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It’s Not Hard To Imagine Where Things Are Headed

A report from Finance & Commerce on Minnesota. “J.P. Morgan is taking a steep haircut as it sells an Uptown Minneapolis apartment building. The Walkway, a 92-unit mixed-use luxury building at 1320 W. Lake St., was sold Sept. 26 for $33.6 million in cash. The apartment portion sold for $28.82 million and the 23,000 square feet of ground-floor retail for $4.77 million, according to certificates of real estate value made public Monday.”

“The transaction appears to represent a heavy loss for New York-based J.P. Morgan, which paid $53.75 million for the property in 2015. There’s no obvious reason the price of the property should have declined $20 million in three years, said Gina Dingman, president of Minneapolis-based Everest Real Estate Advisors. The building is fairly new, and Uptown remains a desirable area for developers and renters.”

“‘It seems like rental rates are still where they were, roughly,’ Dingman said. While the property does face competition from other recent apartment developments nearby, ‘it’s obviously a big hit on [J.P. Morgan’s] part.'”

The Portland Tribune in Oregon. “A recent wave of development resulted in a glut of higher-end apartments downtown and in the Pearl District. Some landlords are offering two or three months’ free rent to sign up new tenants.”

“But other landlords are turning to Airbnb to fill their empty units. And some fear that’s taking hundreds of units off the long-term rental market, reducing the housing supply. ‘We have to figure out what really is Airbnb in our city,’ says Felisa Hagins, the political director for SEIU Local 49, a union that has lobbied in Salem for renter protections.”

“Landlord interests at the Capitol have fended off such bills, Hagins said, by arguing that a larger housing supply will let market forces take over and ease rental rates. ‘They say the way we deal with the housing crisis in Portland is we build our way out of it,’ Hagins says. ‘I don’t think it’s as simple as that.'”

From Atlanta Intown Paper in Georgia. “It’s not hard to imagine where things are headed. Anne Schwall, VP Atlanta Fine Homes Sotheby’s International Realty Developer Services Division said that Intown’s real estate market is likely to see a continuation of higher prices and tighter inventory. ‘As construction costs continue to rise, new condos with pricing below $600,000 are becoming a thing of the past,’ Schwall said.”

“She predicted that as the glut of the apartment market begins to stall out, apartment rentals and apartment projects will likely begin to convert to condominiums. As a result, condo conversions will present a new opportunity for more attainable pricing to come to the market.”

From Curbed Washington DC. “The median rent on both one- and two-bedroom apartments in Washington, D.C., declined year over year in September, according to Zumper. The analysis tracks vacant and available apartments, so it’s a pretty good indicator of where the market is at.”

“The median one-bedroom rent was down 4.4 percent yearly to $2,160 a month; and the median two-bedroom rent was down a whopping 14.8 percent to $2,710.”

From Bisnow on Texas. “Houston’s senior housing construction rush came too soon. ‘We are at the doldrums of the market right now,’ Silverado Development Senior Vice President Paul Mullin said. While there may not be a tremendous need for new product, the opportunity lies with the acquisition of distressed properties in Houston and throughout Texas, Mullin said.”

“He suggested investors should look for opportunities where the developers lack senior living operational experience or an operator behind them running the day-to-day business of the community.”

The Buffalo News in New York. “The owners of the troubled Monarch 716 student-housing complex near SUNY Buffalo State are trying to stave off an imminent foreclosure on their project, asking a judge in Buffalo to give them more time to negotiate ‘alternative financing’ that would pay off their loans and liens on the property.”

“Thomas Masaschi, one of the principals behind Rochester-based developer DHD Ventures, submitted an affidavit to State Supreme Court in Erie County last month, opposing the $38 million foreclosure filing by Acres Capital and requesting a month’s delay for ‘a final opportunity’ to finish talks with potential buyers or lenders. That would push back any ruling until at least Oct. 24.”

“If not, Masaschi said, ‘the defendants would consent to entry of summary judgment against them.’ That means they’d lose ownership of the complex, which has already been under the control of court-appointed receiver Timothy P. Foster since May 22.”

“But the filing –and their attempt to blame the management company they hired – also demonstrates the challenges they face in doing so, even as two other DHD student-housing complexes in other states also face problems.”

“To fill up the complex and demonstrate financial stability, DHD and its first management firm, King Residential Group, lured tenants by offering special discounts and perks, like two months of free rent. But they ended up bringing in many non-students as well, only to evict them later for not paying. One local attorney said more than 100 people have been evicted, and local real estate sources say the occupancy is now down to 60 percent, though only 35 percent are paying full rent.”

“Masaschi said DHD has also hired ‘multiple real estate brokers throughout the country’ – including CBRE Buffalo, which was marketing the property for as much as $60 million at one point before the price dropped to about $45 million.”

This Post Has 37 Comments
  1. ‘There’s no obvious reason the price of the property should have declined $20 million in three years’

    They paid too much Gina. I told everyone who would listen this was going to happen.

    1. “…Gina Dingman, president of Minneapolis-based Everest Real Estate Advisors….”

      Need a few moments to wrap my head around this one: Gina is the *president* of a R/E investment company and doesn’t even do basic research?

      Sure would like to know the brand of glue Gina has been sniffing.

      (Earth to Gina – Try reading the HBB blog sometime. Might
      save you a lot of heartache not to mention $$$$).

      1. “Earth to Gina – Try reading the HBB blog sometime. Might save you a lot of heartache not to mention $$$$”

        But if I listened to you guys I’d have needed to find a different line of work a long time ago, and I have no other qualifications. Not gonna happen.

