Hampton Blues

As the Hampton go, so goes Greenwich? Not quite – different markets, vacation vs. year-round – but the buyers are from the same pool. And in the Hamptons, nothing’s selling. Per the NY Times Sunday Real Estate Section.

The Osborne Avenue house hit the real estate market at the end of the summer of 2007, a season that can be said, with the benefit of retrospect, to have marked the sweaty height of a speculative fever. That was the summer that the average cost of a home in the Hamptons shattered the $2 million barrier, the one when Ron Baron, a mutual-fund manager, paid a record $103 million for a 40-acre oceanfront estate. At the time, there were already alarming signs of a downturn in the national housing market, as a crisis took shape in the subprime-mortgage sector and economists predicted a coming onslaught of foreclosures. But that didn’t cause much worry in the Hamptons. The bubble might be bursting off in Sun Belt subdivisions, but not in the playground of the Wall Street elite. Prices were propelled upward by a tautological justification: if you were rich enough to buy in the Hamptons, you were, by definition, a superior judge of the market.

Then came the dreary series of events that we can summarize, as Hamptons people do, by reciting a litany of names: Bear Stearns; Fannie and Freddie; Lehman; Madoff. Since the peak, as one horrific episode after another has unfolded, the area’s real estate market has mirrored Wall Street’s plunging fortunes. Average sale prices have declined by about 10 percent, but that only hints at the seriousness of the trouble, because hardly anything is moving. According to data collected by the Suffolk Research Service, a local real estate data company, the number of sales in 2008 fell by 25 percent in East Hampton, 39 percent in Bridgehampton, 45 percent in Southampton and 47 percent in Montauk. Things really collapsed during the fall. Investment bankers lost their jobs, corporate lawyers saw their client base vaporize and hedge-fund managers went from being hailed as geniuses to being hauled in front of Congressional committees. “Until the market improves or their mental state improves, they’re not buying anything,” says Herb Phillips, a veteran real estate agent who is also chairman of the Southampton town zoning board. “It’s dead.”

It’s a really informative article that you should read in its entirety because it has a lot to say about what’s happening here – for instance, the difficulty in pricing anything when there are no sales to use for comparison. And here’s a profile of a spec builder that could easily be a Greenwich tale:

Catherine Lignelli, a first-time developer, built the mansion, and if she misjudged the market it wasn’t because she misunderstood the newcomers’ appetites. She was from their world. Her husband, Jeff Lignelli, manages a hedge fund, and their primary residence is a 22nd-floor apartment on Central Park South. In January, she met me at the headquarters of Stonebrook Fund Management, her husband’s company, to talk about her entry into Hamptons real estate. Tall and blond, wearing a stylish tweed blazer, knee-high leather boots and a white cashmere scarf, Lignelli showed me into an office that overlooked Park Avenue. She told me that she had gotten into real estate because it was a career that she could pursue while raising her daughter, Alexa, who is not yet 2.

“My focus was quality and aesthetics for family and friends, and seamless entertaining,” she said. “Without sounding feminist, I think that as a mother, as a wife, I can lend a lot to the details of what it takes for effortless, organized living.”

Lignelli has a degree in fashion design.

Buyers Agents

They’re new to New York, not new in Connecticut. Here’s a NYT article on the subject. Basically, a buyers agent represents the buyer, not the seller and owes the buyer a fiduciary duty. I know buyers who refused to use an agent’s services and deal exclusively with listing agents because, in the words of one, “we know she’ll be lying to us so we can be on our guard.” That seems a bit harsh to me, and I think these folks were doing themselves a disservice (and so do they, I guess, because they’re now clients of mine). Not so long ago, since the seller paid both agents’ – seller’s and buyer’s – commission, the law held that both owed their loyalty to the seller, not the buyer. That’s been changed, and that’s why you as a buyer are asked to sign a buyer’s rep agreement acknowledging that. This is a change for the better, but watch out: real estate agents being who they are, the standard agreement’s been drafted in such a way as to invite you to be locked into using the services of a articular agent for a long time. My advice: sign up for a day or a week to make sure you’re comfortable with that person. then, if you wish, sign up for a longer period. Some buyers think they need several agents working for them to be sure they’re seeing all the appropriate houses. I say, you need a better agent.

UPDATE: here’s a buyer’s rep you probably don’t want to use. Had buyers pay $800,000 more than they should have and pocketed the difference, it looks like. That’s not nice.

The NY Times on Bilingual education

From August 20, 2000.

Two years after Californians voted to end bilingual education and force a million Spanish-speaking students to immerse themselves in English as if it were a cold bath, those students are improving in reading and other subjects at often striking rates, according to standardized test scores released this week.

Many educators had predicted catastrophe if bilingual classes were dismantled in this state, which is home to one of every 10 of the nation’s public school children, many of them native Spanish speakers. But the prophecies have not materialized.

In second grade, for example, the average reading score of a student classified as limited in English increased 9 percentage points over the last two years, to the 28th percentile from the 19th percentile in national rankings, according to the state. In mathematics, the increase in the average score for the same students was 14 points, to the 41st percentile from the 27th.

The results, which represent the first effort to measure the new law’s effects, are expected to reach beyond California’s borders, most immediately in Arizona, where voters will be presented with a ballot initiative in November asking them whether the state should outlaw bilingual education. The California test scores are also expected to influence Colorado, where a similar measure narrowly missed getting on the ballot this fall, and in Massachusetts and New York, where antibilingual forces are marshaling.

It is too early to know precisely how much the erasure of bilingual education contributed to the rising scores — class sizes in the second grade have also been reduced over the same period, for example — but the results are remarkable given predictions that scores of Spanish-speaking students would plummet.

