Posted by mcarey on November 29, 2007 under News, Uncategorized | 
Man oh Man, the latest summary from the Costar Watch List sure is depressing. Quickly gets me thinking…”How do I advise clients? Buy? Sell? Hold?” The quick answer is if you can afford it and SELL sooner vs. hedging for a better season in the spring. Unfortunately what I keep returning to is that there is just no easy answer and every situation has to be addressed on a case-by-case basis. The good news is our auctions are still producing buyers and we are still moving product. Though as we mentioned in the Tranzon Auction Leader a few posts ago, buyers are leary. Compound this with the fact that the media isn’t doing anyone a favor using the real estate market and foreclosure news as the topic of the day, the mediocre response from consumers during the holiday season and the outlook in the Northeast of a long dark winter with expensive oil and we have a decidedly unstable market.
The Following is excerpted from the report - Click Here for entire article.
Written by Mark Heschmeyer
Housing Outlook Dims for 2008
Is a Complete Recession Unavoidable?
Thanksgiving may have kicked off the time for holiday cheer, but the news on the nation’s housing front has been anything but cheery.
Report after report released in the past two weeks forecast bleak times ahead with more foreclosures, lower home values, dampening consumer spending and make credit even harder to come by for a long time. Some suggest that a complete recession is unavoidable.
The Federal Reserve Bank of Dallas said that the housing market’s adjustment to tighter lending standards is likely to be prolonged, according to the November issue of the Economic Letter.
“The muted outlook for home-price appreciation, coupled with the resetting of many nonprime interest rates, suggests foreclosures will increase for some time,” economics writer Danielle DiMartino and vice president and senior policy advisor John V. Duca wrote in a Fed report.
The sharp downturn in home-price appreciation may also dampen consumer spending growth, an effect that may worsen if the pullback in mortgage availability limits people’s ability to borrow against their homes, the authors state.
The slump in global credit markets will force banks, brokerages and hedge funds to cut lending by $2 trillion, triggering the risk of a “substantial recession” in the U.S., according to Goldman Sachs Group Inc.
The losses related to record U.S. home foreclosures may be as high as $400 billion for financial companies, wrote Jan Hatzius, chief economist at Goldman in New York. The effects may be amplified tenfold as companies that borrowed to finance their investments scale back lending, the report said.
“The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,” Hatzius wrote. “It is easy to see how such a shock could produce a substantial recession”‘ or “a long period of very sluggish growth.”
With home prices declining, consumer credit deterioration is not far off, Goldman analyst said. The downturn in housing is spilling over into employment in some states and is leading to high consumer losses.
Adding to the problem is the fact that another $500 billion of adjustable-rate mortgages (ARMs) are scheduled to reset during the next two years. According to Laurie Goodman, managing director and global co-head of fixed-income research at UBS AG, the glut of ARMs is sparking a cycle that will likely drive U.S. home prices down farther in 2008.
“It’s a sort of vicious cycle that we will muddle through, but it will be painful,” Goodman said.
Foreclosure Impact Widespread
According to a report prepared by Global Insight, Inc. for the U.S. Conference of Mayors and The Council for the New American City, the foreclosure crisis will have profound economic effects in 2008.
U.S. GDP will be $166 billion lower as a result, because new residential investment will be weaker, lowering spending and income across the construction industries, and because consumer spending is curtailed as homeowners respond to decreased home equity wealth.
Both of these spending impacts have multiplier effects across the economy as lower incomes decrease demand for other goods and services. As a result, there will be 524,000 fewer jobs created across the country in 2008.
Homeowners will also see property values decline by $1.2 trillion in 2008 due to three factors.
The initial adjustment of over-heated home prices to the combination of weaker market demand and large inventories of homes for sale would have reduced values by $676 billion in 2008. Now, due to the foreclosure and mortgage crisis, home values will decline further, by an additional $519 billion. Foreclosures in 2008 will increase by at least 1.4 million. These homes represent a market value of $316 billion.
