The Oh "Exclusive" PPIP

distressed commercial real estateNews hit today of the Treasury's plan to unveil their newest PPIP program that many investors have been waiting for. On Wednesday, the Treasury plans to announce details of their long awaited Public-Private Investment Program. This is the new entity established by the government to help in disposing of toxic commercial debt. Much like the RTC program from the 90's, the PPIP will aim to find private investors who are well capitalized to partner with in taking over toxic, bank owned properties.

Unfortunately, the plan sounds too good to be true, which is probably why there are very few rumored players. Two confirmed players in the program are GE Capital and Wilbur Ross Distressed Real Estate Fund. The hopes of the program is for the PPIP to partner with the private institutions to help absorb future losses the properties may have. The program looks to be structured with high favor towards the private institutions, however, there are many factors that could turn the deal sour.

First off, much like how the CMBS debt was bonded together, so will much of these "distressed properties." Most likely, these parties will not get to pick and choose from a list of distressed assets, but will be given a portfolio to look at. With the several good and promising assets that are in the portfolio, will be the many bad useless assets. Not only that, but they will most likely differ in product type, which could cause for many of these institutions to stretch outside of their comfort zone.

I know it seems that buying distressed properties, in the way the PPIP has outlined it, seems like a steal, but there are still plenty of downside risk for these groups to consider. First, how much worse will property values get. Many feel that commercial real estate is just beginning its problems. Is this the first of many bottoms? How long can these groups absorb losses. Sure, there is essentially no bottom to the Treasury's pockets, but there indeed is for GE Capital. I believe the only way we're going to see a quick recovery from commercial real estate values, is to offer up the properties to the entire market. Sure, prices would come down much more dramatically, but nature would take its course.

INO TV FreeIn preparations, I may go in and play a few of these institutions long, as I expect a good possibility for a very short term bounce for some of these players. Much of the perception will be that these groups will receive great deals for an extreme discount, however, we will soon see just how well it works out. After much of the settling down, I expect to load up pretty heavily on SRS.

Today's rally was mostly fueled by a good day with oil. Volume was very light today, as we're heading into vacation season. Tomorrow we have the consumer confidence report, which will probably come in rather positive, however, I would expect that number to begin to tail off again the next few months. Also, we finish off the week with unemployment numbers, which could be quite the eye opener for investors. Stay in touch with more news through TradingSolutions: Financial analysis and investment software that combines technical analysis with neural network and genetic algorithms. Happy Trading.

3 comments:

  1. Anonymous Says:

    FF, I have shares of FAZ at $10. Do you think the ETF has reached its new highs around $5? Wondering if I should try to exit.

  2. Finance Fanatic Says:

    Anon,
    FAZ is still capable of some big swings, volume is out of the market right now again, but I assume once it returns and if sentiment gets worse, FAZ could move strongly

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