thehousingbubble@gmail.com
Blog

By All Accounts There’s Currently A Lot Of Capital Flowing In

A report from the Buffalo News in New York. “The Monarch 716 student-housing complex that was seized by the lender in a foreclosure last year will be going on the block next month to satisfy the $44 million debt that remains on the property. It opened in September 2017 but quickly became a source of multiple problems, including crime and maintenance. More significantly, DHD failed to pay all of its construction bills, leading to multiple liens and lawsuits filed against it.”

“Ultimately, Acres Capital – an administrative agent for Reliance Standard Life Insurance Co., Philadelphia Indemnity Insurance Co. and Safety National Casualty Corp., which together loaned DHD $36.4 million – filed for foreclosure on the debt, which has ballooned with interest and fees. DHD principals Thomas Masaschi and Jason Teller sought more time to get alternative financing, but the judge rejected the effort in November and ordered the foreclosure.”

The Springfield News-Leader in Missouri. “Kasondra Moore had a lot to say about the failings of the property on East Garfield Street she rented from Chris Gatley. ‘This house is going to get condemned,’ she said.”

“And after hearing about 417 Rentals’ failed bankruptcy filing, Moore said she wasn’t surprised when she got a notice in the mail saying the house had been foreclosed and would be auctioned off later this month. The home Moore rents is one of about 500 units owned by Gatley and one of more than two dozen of his properties that have gone into foreclosure since a federal judge denied his petition for bankruptcy in January.”

“City officials and local nonprofits are talking about what to do in the coming months as banks begin to auction off dozens of Gatley’s units to settle some of his $19 million in debt.”

From News Channel 5 on Tennessee. “A new Apartment Guide list out this week shows that Nashville has the fourth-largest average drop in apartment rents in the country: a drop of more than 8 percent among two bedroom apartments last year compared to 2017.”

“Barbara Schwartz with the Apartment Selector in Donelson says with the addition of new apartment complexes across Nashville, average rent has gone down slightly, But she says like with all things real-estate and housing, the cycle continues, and rents won’t stay down for long. ‘I think they’ll continue to go down a little bit, and after that they’ll go back up,’ Schwartz said.”

From Real Estate Business Online. “The student housing sector continues to benefit from strong investor and consumer demand. Total annual deliveries nationally have averaged approximately 47,000 beds this cycle, according to RealPage.”

“REBusinessOnline sat down with Joe Stepchuk, managing director of student housing lending for Greystone, to gain his insight on the state of the market. Stepchuk joined Greystone in 2016 from Fannie Mae, where he served as director for 10 years and oversaw $3 billion in annual multifamily loan production.”

“REBO: Is there a market you won’t enter? Stepchuk: No, yet one needs to be alert to sponsors’ experience and market supply. If oversupply exists, you need to be careful on leverage and location.”

“REBO: By all accounts there’s currently a lot of capital flowing into student housing. What risks does this pose? Stepchuk: New investors coming in may not truly understand the nuances of the sector.”

“REBO: A lot of property sectors have had periods where they’re robust and then fall off. It seems like student housing has been on a steady, healthy run for quite some time. Is it fair to say that this real estate asset class hasn’t had the peaks and valleys that we’ve seen in some of the more traditional property sectors, or is that a misread?”

“Stepchuk: That’s an excellent read on your part. A lot of the investors and owners in this sector are quick to recognize that and share that with the investing community. They say this product is recession-proof, performs well and here’s why: demographics and the importance of college.”

Related Posts

Is This Going To Crush The Market?

https://www.youtube.com/watch?v=_MVMeOS3A5w https://www.youtube.com/watch?v=h-xflBndzZ8 https://www.youtube.com/watch?v=e0EydtajeP8 https://www.youtube.com/watch?v=9JgxhfRixlI

This Post Has 31 Comments

  1. From the last link:

    ‘REBusinessOnline: How did 2018 play out for Greystone in the student housing sector in terms of deal volume and overall velocity of activity?’

    ‘Joe Stepchuk: I came over from Fannie Mae in 2016, where I specialized in student housing.While I also now do conventional multifamily lending with both agencies (Fannie Mae, Freddie Mac) here at Greystone, our student housing lending volume has grown over the last three years. We’re happy with the growth and we want to keep that going. We’ve more than doubled our student housing volume over the prior year.’

    So they paid this guy full time at Fannie to work on student financing? If this is so “recession proof”, why the fudge are taxpayers subsidizing it? Of course, you could also ask why they do more cash out refi’s than primary loans to first time buyers.

    1. “…If this is so “recession proof”, why the fudge are taxpayers subsidizing it? ..”

