Investing in Non Performing Loans (NPNs)

[peterb]

Econ prof has a point about rents. Since they are far more reliable than valuations, it’s a decent plan B should the valuations take a hit. But you may end-up being an out of state landlord. special kind of hell. But in a market that’s this heavily manipulated, risk is very high.

[clearfund]

Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.

[clearfund]

Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.

[clearfund]

Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.

[clearfund]

Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.

[clearfund]

Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.

[Allan from Fallbrook]

[quote=clearfund]Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.[/quote]

Clearfund: If you cite Wall St. and their “simple valuation tools”, you missed my point entirely and actually wind up making it for me. Digressing slightly, Wall Street’s valuation and risk modeling tools were actually anything but simple (unless you consider a sixteen page interlinked MS Excel spreadsheet simple). I did point out in my post that Wall Street and those valuations landed us in the mess we’re in.

Nope, when I refer to simple, I’m discussing a Balance Sheet driven investment model. You make a point of referencing historical values. What possible use are historical values in assessing a market like Las Vegas? Which period of time would you use? Last five years? Last ten? Twenty plus, with a COLA/inflation adjustment?

Any “investment” with a strong reliance on cash flow is, by its very nature, speculative. Do you feel strongly enough about your investment to guarantee occupancy and rents? I can point out no less than a dozen buildings in downtown San Francisco (FiDi) where the buyers sold the deal based on occupancy and rents. A quick glance at the news will show how this is working out. And, trust me, Las Vegas and Phoenix aren’t downtown San Francisco, especially when it comes to attracting Class A clientele.

Are you at all familiar with Heller Ehrman or Thelen in San Francisco? These were long-time law firms (Heller was 118 years old and Thelen was 84) domiciled in downtown SF. Both were anchor tenants in their respective buildings and both imploded in late 2008. They wound up taking the building owners down with them. My point is this: Using your investment model, clients like this would be considered “blue chip”, correct? In a CRE market like this, anything is possible, and a continuing, possibly accelerating downward trend is not only likely, but probable. No “transaction model” in the world can prepare for a Heller Ehrman or Thelen implosion, which tends to debunk your conservative underwriting approach entirely. Which is why I use speculation instead of investment.

[Allan from Fallbrook]

[quote=clearfund]Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.[/quote]

Clearfund: If you cite Wall St. and their “simple valuation tools”, you missed my point entirely and actually wind up making it for me. Digressing slightly, Wall Street’s valuation and risk modeling tools were actually anything but simple (unless you consider a sixteen page interlinked MS Excel spreadsheet simple). I did point out in my post that Wall Street and those valuations landed us in the mess we’re in.

Nope, when I refer to simple, I’m discussing a Balance Sheet driven investment model. You make a point of referencing historical values. What possible use are historical values in assessing a market like Las Vegas? Which period of time would you use? Last five years? Last ten? Twenty plus, with a COLA/inflation adjustment?

Any “investment” with a strong reliance on cash flow is, by its very nature, speculative. Do you feel strongly enough about your investment to guarantee occupancy and rents? I can point out no less than a dozen buildings in downtown San Francisco (FiDi) where the buyers sold the deal based on occupancy and rents. A quick glance at the news will show how this is working out. And, trust me, Las Vegas and Phoenix aren’t downtown San Francisco, especially when it comes to attracting Class A clientele.

Are you at all familiar with Heller Ehrman or Thelen in San Francisco? These were long-time law firms (Heller was 118 years old and Thelen was 84) domiciled in downtown SF. Both were anchor tenants in their respective buildings and both imploded in late 2008. They wound up taking the building owners down with them. My point is this: Using your investment model, clients like this would be considered “blue chip”, correct? In a CRE market like this, anything is possible, and a continuing, possibly accelerating downward trend is not only likely, but probable. No “transaction model” in the world can prepare for a Heller Ehrman or Thelen implosion, which tends to debunk your conservative underwriting approach entirely. Which is why I use speculation instead of investment.

[Allan from Fallbrook]

[quote=clearfund]Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.[/quote]

Clearfund: If you cite Wall St. and their “simple valuation tools”, you missed my point entirely and actually wind up making it for me. Digressing slightly, Wall Street’s valuation and risk modeling tools were actually anything but simple (unless you consider a sixteen page interlinked MS Excel spreadsheet simple). I did point out in my post that Wall Street and those valuations landed us in the mess we’re in.

Nope, when I refer to simple, I’m discussing a Balance Sheet driven investment model. You make a point of referencing historical values. What possible use are historical values in assessing a market like Las Vegas? Which period of time would you use? Last five years? Last ten? Twenty plus, with a COLA/inflation adjustment?

Any “investment” with a strong reliance on cash flow is, by its very nature, speculative. Do you feel strongly enough about your investment to guarantee occupancy and rents? I can point out no less than a dozen buildings in downtown San Francisco (FiDi) where the buyers sold the deal based on occupancy and rents. A quick glance at the news will show how this is working out. And, trust me, Las Vegas and Phoenix aren’t downtown San Francisco, especially when it comes to attracting Class A clientele.