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Posted by mcarey on November 28, 2007 under News, Uncategorized |
By no stretch do I consider myself an academic, but I do enjoy macro thought process and one of the elements that always tickles me is the incredible opportunities available for nimble and flexible entrepreneurs. Call them what you will, opportunistic lenders, off-street lenders, hard money guys, lend to own, and putting aside the scale (thousands to billions), it appears the current real estate market is re-opening doors to these lenders.
One of my mentors and friends regularly uses a short term lender to finance his projects. This is a guy who is well heeled, very credit worthy and would easily qualify for cheaper conventional financing. People regularly ask him, “why do you continue to pay the astronomically high costs and fees charged by these short terms loans when you could save yourself 2 to 5 points by going with a more traditional bank?”. His response is generally something like “banks are too much work, I just want to know I can get the money with the least amount of hassle and paperwork, filling out 7000 pages of documents and paying attorneys exorbitant fees to review it all just isn’t how I want to spend my time.” From this article it sounds like more and more investors are returning to this mentality:
Off-Street Lenders Step Up
Commercial Developers Find
New Loan Sources Amid Fading
Of Mortgage-Backed Securities
By ANGELA PRUITT
November 28, 2007; Page B7
As Wall Street banks tighten their purse strings on commercial real-estate financing, other lenders are ready to step in.
Non-U.S. banks, insurance companies and smaller real-estate shops are poised for robust business from anxious developers finding it difficult to drum up money in the market for commercial-mortgage-backed securities.
Developers say they are being asked to put up about 25% of the financing, a substantial increase from the 10% to 15% permitted before credit conditions tightened. The stricter standards mark a departure from the loans offered from mid-2006 to mid-2007, when Wall Street banks were underwriting interest-free loans and debt based on future revenue, not current cash flow.
Issuance of commercial-mortgage-backed securities world-wide was on a record pace until September, when the market sustained a severe slowdown. Only $6.2 billion of the securities were issued in October, compared with $34.4 billion in August, according to Commercial Mortgage Alert, a trade publication.
“In light of the problems with the securitized markets,” balance-sheet lenders have greater opportunity to compete, says Matthew Galligan, managing director of the U.S. property-finance division of Bank of Ireland PLC. “And that is what we are doing,” he says.
The bank set up the property business in July, its first in the U.S., concentrating on the Boston-to-Washington corridor. Mr. Galligan estimated the unit would generate $1 billion in business next year. So far, the bank has completed one deal and is committed to two others.
Another opportunistic lender is CIT Commercial Real Estate, a division of CIT Group Inc., which says it is attracting new customers unable to get financing from traditional Wall Street sources. Tim Zietara, a CIT managing director, says most calls from borrowers are from those seemingly willing to pay a premium for knowing they have a lender that can close a transaction, and aren’t just taking the lowest quote.
“Borrowers are really searching for a certainty of execution. That seems to be first and foremost for direct deals that we originate,” Mr. Zietara says. He says the firm is also seizing opportunities from balance-sheet lending.
CIT is considered a middle-market lender. Mr. Zietara said the firm is bullish on the multifamily and office sectors, but he declined to specify the volume of deals the firm is handling.
Commercial real estate has held up relatively well amid the crisis in the U.S. residential-property market, yet a report from Moody’s Investors Service last week indicated the industry is starting to feel the squeeze of the credit crunch. It said the value of commercial property declined 1.2% in September from August.
But few industry experts think a correction will be as painful or pervasive as witnessed in residential real estate. A combination of limited supply, favorable interest rates and the absence of speculative development is expected to cushion the blow. A lot of untapped money is also seen waiting on the sidelines until dust from the residential situation settles.
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Posted by mcarey on November 27, 2007 under Auction News, News, Uncategorized |
Commercial Stays Strong
Quarterly Newsletter - Fall 2007
The Tranzon Auction Leader is published quarterly by Tranzon LLC, national experts in accelerated marketing and auction sales. This E-newsletter focuses on trends, auction highlights, and expert analyses on how a professionally marketed auction may maximize an asset’s value. Email Mike Carey with “subscribe” in the subject line and I will add you to our mailing list.