      Another minor detail Joe Stepchuk failed to mention: declining enrollments.

      https://hechingerreport.org/college-students-predicted-to-fall-by-more-than-15-after-the-year-2025/

      2nd minor detail Joe Stepchuk failed to mention: Technology is rapidly making the need to be physically “on campus” obsolete, (ie virtual reality., satellite campus in cheaper locations)

      So Joe Stepchuk, can you explain this one away. How is student housing a good investment if fewer students have less need to be on campus?

    2. “…If this is so “recession proof”, why the fudge are taxpayers subsidizing it? ..”

      Another minor detail Joe Stepchuk failed to mention: declining enrollments.

      https://hechingerreport.org/college-students-predicted-to-fall-by-more-than-15-after-the-year-2025/

      2nd minor detail Joe Stepchuk failed to mention: Technology is rapidly making the need to be physically “on campus” obsolete, ie virtual reality and satellite campus at cheaper venues).

      So Joe Stepchuk, can you explain this one away. How is student housing a good investment if fewer students have less need to be on campus?

  2. ‘will be going on the block next month to satisfy the $44 million debt that remains on the property. It opened in September 2017 but quickly became a source of multiple problems, including crime and maintenance. More significantly, DHD failed to pay all of its construction bills’

    From sparkling new to foreclosure in less than two years. But recession proof!

  3. ‘Barbara Schwartz with the Apartment Selector in Donelson says with the addition of new apartment complexes across Nashville, average rent has gone down slightly, But she says like with all things real-estate and housing, the cycle continues, and rents won’t stay down for long. ‘I think they’ll continue to go down a little bit, and after that they’ll go back up’

    Let me tell you something Babs. 8% wipes out the new players. They will struggle to pay the bills for a while and then walk away. Oh, and 8% doesn’t include vacancies and incentives. The drop is probably double that or more.

    1. Come now, Mr. Jones. Let’s turn that frown upside down. Clearly Babs has tapped into the power of positive thinking. Like all those ebullient young permabull housing analysts on CNBC rhapsodizing about the green shoots of Spring, I feel (and emotion is what matters here, Cynical Ben) that Happy Days will blossom with the Spring flowers and our permanently high plateau will resume its upward march.

  4. “The Monarch 716 student-housing complex that was seized by the lender in a foreclosure last year will be going on the block next month to satisfy the $44 million debt that remains on the property.

    My condolences, Mr. Banker. And to think that renting “luxury” student accommodation to the spawn of tapped-out debt donkeys already struggling with soaring higher education costs seemed like such a sound and prudent investment strategy.

    1. “My condolences, Mr. Banker.”

      Your condolences are misdirected.

      From the article …

      “Ultimately, Acres Capital – an administrative agent for Reliance Standard Life Insurance Co., Philadelphia Indemnity Insurance Co. and Safety National Casualty Corp., which together loaned DHD $36.4 million – filed for foreclosure on the debt, which has ballooned with interest and fees. DHD principals Thomas Masaschi and Jason Teller sought more time to get alternative financing, but the judge rejected the effort in November and ordered the foreclosure, appointing Walter to lead the sale.”

      No mention of banks.

      1. In most big CRE loans, the actual money comes from life insurance and pension companies. When the FBI first came down on these guys, there was a lot said about GSE fraud. So there’s a good chance that if the loan was up to snuff, Fannie will end up holding the bag.

        1. So there’s a good chance that if the loan was up to snuff, Fannie will end up holding the bag.

          Fannie, meaning taxpayers.

          More involuntary wealth extraction from me to fund “votes for entitlements” policies and patronage rackets that I vehemently oppose.

          Awesome.

      2. Okay, lenders, to be specific, are going to be eating some losses. Life insurance companies lending money for student housing? Looks like some widow’s and orphans fund is going to be a bit short this quarter on the earnings and dividends side of the ledger.

  6. “Stepchuk: That’s an excellent read on your part. A lot of the investors and owners in this sector are quick to recognize that and share that with the investing community. They say this product is recession-proof, performs well and here’s why: demographics and the importance of college.”

    I bet Stepchuk was pitching Asian “investors” on what a can’t-lose good deal mortgage-backed securities were in 2006. “And they’ve got AAA ratings from S&P, Moodys, and Fitch!”

    As our rapacious financial elites escalate their looting and asset-stripping of the real economy (as opposed to Wall Street’s rigged casino), the idea of “luxury” student housing, or even sending kids to college at all given the increasingly unfavorable cost/benefit calculas, is going to seem increasingly ludicrous.

    1. “They say this product is recession-proof, performs well and here’s why: demographics and the importance of college.”

      Here’s nifty chart to use in selling pukes of the importance of obtaining a college degree …

      https://goo.gl/images/VeuD1a

      Whether this chart reflects reality or not does not matter; What matters is whether or not it works.

