Daily Archives: April 9, 2010

At the height of the market, a bust

This should be the busiest time of year for Greenwich real estate, yet we saw exactly five houses go to contract this week, with the highest asking price being $2.8 million (Bush Avenue) and the lowest $895,00 (behind Valbella’s).

How many offers were rejected by sellers this week because “we have lots of people looking”? A lot more than five, I’ll bet.

See you in September.


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The Greenwich real estate market is going nowhere, and here’s why:

17 Sherwood


Sellers, egged on by their agents, think that we’re back to the glory days, and are pricing their houses as if that were true. Here’s a perfectly lovely old (1787) house on Sherwood Avenue, in our least desireable section of town and in our least favored middle school district (Western). It sold for $3.150 in 2007, lucky seller, and is now asking $3.445. Its assessment is $2.1 million. 

You tell me: how should I justify this price to a buyer? I can’t, and I doubt I’m alone in that predicament, so it will sit in our inventory until a much cleverer agent appears, or its price drops to a realistic level. 

I’m not picking on this particular house – it’s gorgeous, and I’d buy it in a heart beat, if my finances allowed, but I’m single and my kids are grown. The real market for houses like this is families, and no family I represent is going to buy this at this price. 

Your mileage may vary. My point is, we have almost 600 single family homes in inventory today, and I’m hard pressed to think of a single one that is priced to sell. Fine by me – time to get cracking on my Walter Noel novel.


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Say goodnight, Mrs. Calabash

I just shut off the radio on Ira Flatow and his “Science Friday” show on NPR, where the subject was the stupid, silly, dense meteorologists who are climate warming deniers. Hit the link if you want an exact encapsulation of NPR and its audience. Sneering, contemptuous and oh so above it all -“These fools! They dare to say that the world isn’t doomed! Let’s all have a good laugh and please, dear, do stir that martini pitcher a bit more.”

I have sent money to my public radio station for years, but listening to Flatow today, I realized that I am feeding my enemy. No more.


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Sounds like Greenwich to me

Nantucket real estate heading for the dumpster.

As everywhere, real-estate prices in Nantucket went vertical about five years ago.  In the early 1990s, the average house on the island sold for about $200,000.  Two years ago, the average house sold for well over $1 million (and you still have to work hard to find houses listed below that).  Your basic 3-bedroom, 2-bath with a tiny lawn in the middle of town lists for $1.5 million.  Dozens of houses are listed at more than $10 million.  The ex-president of Goldman Sachs recently listed his for $55 million.

But, of course, that’s all fantasy, because right now houses just aren’t selling at all.

Why not?

Because sellers are still engaged in a mass-hallucination, helped along by encouraging noises from  real-estate agents who will say and believe anything to retain clients until the clients finally get real the market finally recovers.

In other words, on Nantucket, as elsewhere, the current mantra of most sellers is: “We’ll just rent for a year until the market comes back.”

In fact, the general feeling on the island is that the 5X+ price appreciation in the dozen years from the early 1990s was just the normal rate of wealth-creation that a Nantucket homeowner can expect and that prices will surely soon bounce back to the peak levels they hit a couple of years ago (and then rocket higher).

Meanwhile, would-be buyers feel differently.  They look at the prices Nantucket sellers are asking, and they wonder what on earth has been dumped into the island’s water supply.  They also look at all the rental vacancies this summer, and the willingness of many homeowners to negotiate on rent, and observe that they would be nuts to buy now when renting is so relatively cheap.

What do we mean, “relatively cheap”?

