11. Goldman, Sachs & Co.
Financed in 2008: $2.5 billion
New York, N.Y. 10004
Website: www.gs.com
12. TIAA-CREF
Financed in 2008: $2.4 billion
New York, NY 11762
Website: www.tiaa-cref.org
13. Northwestern Mutual
Financed in 2008: $2.1 billion
Milwaukee, WI 53202
Website: www.northwesternmutualrealestate.com
14. Grandbridge Real Estate Capital LLC
Financed in 2008: $2 billion
Charlotte, NC 28202
Website: www.gbrecap.com
15. Principal Real Estate Investors
Financed in 2008: $1.9 billion
Des Moines, Iowa 50392-0490
Website: www.principalglobal.com
16. M&T Realty Capital Corp.
Financed in 2008: $1.4 billion
Baltimore, MD 21201
Website: www.mandtrealtycapital.com
17. GE Healthcare Financial Services
Financed in 2008: $1.24 billion
Bethesda, Maryland 20814
Website: www.gehealthcarefinance.com
18. Walker & Dunlop
Financed in 2008: $1.22 billion
Bethesda, MD 20814
Website: www.walkerdunlop.com
19. The Royal Bank of Scotland (tie)
Financed in 2008: $1.2 billion
Stamford, CT 06901
Website: www.rbs.com
19. Corus Bank, N.A. (tie)
Financed in 2008: $1.2 billion
Chicago, IL 60613
Website: www.corusbank.com
21. Zions Bank National Real Estate
Financed in 2008: $900 million
Salt Lake City, UT 84111
Website: www.zionsbank.com
22. Hudson Realty Capital LLC
Financed in 2008: $836 million
New York, NY 10003
Website: www.hudsoncap.com
23. The Community Preservation Corp.
Financed in 2008: $606 million
New York, NY 10016
Website: www.communityp.com
24. Alliant Capital LLC
Financed in 2008: $433 million
Seattle, WA 98105
Website: www.alliantcapitalllc.com
25. Wrightwood Capital
Financed in 2008: $430 million
Chicago, IL 60602
Website: www.wrightwoodcapital.com
Is Occupancy Uptick a Trend or Aberration?
December 28, 2009
National Real Estate Investor
For the first time in more than two years the occupancy rate at independent living buildings is on the rise, boosting hopes that the downturn in seniors housing has subsided and that 2010 will prove profitable for owners and operators.
The average occupancy rate at independent living properties registered 88.5% in the third quarter, up slightly from 88.4% in the second quarter, according to the National Investment Center for the Seniors Housing & Care Industry (NIC) based in Annapolis, Md. “The big question is whether this is a temporary improvement, or whether a bottom is forming,” says Michael Hargrave, vice president of research at NIC.
The outlook for assisted living buildings also is improving. The third-quarter occupancy rate rose to 88.3% from 87.7% in the second quarter. Nursing home occupancy slipped slightly to 89.1% from 89.2% quarter over quarter.
Housing market rebounds
Several hopeful signs of improvement in the broader economy could mean higher occupancies for seniors housing in 2010, experts say. Home prices nationwide rose 3.1% in the third quarter, according to the S&P/Case-Shiller Home Price index.
Prices also rose 3.1% the second quarter, bolstering the idea that the residential real estate market may be stabilizing. That means more elderly persons will able to sell their homes and move to a seniors-only facility.
Also, the Dow Jones Industrial Average has risen about 60% since last March. “There's a real wealth effect," notes Beth Burnham Mace, director of research at AEW Capital Management, a Boston-based real estate investment manager. “It really affects people's attitude. Recouping that lost wealth is important for seniors housing."
Pent-up demand could also boost occupancy. Seniors have been putting off the decision to move, waiting for the housing market to turn around. But now those seniors who really need to be in assisted living are going to have to move, some observers say. In addition, seniors who were expecting the housing market to make a quick comeback are now more realistic about the value of their homes.
Not out of the woods
Continued high unemployment could undercut demand, however, say some industry experts. Adult children often contribute toward the cost of assisted living, but a job loss affects their ability to help out financially.
“When we see employment growth, that’s when we’ll see a stronger uptick in occupancy," says David Watkins, senior vice president at Heitman, a Chicago-based real estate advisory firm.
The question remains whether landlords will have any pricing power in 2010. Heading into the downturn, seniors housing rents were growing at about 4.2% annually, according to NIC, which tracks asking rents that do not include discounts.
In 2008, rent growth slowed to 3.4% per year. And so far this year, rent growth has continued to slow, hitting 1.8% in the third quarter. About 42% of all property managers are not planning to raise rents. With the expense side growing, “operators can’t pursue this strategy for long and still enjoy profitability,” says NIC’s Hargrave.
Modest rent growth will likely occur in 2010 and 2011, says Mace of AEW. Following that two-year period, she expects rent increases to return to the norm of 4% to 6% per year as the economy gains momentum and few new buildings open as development remains constrained.
More green shoots
A refinancing wave is likely as many 10-year loans will come due in 2010 and 2011, according to Carolyn Nazdin, head of healthcare originations in the eastern U.S. For KeyBank Real Estate Capital Markets. She expects owners to refinance in advance of loan maturity dates in order to lock in today's low rates. “Borrowers are willing to pay pre-payment penalties in order to reschedule their loans now,” she says.
Next year will be fairly healthy for the industry, predicts Arnie Whitman, CEO at Formation Capital, an investment firm with $3 billion in assets. Formation's development arm recently opened a new property near Houston, the Solana at Cinco Ranch. The rental building includes 126 independent living and 32 assisted living units. Rents average about $3,600 a month.
The company has five other projects planned. “We are contrarians,” explains Whitman. Formation decided to build while other firms abandoned plans for new projects. “If you shut down development, the lag time to get started again is huge,” he notes.
But the cost of capital in 2011 and 2012 worries Whitman. While debt financing will become more widely available, he thinks interest rates could rise significantly. At the same time, he doesn’t expect owners and operators to have much pricing power because consumers have undergone an attitude shift and will remain wary of spending.
“If inflation gets momentum, we could be in trouble,” warns Whitman. “Businesses can only support a certain cost of operations before it affects the ability to be profitable.”
Agency Lending Gives Borrowers a Much-Needed Boost
December 26, 2009
National Real Estate Investor
Fannie Mae and Freddie Mac continue to be the dominant providers of debt financing in the seniors housing industry, as evidenced by several deals that have closed in the waning days of 2009.
Ventas Inc. (NYSE: VTR), a large healthcare real estate investment trust, was able to refinance a 220-unit seniors housing community in Framingham, Mass., thanks to a $40.5 million commercial mortgage provided by Fannie Mae. KeyBank Real Estate Capital arranged the financing.
“This was a challenging transaction with lots of moving parts, undertaken at an uncertain time in the financial sector, says Richard Schweinhart, executive vice president and CFO of Chicago-based Ventas.
The share price of the giant REIT closed at $43.18 on Tuesday, Dec. 22, up from $28.95 a year ago. The company’s portfolio of properties includes seniors housing communities, skilled nursing facilities, hospitals and medical office buildings.
According to the American Seniors Housing Association, Ventas ranked as the sixth largest owner of seniors housing in the U.S. with 243 properties and 23,204 units in its portfolio as of July 1, 2009.
Freddie Mac also has been busy on the seniors housing financing front. The government-sponsored agency recently provided $12.3 million in financing for Seattle-based Emeritus Senior Living (NYSE: ESC).
Arranged by KeyBank, the funding will be used by Emeritus to refinance three seniors housing facilities, two in Texas and one in Oregon. Approximately $6.4 million will be used to refinance Emeritus at Saddleridge Lodge, an 80-unit seniors housing property built in 1997 in Midland, Texas.
Another $3.7 million will be used to refinance Meadowbrook Assisted Living Community, a 55-unit seniors housing property built in 1986 in Ontario, Ore.
The final $2.1 million of the loan will be used to refinance Emeritus at Seville Estates, a 45-unit assisted living and memory care senior housing facility built in 1996 in Amarillo, Texas. During the last two years, KeyBank has closed more than 30 agency-backed commercial mortgage transactions for Emeritus.
Emeritus has used the financing, totaling more than $229 million, to acquire new properties and to refinance debt on seniors housing properties across the country.
The stock price for Emeritus Corp. closed at $17.57 on Dec. 22, up from $9.90 a year ago.
National Real Estate Investor
Fannie Mae and Freddie Mac continue to be the dominant providers of debt financing in the seniors housing industry, as evidenced by several deals that have closed in the waning days of 2009.
Ventas Inc. (NYSE: VTR), a large healthcare real estate investment trust, was able to refinance a 220-unit seniors housing community in Framingham, Mass., thanks to a $40.5 million commercial mortgage provided by Fannie Mae. KeyBank Real Estate Capital arranged the financing.
“This was a challenging transaction with lots of moving parts, undertaken at an uncertain time in the financial sector, says Richard Schweinhart, executive vice president and CFO of Chicago-based Ventas.
The share price of the giant REIT closed at $43.18 on Tuesday, Dec. 22, up from $28.95 a year ago. The company’s portfolio of properties includes seniors housing communities, skilled nursing facilities, hospitals and medical office buildings.
According to the American Seniors Housing Association, Ventas ranked as the sixth largest owner of seniors housing in the U.S. with 243 properties and 23,204 units in its portfolio as of July 1, 2009.
Freddie Mac also has been busy on the seniors housing financing front. The government-sponsored agency recently provided $12.3 million in financing for Seattle-based Emeritus Senior Living (NYSE: ESC).
Arranged by KeyBank, the funding will be used by Emeritus to refinance three seniors housing facilities, two in Texas and one in Oregon. Approximately $6.4 million will be used to refinance Emeritus at Saddleridge Lodge, an 80-unit seniors housing property built in 1997 in Midland, Texas.
Another $3.7 million will be used to refinance Meadowbrook Assisted Living Community, a 55-unit seniors housing property built in 1986 in Ontario, Ore.
The final $2.1 million of the loan will be used to refinance Emeritus at Seville Estates, a 45-unit assisted living and memory care senior housing facility built in 1996 in Amarillo, Texas. During the last two years, KeyBank has closed more than 30 agency-backed commercial mortgage transactions for Emeritus.
Emeritus has used the financing, totaling more than $229 million, to acquire new properties and to refinance debt on seniors housing properties across the country.
The stock price for Emeritus Corp. closed at $17.57 on Dec. 22, up from $9.90 a year ago.
