A Case Study Of Toxic Commercial Real Estate Marketed By A Major Investment Bank

[Joanne98]

Many readers have queried how it is that investors could be so stupid to invest capital, either secured, mezzanine or heaven forbid, equity, in commercial real estate properties over the past several months. Zero Hedge would like to present some of the key pages from an investment solicitation book prepared by a major investment bank, which delineates just how it was that some of these very firms that now report massive profits, effectively took a complete piece of excrement and repackaged it as something that investors may actually generate returns on.

The property in question is a mall at 8000 Sunset Boulevard, and the time the deal was originally circulating was November 2008: even back then the property was only 76% occupied. The bank is attempting to sell a $32.3 million pari passu interest in a $61.2 million senior mortgage loan secured by this property and is asking a price in the 80 cent ballpark. Here is what a willing investor would buy for that price.

Here is the initial property overview: one can see indicative rent terms for some recent lease renewers. What is hillarious is that one of the tenants which recently filed for bankruptcy, not only expanded its square footage, but also paid a more than 50% higher rent. And one wonders how it is possible that comparable firms' equity sponsors allow this kind of stupidity. Does a property like 8000 Sunset believe that maintaining such "market" rents by bankrupt tenants is feasible? One can only hope that potential investors would ask themselves the same question.

Continued>>>
http://www.zerohedge.com/article/case-study-toxic-commercial-real-estate-marketed-major-investment-bank

[MercutioATC]

1. I read it. It's some spooky stuff.

The only explanation I can come up with is that they're hoping for either an investor not doing due diligence (doubtful) or a REIT TARP.

This is a stellar example of "polishing a turd".