Call Central Casting

If a movie producer told her assistant to call central casting for a New York real estate developer, they could only hope to get Ivan Kaufman.

Kaufman is the CEO and Chairman of Arbor Realty (ABR), and he took his company public in the mortgage REIT market in 2004, when that was the strategy du jour.

From their offices in suburban Long Island, Ivan and his crew at Arbor offer mezzanine and bridge financing for commercial real estate.  They lend on what they know – higher end suburban New York office and retail mostly, the kind of properties Ivan made his money on in the 80’s and 90’s.

With every megabank and even tons of regional banks taking huge write-ups on their loan portfolios this quarter, you can see why Arbor’s near-death pricing under a buck in early 2009 recovered to just under $2 a share as of January 1 this year, and over $4 now.  (That’s right — it’s up over 100% YTD!)

I’m writing about the ultimate in returning to basics when I write about Arbor.

What I’m referring to when I call Ivan the quintessential New York real estate man is the sense you get when you meet with him.  There’s a certain toughness that many from the rest of country confuse with rudeness or other unpleasant characteristics.

I say you get the feeling that if you borrow money from him, he will get paid back.  That’s not a negative.  It’s just what it is, as Frank noted in his classic, “If you can make it there, you can make it anywhere.”

Of course, no amount of toughness can get blood from a stone, and the company’s survival was indeed in question when it looked like the debt world was coming to an end.

For that reason, the company ended 2009 having taken several hundred million dollars of writedowns ($57 million) and provisions ($241 million).

But now we are finding out that the world did not end, and that there is enough money sloshing around thanks to government (Fed) liquidity that a lot of commercial real estate borrowers are managing to pay their debt service.  Hence the stellar quarter for the money center and regional banks.

While it might be silly to price banks’ stocks based on clearly unrepeatable earnings, ABR ended 2009 with a book value of $3.81 per share and $2.55 per share in cash.

If they reverse even some of the reserves they took against loans with lowered collateral value, the price of the stock might turn out to be a significant discount to liquidation value, even after it doubled.

I’ve held some of this stock since it was priced in the pennies, but unfortunately took profits in most of my position already.

It still gets my attention when a stock that had already doubled since January takes another 10% run upward in a day, with no news that I can find.

Maybe this $115 million market cap company hit a threshold for some major money manager, and it is going up while they build a position.  Maybe the market “knows something” about the revaluation of the underlying collateral in their loan portfolio.

I know that if you owe Ivan money, and he thinks you can pay him, he will not rest until he gets it.

Just like that character you thought of when you called central casting.



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