Fortune - 100 Best Companies to work for in 2009
1 NetApp
2 Edward Jones
3 Boston Consulting Group 10% 1,680
4 Google
5 Wegmans Food Markets
6 Cisco Systems
7 Genentech
8 Methodist Hospital System
9 Goldman Sachs
10 Nugget Market
11 Adobe Systems
12 Recreational Equipment (REI)
13 Devon Energy
14 Robert W. Baird
15 W. L. Gore & Associates
16 Qualcomm
17 Principal Financial Group
18 Shared Technologies
19 OhioHealth
20 SAS
21 Arnold & Porter
22 Whole Foods Market
23 Zappos.com
24 Starbucks
25 Johnson Financial Group
26 Aflac
27 QuikTrip
28 PCL Construction Enterprises
29 Quicken Loans
30 Bingham McCutchen
31 CarMax
32 Container Store
33 JM Family Enterprises
34 Umpqua Bank
35 Kimley-Horn & Associates
36 Alston & Bird
37 TDIndustries
38 Microsoft
39 Paychex
40 EOG Resources
41 Camden Property Trust
42 Plante & Moran
43 Rackspace Hosting
44 NuStar Energy
45 King's Daughters Medical Cntr.
46 American Fidelity Assurance
47 DreamWorks Animation SKG
48 Mattel N.A.
49 Intuit
50 Burns & McDonnell
51 Ernst & Young
52 Booz Allen Hamilton
53 Stew Leonard's
54 Erickson Retirement Communities
55 Salesforce.com
56 KPMG
57 Novo Nordisk
58 PricewaterhouseCoopers
59 Scripps Health
60 Scottrade
61 Deloitte
62 Griffin Hospital
63 Mayo Clinic
64 Milliken
65 Texas Instruments
66 MITRE
67 Children's Healthcare of Atlanta
68 Southern Ohio Medical Center
69 National Instruments
70 Stanley
71 Men's Wearhouse
72 Nordstrom
73 Chesapeake Energy
74 Alcon Laboratories
75 Atlantic Health
76 Lehigh Valley Hospital & Health Network
77 Northwest Community Hospital
78 Marriott International
79 Baptist Health South Florida
80 Bright Horizons
81 S.C. Johnson & Son
82 Perkins Coie
83 eBay
84 Juniper Networks
85 Arkansas Children's Hospital
86 CH2M HILL
87 Orrick Herrington & Sutcliffe
88 Publix Super Markets
89 Herman Miller
90 FedEx
91 Gilbane
92 Four Seasons Hotels
93 Valero Energy
94 Build-A-Bear Workshop
95 Kimpton Hotels & Restaurants
96 T-Mobile
97 Accenture
98 Vanderbilt University
99 General Mills
100 SRA International
2 Edward Jones
3 Boston Consulting Group 10% 1,680
4 Google
5 Wegmans Food Markets
6 Cisco Systems
7 Genentech
8 Methodist Hospital System
9 Goldman Sachs
10 Nugget Market
11 Adobe Systems
12 Recreational Equipment (REI)
13 Devon Energy
14 Robert W. Baird
15 W. L. Gore & Associates
16 Qualcomm
17 Principal Financial Group
18 Shared Technologies
19 OhioHealth
20 SAS
21 Arnold & Porter
22 Whole Foods Market
23 Zappos.com
24 Starbucks
25 Johnson Financial Group
26 Aflac
27 QuikTrip
28 PCL Construction Enterprises
29 Quicken Loans
30 Bingham McCutchen
31 CarMax
32 Container Store
33 JM Family Enterprises
34 Umpqua Bank
35 Kimley-Horn & Associates
36 Alston & Bird
37 TDIndustries
38 Microsoft
39 Paychex
40 EOG Resources
41 Camden Property Trust
42 Plante & Moran
43 Rackspace Hosting
44 NuStar Energy
45 King's Daughters Medical Cntr.
46 American Fidelity Assurance
47 DreamWorks Animation SKG
48 Mattel N.A.
49 Intuit
50 Burns & McDonnell
51 Ernst & Young
52 Booz Allen Hamilton
53 Stew Leonard's
54 Erickson Retirement Communities
55 Salesforce.com
56 KPMG
57 Novo Nordisk
58 PricewaterhouseCoopers
59 Scripps Health
60 Scottrade
61 Deloitte
62 Griffin Hospital
63 Mayo Clinic
64 Milliken
65 Texas Instruments
66 MITRE
67 Children's Healthcare of Atlanta
68 Southern Ohio Medical Center
69 National Instruments
70 Stanley
71 Men's Wearhouse
72 Nordstrom
73 Chesapeake Energy
74 Alcon Laboratories
75 Atlantic Health
76 Lehigh Valley Hospital & Health Network
77 Northwest Community Hospital
78 Marriott International
79 Baptist Health South Florida
80 Bright Horizons
81 S.C. Johnson & Son
82 Perkins Coie
83 eBay
84 Juniper Networks
85 Arkansas Children's Hospital
86 CH2M HILL
87 Orrick Herrington & Sutcliffe
88 Publix Super Markets
89 Herman Miller
90 FedEx
91 Gilbane
92 Four Seasons Hotels
93 Valero Energy
94 Build-A-Bear Workshop
95 Kimpton Hotels & Restaurants
96 T-Mobile
97 Accenture
98 Vanderbilt University
99 General Mills
100 SRA International
Let us praise the venture capitalists
Posted by Adam Lashinsky, Senior Editor at Large
December 22, 2009 6:00 AM
Fortune Magazine
I had a small, Twitter-hosted dustup recently with Trevor Loy, a pleasant fellow who, when he is not Twittering, brings truth and justice to the world via the agency of venture capital. Loy was hot and bothered over some turn of events in Congress having to do with immigration policy. Many entrepreneurs are immigrants, you see. And because venture capital equals entrepreneurialism, the proposed congressional action might harm VCs, which, in turn, would grievously harm the U.S. economy. This, Loy, explained, is because fully 21% of the U.S. economy is attributed to revenue earned by "venture-backed" companies.
Where, I wondered, did this startlingly encouraging statistic come from? Loy was kind enough to supply me the link to a report paid for by the National Venture Capital Association. Thank goodness for the hard work the NVCA does to help us understand the good VCs spread throughout the land. NVCA President Mark Heesen, a savvy Washington hand I've been privileged to chat with over the years, prefaced the report with a few nice words about the industry that employs him. "The data," he wrote, "continues to confirm that venture capital matters deeply, not only to our economy but to everyday lives of Americans, who use venture-backed innovations, work at venture-backed companies and dare to bring new ideas to the market."
Do you feel as warm and tingly as I do after reading that?
But about that 21% figure. The data the NVCA bought basically is arguing that "venture-backed" companies power about a fifth of the economy. What's a venture-backed company? Examples include Intel (INTC), Microsoft (MSFT) and FedEx (FDX). Never mind that these companies haven't received a dime of venture money in decades. They have big revenues, and only a simpleton wouldn't be able to see that if some kindly venture capitalist hadn't been around to fund, guide, and help promote feeble souls like Bob Noyce, Bill Gates, and Fred Smith, why, the U.S. might not be the powerhouse that it is today.
There's a purpose to all of this, of course. Washington, from time to time, tries moving the goal post on venture capitalists, asking them, for instance, to pay taxes on their income the same way schoolteachers and nurses do. VCs prefer to pay taxes at the lower rates afforded to investors who risk their savings on their investments. These kinds of investors include the pension funds managing the retirement accounts for schoolteachers and nurses. But I digress. Should the VCs be forced into a higher tax bracket, the economy most assuredly would suffer. From deep in the report:
Tax differentials, such as favorable rates for capital gains and carried interest, serve as important tools for encouraging investment in emerging growth companies. In our current financial system, venture capital is the only source of long-term, institutional funding for such companies. When government increases the tax burden on venture capital, however, it inhibits the flow of dollars to innovative young start-ups.
In other words, should Congress ever change the tax treatment of VC income, or any other policy that governs how VCs get their important work done, it's not a bunch of second-career MBAs in gorgeous offices who'll be affected. No, it's "innovative young start-ups" that'll bear the brunt.
Now, more than ever, what this country really needs is a vibrant venture industry that can get about its business of company creation and stellar returns for its investors without a bunch of barriers thrown in its way by Washington.
December 22, 2009 6:00 AM
Fortune Magazine
I had a small, Twitter-hosted dustup recently with Trevor Loy, a pleasant fellow who, when he is not Twittering, brings truth and justice to the world via the agency of venture capital. Loy was hot and bothered over some turn of events in Congress having to do with immigration policy. Many entrepreneurs are immigrants, you see. And because venture capital equals entrepreneurialism, the proposed congressional action might harm VCs, which, in turn, would grievously harm the U.S. economy. This, Loy, explained, is because fully 21% of the U.S. economy is attributed to revenue earned by "venture-backed" companies.
Where, I wondered, did this startlingly encouraging statistic come from? Loy was kind enough to supply me the link to a report paid for by the National Venture Capital Association. Thank goodness for the hard work the NVCA does to help us understand the good VCs spread throughout the land. NVCA President Mark Heesen, a savvy Washington hand I've been privileged to chat with over the years, prefaced the report with a few nice words about the industry that employs him. "The data," he wrote, "continues to confirm that venture capital matters deeply, not only to our economy but to everyday lives of Americans, who use venture-backed innovations, work at venture-backed companies and dare to bring new ideas to the market."
Do you feel as warm and tingly as I do after reading that?
But about that 21% figure. The data the NVCA bought basically is arguing that "venture-backed" companies power about a fifth of the economy. What's a venture-backed company? Examples include Intel (INTC), Microsoft (MSFT) and FedEx (FDX). Never mind that these companies haven't received a dime of venture money in decades. They have big revenues, and only a simpleton wouldn't be able to see that if some kindly venture capitalist hadn't been around to fund, guide, and help promote feeble souls like Bob Noyce, Bill Gates, and Fred Smith, why, the U.S. might not be the powerhouse that it is today.
There's a purpose to all of this, of course. Washington, from time to time, tries moving the goal post on venture capitalists, asking them, for instance, to pay taxes on their income the same way schoolteachers and nurses do. VCs prefer to pay taxes at the lower rates afforded to investors who risk their savings on their investments. These kinds of investors include the pension funds managing the retirement accounts for schoolteachers and nurses. But I digress. Should the VCs be forced into a higher tax bracket, the economy most assuredly would suffer. From deep in the report:
Tax differentials, such as favorable rates for capital gains and carried interest, serve as important tools for encouraging investment in emerging growth companies. In our current financial system, venture capital is the only source of long-term, institutional funding for such companies. When government increases the tax burden on venture capital, however, it inhibits the flow of dollars to innovative young start-ups.
In other words, should Congress ever change the tax treatment of VC income, or any other policy that governs how VCs get their important work done, it's not a bunch of second-career MBAs in gorgeous offices who'll be affected. No, it's "innovative young start-ups" that'll bear the brunt.
Now, more than ever, what this country really needs is a vibrant venture industry that can get about its business of company creation and stellar returns for its investors without a bunch of barriers thrown in its way by Washington.
Small banks, big problems
By Colin Barr, senior writerDecember 23, 2009: 9:36 AM ET
NEW YORK (Fortune) -- The New Year is shaping up to be a rough one for community lenders.
Dozens if not hundreds of small banks figure to disappear in 2010, as a weak economy and regulatory pressure lead to more failures and mergers.
President Obama met Tuesday with eight community bank executives, including the chiefs of German American Bancorp (GABC) and Monadnock Bancorp. Obama hailed the bankers as playing a "vital function," and cited "enormous opportunities" for economic growth if they keep lending.
The community bankers surely made for a more receptive audience than the big-bank CEOs Obama addressed last week. Small-business lending, after all, is what smaller banks do best. The Independent Community Bankers of America trade group notes that community banks account for almost a third of small business loans under $1 million.
