iStar narrows losses, but still struggles with portfolio

By David Jones | August 03, 2010 07:00PM

Jay Sugarman and One Madison Park

IStar Financial, the Manhattan-based real estate investment trust, narrowed its second-quarter losses, as the lender took additional steps to slash its debt and find value in its portfolio of troubled land and condominium assets. 

IStar reported second-quarter adjusted losses of $83.4 million, or 89 cents a share, compared with losses of $250.1 million, or $2.51 a share, a year ago.  

The lender’s stock price fell nearly 15 percent on the news to $4.45 a share. Analysts were expecting the firm to report a 30-cents-a-share loss, according to Thomson Reuters. 

The second-quarter losses do not include iStar’s 250.3 million gain from the $1.33 billion sale of 32 corporate net-leased properties to a Denver-based firm. 

Net income was $212.3 million or $2.27 a share, when including the sale of the properties.  

Revenue fell 29 percent to $136.8 million from $193.1 million a year ago. 

The firm, led by chairman and chief executive Jay Sugarman, is one of the most high-profile commercial real estate lenders in New York. However, iStar has struggled under the weight of a number of poorly performing commercial real estate loans that it acquired from the purchase of the Fremont General portfolio in 2007. 

Sugarman said the problem in the marketplace is that a big gap remains between what sellers are willing to offer and what buyers are willing to pay for an asset. 

“The capital demand from a wide range of investors is there, but I think the price points haven’t been attractive enough,” he said, in a conference call with analysts. 

The lender has a number of New York assets in foreclosure proceedings, including the mortgage at One Madison Park, William Beaver House and 47 East 34th Street.  

One group of condo buyers, backed by noted attorney Barry Slotnick, have filed suit to push the One Madison Park condominium, which is currently under a court-appointed receiver, into bankruptcy. 

At the end of the quarter, iStar said 63 of its 195 loans were listed as non-performing, representing $2.96 billion in loans, or 40 percent of its portfolio. In addition, another 14 loans are on its watch list, representing $1.03 billion, or 13.8 percent of its portfolio. 

Ben Thypin, senior market analyst at Real Capital Analytics, said the company cannot continue to go down the same road, and he expects iStar to push more deals like the sale of the corporate net-lease properties. 

“I would expect them to do more asset sales to free up capital,” said Thypin. “If they can sell some of those non-performing loans they can redeploy that capital into something more productive.” 

Attorney Ed Mermelstein said he expects iStar to start buying up positions on the lower end of the capital stack, which would allow them to foreclose on poorly performing assets and either sell them at a discount or operate them until the market picks up steam in the next few years.