Commercial property markets remain quite solid. We are seeing good success in our auctions of commercial properties. We have noted that pricing has leveled off, but it has done so at strong levels. The underlying fundamentals appear to remain favorable.
Important to auction sellers, these strong markets have kept appetites strong for properties that have a “story” as many auction properties do. Buyers are willing to purchase properties with issues or requiring some effort to stabilize.
On the financing side, we are seeing lender tightening in this market also for the smaller, less financially strong investor-buyer. This has been going on for most of 2007 and does not appear to have gotten materially more difficult.
In recent months we have had successful sales of assisted living facilities (both operating and closed), convenience stores/service stations, retail, small office, apartments and industrial property. Commercial property is moving at auction pretty much across the board.
Properties generating cash flows are still in high demand and, as noted, there is still an appetite for turnaround situations. If there is a weakness we have detected, it is in land sales, where some of the speculative bloom has come off the rose.
Our observation of rosy conditions in the commercial area is not without some concern. We note, as do others, the relaxed underwriting of loans in recent years and the over-leveraging that appears to have been permitted in some situations. We do expect a moderate worsening in the performance of commercial loan portfolios, but we are not looking for anything resembling what we have seen in the residential market.
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Posted by mcarey on November 26, 2007 under Auction News, News, Uncategorized |
Quarterly Newsletter - Fall 2007
The Tranzon Auction Leader is published quarterly by Tranzon LLC, national experts in accelerated marketing and auction sales. This E-newsletter focuses on trends, auction highlights, and expert analyses on how a professionally marketed auction may maximize an asset’s value. Email Mike Carey with “subscribe” in the subject line and I will add you to our mailing list.
It’s Been a Long Hot Summer
The title of our opening article in the Spring 2007 newsletter read “The Big News in the Residential Market - Lenders Tighten Their Belts”.
This past August, everyone’s belts tightened so much that the markets could not breathe. We will not repeat the widely reported seizing in the debt markets on Wall Street. We will focus on what we are seeing on Main Street.
In the Spring Newsletter we noted that if liquidity continues to retract, Real Estate problems would start surfacing in certain markets that heretofore have been pretty healthy. We have seen that play out. Residential markets that were strong throughout the adjustment up through this summer seem to have slowed measurably. The residential slowdown appears pretty widespread.
We have just started seeing a return to some semblance of normalcy in many markets. The “headline shock” of the July and August credit market problems is appearing to wear off. Buyers and sellers are slowly coming back into the market. Attendance at Tranzon residential auctions across the country has been steadily on the rise giving credence to marketing that stands out.
There seems to be ample liquidity to fund new home purchases and sound investment property. Anecdotally, we have seen the “informal” sub-prime market come to life in the past month after lying dormant for years. Entrepreneurs, who prior to recent years provided much of the capital to “less-than-prime” borrowers, are back in business. And they have money to lend.
So we are not seeing conditions commensurate with a real estate debacle. Liquidity exists. And buyers have the interest in buying property, the need to buy property, and the money with which to buy property. What they do not have is confidence, which will take awhile.
All of which makes for a challenging market for residential real estate. At the same time that we have a huge pool of property for sale, we have a diminished pool of buyers. Today’s challenge in brokerage marketing is how to make a property stand out from the sea of opportunities. Effective auction marketing has been accomplishing this by communicating a sense of urgency and opportunity to the market, much more so than at any time in recent years. Tranzon’s success rates (percentage sold to percentage deeds offered) have increased sharply over the last three months.
Another challenge is dealing with an environment of falling values. We say “values” rather than “pricing” on purpose. It appears that in most of our markets, prices are not coming down to a level to accurately reflect current “values”. One reason we believe sales have slowed so much is that sellers have not, or cannot, adjust their expectations to today’s environment. This is a market that relates well to auctions, where the auction market sets the pricing, thus the value, for the sellers to approve, or reject.