But the smallest banks have been dropping like flies for years, as they labor to master expensive new technologies and regulatory changes -- at a time when giant banks spawned in a rash of megamergers are expanding their reach.
The consolidation trend should only strengthen in the coming year. Dozens of banks will fail as their customers retrench in a weak economy. Meanwhile, regulators will keep pressuring bankers to lend cautiously -- prompting weaker banks to merge into stronger ones as growth remains elusive.
"A lot of the regional and community banks are going to struggle to remain independent," said Terry Moore, a managing director at Accenture. "We're going to see those numbers shrinking."
They have shrunk a lot already. The number of commercial banks with assets of $50 million or less has dropped by more than 3,600 since 1994, to 1,198, according to recent Federal Deposit Insurance Corp. data.
At the same time, the deposits held by the biggest banks have soared, following years of megamergers punctuated by last year's bailouts. The five biggest banks -- Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citi and PNC (PNC, Fortune 500) -- held 37% of all deposits at June 30. That's triple the top five's share 15 years ago, according to the FDIC.
Questions about concentration at the top of the industry have been intensified by a steady drumbeat of small bank failures. This year has brought 140 bank failures, and nearly four times as many institutions are now classified by regulators as troubled -- meaning failures in 2010 are likely to reach into triple digits again.
Given those daunting numbers, the FDIC appears to be focusing on closing weak banks rather than luring in new capital from the likes of private equity investors.
Yet at the same time, even troubled megabanks such as Citi have been able to raise staggering sums in the marketplace, in part because it has become clear the government won't let them fail. This apparent disconnect chafes some observers who say private investors could be helping to rebuild small banks.
"What Citi tells you is there are enormous pools of capital willing to take risk, given the right circumstances," said Hal Reichwald, a lawyer at Manatt Phelps & Phillips in Los Angeles who represents investors.
With tens of billions of dollars of souring construction and commercial real estate loans on their books, regional and community banks could use some of that capital. But the weak economy and the wave of bank failures have made it hard for smaller banks to raise new funds.
Of course, economic stress spells opportunity for stronger community banks. Ted Peters, CEO of Bryn Mawr Bank Corp. (BMTC) in suburban Philadelphia, said he sees the wide-open merger landscape in financial services as "a once-in-a-career opportunity" for him and his $1.2 billion firm.
Bryn Mawr agreed last month to acquire First Keystone Financial, a Media, Pa., savings bank, and Peters said he's considering possible tie-ups with investment firms and other financial institutions.
Peters said the fact that community banks didn't help blow up the economy with derivatives has resonated with lawmakers and now creates another selling point with customers.
"Right now, the big banks are being portrayed as the bad guys and the other 8,100 banks are being seen as the good guys," he said.
He expects this perception to enable his bank to continue to grab market share over the next year. But he isn't expecting any miracles.
For instance, Obama pledged Tuesday, in response to complaints from the Independent Community Bankers of America about heavy-handed regulation, to "see if there are possibilities to cut some of the red tape."
But Peters remains skeptical. "I've been a bank president for 25 years, and I'm still waiting for them to cut red tape for the first time," he said.
NEW YORK (Fortune) -- The New Year is shaping up to be a rough one for community lenders.
Dozens if not hundreds of small banks figure to disappear in 2010, as a weak economy and regulatory pressure lead to more failures and mergers.
President Obama met Tuesday with eight community bank executives, including the chiefs of German American Bancorp (GABC) and Monadnock Bancorp. Obama hailed the bankers as playing a "vital function," and cited "enormous opportunities" for economic growth if they keep lending.
The community bankers surely made for a more receptive audience than the big-bank CEOs Obama addressed last week. Small-business lending, after all, is what smaller banks do best. The Independent Community Bankers of America trade group notes that community banks account for almost a third of small business loans under $1 million.
But the smallest banks have been dropping like flies for years, as they labor to master expensive new technologies and regulatory changes -- at a time when giant banks spawned in a rash of megamergers are expanding their reach.
The consolidation trend should only strengthen in the coming year. Dozens of banks will fail as their customers retrench in a weak economy. Meanwhile, regulators will keep pressuring bankers to lend cautiously -- prompting weaker banks to merge into stronger ones as growth remains elusive.
"A lot of the regional and community banks are going to struggle to remain independent," said Terry Moore, a managing director at Accenture. "We're going to see those numbers shrinking."
They have shrunk a lot already. The number of commercial banks with assets of $50 million or less has dropped by more than 3,600 since 1994, to 1,198, according to recent Federal Deposit Insurance Corp. data.
At the same time, the deposits held by the biggest banks have soared, following years of megamergers punctuated by last year's bailouts. The five biggest banks -- Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citi and PNC (PNC, Fortune 500) -- held 37% of all deposits at June 30. That's triple the top five's share 15 years ago, according to the FDIC.
Questions about concentration at the top of the industry have been intensified by a steady drumbeat of small bank failures. This year has brought 140 bank failures, and nearly four times as many institutions are now classified by regulators as troubled -- meaning failures in 2010 are likely to reach into triple digits again.
Given those daunting numbers, the FDIC appears to be focusing on closing weak banks rather than luring in new capital from the likes of private equity investors.
Yet at the same time, even troubled megabanks such as Citi have been able to raise staggering sums in the marketplace, in part because it has become clear the government won't let them fail. This apparent disconnect chafes some observers who say private investors could be helping to rebuild small banks.
"What Citi tells you is there are enormous pools of capital willing to take risk, given the right circumstances," said Hal Reichwald, a lawyer at Manatt Phelps & Phillips in Los Angeles who represents investors.
With tens of billions of dollars of souring construction and commercial real estate loans on their books, regional and community banks could use some of that capital. But the weak economy and the wave of bank failures have made it hard for smaller banks to raise new funds.
Of course, economic stress spells opportunity for stronger community banks. Ted Peters, CEO of Bryn Mawr Bank Corp. (BMTC) in suburban Philadelphia, said he sees the wide-open merger landscape in financial services as "a once-in-a-career opportunity" for him and his $1.2 billion firm.
Bryn Mawr agreed last month to acquire First Keystone Financial, a Media, Pa., savings bank, and Peters said he's considering possible tie-ups with investment firms and other financial institutions.
Peters said the fact that community banks didn't help blow up the economy with derivatives has resonated with lawmakers and now creates another selling point with customers.
"Right now, the big banks are being portrayed as the bad guys and the other 8,100 banks are being seen as the good guys," he said.
He expects this perception to enable his bank to continue to grab market share over the next year. But he isn't expecting any miracles.
For instance, Obama pledged Tuesday, in response to complaints from the Independent Community Bankers of America about heavy-handed regulation, to "see if there are possibilities to cut some of the red tape."
But Peters remains skeptical. "I've been a bank president for 25 years, and I'm still waiting for them to cut red tape for the first time," he said.
Big paydays for Fannie and Freddie bosses
NEW YORK (CNNMoney.com) -- Top executives at mortgage finance giants Fannie Mae and Freddie Mac, both of which have been under government control since last year, received millions of dollars in pay in 2009, according to documents filed by the companies Thursday.
The chief executive officers of each company got annual pay packages worth $6 million apiece, while other top execs pulled in at least $2 million.
Fannie Mae (FNM, Fortune 500) CEO Michael Williams, who was promoted to CEO on April 21, will receive about $4.2 million in base salary and deferred cash payments for his time in the top job. The filing does not detail how much he was paid for his time as chief operating officer before his promotion, or what he will earn in 2010.
David Johnson, the chief financial officer and No. 2 at the company, was paid at a $3.5 million annual rate. The annual pay rate of five other top Fannie executives topped $2 million apiece.
In addition, Williams and three other top executives are eligible to receive payments pursuant to a 2008 retention program, according to the filing.
At Freddie (FRE, Fortune 500), its slightly smaller rival, CEO Charles Haldeman will receive about half his $6 million package in 2009 since he was named to the top spot on July 21.
Haldeman, former chairman of Putnam Investment Management, is due to receive $6 million in 2010.
Bruce Witherell, Freddie's chief operating officer and No. 2 at the company, was paid at a $4.5 million annual rate and is due to get that amount in 2010, while Ross Kari, the chief financial officer, was paid at a $3.5 million annual rate this year and is also due the same next year. Both joined the company since September so they will get only a fraction of that money this year.
The executives' pay packages were approved by both the Federal Housing Finance Agency, the regulator that oversees their operations, as well as the Treasury Department, according to the filings.
The statements were released just after Congress had adjourned for the holiday recess, which limited the amount of criticism the packages might spark.
One expert said it is important that both firms retain good executives in order to come up with ways to fulfill the government's demands to support the housing market while minimizing the ongoing losses.
"It's a difficult environment for both firms. They've had a hard time keeping people at both places," said Edward Pinto, a financial services industry consultant who was chief credit officer at Fannie back in the 1980s. "Having said that, the government gets a lot of people to work at Housing and Urban Development for a lot less than that."
Both firms have gotten huge bailouts from Treasury to help cover their losses since they were taken over by the government, with Fannie having drawn down $60.9 billion and Freddie having drawn $50.7 billion. Both firms had $200 billion credit lines with Treasury. On Thursday, Treasury announced that it would remove the cap for the next three years.
Treasury spokespeople were not available for comment Thursday. And neither Fannie nor Freddie had any statement beyond their filings with the Securities and Exchange Commission.
The chief executive officers of each company got annual pay packages worth $6 million apiece, while other top execs pulled in at least $2 million.
Fannie Mae (FNM, Fortune 500) CEO Michael Williams, who was promoted to CEO on April 21, will receive about $4.2 million in base salary and deferred cash payments for his time in the top job. The filing does not detail how much he was paid for his time as chief operating officer before his promotion, or what he will earn in 2010.
David Johnson, the chief financial officer and No. 2 at the company, was paid at a $3.5 million annual rate. The annual pay rate of five other top Fannie executives topped $2 million apiece.
In addition, Williams and three other top executives are eligible to receive payments pursuant to a 2008 retention program, according to the filing.
At Freddie (FRE, Fortune 500), its slightly smaller rival, CEO Charles Haldeman will receive about half his $6 million package in 2009 since he was named to the top spot on July 21.
Haldeman, former chairman of Putnam Investment Management, is due to receive $6 million in 2010.
Bruce Witherell, Freddie's chief operating officer and No. 2 at the company, was paid at a $4.5 million annual rate and is due to get that amount in 2010, while Ross Kari, the chief financial officer, was paid at a $3.5 million annual rate this year and is also due the same next year. Both joined the company since September so they will get only a fraction of that money this year.
The executives' pay packages were approved by both the Federal Housing Finance Agency, the regulator that oversees their operations, as well as the Treasury Department, according to the filings.
The statements were released just after Congress had adjourned for the holiday recess, which limited the amount of criticism the packages might spark.
One expert said it is important that both firms retain good executives in order to come up with ways to fulfill the government's demands to support the housing market while minimizing the ongoing losses.
"It's a difficult environment for both firms. They've had a hard time keeping people at both places," said Edward Pinto, a financial services industry consultant who was chief credit officer at Fannie back in the 1980s. "Having said that, the government gets a lot of people to work at Housing and Urban Development for a lot less than that."