For, say, $4,000 a week, you can get a house that would list for $2 million right now.  Assuming the homeowner rented the house at that rate for 10 weeks, the homeowner would gross $40,000 for the summer (or about $30,000 net, after costs and agents fees).  If a renter were to buy the house, meanwhile, the renter would pay about $100,000 a year in financing cost–assuming a 100% mortgage at 5%–plus taxes, insurance, etc.  So you could rent for 10 weeks on the island instead of buying and save yourself at least $80,000 a year.  What might the same house be worth in a rational market, if rents hold at $4,000 a week?  Say, $750,000.  At that price, the annual carrying and financing cost might be $50,000, which would be close enough to the rental price that owning would become more attractive.  But that assumes that the rental prices will hold…


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The new reality

The financial fall of Richard Fuscone, a Conyers Farm resident who filed for bankruptcy this week, has stirred up my own dour reflections on modern life. Many of my generation (my birth date, 1953) have no sense of security and a dark, foreboding view of our future. Our parents, at our age, might have been winding down their careers, and were confident that they’d be employed until they chose to retire at, say, 65 or 70. Today, my friends who work for employers have no idea whether they’ll have a job on Monday. At any time, they can report to work and learn that their position has been eliminated, their entire division outsourced to India or their company has gone belly – up, and there is almost no hope of being hired by a new employer – school crossing guard jobs excepted, of course.

None of us, self-employed or salary slaves, has any confidence that pensions will last, Social Security will remain solvent, our IRAs will retain value or that our houses, which a decade ago represented a bulwark against poverty, will serve that purpose any more. Which really sucks. At 40, we were sure of our future and confident that we were destined for at least a modestly comfortable dotage – now we’re older, the chances of starting over are dwindling, and the world is crumbling.

Mr. Fuscone is approximately my age, perhaps two years older  – 58, maybe. He retired at 49, devoted his time and millions of his dollars to charity, and is now bankrupt [update – he may be better off than most of us, if readers’ comments are correct] . What’s so scary is that he and I are in a country that seems hell-bent on stifling success and turning its citizens into wards of the state. If there is no opportunity to build wealth – and the coming tax rates seem to ensure that – what hope do we have?



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Chuck Prince knew there was a bad end coming way back in 2007

Naked Capitalism picked up on this three years ago. I guess Alan Greenspan didn’t read it.

Go to the link for Prince’s words. I’m more taken with the Naked Capitalist’s own insight – remember, this was written in the summer of ’07:

From everything I have seen, most market participants, and I mean that in the broad sense, hedge funds, private equity firms, money managers, and the lenders and advisors to them, are going to keep going full bore as long as they can, until conditions become untenable.

In one sense, this isn’t crazy. It’s extremely difficult to call a market top. And in this competitive world with hyperactive deal and investment activity, someone who pulls back early looks like a moron. They will lose their place in the league tables and if they manage money, will suffer in performance rankings. It leads to a syndrome one manager called “the fully invested bear”.

As a result, you have a lot of players who are moving forward in what they know to be a deteriorating environment. Take Prince. He has to talk the market up because Citigroup has become the biggest M&A player by virtue of its funding ability. Now you know that Citi doesn’t keep much (if any) of the loans it originates on its books, so it has to talk up the market to make sure it has buyers for the loans it sells down (whether via syndication or securitization).

The irony is that Prince was brought in to clean up Citi after a series of scandals. Yet Citi is originating more LBO loans than any other firm, which means they have helped enable the erosion of traditional protections to lenders. Some of my friends in private equity have noted that the extremely favorable terms for borrowers have lead PE firms to be casual about due diligence, since if a deal goes bad, the bank can’t force a workout. The PE firms can halt interest payments with no consequences and wait for the economy or the company to straighten itself out.

Even if Citigroup has only limited exposure to LBO paper by virtue of keeping little on its books, I guarantee you that when the credit tightens further and the economy weakens, enough of these deals will come a cropper that there will be a hue and cry to find who was responsible. At a minimum, Citi will have a lot of explaining to do.

And in general, too many people like Prince have faith in markets. Peter Lynch, who achieved average annual returns of 29% for the 13 years that he ran the Magellan fund, once remarked that markets are most risky when people have the most confidence in them. Like Prince, they assume they can keep dancing as long as the music is playing. Yet Prince has in essence said he knows that when the music stops, it won’t be one chair that will be removed, but several, perhaps most. He seems supremely confident in his ability to know when to exit, but with everyone planning to stay as late as they can, he is likely to be underestimating how quickly conditions can change.

