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Everybody Is Trying To Avoid The Impression Of Desperation And A Fire Sale

A report from The Real Deal on New York. “It was one of many signs last year that a growing number of New York City condo developers are on borrowed time. Bank OZK had committed $108 million to finance a 92-unit condo building at 615 10th Avenue back in 2015. But last April, with the project stalled, the construction lender dialed that back by $20 million, forcing the developer to grab a lifeline from mezzanine lender Mack Real Estate Credit Strategies.”

“The troubles brewing at that Hell’s Kitchen project are playing out across Manhattan as condo developers run out of extensions on their construction loans. With billions of dollars in debt coming due over the next few years, and sales in the doldrums for the foreseeable future, developers are under increasing pressure from lenders to slash prices or convert to rentals to generate cash. ‘Lenders are becoming more impatient because they want their loans paid back,’ said Andy Singer, CEO of the Singer & Bassuk Organization, which arranges financing for developers. ‘There’s lots of tension.'”

“Developers are resisting steep discounts for fear of setting off a downward spiral, according to a lender who asked to remain anonymous because he originates loans to many condo developers. ‘What we are hearing is that developers are trying to hold the line at 10 percent to 12 percent off their current ask,’ the lender said. ‘Everybody is trying to avoid the impression of desperation and a fire sale.'”

“Aby Rosen’s RFR Realty and Chinese firm Vanke, developers of the 96-unit, 63-story condo at 100 East 53rd Street, appear to have resorted to slashing prices as they labor under a mountain of debt — including $360 million secured from the Industrial and Commercial Bank of China before Chinese firms began pulling back investment.”

“For example, unit 45A, a two-bedroom, was listed this winter at $4.95 million, down from $8 million in 2016 — a 38 percent discount. As of Dec. 13, just 23 of the property’s units had closed, according to public filings, and 12 of those were recently listed as rentals on StreetEasy.com. Such quick-turnaround rentals can be a sign that investors are snapping up units in bulk, according to lawyers and lenders, suggesting deep price cuts.”

The Democrat and Chronicle in New York. “One of downtown’s more prolific developers has allegedly defaulted on more than $20 million in loans, potentially affecting key properties in the city. DHD Ventures’ Thomas Masaschi and his partners, including family members, are named in more than a dozen notices and complaints filed in recent days by U.S. Income Partners and its subsidiaries.”

“The Henrietta-based lender is calling in loans made over the past several years, at least two backed by properties now subject to foreclosure. Masaschi’s other downtown properties include Hilton Garden Inn, 88 Elm, 50 Chestnut, Rochester Club Center, the Gannett Building, Terminal Building and more. Two of those — 50 Chestnut St. and Rochester Club Center — are headed toward tax foreclosure. Masaschi declined comment.”

“The legal claims are the latest blow for a city seeking a resurgence but seeing its prominent development firms consumed by internal legal squabbles or, in the case of developer Robert Morgan, a federal fraud investigation. What the future holds for DHD is unclear, but the company already had begun pulling back after losing a massive foreclosure action on a student housing development in Buffalo.”

The Dickenson Press in North Dakota. “Quarterly studies show relatively fewer people are renting apartments in downtown Grand Forks. The vacancy rate in 600 to 700 apartments rose from 8.87% in the first quarter of 2019 to 9.23% in the fourth quarter, according to a survey of landlords that is regularly administered by the Greater Grand Forks Apartment Association.”

“Dakota Commercial, which rents 1,094 units in 32 buildings citywide, has a 6% to 7% vacancy rate downtown, Kevin Ritterman, the company’s president, estimated – slightly higher than a more typical 5% mark. Dan Sampson, who rents a bevy of properties, said his vacancy rate downtown hasn’t really budged. He said he dropped rent by about 10% on units in further-flung parts of the city to fill them.”

“‘It has gotten saturated with all the new construction around town, so we’ve had to drop our rents just to maintain occupancy,’ Sampson said.”

The Davis Enterprise in California. “Months after going into hiding while indebted to several Davis apartments and about 100 UC Davis student renters, WeHousing founder Alan Gao quietly went to work for a new company. According to a recent update on his LinkedIn profile, Gao has been director of operations at Palo Alto-based small loans company American Credit since July 2019.”

“In April 2019, WeHousing, which leased apartments mainly to UC Davis students from China, collected rent from students but did not forward the money to the apartments. ‘(Gao) is demanding the residents continue to pay him while he doesn’t intend to pay us,’ Kevin Schultz, the onsite manager at the Drake Apartments, said in May. ‘I think anything he collects, he’s just going to run with.'”

