Value Acceptance
Sorry - we put a ton of leverage on rate-sensitive assets at the top of the market.
The 10 largest deposit accounts at Silicon Valley Bank held a combined $13.3 billion
"The bailout really did protect billionaires from taking a modest haircut" - Matt Stoller
"As soon as corporations and the wealthy run into trouble, elites trip over themselves, discarding both law and precedent, to rescue them," Gyauch-Lewis wrote, noting that federal regulators had to classify SVB's collapse as a "systemic risk" to the financial system—a disputed characterization—in order to legally guarantee deposits over $250,000…
"At bottom, the core reason SVB's depositors got bailed out had little to do with morals or even financial risk," Gyauch-Lewis argued. "It happened because they had rich and powerful friends with the ear of the president's chief of staff.”
The collapse of the money supply continues.
Get a magnifying glass.
Home price to Median Household Income Ratio I think the problem is much more the price than the rate, but then again I don’t make a commission based on prices, or get paid the property taxes.
Great new Grant’s Podcast with Michael and Samuel Ashner of Winthrop Capital Partners on Commercial Real Estate.
New York Community Bank didn’t take [Signature Bank’s] CRE loan book at all. About $11.9 billion of loans are now stuck with the FDIC [i.e., us], a large majority of which are loans on multi-family housing in New York City. The average origination date of those loans was in 2019, and the valuations attached to that were at a 4.5% cap rate. Now, the market? That’s a 7.5%, 8% cap rate, and widening still because…you can’t raise rents
On the topic of handing back the keys, Jim Grant asks, “Isn’t there reputational risk in this, or is real estate simply amoral?”
Let’s take multi-family in New York City. I think that’s going back to the banks before it’s going to come to us, because it needs to be dramatically repriced - they have both regulatory risk, and operational risk. By the way, New York isn’t alone.
Ashner: Everyone wants to talk about, “I want to get in on the distress” - you bring them a deal and they’re, “Ooh. I don’t know. The market’s rocky right now.”
‘I always wonder what happened to all the cash that was in private equity in 2007. Where’d it all go? It didn’t come to bail out real estate. There were very few distressed purchasers’
I can buy Vornado stock - I believe a great office company, I really do - I can buy it today, tomorrow, in out, whatever it is, I pay 3 cents to my broker to buy a share of stock…If I buy BREIT, and there’s a 4%, 5%, 3% commission - I’ve already lost…my dollar is turned into 95 cents, so I’m behind the 8-ball. If I don’t think that the BREIT people have more IQ points…if they’re not that much smarter, then their buying is not going to offset by that much the haircut that you take going in…everywhere, all of the pundits…say equity in real estate has gone down by 10%, 15% - whatever. Nevertheless, they’ve [BREIT] marked their real estate to a 25% premium to the purchase price per share. I don’t know. That strikes me as odd. - Ashner
From the comments to a December 2022 FT story: How the gates closed on Blackstone’s runaway real estate vehicle
“Blackstone has a problem.”
Where to begin with this mess?
First, with BREIT it doesn't matter how smart their investment team is. When you are that big, you end up just buying the market. Looking at the bar charts of the fund size, most of what they bought was in 2021 when rates were super low and valuations super high. The fact is the market is down. I don't care what Blackstone's nonsense valuations say. In reality property valuations are down materially, and rising rents aren't going to rescue them. Public REIT valuations are showing you what real valuations are likely to look like.
Second, if BREIT redeems at NAV, and NAV is artificially high, that creates an incentive to get out now. Essentially, by jumping ship now you get a peak valuation set by Blackstone's delusional internal valuation team. Not only that, to pay you out BREIT will have to the sell the most liquid, highest quality investments (such as the casino stakes they just sold). The guys who stay in will see their asset pool reduce in quality. This is classic negative selection.
The best way to stem outflows would be to immediately mark the portfolio substantially lower, but Blackstone don't want to do that for reputational reasons ("Sorry, we put a ton of leverage on rate sensitive assets at the top of the market..."). But a gated fund with constant cash calls also is a reputational burden. In other words, Blackstone has a problem.
I was listening to this back in December, and someone said, 'If I want to get out of $1 million of $SPG, I can do that instantly." Not so much with the private real-estate stuff...
Grant’s: How far in the process of price correction are we?
Ashner: Uh, just starting.
"If Blackstone REIT is 'mark to myth', then the venture capital funds are 'marked to fraud' almost, right?" - Le Shrub
Fannie Mae’s new appraisal options “Desktop appraisals” and “Value acceptance.”
Fundrise CEO Ben Miller ‘makes a compelling, detailed case for why our current economic situation is headed for a liquidity crisis.’ Prescient, from November 2022:
People always take the present as normal. We’ve been living in an abnormal period of near-zero interest rates. A policy that probably was meant to be temporary - zero interest rates - ended up lasting for fifteen years, and slowly but surely people and lenders and borrowers normalized to super-low interest rates.
Jim Chanos: A Short Thesis on Data Centers
“The insidious nature of really low cap rates…when you are paying 3 caps and 4 caps and 5 caps for commercial real estate, everything has to go right.”
I know I keep posting this but I keep looking at it in different ways:
Since 1982 this has only happened five times. The only time not on the chart the line went below zero was around May 1989, and the SPX fell about 20% from there by October 1990.
Sam Bankman-Fried’s Legal Defense Is Being Funded With Alameda Money He Gifted His Father Sure, why not.
UN Security Council Won’t Probe Nord Stream Bombing In other news, George W. Bush will not be investigating the origins of the Iraq War.
There are so many charts that look like this. A lot of crap went public in the past few years.
Always a fun read! LOL!
"At bottom, the core reason SVB's depositors got bailed out had little to do with morals or even financial risk," Gyauch-Lewis argued. "It happened because they had rich and powerful friends with the ear of the president's chief of staff.”
It's getting old: banking consolidation, J6 hearings, Nord Stream explosion, forced jabs, lockdowns, French pensions, it goes on - the one thing in common is that these were all unilateral decisions by a handful of leaders with virtually no pushback from government or media, and all of them contribute to the stratification of society.
Every major decision by our leadership in the last few years follows the same script of not allowing debate or resistance, and one major question remains unanswered: why? Are these just rhymes of all the other deviants and robber barons throughout history, or have we finally reached Armageddon?...