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Real Estate Financial – REIT Vultures

Boston Money — Mon, 22 Jun 2009 17:23:41 +0000

Here come the real estate vultures

REITs are raising cash to take advantage of bargain prices on distressed commercial properties and mortgages.

Last Updated: June 22, 2009: 11:53 AM ET

(Fortune Magazine) — These are tempting times for real estate bargain hunters. Whether it’s the tony house down the street with an asking price that keeps dropping or office space at a deep discount, if you have the means, there are deals to be had. Individual investors snapping up foreclosed houses have helped boost home-sale figures sharply in recent months (although prices have remained depressed). And now some real estate investment trusts are raising money to fund acquisitions of distressed commercial properties.

In April we pointed out that financially strong REITs offered attractive yields. That remains the case. But now some of the equity REITs with stronger balance sheets are looking to move from defense to offense, building billion-dollar war chests to fund acquisitions of troubled properties on the cheap. Indeed, if you believe that now is a once-in-a-generation opportunity to buy low in real estate, REITs allow you a way to bet on a rebound in the market without getting approval for financing and taking possession of a piece of property yourself.

And there seems to be no shortage of prospective purchases. There is an estimated $90 billion in commercial real estate in the U.S. alone that is “distressed,” according to New York-based real estate research firm Real Capital Analytics. These are properties that have been foreclosed on, or whose owners are in default on their loans or in bankruptcy. “On top of those properties, there is hundreds of billions more in debt coming due in the next few years,” says Peter Slatin, editorial director at Real Capital. “Some REITs are getting prepared for that.”

Are they ever. REITs have raised about $12 billion by issuing stock in recent months. Among them are well-known names such as Boston Properties (BXP), Regency Centers (REG), Simon Property Group (SPG), and Vornado Realty Trust (VNO). “Our mood here is getting a little bit more forward-thinking than it has been over the last six months,” Simon Property chairman and CEO David Simon told analysts during the company’s earnings call May 1. One big opportunity the gang at Simon is keeping an eye on is the portfolio of General Growth Properties, the real estate giant that filed for Chapter 11 in April, taking more than 160 properties with it, including such trophies as Faneuil Hall Marketplace in Boston and South Street Seaport in New York City.

The four blue-chip REITs cited above represent a fairly conservative way for individual investors to profit from the (hoped-for) real estate rebound. The fact that they have the resources to exploit today’s weak market may set them up for years of healthy cash flows. “These are the commercial real estate companies that are going to survive,” says Jim Sullivan, senior REIT analyst with Green Street Advisors. “They all have balance sheets that are stronger than average and management teams that have proven their ability to take advantage of downturns.”

But there are other ways to play. The distress in the market has emboldened some privately held real estate funds (including newly formed ones) to raise money by offering stock to the public. These companies aren’t focused on owning property but on the debt underlying it. On June 11, Cypress Sharpridge Investments (CYS), which invests in mortgage-backed securities (yes, those infamous bonds), raised about $100 million in an IPO. And several more IPOs are in the works, including a proposed $500 million offering from Starwood Property Trust, led by former chairman of Starwood Hotels Barry Sternlicht, and a $750 million offering from PennyMac Mortgage, run by Stanford Kurland and other former executives of Countrywide Financial (yes, that Countrywide). And Invesco Mortgage Capital is looking to raise about $400 million to go shopping for debt. But these IPOs are for high-risk investors only.

And anyone who goes bargain hunting in real estate today has to be patient. REITs fell earlier and harder than the broader real estate market. In the two years from March 2007 to March 2009, REIT stocks fell a stunning 75% on average. Lately, however, REITs have been on a roll, with the MSCI U.S. REIT index gaining more than 45% since the March low. Does this spurt mean that REITs are foreshadowing a sharp rise in real estate values? Some experts caution that there is more pain to come. “Prices have gotten ahead of the fundamentals in real estate,” says Kenneth Rosen, chairman of the Fisher Center for Real Estate and a professor emeritus at the University of California at Berkeley. “It has gone too far, too fast.” Rosen expects a correction in the coming months.

But many analysts like the longer-term outlook. “The underpinnings of the commercial real estate market are really in pretty good shape,” says Philip Martin, a senior vice president of Golub & Co., a Chicago-based real estate investment and development firm. He notes that there isn’t the kind of massive oversupply of commercial properties that existed during the slump of the late 1980s and early 1990s. “So when we do recover, you are likely to see a pretty healthy snap-back in real estate prices,” he says. “This is an excellent environment for those REITs with the right combination of knowledge and capital. They are going to have an opportunity to make some great deals, and the risk-adjusted returns at this point in the real estate cycle are going to be pretty darn good.”