“Gao told The Enterprise his company went into debt after failing to fill about a third of its units for the 2018-19 year. WeHousing leased apartments in several college towns across the country, totaling about 400 tenants in all. ‘For April and May, we used most of the rents collected to pay off loans,’ Gao said.”

“In the meantime, Gao stopped answering calls and went into hiding. One apartment representative went to Gao’s home in Pleasanton and delivered an eviction notice in person, only for Gao to reportedly ‘pretend not to be who he is’ to evade the notice. Another property manager hired a law firm, which sent eviction process servers to Gao’s home every day for two weeks. They found no trace of him. ‘The man just disappeared,’ said Jingying Lu, a UC Davis student who graduated in June.”

The Union Tribune in California. “This 7,625 square foot home was built in 1980 and is the largest Del Mar home to sell among the 10 biggest sales. The property was first listed for sale in March for $27.9 million and later sold for $5.9 million less. Razor House (9826 La Jolla Farms Road), La Jolla — $20.8 million: The Razor House in La Jolla was purchased by singer Alicia Keys, said the Los Angeles Times, at a steep discount for what it was originally listed. The celebrated architectural home was listed for $30 million last summer.”

“”This 3,500-square-foot home was built in 2004 and took 54 days to sell. It is one of the smaller homes in this year’s biggest sales but still has four bedrooms and four bathrooms. The property has a storied history, for a time being one of the biggest sales in San Diego County history when it sold for $18 million in 2016. It later went back on sale for $17.9 million in January, later selling for a steep discount. $16 million.”

The Wall Street Journal. “Home sales are slowing in wildfire-prone areas of California as insurers retreat from high-risk regions, say real-estate agents and homeowners. Real-estate agents say potential buyers are having difficulty obtaining insurance and are backing out of purchases or lowering their offers after realizing how much insurance would cost, which can be thousands of dollars a year or more in wildfire-prone areas.”

“Lauralee Green, co-owner of Z Group Real Estate in Pollock Pines, Calif., now requires prospective buyers to submit an insurance quote before making an offer. ‘I’ve had so many deals fall through,’ she said. Ms. Green said she sold about $4.7 million in real estate last year, down from $8.8 million in 2018. ‘We’re just going to get a bunch of houses sitting on the market that won’t sell,’ she said.”

The Bay Area Newsgroup in California. “Housing economists and real estate professionals are pessimistic about the Bay Area in 2020 — but don’t expect a crash to bring saner prices or slower sales. ‘Pessimism is one way to put it,’ said Zillow senior economist Cheryl Young, noting that local home prices have been flat or dropping for about 18 months. The nearly decade-long, record-breaking escalation in prices, she said, ‘really wasn’t sustainable any more.'”

“In fact, the housing economists are sour on the state, with low expectations for the Sacramento, Los Angeles, Riverside and San Diego metro areas. Steam has been leaking out of the Bay Area housing engine during the last 12 months. Year-over-year prices in the Bay Area grew about 8 percent in October 2018, while they dropped nearly one percent in October 2019, according to CoreLogic. ‘That’s a big swing,’ said Frank Nothaft, chief economist at CoreLogic.”

“Sales data show Santa Clara County has been especially hard hit in the last year. After home sales in the county raced up more than 10 percent, year-over-year, through much of 2017 and 2018, buyers have become more cautious, and median sale prices have dropped steadily. In November, the county’s median prices fell nearly 2 percent from the previous year, the 11th straight month of year-over-year declines, according to Zillow.”

This Post Has 57 Comments
    1. Just think of the number of profitable businesses and jobs all this money could have been used to create. Instead, it was foolishly wasted on real estate speculation and the greater fool theory.

      1. It gets worse. Imagine all the time and fuel wasted because of new entrants to the local labor market getting priced out of housing close to work.

        Californian policitians are completely clueless about this dynamic.

    2. > ‘Everybody is trying to avoid the impression of desperation and a fire sale.’”

      These guys have to remember the immortal wisdom of:

      “Don’t panic. But if you have to panic be first”

      for details, see the movie “Margin Call”

  1. ‘What we are hearing is that developers are trying to hold the line at 10 percent to 12 percent off their current ask,’ the lender said…unit 45A, a two-bedroom, was listed this winter at $4.95 million, down from $8 million in 2016 — a 38 percent discount’

    There goes that 12% line. In the spring of 2017, I documented a new NYC condo selling for almost half off what the buyer had paid pre-construction. Same week I found another example just like it in Miami. That’s how long ago these markets crashed.

      1. Not Boise, Idaho or podunk Oregon, either. Because prices could never fall in such prime areas as those…

    1. ‘What we are hearing is that developers are trying to hold the line at 10 percent to 12 percent off their current ask,’ the lender said. ‘Everybody is trying to avoid the impression of desperation and a fire sale.’”

