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This Event Will Cause Foreclosures, Which Will Devalue Properties, So That Actually Is A Good Thing

A report from the Wall Street Journal on New York. “Stock investors are dumping shares of community banks with big real-estate lending businesses that could suffer from New York’s stricter apartment-rent regulations. Since property values are often based on the ability to raise rents, valuations for some buildings could fall, said William Wallace, an analyst at Raymond James & Associates Inc. The question, he said, is ‘does a landlord want to keep paying a $10 million loan on a property that’s worth $6 million?'”

“At an investor conference last Wednesday, Community Bank Chief Executive Joseph Ficalora chose to put a positive spin on the new rent law. ‘This event will cause foreclosures, which will devalue properties,’ he said. That, he argued, will allow the bank’s borrowers to buy more properties at a discount. ‘So that actually is a good thing for us,’ he said.”

From National Real Estate Investor on Washington. “Construction cranes are looming over Seattle, casting a thicket of shadows over the apartment sector in the city. These construction cranes are building more new apartments than Seattle is likely to be able to absorb at one time, according to researchers.”

“Developers are planning their biggest year yet for 2019, on track to open 13,000 new apartments in the Seattle metropolitan area, according to CoStar (not including communities built for seniors, students or low-income renters). That’s more than the 10,880 new apartments they opened in 2018. It even breaks the record of the peak year in 2015, when 11,010 new units hit the market.”

“Seattle’s apartment market is already showing the strain from overbuilding. Even highly successful buildings like Stratus have had to offer significant discounts to attract enough residents. Concessions like these are common in the Seattle metro area.”

“‘Unfortunately, there is no sign that developers are slowing down,’ says CoStar. ‘The headlines always read ‘no end in sight.'”

The Morning Call in Pennsylvania. “Brothers Al and Alex Ruozzi have made their living in the details. Now the brothers are banking on that attention to detail for success in the rental market. The Ruozzis recently renovated the historic Klein building in Allentown into an auto restoration shop. The building also includes the Palazzo Reale luxury apartments on the upper floors.”

“But that attention to detail comes at a price, and it’s a hefty one compared with many apartments in the Lehigh Valley. Rents for the units, all two bedrooms, start at $1,700 per month. Some are priced as high as $2,200.”

“The developers have already reduced the asking price once. The apartments — which run from 1,300 to 1,800 square feet — originally were listed at $2,200 to $3,000 a month. While still expensive, the apartments are priced to move, local Realtors say.”

The South Florida Business Journal. “A site in Miami’s Edgewater that was previously planned as a condo hotel is now envisioned as a hotel. On June 19, the Urban Development Review Board will consider the new design for the project at 410 N.E. 35th Terrace. The 30,045-square-foot site is owned by Satori Land, an affiliate of Heafey Group.”

“In 2016, the Bentley Edgewater was approved at the site with 207 hotel-condo units in 36 stories and 191,756 square feet. The developer launched sales, but canceled the project before breaking ground. The new plans call the project the Edgewater Hotel. The developer acquired the property for $2.73 million in 2015.”

From Fox 17 Nashville in Tennessee. “They say you get what you pay for, but a group of renters at a luxury apartment complex in Bellevue would strongly disagree. Wyndchase residents reported mounds of trash and a pool neon green with algae to FOX 17 News. We went out to the property and saw it ourselves before management asked us to leave, even threatening to call police.”

“But you don’t need to be on the property to see what these renters are so upset about. The overflowing trash problem is right by the entrance. Renters tell us it’s been like this for weeks and they’ve had enough of what they say is both an eyesore and a safety hazard. ‘Luxury oasis in a gated community… it’s not a ‘luxury oasis,’ says Jennifer Garrett- Callaghan, who lives right next door to the broken trash compactor. ‘It’s the odor on hot days, you smell it, it’s just not healthy.'”

“That’s not the only problem. Both pools are closed right now and if you look at the water it’s easy to see why. ‘It’s completely green, it’s algae ridden, nobody belongs in that pool,’ says Garrett-Callaghan.”

“The pool and trash service are among the amenities renters here pay for each month when they write a check for more than a grand. They say they’ve complained constantly, and nothing’s been done. Jennifer told her story to FOX 17 because she doesn’t know what else to do. ‘I just want it fixed without repercussions, I’d like to live here peacefully but who knows if that can happen at this point.'”

“But when we tried to ask the Wyndchase what’s going on, they responded with the following: ‘This has been a stressful day for our residents, please respect our privacy and remove reporters and their equipment from the property.'”

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This Post Has 28 Comments

  1. You know it’s bad when a condo-tel ditches the condo part.

    ‘Seattle’s apartment market is already showing the strain from overbuilding…’Unfortunately, there is no sign that developers are slowing down,’ says CoStar. ‘The headlines always read ‘no end in sight’

    I would like to point out to CoStar that I said this was going to happen years ago, when you couldn’t find a single expert who said the same thing. How? No crystal ball. I could see it was a mania, unhinged from reality and acting irrationally. Now you guys are fooked!

    1. Who came up with this idea? Unless you are a foreign speculators who are not living in the condo, why would anyone want to buy in or live in condo/hotel? Strangers and wild parties everyday?

  2. ‘Wyndchase residents reported mounds of trash and a pool neon green with algae’

    This is why it’s important to actually make a profit. If you don’t you can’t pay your bills. Same thing over here:

    ‘City has issued a record number of code violation notices at 39 buildings owned by giant landlord’

    ‘Owning more than 230 rent-controlled properties in San Francisco, Veritas Investments Inc. markets itself as a premier real estate company that buys and renovates aging apartment buildings, increasing their property value while enhancing the quality of life for thousands of tenants.’

    https://sfpublicpress.org/news/2019-06/complaints-and-citations-rise-sharply-at-veritas-apartments-cited-in-lawsuit

  3. The question, he said, is ‘does a landlord want to keep paying a $10 million loan on a property that’s worth $6 million?’

