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Reggie Middleton

Reggie Middleton

Who am I? Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I…

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I Am Still Developing My REIT Thesis

Thus, the first of the two reports for subscribers will probably be pushed off until next week. We had a problem sourcing market rents for some of the properties in the REIT's portfolios and I prefer to use actual numbers in lieu of assumptions so it took a little longer to populate the models as well.

I will discuss the rejects from the short list today, though. One aspect of crystallizing the thesis is dealing with the obvious manipulation that is occurring in the REIT space (see Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!) as well as government complicity in the purposeful opacity of the values of the mortgage assets (see the FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th, as reported by the WSJ: Banks Hasten to Adopt New Loan Rules and the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined").

There is also the issue (as the previous link illustrates) of the sell side apparently hell bent on pumping this sector, which very well may succeed in further separating price from value, and fiction from fact. See Is Goldman Preparing To Upgrade The REIT Sector? It is quite possible that I may issue a direct challenge of research and opinion, comparing my work and thesis directly against the titans of Wall Street, eg. the (overly) esteemed Goldman Sachs. I will need very high volume (new) media outlets to counter their reach, but I believe I may be able to accomplish that. Stay tuned, this may very well get interesting!

The delay in the thesis development stems from my trying to surmise if the actual state (as in the explicit overvaluation, portrayed in a property by property fashion, rolled up to an entity level number) of the collateral properties in question were actually released into the public domain, would it cause an "everyman for themselves" dash for liquidation. The European bank that asked me all of those questions in 2008 about my GGP work - see "GGP and the type of investigative analysis you will not get from your brokerage house"- (which I never charged them for), should be VERY greatful they followed my heed and chose not to refinance those loans!

After all, prudent participants should realize that we are not going to see 2006-7 pricing anytime soon and kicking the can down the street in anticipation of such is bound to end worse than where said banks/lenders happen to stand right now. That is, unless they are trying to build up other revenue streams in anticipation of creating a cushion for the inevitable CRE hit. The problem with that thesis is the longer you wait, the bigger the CRE hit will be. With that being the case, those who snatch their crumbs off of the table first, get more crumbs to snatch. It is possible, if given the correct selfish incentive, capitalism may again rear its eclectic head.


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