Thursday, December 10, 2009

Hotels moving into forclosure where have we seen this before?

I know it becomes repetitive, in 91 we bought our first hotel in Aussie out of foreclosure at a heavily discounted price. So what you ask? The hotel was run as a business generating cash flow repaying debt and making dividend payments to shareholders and ultimately sold for a handsome profit as a real estate play 10 years later.

Gansevoort South hotel goes from buzz to bust
Once the haunt of celebrities, Miami Beach's Gansevoort South hotel will soon be sold at auction, a victim of foreclosure.

Good buzz was no match for bad debt at the Gansevoort South, a Miami Beach hotel popular with stars now destined to be sold at a foreclosure auction.

Credit Suisse announced Wednesday morning an auction for the ownership stake used to secure an $89 million mezzanine loan on the 334-room oceanfront hotel, a favorite stop for celebrities hitting the party circuit. Developers William and Michael Achenbaum secured the financing for the project at the height of South Florida's real estate boom, only to see their plans for the former Roney Palace roiled by the collapse of the condo market.

Sales were dismal for condos in an adjoining residential tower and in 2008, the Achenbaums halted plans to convert about a third of the hotel rooms into condo-hotel units. That left the father-and-son team to rely on hotel revenue to make debt payments on their construction debt, a task made even harder by what experts describe as the worst lodging downturn in a generation.

Despite its troubled debt, the Gansevoort, located at 2377 Collins Ave., enjoys as much buzz as any of South Beach's most high-profile hotels. It was a frequent backdrop in the Bravo reality show Miami Social. A popular online video captured Michael Phelps racing retired NFL star Warren Sapp in the Gansevoort's rooftop pool -- the Olympic champion gave Sapp a half-pool head start and still won -- and rapper Ludacris picked the Gansevoort as one of two spots to promote his new cognac, Conjure. The New York Times last weekend called the hotel South Beach's ``of-the-moment spot.''

The hotel remains open and under the control of the Achenbaums' Gansevoort Hotel Group. ``Operations at Gansevoort South hotel remain status quo,'' Michael Achenbaum said in a statement released Wednesday afternoon.

The Hotel Gansevoort, the Achenbaum hotel in Manhattan's Meatpacking District targeting the same affluent and hip traveler, is not involved in the foreclosure action.

He said he and his father hoped to buy back the loan at the auction and retain ownership. He blamed the financial woes on the condo component of the property and not the hotel, which the statement said is ``financially profitable and capable of covering its respective debt.''


Long a mid-priced convention hotel on Miami Beach, the Roney Palace and the adjoining Roney condo complex filed for bankruptcy in 2004. Chicago developer Joseph Chetrit paid about $150 million for the property months after the Chapter 11 filing, then sold his company's interest to the Achenbaums after a failed joint venture between the two groups.

Because the $89 million loan was backed by the Achenbaum ownership stake -- and not the Gansevoort property itself -- the Jan. 28 auction announced Wednesday does not constitute a traditional foreclosure proceeding. Known as a ``UCC auction,'' the sale is conducted under laws governing loans with equity stakes as collateral.

The winning bid would take control of the company that owns the hotel, but also assume a big liability: a $314 million mortgage on the real estate itself, according to documents posted online by Credit Suisse's agent in the sale, Jones Lang LaSalle Hotels.


The Gansevoort could be the leading edge of what analysts predict will be a wave of banks seizing hotels throughout South Florida next year.

With defaults rising on hotel loans, lenders are under pressure to foreclose on the properties and clean up their balance sheets. And with room revenues predicted to drop again in 2010 throughout South Florida, those owners reaching into their pockets to make hotel loan payments say they're not willing to fund losses indefinitely.

Sunday, December 6, 2009

Los Angeles Times reporting banks miraculous recovery, why is that not a surprise?

See previous posts for the comparison of what happened in Aussie in the 90's and the USA now. Which stocks came back the quickest with the greatest gains,(reminder Banks). Also see previous posts did the USA actually print all that money and is it more indebted than the rest of the world?

Bank bailouts appear to be paying off
The U.S. gets billions back as Wall Street rebounds. But critics say the TARP fund will still end up in the red.
By Jim Puzzanghera and Walter Hamilton

December 4, 2009

Reporting from Washington and New York - The government's bailout of the banking system is turning out to be far from the fiscal sinkhole so many had feared.

The $700-billion Troubled Asset Relief Program, known as TARP, was reluctantly created by Congress last fall despite criticism that it was a huge risk that would only encourage the profligate ways of Wall Street. But in recent months, tens of billions of dollars have begun flowing back from banks to the U.S. Treasury.

Bank of America Corp.'s decision this week to repay one of the largest chunks -- $45 billion -- reflects the stunning turnaround of the financial industry and demonstrates that the government's unpopular medicine appears to have saved the patient. And the price tag isn't as large as expected.

"It turns out, actually, TARP -- as wildly unpopular as it has been -- has been much cheaper than any of us anticipated," President Obama said Thursday at a White House summit on creating jobs.

