Karbank Blog

The following is from a January 11, 2010 Financial Times (London) article entitled “US Property Attracts Opportunistic Investment”:

A public sign of such activity [opportunistic investing] came on Friday when Colony Capital won a Federal Deposit Insurance Corporation auction for $1bn of commercial property loans formerly held by failed banks in states hit hard by the real estate downturn. The deal valued the loans at 44 cents on the dollar and was structured so the FDIC contributes $136m and holds 60 per cent of the equity, while Colony, a Los Angeles investment firm, puts in $90m for the remaining 40 per cent.

Tom Barrack, Colony founder, called the investment "an implicit bet that rates stay low" and warned: "If rates go up, everyone will be crushed."

Crushed, hmmm.  I hope Colony’s partners read the Financial Times…      

Steven Karbank

When analyzing a real estate development, investment, or transaction, always consider worst-case scenarios.  Examples may include prolonged vacancies, a significant rise in interest rates, changes in the business climate, changes in tax law, changes in location quality, casualties, construction problems, permitting or weather delays, legal entanglements, etc.  If you cannot afford, financially or emotionally, to handle multiple of these problems at once, don’t do the deal.        

Steven Karbank

Businesses often have a false sense of security in choosing to work with large, national, so-called “full-service” real estate companies.  The reality is that the quality of representation a client receives from a real estate company is dependent on the quality of the particular broker or brokers directly working with the client.  Mediocre or bad brokers will likely lead to mediocre or bad results for the client.  A good broker will likely produce good results for the client.  This applies both to national and local brokerage companies.       

Steven Karbank