Consider the experience of Ken Noonan, who likened the change in his position on bilingual education over the last two years to a religious conversion. Mr. Noonan, who founded the California Association of Bilingual Educators 30 years ago and who is now the school superintendent in this city 35 miles north of San Diego, was among those who warned in 1998 that children newly arrived from Mexico and Central America would stop coming to school if they were not gradually weaned off Spanish in traditional bilingual classes.

Now, he says he was wrong.

”I thought it would hurt kids,” Mr. Noonan said of the ballot initiative, which was called Proposition 227. ”The exact reverse occurred, totally unexpected by me. The kids began to learn — not pick up, but learn — formal English, oral and written, far more quickly than I ever thought they would.

”You read the research and they tell you it takes seven years,” added Mr. Noonan, a Californian whose Mexican mother never learned English. ”Here are kids, within nine months in the first year, and they literally learned to read.”

As evidence, Mr. Noonan need not look farther than his own district, where, in a mirror of the state, one of every four students, or more than 5,000, is classified as limited English proficient. Oceanside was among the most diligent school districts in the state in adhering to the new law, and recorded some of the biggest increases.

In the second grade in Oceanside, for example, the average reading score of students initially classified as limited English jumped 19 percentage points over the last two years — to the 32nd percentile from the 13th, according to preliminary state figures. Only in the 10th and 11th grades, in a reflection of the entrenched language problems of teenage Spanish speakers statewide, were the increases below four percentage points.

Oceanside’s performance was all the more striking when measured against the nearby district of Vista, where half the limited English speakers — about 2,500 students — were granted waivers by the superintendent to continue in bilingual classes. In nearly every grade, the increases in Oceanside were at least double those in Vista, which is similar in size and economic background to Oceanside.

At the very least, the results so far in California represent a tentative affirmation of the vision of Ron K. Unz. Mr. Unz is the Silicon Valley entrepreneur who almost single-handedly financed and organized the initiative that has all but eliminated bilingual education in California, in which students were taught math, social studies and science in their native language until they gradually picked up English. (Students who now wish to be taught in such classes must seek a waiver from their districts, on the grounds that they would otherwise be educationally or psychologically harmed by the pace of the English immersion class.)

Time to build a house?

The dried-up credit market has produced an interesting opportunity for would-be home buyers who want a new house. Builders with land, for the most part, can’t get loans to build a spec house, period. They must have a contract with a credit-worthy buyer, in advance, or no money from the bank. Right now, the number of people in town who want to buy a brand new home based solely on a “to-be-built” basis is about zero. So spec builders are sitting on land, paying interest on that land (and taxes, but that’s not nearly as significant as the interest on the land purchase) and the clock is ticking – these loans have t be paid off or the interest rate first soars into the stratosphere and then the loan defaults. Ow.

Based on that, the value of a building lot is just about nil today. The builder owners can’t develop it without a buyer and there are no buyers. If you are a buyer, or are thinking about becoming one, you’re in the enviable negotiating position of being just about the only game in town. If there are ten sellers and one buyer, the buyer should feel pretty good. 

Can you really get land for free? Possibly, if you use the construction services of the builder/owner – it’s the only way he can move the property. If you want to use your own builder but like a particular piece of land, there are bargains available. The extent of that bargain depends on the financial condition of the land owner, of course, but even the strongest would almost certainly give up all hope of making a profit on their original misguided or unlucky purchase and probably take a modest bath just to get rid of the place. The weaker builders, of course, will be more generous. 

As an added bonus, builders and architects are not particularly busy right now and their services, too, are probably more negotiable than they were at the height of the boom. 

If you’re even vaguely curious, you might want to talk things over with a real estate agent and see what’s available. I can think of at least one agent to recommend but to be truthful, I can also think of 20-30 others who don’t necessarily blog but are shrewd people with a keen nose for troubled projects. You’d do fine with any one of them.

Why are we destroying what worked?

The NYT reports on the end of the melting pot: special schools within schools for non-English speakers. Other than placating teachers’ unions, which represent bi-lingual teachers (many of whom, it seems are no more bi-lingual than I am -but unlike them, I  speak English), I see no reason to support this segregation. Total immersion works, as Berlitz demonstrated 50 years ago, as our own public schools learned 120 years ago. In this age of a hyphenated-America, we’re told that each Urdu must learn in his own language. What a mistake.

Idle speculation on the most expensive property for sale in Greenwich

The Helmsley place on Round Hill Road has still not found a buyer despite being marked down $30 million to a new low price of $95 million. At the height of the market, I thought that the property might go for $45 million. That was an opinion based on air, since there aren’t really any comps for this place, but what the heck, you have to start somewhere. Ogilvy chose to start at $125 million and we now know that that wasn’t right, either.

So what will it sell for eventually, now that the market is no longer buzzing? It does have to sell, I assume – there’s an estate to be settled – but when and for how much is a poser. My new, completely wild guess: $35 million. Readers are invited to guess too. First prize is a can of Trouble dog food.

Economic turn around in just fifty days?

It wasn’t so long ago that we were told by our new president that the world banking system and indeed the global economy was on the verge of collapse and we taxpayers had to fork over a trillion dollars, immediately, if we were to avoid catastrophe. This week, we hear from the same man that things aren’t so bad after all. I guess we have three choices here: Obama’s tactics have worked and we’re all saved; Obama panicked and the dangers he spoke of were over-blown; Obama lied about the state of world affairs in order to impose a complete reworking of our free enterprise system on the US, as per his “a crisis is too important to waste” philosophy. I believe the last scenario, and so does this guy. But I suppose we’ll see.

UPDATE: 53 days in, Biden says economy is now sound. “Never mind!”. He also claims that this week’s stock market rise is due to “the Obama factor”. Next week’s crash will no doubt be attributed to “other factors.”