We have two deals which have been called off in the land of mixed use properties as a secondary by Thomas Properties Group, Inc. (NASDAQ: TPGI) and one was the IPO which was supposed to price from Aviv REIT Inc. (NYSE: AVI).

Thomas Properties Group, Inc. (NASDAQ: TPGI) announced last night that that it has postponed its secondary offering of 22 million shares of common stock.  The reason, “due to unfavorable market conditions.”… management said that it does not consider the current market price of the common stock to be reflective of its inherent value.

Aviv REIT Inc. was supposed to be on the IPO deck.  The REIT, real estate investment trust, focuses on healthcare properties.  The IPO was on deck to price last night or this morning as the company and shareholders planned to sell 16.6 million shares in an indicated price range of $17 to $19 per share.  We had heard only mixed information, and no date nor new effort terms have been indicated.

If you have been tracking how this 2009 IPO market went from Winola to something far worse, this may not be a surprise.  Also worth noting is that of the deals we track for 2009 we have more that are busted than those which are higher.

JON C. OGG

Is Saizen’s CMBS default a microcosm of the Japanese condition? From BT this morning “Update: Saizen Reit defaults on CMBS loan”

Singapore-listed property trust Saizen Reit said on Tuesday it had defaulted on 7.253 billion yen (US$80.25 million) commercial mortgage-backed securities loan.

The company said in a statement the ‘maturity default’ was not expected to affect Saizen Reit’s ability to operate as a going concern nor impair its ability to get further financing.

A maturity default occurs when the borrower fails to pay the lender the balloon payment, or principal balance, at maturity.

‘The main impact of this maturity default is an increase in the interest rate from 3.07 per cent to a default rate of 7.07 per cent per annum,’ Saizen said in a statement.

The loan, known as ‘YK Sintoku’, is a non-recourse and not cross-collateralised against other properties in Saizen Reit’s portfolio. It was originally provided by Credit Suisse Principal Investments Ltd, a unit of Credit Suisse , in 2005 and was later securitised and transferred to an issuer of the commercial-mortgage backed securities, the statement said.

Micro first: For those currently vested in Saizen, here are the things you should be immediately concerned with. Clipped from Saizen’s press release on the default:

To the best of the Manager’s knowledge, as at the date of this announcement, the Manager expects that the maturity default of the YK Shintoku Loan will (i) not affect Saizen REIT’s ability to operate as a going concern, and (ii) not impair the ability of Saizen REIT and its subsidiaries (the “Group”) to obtain further financing from financial institutions.

Pretty good spin. But it doesn’t wash.

Saizen follows this immediately with a huge caveat emptor statement:

In the worst case scenario, the maturity default could lead to, among other consequences, the foreclosure of YK Shintoku, including the foreclosure of all of the properties under YK Shintoku (the “YK Shintoku Properties”).

What’s the potential bottom line impact to the portfolio and DPUs? See table below:

For those without calculators, YK Shintoku makes up approximately 23% of Saizen’s total rental income.

Bear in mind that said Manager had already decided to suspend yield payouts to investors sometime back in April, as a way to preserve cash, so any valuation attempts based on yield is pretty much moot. What’s worse, when BT ran a story back in April 2009 entitled “Saizen Reit aims to resume dividend payments in June 2010″, Saizen immediately came up with a clarification in response to the article, which said (and I quote):

In the Article, it was reported that “SAIZEN Real Estate Investment Trust (Reit), which recently suspended dividend payments to unitholders to conserve cash, hopes to resume payments by June 2010 at the latest”.

The Board would like to clarify that Saizen REIT has not determined a definite time to resume dividend payments due to the uncertain credit environment, but aims to do so as soon as possible.

This was followed soon after by a 25 May downgrade by Moody’s, from Ba3 (“questionable credit quality”) to Caa1 (“at risk of default”).

“The downgrade reflects Saizen’s exposure to significant liquidity pressures, including a material level of refinancing risk and increased difficulty faced in complying with its loan covenant,” said Moody’s lead analyst for Saizen’s trust, Mr Kaven Tsang.

With such outright declarations of “we’re got liquidity problems”, you’d expect investors to drop Saizen into the meat grinder. But you’d be wrong. Saizen rallied 50 percent to hit an intermediate high of 15 cents a month after the announcement, followed by yet another melt up to 17 cents by August, capping an eye-watering 70% rally, even after the dilution from a 11 for 10 cash call made sometime in 5 May. Which goes to show how strong the QE-funded rally has been: that in a rising tide, all floating turds get lifted.

Said Manager has argued that there’s value of Saizen is supported by the the NAV of the asset. But these are the same guys that were selling properties in August in a desperate attempt to refinance the YK Sintoku loans, and we know how that turned out.

