When the Federal Reserve on Monday announced that it would do whatever is necessary to meet the demand for dollars, markets around the world instantly breathed a little easier. A global dash for cash, particularly U.S. dollars, essentially forced the Fed to say it would create as many dollars as needed to meet the demand.
One sector that has been given a new lease on life is commercial real estate. The Fed specifically said Monday that it would buy commercial mortgage-backed securities (CMBS), something the central bank has never done before.
While the initial reaction to the announcement was positive if somewhat muted, Tuesday morning’s premarket session indicates how important this is for lenders who splashed out billions to finance two major acquisitions in the casino business. JPMorgan Chase & Co. (NYSE: JPM), Credit Suisse Group A.G. (NYSE: CS) and Macquarie financed the $7.2 billion cash for Eldorado Resorts Inc. (NYSEARCA: ERI) to acquire Caesars Entertainment Corp. (NASDAQ: CZR) announced last June. A plan to syndicate the loans has met with limited success.
In a deal announced in January, Citigroup Inc. (NYSE: C) and Deutsche Bank A.G. (NYSE: DB), Barclays (NYSE: BCS), and Societe Generale provided the funds for a new joint venture between MGM Growth Properties LLC (NYSE: MGP) and Blackstone Real Estate Income Trust (BREIT), an affiliate of private equity firm Blackstone Group Inc. (NYSE: BX) to acquire the MGM Grand Las Vegas property from MGM Resorts International (NYSE: MGM). The banks packaged up the loans into a CMBS that has not attracted a lot of takers.
With hotels and casinos doing essentially no business in Las Vegas or in many other locations, private investors simply are not interested in taking on the debt. Now that the Fed has ridden to the rescue, shares in all the players saw a big boost in Tuesday’s premarket trading. The casino deals will now go through and the casino stocks won’t go to zero right away. The banks won’t have to continue carrying a debt that nobody wants either. Even more important, all those CMBS that might have gone begging have now found a buyer.
Caesars Entertainment stock traded up 12.8%, at $6.80 in a 52-week range of $3.22 to $14.74. The 12-month consensus price target on the shares is $12.74.
Eldorado Resorts stock was up about 11.3% to $11.62, in a 52-week range of $6.02 to $70.74. The consensus price target is $63.45.
Blackstone stock traded up nearly 5.5% to $38.00. The 52-week range is $33.00 to $64.97 and the consensus price target is $58.67. In this case, the dollar amount is not driving the price; the Fed precedent augurs well for Blackstone.
Among the bank stocks, Credit Suisse shares were up 11% at $7.47 in a 52-week range of $6.47 to $14.12. Barclays stock traded up nearly 10% at $4.21 and Deutsche Bank traded up about 10.5% at $6.45.