Both firms have gotten huge bailouts from Treasury to help cover their losses since they were taken over by the government, with Fannie having drawn down $60.9 billion and Freddie having drawn $50.7 billion. Both firms had $200 billion credit lines with Treasury. On Thursday, Treasury announced that it would remove the cap for the next three years.
Treasury spokespeople were not available for comment Thursday. And neither Fannie nor Freddie had any statement beyond their filings with the Securities and Exchange Commission.
Monday, December 21, 2009
Mortgage Bankers Oppose SEC Proposal on Disclosure of Preliminary Ratings
December 21, 2009
National Real Estate Investor
The Mortgage Bankers Association has notified the Securities and Exchange Commission (SEC) of its opposition to a proposed rule requiring the disclosure of preliminary ratings of securities. The rule could potentially affect many investors in commercial real estate securities.
The Washington, D.C.-based bankers group contends that disclosing preliminary ratings of commercial mortgage-backed securities (CMBS) carries the risk of providing misleading information to investors in commercial real estate.
The SEC is considering a number of steps to make the process of rating securities more transparent in order to protect investors. The proposed rule is intended to curb the practice of “ratings shopping,” which involves soliciting a number of rating agencies for a preliminary rating and choosing an agency based on the early rating that is most favorable.
The mortgage bankers group says that the composition of a group of loans can change substantially after it is initially rated, before the final selection of loans is made, so that the early rating often is no longer relevant for the resulting security.
“In the case of CMBS, the pool of properties comprising the securitization can change significantly from the initial pool that received the preliminary rating,” John Courson, president and CEO of the Mortgage Bankers Association told SEC Secretary Elizabeth Murphy. Therefore, disclosure of the preliminary rating information for a loan pool is unlikely to accurately reflect the final pool of loans that were securitized, Courson said.
“What this rule requires is that the preliminary rating be disclosed. On paper, it doesn’t sound like a bad idea but once you understand how a commercial mortgage-backed security works, it’s really not a good idea,” says George Green, associate vice president of MBA.
For example, if 100 loans are contributed to a pool and packaged into a commercial mortgage-backed security, the loans are stratified by rating and different investors buy different portions of the pool, says Green. Some tranches of the security may be rated AAA while others are rated BBB.
The investor who buys sub-investment grade tranches, below a B rating, can pick and choose and eliminate some loans from the original pool, which affects the final rating.
In addition, an initial rating can be very cursory, says Green. After rating examiners conduct due diligence and investigate the quality of the bundled loans, the final rating can also change.
The proposal to require disclosure of preliminary ratings of securities would amend statements filed under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940. After devastating losses throughout the CMBS and other securities markets over the past two years, the SEC is trying to assure that investors are properly informed before making investment decisions.
The agency called for comment on the proposed rule change, and now that the comment period is closed it will study the responses for several weeks or months before making a final determination on whether to require the disclosure of preliminary ratings.
In general, the mortgage bankers group supports transparency in the ratings process, says Green.
One way potential investors can learn more about CMBS is to weigh both solicited and independent ratings.
An emerging group of ratings agencies conduct unsolicited or independent ratings of securities. The agencies are not paid in the traditional way, by the issuer of the security, but by subscribers to the agencies’ services. The independent ratings have become increasingly popular.
“Really they are providing a second opinion of the issuer-provided ratings,” says Green. “They can then be compared to the ratings that were performed by the issuer-commissioned ratings. We see that as the way to resolve the problem.”
National Real Estate Investor
The Mortgage Bankers Association has notified the Securities and Exchange Commission (SEC) of its opposition to a proposed rule requiring the disclosure of preliminary ratings of securities. The rule could potentially affect many investors in commercial real estate securities.
The Washington, D.C.-based bankers group contends that disclosing preliminary ratings of commercial mortgage-backed securities (CMBS) carries the risk of providing misleading information to investors in commercial real estate.
The SEC is considering a number of steps to make the process of rating securities more transparent in order to protect investors. The proposed rule is intended to curb the practice of “ratings shopping,” which involves soliciting a number of rating agencies for a preliminary rating and choosing an agency based on the early rating that is most favorable.
The mortgage bankers group says that the composition of a group of loans can change substantially after it is initially rated, before the final selection of loans is made, so that the early rating often is no longer relevant for the resulting security.
“In the case of CMBS, the pool of properties comprising the securitization can change significantly from the initial pool that received the preliminary rating,” John Courson, president and CEO of the Mortgage Bankers Association told SEC Secretary Elizabeth Murphy. Therefore, disclosure of the preliminary rating information for a loan pool is unlikely to accurately reflect the final pool of loans that were securitized, Courson said.
“What this rule requires is that the preliminary rating be disclosed. On paper, it doesn’t sound like a bad idea but once you understand how a commercial mortgage-backed security works, it’s really not a good idea,” says George Green, associate vice president of MBA.
For example, if 100 loans are contributed to a pool and packaged into a commercial mortgage-backed security, the loans are stratified by rating and different investors buy different portions of the pool, says Green. Some tranches of the security may be rated AAA while others are rated BBB.
The investor who buys sub-investment grade tranches, below a B rating, can pick and choose and eliminate some loans from the original pool, which affects the final rating.
In addition, an initial rating can be very cursory, says Green. After rating examiners conduct due diligence and investigate the quality of the bundled loans, the final rating can also change.
The proposal to require disclosure of preliminary ratings of securities would amend statements filed under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940. After devastating losses throughout the CMBS and other securities markets over the past two years, the SEC is trying to assure that investors are properly informed before making investment decisions.
The agency called for comment on the proposed rule change, and now that the comment period is closed it will study the responses for several weeks or months before making a final determination on whether to require the disclosure of preliminary ratings.
In general, the mortgage bankers group supports transparency in the ratings process, says Green.
One way potential investors can learn more about CMBS is to weigh both solicited and independent ratings.
An emerging group of ratings agencies conduct unsolicited or independent ratings of securities. The agencies are not paid in the traditional way, by the issuer of the security, but by subscribers to the agencies’ services. The independent ratings have become increasingly popular.
“Really they are providing a second opinion of the issuer-provided ratings,” says Green. “They can then be compared to the ratings that were performed by the issuer-commissioned ratings. We see that as the way to resolve the problem.”
Hotel Deal Volume Forecast to Rise Up to 40% Globally in 2010
December 21, 2009
National Real Estate Investor
For the first time in two years, hotel transactions may finally be on the upswing. In a new report, Jones Lang LaSalle Hotels forecasts that global hotel transaction volume will increase next year by 20% to 40%.
The brokerage and real estate services firm projects that transaction levels could reach $11 billion to $13 billion in 2010, up from an estimated $9 billion worth of deals in 2009.
Asian investors are expected to play a key role in the investment surge, as they scout for buying opportunities in the United States and Europe.
Across the world, the trading of single hotel assets will initiate the recovery, said Arthur de Haast, global CEO of Jones Lang LaSalle Hotels. “Entrepreneurial transactions that can be financed regionally or locally will be the first to re-enter the market.”
The projection is encouraging after the anemic showing of 2009. For the year, projected deal volume is down 64% from 2008, when $24.8 billion in hotel transactions were recorded. In its 2010 investment outlook, Jones Lang LaSalle said transactions were expected to rise after hitting the lowest level in a decade.
Single asset deals will be particularly attractive to investors shying away from big portfolio buys, according to de Haast. “Equity-rich opportunistic buyers will also look at select larger single-asset transactions in global gateway markets, but our 2010 volume forecast assumes there will be few substantial portfolio transactions in the new year.”
Sovereign wealth funds re-emerge
Asian investors are expected to play a pivotal role. “Asian conglomerates are poised to emerge as one of the primary global acquisition groups in 2010 as they seek prime assets in gateway markets, especially in the United States and the United Kingdom, playing to currency fluctuations,” de Haast said.
Sovereign wealth funds from the Middle East and Asia are expected to re-emerge in the market, investing in hotels as a hedge against inflation.
However, apart from the Asian conglomerates and Middle Eastern investors, buyers are expected to be risk-averse and to prefer their home markets.
As of Dec. 10, cross-border activity amounted to just 38% of total capital invested globally in 2009, and that figure is not expected to change by the end of the year. It represents a substantial drop from 2008, when cross-border activity reached 48% of transaction volume.
In 2010, cash buyers will be in the best position to capture investment deals. However, with traditional loans scarce, new investment vehicles have sprung up to help hotel borrowers, propelling deals that might not otherwise have occurred in this credit-strapped environment.
Public stock offerings and mortgage and equity REITs will also drive acquisitions, according to de Haast. But deal volume is expected to be far lower than during the market peak of 2007, when commercial mortgage backed securities were readily available.
Lenders sell more troubled assets
Worldwide, the hotel market is suffering significant stress, and lenders have offered workouts to many strapped borrowers as they try to recapitalize debt rather than foreclose.
Still, more troubled assets are expected to fall into lenders’ hands. “As more assets are placed under the control of banks, we expect more of the upcoming sales activity to be driven by banks, which will provide a lift to hotel transaction volumes. But the number of distressed assets on the market will not come in form of a tidal wave,” said de Haast.
The pace of recovery is expected to vary across global markets, as investors look for at least three consecutive months of year-over-year room rate and occupancy growth. After a year of frozen liquidity and stalled transactions, 2010 will bring improvement, according to Jones Lang LaSalle.
National Real Estate Investor
For the first time in two years, hotel transactions may finally be on the upswing. In a new report, Jones Lang LaSalle Hotels forecasts that global hotel transaction volume will increase next year by 20% to 40%.
The brokerage and real estate services firm projects that transaction levels could reach $11 billion to $13 billion in 2010, up from an estimated $9 billion worth of deals in 2009.
Asian investors are expected to play a key role in the investment surge, as they scout for buying opportunities in the United States and Europe.
Across the world, the trading of single hotel assets will initiate the recovery, said Arthur de Haast, global CEO of Jones Lang LaSalle Hotels. “Entrepreneurial transactions that can be financed regionally or locally will be the first to re-enter the market.”
The projection is encouraging after the anemic showing of 2009. For the year, projected deal volume is down 64% from 2008, when $24.8 billion in hotel transactions were recorded. In its 2010 investment outlook, Jones Lang LaSalle said transactions were expected to rise after hitting the lowest level in a decade.
Single asset deals will be particularly attractive to investors shying away from big portfolio buys, according to de Haast. “Equity-rich opportunistic buyers will also look at select larger single-asset transactions in global gateway markets, but our 2010 volume forecast assumes there will be few substantial portfolio transactions in the new year.”
Sovereign wealth funds re-emerge
Asian investors are expected to play a pivotal role. “Asian conglomerates are poised to emerge as one of the primary global acquisition groups in 2010 as they seek prime assets in gateway markets, especially in the United States and the United Kingdom, playing to currency fluctuations,” de Haast said.
Sovereign wealth funds from the Middle East and Asia are expected to re-emerge in the market, investing in hotels as a hedge against inflation.
However, apart from the Asian conglomerates and Middle Eastern investors, buyers are expected to be risk-averse and to prefer their home markets.
As of Dec. 10, cross-border activity amounted to just 38% of total capital invested globally in 2009, and that figure is not expected to change by the end of the year. It represents a substantial drop from 2008, when cross-border activity reached 48% of transaction volume.
