Thread by @NICKRADICAL4

@CuriousCowCap @agnostoxxx I’ve been in the distress/restructuring space for over twenty years, including Leucadia (best restructuring investor of all time) and so on. The mistake seen today is a new generation who thinks that everything is due to sentiment rather than absolute debt levels.

@CuriousCowCap @agnostoxxx In REITs, debt levels don’t seem remotely the same as they were pre-2008. (See 666 Fifth Avenue, with less than 3% equity.) Much restructuring has already occurred, out of court, which is more the $RIG analog. Giving back individual problem buildings is the restructuring…

@CuriousCowCap @agnostoxxx With mortgages financing individual assets, at sober ratios, there is essentially not a concept of clean or cheap structures. What would be an expensive structure?

@CuriousCowCap @agnostoxxx Industries with absolute high levels of debt and increasing competition is where recapitulation and distress are triggered. I’d actually point to the Twitter deal as a completely imprudent debt stack. It’s all tech right now.

@CuriousCowCap @agnostoxxx What is the value of this asset—an app, in the case of Twitter—if and when obsolescence sets in? Is that really a more solid form of collateral than Midtown skyscrapers?

@CuriousCowCap @agnostoxxx Here's what the offshore industry, including $RIG, looked like from top to bottom of the cycle, which puts numbers to it:

@CuriousCowCap @agnostoxxx The low market cap was the key, for stock investors, after deflating from a massive peak in 2008. To compare with NYC office, the pure-play REITS, $VNO, $SLG, $PGRE and $ESRT, have a combined market cap of $5.6 billion today. It highlights a range, even if inferring for others.

@CuriousCowCap @agnostoxxx I view 2007 as the massive peak for office, as symbolized by Zell and $BX. Out-of-court restructuring has been going on ever since that time, including with them, $BPY's absorption into $BN, and more.

@CuriousCowCap @agnostoxxx This is accurate, but doesn't note that it is effectively more out-of-court restructuring from the 2007 peak, rather than separate cycles, similar to what $RIG did:

https://twitter.com/WallStCynic/status/1639081778471215115?s=20

@CuriousCowCap @agnostoxxx In the case of Class A+ office, Related is the other notable player. It is likely already close to being as consolidated as offshore floaters above, with a few firms controlling 70%-80% of the market.

@CuriousCowCap @agnostoxxx Is it realistic that *all of Manhattan* has less equity in its top skyscrapers—a third to half the size—of $SNAP and #dogecoin's market equity?

@CuriousCowCap @agnostoxxx Also what the peak looked like:

https://twitter.com/jayvas/status/1638933785109762048

@CuriousCowCap @agnostoxxx I’d also note that, during 2022, $RIG peaked in March at over $5, then dropped to a low of $2.36 by September, only a few months later, a 53% decline. $VNO today actually has had less downside; it just happened faster, which attracts attention.

@CuriousCowCap @agnostoxxx Moreover, $VNO spin-offs of $UE and $JBGS, plus the retail JV—as well as shrewd liability management—was further restructuring over the past decade. It is not a company made acquisitions into a rising market; quite the opposite, they focused the portfolio on top assets.

@CuriousCowCap @agnostoxxx Companies that run into trouble look more like: lots of M&A, in a booming and hot industry, with absolute high amounts of debt (versus modest debt/NAV). $SQ is actually a very astute example; perhaps along with the streaming industry, with its intangible collateral.

@CuriousCowCap @agnostoxxx Ironically, $SQ acquired a streaming service from Jay-Z and added him to their board; along with Larry Summers, which is a little Theranos-esque:

investors.block.xyz/governance/boa…

@CuriousCowCap @agnostoxxx Before being exposed, $SQ market cap was around 20 times that of $VNO, yet is accused of being a scam. Exactly the same that I’ve been saying: the risk is in tech and “pseudotech,” not Manhattan’s best skyscrapers.

@CuriousCowCap @agnostoxxx It seems that most other short sellers got so burned by the bubble (and put out of business, if one looks closely) that they’re now basically afraid to call out tech as the bubble.

@CuriousCowCap @agnostoxxx Where the risk is:

https://twitter.com/RJRCapital/status/1638995522710130703

@CuriousCowCap @agnostoxxx Tech is the blue pill and office is the red pill.

@CuriousCowCap @agnostoxxx Notably, both $ESRT and $PGRE don’t have remarkable debt for real estate companies. $VNO has always had the shrewdest debt management in the industry. Even $SLG doesn’t look so bad. Most is asset-specific.

@CuriousCowCap @agnostoxxx The total enterprise value of the public industry is probably lower today than the enterprise value of Sam Zell’s Equity Office deal alone in 2007.

@CuriousCowCap @agnostoxxx What’s actually most striking to me is that recourse leverage isn’t even terribly high in absolute terms. The total enterprise value for the entire public NYC office segment is way lower than would be expected.

@CuriousCowCap @agnostoxxx As I often note, the public equity slice (not including $BXP, due to their wider diversification) is around half the market cap of #Dogecoin. But the recourse debt added to that isn’t a whole lot higher; somewhere between the market cap of Doge and $SNAP.

@CuriousCowCap @agnostoxxx More good ones for $RIG:

@CuriousCowCap @agnostoxxx The great @OttoMaddox42 and myself expect an overshoot: $1 million to $2 million dayrates. Even today's aren't high enough to stimulate newbuilds. Even a "bubble" in dayrates could be possible at some point in the future...

@CuriousCowCap @agnostoxxx @OttoMaddox42 And much like $VNO, replacement cost is the key metric. Rising dayrates plus lengthening contract duration effectively creates a P/E ratio that expands.

@CuriousCowCap @agnostoxxx @OttoMaddox42 And realistically, credit conditions have probably pushed up the newbuild threshold even further.