Boston Online – Facebook and Twitter

Boston Money — Mon, 25 May 2009 13:58:15 +0000

Men are from Facebook, women are from Twitter?

Studies show the genders really are different online.

By Anna Kattan, contributor

May 20, 2009: 11:44 AM ET

NEW YORK (Fortune) — For Jonathan and Michelle Opp of Chapel Hill, N.C., the Internet, like electricity and indoor plumbing, is an indispensable part of their lives. Always armed with their iPhones, they regularly check travel information and weather forecasts, and even use their devices to find answers to offbeat questions. But there are also major differences in the way the married couple use their devices and Internet connections.

Women Online - Boston Financial Guide

“Michelle probably does more functional things like shopping or paying bills. I like to spend more of my spare time reading music reviews and checking soccer scores,” says Jonathan, a marketing communications manager.

In fact gender, more so than race, ethnicity or economic status, determines how and what we peruse online. According to a recent study by eMarketer, slightly more women say they use the Internet than men. However once logged on, male Internet users tend to spend more time surfing the Web than females.

Meanwhile, in a separate report, eMarketer estimates that U.S. marketers will spend 37.2 billion dollars on online advertising by the year 2013. Clearly understanding what gets the genders ticking makes economic sense for any business buying ad space on the Web.

Internet Protocol addresses, however, don’t come in shades of pink and blue. So companies eager to reach men tend to focus ads on sports, technology and news sites. Businesses concentrating on women often center on stereotypically female-oriented sites, like parenting Web sites.

“Smart companies use behavioral targeting to try to reach their desired target demo online, but even then, they can’t tell who exactly is behind the IP addresses they are following,” says Lisa Phillips, an eMarketer senior analyst and author of the report “Men Online.”

So what, businesses may ask, is keeping the genders glued to their computer screens? For one, men are much more interested in watching online videos than women, notes Phillips.

The presumption that online images are more appealing to males should hardly come as a surprise: men have long been touted as the more visual sex. Other gender stereotypes seem to carry over to the online world as well: Women, who are often seen as caretakers of a family, tend to click on health care Web sites more frequently than men do.

However companies should be aware that not all Internet tendencies mirror offline generalizations.

“I would say for every situation where you think a trend may be confirming a stereotype, there seems to be another counterintuitive trend that might emerge as well,” says Mary Madden, a senior research specialist at the Pew Internet & American Life Project.

For example, women are often dubbed the more verbally adept sex. However they are no more likely to use online communication tools like e-mail, blogging, or social networks than men are.

And although women are sometimes pegged as more avid shoppers, men are just as keen as women to make online purchases. But their shopping behavior may differ.

“Men generally have the attitude, I’m going to go there, I’ve got to get it and get out,” says Phillips. “Females like to go online and socialize and shop around – much like going into a store.”

Furthermore, Phillips says fathers are just as voracious as mothers about finding online information to improve their children’s health or education. Like Web-savvy moms, they also tend to buy products with their families in mind.

Companies should also be wary about making generalizations on how the genders manage their finances. For years, men have been considered financial authorities in many families. But nowadays women are just as likely as men to bank online, according to the Pew Internet & American Life Project.

And though men are more likely to search the Internet for stock quotes or mortgage interest rates, Phillips says the dwindling economy has more women visiting online job sites. This is despite the fact that men have been hit harder by rising unemployment.

Meanwhile Michelle Opp, a software developer, has no problem admitting she shops online more frequently than her husband. But she insists it has nothing to do with gender.

Find this article at:

http://money.cnn.com/2009/05/20/technology/kattan_gender.fortune/index.htm

Finance – New hedge funds

Boston Money — Sat, 23 May 2009 07:43:10 +0000

New hedge funds: smaller and thriftier

http://money.cnn.com/2009/05/22/pf/funds/new_hedge_funds.fortune/index.htm

New hedge funds: smaller and thriftier

The industry’s green shoots are starting to emerge, looking quite different from the kind that proliferated during the boom years.

By Katie Benner Writer-reporter – Last Updated: May 22, 2009: 10:42 AM ET

NEW YORK (Fortune) — An industry lately synonymous with losses, liquidations, and fraud is showing signs of recovery. An uptick in new hedge funds suggests that investors are warming to them again. And trends among the newly launched funds show how that high-rolling world has changed in the aftermath of the credit collapse.

