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There has been a lot said about George Smith in the past few weeks. We appreciate the hundreds of emails and letters we have received about George; we all miss him very much. For this issue of Fin-Fax, we have gathered some of George’s classic material and a few anecdotes for those who want to reminisce or just have a good laugh. This is not a comprehensive list of all the stories and all the quotes—that would be a very, very long Fin-Fax.
Background: During the early 1990’s, the California real estate market was slumping and interest rates were high. In 1998, the Russian debt crisis caused the fixed rate capital markets (including CMBS lending) to meltdown. During both of these periods, George used humor, metaphors and wit to get everyone through the tough times.
Dusting Off the Oldies and Goodies
Following are just a few of George’s more memorable comments, jokes, and even a poem from those difficult times:
June 2, 1993
- Appraisal of REO Land (Formerly a land loan on a proposed office park in Orange County): “The highest and best use of the property is to hold the Earth together.”
- The RTC Regulator sitting on the deck of the Titanic when asked why he was smiling answered “It’s not my boat.”
- George Smith’s comment to a lender after being turned down on an office building loan request. “I wish I had 5 lenders like you - the problem is that I have 50 like you!”
February 8, 1994
TOP 10 THINGS NOT TO SAY IN LOAN COMMITTEE IF YOU WANT TO GET YOUR DEAL APPROVED
(George’s David Letterman parody)
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10. |
The high voltage lines running through the property are an amenity. The tenants don’t need microwaves or tanning beds. It also gives the property a great green belt area for the kids to fly their kites. |
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9. |
Other than that one indictment for wire transferring the operating account to the Cayman Islands, this borrower is squeaky clean. He says it was a simple misunderstanding. Anyway, it wasn’t that much money. |
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8. |
The zoning is fine; we just can’t rebuild if it burns down. What’s the big deal? We have plenty of insurance. |
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7. |
Of course it’s is only 80% occupied. The market is tight as hell and the owner is pushing rents. |
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6. |
The only reason that we lowered repairs and maintenance to 50% of last year’s actuals was to make the numbers work. We achieved a 1.35 debt coverage ratio. That should count for something, shouldn’t it? |
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5. |
Nothing new is being built so we projected 95% occupancy and trended rents by 4% per year. I know the market appears to be over built with 20% vacancy factor and new job losses. It won’t always be that way. |
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4. |
Increase the capital reserves? The borrower reviewed the engineering report and says he can easily milk the roof for a minimum of 10 years. Anyway, inflation will take care of capital reserves we underestimated. |
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3. |
Sewage treatment plant, what sewage treatment plant? I wondered what that funny looking building was. |
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2. |
We told the appraiser that he could have our next five deals if he could hit an 8 cap. |
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**1. |
If we reach for this one and prove that we want his business he promised us his easier loans in the future. We are looking for “Continuing relationships” aren’t we? |
March 17, 1994
AN ODE TO RENEGOTIATIONS AND THE BANKRUPTCY PROCESS
(Author Anonymous)
I just got the word. Committee did not go well. Your restructuring request has just gone to hell.
Your reserves are gone. The value is too.
Does “we are foreclosing” ring a bell with you?
There will be no more meetings. Negotiations are dead.
And a few more things need to be said.
We’re taking the property and firing your crew.
As well as the yacht…and the Rolex too.
We know all about them. Your accountant confessed. The money came from the 1st draw request.
We are posting the sale and the meter is running. I’m instructed to tell you not to be cunning.
If you threaten BK, you’ll get what you’re due. You’ll be nailed to the wall before we are through.
Then the light at the end of the tunnel that you will see will be a freight train named Deficiency!
And in conclusion, we must simply say, “Thanks for your business and have a great day!”
December 20, 1996
As we end this turnaround year, we leave you with this thought…
“No one has ever lost money in real estate. They simply died too soon.”
March 20, 1998
We all get to walk the walk and talk the talk: One of the biggest reasons why anybody would want to do a CMBS loan is so they can stay current on all the jargon and terminology, i.e. PML, on the run/off the run, event risk, 360/360 or 365/360, “bips”, stress underwriting, risk based pricing spreads, unwinding the hedge (something we all hope to do), in the box or out of the box or Jack in the box, waterfalls, “re-trading” instead of changing the terms, etc. You risk becoming a dinosaur if you’re not up and hip with today’s language.
April 17, 1998
“Walk the Walk” and “Talk the Talk”: Example of an apartment loan quote received this week of $12.2MM, 10/30, 1.20 DCR, 80% LTV, 3 yr. lock out to prepay, then 4%, 3%, 2%, 1%, 1%, 140 over, 360/360, off the run August 2007 at par. Since This is the Passover Season, We Ask: “Why is this quote different from all other quotes?” The Wise Child Said: (1) 360/360 is the true interest rate, i.e. 12 bps. less than 365/360. The Simple Child Said: (2) The prepay is not yield maintenance or defeasance, meaning a declining prepay “like the good ol’days.” The Wicked Child Said: (3) Off the run August 2007 closed on 4/17 at 5.65%, meaning the rate would be 7.05%. The Child Who Didn’t Know Enough to Ask Said: (4) Isn’t an 80% LTV, a 1.2 DCR and a loan of 10.3X the stabilized net cash flow using a 7.75% cap rate?
July 31, 1998
Is your CMBS quote “On the Cuff” or “Off the Cuff”? Voicemail to George Smith regarding a credit lease financing quote: “The following quote is off the cuff. The rate will be 130 to 140 over the average life, 20/20, 360/360, on the run.” George called back and asked, “When can I expect an on the cuff offer?”
September 18, 1998
George’s comment on CMBS originators during the “meltdown”
“The Good Guys, The OK Guys and the Really Bad Guys (and we are keeping a scorecard)”
September 25, 1998
CMBS Dislocation Continues, Rumors Fly, Deck Chairs Reshuffle and “The Pig Keeps Working Its Way Through the Python”: Our Advice - If the shoe almost fits, wear it or wait until the next season and new models…
October 9, 1998
And It Got Even Worse - The CMBS Week in Review: “CMBS Rates are 8%+ with Others @8.5% to 8.75%” and “How Wall Street Eats Its Young.”
November 9, 1998
CMBS is Alive, Healing, “Off the Heart Lung Machine, In Recovery and Leaving the Hospital Earlier Than Expected” AAA’s Drop to 145 Range with Mortgage Spreads Expected to Narrow this Week: It looks like the proverbial python has almost completed digesting the pig, and a lot faster than anyone expected.
November 23, 1998
Transaction of the Week: George and Pam Smith welcomed their first grandchild last Wednesday. Samantha Oaks, 6lbs. 10oz. daughter of John and Jill Oaks of Las Vegas, completed the development cycle successfully, more than meeting projections and adding to the continued growth of Las Vegas.
March 12, 1999
If you call right away, we will throw in a Ginsu 10-piece gourmet cutlery set. Operators are standing by.
(Part of a “Hot Money” write up) |
