At Ellandi, we always strive to make the most of our intellectual capital and bring incisive market insight to the market in these troubled time.

We have worked tirelessly over the last few months to analyse the Government Asset Protection Scheme (GAPS) and are pleased to provide you with a briefing paper.

Please do not hesitate to contact either of us, if you require any further explanation.

Regards

Mark and Morgan

GAPS Explained

We have recently obtained planning in respect of the Victorian police station in Beckenham.   We now have consent to partially demolish the ground floor and then extend it to provide a restaurant unit of 2,200 sqft and an adjacent retail unit of 1,500 sq ft.

The existing accomodation at first floor will be converted into four, loft style flats, all with their own secure car parking space.

Cormac McNabb at Savills is the letting agent CMcNabb@savills.com.

In April 2008 Blackstone bought a package of leveraged loans from my old muckers at Deutsche Bank. This was one of the early distressed sales and Blackstone were buying at a significant discount to par. At the time discounted debt was considered to be the new sexy investment opportunity.

It was revealed yesterday that Blackstone have written off this investment in their 2008 year end accounts. They have had three problems with their investment; the price (value) of debt in the secondary market continues to fall, the credit performance of the underlying companies, funded by these loans, continues to detrioate  and the acquisition of the loan portfolio was over leveraged.

The FT reports a peer of Blackstone’s as commenting that the acquisition was “too early, too concentrated and too leveraged.”

This portfolio was made up of leveraged loans, both senior and mezzanine. There is greater transparency and liquidity in this market that there is in the world of real estate finance and even direct real estate but the principles above still apply.

How many real estate investors went too soon and bought assets in 2008 that looked cheap compared to 2006 / 2007 but not look disatorous? We know that there are a list of candidates but as yet there is insufficient transparency, liquidity and disclosure to reveal who entered 2008 with cash and are exiting significantly less wealthy or even bust. The cautionary tale is if it can happen to a sophisticated investors like Blackstone and Warren Buffet it can happen to anyone - calling the market too soon is an easy mistake to make but can be just as disatorous as buying at the peak.

Another interesting side affect of this story is that the bank who sold the portfolio, in this case DB, thought they had disposed some of their exposure to distressed assets. However, through providing ongoing leverage as asset values fall they find themselves back on the hook. So much for cleaning up their balance sheets…