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Taking A Haircut On Artificially Inflated Real Estate

A report from Real Estate Weekly. “It looks like insurance tycoon Allan Rosenzweig is about to take another big hit as the uber-luxury housing market continues its slide. The South African corporate finance executive has shaved $1 million off the price of the Greenwich Village penthouse he bought for $26.1 million just two years ago.”

“Back then, the 7,693 s/f pad was billed as being part of the ‘wellness real estate’ movement with germ-killing antimicrobial coating on stuff like the marble counters, a circadian lighting system and EMF shielding to protect residents from electromagnetic fields. The shower water was filtered with vitamin C and mood enhancing scents blew through the air.”

“Rosenzweig took a haircut on his waterfront Venetian Islands home in Florida in March when he sold it for $7.85 million — over $2 million less than he paid for it just a year before.”

The Miami Herald in Florida. “For eight years, Jose Orlando Sanchez Cristancho nimbly worked two names, hopped between homes in Miami and Colombia, and had at least three occupations — cocaine trafficker, money launderer, mortgage fraudster.”

“For the next eight years, Cristancho, also known as Orlando Sanchez, will be stationary in location and task —- federal prison and inmate — after his sentencing on mortgage fraud and money laundering charges. He has also been ordered to pay $722,000 in restitution.”

“Sanchez ‘knew that his financial assets would be safer and more valuable in this country,’ his admission of facts says. ‘He, therefore, made arrangements to bring drug-derived assets to the United States to purchase real property in South Florida. In this manner, Sanchez laundered and transferred $1.3 million in drug money into the United States. It also provided some of the real estate necessary for the little mortgage fraud club formed, according to Sanchez’s admission.”

“‘The schemes used included recruiting straw buyers to purchase property Sanchez owned, at inflated prices,’ the court documents say. ‘The straw buyer would subsequently default on the loan he hand obtained at Sanchez’s direction, but Sanchez was able to keep the money the straw buyer had paid him from the loan proceeds.'”

“They worked this scam using unit No. 403 at the Hamptons South Condominium, 20201 E. Country Club Dr. in Aventura. Sanchez bought it for $546,000, court documents say. Just 19 months after that purchase, which Miami-Dade property records say happened in 2004, Sanchez and Maria Pimienta sold the condo to Jacqueline Daccach for $1.28 million. Court documents say the loan application said Daccach’s annual income exceeded $500,000 and she made a $330,000 down payment and she’d live in the apartment.”

“In reality, Daccach made less than $50,000, put no money down and Perdomo was going to live in the condo. At closing, Sanchez made more than $400,000. Daccach defaulted on the mortgage. It sold in a short sale for $665,000 in 2009. The bank lost $404,000.”

From Governing.com. “In any hot real estate market, there are complaints about prices being artificially inflated by foreign buyers. That sometimes sounds a little far-fetched. In cities with tens or hundreds of thousands of homes, how many can really be bought up by absentee owners from abroad? Actually, the answer turns out to be a substantial share.”

“But in 2016, the U.S. Treasury Department, convinced there was something fishy going on in the Miami and Manhattan real estate markets, issued geographic targeting orders, or GTOs. This bureaucratic-sounding change meant that for high-end real estate purchases, cash buyers had to reveal their true identities. The effect was immediate, with cash purchases dwindling to a small fraction of overall sales.”

“‘I and a couple of other analysts have publicly said that the condo market in Miami was being dominated by foreign investors,’ says Jack McCabe, a Florida real estate consultant. ‘In many cases, we suspected it was corrupt or criminal funds that were being laundered by these investments, which was easy to do.'”

“The Treasury Department soon expanded GTOs into more markets, covering many of the nation’s largest cities. A new study from Sean Hundtofte and Ville Rantala, respectively business professors at Yale and the University of Miami, finds that the disclosure requirements have had profound effects.”