      ^ That’s cartel behavior. Of course, price fixing works a lot better when you do it with products a consumer actually needs like water or heating oil. As Ben says, NO ONE needs a $10,000,000 condo! And… cartels are notoriously difficult to keep together even when they are fabulously profitable. The temptation for members to “cheat” by lowering price and grabbing market share is just too great. This will be no different. NYC to toilet!

  2. ‘local home prices have been flat or dropping for about 18 months. The nearly decade-long, record-breaking escalation in prices, she said, ‘really wasn’t sustainable any more’

    ‘Steam has been leaking out of the Bay Area housing engine during the last 12 months…Sales data show Santa Clara County has been especially hard hit in the last year…through much of 2017 and 2018, buyers have become more cautious, and median sale prices have dropped steadily. In November, the county’s median prices fell nearly 2 percent from the previous year, the 11th straight month of year-over-year declines’

    Much of 2017 and 2018, eh?

    1. Geez, its almost as if the timeframe corresponds exactly when the chinese gov restraints were put in place and thus disappeared all the bidding wars and foreign money launderers…

      1. February 8, 2017

        “New York City is still the No. 1 destination for foreign capital in the world, according to this year’s AFIRE rankings, but it is no longer an environment in which foreign money — particularly from China — will buy anything in the market at any price. This year, China has clamped down on outbound foreign investment, and firms caught flouting the new laws will be punished harshly, China First Capital CEO Peter Fuhrman said. While most New Yorkers in commercial real estate are aware of the capital slowdown, Fuhrman said they are probably not taking it seriously enough.”

        “‘I have the perception that the full weight and severity of these capital controls hadn’t been fully felt here,’ Fuhrman said. ‘It’d be fair to say that the Chinese central government dropped a financial bomb on its businesses.’”

        “One of the Chinese government’s chief concerns when instituting the investment restrictions, Fuhrman said, is over outbound investors getting fleeced while paying record-breaking prices. ‘A concern of Chinese regulators is their investors have been really bad buyers,’ Fuhrman said. ‘This can sadly be seen more and more in the larger real estate deals they have done. What they are extremely concerned about is just about every acquisition the Chinese have made, is they have overpaid severely and foolishly, and that has spurred a loss of a lot of Chinese sovereign wealth.’”

        http://thehousingbubbleblog.com/?p=9989

        1. Chinese sovereign wealth

          Just like Socialists everywhere, the Chinese government considers everybody’s money as belonging to them.

        2. “ What they are extremely concerned about is just about every acquisition the Chinese have made, is they have overpaid severely and foolishly, and that has spurred a loss of a lot of Chinese sovereign wealth.”

          This brings tears to my eyes… from laughing! No mania, normal market conditions right… these tulip investors gonna chase the market down trying to escape this snowball they created.

          1. It’s great to know that a well-deserved comeuppance is landing on the Chinese specuvestors, who drove California home prices out of reach of local taxpayers and workers.

          2. Any thoughts on why foreign buyers are fleeing the U.S. housing market?

            Real Estate
            Foreign buyers flee the U.S. housing market, led by Chinese and British
            Top states for foreign purchases were Florida, California and Texas
            July 18, 2019, 2:15 pm
            By Kathleen Howley

            China’s currency controls, as well as international tensions between the U.S. and a slew of countries traditionally thought of as our allies, are putting a crimp on America’s real estate market by thwarting demand from foreign homebuyers.

            Purchases by Chinese people, the biggest share of foreign buyers, plummeted 56% in the 12 months ended in March, while British home purchases tumbled 48%, according to a report from the National Association of Realtors. Chinese people bought $13.4 billion of American homes during the 12 months ended in March, compared with $30.4 billion a year earlier.

            Canadians, the next-largest group of foreign buyers, purchased $8 billion of homes, compared with $10.5 billion a year earlier. Buyers from India were No. 3, with $6.9 billion of purchases, down from $7.2 billion. The U.K. was No. 4, but saw the second-biggest decline: Brits purchased $3.8 billion of homes, down from $7.3 billion a year earlier. Mexico was No. 5, at $2.3 billion, a decline of 45% from $4.2 billion a year earlier.

            Measuring all foreign purchases, the total dollar volume plummeted 36% to $77.9 billion, according to the report. Foreign buyers paid a median price of $280,600, about 8% higher than the median for all existing homebuyers.

            The rankings of the states that got the biggest share of foreign purchases remained the same as in past years: Florida was first, followed by California, Texas, Arizona and New Jersey.