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Posted by mcarey on October 23, 2007 under News, Uncategorized |
I love it when I’m getting my news and I hear something so utterly refreshing and real that I want to scream out loud “amen brother!”. This happened last night while listening to the Marketplace evening report.
There is one line imparticular that stood out for me “So, look, let’s make a deal. Some money is better than no money.” Could that line be any more poignant?
Link to Audio File
TEXT OF STORY
KAI RYSSDAL: Home ownership in this country’s as high as its ever been — almost 70 percent of Americans own a house. If you’ve been reading the business pages, though, you know there’s a catch. It’s spelled subprimes. A lot of recent buyers are losing equity in their homes as the housing market fades. Commentator and economist Austan Goolsbee says if you’re one of them, it’s time to face reality.
Austan Goolsbee: When housing prices go down, there’s always a guy on your street with an insanely high price. When you say prices are down, he’s got fingers in his ears saying “la, la, la, la!”
Turns out almost everybody refuses to sell their house for less than what they paid. The explanation you hear is that they can’t afford to lose the money. Economists say they’re crazy. The fact is they’ve already lost the money. They lost it when house prices fell. Listing your house for more money is not going to change that.
One of the iron laws of economics is stuff is worth what it’s worth. Nobody cares what you originally paid. So if you ask too much, you’re setting yourself up for a fall. A big one.
Take Boston. In the early 1990s, when condo prices fell 40 percent, the people who bought high set their prices much higher than people selling identical condos they bought for less.
There was so much overpriced real estate that the entire market went into a deep freeze. More than 70 percent of the properties took longer than six months to sell.
Now that’s threatening to repeat itself all over the country. And when housing markets freeze up, it means bad, bad things for the economy. It means fewer house sales, which means fewer sales of new furniture, new stoves, and new plasma TVs.
Face it. Who likes getting up early every day and having people traipse through your bathrooms and rejecting you over and over?
So, look, let’s make a deal. Some money is better than no money. It’s better for you. It’s better for everyone. You’ll unload your house and buy something else and buy stuff to go in it.
Holding out for the high price of your dreams is not going to work and is setting us all up for a great big recession.
So get real, people. This ain’t fantasy land.
RYSSDAL: Austan Goolsbee is a professor of economics at the University of Chicago Graduate School of Business. He’s also an advisor to Barack Obama’s presidential campaign
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Posted by mcarey on October 15, 2007 under News |
Brecht and I will be covering the Tranzon National Booth at the upcoming TMA National Convention at the Copley Marriott. Hope to see you there.
http://www.turnaround.org/calendarDetail.asp?objectID=4978&curPage=1
Posted by Brecht Palombo on October 13, 2007 under Uncategorized |
The Berkshire Eagle picked up the story of our upcoming sale in Lenox, MA. You can click here to read their write up. You can also follow this link to download the Property Information Pack.
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Posted by mcarey on October 5, 2007 under Auction News, News, Uncategorized |
This is a bit of old news, as the sale occurred nearly a month ago, but I had several calls this week from developers, investors and smaller financial institutions who are in severe cash crisis’s. This article and the developer’s tactics display the advantages of liquidating assets and putting cash in the bank or paying down debt. In particular, comments from homebuilders around the country show this isn’t a time to sit on your hands…
“We’re not focused on growth,” Ian McCarthy, Beazer’s chief executive officer, said at a homebuilding conference in New York on Sept. 18. “We’re very much focused on today and getting through this downturn.”
Click Here for Entire Article
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Posted by mcarey on October 4, 2007 under News, Uncategorized |
While the volume of trades is insufficient to warrant any real analysis, this is just another example that the US Housing Market went through a remarkable and clearly unsustainable price appreciation over the last 5 years and people are putting their money on the line betting prices will continue to fall.
WSJ Article:
Home-Price Outlook
Takes Another Shot
Trading on CME
Indicates a Decline
Into Late 2011
By JAMES R. HAGERTY
October 4, 2007; Page D6
The outlook for house prices is getting even gloomier as traders on the Chicago Mercantile Exchange bet on steep price declines and the number of homes for sale grows.
