johnthebear

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  • Housing Market Tracker - Commercial RE May Falter, but CMBS Looks Tempting
    It was reported that General Growth Properties and Simon Property Group are planning to sell shares to raise cash, which would dilute current shareholders value. This is comparable to a recent experience in England. The press in England reported that capitalization rates in England were lower than mortgage rates and the REIT was forced to sell shares to raise cash for redemption's. With rising mortgage rates and thus cap rates, it will be difficult to sell even prime office buildings that are fully leased without significant discounts.

    In looking at the balance sheet of Simon Properties, the long term debt was reported to be $19 billion in real estate which was financed with $17 billion in long term debt. I question the terms of the long term debt. Moody's reported in the first half of 2007 that 59% of the mortgage debt for commercial properties was interest only! They also reported the loan to value ratio was typically 110% or more. Talk about leverage!

    So, the reason for the sale of shares may be that the short term, interest-only loans at substantially higher interest rates have pushed Simon to the point of collapse. Could this be true?
    Mar 25 23:50 pm |Rating: 0 0 |Link to Comment |View article

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