So how does this link to the macro story that’s happening in Japan? Let’s start off with a statement by Saizen themselves :

The default of underlying loans of CMBS is not unique, as evidenced by a report of Fitch Ratings (“Fitch”) in July 2009, which stated that Japanese CMBS “continue to see an unprecedented increase in underlying loan defaults”, with a majority of defaults resulting from the lack of refinancing options. The default rate on maturing loans and loans becoming due in Fitch-rated CMBS reached 53% in the first six months of 2009 and the overall default rate is expected to continue to rise under an “extremely challenging refinancing environment” in the near-to-medium term.

Evans Pritchard argues pretty eloquently that “It is Japan we should be worrying about, not America“

Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world’s second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending – and allowing it to push public debt beyond the point of no return.

The rocketing cost of insuring against the bankruptcy of the Japanese state is telling us that the model has smashed into the buffers. Credit default swaps (CDS) on five-year Japanese debt have risen from 35 to 63 basis points since early September. Japan has suddenly decoupled from Germany (21), France (22), the US (22), and even Britain (47).

Regime-change in Tokyo and the arrival of Yukio Hatoyama’s neophyte Democrats – raising $550bn (£333bn) to help fund their blitz on welfare and the “new social policy” – have concentrated the minds of investors at long last. “Markets are worried that Japan is going to hit a brick wall: the sums are gargantuan,” said Albert Edwards, a Japan-veteran at Société Générale.

Simon Johnson, former chief economist of the International Monetary Fund (IMF), told the US Congress last week that the debt path was out of control and raised “a real risk that Japan could end up in a major default”.

The IMF expects Japan’s gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014. This has been manageable so far only because Japanese savers have been willing – or coerced – into lending for almost nothing. The yield on 10-year government bonds has been around 1.30pc this year, though they jumped to 1.42pc last week.

“Can these benign conditions be expected to continue in the face of even-larger increases in public debt? Going forward, the markets capacity to absorb debt is likely to diminish as population ageing reduces saving,” said the IMF.

The savings rate has crashed from 15pc in 1990 to near 2pc today, half America’s rate. Japan’s $1.5 trillion state pension fund (the world’s biggest) has become a net seller of government bonds this year, as it must to meet pay-out obligations. The demographic crunch has hit. The workforce been contracting since 2005.

Japan Post Bank is balking at further additions to its $1.7 trillion holdings of state debt. The pillars of the government debt market are crumbling. Little wonder that the Ministry of Finance has begun advertising bonds in Tokyo taxis, featuring Koyuki from The Last Samurai. If Japan’s bond rates rise to global levels of 3pc to 4pc, interest costs will shatter state finances.

No one knows exactly when a country tips into a debt compound trap. But Japan must be close, even allowing for the fact that liabilities of the state Loan Programme (FILP) have fallen by 40pc of GDP since 2000.

“The debt situation is irrecoverable,” said Carl Weinberg from High Frequency Economics. “I don’t see any orderly way out of this. They will not be able to fund their deficit. There will be a fiscal shutdown, a pension haircut, and bank failures that will rock the world. It is criminally negligent that rating agencies are not blowing the whistle on this.”

Deflation – despite Japan’s decades of wasteful efforts to ‘QE’ the issue -  is Japan’s ‘problem’. From WSJ “Deflation Signs Spur Fears of a Drag on Japan’s Recovery“:

As the world resumes economic growth after the steep global downturn, a familiar problem may keep Japan from following: deflation.

Economists expect the Bank of Japan in its semiannual outlook Friday to forecast that the core consumer-price index will fall for the fiscal year ending in March 2012, at a rate of at least 0.5%. That represents three years of expected deflation. The central bank has projected a decline of 1.5% for the current fiscal year and 1% for the next.

Japan’s core CPI fell for six straight months, on a year-to-year basis, ending with a record 2.4% decline in August. A similar decline is projected for September, though the size of the declines are projected to narrow afterward, reflecting changes in energy prices. Excluding both food and energy, Japan’s CPI fell 0.9% in August from a year earlier.

Though Japan remains expensive, signs of deflation can be found throughout the economy. Workers’ cash earnings fell 2.7% in August from a year ago. Year-end bonuses paid by 218 large companies listed on the Tokyo Stock Exchange will fall 13.1% this year, the largest drop at least since 1970, according to a survey by the Institute of Labor Administration.

“The continued drops in income are making households more thrifty,” says Ryutaro Kono, an economist for BNP Paribas Securities in Tokyo. “Companies are responding by cutting prices, sensing they wouldn’t survive otherwise.”

The deflation can be blamed on Japan’s long-term structural problems, including an aging population and one of the lowest birth rates in the developed world. Japan’s new government has proposed an ambitious program of $185 billion in spending each year to spur consumption at home, though many economists say longer-term growth initiatives and economic overhauls are needed.

