Via Fortune
Whether it's steel, textiles, or auto manufacturing, Wilbur Ross has built a lucrative career finding gold in industries left for dead.
He did it first at Rothschild, and since 2000 at his own investment fund, WL Ross & Co. To cite just one example, Ross bought bankrupt steelmaker LTV for $325 million in 2002, and sold it for $4.5 billion two years later.
As the economy continues to struggle, Fortune's Katie Benner sat down with the master of distressed investing to hear where prospects can be found in this turbulent time.
Where do you think the biggest opportunities are now?
There are deep value opportunities in insurance stocks, which were beaten down because of their exposure to the subprime crisis, annuities, and commercial real estate. I won't name names, but some well-managed life insurance and fire and casualty companies will come through this stronger. They used to trade at one or two times book value but now trade at three-quarters book.
Regional and subregional banks still have a lot of issues to resolve, and they have enough commercial real estate assets on their books to make most of them insolvent on a mark-to-market basis. Of course, they won't all mark their assets to market and their loans won't all go bad. But another several hundred banks will fail before we get through this cycle. We just bought Bank United in Florida for $925 million, and the FDIC is providing about $4.9 billion in assistance.
I still like TIPS (Treasury inflation-protected securities), and I think a big opportunity is coming in the municipal bond market. Even if it doesn't default, some state or local government will come close enough to scare everyone to death. That will be a wonderful buying opportunity.
And as one of the public-private investment managers for the Treasury, we have been buying lots of residential mortgage-backed securities. The price often more than discounts the problems that are ahead. After another year or so of property value declines I think that market will stabilize along with the securitization market. Securitization is a fundamentally sound idea, even if it was poorly executed.
How can we fix the securitization market?
No one had skin in the game. That's where things went wrong. My proposal then is that everyone has skin in the game. Ratings agencies' fees and compensation should be paid over time and depend on the enduring quality of the rating. Employees at banks and brokerages should have their compensation tied to the long-term success of their products. If a trader is paid a big bonus for a portfolio that turns out to be a disaster a year later, did he really earn the money he was paid?
What about commercial real estate? There are reports that you want to buy the near-bankrupt apartment complex Peter Cooper Village/Stuyvesant Town in New York City.
At some point commercial real estate will become very interesting, but not yet. The declines in value are not over. Stuyvesant Town is an early indicator of what's to come -- it's a poster child for the mistakes made during the boom -- and we are interested in it.
In the original deal for the complex, the financing was predicated on the idea that the apartments would no longer fall under rent control and that they would start generating a lot more cash. That never happened. There were also 11 tiers of mezzanine debt on the complex, which probably have no value. The debt was distributed into six or so commercial mortgage-backed securities that were sliced up and sold to investors.
So there's a huge pile of paper out there that is very affected by this deal. At some point these securities will fall in value enough to be attractive. But at the moment the prices don't reflect the problem environment that we see.
Continue reading "Mr. Distress is Ready to Buy" @ Fortune
Whether it's steel, textiles, or auto manufacturing, Wilbur Ross has built a lucrative career finding gold in industries left for dead.He did it first at Rothschild, and since 2000 at his own investment fund, WL Ross & Co. To cite just one example, Ross bought bankrupt steelmaker LTV for $325 million in 2002, and sold it for $4.5 billion two years later.
As the economy continues to struggle, Fortune's Katie Benner sat down with the master of distressed investing to hear where prospects can be found in this turbulent time.
Where do you think the biggest opportunities are now?
There are deep value opportunities in insurance stocks, which were beaten down because of their exposure to the subprime crisis, annuities, and commercial real estate. I won't name names, but some well-managed life insurance and fire and casualty companies will come through this stronger. They used to trade at one or two times book value but now trade at three-quarters book.
Regional and subregional banks still have a lot of issues to resolve, and they have enough commercial real estate assets on their books to make most of them insolvent on a mark-to-market basis. Of course, they won't all mark their assets to market and their loans won't all go bad. But another several hundred banks will fail before we get through this cycle. We just bought Bank United in Florida for $925 million, and the FDIC is providing about $4.9 billion in assistance.