In 2010, cash buyers will be in the best position to capture investment deals. However, with traditional loans scarce, new investment vehicles have sprung up to help hotel borrowers, propelling deals that might not otherwise have occurred in this credit-strapped environment.
Public stock offerings and mortgage and equity REITs will also drive acquisitions, according to de Haast. But deal volume is expected to be far lower than during the market peak of 2007, when commercial mortgage backed securities were readily available.
Lenders sell more troubled assets
Worldwide, the hotel market is suffering significant stress, and lenders have offered workouts to many strapped borrowers as they try to recapitalize debt rather than foreclose.
Still, more troubled assets are expected to fall into lenders’ hands. “As more assets are placed under the control of banks, we expect more of the upcoming sales activity to be driven by banks, which will provide a lift to hotel transaction volumes. But the number of distressed assets on the market will not come in form of a tidal wave,” said de Haast.
The pace of recovery is expected to vary across global markets, as investors look for at least three consecutive months of year-over-year room rate and occupancy growth. After a year of frozen liquidity and stalled transactions, 2010 will bring improvement, according to Jones Lang LaSalle.
$128 Million Sale of Intuit Real Estate Solutions to Close in January
December 21, 2009
National Real Estate Investor
Intuit Inc.’s sale of Intuit Real Estate Solutions to Vista Equity Partners, a private equity firm for $128 million in cash is expected to close Jan. 31, according to company officials.
Intuit (Nasdaq: INTU), based in Mountain View, Calif., announced in early December that it had signed a definitive agreement with Vista to sell the software provider, formerly known as Management Reports, Inc. Intuit is known for high-profile financial products such as Quicken and Turbo Tax.
Based in Highland Hills, Ohio, Intuit Real Estate Solutions is part of Intuit’s global business division and is a major provider of software and services to real estate management and investment firms. It has approximately 340 employees globally and more than 1,700 customers.
Vista Equity Partners focuses on investments in software and technology-enabled businesses.
“Intuit Real Estate Solutions is a great business with a bright future,” said Brad Smith, Intuit’s president and chief executive officer. “As we’ve focused our strategy on providing connected services that help consumers and small businesses, the Intuit Real Estate Solutions business model and the enterprise customers it serves are no longer a strategic, long-term fit for Intuit.”
However, the software operation does fit into Vista’s strategy. “We are long-term investors in enterprise application software businesses that are committed to being leaders in their markets,” said Robert Smith, managing principal of Vista Equity Partners.
Vista is interested in Intuit Real Estate Solutions’ products and its global customer base, said Smith. “We look forward to working with them to help them reach their full potential.”
Intuit Real Estate Solutions’ revenue totaled $74 million in fiscal year 2009 and was expected to rise to $80 million in fiscal year 2010.
Intuit said it expects its fiscal year 2010 revenue to grow 4% to 8% when IRES revenue is excluded from its fiscal 2009 results and 2010 guidance.
National Real Estate Investor
Intuit Inc.’s sale of Intuit Real Estate Solutions to Vista Equity Partners, a private equity firm for $128 million in cash is expected to close Jan. 31, according to company officials.
Intuit (Nasdaq: INTU), based in Mountain View, Calif., announced in early December that it had signed a definitive agreement with Vista to sell the software provider, formerly known as Management Reports, Inc. Intuit is known for high-profile financial products such as Quicken and Turbo Tax.
Based in Highland Hills, Ohio, Intuit Real Estate Solutions is part of Intuit’s global business division and is a major provider of software and services to real estate management and investment firms. It has approximately 340 employees globally and more than 1,700 customers.
Vista Equity Partners focuses on investments in software and technology-enabled businesses.
“Intuit Real Estate Solutions is a great business with a bright future,” said Brad Smith, Intuit’s president and chief executive officer. “As we’ve focused our strategy on providing connected services that help consumers and small businesses, the Intuit Real Estate Solutions business model and the enterprise customers it serves are no longer a strategic, long-term fit for Intuit.”
However, the software operation does fit into Vista’s strategy. “We are long-term investors in enterprise application software businesses that are committed to being leaders in their markets,” said Robert Smith, managing principal of Vista Equity Partners.
Vista is interested in Intuit Real Estate Solutions’ products and its global customer base, said Smith. “We look forward to working with them to help them reach their full potential.”
Intuit Real Estate Solutions’ revenue totaled $74 million in fiscal year 2009 and was expected to rise to $80 million in fiscal year 2010.
Intuit said it expects its fiscal year 2010 revenue to grow 4% to 8% when IRES revenue is excluded from its fiscal 2009 results and 2010 guidance.
Friday, December 18, 2009
Distressed Commercial Real Estate Soars to $180 Billion
December 15, 2009
National Real Estate Investor
The amount of distressed commercial real estate properties in the U.S. has reached a record $180 billion, according to a new report by New York-based research firm Real Capital Analytics. The distress reaches across all property types, with the greatest amount plaguing retail assets, the report shows.
By far, the market with the highest dollar value of troubled assets is Las Vegas, with $17.7 billion of properties that are delinquent, in default, bankrupt, foreclosed or otherwise owned by lenders.
Manhattan had the second-highest amount of troubled properties as of November, $12.3 billion, followed by Miami, with $7.6 billion and Los Angeles, $7.1 billion.
“The distress is formidable,” says Dan Fasulo, managing director of Real Capital Analytics. Most of the financial problems accumulated between September 2008, following the collapse of Lehman Brothers, and November 2009, he says. “Before 2008 there was no material distress in commercial real estate — period. It was just a normal market. This isn’t something you can compare with other periods. This is new for everybody.”
Unfortunately, the pace of the distress process is not slowing, says Fasulo. “I think we’ll continue to see more distress come to market well into 2010. I like to think we might hit the apex in the middle of 2010 and then start working our way down.”
As the flow of distressed properties continues unabated, resolution of the problem has been slow in taking effect. Just 10% or $18 billion of the distress has been resolved, according to the research firm.
Recent federal regulation is likely to restrict defaults among commercial properties with continuing cash flow by encouraging loan extensions and restructurings. But when it comes to properties without cash flow, such as failed developments or vacant buildings, lenders will have little alternative but to foreclose, according to the report.
“Those are assets that have no chance of recovering their full value in the short term. In those situations lenders just aren’t in a position to carry those assets for a long time. Many are [real estate owned by banks] already, but even more working are their way through the process,” says Fasulo.
Retail was the hardest-hit sector with $37.5 billion in troubled assets. Hotels were second with $32 billion, followed by office, $28.2 billion, and apartments, $27.9 billion. The industrial sector had just $5 billion in distressed assets.
Much of the distressed retail property lies in U.S. suburbs, where new residential developments were planned but never completed, because of the recession and credit crisis. “I’ll never forget driving around the loop in Vegas. There’s a brand new retail center on the desert next to the highway,” near an abandoned housing development. “It’s all plotted out for new houses. Obviously they’re not going to build the houses now,” says Fasulo.
Industrial properties fared better than other types, and are expected to remain strong into next year. “It’s not the sexiest sector. It never got over-levered the way some property classes did,” notes Fasulo. Another plus: the warehouse industry is upgrading the market with new, high-tech facilities, he says.
Investors voice frustration
Despite the high level of distressed properties, on the demand side many investors are aggravated. “I get upset calls from investors almost every day, frustrated that they can’t find anything to buy. It sounds so counterintuitive,” says Fasulo.
But a lot of the sale action is taking place on the debt side. In this difficult economic climate many properties don’t come to market in the usual way, with the help of brokers. “A lot of investors are trying to sneak in and buy the first mortgage or mezzanine debt to take control of the property that way instead of participating in a public auction,” notes Fasulo.
For the most part, investors who expected to see prime retail or office properties trotted to the market at huge discounts have been disappointed. Instead, the investors have had to become highly creative at ferreting out attractive distressed properties with bargain prices.
Because the deals have been hard to find and often have entailed “back door” access to lenders and other sources, requiring thorough knowledge of a market and connections, many investors have turned to their own local markets to find deals, says Fasulo.
For example, the recent auction of the trophy W Hotel in New York took place at an attorney’s office. There’s no way an investor sitting at a computer in Los Angeles could gain proper entrée to a deal like that, says Fasulo. That’s why so many investors now are taking a closer look at available deals in their own backyards.
Mortgage Bankers Oppose SEC Proposal on Disclosure of Preliminary Ratings
December 15, 2009
National Real Estate Investor
The Mortgage Bankers Association has notified the Securities and Exchange Commission (SEC) of its opposition to a proposed rule requiring the disclosure of preliminary ratings of securities. The rule could potentially affect many investors in commercial real estate securities.
The Washington, D.C.-based bankers group contends that disclosing preliminary ratings of commercial mortgage-backed securities (CMBS) carries the risk of providing misleading information to investors in commercial real estate.
The SEC is considering a number of steps to make the process of rating securities more transparent in order to protect investors. The proposed rule is intended to curb the practice of “ratings shopping,” which involves soliciting a number of rating agencies for a preliminary rating and choosing an agency based on the early rating that is most favorable.
The mortgage bankers group says that the composition of a group of loans can change substantially after it is initially rated, before the final selection of loans is made, so that the early rating often is no longer relevant for the resulting security.
“In the case of CMBS, the pool of properties comprising the securitization can change significantly from the initial pool that received the preliminary rating,” John Courson, president and CEO of the Mortgage Bankers Association told SEC Secretary Elizabeth Murphy. Therefore, disclosure of the preliminary rating information for a loan pool is unlikely to accurately reflect the final pool of loans that were securitized, Courson said.
“What this rule requires is that the preliminary rating be disclosed. On paper, it doesn’t sound like a bad idea but once you understand how a commercial mortgage-backed security works, it’s really not a good idea,” says George Green, associate vice president of MBA.
For example, if 100 loans are contributed to a pool and packaged into a commercial mortgage-backed security, the loans are stratified by rating and different investors buy different portions of the pool, says Green. Some tranches of the security may be rated AAA while others are rated BBB.
The investor who buys sub-investment grade tranches, below a B rating, can pick and choose and eliminate some loans from the original pool, which affects the final rating.
In addition, an initial rating can be very cursory, says Green. After rating examiners conduct due diligence and investigate the quality of the bundled loans, the final rating can also change.
The proposal to require disclosure of preliminary ratings of securities would amend statements filed under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940. After devastating losses throughout the CMBS and other securities markets over the past two years, the SEC is trying to assure that investors are properly informed before making investment decisions.
The agency called for comment on the proposed rule change, and now that the comment period is closed it will study the responses for several weeks or months before making a final determination on whether to require the disclosure of preliminary ratings.
In general, the mortgage bankers group supports transparency in the ratings process, says Green.
One way potential investors can learn more about CMBS is to weigh both solicited and independent ratings.
An emerging group of ratings agencies conduct unsolicited or independent ratings of securities. The agencies are not paid in the traditional way, by the issuer of the security, but by subscribers to the agencies’ services. The independent ratings have become increasingly popular.
“Really they are providing a second opinion of the issuer-provided ratings,” says Green. “They can then be compared to the ratings that were performed by the issuer-commissioned ratings. We see that as the way to resolve the problem.”
