Monday, January 25, 2010
It's got to be one of the great ironies of the global property crash.
Allied Irish Bank, already hobbled with toxic debt from Irish property buyers, is now the partial landlord of some 25,000 people in 11,227 units in New York.
AIB is one of three banks which financed Tishman Speyer and Blackrock's $5.4bn acquisition of Stuyvesant Town and Peter Cooper Village, the historic 80-acre apartment complex on the Lower East Side, in what was the most expensive real estate deal EVER in America.
The 2006 purchase sparked near revolt by the mostly rent-controlled residents at the two complexes over Tishman Speyer and Blackrock's planned high-end rental flip.
TS&B planned on renovating the apartments and building new amenities like a gym and gardens and then raising the rents substantially beyond the reach of the city's workers who made their homes there.
It would gentrification, high-end style.
However, the developers - who are supposed to be some of the cleverest people in real estate - bought at the very top of the market and have never been able to finance their vision.
They spent the past two months scrambling for a deal to cover their $3bn debt.
To add salt to their over-extended wounds, New York's highest court told them their "improvements" so far weren't enough to warrant rent increases.
AIB and the other two banks sent a formal letter to TS&B a few weeks ago warning that they could be subject to foreclosure.
Such a foreclosure would be the second-largest default of a US commercial mortgage-backed security.
Monday, TS&B said they would turn over the properties to the AIB and the other two creditors.
Of course, this is now uncharted water for AIB and its shareholders.
On Wall Street, they were all known as "quants," traders and financial engineers who used brain-twisting math and superpowered computers to pluck billions in fleeting dollars out of the market. Instead of looking at individual companies and their performance, management and competitors, they use math formulas to make bets on which stocks were going up or down. By the early 2000s, such tech-savvy investors had come to dominate Wall Street, helped by theoretical breakthroughs in the application of mathematics to financial markets, advances that had earned their discoverers several shelves of Nobel Prizes. PDT, one of the most secretive quant funds around, was now a global powerhouse, with offices in London and Tokyo and about $6 billion in assets (the amount could change daily depending on how much money Morgan funneled its way). It was a well-oiled machine that did little but print money, day after day. That week, however, PDT wouldn't print money—it would destroy it like an industrial shredder. The unusual behavior of stocks that PDT tracked had begun sometime in mid-July and had gotten worse in the first days of August. The previous Friday, about half a dozen of the biggest gainers on the Nasdaq were stocks that PDT had sold short, expecting them to decline, and several of the biggest losers were stocks PDT had bought, expecting them to rise. It was Bizarro World for quants. Up was down, down was up. The models were operating in reverse. The market moves PDT and other quant funds started to see early that week defied logic. The fine-tuned models, the bell curves and random walks, the calibrated correlations—all the math and science that had propelled the quants to the pinnacle of Wall Street—couldn't capture what was happening. At the time, few quants realized what was happening, but over the next few days a theory would emerge: The U.S. housing market was unraveling, leading to big losses in the mortgage portfolios of banks and hedge funds. One or more of those hedge funds needed to raise cash quickly to make up for the losses, and needed to sell assets quickly to do so. And the easiest-to-sell assets of all were stocks, those held in portfolios highly similar to quant funds across Wall Street.
Thursday, January 21, 2010
Every air traffic controller will agree: the pressure is intense and each shift is underlined by the fear that one mistake could be fatal.
In Spain, however, there’s another worry on their radar. A storm has followed the discovery that some controllers are earning more than £800,000 a year.
The revelation that Spain’s air traffic controllers can earn ten times more than their Prime Minister — and more than 50 times the average salary — has provoked outrage, while presumably raising more than a few (concentrated) eyebrows among lesser-paid counterparts across Europe.
The soaring salary scale was revealed as the country’s socialist Government announced plans to cut the cost of its loss-making airports, run by the state operator Aeropuertos Españoles y Navegación Aérea (AENA).
Of 2,300 controllers, ten were paid between €810,000 (£725,000) and €900,000 last year. A further 226 were paid between €450,000 and €540,000 and 701 were paid between €270,000 and €360,000.
The average basic salary is €200,000 but most double or triple this amount by working overtime.
Friday, January 15, 2010
Sunday, January 10, 2010
Monday, January 4, 2010
The art-deco icon, which won global recognition through appearances in movies such as Stanley Kubrick's "Full Metal Jacket" and on the cover of Pink Floyd's 1977 album "Animals", has been derelict for over a quarter of a century.
It has already passed through numerous developers' hands since stopping power production in 1983 as Britain shifted to oil, gas and nuclear.
Developers now are courting investors for a 5.5 billion pound ($8.9 billion) redevelopment just as banks remain focused on unscrambling exposure to commercial real estate. The market has shown signs of recovery recently but is still treacherous.
"The building is likely to suffer major structural damage in five years if full repairs don't start before then," said Jeremy Castle, chief planning director at Treasury Holdings UK, the power station's current developers, referring to damage sustained after the roof was removed 20 years ago.
"We need to move fast to redevelop the site because the building is deteriorating quickly," he said.
The two-year downturn in Britain sliced almost 45 percent off average commercial property values. The Power Station's owners, who bought it for 400 million pounds in 2006, say its value fell by 15 percent in the six months to end-June 2009, causing the company to breach terms on some of its loans.
Battersea's imposing white brick chimneys have been a popular feature of London's skyline for almost 80 years, but its brickwork is held together by metal straps. Many bankers and financiers say plans to redevelop it are a commercial anachronism in a city obsessed with skyscrapers.
Castle's employer Treasury Holdings is an Irish property firm that controls the Battersea site through a 67 percent share in debt-laden Real Estate Opportunities (REO.I) (REO.L).
REO says the debt taken out to buy the station is still performing, but part of it, along with the majority of its loan book, will be transferred to Ireland's bad bank, or the National Asset Management Agency (NAMA) next year.
The Irish government is paying 54 billion euros ($78 billion) to buy risky commercial property loans with a combined book value of 77 billion from banks to clean up the legacy of excessive lending.
Saturday, January 2, 2010
“Once the bubble pops, our economic growth will stop,” warns Yi Xianrong, a researcher at the Chinese Academy of Social Sciences’ Finance Research Center. On Dec. 27, China Premier Wen Jiabao told news agency Xinhua that “property prices have risen too quickly.” He pledged a crackdown on speculators.
Although parallels with other bubble markets, the China bubble is not quite so easy to understand. In some places, demand for upper middle class housing is so hot it can’t be satisfied. In others, speculators keep driving up prices for land, luxury apartments, and villas even though local rents are actually dropping because tenants are scarce. What’s clear is that the bubble is inflating at the rich end, while little low- cost housing gets built for middle and low-income Chinese.
In Beijing’s Chaoyang district, which represents a third of all residential property deals in the capital, homes now sell for an average of almost $300 per square foot. That means a typical 1,000-square-foot apartment costs about 80 times the average annual income of the city’s residents.