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Posts Tagged ‘default’

There is an article in this week’s Philadelphia Business Journal about one of Texas-based Behringer Harvard’s Philadelphia assets.  BH owns, among other buildings downtown, 1650 Arch Street.  After having lost the real estate law firm Wolf Block (after its dissolution last summer) as one of its long term anchor tenants, the property faced significant challenges. While vacancy issues are a problem for all landlords (and can subsequently worry its tenants base…after all who wants to reside in a half empty building with a landlord who has to skimp on maintenance due to belt tightening?), BH showed that at the end of the day, cash is still king. Read the rest of this entry »

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An analysis of the housing crisis by Karl Case:

For the last few years, we have shed many tears
Living through a recession.
The economy’s broke and it’s not a joke,
When we talk of another depression.
Fifteen million without a job,
Foreclosures and banks that fail,
401K’s became 201K’s,
And everything’s up for sale.

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Gretchen Morgenson, columnist for the NY Times wrote an article the other day referencing Tishman Speyer and BlackRock’s default on Stuyvesant Town and Peter Cooper Village.  Her point is essentially that Tishman Speyer and BlackRock were not the only investors who took advantage of credit in ’06 and ’07 to make the numbers work on multi-family properties.  Many smaller players had a similar strategy in which they would make highly leveraged acquisitions and ratchet up rents aggressively not only to meet debt obligations but achieve stellar equity returns as well.  Morgenson draws attention to Vantage Properties, an owner of 9,500 rental units in NYC whose strategy has been to acquire rent controlled apartments and ratchet up rents quicker than scheduled to achieve the returns required by Vantage and its equity partner Area Property.  Vantage began to operate in an ethical “gray area” to carry out this strategy.  Will lawsuits and foreclosures in a depressed CRE market trigger the ethical conscience of owners? Read the rest of this entry »

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The Week of January 24-30

- Will 2010 set the record for commercial loan defaults?

- Stuyvesant Town and Peter Cooper Village got handed over to creditors.

- Obama was centrally focused on job creation in his first State of the Union Address with little talk of real estate markets.

- The Fed decided to go forward with a plan to end it $1.25 trillion program of mortgage-debt purchases in March.

- Did dealmakers get stuck on the issue of who will negotiate tenant rental concessions at Peter Cooper Village and Stuyvesant Town?
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A Riddle: What do buying a DVD  and buying a foreign car have in common?
The Answer: They both make for a potentially crushing blow to retail real estate.

First it was car dealerships. When the big three automakers were rumored to be going bankrupt (and then GM and Chrysler took federal bailout money) many car dealerships were given the ol’ heave ho. This caused a huge drain on retail real estate. After all, what would replace these massive parcels? Lucky for property owners, the vast majority of car dealerships are very well located on highly traveled thoroughfares, which is an attractive feature for any retailer. While there is still a glut of defunct and unoccupied former car dealerships, the guess here is that as the economy rebounds, those sites will be replaced by growing retailers looking for great signage and visibility, or even by more car dealerships. But what about movie theaters?

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For decades government policy has been to encourage lenders to provide mortgage loans to lower-income families. When mortgage brokers refused to make such loans because the risk was too high compared to the interest rates they could charge and still expect repayment, they were accused of discrimination. Now low-income borrowers, enabled by the policies of the federal government (I fall into this category with my 96.5% loan to value FHA loan), are in a bind. As has become expected of this administration, politicians are seeking to punish the lenders.

In the Sunday edition of the New York Times an article title “U.S. To Pressure Mortgage Firms For Loan Relief” quotes Treasury’s assistant secretary for financial institutions as saying, “The banks are not doing a good enough job. Some of the firms ought to be embarrassed, and they will be.”

Is this the Treasury, or a group of thugs? Read the rest of this entry »

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The National Consumer Law Center (NCLC) just published a report entitled Subprime Revisted: How Reverse Mortgage Lender’s Put Older Homeowners’ Equity at Risk.  The report details the market and process for reverse mortgage lending and couldn’t be more appropriately titled as the reverse mortgage market reeks of subprime lending pitfalls.  Worst of all, the concept targets senior citizens.  The public at large (aside from maybe the dumbos on Jay Leno’s J-walking segment) are generally familiar with how lackadaisical mortgage lending got borrowers and financial institutions into a disastrous mess.  To avoid getting ourselves into another mess, I think we need to take notice of the reverse mortgage storm that is brewing early so that we can properly regulate the market and avert another disaster.

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Last week, A Warren Buffet-led group struck a deal to acquire Capmark Financial Group Inc.’s mortgage banking business . A newly formed entity owned by Buffet’s Berkshire Hathaway Inc. and Leucadia National Corp. was given a put option to purchase Capmark’s North American servicing and mortgage banking businesses. Capmark operates three core business lines: lending and mortgage banking, investments and funds management, and servicing. The latter of which is, and has been drastically adversely affected by the poor performance of the first two. Jeff Zaun from S & P remarked recently, “We expect Capmark either to enter Chapter 11 bankruptcy proceedings or to negotiate a distressed exchange outside of bankruptcy, which most likely would affect most of its debt. We will consider either of these events to be a default.” And Buffet’s bid reflects either possibility, offering $490M, or $415M if Capmark files for bankruptcy. So why do I expect Capmark to choose bankruptcy?

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Over the last 18 months, we’ve seen a glut of luxury condominium buildings go into receivership.  Individual units are going into default and being foreclosed upon and buyers of newly completed condo units are thinking of every which way to back out of their purchase, even citing securities fraud.  In spite of the abysmal outlook for residential condos, there is one very peculiar market in which condo prices haven’t fallen very much and instances of default and foreclosure are nearly nonexistent—the ocean.  Yes, that’s right, condos not on land, but in the ocean.  I don’t mean condos with ocean views, along the sea, or even condo buildings erected off the coast.  I mean condos that are literally floating on the ocean; specifically, cruise ship condominiums.

Cruise ships like The World and The Magellan offer luxury condominium units to buyers who can sail the high seas to exotic locations year-round.  The ships offer all the standard amenities you’d expect from a high-end cruise liner plus the convenience you’d get as an owner of a luxury condominium.  Interestingly, cruise ship condos haven’t taken the hit condominiums on land have taken in the last year and a half.  In fact, the market for these units has held up far better than other segments of the housing market.  The reason for that lies in the source of demand for these sailing condominiums. Read the rest of this entry »

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In Wednesday’s New York Times, this article spoke of a fraudulent scheme orchestrated by a mortgage broker to defraud banks.  The long and short of the story is that the culprits are alleged to have bought homes from struggling sellers, artificially inflated the prices of the homes, underwrote mortgages that buyers couldn’t afford, and then pocketed checks from banks, leaving the new buyers high and dry.  After reading this story, you might have similar questions to those that I had, such as:

1. How do you “artificially” inflate the values of homes? Isn’t there something called comparable sales?

2. If buyers with good credit couldn’t afford the mortgages, why did they apply for them? Why did they believe they could “get out of the deal” if it wasn’t documented somewhere as to how? (stupid questions)

3. While banks may not have done the appropriate due diligence on these homes, knowing that they would not be servicing them, why wouldn’t the buyers have, knowing they’d be responsible for the payments?

and the list goes on and on…until I remembered one thing.  Read the rest of this entry »

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