“All-cash purchases by limited liability corporations and other corporate entities shrank from 10 percent of the total dollar volume in the targeted real estate markets to just 2.5 percent. House prices at the high end of the market have dropped by at least 4 percent. The changes have been most dramatic in Miami, where the corporate share of residential transactions has plummeted from 29 percent to 2 percent.”

“‘It’s had a chilling effect on condominium sales,’ McCabe says. ‘You can make a pretty strong case that the additional scrutiny of buyers and their funds has played a major part in the slowdown of sales.'”

“The numbers from Hundtofte and Rantala’s research show that there has been a softening in luxury sales throughout cities under GTOs, suggesting that foreign buyers had been contributing significantly to price increases. ‘In the long run, this might affect property tax revenue through lower valuations or fewer transactions,’ they write. ‘On the other hand, housing appears to have become more affordable to local residents.'”

This Post Has 17 Comments
  1. ‘Back then, the 7,693 s/f pad was billed as being part of the ‘wellness real estate’ movement with…’

    The REIC never runs out of gimmicks to separate suckers from their money.

    BTW, any feedback on page refreshing and log in issues is appreciated.

    1. I had trouble with it not remembering my name a few times, but I checked the “save” box again and will let you know if it remembers this time.

      No refresh issues for me – all entries show up.

      Not sure if this is a blog issue or a device
      /browser thing, but is it possible to have the titles change color once they have been clicked on like the old blog? So many posts, I have trouble differentiating which entries I have and have not read.

  2. San Francisco ranks No. 1 in US in property crime:

    “FBI data released last week show the city had the highest per-capita rate of property crimes among the 20 most populous U.S. cities in 2017, tallying 6,168 crimes per 100,000 people. That’s about 148 burglaries, larcenies, car thefts and arsons per day.

    San Francisco’s property crimes spiked from the previous year, shooting up from about 47,000 in 2016 to 54,000 in 2017.”

    https://www.sfgate.com/crime/article/The-Scanner-San-Francisco-ranks-No-1-in-13267113.php?t=410d11fc9b

    1. You stop putting people in jail and just issue citations and you have more crime only a progressive could not see that coming. I do think it will impact Bay Area prices. Not just in the obvious less people will want to live there. No, I think the bigger impact will be the indirect impact caused by loss of tourists. Many people rent rooms and whole units to tourists through Airbnb. This income helps pay the mortgage. Less tourists means more foreclosures. Of course, less tourists mean other businesses will go under increasing the economic pressure.

  3. “…and EMF shielding to protect residents from electromagnetic fields…”

    As an engineer, *that* is something I’ve got to see.

    In practice, total shielding away from EMF is easier said than done.

    During parties, does everyone have a ground strap tied to their ankle as one co-mingles inside a copper lined room?

    As an upside, no-ones cell phone (or any other wireless device) will operate. Guess everyone will have to actually talk to each other.

    I once worked for the Military-Industrial complex and we *did* have a copper lined room (floor,walls, ceiling) containing top-secret computer systems. Cost a fortune.. (Your tax $$ at work).

  4. “But in 2016, the U.S. Treasury Department, convinced there was something fishy going on in the Miami and Manhattan real estate markets, issued geographic targeting orders, or GTOs
    ——————————
    JUST Miami and Manhattan? Is it too much trouble to look at a town like Boise or Denver?

    1. Since MJ legalization, there’s been alot of black market weed money poured into Denver housing. Alot of money.

  5. Sean, the investigation, initially announced targeting Manhattan and Miami, was scheduled for a six month term. Subsequently, many other US cities (San Antonio, Honolulu, all of south Florida, etc) have been added, and the term of the investigation has been left open. The investigation when started, did not include transactions involving wire transfers, a ridiculous mistake as most cash transactions with foreign investors on luxury properties are facilitated by a wire transfer of funds. That has also been corrected, increasing the size, scope, and future results of this multi-unit task force investigation. It’s my prediction when the investigation is concluded and results released, it will become public knowledge how much criminal activity has been involved in the latest real estate boom in many US markets. Miami’s recent six year artificial surge in prices caused and facilitated by criminals and corrupt international public figures and politicians.

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