Swig-FIG Is Bullish, Not Bearish

What happens if asset-backed portfolios are getting better? What happens if buyers are emerging for cratered real estate, like the Fortress Investment Group (FIG - commentary - Trade Now) buy of developer Kent Swig's luxury condo building last week.

I want to blog on the importance of this transaction for this 58-story condo project. Some caveats -- Fortress paid less than 40 cents on the dollar for the building. It was a done deal, with Fortress angling to get it for awhile.

But think about this -- the building's not finished. There are considerable costs associated with it. The optimists say it is 80% finished. I don't believe that.

Also, the New York City condo market is the single worst market in the country because prices have only fallen 18% on average and will likely fall another 20% because there are 20,000 more units coming in New York in 2010. That's no secret. The number of sales in New York right now for condos is way down and the way the cycle works you can't bottom until sales explode and go exponential. That sure hasn't happened and won't until we go much lower.

So let's add it all up. Fortress buys a building that is not finished and has a ton of work to do on it in the worst condo market -- in that it is getting worse -- for, given the amount of work that has to be done on it, 50 cents on the dollar.

I am telling you with no uncertainty that if the worst residential building in the worst city is selling for 50 cents on the dollar, the horrors that everyone expects in commercial real estate just won't happen. There will be real buyers of finished properties who don't want the hassle of finishing them.

The Swig-FIG deal is bullish, not bearish.

It's a real positive for those who think that commercial real estate is about to be history, especially those who think that the apartment market's toxic. If it isn't toxic in New York, I don't know where else it could be.

At the time of publication, Cramer was long had no positions in the stocks mentioned.

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