Federal Reserve Chairman Ben S. Bernanke, who pushed for the fund's creation, made a similar point at a Senate hearing Thursday on his nomination to a second term.

"Unlike some of the scare stories about $700 billion being thrown away, I do believe . . . in the end that there'll be something close to a break-even there," Bernanke said.

The TARP fund may break even, that is, on its first and biggest use of taxpayer money: investing billions -- $205 billion as of Monday -- directly in banks.

Including Bank of America's expected repayment, $116 billion -- more than half -- of that amount has already come back to the government, along with about $10 billion in dividends and interest.

One expert, however, predicts the TARP fund will end up as much as $150 billion in the red because of losses on additional uses that the Bush and Obama administrations found for the program's money.

Totaling $270 billion so far, with commitments to spend about $160 billion more, those add-on uses include higher-risk investments in American International Group Inc., General Motors Co. and Chrysler. Little of that money has come back. The add-ons also include expenditures on incentives to boost small-business and consumer lending and to encourage mortgage firms to modify home loans.

And more TARP dollars might be heading out the door. Lawmakers and the Obama administration are considering using some of the remaining money to offset the cost of new job creation efforts. Any money used that way would not be repaid into the fund.

Also, the White House is not expected to allow TARP to expire at the end of the year. The law allows for a nearly automatic extension until October 2010.

"It's great that some financial institutions are paying the money back. It's not going to be so great if this administration immediately takes this money and shoves it out the door for some other big government boondoggle," said Rep. Jeb Hensarling (R-Texas), who serves on the Congressional Oversight Panel for TARP and wants the program shut down.

One reason the TARP fund has gotten a substantial sum of money back is that BofA and other financial giants desperately wanted to get out from under the government's heel on the issue of executive pay. Leaving TARP left them free to pay the lavish salaries to which their executives have become accustomed. Compensation limits under TARP have hampered BofA's search for a successor to Chief Executive Kenneth D. Lewis, who is set to retire Dec. 31.

Another motivation to pay back TARP money is being able to stop making dividend payments to the government. Those dividends currently equal 5% on most of the money invested by the Treasury and 8% on a second round of infusions that went to Bank of America and Citigroup Inc.

The repayments also reflect Wall Street's stunning resilience. The rest of the country may only be groggily recovering from recession, but many Wall Street firms are solidly back in the black.

Plain-vanilla banks, however, are still dealing with piles of bad loans that could get worse or more numerous as foreclosures keep surging and unemployment remains high. Ironically, many of those bad loans represented a big portion of the troubled assets that TARP was initially designed to purchase. The fund has done little to address that problem directly, however, spending only $27 billion on an initiative to buy up "toxic" mortgage assets in partnership with private investors.

Days after TARP was signed into law, the Bush administration decided the money was needed more urgently to thaw the frozen credit system. The Treasury soon began pumping billions into major banks in exchange for equity stakes.

Mark Zandi, chief economist at Moody's, said TARP would have been more effective if it instead had been used to buy troubled assets, as originally intended. Still, the capital infusions helped quell financial panic, even if it proved highly unpopular with the public because it bailed out firms that helped cause the crisis, he said.

Zandi estimated that all but $100 billion to $150 billion would be returned to taxpayers, a much better return than predicted last fall. But that won't change the American public's opinion of the program, he said.

"They're still going to say it cost us $100 billion to $150 billion and all it did was save Wall Street," Zandi said. "There's no way to sugarcoat this: TARP is a black mark on our economic history. But we had to do it. The world without it would have been immeasurably darker."

There's a widespread consensus that TARP shored up confidence in the global financial sector and paved the way for a dramatic rebound in Wall Street profits.

"The end result is hard to debate," said Adam Sussman, research director at Tabb Group, a research firm. "The banks are more stable now than when TARP was initiated. Overall the efforts to restore financial stability have been successful by any measure."

But even some on Wall Street acknowledge that a secondary rationale offered for the infusions of government capital into banks -- that a restored financial sector would help the economy rebound -- hasn't panned out.

"This worked extraordinarily well for Wall Street, but it has failed utterly for the real world," said Don Putnam, managing partner at Grail Partners, a boutique investment bank in San Francisco.

TARP and other government programs breathed life into the financial markets, which boosted demand for basic Wall Street services such as stock trading, corporate capital raising and the construction of exotic, often lucrative financial instruments known as derivatives.

But some analysts worry because TARP didn't help banks purge the mountains of toxic assets that sparked the financial crisis, which could restrain their lending going forward.

"TARP has given us the illusion that the banks are on the mend," said Christopher Whalen, managing director of Institutional Risk Analytics in Torrance. "But the losses that banks face on some assets are going to be so big that the real economy is going to end up dying before the banks can heal themselves."

Not everyone is so glum.

Many see the resurgence of Wall Street as a crucial first step toward broader recovery. But the resuscitation of the banking industry could be short-lived if unemployment stays high and consumers remain wary of spending.

"The financial sector's recovery won't last unless there is a subsequent recovery in the broader economy," Sussman said. "So far what's happened has been good, but it doesn't mean we can breathe a sigh of relief yet."