I still like TIPS (Treasury inflation-protected securities), and I think a big opportunity is coming in the municipal bond market. Even if it doesn't default, some state or local government will come close enough to scare everyone to death. That will be a wonderful buying opportunity.
And as one of the public-private investment managers for the Treasury, we have been buying lots of residential mortgage-backed securities. The price often more than discounts the problems that are ahead. After another year or so of property value declines I think that market will stabilize along with the securitization market. Securitization is a fundamentally sound idea, even if it was poorly executed.
How can we fix the securitization market?
No one had skin in the game. That's where things went wrong. My proposal then is that everyone has skin in the game. Ratings agencies' fees and compensation should be paid over time and depend on the enduring quality of the rating. Employees at banks and brokerages should have their compensation tied to the long-term success of their products. If a trader is paid a big bonus for a portfolio that turns out to be a disaster a year later, did he really earn the money he was paid?
What about commercial real estate? There are reports that you want to buy the near-bankrupt apartment complex Peter Cooper Village/Stuyvesant Town in New York City.
At some point commercial real estate will become very interesting, but not yet. The declines in value are not over. Stuyvesant Town is an early indicator of what's to come -- it's a poster child for the mistakes made during the boom -- and we are interested in it.
In the original deal for the complex, the financing was predicated on the idea that the apartments would no longer fall under rent control and that they would start generating a lot more cash. That never happened. There were also 11 tiers of mezzanine debt on the complex, which probably have no value. The debt was distributed into six or so commercial mortgage-backed securities that were sliced up and sold to investors.
So there's a huge pile of paper out there that is very affected by this deal. At some point these securities will fall in value enough to be attractive. But at the moment the prices don't reflect the problem environment that we see.
Continue reading "Mr. Distress is Ready to Buy" @ Fortune
What an ugly looking guy...sort of like a weasel...reminds me of Scrooge...can you imagine the pride he must feel flaunting the nickname Mr. Distress?! The predatory ghouls of the Tishman-Speyer ilk, the Lefraks, the Wilbur Rosses of the world...for all their billions they are truly morally and spiritually bankrupt.
Believe me Wilbur for all your mamon the hangman awaits you too.
Like him or not, take note of what he said in that article.
If he sees ANY value in the mezz debt then he probably believes that the first mortgages will be made whole. How much is the mezz debt worth? Who knows but I wouldn't say more than 20 cents on the dollar if that.
So where does that leave us? Somewhere around $3.5 billion. At that price, there will be no $100,000 apartments. A fully capitalized cost for an 'average' apartment (whatever the heck that is) would be in the $300k range. Whether it is paid outright in a condo conversion or partially financed in a co-op structure, that looks like the price to me.
No idea where we sort out with respect to the liability represented by the recent court decision. Perhaps that comes off the top. Perhaps not. Depends on how badly a buyer wants the place. My guess is that someone is going to eat it as there is a value to doing a deal of this size given current R/E prices.
In the end, we should all be ready to pay $1 more than Mr. Ross is ready to pay. That would probably represent a good deal for the tenants and is going to be necessary to make sure that he is not our landlord.
What do you think, Zig?
Who is Mike Alcamo? Where did he come from? Where did he get his pie-in-the-sky pricing scheme? What is he really up to? Just because he is self-promoting with his photo all over T&V, does that make him more credible than the Tenants Association board? The TA has been around 40 years working on behalf of tenant rights and affordable rents. Why is Mr. Alcamo putting out false hope and trying to divide the tenants? Has anyone given any thought to these questions? Ziggy and StuyinEyePetie and others are skeptical about signing the TA pledge, but you're ready to believe anything this unknown entity - Michael Alcamo - tells you. Is it because he says what you want to hear even if it isn't based in reality? Come on people. Think!
I don't think that any of the people you cited have any faith in Alcamo or his lowball numbers.
I know I don't.
As for why he is making these claims, I haven't a clue. Do you?
