I don’t think I’m missing that — it’s the most obvious explanation. And as I’ve said, if this is just “normal course of business” stuff, then all is well.

The thing about that is, however, 7.4% expected increase in rent.

Presumably, a 7.4% increase in rent for a large multi-family operator translates to far stronger cashflows that can be used to service debt. Selling assets that are expected to increase in value by that much, in the middle of a market where homeownership is going to decline, makes me wonder, that’s all.

Raising capital to make further investments makes sense, but selling multi-family assets that are going to generate 7.4% more cashflow in 2008 to fund new purchase/development sounds… I don’t know… suspicious?

-rsh

I don’t think I’m missing that — it’s the most obvious explanation. And as I’ve said, if this is just “normal course of business” stuff, then all is well.

The thing about that is, however, 7.4% expected increase in rent.

Presumably, a 7.4% increase in rent for a large multi-family operator translates to far stronger cashflows that can be used to service debt. Selling assets that are expected to increase in value by that much, in the middle of a market where homeownership is going to decline, makes me wonder, that’s all.

Raising capital to make further investments makes sense, but selling multi-family assets that are going to generate 7.4% more cashflow in 2008 to fund new purchase/development sounds… I don’t know… suspicious?

-rsh

“We’ve been through many tough markets before, and from a financing standpoint, this is one of the toughest,” he said. “All the lenders I have are working with us, giving us extensions on loans that are coming due.”

He was only able to pay aggressive values for properties due to some very favorable debt that provided high leverage at a low cost. With the credit markets collapsing lenders are unwilling to do that today. After all, all commercial debt is eventually securitized and sold to investors. Are investors excited about buying asset backed securities today?

As a consequence, bank are tightening up and refusing to provide leverage. On top of that, they are highly scrutinizing appraisals. Apartment brokers in Southern California are already experiencing this as values for apartments are falling, even as rents rise (or stay stable) and occupancy remains solid.

Commercial real estate had its own version of the “sub-prime” loan. With it now gone the only consequence is falling real estate values- just like homes.

“We’ve been through many tough markets before, and from a financing standpoint, this is one of the toughest,” he said. “All the lenders I have are working with us, giving us extensions on loans that are coming due.”

He was only able to pay aggressive values for properties due to some very favorable debt that provided high leverage at a low cost. With the credit markets collapsing lenders are unwilling to do that today. After all, all commercial debt is eventually securitized and sold to investors. Are investors excited about buying asset backed securities today?

As a consequence, bank are tightening up and refusing to provide leverage. On top of that, they are highly scrutinizing appraisals. Apartment brokers in Southern California are already experiencing this as values for apartments are falling, even as rents rise (or stay stable) and occupancy remains solid.

Commercial real estate had its own version of the “sub-prime” loan. With it now gone the only consequence is falling real estate values- just like homes.