Daily Archives: March 3, 2009
MSREF and other “opportunity funds” were among the many tantalizing investments sold by Wall Street to large institutions over the past five years. Opportunity funds are different from other real-estate funds in that they make extra use of borrowed money for purchases, sometimes more than 70% of the value of the properties, compared with about 50% for more traditional real-estate investments. The leverage makes it easier to produce higher profits if values rise. But if they fall, the decline can quickly wipe out equity.
For the fund managers, there was another benefit: Opportunity funds rewarded them with high fees and a cut of any increase in asset value. Across Wall Street, the value of the assets held by opportunity funds jumped from $134 billion at the end of 2005 to $280 billion at the end of 2007. Many of the buildings in the funds are now worth less than their mortgages. Even worse, some of them are no longer producing enough cash flow to service their debts, meaning the funds have to invest more or face foreclosure. Industry experts say write-downs in excess of 50% for 2008 will be typical.
And there’s this:
The appearance of dismal returns shows how steep losses sustained by the commercial real-estate industry are being absorbed by retired teachers, policemen and other beneficiaries of the institutions that were chasing the funds’ high returns. The looming losses will likely increase the pressure for higher taxes to shore up government-employee pensions and more cutbacks at universities and foundations.
It’s all in the headlines. This one says, “home sales warming” and you are not to be discouraged by the rest of the article, which admits that new homes have taken a dive to the bottom and existing home sales are off 40%. “Well yeah, but the beginning of last year was exceptionally strong”, explains a local real estate flack. I see.
Real estate agent Peter Petersen has been shot to death in his car in the Dutch town of Bussum. It is not known who is responsible for the killing. Police later found a burned-out car in the town of Almere-Buiten.
Peterson, also known as Fat Peter, had business connections with Kees Houtman, a real estate agent who was shot to death in his home in 2005. Both Petersen and Houtman were allegedly blackmailed by Willem Holleeder, who is imprisoned and on trial for the extortion of various real estate magnates. Petersen’s name also appears in police files concerning an investigation into money laundering by real estate magnate Willem Endstra, who was shot to death near his car in 2004.
Suggestions that the new President’s crowded diary made it impossible to give more time to Mr Brown rang hollow after it emerged that his other engagements included a routine speech to the Department for Interior and a meeting with the Boy Scouts of America.
From The Virginian:
The farmer agreed to deliver the donkey the next day.
The next day the farmer drove up and said, ‘Sorry Chuck, but I have some bad news, the donkey died.’
Chuck replied, ‘Well, then just give me my money back.’
The farmer said, ‘Can’t do that. I went and spent it already.’
Chuck said, ‘OK, then, just bring me the dead donkey.’
The farmer asked, ‘What ya gonna do with a dead donkey?
Chuck said, ‘I’m going to raffle him off.’
The farmer said ‘You can’t raffle off a dead donkey!’
Chuck said, ‘Sure I can. Watch me. I just won’t tell anybody he’s dead.’
A month later, the farmer met up with Chuck and asked, ‘What happened with that dead donkey?’
Chuck said, ‘I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $898.00.’
The farmer said, ‘Didn’t anyone complain?’
Chuck said, ‘Just the guy who won. So I gave him his two dollars back.’
Chuck now works for Morgan Stanley in their OTC Default Derivative Department.
Obama surges in polls, Republicans get stomped. The Republicans should get stomped, of course.
Former Countrywide executives start firm to buy bad mortgages. Who said America is no longer the land of opportunity? Question though: Does Chris Dodd get a piece of the action?
Bernie Madoff kept $45 million in municipal bonds while Walter Noel put $7.5 billion with Bernie. I wonder if Walter can get a refund for that Harvard law degree?
Madoff seeks to keep NYC penthouse, $62M in assets
NEW YORK (AP) — Bernard Madoff is seeking to keep a $7 million Manhattan penthouse and an additional $62 million in assets, saying they are unrelated to the fraud that authorities say cost victims more than $50 billion. In court papers filed Monday in U.S. District Court in Manhattan, Madoff and his lawyer claim the apartment, $45 million in municipal bonds and $17 million more in a separate account all belong to Madoff’s wife, Ruth. The bonds in an account held by Ruth Madoff at COHMAD Securities Corp. and about $17 million held by her in a Wachovia Bank account “are unrelated to the alleged Madoff fraud and only Ruth Madoff has a beneficial interest in these assets,” Bernard Madoff and lawyer Ira Sorkin said, according to the papers.
Despite what her lawyer says, I think Ruthie’s going to have a hard time demonstrating that she earned the $10 million apartment, $45 million in bonds and $17 million in “other assets” from her kosher cookbook sales, in which case, she won’t be be allowed to keep them.
Twenty-three of them today (plus a couple of “new” listings that are just recycled old ones with new prices). Of note, perhaps, is 309 Taconic, which has fallen from $31 million in November ’07 to $18 million today.
228 Stanwich, which has been in free fall recently, was reduced to $1.599 on Februry 25th and lost another $100,000 today for a new price of $1.499.
17 Thornhill in Riverside (but north of the Post Road) asked $845,000 in October ’08 and is asking $625,000 as of today.
And 66 Sherwood Avenue, a new listing, asks $2,89,876 but notes that sellers “will entertain offers starting at $2,495,000. I guess if our market is going to drop to the bottom like the English market has, we might as well adopt their pricing strategy, too.
It took four long years but this house, first listed in September ’05 for $8.495 million finally sold today for $4.6 million. It went to contract in July of last year, before the crash, so the sellers were probably lucky to get even that much.