        — Gina

  2. ‘While there may not be a tremendous need for new product, the opportunity lies with the acquisition of distressed properties in Houston and throughout Texas’

    Yep, not much to do now but feed off the bodies of your competitors. If you have any money that is.

    1. Crazy. No amount of remodeling could add $400K to the worth of that. Looks a lot like my first house, which was under $30K.

      1. Precisely. There’s only one avenue that makes the approach to that one and it involves crime.

    2. The design and color choices seem a little off. The color they picked for the outside is really icky.

    1. One month LIBOR is up over 2% from its lows. What about all those people with variable rate mortgage resets who can no longer refi their way out of their debt problems now that appreciation has stopped?

      1. From today’s Marketwatch.com

        “…10-year Treasury yield TMUBMUSD10Y, +0.10% has punched up to seven-year highs at 3.21%…”

        Virtually every MLS listing that I follow (Orange County, Irvine and Corona Del Mar) have posted price reductions during the last 30 days.

        A textbook example of how quickly the winds can shift.

        If I was a speculator, I would be very, very nervous right now.

    2. My dream is 10% 30 year rates. I could use 25% of my savings to buy a house for cash and put the rest into treasuries, investing the excess revenue over my living expenses into stocks, and retire early. Its time for the debt free to be rewarded for a change.

      1. True, but if rates hit 10%, that means we’ll be in a full-blown depression, and probably civil-war given the current political environment.

          1. 1979 or so Paul Volker wrung inflation out of the economy with 15% interest rates. The economy was certainly not “booming” at the time.

      2. “Its time for the debt free to be rewarded for a change.”

        +1 Debt free, but my 401k didn’t perform as promised.

    3. Anyone remember Scott Burns’ column in the business section of the Dallas Morning News?

      I used to read it decades ago when everything came on paper – magazines, news, etc.

      I forgotten 99% of it, but one little thing he wrote one day stuck with me – it was somewhere 15-25 years ago, but during a time when interest rates were rising back up off being their lowest in the prior couple decades.

      He mused that mortgages acquired during those lowest points would become something like “family jewels” in the longer run, with people not moving or selling their homes because they had such low payments compared to what they would get if they moved and purchased again.

      If the fed holding rates down comes to an end, along with an end to crazy appreciation and all the associated economic fallout, I wonder if that will describe people holding recently acquired 3.xx percent mortgages – Lucky ones with a ‘jewel’ of a mortgage (as long as they don’t move).

      1. “Lucky ones with a ‘jewel’ of a mortgage”

        A death sentence like a mortgage is now ‘lucky’?

      2. Silly. Save $3 on interest and lose half a million that you never had in the first place? Nothing to be proud of. Family jewels in a vise is more like it.

        1. I think it’s that most consumers just look at the monthly payment, and the purchasing power of that payment is going down, down as the rates go up, up and some people will be hung up and unwilling to accept that if they move, they can’t afford as much house as they already have.

          Culturally, we have a huge stigma about “going backwards” economically.

          1. If monthly price were the criteria, they wouldn’t be renting from the bankat double the market rental rate. The motivation is speculation. The end result?

            crushing.housing.losses.

      3. “If the fed holding rates down comes to an end, along with an end to crazy appreciation and all the associated economic fallout, I wonder if that will describe people holding recently acquired 3.xx percent mortgages – Lucky ones with a ‘jewel’ of a mortgage (as long as they don’t move).”

        Only if they didn’t overpay. What are the odds of that?

      4. MGSpiffy,

        I’ve seen several financial analysts and market commentators describe exactly the phenomenon you are suggesting. The buzzword that I heard thrown about was housing gridlock. There are those individuals who are potentially able to trade up to a more expensive place, but the thought of leaving their 3.x% interest rate and trading it for a 5.x% rate or higher makes them stay put.

  3. ‘But the filing –and their attempt to blame the management company they hired – also demonstrates the challenges they face in doing so, even as two other DHD student-housing complexes in other states also face problems’

    So the biggest mortgage fraud case since the Big Event just came and went in the MSM with one Wall Street Journal report. No follow up. No further examination by CNBC or other Red Menace journalists. Only to be dribbled out by court filings reported in local papers.

  4. Bill Gross: This is why bonds are selling off
    By Barbara Kollmeyer
    Published: Oct 4, 2018 9:46 a.m. ET
    Critical information for the U.S. trading day
    AFP/Getty Images
    Not buying it

    Bonds, cheap bonds.

    Investors are still grappling with some whiplash caused by a bond sell off Wednesday, which saw the biggest one-day climb in two years for the 30-year U.S. Treasury yield.

    https://www.marketwatch.com/story/bill-gross-this-is-why-bonds-are-selling-off-2018-10-04

    1. The US bond sell off is due to the fact that out of country bonds are cheaper right now. I believe the underlying driving force is due to quantitative tightening in the US, but Europe and other economies are still enjoying the easy money.

    1. Like one of our posters reminds us, paying a grossly inflated price for a house is automatically sub-prime. Smart people will default when they are underwater.

      1. That is an excellent point. Certainly looks like what’s pushing the San Jose, CA inventory up over 100% recently. The rampant speculation here is apparent with the sudden spike due to prices no longer going vertical.

        Between increased rates, Chinese buyers disappearing, loan requirements eventually getting tighter, and mass layoffs when the consumer-driven eCONomy finally tanks, this entire area will be in for worse-than-last-time pain.

        1. “The rampant speculation here is apparent with the sudden spike due to prices no longer going vertical.”

          Hopefully they’ll be vertical again soon.

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