No, lifer, I don't know why Alcamo is making the claims that he is. But I certainly think it is presumtive of him to call his organization the Owners Association before there is a legitimate owners association.
If he is touting an open market sale, then his financial predictions are just plain wrong. I don't see how anyone with a faint understanding of the financial hole we're in could realistically believe numbers that low.
The ONLY way that could happen is if we can score a deal to keep this place permanently affordable, but Fannie needs to basically forgive the mortgage for that to happen.
Correct.
That said, I tuned out immediately when I saw the numbers he was proposing. Struck me as delusional --unless he was planning on subsidizing he difference himself.
Then we have something to talk about.
How do you figure that? In that scenario they would basically be giving us the place. That's not going to happen. That's a pipe dream.
If you are counting on wiping out the senior lenders as part of the plan going forward, perhaps it is best that you explore other options. It ain't gonna happen.
I think we should expect to pay near market (whatever that may be at the time) if a purchase is involved. If we are not ready to pony up that kind of cash, someone else will. (pls. see comments by W. Ross in previous story...)
My one reason for a condo conversion: predators like this
guy who want to come in and do exactly what Tishman
failed at. Between that and the real fear that rent laws will
sunset in '11, I'm real interested in protecting my home.
Geez, I think most everyone is on the same page on that one. It pretty much boils down to the price.
The decision point in '11 is just over a year away. I would doubt this thing is resolved by then. Hopefully, the R/S laws are extended again. This would be good for us in two ways: existing protections remain in place and the value of the property would remain depressed--making a purchase more viable.
Oh, I'm not expecting it to happen, but I'd love to see it.
I think we should be focused on what is possible as opposed to what is desirable but basically impossible.
Let's see what the mucky mucks have to say on Saturday before we commit our energies either way. One never knows what's possible without all the facts, and while we have a real good general idea, we don't have them all, just yet. But I hear ya.
Bold prediction for Saturday: lots of hype and hope, no specifics.
Bear in mind TS hasn't even handed over the keys yet! Said they would do it two months ago but here we are, SSDD.
The first round of court battles between the creditors has yet to begin.
How does anyone expect to get specifics of a deal. There is no deal to be had at this point and not likely for some time to come.
I checked Mike Alcamo out on LinkedIn (Google, people!). He's president of M.C. Alcamo & Co., "Private equity and investment banking firm focusing on mergers and acquisitions in media and communications, and complex workouts, both domestic and international."
His specialties: "Experienced mergers and acquisitions professional and private equity manager. Industry expertise: television broadcasting, exhibitions, education/ training, consumer media.
We originate and advise strategic sales of businesses or assets; principal transactions in private equity; and workouts of illiquid or problem assets for institutions and family offices."
He's the treasurer of the Stuyvesant Park Neighborhood Association, so I guess he lives nearby. He was chairman of Southwest Media (publishing), co-chairman of APN Media (guidebooks), and general partner and CEO of HPJ Media Ventures Fund (private equity and buyout fund). He's also a lawyer.
Nice digging!
A search of all documents filed with the SEC relating to publicly traded companies for the past 14 years (that's as far back as I can go) did not yield a single hit with his name or the name of his firm.
I would assume that he has never been involved with a concern of this size or even anything close. If he had worked as counsel on a deal with Comcast, Time Warner, ABC, NBC, CBS, Disney or even pipsqueak Premier Exhibitions, his name or the name of his firm would probably appear in one of the filings related to one of these or some other company. There's just nothing there.
My guess is this guy is a lightweight and a poser.
I don't know why he is quoting these preposterous numbers, but I know people who live here who actually believe him--wishful thinking, I guess. (I was at a dinner party the other night where someone was saying that we could buy our apts. for $105,000).
Me, I'm starting to think about where else I could consider living after 2011.
And be sure to visit him on the web:
http://www.mcalcamo.com/
Alcamo's figures are ridiculous. Unfortunately, he's giving the naive out there false hope. Until a legitimate appraisal of the property takes place, no one can determine what individual apartments here might cost.
