iStar narrows losses, but still struggles with portfolio
August 03, 2010 07:00PM By David Jones
alternate text
Jay Sugarman and One Madison Park
IStar Financial, the Manhattan-based real estate investment trust, narrowed its
second-quarter losses, as the lender took additional steps to slash its debt
and find value in its portfolio of troubled land and condominium assets.
IStar reported second-quarter adjusted losses of $83.4 million, or 89 cents a
share, compared with losses of $250.1 million, or $2.51 a share, a year ago.
The lender's stock price fell nearly 15 percent on the news to $4.45 a share.
Analysts were expecting the firm to report a 30-cents-a-share loss, according
to Thomson Reuters.
The second-quarter losses do not include iStar's 250.3 million gain from the
$1.33 billion sale of 32 corporate net-leased properties to a Denver-based
firm.
Net income was $212.3 million or $2.27 a share, when including the sale of the
properties.
Revenue fell 29 percent to $136.8 million from $193.1 million a year ago.
The firm, led by chairman and chief executive Jay Sugarman, is one of the most
high-profile commercial real estate lenders in New York. However, iStar has
struggled under the weight of a number of poorly performing commercial real
estate loans that it acquired from the purchase of the Fremont General
portfolio in 2007.
Sugarman said the problem in the marketplace is that a big gap remains between
what sellers are willing to offer and buyers are willing to pay for an asset.
"The capital demand from a wide range of investors is there, but I think the
price points haven't been attractive enough," he said, in a conference call
with analysts.
The lender has a number of New York assets in foreclosure proceedings,
including the mortgage at One Madison Park, William Beaver House and 47 East
34th Street.
One group of condo buyers, backed by noted attorney Barry Slotnick, have filed
suit to push the One Madison Park condominium, which is currently under a
court-appointed receiver, into bankruptcy.
At the end of the quarter, iStar said 63 of its 195 loans were listed as non-
performing, representing $2.96 billion in loans, or 40 percent of its
portfolio. In addition, another 14 loans are on its watch list, representing
$1.03 billion, or 13.8 percent of its portfolio.
Ben Thypin, senior market analyst at Real Capital Analytics, said the company
cannot continue to go down the same road, and he expects iStar to push more
deals like the sale of the corporate net-lease properties.
"I would expect them to do more asset sales to free up capital," said Thypin.
"If they can sell some of those non-performing loans they can redeploy that
capital into something more productive."
Attorney Ed Mermelstein said he expects iStar to start buying up positions on
the lower end of the capital stack, which would allow them to foreclose on
poorly performing assets and either sell them at a discount or operate them
until the market picks up steam in the next few years.
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