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Caldera Newsletter • August 2009

Featured Professionals

Denial to Acceptance:
Five Stages of Modern Ownership Grief

Bill Shippen
Apartment Realty Advisors, Atlanta

It has been a while since any of us have had any psychological training; therapy, perhaps, but not training. Giving consideration to the common behavior among investors within the market right now, I have been thinking a lot lately about the grief model put forth by Kubler-Ross in 1969, which depicts the process by which we get over loss and tragedy in our personal lives. Given the current, tragic state of the real estate market, it is not surprising to see the deterioration of most investors’ .....


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Multifamily Insurance:
An Additional Headache for Owners

Kyle Herren
Lockton Companies of Colorado

Unfortunately, when owners and operators can least afford expense increases; the property insurance marketplace is seeing an upward trend in pricing.

Since 2006, property insurance has been a great burden and an expensive source of frustration to multifamily owners and operators nationwide. The insurance marketplace continues to be a fragmented and inefficient exchange where outcomes and pricings vary widely.


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Apartment Pre-sales: The Elephant in the Room

By Michael Kelly
President of Caldera Asset Management


Between 2000 and 2007, a little-known part of the apartment business generated huge amounts of returns for developers, equity investors and lenders: the ”PRE-SALE or STANDBY” . On these pre-sale structures, lenders often provided close to 100% of construction dollars, instead of the typical 80%. The developer and equity investors contributed little or no capital on the asset, and only provided a guarantee to take out the construction loan.

With little or no equity on the deals, this structure allowed developers to stretch their limited resources, build more properties, and generate considerably higher fees. It allowed equity investors, including Closed/Open Ended Funds and Life Insurance Companies, the ability to generate large profits without having to contribute much, if any, capital. This guarantee, or the exposure to potential liabilities, was usually mentioned in the footnotes. This structure also allowed lenders to put out more capital by making higher loan-to-cost (“LTC”) loans (usually at 95% to 100%of construction costs) on the asset due to the guarantor’s perceived strong balance sheet to support the loans. There is no master database or list of pre-sales, but based upon our detailed research and knowledge of the apartment markets and players involved, Caldera estimates the gross construction costs of these apartment properties to be greater than $2.5 billion with possible imbedded loss to the investors of $500 million.

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Caldera in the News:

More Losses on Multi-Family
Home Investments

Worst of Multifamily Distress
Hasn't Even Begun

Commercial Property Could
Become Operating Albatross


Multifamily Misery

Diamond District:
More Real Estate Woes

MF Pros Team Up to
Consult on Distress


New Firm Aims to Help M-F Industry Weather Storm


Foong on Finance:
Worse Is Yet to Come