Has anyone else noticed that Alcamo has dodged all the hard questions that he's been asked on his Facebook page? How come? Makes me very, very suspicious. I think that he's up to something that benefits him financially, but doesn't wanna let people know that. Who knows maybe he's even a shill for Wilbur Ross or Donald Trump.
Personally, I think he's behind the anonymous "Survey" that appeared in T&V last week. Who in their right mind would answer that kind of thing and give such personal information when they don't know who they're even giving it to. You gotta be nuts or very naive to do that. Did anyone else notice that the responses are going to the T&V office? What's up with that? Very weird.
Hold on Patriot -- Please don't align me with Mike Alcamo. I never even heard of him until I read this, nor do I know the basis of his figures.
Mike Alcamo? Why he is a member of the PCVST owner's association since 2/10/10 and even bought them a domain name!
http://www.stpcvoa.com/
It looks like the outfit has been around since 2006.
Thanks for the avatar. I don't photograph well either. ;-)
His website reads like a cooked up resume.
Love his interview photo, taken in front of the phone store in ST at 19th & 1st.
http://www.mcalcamo.com/071015%20Michael%20Alcamo%20-%20US%20Flashwire%20Weekly%20Vol%204%20No%2027.pdf
CW Capital, HEROES. I just half heard something on WNYC-FM. CWC; Wells Fargo; Harlem; an auction; tenants hugging attorneys. Then the punchline that the "winners" will probably hold it for a year and resell it. Best I can do at the moment. Sorry about that. If it was next week I would swear they were talking about us.
http://www.crainsnewyork.com/article/20100311/REAL_ESTATE/100319977
Are you being facetious or did CWC actually help the tenants?
I believe the tenants FELT helped. Put 93.9 FM on now. They'll probably tell it again.
Wow. Nice!
"facetious"
You hurt my feelings with that one. Never mind you went to Associated without asking me if I needed anything after you threw my back out like you did!
RR, wanna meet for coffee? :-)
I just bumped into a friend of mine and she told me the TA and Michael Alcamo will be doing something with petitions from 5:30 to 8:30 in the oval tonight. We were wondering what that's all about.
? If they are , why aren't they at the least posting this to the TA website????
grrrrrrr
Not sure. She heard about it through a friend who didn't know much other than they were going to be there and something about them signing petitions.
Sorry to be so vague.
Oval Lady is right. The TA and Michael Alcamo are going to be at the Oval tonight, presumably in one of the Oval Atrocities, from 5:50-8:30 trying to get people to sign their petitions.
The thlot pickens...
Exactly.
I thought we went through the Alcamo situation already. IMHO, this guy is in it for the money. He has some sort of personal angle, I can smell it.
How he has snookered the TA into this is puzzling. I smell a disaster brewing.
BUT WHY DON'T THEY TELL any one? here or a mass email?
i don't understand.
This is why I will not renew my TA membership and refuse to sign their bloody pledge.
petitions for what?
From my understanding the TA's petitions/pledges are different from whatever Alcamo is doing. They are two separate things. I'm not sure why they are doing this thing at the same time / place though. Guess we'll all have to go and check it out! ;)
In order to run for the Board of the Tenants Association, you need 35 paid-up members to sign a petition supporting your candidacy.
I doubt very much that the TA and Michael Alcamo are partners (although there probably are individual TA Members and Board Members who share Alcamo's apparent goal of converting ST/PCV to unlimited profit co-ops or condos).
In today's Town & Village, Michael Alcamo said that he would sign the petitions of people running for the TA Board.
Sounds a little fishy to me. If the TA is partnering with Alcamo and/or he is doing them a favor it's like they're doing a deal with the devil. How come we haven't heard about tonight's event from the TA itself? Their lack of transparancy is what has turned a lot of people off.
I just walked by, it's a whole lot of nothing. They are by the fountain. John Marsh from the TA is collecting unity pledges, and Alcamo is doing whatever it is he does. Garodnick is there too. If you blink you'll miss them.
The TA and Alcamo are not partnering together on anything. They just happen to be on a date tonight :)