    That’s an actual question? Seems like a no-brainer to me.

    1. This where the “magic pixie dust” of cap-rate valuation runs in reverse. Every time you read about vacancy, incentives or lower rents, the buildings and land just lost value. So take an expensive market like Seattle and this is why they are fooked. They are looking at years of elevated vacancy and lower rents – thus value crater.

      1. They will slash interest rates to zero and, instead of paying you interest, they will charge you interest to keep a savings account open at the bank. Think you can take your money out and hide it under the mattress? They have a plan for that too…digital money you can only store on their servers. The real estate speculator is not nearly as fook’d as the working person trying to put away a nest egg. They will continue to heap your earned capital into the flames as kindle wood to keep the FIRE economy burning.

        1. The whole system is hanging by a thread. They can only lower it until they can’t anymore. There is a reason why majority of forecasters say we will enter a recession in 2020.

          Oh and Buy STAWK!!!!! Trump just did a tweeter

          “Stocks climb as Trump tweets about plans for ‘extended meeting’ with Chinese president”

          1. Ten years of central bank “emergency measures,” and Draghi is still panicking and promising more “whatever it takes” monetary crack cocaine for the stimulus junkies?

            This is only going to make the long-deferred financial reckoning day that much worse when it finally arrives.

        2. They will slash interest rates to zero and, instead of paying you interest, they will charge you interest ??

          They already do. Just not here yet ? Check the German Bund.

    2. Actually its the other way around does a landlord want to keep paying on a $6 million loan on a building that could be raised to $10+mill by kicking out rent stabilized tents and jacking up the rent to market rate. But Now because they dont get an automatic 20% vacancy increase each and every time someone leaves or gets evicted that $10 million building is now worth at best $6.5 mill

  4. The question, he said, is ‘does a landlord want to keep paying a $10 million loan on a property that’s worth $6 million?’

    DING DONG!!!!

    1. :-).

      many religious leaders are turning to developer and real estate consultant…

      It’s kind of sad how church types have these good intentions but no understanding of WHY we are where we are. Their meager resources will be quickly consumed. I suppose they’ll take comfort in feeling like at least they tried as they think about the “it mattered to that one” starfish story. And then they’ll vote for the “least evil” choice they’re given. Again.

      1. Better do it quick…only 44 affordable units available

        “The apartment building, dubbed St. Paul’s Commons, cost about $23 million to build and was funded through a combination of city, county and federal dollars, as well as private loans. It already has received more than 5,000 applications.“

        1. The sad truth is that the only affordable housing that exists in our current circumstances (e.g. monetary policy, tax policy, regulation, land and input costs, etc.) and which is also scalable is sleeping in vehicles.

  9. 10 years ago I lived in a rental building in Lakewood, OH (inner ring suburb directly west of Cleveland) that was 40% occupied.

    The owner inherited the building (built in 1940) from her father and steadfastly refused to take Section 8 vouchers, she would rather the building sit over half vacant than turn it into a welfare ghetto.

    How many developers of new “luxury” buildings can afford to do this? What will happen to their “luxury” buildings?

    I attempted to explain to some younger electrical apprentices 1-2 years ago about the economic concept of recessions, how they play out, how projects could stall in mid construction leaving ghost towers, and they couldn’t believe it. Denver natives, too young to have experienced the last recession, all they have seen or known is infinite growth…

    “This sucker could go down” — George W. Bush, 2008

  10. auto restoration shop. The building also includes the Palazzo Reale luxury apartments on the upper floors.”

    That’s convenience!

    1. These posts highlight interesting trends. The higher end of the So Cal market seems to be badly floundering but the low to median end of the market seems to be holding steady and making up most of the volume. At least, in the zip codes I follow. Perhaps this is why the median price can take such a hit but price per square foot is not yet eroding. The new tax limitations on deductions probably are dragging down the higher end homes and the pull back in interest rates and weaker lending standards are probably helping marginal buyers keep the bottom end of the market afloat.?? Will be interesting to see how long before this pool of borrowers is exhausted and they have to get rates lower again to add more grist to the mill.

  12. “The combination of declining mortgage rates, moderating home prices and peak home-buying season should help to buoy the housing market, but so far this hasn’t happened,” said BuildFax COO Jonathan Kanarek. “Continued declines in year over year maintenance and single-family housing authorizations further reinforce the ongoing housing slowdown. As we near six months of declining activity, the question remains, how long will this slump persist?”

    https://www.businesswire.com/news/home/20190618005268/en/BuildFax-Housing-Health-Report-Reveals-Major-Metros

    1. “The combination of declining mortgage rates, moderating home prices and peak home-buying season should help to buoy the housing market, but so far this hasn’t happened,”

      These people have no clue how flipper demand works under mania pricing. Once the rate of appreciation drops below 10%, you can stick a fork in the demand side of the market, as yesterday’s investor becomes today’s desperate seller.

  13. Real estate
    Condo downturn means price cuts all over the city
    Anna Marie Erwert, Special to the Seattle PI | May 22, 2019

    Been wanting a condo but thinking the Seattle market just a little too kind to sellers and a little too cruel to buyers? That balance of power may be shifting.

    Condo prices down

    Condos prices in King County are down year-over-year.

    Based on sales prices recorded by the Northwest Multiple Listing Service through April of this year, the Seattle PI reported that home prices for completed sales declined in in King County year-over-year, and “condos within King County in particular saw a fall.”

    While across the MLS counties condo prices dipped 3.2% as inventory jumped 75% compared to the same time last year, within King County those prices dropped about 9.6%, with inventory surging 122%.
    …

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