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Profiting from the GFC
Whilst the worst of the GFC has passed the improvement in asset values has been a slow process and will continue for some time.
However, we are now starting to see some of the good work done by astute investors when the rest of the world where either panicking or forced to sell assets at reduced prices.
The John Hancock Tower in Boston is a 62 story tower that was sold 18 months ago for US $660 million or about half the price it was in 2006. Through purchasing the building when the market was in free fall and there were defaults on the associated debt the buyers were taking a long term view on where they saw the value. Last month the building sold for US $930 million. The return whilst impressive is also enhanced by the gearing involved with the transaction.
Of the US $660 million purchase price some US $471 million was bank debt. This meant that the equity in the deal was US $189 million. After receiving sale proceeds of US $930 million and repaying the bank debt of US $471 million the residual equity in the transaction was US $459 million. This meant that the return on equity was a staggering 243% in only 18 months ($459 divide by $189).
There are a lot of similar positioned transactions in the property market at the moment which provide opportunities for investors. It also shows that for existing investors that have managed to stay in the game and have not yet had to sell their property holdings can benefit from the same things that hurt them in the first place, mainly the level of gearing and a recovery in fallen asset prices. It should also be noted that for those assets that are listed on stock exchanges they are also trading at large discounts to their Net Asset Backing providing another layer of opportunity.
However, we are now starting to see some of the good work done by astute investors when the rest of the world where either panicking or forced to sell assets at reduced prices.
The John Hancock Tower in Boston is a 62 story tower that was sold 18 months ago for US $660 million or about half the price it was in 2006. Through purchasing the building when the market was in free fall and there were defaults on the associated debt the buyers were taking a long term view on where they saw the value. Last month the building sold for US $930 million. The return whilst impressive is also enhanced by the gearing involved with the transaction.
Of the US $660 million purchase price some US $471 million was bank debt. This meant that the equity in the deal was US $189 million. After receiving sale proceeds of US $930 million and repaying the bank debt of US $471 million the residual equity in the transaction was US $459 million. This meant that the return on equity was a staggering 243% in only 18 months ($459 divide by $189).
There are a lot of similar positioned transactions in the property market at the moment which provide opportunities for investors. It also shows that for existing investors that have managed to stay in the game and have not yet had to sell their property holdings can benefit from the same things that hurt them in the first place, mainly the level of gearing and a recovery in fallen asset prices. It should also be noted that for those assets that are listed on stock exchanges they are also trading at large discounts to their Net Asset Backing providing another layer of opportunity.
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