National Real Estate Investor
The Mortgage Bankers Association has notified the Securities and Exchange Commission (SEC) of its opposition to a proposed rule requiring the disclosure of preliminary ratings of securities. The rule could potentially affect many investors in commercial real estate securities.
The Washington, D.C.-based bankers group contends that disclosing preliminary ratings of commercial mortgage-backed securities (CMBS) carries the risk of providing misleading information to investors in commercial real estate.
The SEC is considering a number of steps to make the process of rating securities more transparent in order to protect investors. The proposed rule is intended to curb the practice of “ratings shopping,” which involves soliciting a number of rating agencies for a preliminary rating and choosing an agency based on the early rating that is most favorable.
The mortgage bankers group says that the composition of a group of loans can change substantially after it is initially rated, before the final selection of loans is made, so that the early rating often is no longer relevant for the resulting security.
“In the case of CMBS, the pool of properties comprising the securitization can change significantly from the initial pool that received the preliminary rating,” John Courson, president and CEO of the Mortgage Bankers Association told SEC Secretary Elizabeth Murphy. Therefore, disclosure of the preliminary rating information for a loan pool is unlikely to accurately reflect the final pool of loans that were securitized, Courson said.
“What this rule requires is that the preliminary rating be disclosed. On paper, it doesn’t sound like a bad idea but once you understand how a commercial mortgage-backed security works, it’s really not a good idea,” says George Green, associate vice president of MBA.
For example, if 100 loans are contributed to a pool and packaged into a commercial mortgage-backed security, the loans are stratified by rating and different investors buy different portions of the pool, says Green. Some tranches of the security may be rated AAA while others are rated BBB.
The investor who buys sub-investment grade tranches, below a B rating, can pick and choose and eliminate some loans from the original pool, which affects the final rating.
In addition, an initial rating can be very cursory, says Green. After rating examiners conduct due diligence and investigate the quality of the bundled loans, the final rating can also change.
The proposal to require disclosure of preliminary ratings of securities would amend statements filed under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940. After devastating losses throughout the CMBS and other securities markets over the past two years, the SEC is trying to assure that investors are properly informed before making investment decisions.
The agency called for comment on the proposed rule change, and now that the comment period is closed it will study the responses for several weeks or months before making a final determination on whether to require the disclosure of preliminary ratings.
In general, the mortgage bankers group supports transparency in the ratings process, says Green.
One way potential investors can learn more about CMBS is to weigh both solicited and independent ratings.
An emerging group of ratings agencies conduct unsolicited or independent ratings of securities. The agencies are not paid in the traditional way, by the issuer of the security, but by subscribers to the agencies’ services. The independent ratings have become increasingly popular.
“Really they are providing a second opinion of the issuer-provided ratings,” says Green. “They can then be compared to the ratings that were performed by the issuer-commissioned ratings. We see that as the way to resolve the problem.”
Tudor Jones Turns Away Investors as Hedge-Fund Outflows Persist
Dec. 17 (Bloomberg) -- In a year when investors pulled an estimated $118 billion from hedge funds through November, Paul Tudor Jones was one of at least six managers who decided it was time to turn away cash.
BVI Global Fund Ltd., Jones’s biggest, stopped taking new investments after bringing in $1.3 billion from March to July, according to a person with knowledge of the matter. Brookside Capital Partners LP and Woodbine Capital Advisors LP also have closed or restricted inflows, said people familiar with the firms, who asked not to be named because the funds are private.
Institutions and wealthy individuals have sought out managers with consistent long-term gains, especially those with funds previously closed to new investors. After firms such as D.E. Shaw & Co. and Polygon Investment Partners LLP froze or limited redemptions, investors also gravitated to funds that avoided such steps or eased restrictions quickly.
“Those managers that honored their agreements and treated their investors as partners during the last 18 months of economic difficulties are being rewarded with additional money this year,” said Debra Pipines, founder of New York-based Asperion Group LLC, which raises capital for hedge funds.
Managers usually stop taking new cash when they are concerned that their funds are getting too big to run effectively. They give up the chance to manage more money and earn more fees, usually 2 percent of assets, to protect their ability to produce investment gains, of which they typically take a 20 percent cut.
Hedge funds are loosely regulated private partnerships that can bet on rising or falling prices of any securities.
Bain Affiliate
Jones, 55, has returned an average of 22 percent a year since he founded Greenwich, Connecticut-based Tudor Investment Corp. in 1986. The firm limited investor withdrawals from the $9.5 billion BVI fund in November 2008. It removed those restrictions three months later, placating some clients. Tudor, which oversees $11.5 billion, has kept smaller funds open.
Another manager that is restricting new cash is Brookside Capital Partners, a $10 billion affiliate of Boston-based private-equity firm Bain Capital LLC. It raised about $1 billion from investors, according to a person familiar with the firm. Brookside, which invests in stocks, has returned about 16 percent this year, after losing 16 percent in 2008.
While investors tended to flock to established firms, one exception was Woodbine, founded in January by Josh Berkowitz and Marcel Kasumovich, former executives at George Soros’s hedge- fund company, along with three other partners.
$2.5 Billion
The New York-based firm, which started with $185 million, cut off new investments last month after assets reached $2.5 billion, according to people familiar with the matter. Woodbine runs a so-called macro fund, which seeks to profit on broad economic trends by trading stocks, bonds, currencies and commodities.
Berkowitz, Woodbine’s chief executive officer, also worked at SAC Capital Advisors LLC and New York-based Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history. During his three years at New York-based Soros Fund Management LLC, he returned an annual average of 34 percent after fees, according to Woodbine’s marketing documents.
The firm has as much as $500 million in commitments made before last month’s closing that it may take in January, a person familiar with the matter said.
“The combination of a strong pedigree, investment process and a favorable strategy goes a long way,” said Richard Tomlinson, founder of London-based Tomlinson Investment Consulting, which advises clients on hedge funds.
Brevan Howard, Clive
Brevan Howard Asset Management LLP, Europe’s largest hedge- fund firm, closed its $2 billion Asia Fund and $2.5 billion Emerging Market Strategies Fund to new investors as of Nov. 1. The London-based company may consider shutting its $21.3 billion Brevan Howard Master Fund Ltd. after clients said it may be too large, people familiar with the matter said earlier this month.
Two other London-based managers -- Clive Capital LLP and Lansdowne Partners LP -- also closed funds this year.
All the firms declined to comment on their decisions to restrict inflows.
The hedge-fund industry, which managed $1.47 trillion as of November, continued to see net withdrawals this year as investments returned an average 18 percent, compared with the 24 percent gain by the Standard & Poor’s 500 Index, according to data compiled by Singapore-based Eurekahedge Pte.
Last year, withdrawals were $198 billion, an all-time high, Eurekahedge data show. Hedge funds lost a record 19 percent in 2008, though that was half the 38 percent decline by the S&P 500, a benchmark for large U.S. stocks.
“Before, managers could rely on their returns to sell themselves,” said Andrea Gentilini, head of strategic consulting at Barclays Capital’s Prime Services unit in New York. “Now investors want more transparency and communication.”
Cohen’s SAC Capital
About 40 percent of funds have yet to return to their peak asset level or high-water mark, data compiled by New York-based Morgan Stanley show. Those funds can’t collect their share of investment gains. Of those funds, about half are 10 percent or more away from breaking even, meaning it could be another year before they can earn performance fees.
SAC Capital, the Stamford, Connecticut-based hedge fund run by Steven Cohen, attracted $1.3 billion for its main fund, while Highbridge Capital Management LLC, a New York-based unit of JPMorgan Chase & Co., received more than $500 million, people familiar with the firms said. Both remain open to new investments.
Smaller Funds
As some well-known managers close to new investments, smaller funds will begin to benefit from inflows, investors said. After outflows in January through April, funds have gained $82 billion, though are still negative for the year, according to Eurekahedge.
“I’m seeing more interest in mid-sized managers,” said Brad Balter, who runs Boston-based Balter Capital Management LLC, which invests in hedge funds. In part, that’s because clients are worried that in some instances funds are growing too large and that returns will suffer, he said.
The influx of new money has come from pensions, foundations and sovereign wealth funds, overtaking university endowments and firms that invest on behalf of wealthy individuals as the biggest hedge-fund investors, Morgan Stanley said in a Nov. 23 report.
Investors are steering clear of some managers that were slow to return money after restricting redemptions last year, or those that left them holding hard-to-sell assets that were segregated into separate funds, known as side-pockets.
“Patience has worn thin among investors over the last 12 months,” said Simon Atiyah, a lawyer at London-based Lovells LLP, whose clients include hedge funds. “Some managers that prevented investors from getting their money back have done terrible long-term damage to their businesses.”
Money Trap
About 60 percent of the money that clients sought to withdraw from funds hadn’t been returned as of Sept. 30, according to data compiled by Credit Suisse Tremont Index LLC, based on its index of 480 hedge funds that oversee about $531 billion. About 55 percent of money put into side-pockets has been released.
Philip Falcone’s Harbinger Capital Partners LLC told clients that it may take 12 months to 24 months to return their money after limiting withdrawals from its largest fund last year. The New York-based firm has given back less than 10 percent of the assets that the firm restricted.
Citadel Investment Group LLC, the $13 billion firm run by Ken Griffin, returned $250 million of the requested $1.5 billion at the end of September after suspending redemptions last year. The Chicago-based company said in October that it plans to return the rest of the money at the end of the year.
Both Harbinger and Citadel have raised about $1 billion in new cash.
‘Acted Like Traitors’
Drake Management LLC, the New York-based firm run by Anthony Faillace and Steve Luttrell, told clients in April 2008 that it was liquidating its biggest hedge fund. As of October 2009, it hadn’t returned all the money.
Hedge-fund investors including Amit Shabi, a Paris-based partner at Bernheim Dreyfus & Co., say they won’t put money in a hedge fund that had imposed limits on client redemptions.
“Many managers acted like traitors,” said Shabi. “They hid the fact that they were invested in illiquid assets.”
BVI Global Fund Ltd., Jones’s biggest, stopped taking new investments after bringing in $1.3 billion from March to July, according to a person with knowledge of the matter. Brookside Capital Partners LP and Woodbine Capital Advisors LP also have closed or restricted inflows, said people familiar with the firms, who asked not to be named because the funds are private.
Institutions and wealthy individuals have sought out managers with consistent long-term gains, especially those with funds previously closed to new investors. After firms such as D.E. Shaw & Co. and Polygon Investment Partners LLP froze or limited redemptions, investors also gravitated to funds that avoided such steps or eased restrictions quickly.
“Those managers that honored their agreements and treated their investors as partners during the last 18 months of economic difficulties are being rewarded with additional money this year,” said Debra Pipines, founder of New York-based Asperion Group LLC, which raises capital for hedge funds.
Managers usually stop taking new cash when they are concerned that their funds are getting too big to run effectively. They give up the chance to manage more money and earn more fees, usually 2 percent of assets, to protect their ability to produce investment gains, of which they typically take a 20 percent cut.
Hedge funds are loosely regulated private partnerships that can bet on rising or falling prices of any securities.