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So? Defaulting homeowners are doing this every day!

Woman who stole $700,000 ordered by court to repay  $1.50.

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Cry me a river

A reader sends along this link to the Wall Street Journal detailing the woes of the rich or, as the reader points out, people who acted as though they were rich.

Big borrowers are more likely to default than ordinary people, according to data from First American CoreLogic. Its loan database, reflecting more than 80% of the overall home-loan market, includes 1,700 loans with balances of $4 million or more. About 14.8% of those loans were 90 days or more overdue at the end of January, compared with 8.7% for all home loans tracked by First American. Sam Khater, a senior economist at First American, said the bigger borrowers may be more prone to stop making payments when they have lost all their home equity.

Mr. Fuscone, Merrill Lynch’s one-time head of Latin America, put his mansion up for sale in November, asking $13.9 million. But he couldn’t find a buyer.

In his bankruptcy filing, Mr. Fuscone provided a list of his debts, including ones to the Greenwich Country Day School, American Express, Mercedes-Benz, a local hardware store, a pet store, and Richards of Greenwich, a fine-clothing store.

“My background is in the financial-services industry and I have been personally devastated by the financial crisis which came to a head in March 2008,” Mr. Fuscone said in his bankruptcy declaration. “I have been sued by Patriot National Bank” as part of a foreclosure action. “I currently have no income for the 30-day period” following his bankruptcy petition.

C.W. Kelsey, owner of Greenwich Hardware, was among the local merchants owed money by Mr. Fuscone, though he wouldn’t say how much.

“Traditionally, the majority of our credit problems were contractors,” he said. “Now there are people you’d never expect two or three years ago to have problems, who live in multimillion dollar homes.”


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Lender’s special

450 North Street

The builder of this spec home up near St.Michael Church ran out of money just as the market ran out of steam and so here it sits, unfinished, while (car) traffic roars by. It’s been listed for the preposterous price of $6.9 million for a long time but today was reduced to $5.7 million.

That might do it, I suppose, but at least in my opinion there are better houses in far better locations asking far less – and they’re finished. I’d be inclined to wait a bit and buy it directly from the bank, cheap.


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Even asset managers can make mistakes

221 Taconic

William A. Forstmann, principal of Forstmann Asset Management, paid $4.150 for this 1936 house on September 30, 2002 and immediately regretted it, I suppose, because he relisted it a week later for $5.250. Buyers must not have agreed with his view that he’d snared a bargain so he let the listing expire unsold, and stayed put until 2008.

In that year, he listed it again for $8.2 million and now, two years and three brokers later, he’s down to $5.990. It looks like a beautiful house, but with just four bedrooms, 4,557 sq. ft. and a tax assessment of $2.679, I think the price still has room to develop.

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A nation of morons

FDA will require nutrition information on the front of food packages. If Americans are too stupid to pick up a box and read its back, what makes the FDA think we’re capable of reading at all? Next step, the FDA will set standards for calories, fat, etc. Coupled with a 100% confiscatory tax on earnings and redistribution as Washington sees fit we will, finally, achieve paradise.


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Greek debt service now costs 8%

The EU folks deny its significance, but it seems to me that this could be a really big deal. If Greece goes bust soon, I’d think most of Europe will follow it down.

But I’m a layman – we’ll see what happens.


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Stupak is as Stupkak does

ObamaCare’s first victim, Bart Stupak is retiring. 534 (434 + 100) to go.

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Happy Appomattox Day

145 years ago, Lee surrendered to Grant and the war neared its end. I believe, but am not certain, that my great-grandfather John Caldwell’s Pennsylvania 61st was there this day, but regardless, he was soon on his way back to Pittsburgh and to a very successful life in his newly adopted country; a land  he’d just spent four years (almost a fifth of his life, then) fighting for.


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