Dont be fooled by the $19 book value, fair value is proberbly zero.
"The book value per common is actually around $17. If the book value doesn't account for the drop in real estate prices, it also doesn't account for the drop in price of debt."
The depth on the buildings is mortage depth and havent necessaerly fallen. See what happened to home owners, their house has fallen 50% in value, but they still have the same mortage to repay.
Even if the mortage depth is for sale at a 50% discount (which it is not, only bonds are), GKK would not be able to buy them at a discount because they dont have the cash to do that.
SLG has currently issued new stock so they will have the cash for doing depth buyback, but GKK dont have such plans. They have been buying bonds but far from what is needed to offset real estate decline. It has onlu been enought to offset loan loss reserves, and it seems they are not so agressive on this anymore because of liquididy.
Also consider average lease is 10.2 years and 78% of tenants are investment grade credit rating. I'd say the cash flows from the real estate are likely to outlast the current down turn. Especially if they successfully renegotiate the Dana portfolio.
I was having the same issue with a shipping stock, GSL... I sold at loss last week, because loan to value LTV went through the roof. I sucks to own a stock when their assets belongs to the bank becuase of declines in assets values. Sure their ships are leased 10 years into the future, but they are forced to cancel dividends, because the bank wants that money.
I recomend buying into BDC's when they come down a bit. look out for AINV, its a buy at $5. KCAP is a buy right now.
I love only paying 30 cents on the dollar on my investments and knowing what their assets are worth at todays price... This means huge upside once we recover... KCAP will be $11 by next year and in the meantime I will get payd 22% in dividends...
"Let's say I brought a house for $100K. I look up a few years later and they tell me its worth $50K. As I write my mortgage check, I think to myself, wow, I am upside down on this house. But, I keep writing my monthly mortgage checks and one day someone says your house is worth $150K. So, I went from 0 equity to negative equity to positive equity. The whole time, the real effect on me was 0. I kept living in my house and paying my mortgage.
I'm terrible at analogies, but the point is, GKK real estate is providing consistent and steady cash flow. Their core portfolio is 96% rented. Since the end of 1Q09, they have leased additional space. So, you can say the assets are worth $0 all day long but GKK is getting a steady paycheck from these worthless assets.
Of the assets they are trying to sell, 1Q09 they were getting 6% cap rate. Entire portfolio was purchased in 2008 at a decent discount, so I suspect the property values haven't deteriorated as much from their carrying value as you might think. "