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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (34007)	4/1/2009 10:25:53 AM
From: peter michaelson	Read Replies (1) \| Respond to of 78778

I wonder what the strip malls with potholes in the parking lot in dumpy neighborhoods are going for (WRI investors may care) I know of a KIM strip mall of your description here in Oregon listed at about a 9.5% cap. That's why I'm skeptical of the Hancock 9.5%.

To: Spekulatius who wrote (34007)	4/1/2009 11:52:08 AM
From: peter michaelson	Read Replies (2) \| Respond to of 78778

This sounds to me like a 6.7% cap rate on John Hancock Tower. $380 per square foot. "In a foreclosure auction today, the John Hancock Tower - a marquee building in Boston - traded at $660MM to Normandy Real Estate Partners. That same property was appraised for $1.3BN in 2006 and traded for $935MM in 2003. This is VERY negative for commercial real estate. At face, it looks like even top quality assets are down 50% from their peak, but that forgets the value of the financing that Normandy now gets to assume. There will still be a $640.5MM mortgage on the property at a rate of 5.6%. What is the value of being able to get a 97% LTV loan at 5.6% these days? Let’s say you can get a 60% LTV mortgage ($400MM) at 8%, and the other $240MM in mezz financing (which has no chance of getting done in this market) could hypothetically get done at 15. That combination produces a weighted average financing cost of almost 11%. A 5.6% mortgage at 11% yield is about a 70 $px, which means the value of assuming the existing financing on the Hancock Tower is close to $190MM. The real clearing level for the top commercial property in Boston was only $470MM - down 65% from 2006 levels and down 50% from 2003 levels. If we assume 2008 NOI numbers are still accurate, this would be a 9.5% cap rate adjusted for the financing. Without adjusting for the value of financing, the purchase price of $660MM looks like a 6.7% cap rate and $383/sqft - rich, relative to 1540 Broadway (NY office vs Boston office) recently clearing at ~$400/sqft. housingwire.com