CNBC Squawk on the Street
May 14 2009
Transcript:
Let’s talk about the commercial property values. They’ve been sinking across the nation as foreclosures continue to rise. Our next guests see some opportunity through all the chaos. Joining us right now is Robert Maguire. He’s the Chairman and Chief Executive of Maguire Investments and one of the biggest commercial property owners in LA, and Philip Blumberg, who’s the Chairman and Chief Executive of Blumberg Partners. That’s a real estate management company. And our guest host Jeff Greene.
Gentlemen, thank you for joining us. I want to start things off with you, Philip. Where do you think we stand now in terms of commercial real estate? We know it’s a problem. We know things are getting bad. Is it better or worse than when you read in the media all of these headlines?
Philip Blumberg: I think it’s going to be getting significantly worse. Every job layoff pegs to our commercial real estate market. It’s a contraction in tenant space. The real story isn’t the performance in the market, it’s the debt. Think about this: in the next three years, 2010, which is when it really starts, to 2013, we’ve got about 300 million CMBS, of which 70 to 100 billion is not refinanceable. But to put it in real perspective, on top of that, there’s $1 trillion of bank loans. Britain is in the same time frame, with the same dubious underwriting coming due in that period. $1 trillion in bank loans. When you talk about the banking sector, we’re talking about a major impact, another blow to the belly of the banking sector when commercial real estate really hits. We’ve just seen the tip of the iceberg so far. 2010, 2013 it really hits.
Rob, you say the same thing. It’s not just the slowing economy, but it’s this reckless overleveraging, in your words, that has gotten us into trouble. are there still opportunities out there?
RM: Yeah. I think there are very significant opportunities. I think what we’re seeing is there’s so much money starting to come into the market with $9 billion of new equity offerings and, you know, Simon Properties just did $500 million of new debt, I think yesterday, at 7% for five years. Those are encouraging things. We clearly have not disappeared into the Bermuda Triangle. The black hole’s been avoided. But it’s going to be a long period. I think the TALF program is going to be very valuable both to set a basis on values and provide financing roughly up to 85% of about 50% of value. So I think that’s going to create very significant opportunities for lenders if they can get it moving in june. I’m sorry. if they can get a move — if they can get it moving in June. The program really looks like it can work.
Okay.
RM: And so it’s going to be a long period of time. I think there are going to be — I think the buying opportunity for trophy properties is going to be unparalleled. I don’t think we’ve seen anything like it in the last 15 years.
The caveat being you have to have cash or at least really good credit in access to some bank that will lend you the money?
RM: Yeah, absolutely. The banks are lending money, and the insurance companies aren’t lending money. So with TALF, I think it will probably result in a period of time.
Jeff, you’ve got a significant amount of property in apartment buildings and things that you own. What are you doing right now? As a way to take care of those properties and sending into other areas.
JG: Well, I mean, I’m very pessimistic about the economy. You look at today, 637,000 new jobless claims. 6.5 million jobless claims. We talk about the REIT as an example. Even though they raised $9 billion, to me it’s like a slow speed train wreck. You’ve got these REITs that own commercial buildings are dealing with several things. They’ve got leases that’s come up and have to renew them. They’re selling office buildings for multiple years. On top of that, the financing’s down to 4%, 5%. Not busy at all. The market would be at 8% or 9%. On top of that, if you look at the REIT, there’s an equity dissolution has happening. It’s a triple whammy for them. What I’m personally doing is trying to manage our portfolio. The real estate as effectively as possible.
So not making new purchases?
RM: I don’t see any signs the economy is doing better. You look at the signs and the statistics, we could have five years, seven years of slow growth. I haven’t really seen any offerings yet. There’s still a huge disconnect between what sellers are asking for properties and what buyers are willing to pay. There are no deals yet. There will be deals. What will happen is by the time the deals come along, everybody will be so beat up, they won’t want to buy anymore.
Philip, I see you nodding your head at that.
Philip Blumberg: My company is going to be participating in three areas. We sold our entire inventory by June. A year and a half ago we had a selling program going on because anybody in real estate who wasn’t motivated by fees understood credit was locking up. If credit was locking up, prices were dropping. So we exited and made 17.6% positive last year when the rest of the industry is turning negative. Based on — and we have no debt, we got a good test. What we’re looking at is three areas. I would agree with Jeffrey, if you’re talking about bricks and mortar, you better stay on the sidelines right now. There may be one-off deals, but the central process of buying trophy assets or large assets is going to wait a little bit. We’re looking at CMBS, originating loans under the TALF program that Rob mentioned. We’re looking at buying distressed debt. We have a lot of investors interested in us doing that. The second area, REITs. Commercial REITs are going to be suffering. They’re not well structured to go through a distressed time. We’re looking at buying REITs securities and possibly whole REITs. And finally third, and later, we’ll be in the bricks and mortar business again.
If you’re looking for money as an investor, looking for a place to put that money, what would that be?
RM: We’ve been kind of working in areas where we see good yields. We have a very promising natural gas play going on in Dallas, Barnett Shale, and we’re doing major aviation veflts. Made big leases, control of position at Van Nuys Airport. So we’re kind of seeing kind of midge opportunities where we can get attractive yields. I’m managing my own portfolio, which is 5 million feet outside of Maguire Properties, which is verily strongly leased, and waiting for opportunities. I agree. The big sales have yet to come to the market. There’s still a disconnect. I think that clearly will be happening. but it’s going to be a tough rebuilding period.
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