Bain Affiliate
Jones, 55, has returned an average of 22 percent a year since he founded Greenwich, Connecticut-based Tudor Investment Corp. in 1986. The firm limited investor withdrawals from the $9.5 billion BVI fund in November 2008. It removed those restrictions three months later, placating some clients. Tudor, which oversees $11.5 billion, has kept smaller funds open.
Another manager that is restricting new cash is Brookside Capital Partners, a $10 billion affiliate of Boston-based private-equity firm Bain Capital LLC. It raised about $1 billion from investors, according to a person familiar with the firm. Brookside, which invests in stocks, has returned about 16 percent this year, after losing 16 percent in 2008.
While investors tended to flock to established firms, one exception was Woodbine, founded in January by Josh Berkowitz and Marcel Kasumovich, former executives at George Soros’s hedge- fund company, along with three other partners.
$2.5 Billion
The New York-based firm, which started with $185 million, cut off new investments last month after assets reached $2.5 billion, according to people familiar with the matter. Woodbine runs a so-called macro fund, which seeks to profit on broad economic trends by trading stocks, bonds, currencies and commodities.
Berkowitz, Woodbine’s chief executive officer, also worked at SAC Capital Advisors LLC and New York-based Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history. During his three years at New York-based Soros Fund Management LLC, he returned an annual average of 34 percent after fees, according to Woodbine’s marketing documents.
The firm has as much as $500 million in commitments made before last month’s closing that it may take in January, a person familiar with the matter said.
“The combination of a strong pedigree, investment process and a favorable strategy goes a long way,” said Richard Tomlinson, founder of London-based Tomlinson Investment Consulting, which advises clients on hedge funds.
Brevan Howard, Clive
Brevan Howard Asset Management LLP, Europe’s largest hedge- fund firm, closed its $2 billion Asia Fund and $2.5 billion Emerging Market Strategies Fund to new investors as of Nov. 1. The London-based company may consider shutting its $21.3 billion Brevan Howard Master Fund Ltd. after clients said it may be too large, people familiar with the matter said earlier this month.
Two other London-based managers -- Clive Capital LLP and Lansdowne Partners LP -- also closed funds this year.
All the firms declined to comment on their decisions to restrict inflows.
The hedge-fund industry, which managed $1.47 trillion as of November, continued to see net withdrawals this year as investments returned an average 18 percent, compared with the 24 percent gain by the Standard & Poor’s 500 Index, according to data compiled by Singapore-based Eurekahedge Pte.
Last year, withdrawals were $198 billion, an all-time high, Eurekahedge data show. Hedge funds lost a record 19 percent in 2008, though that was half the 38 percent decline by the S&P 500, a benchmark for large U.S. stocks.
“Before, managers could rely on their returns to sell themselves,” said Andrea Gentilini, head of strategic consulting at Barclays Capital’s Prime Services unit in New York. “Now investors want more transparency and communication.”
Cohen’s SAC Capital
About 40 percent of funds have yet to return to their peak asset level or high-water mark, data compiled by New York-based Morgan Stanley show. Those funds can’t collect their share of investment gains. Of those funds, about half are 10 percent or more away from breaking even, meaning it could be another year before they can earn performance fees.
SAC Capital, the Stamford, Connecticut-based hedge fund run by Steven Cohen, attracted $1.3 billion for its main fund, while Highbridge Capital Management LLC, a New York-based unit of JPMorgan Chase & Co., received more than $500 million, people familiar with the firms said. Both remain open to new investments.
Smaller Funds
As some well-known managers close to new investments, smaller funds will begin to benefit from inflows, investors said. After outflows in January through April, funds have gained $82 billion, though are still negative for the year, according to Eurekahedge.
“I’m seeing more interest in mid-sized managers,” said Brad Balter, who runs Boston-based Balter Capital Management LLC, which invests in hedge funds. In part, that’s because clients are worried that in some instances funds are growing too large and that returns will suffer, he said.
The influx of new money has come from pensions, foundations and sovereign wealth funds, overtaking university endowments and firms that invest on behalf of wealthy individuals as the biggest hedge-fund investors, Morgan Stanley said in a Nov. 23 report.
Investors are steering clear of some managers that were slow to return money after restricting redemptions last year, or those that left them holding hard-to-sell assets that were segregated into separate funds, known as side-pockets.
“Patience has worn thin among investors over the last 12 months,” said Simon Atiyah, a lawyer at London-based Lovells LLP, whose clients include hedge funds. “Some managers that prevented investors from getting their money back have done terrible long-term damage to their businesses.”
Money Trap
About 60 percent of the money that clients sought to withdraw from funds hadn’t been returned as of Sept. 30, according to data compiled by Credit Suisse Tremont Index LLC, based on its index of 480 hedge funds that oversee about $531 billion. About 55 percent of money put into side-pockets has been released.
Philip Falcone’s Harbinger Capital Partners LLC told clients that it may take 12 months to 24 months to return their money after limiting withdrawals from its largest fund last year. The New York-based firm has given back less than 10 percent of the assets that the firm restricted.
Citadel Investment Group LLC, the $13 billion firm run by Ken Griffin, returned $250 million of the requested $1.5 billion at the end of September after suspending redemptions last year. The Chicago-based company said in October that it plans to return the rest of the money at the end of the year.
Both Harbinger and Citadel have raised about $1 billion in new cash.
‘Acted Like Traitors’
Drake Management LLC, the New York-based firm run by Anthony Faillace and Steve Luttrell, told clients in April 2008 that it was liquidating its biggest hedge fund. As of October 2009, it hadn’t returned all the money.
Hedge-fund investors including Amit Shabi, a Paris-based partner at Bernheim Dreyfus & Co., say they won’t put money in a hedge fund that had imposed limits on client redemptions.
“Many managers acted like traitors,” said Shabi. “They hid the fact that they were invested in illiquid assets.”
Leading Economic Index in U.S. Rose 0.9% in November
Dec. 17 (Bloomberg) -- The index of U.S. leading indicators rose for an eighth consecutive month in November, a sign economic growth will extend into the first half of 2010.
The New York-based Conference Board’s gauge of the outlook for the next three to six months rose 0.9 percent, more than forecast, after climbing 0.3 percent in October. Separate reports showed Philadelphia-area manufacturing grew in December at the fastest pace in more than four years, while initial jobless claims rose last week.
Rising stocks and fewer job losses are supporting consumer spending, which makes up 70 percent of the economy. The Federal Reserve said yesterday it intends to keep its benchmark interest rate near zero for an “extended period,” to spur growth as unemployment at 10 percent poses a risk to the recovery.
“The nascent recovery is ending 2009 on a high note,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, who correctly forecast the gain in leading indicators. “The consumer is doing all right, housing is clearly in an upswing and business investment is improving.”
Economists forecast the leading indicators index would increase 0.7 percent, according to the median of 61 estimates in a Bloomberg News survey. Projections ranged from a gain of 0.5 percent to 1.2 percent.
Philadelphia Manufacturing
Manufacturing in the Philadelphia region expanded for a fifth month as sales and employment grew. The Fed Bank of Philadelphia’s general economic index rose to 20.4 this month, the highest since April 2005, from 16.7 in November. Readings greater than zero signal growth.
Figures from the Labor Department showed jobless claims increased to 480,000 last week from 473,000 a week earlier, indicating the labor market will take time to strengthen.
Stocks declined for a second day this week after Citigroup Inc. sold stock at a discount and FedEx Corp.’s profit forecast trailed analysts’ estimates. The Standard & Poor’s 500 Index dropped 0.8 percent to 1,100.18 at 10:20 a.m. in New York.
Six of the 10 indicators in the leading index contributed to the gain, led by the difference between short- and long-term borrowing costs and fewer jobless claims. A longer factory workweek, higher stock prices, more building permits and a rise in money supply also helped the index.
Weaker consumer expectations, faster supplier deliveries and fewer capital goods orders were a drag on the index. Consumer goods orders had no effect on the index.
Coincident Indicators
The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in November after no change the prior month. The index tracks payrolls, incomes, sales and production, the measures used by the National Bureau of Economic Analysis to determine the beginning and end of U.S. recessions.
The gauge of lagging indicators dropped 0.4 percent last month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.
The world’s largest economy probably expanded at a 3 percent annual pace from October through December after growing at a 2.8 percent rate in the prior quarter, according to the median estimate of economists surveyed earlier this month. That followed a 3.8 percent contraction in the 12 months to June, the economy’s worst performance since the 1930s.
Yield Curve
The index’s positive spread between the yield on the 10- year Treasury note and the overnight fed funds rate is based on mounting expectations of an economic recovery.
Jobless claims averaged 482,000 in November, down from 524,200 a month earlier. Building permits rose 6 percent in November, the government reported yesterday, a sign home construction is gathering pace.
U.S. stocks continued to rally last month as reports suggested the economy was stabilizing. The S&P 500 averaged 1,088.07 in November, compared with 1,067.66 in October. The index reached the highest closing level in 13 months on Dec. 14.
Weighing on the index, the Reuters/University of Michigan’s reading on consumer expectations for the next six months fell in November from the prior month.
Seven of 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.
Federal Reserve
The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.
Reiterating its pledge to keep rates “exceptionally low” for “an extended period,” Fed policy makers yesterday said the recovery is facing hurdles.
“Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” they said in a statement.
Manufacturers that export to emerging economies such as China are among companies anticipating stronger growth.
General Electric Co. Chief Executive Officer Jeffrey Immelt said global orders for the world’s biggest maker of jet engines, power-plant turbines and medical imaging equipment were picking up in the fourth quarter compared with the prior three months.
“Orders will be improving sequentially as we get into the fourth quarter of the year,” Immelt said at an investor meeting Dec. 15. GE had an order backlog of $174 billion at the end of the third quarter, with total company orders of $18.4 billion in the third quarter, including service contracts.
The New York-based Conference Board’s gauge of the outlook for the next three to six months rose 0.9 percent, more than forecast, after climbing 0.3 percent in October. Separate reports showed Philadelphia-area manufacturing grew in December at the fastest pace in more than four years, while initial jobless claims rose last week.
Rising stocks and fewer job losses are supporting consumer spending, which makes up 70 percent of the economy. The Federal Reserve said yesterday it intends to keep its benchmark interest rate near zero for an “extended period,” to spur growth as unemployment at 10 percent poses a risk to the recovery.
“The nascent recovery is ending 2009 on a high note,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, who correctly forecast the gain in leading indicators. “The consumer is doing all right, housing is clearly in an upswing and business investment is improving.”
Economists forecast the leading indicators index would increase 0.7 percent, according to the median of 61 estimates in a Bloomberg News survey. Projections ranged from a gain of 0.5 percent to 1.2 percent.
Philadelphia Manufacturing
Manufacturing in the Philadelphia region expanded for a fifth month as sales and employment grew. The Fed Bank of Philadelphia’s general economic index rose to 20.4 this month, the highest since April 2005, from 16.7 in November. Readings greater than zero signal growth.
Figures from the Labor Department showed jobless claims increased to 480,000 last week from 473,000 a week earlier, indicating the labor market will take time to strengthen.