    2. “…through much of 2017 and 2018, buyers have become more cautious, and median sale prices have dropped steadily.”

      Didn’t Chris Thornberg assure the world that Bay Area price would never fall?

      Has he gone into hiding now?

  3. ‘I’ve had so many deals fall through…We’re just going to get a bunch of houses sitting on the market that won’t sell’

    Lauralee, you doom and gloomer. Listen to the UHS guy:

    ‘Increased insurance costs could slow the pace of home-price increases by making homes less affordable to middle-class buyers, said Jordan Levine, deputy chief economist at the California Association of Realtors’

    “It really exacerbates an already challenging environment” for home buyers, he said. “Putting an even higher bar on the financial requirements of homeownership means that some folks are going to get priced out.”

    Like I said, the horse-s$$$ is wader deep these days.

    1. I sure as hell wouldn’t buy a vehicle if the insurance companies wont insure or charge me a huge premium. Same goes on a shack

  4. ‘Lenders are becoming more impatient because they want their loans paid back,’ said Andy Singer, CEO of the Singer & Bassuk Organization, which arranges financing for developers. ‘There’s lots of tension.’”

    I wonder if these lenders have any inkling of how screwed they are.

    1. They are referring to “inventory loans”, which has to be one of the stupidest ideas to ever come down the line. They’ve been doing them in Miami too.

  5. ‘What we are hearing is that developers are trying to hold the line at 10 percent to 12 percent off their current ask,’ the lender said. ‘Everybody is trying to avoid the impression of desperation and a fire sale.’”

    I’m going to thoroughly enjoy watching the cascading defaults take down these developers like dominoes.

  6. “In the meantime, Gao stopped answering calls and went into hiding. One apartment representative went to Gao’s home in Pleasanton and delivered an eviction notice in person, only for Gao to reportedly ‘pretend not to be who he is’ to evade the notice.

    Lenders are soon going to discover there’s millions of Gaos out there in FB land.

  7. Baltimore metro office leasing, sales sharply down

    Daily Record Business Writer January 2, 2020
    The office market in the Baltimore metro area generally held steady, but leasing slowed dramatically in 2019, according to a report from Newmark Knight Frank. In its fourth-quarter market analysis NKF found a small increase in asking rents and stable vacancy in the region’s office market. The area’s absorption of space significantly dropped from 614,126 square …

    https://thedailyrecord.com/2020/01/02/report-baltimore-metro-office-leasing-sales-sharply-down/

    1. got news on other office markets? Got a friend that can’t seem to give away a 3 story 4500 sq ft in Burke VA

      1. Get back to me when a Realtor will say it is a bad time to buy a house. That will be a man bites dog moment.

  8. ‘One of downtown’s more prolific developers has allegedly defaulted on more than $20 million in loans, potentially affecting key properties in the city. DHD Ventures’ Thomas Masaschi and his partners, including family members, are named in more than a dozen notices and complaints filed in recent days by U.S. Income Partners and its subsidiaries.’

    ‘The Henrietta-based lender is calling in loans made over the past several years, at least two backed by properties now subject to foreclosure. Masaschi’s other downtown properties include Hilton Garden Inn, 88 Elm, 50 Chestnut, Rochester Club Center, the Gannett Building, Terminal Building and more. Two of those — 50 Chestnut St. and Rochester Club Center — are headed toward tax foreclosure. Masaschi declined comment.’

    ‘The legal claims are the latest blow for a city seeking a resurgence but seeing its prominent development firms consumed by internal legal squabbles or, in the case of developer Robert Morgan, a federal fraud investigation. What the future holds for DHD is unclear, but the company already had begun pulling back after losing a massive foreclosure action on a student housing development in Buffalo.’

    The Morgan debacle continues with only local reporting.

  9. The mullahs of Iran could only muster a few thousand people, in Tehran, a city of millions, to show up for Solemeni’s funeral procession and chant the obligatory “Death to America!” Maybe ordinary Iranians who have endured four decades of hardships and injustice under this corrupt, incompetent theocratic region aren’t too keen on sacrificing themselves for the status quo.

    https://finance.yahoo.com/news/fear-hits-tehran-over-might-133724630.html

    By November, the bloodiest protests since the 1979 revolution plunged the country into a state of heightened security as authorities, unable to contain the unrest, switched-off access to the internet and launched a crackdown on dissent that killed some 304 people within several days, according to the London-based Amnesty International.

    “How do they expect people to rally behind them and support their cause for vengeance when they beat the same people on the streets and cut their internet just a few weeks ago?” said Atena, 30. She expects action to avenge Soleimani. “I don’t think they should or will stay silent, but I don’t want to be part of the drama because this is their loss, not mine.”