The BOJ is expected to forecast near-flat growth in gross domestic product for the fiscal year ending in March 2012. Previously, it forecast a growth rate of 1.2% for fiscal 2011 after a 3.2% decline this fiscal year.

“Expectations for long deflation may be making companies more cautious about their capital-investment plans,” says Junko Nishioka, a RBS Securities economist in Tokyo.

And the final paragraph of this article sums up why the Japanese can expect a wall of CMBS defaults, coming soon from a declining commercial real estate near you.

Deflation can benefit consumers and companies by making goods and services more affordable. But it also hurts people with debts—whether an individual with a home mortgage or a nation with a fiscal deficit—by inflating the value of their debts in real terms.

Late Friday night, after a really poor market day, Hyatt Hotels issued an amended S-1 for its planned initial public offering.  Because of last week’s market volatility, we are getting mixed signals about both the ultimate pricing and about which night the hotel operator will price its deal.  The deal is still set for 38 million shares in a price range expected as $23.00 and $26.00.  The company will also trade under the ticker “H” on the NYSE.

Hyatt is controlled by the Pritzker family.  It has a huge underwriting syndicate with Goldman Sachs as lead manager.  Co-managers are listed as Deutsche Bank, J.P. Morgan, Bank of America Merrill Lynch, Citigroup, UBS, HASBC, Piper Jaffray, Wells Fargo, and Scotia Capital.  Other companies also listed on the prospectus are Robert W. Baird, Loop Capital Markets, M.R. Beal, Ramirez & Co., Siebert Capital Markets, and The Williams Capital Group.  The underwriting group has an overallotment option to purchase up to an additional 5.7 million shares of common stock.

The mid-point of this IPO will generate roughly a $4.11 billion market cap, and the net tangible book value as of September 30, 2009 was approximately $4.5 billion (roughly $26.98 per share).  This is less than 80% of the value of Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT) $5.4 billion market cap and less than half of Marriott International, Inc. (NYSE: MAR) $9 billion market cap.

The company has managed, franchised, and company-owned and developed Hyatt hotels, resorts and residential and vacation ownership properties around the world. At the September 30, 2009 date, tehg company’s global portfolio was made up of 415 Hyatt properties consisting of 119,857 rooms and units broken down as follows:

• 157 managed properties (60,836 rooms), all of which it operates under management agreements with third-party property owners;
• 104 franchised properties (15,906 rooms), all of which are owned by third parties that have franchise agreements with Hyatt and are operated by third parties;
• 96 owned properties (including 4 consolidated hospitality ventures) (25,783 rooms) and 6 leased properties (2,851 rooms), all of which the company manages;
• 27 managed properties owned or leased by unconsolidated hospitality ventures (12,226 rooms);
• 15 vacation ownership properties (933 units), all company managed;
• 10 residential properties (1,322 units), all managed by the company but some owned by the company.

For Fiscal December-2008, revenues were $3.8 billion, net income attributable to Hyatt Hotels Corporation was $168 million and adjusted EBITDA was $687 million. For the nine months ended September 30, 2009, revenues were $2.4 billion, net loss was -$31 million and adjusted EBITDA was $302 million.  The company also as of September 30 had total debt of $857 million and cash and cash equivalents of $1.3 billion along with an undrawn borrowing capacity of roughly $1.4 billion.

These shares being sold are Class A shares with one vote per share.  There will be an additional 130 million Class B shares have 10 votes per share.  Assuming there is no overallotment option, holders of Class A common stock will control approximately 2.8% of the total voting power and will own 22.6% of the total outstanding shares of common stock.

The only funds that will be going to the company will come from the overallotment, if exercised.  All other shares are being sold by the Pritzker family.  Besides the notion that hotels have struggled on lower traveling in 2009, the issue is that the funds will be going to the Pritzker rather than to the company.

Barron’s called the Hyatt Hotels IPO “The Motel 6 of IPOs?” this weekend.  But the poor title was actually a complement as it noted it was “asset-rich global hotel owner and operator has a great balance sheet and is likely to come to market at a discount to its tangible book value.” Barron’s also said that value investors should look at this IPO.  We share some of the publications optimism, but a larger picture needs to be reviewed.

Our own take is that we’d be happier if more funds were going directly into the company’s cash accounts while the economy recovers and while we are hopeful that 2010 will be better in the hospitality and hotel sector than what we saw in 2009.  We’d also feel better if this wasn’t so family-centric versus shareholder-centric in the ownership and voting circle.

Despite us pointing to this IPO being too similar to the past trend of private equity IPOs, there are some positives here.  First off is that the deal is coming below tangible book value.  The second is that we are more than comfortable with the leverage here compared to what we have seen elsewhere.  We are not going to issue any open buy recommendations ahead of any formal pricing, but patient investors and value investors are getting to invest at cheaper levels than many other IPOs and secondary offerings have shown.

