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JER Investors Trust Inc. Message Board

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  • lnvestlt lnvestlt May 1, 2008 11:50 AM Flag

    Is JRT a stock to hold?

    well IMHO the complication arises primarily from first loss cmbs b-pieces rolled into a cdo in which JRT retains first loss. a cdo of mainly (there are other things in there such as whole loans and mezz loans) first loss collateral exacerbates the retained first loss investment in the cdo.

    that said, the b-piece buyer (JRT) has enormous control of the cmbs collateral as without them the cmbs deal falls apart. JER has people in place that seem to know what they're doing in this regard.

    the pancake risk, as da calls it, is on the high side. how high is anyone’s guess and depends largely on the underlying cmbs performance. it’s your job to get comfortable with what they’re invested in and determine what losses are priced into the common if you’re thinking about buying.

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    • I'm not really familiar with many of terms you were just describing. Do you have any web site recommendations so I can learn more about MREITS? Need to do some DD. Thanks...

    • "first loss collateral exacerbates the retained first loss investment in the cdo."

      What it does are two things that make the risk harder to model.

      1. Correlated risk
      2. Smallest extreme value.

      http://www.itl.nist.gov/div898/handbook/eda/section3/eda366g.htm

      The first picture is the kind of distribution of results that you deal with in loan portfolio's.

      You have a nice high peak at X=0 (e.g no losses; the most common result) and then a long fat leftward tail (losses).

      "that said, the b-piece buyer (JRT) has enormous control of the cmbs collateral as without them the cmbs deal falls apart. JER has people in place that seem to know what they're doing in this regard. "

      What happens is JRT has some control on its portfolio risk (from kicking out loans, and declining to bid), no control over the borrowers business (e.g MBS!), and then they can step in reactively when loans get kicked in S/S.

      So they control the front, and the back, but not the middle.

      That's why I'm liking Shopping Center/NNN REITs/BDC's these days, since they control the middle.

      The era of low touch low quality is over, this is the age of high touch high quality.

      "the pancake risk, as da calls it, is on the high side. how high is anyone’s guess and depends largely on the underlying cmbs performance. it’s your job to get comfortable with what they’re invested in and determine what losses are priced into the common if you’re thinking about buying."

      See the thing is, you want to be like Calpers. Exposed to fresh business only, not worrying about legacy CDO's which are spewing cashflow like a flare, but could go out suddenly as well.

      I wouldn't be buying JRT unless I could accept a 3/4rs loss of my investment with a reasonable probability.

      • 1 Reply to dividendaristocrat
      • "from kicking out loans"

        this is no small thing. you in effect take control of the "middle" by kicking out those which were not done to your standards. the hard part is, as the appetite for risk grows you have to either suck it up and take some stuff you don't really want to or suffer not doing much business i.e. declining to bid). i often wonder why MBS was kept.

        "a 3/4rs loss of my investment with a reasonable probability."

        i'm interested to know why you put the total blow up of their CDOs as reasonably probable. even then i think the rest of their business is worth more than that. yeah you'd probably be suffering short term market losses of equal to or greater than that but the other assets are worth more than 50MM.

 
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