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Goldman’s real estate gambit

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Matthew Goldstein.jpgIs history repeating itself at Goldman Sachs?

In late 2006, Goldman shrewdly began backing away from the residential mortgage market. With little fanfare, the firm began aggressively hedging its exposure to home loans, in particular mortgages to borrowers with shaky credit histories.

This savvy and somewhat stealthy strategy enabled Goldman to pawn off lots of its soon-to-be toxic mortgages and mortgage-backed securities on other institutions — forcing those foolhardy speculators to pay the price when the subprime market blew up.

And much to everyone else’s chagrin, Goldman even made money off the housing meltdown when some of its hedges — specifically a bet that a subprime mortgage index would plunge — paid off handsomely.

It appears Goldman is following a similar script with U.S. commercial real estate, the next big asset class that many believe is on the verge of disaster.

L-shaped housing market?

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Economists seem willing to celebrate even the most tepid economic release these days. The National Association of Homebuilders’ Housing Market Index nudged up slightly to 17 in July, up from 15. Most economists had expected 16, so this is what passes for good news.

But the improvement is tepid indeed considering the record lows the index has hit. Even most dead cats bounce more vigorously than this.

No real estate revival for corporate lawyers

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The big corporate law firm Cadwalader, Wickersham & Taft isn’t expecting a rebound in the real estate market anytime soon, so it’s asking nearly three-dozen lawyers to take the next year off.

The New York law firm confirmed, in an email statement, that it has asked “34 lawyers to accept a one year, unrestricted sabbatical,” during which the attorneys will receive “one-third of their current compenstaion and medical benefits.”

Goldman still puzzles

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Matthew GoldsteinInvesting in Goldman Sachs still requires a leap of faith in the investment firm’s ability to out-trade, out-wit and out-muscle everyone else on Wall Street.

Sure, the bulls will say that with fewer competitors and with the Federal Reserve keeping bank borrowing costs near zero, Goldman’s traders should be able to print money. But here’s the thing: The post-federal bailout version of Goldman is as much of an investing riddle as the pre-crisis Goldman that many critics called a giant hedge fund or an inscrutable black box.

Real estate far from sorted

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With headlines like this and that, it’s hard to get too excited about green shoots flowering into a full-fledged recovery.  Option-ARM resets are still looming – though lower short-term rates could make the pain more manageable for some – while ballooning payments in the commercial mortgage market could mean big losses for CMBS investors.

Somebody loves A.I.G.

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A.I.G.’s headquarters, that is.  Preservatationists have written to the New York City Landmarks Preservation Commission asking that American International Group’s Art Deco tower on 70 Pine Street in lower Manhattan be designated a city landmark, the New York Post reports.   A.I.G. is trying to sell the tower, as well as a connecting building at 72 Wall Street, and the preservationists are worried that a new owner may ruin the period details that make the building so distinctive.

Crain’s New York Business has estimated that 70 Pine Street could reap between $78 million and $116 million in a sale.

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