You can join our open email distribution list to get updates on top analyst upgrades and downgrades, top day trader alerts, IPO’s, secondary offerings, Warren Buffett and other guru activity, M&A and more.

JON C. OGG
NOVEMBER 2, 2009

(CFD.net.au – Contract for Difference, Share, Forex, ETFs, Commodities Traders) – Wall St. closed up 78 on Friday. It closed on its high and was down 22 at one stage. Dow hit a 12 month high and the S&P500 was up every day of the week, which hasn’t happened since November 2006. Metals were weaker and the oil price rose 8c to $71.77. Aussie dollar fell to 90.48c and Gold also fell to $7.70 to $1048.

Not a busy week ahead with the main events being 3rd Q results season, quarterly production numbers and the AGM season. The RBA Bulletin is also out of Thursday.

Making the news today…

Fortescue Metals (ASX: FMG.ax) plans to spend $360m to increase the development of its Christmas Creek mine, which will lifts its total annual iron ore production to around 55m metric tons. Its production has exceeded expectations. FMG has mined 10.3m metric tons of ore in the 3Q and shipped 9.53m tonnes. Its cash position has also improved to $US704m, up from $US654m. FMG up 9c to 386c.

Mirvac Group (ASX: MGR.ax) has launched a $256m takeover offer for Mirvac RealEstate Investment Trust (MRZ). It will offer 50c cash a share for each Mirvac REIT unit up to 20,000 units, plus one Mirvac security for every three units in excess of 20,000 units, or one Mirvac security for every three Mirvac REIT Units. MRG already owns 24.6% of MRZ. MRZ last traded at 56c. MGR down 3.5c to 162.5c.

Lend Lease (ASX: LLC.ax) plans to become a stapled entity which believes will provide a more efficient structure to its ownership of investment assets. LLC up 12c to 1063c.

Street Talk was on the money this morning with Servcorp (ASX: SRV.ax) , it plans to raise $80m by selling new shares to retail and institutional Investors to take advantage of depressed prices for real Estate. SRV in a trading halt, last traded at 415c.

George Soros will Invest $US1bn in clean-energy technology and create an organization to advice policymakers on environment issues.

According to Street Talk, BHP Billiton is closing the first round of bids for its Ravensthorpe nickel laterite operations. BHP up 12c to 3798c.

China’s Yanzhou is on the verge of resubmitting its FIRB application for its $US3.54bn takeover of Felix Resource (ASX: FLX.ax) . FLX down 1c to 1674c.

Babcock & Brown Infrastructure Group (BBI) says its $625m institutional placement, which is part of its $1.5bn recapitalization plan to pay down debt, closed fully subscribed. BBI down 9.4% to 4.8c.

Stocks hitting fresh yearly highs today include: AMP Ltd (ASX: AMP.ax) , Biota Holdings (ASX: BTA.ax) , Equinox Minerals (ASX: EQN.ax) and McPherson’s (MCP).

The Dow Futures are down 3 at midday.

Source: AIR Midday Market Roundup

In an October 24 article in the Indianapolis Business Journal, Cory Schouten reports on recent developments in the commercial real estate markets indicating that capital is coming in to large investment portfolios, preparing for the moment when the markets hit bottom.

Apparently this moment has yet to be reached, however.  The problem is that the largest holders of commercial loans, the largest U.S. banks, have yet to fully absorb the decline in asset values of the properties in their lending portfolios.  Once this occurs, valuations will drop even further – considerably further – and one of the most extraordinary equity investment opportunities in history should follow.

Real Estate Investment Trusts will benefit tremendously, as will smaller and closely held investment companies.  This could be an ideal time to form an investment vehicle to prepare for the investments that will be available in 2010-2012 in a very depressed real estate market.

Contact your financial and legal advisors to help you plan an investment strategy for opportunities as they emerge in commercial and residential real estate.   Contact attorney Andrew J Thompson for more information and planning advice on legal strategies for real estate investments.

First off do you have a personal Facebook account? Think about the reason you use it. The perfect example of why I like Facebook can be found in my friend Toni Blake. Toni and I have talked at trade shows, conferences, on the phone, and traded emails. In those professional interactions I learned a lot about Toni and began to like her as a person. But the deal was sealed when we befriended each other on Facebook! I learned a bit about her husband and was instantly attracted to the two of them and their climbing adventures. I love to climb mountains and now have a great personal connection to Toni. I can’t wait to run into her again!