    1. I always think it’s important to remember that the democracy-leaning Iranians ALSO really dislike that USA… They aren’t our future BFFs. It’s a shades of grey situation, far from black and white.

      I support a more open society and better economic conditions for the Iranian people, but not necessarily because it is a slam dunk for our national interests. Not a means to an end, but an end in and of itself.

    2. It is getting real now. Instead of shouting death to America as they have for 41 years, they are shouting double secret death to America. Do not get me wrong a cornered rat is dangerous. However they were our enemy before the strike and are now. Nothing real has changed.

  10. ‘Lenders are becoming more impatient because they want their loans paid back,’

    Since when do loans have to be repaid?

    Can’t the Fed just step in with QE to snap up any loans which can’t be repaid?

    1. With an infinite balance sheet which cannot be audited, and the power of the printing press, why not?

    2. I was just going to ask that. That’s a recent development that investors would prefer to have loans repaid rather than an asset on their balance sheet. Have we shifted from the return on capital mindset to the return of capital worry?

  11. “‘Pessimism is one way to put it,’ said Zillow senior economist Cheryl Young, noting that local home prices have been flat or dropping for about 18 months. The nearly decade-long, record-breaking escalation in prices, she said, ‘really wasn’t sustainable any more.'”

    Where is Chris Thornberg when you need a bullish opinion on where Bay Area home prices are headed?

  12. Greedy commercial landlords that refuse high-end retail store requests for lower rents to cope with diminishing sales are seeing their former tenants walk.

    https://www.scmp.com/business/article/3044553/louis-vuitton-paid-estimated-hk5-million-monthly-rent-times-square-its

    Louis Vuitton, the century-old French retailer at the top of the LVMH Moet Hennessy conglomerate of luxury brands, was paying an estimated HK$5 million (US$642,000) in monthly rent at its Times Square branch before deciding to close its outlet in the world’s most expensive main street, according to industry consultants.

    The retailer of luxury bags and clothing, best known for its signature LV monogram, occupies 10,000 square feet (929 square metres) on the second floor of the nine-storey Times Square shopping centre, owned and operated by Wharf Real Estate Investment Corporation.

    1. Real estate bubbles are bad for the economy. Higher rents squeeze businesses which ultimately close, causing job losses.

  13. “condo developers run out of extensions on their construction loans”

    About effin’ time. Will this happen to CRE too? I was always disheartened by those stories of those empty storefronts. Lower the rent and let business happen again, instead of diddling around with the banks.

    1. He must be having the last laugh. Even though he’s a washed up QB that no one will sign, he’s making bank selling mindnumbingly expensive sneakers to people who can’t afford them.

    1. There is still an army of fools buying houses at peak pricing right now. I don’t get it, but whatever.

    1. [i]Mortgage giants Fannie Mae and Freddie Mac will get some competition with the inception of new government-sponsored enterprises. In order to compete in the mortgage marketplace, these new entrants will offer things like a “build-your-own mortgage.”[/i]

      I will create my own Just-Charge-the-Fed (TM) line of mortgage products.

  14. “Months after going into hiding while indebted to several Davis apartments and about 100 UC Davis student renters, WeHousing founder Alan Gao quietly went to work for a new company. According to a recent update on his LinkedIn profile, Gao has been director of operations at Palo Alto-based small loans company American Credit since July 2019.”

    It’s a good thing the loan industry values high integrity and honesty.

  15. https://twitter.com/rcwhalen/status/1213970515976687616
    R. Christopher Whalen
    ‏ @rcwhalen
    R. Christopher Whalen Retweeted zerohedge

    Need to arrest this nutjob pronto….

    zerohedge
    @zerohedge

    Bernanke Hints At Negative Rates, “Purchases Of Private Securities” To Fight Next Recession

    https://www.zerohedge.com/markets/bernanke-hints-negative-rates-purchases-private-securities-fight-next-recession

    3:48 PM – 5 Jan 2020

    – Nutjob. Perfect. The Fed: Running Ruining the finances of the United States of America and taking us all down with it. “Doing more harm than good since 1913.”

  16. Here’s a prediction for 2020: Credit default swaps – derivatives bought as illusory insurance against sovereign defaults – will never be paid out, even if a “credit event” (hard default) is declared. The counterparties (the “systemically important” banks Eric Holder refused to prosecute for criminal wrongdoing) will always find excuses, and political top cover, to avoid honoring wrong-way bets that would ruin them.

    https://www.theepochtimes.com/us-iran-tensions-roil-markets-as-saudi-credit-default-swaps-spike_3194886.html

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