      1. From 2013 …

        New study shows careers and college majors often don’t match – CBS News
        https://www.cbsnews.com/news/new-study-shows-careers-and-college-majors-often-dont-match/

        (snip)

        “A new survey from CareerBuilder suggests that plenty of Americans never work in the field that they prepared for in college. Among the 2,134 workers surveyed, 47 percent of college graduates did not find a first job that was related to their college major. What’s more, 32 percent of college grads said that they had never worked in a field related to their majors.”

        1. A recent article …

          Why You Should Consider Trade School Instead of College – The Simple Dollar
          https://www.thesimpledollar.com/why-you-should-consider-trade-school-instead-of-college/

          “The average trade school degree costs $33,000, which, compared to a $127,000 bachelor’s degree, means a savings of $94,000. But that’s not all! If you assume that students are fully financing their education with loans at 4% over 10 years, the bachelor’s degree will cost $154,000, while the trade school degree will cost only $40,000. That’s a savings of $114,000 just on the degree.

          “Of course, most students in both cases won’t fully finance their education. They’ll work and find other sources of income to help with the process, meaning the gap will be smaller in the average case. Research gathered in 2012 suggests that the average college student debt load is $29,900, and that number rises to $36,327 when factoring in interest. Conversely, the average debt load for students graduating from a two-year technical school is $10,000, roughly 70% less than the four-year graduate.

          “Yet another advantage of technical trade school is that most of the jobs you’ll get are extremely difficult to export to another country. More and more jobs are being outsourced to places where labor is cheaper, making domestic employment in certain sectors difficult to get. It is much easier to export, say, computer programming work or other information economy work than it is to export carpentry or electrical work, as that requires a physical presence.

          “Not only that, but there’s a growing domestic demand for high-precision skills. According to Forbes, skilled trade workers are a disproportionately older population, and will only continue to get older, creating increased opportunities for young workers to fill their shoes.”

  7. “New federal tax laws limiting the deduction of state and local income taxes have created incentives for wealthy New Yorkers to move to Florida or other lower-tax states. New York Gov. Andrew Cuomo last month blamed wealth flight for the state’s $2.3 billion revenue shortfall in December and January.

    “Tax the rich, tax the rich, tax the rich,” he said. “We did. Now, God forbid, the rich leave.”

    But the New York State Department of Taxation and Finance is making sure that high earners who try to leave don’t escape without an audit and a bill. New York conducted about 3,000 “nonresidency” audits a year between 2010 and 2017, collecting around $1 billion”

    https://www.cnbc.com/2019/03/08/tax-collectors-chase-rich-new-yorkers-moving-to-low-tax-states.html

  8. My opinion on U.S. edu. :
    1) Higher-ed bubble. This is a cartel, supported by gov’t. (read taxpayer) guarantees of student loans. $1.5T and counting… Huge numbers of administrators. Bureaucracy run amok. Adjunct profs. doing most of the work at poverty wages. Sad. Just as Amazon and online trends in general are replacing brick and mortar retail, online learning (MOOC’s. etc) will largely replace brick and mortar colleges and universities at better quality and at much lower cost. They will get what they deserve. Moreover, the current state of leftist monoculture will return to a balanced and open academic culture as it should.
    2) Student housing: Another case of too many fiat dollars chasing too few investments at a reasonable rate of return. Just another facet of housing bubble 2.0. Not a special case just because it’s student housing Housing is housing.
    3) The Fed and malinvestment: In a normal cycle, there’s a contraction/recession which clears the non-productive assets/businesses/”investment”. This is called “creative destruction” by some, and is a healthy part of the business cycle. The Fed and gov’t. didn’t allow this in 2008-9. This was a huge missed opp’ty. I think we’re going to get this in spades in 2019-2021. Debt levels and assoc. malinvestment are now beyond imagination. Looking for a financial reset of the system this time. This will ultimately get resolved. The Fed is not bigger than the markets. Their hubris in believing that they can manage the U.S. economy and financial markets will be their undoing. This is financial socialism, and you know how that ends… (IL, NY, NJ, CA, Venezuela, former USSR, etc., etc., etc.)

    “Socialists are happy until they run out of other people’s money.” – Margaret Thatcher

    “The enduring lesson of the 20th century is that socialism is a failure, and free markets are a success. But the politicians keep advocating just a little more socialism.” – Milton Friedman

    “If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand” – Milton Friedman, Nobel Laureate Economist

    “Everything a governement touches, turns to crap.” – Ringo Star

    “Trees don’t grow to the sky.” – German Proverb

    1. A favorite expression of mine is ” A mind is a terrible thing to waste”.
      It is a favorite because so many people buy into it, and buying into it often means borrowing into it – borrowing so as to not “waste” the minds of their offsprings.

      Since parents are having fewer offsprings these offsprings garner more attention, they become more “special”. And because they are special they need to be treated as such; If this treatment requires lots of borrowing then, hey, lots of borrowing it shall be.