So what can Facebook do for your community? When a prospect comes to visit your community for a tour you establish your professional relationship. Give them your professional brochure, community info, leasing terms, pricing, etc. But if you give them your Facebook address and ask that they connect when they get home-this is your shot to get that personal connection! Ensure your Facebook page has a history of your great resident events with pictures, event flyers both past and in the future, and connections to residents & other great local business. Use your Facebook page to tell who you are as a community. Make it fun and full of info. Connect to all your residents so you can get their newsletter via the internet, inform them of outreach deals, of upcoming parties, and of things going on in your greater neighborhood. If you do it right that prospect will envision a fun life living with you.

There is not much liquidity for commercial mortgages in the retail, office or hospitality sectors of the commercial real estate industry, but there’s plenty of capital available for multi-family (apartment) buildings. The good news is that the Government is lending massive amounts of money against apartment properties; the bad news is that no one else is.

Virtually all the institutional loans being made today to purchase, refinance or build apartments are being funded or otherwise supported by Fannie Mae, Freddie Mac, The Federal Housing Administration (FHA) or The Department of Housing and Urban Development (HUD).

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For almost 2 years now, these Government Agencies have been the primary lenders to the rental housing industry. They stepped in to counteract the liquidity crisis that was caused by the collapse in the commercial mortgage backed securities markets (CMBS) and, almost by default, have become the only game in town. Even the banks who claim to be lending right now are, in reality, just originating loans and selling them to Fannie or Freddie.

As the economy improves traditional multi-family lenders, such-as insurance companies, smaller regional banks and Wall Street investment houses, would like to re-enter the market place with their own commercial mortgage offerings.  Unfortunately for them, they are finding that they can’t compete with Uncle Sam who, of course, can simply print the money that it uses to lend.

Fannie and Freddie could maintain their dominance in multi-family finance indefinitely, but they won’t. They are lending at such levels because no one else can. As the economy improves and real, traditional banking becomes profitable once again, Government Agencies will retreat and allow the markets to provide the necessary capital. When that happens rates will be higher but the increased competition will mean more people will be able to qualify for loans.

Those lucky enough to meet the requirements of a Government Agency loan ought to apply now. When the time comes to lure lenders back into the market the Government will make itself less attractive by further tightening their underwriting criteria and lowering their loan-to-value ratios.

To secure the most favorable rates, terms and conditions that Government sponsored lending has to offer, a borrower must have decent credit (640 or better FICO) and a sound balance sheet that includes some liquidity (cash in the bank). Fannie and Freddie will lend up to 80% LTV but most loans that they are accepting now are in the 70%-75% LTV range. The property must be able to pay its own mortgage with a debt-service-coverage ratio (DSCR) of 1.2% or better and the building has to be stabilized (history of profitability). It goes without saying that the property must also be in good condition with little deferred maintenance necessary. The Government is sponsoring loans in all 50 states in-order to benefit the rental markets nationwide.

Loans typically come with 3, 5, 7 or 10 year terms and are amortized over 25 years. Currently rates are at historic lows due to the weak economy.

Apartment owners can get Agency backed loans through their local banks, larger national banks and through many other commercial mortgage lenders who enjoy direct and indirect relationships with Fannie, Freddie, FHA and HUD.  You can’t apply directly to the Government.

Property owners who don’t qualify for agency loans will have to pay more to a private lender or work to meet Government requirements.

It’s good to know that there is liquidity for multi-family investing, but it is disconcerting to realize that the only willing and able lender is the US Government. As things improve this should change.

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Commercial Mortgage Lender; MasterPlan Capital LLC – EZ Online Application – Fast Response

The big selloff just prior to market close today already retraced more than 23.6%  of our last leg up so here [on a hourly chart] are the retracement levels I’m looking at in terms of support/resistance for tomorrows session.  While normal pivots will apply, I give more weight to retracements in a pullback as *magnets* on settlement.   Trading below $1055 will pose as a significant move of over 50%  implying a full retracement will be on the horizon.  Much will depend on not only the unemployment claim #s tomorrow, but if we experience further Galleon fund selling and there’s no way to predict that; even with a Quija board.  I will not be adding to longs at this point but will most likely day trade short breakdowns in the financial and REIT area and monitor the rest of the market.  The best advice I could give anyone here is not to force the issue.  Don’t push youself into trading without a good setup and defined entry/exit point.  To push a trade in this environment will result in a lower % of winners so take it easy.  I will say, however, if QM climbs to $84 I will begin shorting the black gold based on ‘08 resistance and the fact that a 20% run up in three weeks is excessive for crude when there’s no demand.  I wonder how much of *it’s* pop has been due to true buying or Galleon covering short positions??????

It was just in August that practically every single initial public offering was trading above its IPO price.  The market had rallied significantly, and still rallied after that to just this week have a 10,000 handle on the DJIA.  Investors started warming to more risk-based capital, and investment bankers were finally able to get deals done.  Even waves and waves of secondary offerings were able to be absorbed merely by brokers being able to tell clients they could buy stock at an implied discount to the average price over the few days before.  But suddenly, the IPO market has turned out some real dogs with fleas.

