How MBA Finance Skills Guide Real Estate Investment Career – Brett Goldman

How MBA Finance Skills Guide Real Estate Investment Career – Brett Goldman

Erik: What are commercial mortgage backed
securities and why are they becoming so prevalent in real estate development deals these days? Brett: They’re in essence they are a bank.
Often times they were bank loans given by investment banks. Investment banks pooled
lots of different loans that they gave to borrowers together and issued securities interests
in those loans as a pool. So they would pool together a million dollars worth – a billion
dollars worth of loans on a hundred different properties all over the country and as each
borrower paid their debt service on a monthly basis the bondholder would get paid and the
lowest tranche of bondholders would be the first loss. So, over the period between 2000
to 2007, CMBS issuance, meaning new loans issued by CMBS investment bankers or banks,
increased enormously and became probably more than half of all loans that were made to commercial
real estate whereas in 2000 it was an eighth or even less. And now those loans that were
underwritten – I wouldn’t say they were underwritten poorly but I would say they were
underwritten in good times with good times expected ahead – now we are in a little bit
different situation and those loans – are coming due. So, that’s why there has been
so much discussion and there is so much opportunity in that realm. Erik: Tell me more about that opportunity. Brett: Well, the opportunity is that the way
that they were structured, these CMBS trusts, they have natural resolution authority. Whereas
in – let’s say – the mid-80s the country created the Resolution Trust Corporation in
order to liquidate Savings and Loan Association’s loans. The loans are now held by these trusts
but there are very specific ways to liquidate them if they default. So, the bondholders
get options on purchasing those loans, the special servicers who are managing the loans
and dealing with the workouts get options on those loans and they can also decide just
to sell them to the general public. But one thing that is not going to happen is they
are not going to sit. They have been extended but the special servicers do not seem to want
to continue to extend loans are not paying. Erik: And so then that affects you on a day-to-day
basis? Brett: It creates an opportunity for the re-pricing
of debt that was issued in more heady times. And…what that opportunity is…it is an
opportunity for me to come in some way in the capital stack whether it is in the equity
or it is providing additional debt. It is a way for me to find new deals. It has provided
a bigger opportunity for us, as opposed to waiting for banks to sell their bad loans.

One thought on “How MBA Finance Skills Guide Real Estate Investment Career – Brett Goldman

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