Traders on the CME expect home prices in 10 major cities to drop an average of about 10% from mid-2007 to November 2011, according to an analysis by Tradition Financial Services Inc., New York, of prices for housing futures traded on the exchange.
The contracts have been trading since May 2006 but last month were adapted so that traders could bet on prices as long as 60 months into the future. The trading is based on expected movements in the S&P/Case-Shiller house price indexes.
Trading is very light so far — about 20 contracts a day, a CME spokeswoman says. That means the contract values provide only a rough idea of the expectations of speculators and people hedging against house-price risks, says Anthony B. Sanders, a professor of finance at Arizona State University. But Dr. Sanders says the contracts are a useful signal, and he expects house prices generally to fall in the next couple of years.
“There are too many houses coming onto the market [in many areas], and the demand is just not there at current price levels,” he says.
The current contract prices show that traders expect prices in the Miami metro area in November 2011 to be down 28% from the mid-2007 level. (The indexes cover metro areas as defined by the U.S. Census Bureau.) The expected drops in other metro areas for the same period are 18% for Las Vegas, 12% for New York, 19% for San Diego, 26% for San Francisco and 13% for Washington, D.C.
Meanwhile, total listings of homes in 18 major metro areas at the end of September were up 1.2% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif. The data cover listings of single-family homes, condos and town houses on local multiple-listing services in areas where ZipRealty operates.
Inventories at the end of September were up about 18% from a year earlier in the 17 metro areas for which comparable figures from September 2006 were available.
The ZipRealty data don’t include the New York area. But Jonathan Miller, research director of Radar Logic Inc., New York, says there were 5,490 cooperative apartments, condominiums and town houses on the market in the Manhattan borough of New York City at the end of September, up 12% from August but down 32% from September 2006. Mr. Miller expects prices for typical Manhattan residences to be flat to modestly higher over the next year.
Adding to the downward pressure, lenders are warier of appraisals and are rejecting more of them as too high, says Philip Tirone, president of Mortgage Equity Group, a mortgage brokerage firm in Los Angeles. “That’s making appraisers gun shy,” and more inclined to appraise conservatively, he says.
href=”http://online.wsj.com/article/SB119146645724948646.html?mod=real_estate_wsj_hs” mce_href=”http://online.wsj.com/article/SB119146645724948646.html?mod=real_estate_wsj_hs” >Click here for complete article
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Posted by mcarey on September 28, 2007 under News, Uncategorized |
Here’s another example, albeit a fairly strange one, of why I like structuring deals that get me my money today, rather than 60 days from now. You only have to have one deal fall apart because a buyer gets squirrelly and uses some lame excuse to back out of the deal before you see the benefits of “as-is, where-is, closing in 45 days and hard money non-refundable deposits”.
WSJ ARTICLE:
Land Loophole
By MICHAEL CORKERY, KEMBA J. DUNHAM and JONATHAN KARP
September 19, 2007; Page B6
Lennar Corp. used an unusual argument to get out of a land deal, convincing an arbitrator that it didn’t have to pay a $70 million deposit on 1,200 acres of land in Palm Beach County, Fla.
The Miami home builder contended the land was tainted by a corruption scandal “therefore giving us the right to the return of our deposit,” said Lennar’s general counsel Mark Sustana.
A former county commissioner, Anthony R. Masilotti, pled guilty to being involved in public corruption, after federal prosecutors said he used his office to enrich himself in land deals. Prosecutors said Mr. Masilotti, who is serving a five-year sentence in a federal prison camp, voted for land use changes on the 1,200-acre property, while having a secret stake in the land. Lennar had planned to buy the land for $200 million from the mining company, Palm Beach Aggregates. Neither company is charged with any wrongdoing in the corruption case. Palm Beach Aggregates’ lawyer said he may challenge the arbitrator’s ruling. Mr. Masilotti’s lawyer had no comment except to confirm that his client is in prison.
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