Usually It’s Somebody Who Already Made Money And Wanted To Do It Again, They Are Sitting On Catastrophic Losses

A report from the Miami Herald in Florida. “Nine of the 12 Coconut Grove townhouses built by developer Doug Cox could be sold to a buyer from West Palm Beach who is offering $18.2 million in a cut-rate bulk deal if no one else outbids him. The never-inhabited Coconut Avenue houses, some of which were sold multiple times to unsuspecting buyers in a real estate scam Cox is accused of running, are under contract but subject to competing bids, the receiver overseeing the fraud case said Tuesday. Original buyers were disappointed to hear that the bulk offer is well below market value. ‘He is rewarding deep-pocketed investors who have the most purchasing power and intend to flip these houses instead of working people with families who lost their life’s savings,’ said Alan Lombardi, who put down $260,000 on his $1.3 million townhouse in February 2020. ‘Maybe I’ll get 20 percent of my deposit back, which would be the $50,000 I spent on attorney’s fees, which means zero,’ he said.”

From Bloomberg. “Basketball icon Michael Jordan has finally sold his sprawling Chicago-area mansion, settling for a significant price cut. The property closed for $9.5 million, according to public listing records. The sale price represents a 67% reduction from the initial asking price of $29 million advertised on Zillow. More than a decade after hitting the market, the property was marked as contingent in September, indicating a buyer had been found. However, the deal required certain conditions to be met before closing. Jordan’s deal comes as high-end Chicago real estate faces challenges, as evidenced by billionaire Ken Griffin recently selling property at below what he paid, including discounted condos to Illinois Governor J.B. Pritzker.”

The Idaho Statesman. “The Village at Meridian, the upscale shopping center, is still set to expand. But instead of adding hundreds of luxury apartments, as was previously planned, developers say they’ll add more of what shoppers know and love. Vice president Hugh Crawford CenterCal pivoted away from the apartments earlier this year, citing ‘market changes.’ ‘Market demand for multifamily … construction costs, lending costs — all that played into, you know, we’re going to move away from the residential component,’ Crawford said. While Crawford said he does not yet have any announcements on what specific shops or restaurants will go in, he said designs are in the works that would then be filed as permit applications filed with the city. ‘I’m kind of along for the ride as well,’ he said.”

The Star Tribune in Minnesota. “New York developer Luzy Ostreicher on Tuesday starred in a public groundbreaking for one of the city’s largest private investments in years — a $500 million hillside real estate project overlooking Lake Superior. A day earlier, a separate Ostreicher real estate venture in Duluth, Endi Plaza LLC, quietly filed for bankruptcy after its lender said it falsified financial statements and defaulted on a nearly $52 million loan. The Ostreicher arm in 2021 bought the Endi apartment complex on Duluth’s east side near the lakefront. In November, Fannie Mae sued Endi Plaza LLC and asked a state court to appoint a receiver to essentially run the company. Endi Plaza on Tuesday filed for Chapter 11 bankruptcy protection.”

“Fannie Mae declared Endi Plaza in default in early September after four months of missed payments. Endi also defaulted because ‘various financial reports’ it supplied to Fannie Mae showed ‘significant inconsistencies and inaccuracies,’ the mortgage agency said in filing in St. Louis County District Court. ‘At least one of the financial reports contains false information that is the result of fraud, gross negligence, willful misconduct, or material misrepresentation or omission.’ Endi Plaza is ‘siphoning rents’ from the property ‘for the benefit of others, and to the detriment’ of Fannie Mae, the court filing continued. Endi Plaza also allegedly granted an encumbrance on the property to a New York attorney, an attempt to keep it ‘out of reach’ of Fannie Mae.”

Bisnow on Texas. “The LLCs that own three multifamily complexes comprising 618 units throughout Houston have filed for Chapter 11 bankruptcy protection, pinning the blame on mismanagement by their former property manager. The bankruptcy filing says the properties were acquired ‘at the height of the most recent real estate boom when rental prices were at historically elevated levels.’ The debtors went on to undertake substantial renovations on the properties, but the filing alleges the properties’ management company, identified as Houston-based Better World Properties, failed to effectively manage the process, incurred unnecessary expenses and did poor-quality work, leaving the owner with substantial unpaid debt.”

“Market rents began to fall and occupancy levels decreased as the Miramar Townhomes renovations were completed, forcing the debtor to reduce rental rates to stabilize the property, the filing says. A similar situation played out at Toro Place and The Avenue, where ‘cost overruns and shoddy work resulted from the mismanagement of the renovations.’ The debtors were ‘inexperienced and unfamiliar’ with multifamily commercial real estate when they acquired the three properties, according to the filing. The ‘costs and time attendant with all of the litigation described herein have further exacerbated each Debtor’s cash flow problems,’ the bankruptcy filing says.”

