Approximately $5.0 Billion of the debt must be paid off in February.
Hopefully the FHA loan limit is raised to 5 billion before February, and they change to allow commercial loans. Then Macklowe and Son can get a "workout", too.
Just kidding (kinda), though I have to say, pondering the losses to come to some of the cartel of families who control NYC real estate does give me a bit of a lift going into the weekend. Spoken as a long-term commercial and residential tenant...
theroxylandr and all, this is a recourse loan. The Macklowes pledged almost all their entire family wealth to guarantee these loans.
Much of his fortune is on the line, including a $1 billion personal guaranty by Mr. Macklowe ... should Mr. Macklowe default on the bridge loan, Deutsche Bank and Fortress -- which holds 70% of the loan -- could grab his interests in a list of 11 New York commercial buildings that Macklowe Properties owns, in addition to the partial stake in the GM building.
Fortress/Deutsche Bank could also gain access to as much as $1 billion of Mr. Macklowe's personal fortune. Forbes recently listed Mr. Macklowe as No. 239 on its Wealthiest 400 list, estimating his personal wealth at $2 billion.
While personal guaranties or "recourse" loans were common in the '80s, many developers avoided them after the real-estate crash, as banks were able to reach out for their personal belongings to cover defaulted loans.
Now, you listen to me! I want trading reopened right now. Get those brokers back in here! Turn those machines back on! - Mortimer Duke, Trading Places, 1983
CR - this story was basically floating around in the NYTimes in late August. I meant to send it to you, but thought for some reason you had already covered it. Anyway, here is the link :
theroxylandr and all, this is a recourse loan. The Macklowes pledged almost all their entire family wealth to guarantee these loans.
Oh-oh. Then it's not an investment, it's a hobby.
Seriously, I wish the most brave and active entrepreneurs all the best. People like Macklowe will be in big need when this mess is over. Someone needs to build up the economy back from ruins.
Prices in the entry level segment down 13%, think that's year over year. August sales down less than 1% YoY, while September expected to be down 4-5%. Year to date foreclosures increased 78% over last year's.
Unfortunately no info about the mid level market. I know a couple having difficulty moving into their new mid level home due to not being able to sell their entry level home. I'm curious how common that is and will become.
About a year ago, I met a guy who suggested a "housing crash party" when the whole thing was officially on and generally acknowledged. I saw him again a few weeks ago and asked if he had any thoughts/guesses on when we'd be having the party. He said, "When the first guy jumps."
So you say this guys' loan is due in February '08?
On a more serious note, this is the greatest news ever. I've got so many friends in NYC who want to buy homes. Stuff like this can only help that market, and, by extension, probably most of the US.
OT: Does anyone know how to look up when a "Notice of Default" has been sent and how long the forclosure process normally takes? My landlord is not paying the mortgage so I am currently living rent free but I want to have an idea of how long I have until the bank takes it.
I have checked Yahoo forclosures but don't see it coming up yet.
Mr. Macklowe and his son Billy [not his goat, Sunny]...so folksy, no? Does Mr. Macklowe have a first name?
No.
So is the message that this housing market is not fussy about its victims?
Nelson Bunker and William Herbert Hunt were the heirs of oil tycoon H.L. Hunt. The family was one of the richest in America at the time. In the early 1970's the family decided to buy silver as a hedge against inflation, and amassed it in great quantity. In the fall of 1979, the Hunt Brothers, along with some wealthy Arabs formed a silver buying pool and bought up 200 million ounces- the equivalent of half the world's deliverable supply. The price of silver had moved from $2 per ounce in 1973 to $5 per ounce in early 1979 and then rocketed as high as $54 in early 1980.
The officials at COMEX moved to check this cornering of the silver market by raisng margin requirements. The highly leveraged Hunt Borthers were unable to meet their margin calls, and were forced to sell. The price of silver fell dramatically; on March 27th 1980 the price fell 50% in one day, from $21.62 to $10.80. The Hunt Brothers were forced to declare bankruptcy. Bache Group, which handled of the trades for the brothers, was financially ruined.
A few days ago, my daughter and SOL put their starter home on the market for $119K, and got a firm offer for the full amount on the first day.
Nice property, but it was priced to sell. So RE is not dead yet.
As for Macklowe, he does have plenty of tall buildings to jump out of. It's difficult to feel sympathy for a billionaire. As Balzac said, "Behind every great fortune lies a crime."
Explain to me why Tishman-Speyer is still going on with their takeover of Archston-Smith. They've buying ASN at a cap rate of approximately 4.25%, but their borrowing costs are north of 6%. They too have delayed interest for the first few years. But does anyone really think that rents go up in this type of environment?
Perhaps they're making a huge bet that Bennie and the Feds really get inflation going. If we get Zimbabwe type inflation, they've gotton a steal. Otherwise, how does this work?
Explain to me why Tishman-Speyer is still going on with their takeover of Archston-Smith.
There's 3 big problems in NYC.
Still vast amounts of residential construction in the pipeline, not just in NYC but all over the metro. VAST.
There's an imbalance between prices in the city and suburbs at a point in the econ cycle when people in the city get squeezed and move to the burbs. Prices in the burbs are weak and dropping, while city has held firm so far.
NY City has big tax shortfall problems on the horizon, due to lower financial services employment/income + real estate drop. Bloomberg said so this week, with not-so-positive spin. City taxes will have to go up. In NY, more than most other places, you can't cut muni services due to strong unions.
I thought Archstone was overvalued then. Now, more overvalued.
Buffett claims or claimed shortly after 9/11 that sooner or later terrorists would set off a nuke in NYC. In light of that I marvel that so much money still goes into NYC real estate. Think what just one nuke in a big urban center would do to major urban RE values all over the world. Or is the risk worth taking?