Update: at the risk of getting their builders even angrier at me than they already are, may I point out that this sale is going to wreak havoc on the $8,000,000 spec house across the street on Dingletown? Or the $8,000,000 spec house on Beechcroft, one street away? Ouch.
Another update: I asked my brother Gideon, who still has a memory, about Flagler and he says it was tired and run down and, even though relatively new, was aging rapidly. Cardboard and Elmer’s will do that. Still, nothing that a sensible price couldn’t have cured.
From Shore & Country’s Russ Pruner, who obviously has been stashing so much money away with Swiss bankers that they’re willing to pass on their secrets, comes this market report. Conclusion (and to think I couldda had an MBA!) : low price equals increased sales.
Buyer Price Sensitivity Limits New Home Sales
Price sensitivity remained the theme in February; low prices necessary to spur traffic. Our Monthly Survey of Real Estate Agents in February saw a continuation of buyer price sensitivity, with sales generally occurring at low
price points (often foreclosure sales) and in markets where prices have fallen significantly. These areas that have experienced sharp price declines are the markets that generated traffic, whereas other markets likely have
further to fall before seeing improved sales activity. Our main concern continues to be that homebuilders will find difficulty competing against the lower-priced foreclosures, resulting in few orders and limited cash flow.
Traffic in February consistent with trends in January. Our traffic index was effectively unchanged in February, measuring 36.0 from 36.5 in January.
Better traffic was generally found in the foreclosure-rich markets of Florida, Southern California, and Nevada, along with Washington, DC. Once again, we saw the highest levels of traffic in hard-hit markets facing significant
foreclosure activity, as the foreclosure prices are low enough to spur traffic.
Pressure on home prices, demand focused on low-end of market. Our price index increased 1.2 points in February to 17.1, up from 15.9 in January. However, readings below 50 imply sequentially lower prices. We expect
further pressure on home prices due to the continued supply of foreclosures, as loan modifications likely won’t fix the problem of negative equity. In addition, we think there will be a continued downward bias to pricing stats, as most buyers focus on the entry-level homes. Our home listings
(inventory) index declined to 40.5 from 43.5 in January, with levels below 50 indicating rising inventory (which we would expect as inventory increases at the start of the Spring season). Our time to sell index, which is a good
leading indicator of pricing trends, improved slightly to 28.2 (up from 26.6 in January), with anything below 50 indicating a lengthening time needed to sell a home.
Before my page buckles me into my armour and helps me into my Honda for the broker open house tour, I thought I’d report on some news that came across the wire this morning.
8 St. Claire Ave. (OG) is under contract, one step ahead of the repo man. Asking was around $925,000. I had builders interested at $650 but they never bothered to bid. It will be interesting to see what someone did bid.
Price reductions Twelve
Those two condos at 56 Milbank (we called them Whole Foods ) have finally dropped a million bucks each to $4.9 million, after two years at $5.9 million each.
44 Grahampton, purchased for $5.125 in ’04 and put up for sale in October ’07 for $6.995 has dropped to $5.450 today.
218 Valley Road, Cos Cob, sold for $331,000 in 1996 and was relisted at $1.150 million in June, 2007. Five price cuts later, it’s down to $649,000 today.
10 Taconic Road sold as new construction in 2001 for $4.795 million (full price, seven days on the market – ahaaaa). Listed at $8.67 million this past August today it has a new broker and a new price, $7.775.
Judging from their family Christmas cards the Noels are an eco-conscious crowd, what with their African safaris and the bucolic vacations on Mustique. So they’ve probably been staying awake nights worrying about how they’ll be able to continue that mission while occupying “alternative quarters”. Relax, Monica, the warden’s taking care of it – the big new idea: penitentiaries are going green. See you round the compost pile!
Obama is intent on making at least half the population dependent on the dole and his latest move to repeal the Clinton welfare reform rules will hasten that day. But he’s also spending the equivelent of one third of our national debt in just one year and is on track to keep that up for at least the next four years. So it seems fair to ask, who will pay for this largess?
Here’s an interesting study on the effect living on welfare has on the next generation. You probably won’t be surprised to learn that the more one’s parents loll about living on other people’s efforts, the less likely the children of those parents are to work. It’s a marvelous thing to solve the world’s ills by passing around the fruits of other’s labor but as the demand grows and the supply shrinks, what happens then?
We’ll find out.
Brave souls. They’re early, late or just in time. I’d say late, but maybe not.
The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.
With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.
That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years — more than half of them since 1997 — public records show.
The quick fix for pension funds becomes a future albatross for taxpayers.
Pending resales are considered a leading indicator because they track contract signings. The Realtors’ existing-home sales report tallies closings, which typically occur a month or two later. The pending index was first published in March 2005 and included data going back to January 2001.
The group’s index decreased to 80.4 in January, the lowest level since records began.
Three of four regions dropped, led by a 13 percent slump in the Northeast and a 12 percent slide in the South. Pending sales increased 2.4 percent in the West.
Compared with January 2008, pending sales decreased 6.4 percent.
Sales of previously owned homes, which account for about 90 percent of the market, fell in January to the lowest level since 1997, according to the Realtors group. New-home purchases, which make up the rest, plunged to the lowest level since records began in 1963, Commerce Department figures showed.
The median price for existing and new houses decreased in January from a year ago, the reports showed.
There are, I think, two groups of sellers in town right now, the desperate and the willing. If you’re just willing to sell, either brace yourself for a long wait and hope that the market comes back a little or join the desperate,who will have to price their house at fifty cents on the dollar to grab the current pool of buyers’ attention. I know that sounds a little negative, and I’m sure to hear about it from my peers, but that’s what I see right now. Your vision may well be better. I hope so.