It's not disney, but it's the circle of life.

I've never been a person who likes to point and say "that's the bad guy" (sorry to disappoint, Tony Montana). I've always tried to look at things and frame them in perspective. After many years, I've realized we all pretty much live in glass houses and it's usually all shades of gray. In this article from the Wall Street Journal, we definitely have a story of vultures devouring an unlucky victim.

What most of us don't understand or want to believe, however, is that the vulture IS important. Yes, you read that right: the vultures of the world, the Gordon Geckos, and others who thrive on the misfortunes of others, are a vital part of the circle of life…and the circle of Wall Street. I do not normally extol the virtues of these piranhas, but they earn their keep.

Companies such as Cerebus Capital Management and Vornado are helping to expedite the process of flushing out the pipeline of these toxic assets. What these firms do is buy up "special servicers" that have one of the first opportunities to acquire distressed assets. What seems to be wrinkling a few noses is that these special servicers are the ones who advertise the properties for auction. That they may try and keep these properties on the down low is extremely possible. I guess the key point is that somebody forgot to tell these mavens of industry that "life isn't fair, never has been, never will be." The companies trying to interject themselves into this drawn-out process are doing us all a favor. These vultures are helping flush out the system in a much quicker, tidier way than would probably be the case otherwise.

Another way to view this new trend: it's an auction (a prim, which means they are paying cash for all these mistakes. The investors more than likely didn't know what they were buying, or they probably wouldn't be investing in a B-level tranche of a Commercial Mortgage Backed Security (CMBS). The harsh reality is that insiders in the industry who were actually "in the know" had knowledge that the loan sector of our industry was running towards a cliff. I can't really sympathize with some well-heeled investors who lost some money in the B "piece" of a CMBS. At some point during the last four years they were probably expecting close to 0% return on such a bad investment. The "B piece" tranches weren't investment grade options then and they sure aren't now with so much uncertainty out there. To be overly concerned that these investors get some returns on these near junk bond investments is silly.

The last piece of this puzzle is the actual property itself. The "real politic" view of the situation is that companies struggling to make their debt service payments, or those who are already delinquent, are not really trying to put more money into these properties. They are more than likely focusing on deferring maintenance and other capital intensive decisions. The quick takeover of properties by these vulture investors via auction may well be the best thing for the property as well as the greater economy. The faster these assets’ values are escalated through capital improvements, the more the investor's balance sheet is helped and new capital is brought to these starved assets, thus improving the overall market situation in its specific locale. In other words, the faster these assets are rehabbed and then put to market, the better off things will be for the rest of us.

This situation isn't ideal for all parties involved. The element of fair play may not be pervading the whole story, but when since Cub Scouts has fair play been on anybody's mind? The fact that these vulture investors have found a way to speed up an arduous and already gut-wrenching process is probably best. For once, maybe it's okay to cheer for the bad guy.

-The Inside Associate