The Center Square on California. “A quarter of the homeless shelter beds in the City of Los Angeles are empty each night, causing a loss of $218 million from 2019 to 2023, according to a new report from the city controller. The report also notes the city has tripled its homeless shelter capacity since 2019, which led to a reduction in the city’s unsheltered homeless population at the start of 2024. Congregate shelters, in which individuals are housed in large rooms together, are 70% of city-funded interim shelter beds and had a 65% occupancy rate with an annual cost of $29,000 per bed. Tiny-homes, which are typically single-occupancy but can be double-occupancy, and hotel-based interim shelters, which are only single occupancy, are 30% of city beds and had a 86% occupancy rate with an annual cost of $57,000 per bed. These costs include many of the social services included at shelters, such as case management and food.”

“Once accounting for the cost of vacancies, the cost per congregate bed rises $15,615 per individual, to $44,615 per bed, while the cost per private bed rises to $66,300. Now that Los Angeles has a larger shelter capacity, empty beds cost the city about $68 million per year. City Controller Kenneth Mejia has previously said the city is ‘broke’ and must borrow $80 million to make court-ordered liability payments, spending on vacant shelters could have paid for most of the shortfall. Over the summer Mejia also reported the city’s hotel homeless shelter program has spent $341 million, serving 2,728 individuals since December 2022. Other city reports have found 45% of the city’s homeless individuals are ‘service resistant,’ or unwilling to make use of offered city services.”

The Independent. “To Elon Musk, the word ‘homeless” is a “lie’ and ‘a propaganda word.’ ‘Homeless is a misnomer. It implies that someone got a little bit behind on their mortgage, and if you just gave them a job, they’d be back on their feet,’ he told former Fox News personality Tucker Carlson in October. ‘What you actually have are violent, drug zombies with dead eyes and needles and human feces on the street.’ The more money spent combating homelessness, ‘the worse it gets,’ according to Musk. ‘The ‘save the homeless’ NGOs are often paid according to how many homeless people are on the streets, thus creating a strong financial incentive for them to maximize the number of homeless people and never actually solve the problem!’ he wrote on December 10. ‘The more homeless there are, the more money these organizations get, so their incentive is to increase, not decrease, homelessness!’ he said in September.”

The Globe and Mail in Canada. “The preconstruction assignment market, once the darling of real estate speculators, is facing its moment of truth, with investors having to hand over ever more cash to escape unsellable contracts and already facing steep losses. ‘You can’t imagine how many people are trying to off-load what they bought,’ said Sundeep Bahl, realtor with Re/Max Plus City Team Inc., who said most of the people he sees never intended to live in the condo they agreed to purchase, believing they could flip them for a profit instead. ‘Now they realize they have to lose money – profit is out of the question,’ he said. ‘The average loss I would say is at least $100,000. We have had some lose $200,000.'”

“According to Mr. Bahl, many of the people he’s seeing today first purchased in the early days of the pandemic in 2020 and 2021 when prices for new homes hit new heights. ‘They were caught up like everyone else,’ he said. ‘It was the fear of missing out.’ A recent post to a Facebook group devoted to assignments, which has 18,000 members, offers an example of the desperation of precon buyers. ‘Owner is willing to lose the deposits, offer occupancy fees and is willing to offer a one-year rental guarantee ($5,000 a month),’ reads a post about a 939-square-foot condo at 195 McCaul St. The purchase price is set at $1,299,900, despite an original purchase price said to be $1,347,900. With the current owner set to lose their deposit, their loss on such a deal could exceed $200,000.”

“‘Usually it’s somebody who already made money in precon and wanted to do it again,’ said Jonathan Zadegan, one of three managing partners at Zadegan Group, which specializes in the preconstruction market. He recounted one extreme example of a speculator who started with a few units several years ago, and every time they made a profit they would plow it back into more new condos. ‘That particular client actually has 135 units now. … They are sitting on catastrophic losses,’ he said.”

“While most of these speculators are holding only two or three condos that are under water, or worth less now than the purchase price, Zadegan has had to turn more and more of them away as 2024 has worn on. ‘There’s not enough equity to sell,’ said Mr. Zadegan. Most assignment deals now involve the seller giving up their deposit – 15 or 20 per cent of the total purchase price. But increasingly they face a scenario where a buyer wants them to pony up even more cash to agree to take on the contract. ‘Sometimes it’s worth 30 per cent less than what they bought it for 2022,’ Mr. Zadegan said.”

Sun Live in New Zealand. “On average, a home in Tauranga is now worth 2.9% less than at the start of 2024, according to the latest statistics from Quotable Value. Nationally, the housing market is on track for its flattest calendar year in more than a decade, despite a modicum of growth this quarter. ‘Looking ahead, there’s still very little to suggest that house prices will suddenly take off any time soon, with supply far outweighing demand.'”

9 News in Australia. “The directors of failed construction company Nicheliving have saved it from liquidation by buying it back despite being banned from holding a building licence. Directors Ronnie Michel-Elhaj and Paul Bitdorf are buying back their company after creditors agreed to a $2.7 million deal that will give them cents on the dollar for their debts. Nicheliving left hundreds of customers in limbo after failing to complete their homes. Some customers described today’s outcome as ‘devastating.’ ‘It is an absolute kick in the guts because we have lost quite a bit of money,’ former Nicheliving customer Peter Symons said.”