Mistra Group (NYSE: MG) priced its offering at $12.50 on October 7.  While it traded as low as $12.17, it has escaped the hangman’s file of ‘busted deals’ as it is now a $13.51 stock.  The one thing that may have helped was that it priced under an initial range of $14 to $16 per share.  Talecris Biotherapeutics Holdings Corp. (NASDAQ: TLCR) also went into the busted category temporarily after hitting a low of $18.01 after a $19.00 pricing.  Fortunately, it is up at $19.97 so is also now out of the hangman’s eyes.  Still, an 8% gain and a 5% gain in this market might leave some investors feeling lonely.  Banco Santander Brasil S.A. (NYSE: BSBR) was a very large IPO of over 500 million shares at an implied $13.40, and this one got out of the “busted IPO” dungeon on Thursday and closed at $13.51 on Friday.  Before Thursday it had spent its 6 prior trading sessions as a busted IPO.

Emdeon Inc. (NYSE: EM) had traded above $18.00 briefly after its IPO priced at $15.50 in August. But now the healthcare revenue and payment cycle management solutions provider, which is supposed to be a healthcare winner ahead, closed down at $15.35 on Friday  and had been slightly lower during the week.  This was effectively a re-IPO as Emdeon had been public before after General Atlantic Partners acquired it and it also received an investment from Hellman & Friedman. It also has ties to James Clark, the Netscape founder and was part of Healtheon.

Colony Financial Inc. (NASDAQ: CLNY) came public late in September at $20.00 per share, and it closed down at $19.69 Friday and has traded as low as $19.25.  Interestingly enough, Friday’s $19.68 close looks to be the highest price since the IPO date.   Colony is a newly formed real estate finance company (mortgage REIT) that will focus primarily on acquiring, originating and managing commercial mortgage loans, which may be performing, sub-performing or non-performing loans, other commercial real estate-related debt investments, CMBS, REO properties and other real estate-related assets.

RailAmerica Inc. (NYSE: RA) has been a busted deal after this was brought public in a re-IPO by Fortress Investment Group LLC (NYSE: FIG) after going private in February 2007.  This short line and regional freight railroad operator came public at $15.00 per share on October 12, so it hardly has much trading behind it.  But its absolute highest print this last week was $14.78 and it closed on Friday at $14.26 for a 5% loser.

Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) came public at $20.00 on September 24.  This comes out of Apollo Global Management, LLC and it intends to originate and acquire senior performing commercial real estate mortgage loans, commercial real estate corporate debt and loans and to purchase legacy and newly originated investment grade CMBS, and other performing real estate debt investments.  The highest price this one has seen since the IPO was $19.20, and it closed down at $18.57 on Friday to make the tally come to a 7% loser.

Then comes Vitacost.com Inc. (NASDAQ: VITC), which operates as an online retailer of various nutritional supplements, and health and wellness products.  Its September 24 IPO priced at $12.00 yet has been very volatile in not so much of a good way.  It has traded above the $12.00 mark at $12.25 during the first week, but then shares went as low as $9.34 and closed on Friday at $10.75 for still more than a 10% discount to its IPO price.

There are other 10% and higher losers as well.  Echo Global Logistics, Inc. (NASDAQ: ECHO), which provides business process outsourcing serving the transportation and logistics needs, came public at $14.00 on October 2, and while it did briefly hit $14.23 it closed down at $12.50 on Friday for a loss of 10.7%.

Chemspec International Limited (NYSE: CPC) was brought public in June at $9.00.  This Chinese chemical compounds company has traded as high as $10.50 and as low as $6.63.  Its closing price of $7.79 on Friday gives it a loss of over 13%.

Shanda Games Limited (NASDAQ: GAME) has all the earmarks of a forced copy-cat IPO.  Since it is out of China and a copy-cat strategy, we’ll even call it a knock-off IPO.  This was a Shanda Interactive Entertainment Ltd. (NASDAQ: SNDA) ’spin-off’ that is technically still under control of the parent and by the IPO prospectus will remain that way.  The inspiration for this was this the successful Changyou.com  (NASDAQ: CYOU) spin-off IPO from Sohu.com (NASDAQ: SOHU), which had effectively doubled when Shanda decided a knock-off strategy.  Shanda Games came public at $12.50 on September 25 and briefly hit $13.00.  Yet it also went under $10.00 and closed Friday at $10.32 to come to a 17.4% loser.

