Mar

14

I was in Florida in the late 1980s when Bill Seidman and the RTC took over massive amounts of commercial real estate and began to liquidate pristine properties with impunity because investors in limited partnerships were just walking away from their obligations.

Many were hurt — some severely, some permanently — and it ultimately did get resolved. But it took years, and some properties took many, many years. Big developers such as DeBartolo , Trammell Crow, JMB and Balcor took huge hits and some investors lost their entire investments in these packages.I believe one would be well served to go back 15 years and study that time.

It was promulgated by a gigantic change in the tax code that limited deductions from investment property and severly curtailed aggressive accounting and depreciation techniques used by limited partnerships.

It had a trickle down effect on many levels, especially to other areas of residential real estate, from middle America to carriage-trade neighborhoods such as Malibu and Newport Beach, to the pockets of wealth in the South such as Palm Beach and Miami, to the East Coast from New York to Maine.

Those who were well-positioned financially rode out the storm, and those who had available capital snatched up blue chip properties for pennies on the dollar. Those who were not were stampeded.

Citigroup and other major banks traded at historic lows. When Citi was at $12 per share, many analysts suggested they could go bankrupt. Richard Bove at Dean Witter said this was the opportunity of a lifetime to buy Citicorp and was summarily fired for being an outlier in his opinions.

The wise man, who goes into the recent past and studies it in detail, who will stand the best chance of being rewarded.


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