Are you at all familiar with Heller Ehrman or Thelen in San Francisco? These were long-time law firms (Heller was 118 years old and Thelen was 84) domiciled in downtown SF. Both were anchor tenants in their respective buildings and both imploded in late 2008. They wound up taking the building owners down with them. My point is this: Using your investment model, clients like this would be considered “blue chip”, correct? In a CRE market like this, anything is possible, and a continuing, possibly accelerating downward trend is not only likely, but probable. No “transaction model” in the world can prepare for a Heller Ehrman or Thelen implosion, which tends to debunk your conservative underwriting approach entirely. Which is why I use speculation instead of investment.

[Allan from Fallbrook]

[quote=clearfund]Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.[/quote]

Clearfund: If you cite Wall St. and their “simple valuation tools”, you missed my point entirely and actually wind up making it for me. Digressing slightly, Wall Street’s valuation and risk modeling tools were actually anything but simple (unless you consider a sixteen page interlinked MS Excel spreadsheet simple). I did point out in my post that Wall Street and those valuations landed us in the mess we’re in.

Nope, when I refer to simple, I’m discussing a Balance Sheet driven investment model. You make a point of referencing historical values. What possible use are historical values in assessing a market like Las Vegas? Which period of time would you use? Last five years? Last ten? Twenty plus, with a COLA/inflation adjustment?

Any “investment” with a strong reliance on cash flow is, by its very nature, speculative. Do you feel strongly enough about your investment to guarantee occupancy and rents? I can point out no less than a dozen buildings in downtown San Francisco (FiDi) where the buyers sold the deal based on occupancy and rents. A quick glance at the news will show how this is working out. And, trust me, Las Vegas and Phoenix aren’t downtown San Francisco, especially when it comes to attracting Class A clientele.

Are you at all familiar with Heller Ehrman or Thelen in San Francisco? These were long-time law firms (Heller was 118 years old and Thelen was 84) domiciled in downtown SF. Both were anchor tenants in their respective buildings and both imploded in late 2008. They wound up taking the building owners down with them. My point is this: Using your investment model, clients like this would be considered “blue chip”, correct? In a CRE market like this, anything is possible, and a continuing, possibly accelerating downward trend is not only likely, but probable. No “transaction model” in the world can prepare for a Heller Ehrman or Thelen implosion, which tends to debunk your conservative underwriting approach entirely. Which is why I use speculation instead of investment.

[Allan from Fallbrook]

[quote=clearfund]Allan – How is buying a high quality building with conservative underwriting and an all cash yield (read: zero debt) north of 12% (based on rents well below today’s depressed rental rates) speculating? I’d call it investing. Sure, the investment could go south, but so could any other investment/company.

I seem to recall the bulk of wall st. firms and their “simple valuation tools” being way off the mark so I wouldn’t hang your hat on that analogy.

To me, investing is based on conservative/historical fundamentals, speculating is based the need for a rising market to make the deal work.

I would say that buying a newly constructed class “A” bldg on a great location at 50% of replacement value that needs 40% occupancy to break even is investing, not speculating.[/quote]

Clearfund: If you cite Wall St. and their “simple valuation tools”, you missed my point entirely and actually wind up making it for me. Digressing slightly, Wall Street’s valuation and risk modeling tools were actually anything but simple (unless you consider a sixteen page interlinked MS Excel spreadsheet simple). I did point out in my post that Wall Street and those valuations landed us in the mess we’re in.

Nope, when I refer to simple, I’m discussing a Balance Sheet driven investment model. You make a point of referencing historical values. What possible use are historical values in assessing a market like Las Vegas? Which period of time would you use? Last five years? Last ten? Twenty plus, with a COLA/inflation adjustment?

Any “investment” with a strong reliance on cash flow is, by its very nature, speculative. Do you feel strongly enough about your investment to guarantee occupancy and rents? I can point out no less than a dozen buildings in downtown San Francisco (FiDi) where the buyers sold the deal based on occupancy and rents. A quick glance at the news will show how this is working out. And, trust me, Las Vegas and Phoenix aren’t downtown San Francisco, especially when it comes to attracting Class A clientele.

Are you at all familiar with Heller Ehrman or Thelen in San Francisco? These were long-time law firms (Heller was 118 years old and Thelen was 84) domiciled in downtown SF. Both were anchor tenants in their respective buildings and both imploded in late 2008. They wound up taking the building owners down with them. My point is this: Using your investment model, clients like this would be considered “blue chip”, correct? In a CRE market like this, anything is possible, and a continuing, possibly accelerating downward trend is not only likely, but probable. No “transaction model” in the world can prepare for a Heller Ehrman or Thelen implosion, which tends to debunk your conservative underwriting approach entirely. Which is why I use speculation instead of investment.

[Jumby]

So Allan, let me get this right…this is no such thing as real estate investing? It’s only speculating? That’s what I get from reading you…

[Jumby]

So Allan, let me get this right…this is no such thing as real estate investing? It’s only speculating? That’s what I get from reading you…

[Jumby]

So Allan, let me get this right…this is no such thing as real estate investing? It’s only speculating? That’s what I get from reading you…

[Jumby]

So Allan, let me get this right…this is no such thing as real estate investing? It’s only speculating? That’s what I get from reading you…

[Author]

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