Cumberland Pharmaceuticals, Inc. (NASDAQ: CPIX) came public at $17.00 per share and its $75.2 million was to be used for potential acquisitions, the pending launch of the Company’s Caldolor(®) product for pain and fever, expansion of the Company’s hospital sales force, product development, debt repayment and general corporate purposes.  It also markets Acetadote(®) for the treatment of acetaminophen poisoning and Kristalose(®), a prescription strength laxative.  It turns out that IPO investors felt like they got too much of that powerful laxative.  This did go as high as $17.75, but then the blow-holes opened up despite 3 broker as issuing buy ratings.  Shares have gone under $13 and closed Friday at $13.40 for a loser by over 21%.  This one has some revenues and has been profitable.

Lastly, there is Omeros Corporation (NASDAQ: OMER).  This is a biotech play as a clinical-stage company committed to discovering, developing and commercializing products focused on inflammation and disorders of the central nervous system.  It came public at $10.00, already at the bottom of the $10 to $12 per share range, and its shares closed at $6.88 Friday to account for a whopping 31.2% loss for IPO buyers.  No one who bought this has made money as its highest post-IPO price looks to be $9.49.

The Blackstone Group (NYSE: BX) is weighing as many as eight IPOs or target-acquisition exits in the coming months according to multiple reports.  If it wants a smooth exit, it better consider making the deals as good for new IPO buyers as it is for Blackstone.  KKR wants to bring back the giant Dollar General as a public company despite the thought that the dollar-store investment play may have already seen its best days during the recession.

As Gordon Gecko would say, there are many dogs with fleas.  Some will do well in the future, but investors were just too shell-shocked from late 2008 into the first quarter of 2009 to buy up other peoples’ mess.  Investors feel little need to support a private equity-backed IPO where all the proceeds are going straight back to the private equity firms.  Companies that are unprofitable also have less appeal to investors.  And complicated structures also offer conservative investors much comfort.

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JON C. OGG
OCTOBER 17, 2009

China Real Estate Information Corporation (NASDAQ: CRIC) has priced its 18 million share initial public offering at $12.00 per share.  While this is not an easy structure, this IPO has ramifications for two other big Chinese public companies.  CRIC is a subsidiary of E-House (China) Holdings Limited (NYSE: EJ) and it will merge with the online real estate business of SINA Corporation (NASDAQ: SINA) effective as of the closing of CRIC’s IPO.

This IPO was in the middle of the pricing range of $11.80 to $13.80 that had been indicated.  Credit Suisse and UBS were the joint book-runners on the deal, and these underwriters were given a 30-day option to buy up to 2,700,000 additional ADSs from CRIC to cover over-allotments.

E-House will be the majority shareholder of CRIC and SINA will be the second largest shareholder of CRIC.  All shares being sold in the IPO are being sold by the company.

China Real Estate Information is a provider of real estate information and consulting services with a presence in over 50 cities across China with a database and contact base which provides a broad range of real estate-related services to developers, suppliers, agents, brokers, service providers and individual consumers.

You can join our open email distribution list to get updates on IPOs and secondary offerings, as well as top analyst upgrades and downgrades, top day trader alerts, Warren Buffett and other guru activity, M&A and more.

JON C. OGG
OCTOBER 16, 2009

Despite a Spring 2009 rally, REITs are down overall. Contrarians would carefully jump in? Or plow into promising sectors? REITs offer a you a piece of the real estate pie without having to be a hands on investor/landlord.

Despite significant gains for the second quarter of 2009, as REITs rallied in April and May, 2009, REIT returns have still not turned positive after severe price drops that began in 2008, resulting in an average total return for the REIT Index of (1%) for the first six months of 2009. Financial Mortgage (total return of 26%) and Hotel (total return of 16%) are the only REIT sectors with positive total returns for the first six months of 2009. Financial Commercial REITs posted flat total return, as remaining sectors posted total return declines in a range of (2%) for Specialty REITs to (12%) for Office REITs.

The Financial/Mortgage performance is puzzling, no? What with all the foreclosures and all…

But not really. The correlation is the increased government backing of the mortgage market through FHA and Ginnie Mae. They now back somewhere in the neighborhood of 80% of new loans issued. By the way, many of them under dubious credit terms. We’ve been to this dance before with the same date our mother warned us about, the same kitschy band, the same poorly decorated gym.

End result? Probably not good. But this creates huge opportunities for savvy cash rich investors with a talent of picking out profitable properties at dirt cheap prices.

Pathetic demand for two real estate investment trust IPOs today speaks to continued worries that commercial mortgage-backed real estate may be the next leg of the financial stool to get kicked out from under the market.

Colony Financial (Nasdaq: CLNY) and Apollo Commercial Real Estate Finance (NYSE: ARI) each roughly halved their stock offerings today. They had been expected to raise about $900 million, but together they will now raise only $450 mln.

Along with a third REIT IPO expected to price Tuesday, Foursquare Capital Corp. (Nasdaq: FSQR), the three IPOs each plan to invest heavily in the CMBS market, with help from loans offered by federal programs including the TALF and PPIP.

