With real estate investment trusts and mortgage-backed securities backing office and industrial buildings with big bucks, there’s some concern that investors will be sorry they bought in when the market was hot and perhaps at its peak.
But the fact that bond-rating agencies like Moody’s and Standard & Poors are rating mortgage-backed securities means that debt levels, at the least, are staying within sensible ranges.
And at least one property analyst said buyer research on a property’s potential pitfalls like unseen earthquake damage or hidden toxics has never been more stringent.
“The REITs know they are ‘deep pocket’ owners, and if there are any litigious problems with a property, they are going to get sued,” said Orell C. Anderson, principal consultant with the real estate damages practice of accounting giant Price Waterhouse in downtown L.A.
Also, as publicly held entities, REITs must show they performed due diligence before buying a property. Lenders have required due diligence in the past, but standards have never been as tough as today, said Anderson.
“If something is sold to a public company, there has to be documentation to show that toxics, structural damages or many other potential hazards have been checked out and taken care of,” said Anderson.
Industrial properties, or former gasoline station sites in particular, must be checked for underground contamination of a fuel additive known as MTBE, said Anderson. The additive has proven pesky, as it eats through the fiberglass linings on fuel tanks and enters water tables.
“REITs are becoming very aware about MTBE,” he said. “Already, wells have been shut down in Southern California.”
Construction defects, hidden earthquake damages, and even the type of soil on which a structure is built are other items Anderson checks on behalf of Wall Street REITs.
Anderson’s job is to make sure that unseen threats lurking behind walls and floors don’t hurt REIT investors yet another example of how more and more people are working for Wall Street, directly or indirectly.
The perils of Pauline
If nothing else, Pauline Yoshihashi can say she has led an interesting life.
You may recognize the name: She had her byline, as a news reporter, in The New York Times, where she worked for five years, and the Wall Street Journal, working out of the Los Angeles office for eight years.
That might be career enough for some, but Yoshihashi then joined the Century City offices of Donaldson Lufkin & Jenrette, the powerhouse securities brokerage. She caught the eye of Ken Moelis, the managing partner there, in 1995, and he hired her, in his words, “even though nobody had ever hired a journalist to be an investment banker before.”
She worked on gaming-industry deals on all ends, from equity to high-yield financing to M & A.;
The San Gabriel Valley native and USC journalism school grad has turned over yet another leaf and joined the Los Angeles offices of Abernathy MacGregor Frank, the high-end financial public relations firm.
Why the latest jump? “I was at DLJ in one of the most exciting periods in the industry, working with the top people. But I wanted to try something different,” said Yoshihashi. The idea of building up the West Coast office of Abernathy MacGregor Frank, established this year in Los Angeles, is also appealing, said Yoshihashi, who took the title of senior vice president.
Earlier this year, former Great Western veteran spokesman Ian Campbell started up the office, taking the title of executive vice president and office director.
Huge agribusiness has a problem: what to do with all the waste.
Which is why Westlake Village-based Environmental Products and Technology Inc., now traded on the OTC Bulletin Board, has filed with the SEC to issue $20.6 million in a secondary offering.
The company is touting a new waste-control system it plans to market to large dairy, cattle and pig farms. The new system accepts the waste, and then burns and thus converts the attendant methane gas into electrical energy for use by the farmers, reclaiming the solid waste into fertilizer.
Large farms have largely dodged federal environmental regulations in the past, but the U.S. government has become concerned about animal wastes and the leaching into groundwater, so regulations on animal droppings are pending, said Marvin Mears, company chief executive, founder and largest shareholder. In the Midwest, there are ongoing controversies over the huge pig farms, which are accused of polluting surrounding areas and are disliked for smell problems.
The Environmental Products system encloses waste in a large fiberglass container, rather than open-air lagoons, and so reduces smell problems, said Mears.
Mears has run afoul of the SEC in the past. In 1993, the agency accused him of filing inaccurate financial statements in the late 1980s with a previous company, Corporate Capital Resources Inc., a venture capital firm in Los Angeles.
In 1996, Mears, 64, signed a consent decree to comply with SEC regulations, while neither admitting nor denying the charges. Mears last week said accounting standards were fuzzy at that time for certain venture capital firms, and the cost of defending against the SEC was prohibitive, so he signed the consent form.
Los Angeles-based Liberty Cable Inc., a cable system that serves South Gate, Walnut Park and El Monte, has retained the investment banking services of Houlihan Lokey Howard & Zukin, the Century City-based financiers. Liberty Cable, which has 12,500 subscribers, emerged from Chapter 11 this March. The company is “exploring strategic alternatives,” which usually means it would like to merge with, or acquire, another cable
Contributing reporter Benjamin Mark Cole covers the local investment community for the Los Angeles Business Journal.