Stocks declined for a second day this week after Citigroup Inc. sold stock at a discount and FedEx Corp.’s profit forecast trailed analysts’ estimates. The Standard & Poor’s 500 Index dropped 0.8 percent to 1,100.18 at 10:20 a.m. in New York.
Six of the 10 indicators in the leading index contributed to the gain, led by the difference between short- and long-term borrowing costs and fewer jobless claims. A longer factory workweek, higher stock prices, more building permits and a rise in money supply also helped the index.
Weaker consumer expectations, faster supplier deliveries and fewer capital goods orders were a drag on the index. Consumer goods orders had no effect on the index.
Coincident Indicators
The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in November after no change the prior month. The index tracks payrolls, incomes, sales and production, the measures used by the National Bureau of Economic Analysis to determine the beginning and end of U.S. recessions.
The gauge of lagging indicators dropped 0.4 percent last month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.
The world’s largest economy probably expanded at a 3 percent annual pace from October through December after growing at a 2.8 percent rate in the prior quarter, according to the median estimate of economists surveyed earlier this month. That followed a 3.8 percent contraction in the 12 months to June, the economy’s worst performance since the 1930s.
Yield Curve
The index’s positive spread between the yield on the 10- year Treasury note and the overnight fed funds rate is based on mounting expectations of an economic recovery.
Jobless claims averaged 482,000 in November, down from 524,200 a month earlier. Building permits rose 6 percent in November, the government reported yesterday, a sign home construction is gathering pace.
U.S. stocks continued to rally last month as reports suggested the economy was stabilizing. The S&P 500 averaged 1,088.07 in November, compared with 1,067.66 in October. The index reached the highest closing level in 13 months on Dec. 14.
Weighing on the index, the Reuters/University of Michigan’s reading on consumer expectations for the next six months fell in November from the prior month.
Seven of 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.
Federal Reserve
The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.
Reiterating its pledge to keep rates “exceptionally low” for “an extended period,” Fed policy makers yesterday said the recovery is facing hurdles.
“Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” they said in a statement.
Manufacturers that export to emerging economies such as China are among companies anticipating stronger growth.
General Electric Co. Chief Executive Officer Jeffrey Immelt said global orders for the world’s biggest maker of jet engines, power-plant turbines and medical imaging equipment were picking up in the fourth quarter compared with the prior three months.
“Orders will be improving sequentially as we get into the fourth quarter of the year,” Immelt said at an investor meeting Dec. 15. GE had an order backlog of $174 billion at the end of the third quarter, with total company orders of $18.4 billion in the third quarter, including service contracts.
Greenspan Says Stock Rally Means Lower Stimulus Need
Dec. 17 (Bloomberg) -- The biggest stock market advance in seven decades is reducing the need for additional government stimulus measures, according to former Federal Reserve Chairman Alan Greenspan.
The Standard & Poor’s 500 Index’s 64 percent jump since March made Americans richer by restoring $5.4 trillion to U.S. equities and helped spur a 1.3 percent increase in retail sales last month, data compiled by Bloomberg and the Commerce Department show.
“The stimulus is only a third spent, and its order of magnitude is not large enough to compare with the strength and power of the remarkable global equity increase that’s occurred since early March,” Greenspan, 83, said in a telephone interview yesterday from Washington. “Capital gains have proved a far greater stimulus than one can attribute to the $787 billion program that has been only partially spent.”
Increasing spending beyond the $11.6 trillion already pledged may also be unnecessary because higher stocks will help boost profits and make loans easier to come by, Greenspan said. Earnings among S&P 500 companies are forecast to rise 65 percent in the fourth quarter, ending the longest series of declines since World War II, data compiled by Bloomberg show.
“When stock prices go up, the market value of common stock or of equity in banks and other financial institutions rises,” he said. “And the market value of liabilities is importantly affected by the size of the equity market value cushion on banks’ balance sheets.”
Wealth Effect
The S&P 500 fell 0.8 percent to 1,100.01 at 10:18 a.m. in New York today after New York-based Citigroup Inc. sold stock at a discount, Memphis, Tennessee-based FedEx Corp.’s profit forecast trailed analyst estimates and jobless claims unexpectedly increased.
Net worth for U.S. households increased to $53.4 trillion in the third quarter, up $2.7 trillion from the prior period, helped by share gains, according to a Fed report released on Dec. 10. Assets in so-called defined contribution plans such as 401(k) retirement accounts and IRAs climbed 35 percent to $1.93 trillion from the first quarter to the third, the data show.
Retail spending rose in November at more than twice the 0.6 percent median estimate in a Bloomberg survey, Commerce Department data showed. The Reuters/University of Michigan index of consumer sentiment for December increased to 73.4 from 67.4 the month before.
Adding Liquidity
“All of the statistical evidence indicates that the level of household wealth is a major factor in consumer expenditures and indeed apparently finances directly and indirectly about 15 percent of consumer outlays,” Greenspan said. “The impact on consumption expenditures is significant, largely because the amount of wealth is five times the level of income.”
Greenspan ran the central bank from 1987 to 2006, a period in which the S&P 500 climbed more than sixfold, including dividends, according to data compiled by Bloomberg. He reduced interest rates to a half-century low of 1 percent in 2003 and didn’t raise them for a year, helping spur a 16 percent gain in home prices in 2004 and setting the stage for a housing-market collapse that led to more than $1.7 trillion in global bank losses and writedowns.
Fed policy makers pledged yesterday to keep their target rate for overnight loans between banks “exceptionally low” for an extended period after a two-day meeting in Washington. U.S. stocks erased most of their increase and 10-year Treasury yields rose on concern Chairman Ben S. Bernanke is preparing investors for higher interest rates next year after holding them near zero since December.
Mutual Funds
“Financial market conditions have become more supportive of economic growth,” policy makers wrote. Along with government actions, “market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability,” they said.
U.S. mutual funds are poised for their biggest gain since 2003, according to Morningstar Inc. data. Funds that invest in stocks returned an average 31 percent this year, according to the Chicago-based provider of investment research, after losing 39 percent last year.
“There’s no need for a second stimulus,” said Philip Orlando, who helps manage $392.3 billion as chief equity market strategist at Federated Investors Inc. in New York. “People feel better about themselves. They’ve had some of their lost money restored, and now they’re going to go out and spend some of it.”
Jobless Rate
Employers in the U.S. cut the fewest jobs in November since the recession began, and the unemployment rate unexpectedly fell, the Labor Department said on Dec. 4. Payrolls decreased by 11,000, compared with the median forecast for a 125,000 decline in a Bloomberg survey of economists, while the jobless rate dropped to 10 percent.
Ratings cuts by S&P on U.S. issuers have declined each quarter this year, falling to 145 downgrades in the current three-month period from 282 in the third quarter, 554 in the second and 756 in the first, Bloomberg data show. Three-hundred forty-two companies have been upgraded in the second half of the year, compared with 204 ratings increases in the first six months of 2009.
“Equity is there to cushion liabilities,” Greenspan said. “The greater the market value of equities, the greater the support for the liabilities, which means bond prices and their ratings go up.”
The Standard & Poor’s 500 Index’s 64 percent jump since March made Americans richer by restoring $5.4 trillion to U.S. equities and helped spur a 1.3 percent increase in retail sales last month, data compiled by Bloomberg and the Commerce Department show.
“The stimulus is only a third spent, and its order of magnitude is not large enough to compare with the strength and power of the remarkable global equity increase that’s occurred since early March,” Greenspan, 83, said in a telephone interview yesterday from Washington. “Capital gains have proved a far greater stimulus than one can attribute to the $787 billion program that has been only partially spent.”
Increasing spending beyond the $11.6 trillion already pledged may also be unnecessary because higher stocks will help boost profits and make loans easier to come by, Greenspan said. Earnings among S&P 500 companies are forecast to rise 65 percent in the fourth quarter, ending the longest series of declines since World War II, data compiled by Bloomberg show.
“When stock prices go up, the market value of common stock or of equity in banks and other financial institutions rises,” he said. “And the market value of liabilities is importantly affected by the size of the equity market value cushion on banks’ balance sheets.”
Wealth Effect
The S&P 500 fell 0.8 percent to 1,100.01 at 10:18 a.m. in New York today after New York-based Citigroup Inc. sold stock at a discount, Memphis, Tennessee-based FedEx Corp.’s profit forecast trailed analyst estimates and jobless claims unexpectedly increased.
Net worth for U.S. households increased to $53.4 trillion in the third quarter, up $2.7 trillion from the prior period, helped by share gains, according to a Fed report released on Dec. 10. Assets in so-called defined contribution plans such as 401(k) retirement accounts and IRAs climbed 35 percent to $1.93 trillion from the first quarter to the third, the data show.
Retail spending rose in November at more than twice the 0.6 percent median estimate in a Bloomberg survey, Commerce Department data showed. The Reuters/University of Michigan index of consumer sentiment for December increased to 73.4 from 67.4 the month before.
Adding Liquidity
“All of the statistical evidence indicates that the level of household wealth is a major factor in consumer expenditures and indeed apparently finances directly and indirectly about 15 percent of consumer outlays,” Greenspan said. “The impact on consumption expenditures is significant, largely because the amount of wealth is five times the level of income.”
Greenspan ran the central bank from 1987 to 2006, a period in which the S&P 500 climbed more than sixfold, including dividends, according to data compiled by Bloomberg. He reduced interest rates to a half-century low of 1 percent in 2003 and didn’t raise them for a year, helping spur a 16 percent gain in home prices in 2004 and setting the stage for a housing-market collapse that led to more than $1.7 trillion in global bank losses and writedowns.
Fed policy makers pledged yesterday to keep their target rate for overnight loans between banks “exceptionally low” for an extended period after a two-day meeting in Washington. U.S. stocks erased most of their increase and 10-year Treasury yields rose on concern Chairman Ben S. Bernanke is preparing investors for higher interest rates next year after holding them near zero since December.
Mutual Funds
“Financial market conditions have become more supportive of economic growth,” policy makers wrote. Along with government actions, “market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability,” they said.
U.S. mutual funds are poised for their biggest gain since 2003, according to Morningstar Inc. data. Funds that invest in stocks returned an average 31 percent this year, according to the Chicago-based provider of investment research, after losing 39 percent last year.
“There’s no need for a second stimulus,” said Philip Orlando, who helps manage $392.3 billion as chief equity market strategist at Federated Investors Inc. in New York. “People feel better about themselves. They’ve had some of their lost money restored, and now they’re going to go out and spend some of it.”
Jobless Rate
Employers in the U.S. cut the fewest jobs in November since the recession began, and the unemployment rate unexpectedly fell, the Labor Department said on Dec. 4. Payrolls decreased by 11,000, compared with the median forecast for a 125,000 decline in a Bloomberg survey of economists, while the jobless rate dropped to 10 percent.
Ratings cuts by S&P on U.S. issuers have declined each quarter this year, falling to 145 downgrades in the current three-month period from 282 in the third quarter, 554 in the second and 756 in the first, Bloomberg data show. Three-hundred forty-two companies have been upgraded in the second half of the year, compared with 204 ratings increases in the first six months of 2009.
“Equity is there to cushion liabilities,” Greenspan said. “The greater the market value of equities, the greater the support for the liabilities, which means bond prices and their ratings go up.”
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