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Caldera Newsletter • April 2010

Featured Professional

Approaching Utilities the Smarter Way for
Value Add and Stabilized Assets

Robert Watson, PE, CEM
NOI Engineering
Dallas, Texas

As large amounts of apartment assets trade hands through foreclosure, new buyers are increasingly forced to invest more capital to renovate vacant or down units. Compared to the last downturn in the early 1990’s, many of these buyers are more sophisticated and are trying to identify ways to achieve higher returns on investments by analyzing and responding to every line item. However, the seemingly obvious strategy to increase NOI by installing more efficient equipment ...... do not always lead to improved results.

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Multifamily Transactions: Where will they go the rest of 2010?

Ron Skelton
Vice President
Caldera Asset Management

Earlier in March, the Federal Reserve confirmed that they will end its purchase programs of mortgage backed securities (MBS). The original goal of the Fed was to stop the freefall in housing and restore some stability. Broadly, it has succeeded at least in the short run. At the beginning of 2009, the Fed held virtually zero MBS on its balance sheet. But, at the end, this program will hold approximately $1.2 trillion. This purchase program has also driven down the cost of funding for real estate, including apartments. So, what will happen to rates and the related deal flows when the program ceases?

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Debt Restructuring: Which Inning are We in?

By Michael Kelly
President of Caldera Asset Management

An outsider looking at Apartment REIT performance or the low cap rates being paid in the market today would think it was 2007 all over again. There is no question that more optimism has entered virtually every aspect of the apartment market, and to an outsider, it makes sense to assume that we have turned the corner on “little evil outstanding debt issue”, and it’s going to be a clear sailing for the foreseeable future. Unfortunately, this optimism appears to be far ahead of the underlying fundamentals in many markets and in turn many existing apartment assets.

As professionals who are exclusively focused on apartment turnaround and consulting services, we spend a significant amount of our time working with clients or lenders in their strategy and renegotiations. Our observations and findings do not coincide with the newly found optimism evident in the market today.

For existing assets, debt issues are split into two separate camps:

Properties which are not covering debt service payments, and sometimes even have negative net operating income (“NOI”): Investors on these assets are wary of responding to capital calls to cover debt service payments, especially for assets with negative operating NOI.

Properties which were financed with short term bullet loans and will soon face debt maturity: These properties may be covering their current low debt service but do not have adequate cash flow (“CF”) coverage at the current agency underwriting standards to fully refinance without having to write a large check to cover all equity requirements.



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Caldera in the News:


All Eyes Ahead



Outlook for Distress
Access Denied

The Health of
Commercial Real Estate

More Losses on Multi-Family
Home Investments


Recovery Rates on
Distressed Assets Vary