For that reason, Zandi said the Obama administration should extend the TARP program, even if that limits the potential return to taxpayers.

"I don't think we can declare that the coast is clear," he said. "We need to have this as an insurance policy.


Copyright © 2009, The Los Angeles Times

Sharp intgegrating supply chain what does it mean?

Interesting article all about reducing cost. (ultimately to reduce price or deliver higher margin which could result in a higher dividend. Fosters (in Aussie) was doing this when I was with Oracle in the late 90's.

Sharp's New Plant Reinvents Japan Manufacturing Model

OSAKA—Sharp Corp.'s new production complex in western Japan is massive by any measure: It cost $11 billion to build and covers enough land to occupy 32 baseball stadiums. But it carries a meaning as large as its physical size. It's a litmus test for the future of Japanese high-tech manufacturing.
The facility, considered the most expensive manufacturing site ever built in Japan, started churning out liquid-crystal display panels last month, and Sharp's new flagship televisions featuring the energy-efficient LCD panels go on sale in the U.S. next month. Sharp moved forward the factory's planned opening by six months, saying the new plant would help it be more competitive.
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Sharp's new facility in Sakai city is considered the most expensive manufacturing site ever built in Japan.

"When you look to the next 10 or 20 years, the existing industrial model doesn't have a future," Toshihige Hamano, Sharp's executive vice president in charge of the Sakai facility, said in an interview. "We had to change the very concept of how to run a factory."
Located in Sakai city along Osaka prefecture's waterfront, the complex represents Japanese industry's biggest gamble in LCD panels to remain competitive with rivals from South Korea, Taiwan, and China.
The factory's size accommodates two main factors. One is the size of the glass used to make the LCDs. Sharp is using the industry's biggest, or "10th generation," sheets, which allow the company to produce 18 40-inch LCD panels from a single substrate—more than double the eight 40-inch panels per sheet it uses at its other LCD television panel-making factory.
The other factor: Sharp has decided to try and cut costs by moving suppliers on site, a kind of hyper-"just-in-time" delivery system.
The plant currently employs 2,000 people—roughly half from Sharp and half from its suppliers—although the work force will ultimately reach 5,000 as it adds production of solar panels as well.
It remains to be seen whether it makes sense for Sharp to keep seeking ever more-sophisticated production in Japan, or, as competitors have, to simply use less advanced production techniques at lower costs in places like China.
CLSA research analyst Atul Goyal warned in a report last month that the company is making a mistake by "chasing technology" with the new factory.
In the past, such efforts by Japanese electronics makers have resulted in costly capital investments, only to be confronted with limited appetite for cutting-edge technology and then eventually outflanked by a cheaper alternative.

Even Sharp's Mr. Hamano acknowledged that the company only gave the green light to proceed during a boom period for LCD-panel demand, and that a similar choice might not be made in today's market.
Rival Samsung Electronics Co. has said it is looking into building a new LCD-panel factory using even bigger glass sheets than Sharp, while LG Display Co. has said it plans to build a new factory in China using current glass size.
Sharp announced the Sakai project two years ago when LCD demand was surging and the company had produced five straight years of record profit. When consumer spending ground to a halt in late 2008, Sharp didn't cut costs and curb production quickly enough. Saddled with excess inventory, Sharp posted the first annual loss in nearly 60 years in the fiscal year ended March 31, 2009.
The experience taught Sharp a painful lesson that its supply chain needed to be leaner and its production more efficient, especially if the factory was going to be in Japan, where the strong yen and expensive labor force put the company at a disadvantage to its Asian competitors.
Sharp aims to streamline the costly LCD-panel production process by moving 17 outside suppliers and service providers inside its factory walls to work as "one virtual company."
In the past, Sharp kept suppliers within driving distance. Now they are all within the same facility. Supplies are sent not by truck from a nearby factory but by automated trolleys snaking from one building to another.
The suppliers, which include Asahi Glass Co. and Dai Nippon Printing Co., built and paid for their own facilities and are renting the land from Sharp.
Despite their location inside the plant, Sharp says its suppliers are permitted to sell their products to other companies.
At Sakai, Sharp has also linked its computer systems with suppliers so an order to the factory alerts suppliers right away. In the past, Sharp would email or call suppliers and place orders, creating a longer lag time.
Sharp wouldn't disclose how much, if any, cost savings will result from manufacturing LCD panels at Sakai, but analysts estimate a 5% to 10% savings.
Corning Inc. the world's largest maker of LCD glass substrates, built a factory next to Sharp's Sakai plant. Corning says the arrangement reduced total order cycle time from an average of one to two weeks to a matter of hours. Corning also says the proximity reduced the damage risk in transporting massive glass sheets on trucks.
While Sharp is a long-standing customer, Corning said it was concerned initially that building a factory on site would mean that it was "hitching its wagon" to Sharp since it's the only customer for such large glass substrates. Ultimately, Corning decided to proceed based on its faith in Sharp's Sakai plans.
"There's nothing like it anywhere," said James Clappin, president of Corning Display Technologies.
Write to Daisuke Wakabayashi at