some thoughts about m wests comments on rat

Michael West's article in the Australian ( which you can read online ) raises some interesting points about RAT.

West points out, RAT is in danger because the funding for some of their developer loans comes from Bear Stearns. Good point ! As well as being a leveraged property trust, RAT got involved in borrowing money and then lending it to property developers. Good point.

West has found that these loans to developers that RAT made were to commercial and "multi-family" properties. Residential ( makes sign of cross ). Bad news.

Well maybe not. "Multi-family" means residential alright but it also means appartments. And the appartment business in the USA is quite different to Australia. In Australia, almost all apartments are sold off by the developer - strata title.

In the USA this is not all that common. What we know as strata, they call condos, and they occur mainly where well-off people want to live in appartments , i.e. large cities like New York and waterfront resorts.

The sort of apartments where the young, the old, the transient and the working poor live, don't get sold off as strata title to a multiplicity of "investors". The developers keep them all and rent them out as a business. What does this mean ? It means that mortgages and falling valuations are irrelevant. As long as the apartments are in an area with rental demand, they are profitable and the management company can keep paying off its loans.