May ’19

The BAN Report: The $115MM Skilled Nursing Portfolio / Barclays’ Ambitions Scrutinized / Credit Card Delinquencies Rise / Office Retail Conversions / Billionaires Ponder Wealth Divide-5/2/19

The $115MM Skilled Nursing Portfolio

Clark Street Capital’s Bank Asset Network (“BAN”) proudly presents: “The $115MM Skilled Nursing Portfolio”  This portfolio is offered for sale by one institution (“Seller”). Highlights include:
  • A total unpaid principal balance of $115,340,847 comprised of 25 loans in three borrower relationships
  • 74.64% of the portfolio is performing, and 25.36% of the portfolio is sub-performing
  • Portfolio has a weighted average coupon of 7.43%
  • The loans are secured by 1st mortgages on 21 skilled nursing facilities ($103MM), and accounts receivable (12MM)
  • The skilled nursing facilities are located in Missouri and Illinois, predominatly in the Chicago and St. Louis MSAs
  • All loans have personal guarantees
  • Three seperate loan pools ranging in size from $25MM to $62MM
Files are scanned and available in a secure deal room and organized by credit, collateral, legal, and correspondence with an Asset Summary Report, financial statements, and collateral information. Based on the information presented, a buyer should be able to complete the vast majority of their due diligence remotely.

 

Event Date
Sale Announcement Thursday, May 2, 2019
Due Diligence Materials Available Online Monday, May 6, 2019
Indicative Bid Date Thursday, May 30, 2019
Closing Date Friday, June 21, 2019

Please click here for more information on the portfolio. You will be able to execute the confidentiality agreement electronically.

Barclays’ Ambitions Scrutinized

An interesting battle is going on at Barclays between a CEO looking to expand the firm on Wall Street and a dissident shareholder believing it should scale back these efforts and focus on its core business.

Jes Staley runs one of the last full-service banks left in Europe that compete with Wall Street. The way the 62-year-old American banker sees it, his restructuring of U.K.-based Barclays PLC has primed it to take on the likes of Goldman Sachs Group Inc. and Morgan Stanley .

British-born investor Edward Bramson couldn’t agree less, and his New York firm has bought a sizable stake in Barclays. He is trying to force the bank to scale back its Wall Street ambitions, to become a consumer and commercial lender with smaller investment-banking operations.

So far, Mr. Staley, the chief executive, is having none of it. “He wants us to retreat into a foxhole? He should go back to Connecticut,” Mr. Staley has told colleagues, referring to the state where Mr. Bramson has a home and raises horses.

Mr. Staley has a vision for Barclays, which absorbed much of Lehman Brothers after its collapse. He wants it to become a compact version of JPMorgan Chase & Co.—the bank where he spent more than three decades of his career.

Mr. Bramson’s investment firm, Sherborne Investors, in a letter to Barclay’s shareholders in early April, pressed its case for a strategic reversal. It argued that in the post-financial-crisis world only the biggest American banks are in a position to offer the full suite of investment-banking products.

Mr. Bramson is angling for a seat on the board.    This type of strategic debate is so familiar for businesses that are looking to expand and grow in more competitive markets.    One can argue that the failure of Lehman Brothers and Bear Stearns has opened the door for another big player on Wall Street, or one could argue they failed for a reason.    It’s unusual that this debate is occurring so openly between a large bank and a dissident shareholder.

Credit Card Delinquencies Rise

While other forms of consumer debt (auto, mortgage and HELOCs) have seen no deterioration in credit quality, credit card delinquencies have begun to rise.   Nearly all credit cards feature floating rates, so higher interest rates are a likely culprit.

Credit-card losses are outpacing auto and home loans at a rate not seen in at least a decade. The question is whether banks’ plastic problem is an outlier or an omen.

For now, there’s no cause for panic. The strong U.S. economy and low unemployment means most consumers are able to stay current on debt payments — new foreclosures and bankruptcies fell to the lowest level in at least 15 years in 2018. Yet the uptick in card losses is unmistakable. Credit-reporting company Experian Plc said some of the blame goes to banks offering credit to riskier borrowers, and the Federal Reserve has noted a spike in late payments by the elderly.