  10. It’s interesting what you find when people behave irrationally:

    ‘A hungry customer in Denver might order a $9.99 Cuban sandwich from Panera Bread Co., which can arrive at her door in about 30 minutes. The problem for Panera is that each delivery costs about $5 after accounting for labor, gas and packaging. Yet to avoid turning away customers, it continues to charge a flat delivery fee of $3 per order in most markets’

    ‘Food delivery is proving to be a thorny, expensive and crucial puzzle for restaurants, grocers and investors. Billions of dollars have been spent in a quest to build services that reliably move fresh food from one place to another, yet many in the business wonder if they will ever get the economics right. Most delivery orders remain unprofitable’

    ‘It costs supermarkets an average of $10 an order to deliver food, but grocers only recoup around $8 from customers because charging more risks turning off shoppers, according to a survey of supermarket executives by consulting firm Capgemini . Only 1% of 2,874 consumers surveyed by the research firm were willing to pay the full cost of grocery delivery.’

    ‘And 85% of consumers aren’t willing to pay more than $5 for restaurant delivery, according to a recent survey of 2,000 fast-food and fast-casual customers’

    https://www.wsj.com/articles/consumers-love-food-delivery-restaurants-and-grocers-hate-it-11552107610

    As usual, it’s Yellen bucks looking for a place to die:

    ‘Amazon.com Inc.’s purchase of Whole Foods in 2017 and its rapid rollout of grocery delivery across those stores intensified the pressure for other supermarkets to offer delivery. Separate from Whole Foods, Amazon is now planning to push into the grocery business with dozens of new stores in several major cities’

    ‘Along with Kroger, Target Corp. and Walmart Inc. are spending billions of dollars to develop their own delivery systems through acquisitions and investments. The retailers have seen their margins suffer in recent quarters as a result.’

    ‘Walmart now offers grocery delivery through nearly a half-dozen third parties and through Jet.com, an e-commerce site it bought for $3.3 billion in 2016. Delivery sales are growing, but the company says its e-commerce losses are expected to increase this fiscal year.’

    ‘To help fulfill orders, many restaurants have turned to one of roughly a dozen delivery services, such as Grubhub Inc., the oldest and largest in gross food sales, as well as DoorDash Inc. and Uber Technologies Inc.’s Uber Eats.’

    ‘Venture-capital firms put $5 billion into U.S. food and grocery delivery services last year, more than four times the amount they invested in 2017, according to data provider PitchBook Data Inc. Some, including Postmates Inc., are considering public offerings.’

    ‘Grubhub, founded in 2004 and now valued at $7 billion, allows diners to order food from more than 105,000 restaurants in more than 2,000 U.S. cities and London. After investing heavily in advertising due to increasing competition and spending money to recruit drivers and bring in diners in new markets, Grubhub swung to a loss in the fourth quarter.’

    ‘Newer entrants such as DoorDash, founded in 2013, have attracted venture capital that have enabled them to expand rapidly. After another funding round last month, DoorDash is now valued at $7.1 billion and is available in all 50 states.’

    ‘Instacart, the largest independent third-party grocery service with an estimated $2 billion in sales in 2017, continues to lose money on orders, according to people familiar with the metrics. Food sellers pay the services an average fee of 10% to 25% on each order, which means the actual deliveries often lose money. Better placement on the services’ websites or apps costs even more.’

    1. “It’s interesting what you find when people behave irrationally:”

      In this case it turns out that a few acting irrationally will force the many to also act irrationally.

      Time to pop up some popcorn.

        1. Another life (restaurant biz) – if we got a call that ended with bring change for a hundred, we’d refuse the order (dangerous for delivery guy – we was delivering food plus hundred dollars.)
          One of our guys was beaten very badly.

    2. A GrubHub promotion article (from 2016) …

      Ways Delivery Increases Restaurant Order Volume – GrubHub
      https://get.grubhub.com/blog/how-restaurant-delivery-can-increase-overall-order-volume.html

      (snip)

      “The food delivery trend shows no signs of slowing down. In fact, three in five U.S. consumers order delivery or takeout at least once a week.

      “Even if you already have a successful pickup business, delivery has been proven to make overall order volume go through the roof without taking away from existing business. According to recent data, 60 days into launching GrubHub Delivery, restaurants experienced an average of five times growth in daily order volume compared to their pre-delivery average.”

    3. I can barely find an acceptable place to eat out anymore. The quality has deteriorated while the price has hyperinflated. I can only imagine lukewarm delivery food from these places. Yuck.

      2. I’m lucky to have married a man who’s a grill master, decent cook AND does the grocery shopping. He knew what he was getting into. When we started dating, my refrigerator only had diet soda and ketchup.

Comments are closed.