Monday, June 15, 2009

A Quick Trip in the World of CRE Informational Asymmetry, GE Edition

Unless you've been under a rock (which is not a bad idea, these days), you probably know that not all is wonderful in the otherwise wonderful world of Commercial Real Estate (aka CRE). For many years, CRE was the land of milk and honey, with ever-falling cap rates and buoyant consumer spending helping retail businesses of all kinds expand. Today we had the Lightstone Chapter 11 filing (d/b/a Extended Stay hotels). Last week, there was the perfect commercial REIT IPO with the ticker GOV, based on their major tennant. That went, well, not quite as planned. IPO price $20, current price $18.80. Then you have the General Growth case, with Ackman being all over it both in the equity and providing the DIP. You can even see his overly optimistic, in my view, presentation here. What if the cap rates hit 12% vs. 8%, Bill? What if retail spend drops another 20%?

Anyway, last night I ran across what might well be a great example of a situation with informational asymmetry. Our friends over at GE have a huge CRE business, in case you did not know. So they set up this site, called ge1031.com, which welcomes you with this:

"This web site provides you with a quality selection of triple-net leased restaurant properties that are ideal for 1031 "like-kind" exchange replacement investments. We offer national and regional restaurants representing some of the largest and best known chains throughout the country.

We have been investing in the restaurant industry for more than 30 years and can work with you to quickly locate the property that meets the financial goals of you or your client."

What is happening here?

1. Big picture, GE with self-reported more than 30 years of experience is selling: should you be buying?

2. They are trimming their exposure to a highly cyclical industry (restaurants) which might well be in for a hard readjustment to the "new" normal: should you be buying?

3. They are going after 1031 money: could this be that no bank in its right mind would underwrite a loan for something like this and 1031's have tight deadlines? Should you be buying?

4. "Make an offer" tab on the listings: should you be buying?

5. They also helpfully link to their 100+ vacant building listings on loopnet. Nice touch to have the empty shells there: should you be buying?

As always, caveat emptor.

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