The four largest U.S. banks had almost $4 billion in charge-offs from credit cards last quarter, and just $656 million from all other consumer lending. That’s the biggest gap since at least 2009. Card charge-offs now make up more than 80 percent of total consumer credit costs, up from 67 percent three years ago.

Rising credit card delinquencies can be a leading indicator to other credit problems.    It’s baffling that auto loan delinquencies have stayed steady, despite huge growth in sub-prime auto.   The good news though is delinquencies are starting from such a low baseline, so a reversion to the mean is hardly alarming.

Office Retail Conversions

As many shopping centers continue to struggle with loss anchors, many are successfully converting retail space to office space, offering office tenants both unique space configurations and convenient access to retail and restaurants.

Westside Pavilion, a dying mall in Los Angeles, ticked all of the boxes for Hudson Pacific Properties.

The Los Angeles-based developer was looking for an urban site with big floor plates and exceptionally high ceilings to redevelop into what it called “state-of-the-art creative office space” for future tenants. The company also wanted a central location near mass transit and major highways, in one of the handful of West Coast cities where it usually builds.

Then, as Hudson Pacific started planning to outfit the mall, along came Google, a Hudson Pacific tenant elsewhere in the city. “The stars kind of aligned,” said Alexander Vouvalides, the developer’s chief investment officer.

The old mall would become new office space. The 584,000-square-foot Google complex, to be called One Westside, is projected to be finished in 2022 at a cost of up to $410 million.

The Westside Pavilion redevelopment is one of the latest examples of a nationwide trend in commercial real estate: the conversion of malls into office space. Offices are less risky than retailers, and in some cases they can generate foot traffic for the mall’s remaining stores and restaurants.

The Westside shopping center lost Macy’s and Nordstrom, and large anchor retail tenants are very difficult to replace with other retailers.    This trend is only going to accelerate.    A few years ago, we sold a loan on an enclosed mall with only 2 remaining tenants.   After the note buyer took control of the property, he successfully turned a former department store into very attractive office space for a major university, which liked having all its employees on one single floor.     Sure, retail is in trouble, but retail’s location gives it a lot of opportunities to repurpose the space.

Billionaires Ponder Wealth Divide

At this week’s Milken Institute Global Conference, which is essentially a mini-Davos, many billionaires are confronting growing questions about capitalism and the wealth divide.

The gathering lures an unusual concentration of wealth, with at least 11 of its speakers listed on the Bloomberg Billionaires Index, with a combined net worth exceeding $100 billion — Schwarzman, of Blackstone Group LP, and Apollo Global Management LLC’s Leon Black among them. In a year when billionaires are hot political targets, income inequality was on the minds of many speakers and attendees.

Some expressed concern about the potential economic impacts of the growing gap between the rich and poor. Others defended the capitalist system and dismissed proposed solutions, such as raising taxes on the wealthy.

“Soaking the rich doesn’t work,” Ken Griffin, the billionaire founder of investment firm Citadel, said Tuesday in an interview with Bloomberg Television from the conference.

His comments contrast with those of billionaire Ray Dalio, who last month sounded the alarm on capitalism’s flaws and advocated for some higher taxes on the wealthy, among other solutions.

Speaking at the conference Wednesday afternoon, the Bridgewater Associates founder said the country has to agree on a way to promote the lower half of the population to keep the American Dream alive.

“If we don’t agree, we’ll have some form of a revolution that would be to abandon capitalism, to go to the opposite extreme,” Dalio said. “If you have a population where there’s a large wealth gap and you have an economic downturn, it’s almost reliably there is conflict.”

Certainly, if the wealth divide continues to grow, populist resentment will only increase.    President Obama once told a group of bank CEOs that his administration was “the only thing between you and the pitchforks.”     Attendees are right to be worried at the discontent bubbling through the political and economic system.

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