Hedge fund formation lay mostly dormant through February, says Bryan Hunter, a partner at Bermuda-based law firm Appleby Global, who structures and advises hedge funds. About 15% of funds shut down in 2008, according to Hedge Fund Research. At the end of the first quarter, the industry had $1.3 trillion in assets under management, down from about $2 trillion in 2007.

Investors began to open their wallets to new hedge funds this year, including startups by hotshots like Joshua Berkowitz, who left Soros Fund Management to start Woodbine Capital in January, and Christopher Pia, who left Moore Capital to start Pia Capital in March.

Despite the steep declines of last year, the industry is starting to regain its allure because of the evident opportunities as the economy bottoms out and starts to recover, says Tom Kreitler of C.P. Eaton Partners, a firm that helps institutional investors place money with hedge funds.

Many new funds are for distressed investments: debt, asset-backed securities, and investments taking advantage of the government’s Term Asset-Backed Securities Loan Facility (TALF). However, managers are also getting back to basics with traditional long/short equities funds.

“Markets are extremely mispriced and inefficient in many areas,” Kreitler says. “There has also been a large reduction in the number of funds; and proprietary trading at the old investment banks, which took out a lot of investment opportunities, has almost ended. Any strategy that uses some asset mix of equities, debt or currencies could succeed given the current dislocation.”

Even so, launch activity is modest. While about 2,000 new funds were launched in 2005, according to Hedge Fund Research, the industry may not even see a tenth of that activity in 2009, many fund-of-funds managers say. This is a good thing given how overcrowded the industry was, says Randy Shain, vice president of First Advantage, which performs independent background investigations.

“The apex was near when everyone and their brother could become a hedge-fund manager. It was a time of easy money and few barriers to entry, but many of those managers probably weren’t going to succeed,” says Shain. And investors were more than willing to fund the boom, lured in by the promise of huge returns.

New funds are also smaller this time around because it’s still hard to raise money, says Jayesh Punater, CEO of Gravitas Technology. Joshua Berkowitz, for example, launched Woodbine with about $200 million; industry experts say he would have launched with $1 billion out of the gate two years ago.

Startups are saving money whenever they can, which often means outsourcing everything that is not part of the proprietary trading strategy. For example, this could mean hiring a company like Gravitas to host back office IT needs like data warehousing.

Industry players see other changes afoot that they say should be beneficial for hedge funds and for investors. Among the themes that have cropped up among this year’s smaller class of funds:

Managers are scrutinized
Thanks to a steady stream of hedge-funds scams, investors won’t put money into new funds unless they’re run by managers with verifiable track records, says Harold Yoon, head of ING Investment Management’s fund of funds.

“We’re seeing established managers launch additional funds on top of those they already run. We’re also seeing well-known managers from established shops strike out on their own,” says Yoon. But it is nearly impossible for anyone else to raise money.

People are asking more questions of managers, says Shain.

“Managers are being asked about whether they’ve been sued before, their trading backgrounds, and what businesses they’ve run. It sounds mundane, but people who defrauded investors were accused of similar shady behavior in the past,” he adds.

Transparency counts
Although the industry is not yet heavily regulated, new funds are being launched with a consideration of best practices and transparency, says Punater. In short, the industry is shedding its Wild West image and becoming institutionalized. Investors want to see real business plans.

In anticipation of a slew of rules, new funds are more transparent in terms of investment strategy and holdings.

Fees are easing
Ten years ago, 1 and 20 was the standard for funds, says Yoon. This means that managers charged investors a 1% fee on their assets just to manage the money and took a 20% cut of the profits. He says fees grew during the bubble years, to an average 2% of assets under management and 20% performance fees. Some players, like SAC, charged up to 3% management fees and 50% performance fees. But investors are balking at such steep payments, and some new funds are offering less onerous terms.

Lockups are looser
New funds may be more flexible about locking up investor money. Managers will want to keep money for longer periods to match illiquid trading strategies, or they may allow investors to redeem their money more frequently, say observers. Either way, new funds will be clear about their terms. Investors are still upset about managers who took them by surprise when they imposed gates and suspended redemptions during the credit crisis.

While these changes are healthy overall, it is largely up to investors whether they are permanent. Says Yoon: “They won’t stick if investors encourage and fund bubble behavior all over again.”

First Published: May 22, 2009: 10:16 AM ET
Find this article at:

http://money.cnn.com/2009/05/22/pf/funds/new_hedge_funds.fortune/index.htm