All three are betting on market timing. The argument is that very low volumes in the wake of the real estate bust has resulted in great CMBS values, particularly in the lower tranches of the market. The IPOs seek to use experienced managers who can navigate a low-vol market where the banks still fear to tread. They will seek long-term deals that give favorable spreads over borrowing costs.

In theory, the IPOS may be an opprtunity for the REIT investors, too. The last big REIT boom was in 1990, just when the California real estate bubble burst was bursting. And between the end of 1990 and the beginning of 1995, REITs gained nearly 1.5-fold. But there may be good long-term fundamental reasons why banks continue to steer clear. In Q2, commercial loan delinquencies were still climbing. And the commercial property prices continue to fall, down nearly 40% from the 2007 peak. And in almost every U.S. geography, commercial occupancy and rental rates continue to drop.

All of that speaks to the worries of fixed income traders that CMBS could become the epicenter of the next financial contagion, resulting in higher TED spreads and greater systemic risk across all asset classes.

Even for hedge funds who might want to dabble in the lower tranches of CMBS, a deeper look into the S-11 filings of the IPOs provides reason for pause. Each of the three IPOs are starting from scratch with a newly organized financial company that will be externally advised by a manager. The CEOs and investment managers will have decades of market experience. But unlike most every IPO, there is no existing balance sheet, income statement or record of cash flows. There’s not much of a track record on paper.

For the two that halved their offerings, there may be deeper concerns. A look at Apollo reveals that there is no formal policy limiting the amount of debt the IPO may incur. And the board can change that leverage policy without shareholder consent. In the case of Colony, the manager it has hired has no experienced managing a public company, and only limited experience managing REIT assets.

All told, professional investment managers may see the new IPO REITS as a lose-lose situation. They provide big exposure to a market many managers still won’t touch.

And the skilled hedge funds brave enough to delve the lower-tranche depths of CMBS may be better served doing so on their own.

24/7 Wall St. editors

Investing in mortgages might not be as bad as many thought.  Chimera Investment Corporation (NYSE: CIM) has already raised more capital on more than one occasion since coming public in 2007 when the mortgage arena was in the process of going from weak to bottomless.  We were intrigued by its vulture investing intentions as it bought up distressed mortgages, particularly as it was tied to the very successful Annaly Capital Management, Inc. (NYSE: NLY).  Despite the notion that Chimera became a vulture too soon and well before any bottom could be found in sight, Chimera must be doing pretty well again.  Ditto on Annaly.  This mortgage REIT status requires each to pay out 90% of its income and Chimera just hiked its dividend to $0.12 for the Q3-2009 period.  Annaly also just hiked its dividend payout today to $0.69, which might actually be its highest payout ever.

Chimera is an externally managed by Fixed Income Discount Advisory Company, a wholly-owned subsidiary of Annaly Capital Management, Inc. (NYSE: NLY).  We do not have the current ownership information as the data is now 3 months and 6 months old, but Annaly was a large stakeholder.

Chimera invests in residential mortgage loans, residential mortgage-backed securities, real estate-related securities and various other asset classes that go well into Alt-A in ratings.  It generates income from the spread between yields on its investments and its cost of borrowing and hedging activities.  If it is paying out 90% of its income as a dividend and it raised the payout this much, its investing must be paying off now.

Chimera’s closed down 1% at $3.91 today and its 52-week trading range is $1.53 to $8.00. Annaly’s stock closed down 0.2% at $18.70 today, and its 52-week trading range is $9.94 to $18.88.

Be advised that it will be difficult to tell if Chimera will be hiking its payouts or cutting them from quarter to quarter as it is in the volatile sector of mortgage REITs, is only about two years old, and is in a sector were earnings can and have fluctuated wildly.  Here is Chimera’s dividend history:

• May 28, 2009         $0.08 Dividend
• April 2, 2009        $0.06 Dividend
• December 26, 2008    $0.04 Dividend
• September 16, 2008    $0.16 Dividend
• June 10, 2008        $0.16 Dividend
• March 27, 2008      $0.26 Dividend
• December 27, 2007      $0.025 Dividend

Annaly’s dividend has also been growing but has a history of being volatile.  Its past dividends going backwards and starting at June 25, 2009 are $0.60, $0.50, $0.50, $0.55, $0.55, $0.48, $0.34.

JON C. OGG
September 21, 2009

Investors are returning as the real estate market recovers.

Business Week’s real estate guru Marc Roth points out these opportunities, which he says make sense if investors are willing to look over the property carefully and ask tough questions.

Options you might consider including:

• Buying a single-family house. This could be a first home, dream home, or a home to rent out.
• Buying a multi-family investment property.
• Snapping up a vacation property. There are deep discounts to be found in high-end resort areas.
• Investing in a Real Estate Investment Trust. REITs were hit hard in the downturn, but many are on their way back.