New loan tool challenges old prices
February 13, 2009 12:15PM By Adam Pincus
Stuyvesant Town
A loan calculator created by a Soho-based lender provides a cautionary lesson for high-priced apartment portfolios purchased in recent years.
Avant Capital Partners developed a formula to quickly estimate loan sizes for multi-family rental properties valued between $1 million and $35 million for non-institutional purchasers. The tool gives the layperson a way to estimate the value of properties, which is generally a mysterious process.
Although the system was not developed to price massive portfolios such as Stuyvesant Town and Riverton Houses, entering basic financial data from those portfolios yields loan values two to five times lower than what was lent during the easy-credit days in 2006 and 2007. Estimated values were determined using the most recent, publicly available data for revenue, expense, vacancy rates and net income.
Adam Luysterborghs, managing principal at Avant Capital Partners, said although the function was developed to help price much smaller buildings, the differences between the suggested loan amount and the actual loans are enormous.
"This exercise puts into stark relief how [underwriting] guidelines have changed for multi-family [properties] and also how aggressively landmark, large-balance transactions were underwritten in the recent past," Luysterborghs said.
Stuyvesant Town was purchased by Tishman Speyer Properties and BlackRock Realty in 2006 for $5.4 billion with $4.4 billion in total debt, but the loan calculator valued the property at $2.3 billion with a maximum loan of $1.6 billion.
Riverton Houses, owned by Stellar Management, has a $225 million first mortgage, yet the calculator reported it should be valued at just $68 million, with only $45 million in loans recommended.
An official with Stellar Management, who asked not to be identified, said the $68 million price was absurdly low. Recent published reports put the value at about $180 million.
The Savoy in Harlem, owned by Apollo Real Estate Advisors and Vantage Properties, reportedly has $367 million in total debt, while the calculator said it should be priced at $126 million with only $84 million in loans.
A spokesperson for Tishman Speyer declined to comment and Vantage Properties did not respond to a request for comment.
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Comments
Anonymous
Nice unpaid advertisement for Avant Capital Partners - Loan values are not hard to understand - they are a function of building worth which SHOULD BE directly correlated to income (and operating expense). We do not need a calculator to tell us that a loan whose carrying costs exceed gross income (in a rent stabilized building) is going to default.....you just need common sense
Comment #1 Posted By: Anonymous 02/13/09
Anonymous
It is amazing how much underwriting standards have changed over the last year. These buyers certainly paid top dollar for the priveledge of owning landmark properties.
Comment #2 Posted By: Anonymous 02/13/09
Anonymous
Underwriting standards and real estate values have changed drastically in recent years, as cap rates dropped to unhealthy levels and creative lending was a common practice. In the current climate, we are seeing a normalization of values and a rapid move back to common sense underwriting in the industry. The expectation of Borrowers, however, may be slower to catch up, as they do not always have insider access to changes affecting lending parameters, nor do they always know exactly how an underwriter evaluates a property's income and expenses. Many have become accustomed to the more aggressive products that were widely available before, as well as having a hundred lenders competing for their business, each offering terms better than the previous. With fewer sources of financing available and more conservative lending practices, a simple tool such as this can provide a lot of value, as it helps set expectations and ultimately, helps investors make wiser decisions when it comes to evaluating potential purchases or deciding on whether or not to refinance. The right tools, when combined with "common sense", provide a solid foundation for success.
Comment #3 Posted By: Anonymous 02/13/09
Anonymous
This calculator is absolute crap. Every player in the real estate industry knew that these properties were worth much less than what was paid. The buyers were banking on the undeveloped upside potential and even that still didn't bring their acquisition costs into line. These are known as trophy's or vanity driven purchases. But thanks for the nifty calculator. Can I use it as tip calculator as well?
Comment #4 Posted By: Anonymous 02/16/09
Anonymous
I think the point of the above article is that UW guidelines have changed and that these landmark properties were underwritten differently than normal apartment deals. Its interesting to see the degree of difference, in fact. Point well taken.
Comment #5 Posted By: Anonymous 02/18/09