"Does anyone know how to look up when a "Notice of Default" has been sent and how long the forclosure process normally takes? My landlord is not paying the mortgage so I am currently living rent free but I want to have an idea of how long I have until the bank takes it."
That depends on which state you live in CA is 111 days, My kids just moved last weekend because of the same thing.
Not sure how your landlord not paying the mortgage automatically releases you from your contract to pay him/her rent. Could it be your landlord can't make the mortgage payment since you've opted to stop paying rent?
All the articles say that NYC CRE is still red hot and that rents are risingi signicantly. I'm looking at the Fortress Investment Group (FIG) with a market cap of 1.96b and they are the source of $900m in bridge loans? If Macklowe "jumps" he may not be alone.
It always amazes me to see how the ones who have money falling from the sky rarely see it as plain good luck. Most will think it's related to their greatness, let it go to their head and take even bigger bets.
"Not sure how your landlord not paying the mortgage automatically releases you from your contract to pay him/her rent. Could it be your landlord can't make the mortgage payment since you've opted to stop paying rent?"
I don't know about Ministry of Truth's situation but my kids in CA just went threw this crap and the landloard felt kind of like an ass trying to collect rent with a NOD hanging on the door and told them they could stay rent free, he wan't paying the bank and was going to loose the property anyway. Let the bank eat cake. Here is a link for CA eviction procedure.
Landlord Gets Foreclosed
Are you renting and worried about what might happen if the landlord gets foreclosed on? You should be concerned, because once the bank forecloses, they can kick you out.
It's surprising to hear that in this tenant-friendly state, but that's what Jim Burmeister, eviction attorney here in Carlsbad, has confirmed.
How will you know that your landlord is in trouble?
Once the landlord has missed a few payments, the bank will post a notice of default on your front door. That's when the process begins, and you have at least 111 days before the bank can take the house. So you have some breathing room, but a couple of things will occur to you:
The landlord is taking my rent but not making his payment - RAT!
Could I end up with an eviction on MY credit report?
If the bank can kick you out, they'd do that formally with an eviction notice. If you realize that a foreclosure is underway, you might as well surrender to the fact that you're going to be moving. I wouldn't risk an eviction notice, I'd be making plans to get out around the 111th day.
If the landlord collects rent and does not pay it to the bank for mortgage payment, it is called rent skimming. My landlord was good enough to seek legal counsil and informed me that they are no longer going to collect rent since they are not paying the mortgage on the property. They however can collect expenses on the property like HOAs which I am paying.
CR , do you see any chance for Macklowe paying off said loans or at least rolling over the 5 billion due in Feb 08 ? That would seem to be a tough sell if the properties have declined in value from the time of the sale , coupled with negative debt service to boot ? Why hasn't Macklowe sold any of these properties as Blackstone did with numerous properties bought from Sam Zell ? Thanks For your insights in advance !
"A few days ago, my daughter and SOL put their starter home on the market for $119K, and got a firm offer for the full amount on the first day.
Nice property, but it was priced to sell. So RE is not dead yet."
unirealist,
This is just a question, so please don't take offense. Do you notice any difference between the persuasiveness of your statement above versus what CR, Tanta and a number of other people contribute every day?
"Why hasn't Macklowe sold any of these properties as Blackstone did with numerous properties bought from Sam Zell ? Thanks For your insights in a vance !"
Mr. Mcklowe may be the greater fool. Or at least now that foreigners won't by diced and sliced 110% ltv crap anymore. S&P and Moody's aren't coloring this turd anything but brown.
"including a $1 billion personal guaranty by Mr. Macklowe"
But that is money he SHOULD have put in originally. That he only had to guarantee it is a good deal for him. His calculation is simple: is it worth a personal billion or two to keep the deal afloat when the $5 billion is due? That means the $5 billion requires refinancing for $3 or $4. Maybe by then he can swing it.
Someday, Billy, all this will be yours.... heh, heh.
AG supports the Austrian monetary theory. the FRB is NOT supposed to believe in this! what the heck was he doing? he clearly admits to being manipulated by politicians WRT interest rates. what does this say about BB?
no ones brought up the pt that Ron Paul has indirectly accused the Working Group or PPT of manipulating the stock mkt in banking committee meetings to BB the last 2 sessions. he has specifically talked about the PPT in a separate interview. both times BB refused to comment. there is no question in my mind it exists.
Interesting: United Dominion REIT, my landlord just offered a 4-6 month extension of my lease (exp Jan) in downtown DC at same rate, w. same free parking. Do you think they're getting ready for a wave of condos/rentals hitting the market? Or maybe proving the rents for a re-financing. Its not really a great deal, but I'm not moving then, so I'm taking it.
Think what just one nuke in a big urban center would do to major urban RE values all over the world. Or is the risk worth taking?
We live with risks no matter where we are in this world. In the SF Bay Area it is impossible to get earthquake insurance at an affordable price. Yet the price of housing and the odds of a big earthquake continue to rise.
any landlord who doesn't ask for an increase at this pt is probably worried about the future. if i were u, i'd test the waters and ask for a reduction in rent and terms.
To James, who cited Buffet's remark about terrorists eventually blowing up NYC:
You raise an interesting issue. I am a longtime New Yorker (transplanted many years ago from Texas). Right after 9-11 there were stories in the NYTimes about people fleeing the city, out of fear that another attack would come soon.
Everybody thought real estate values would plummet. But it's very odd, because in fact just the opposite thing happened: demand for NY housing skyrocketed, and prices went through the roof (most of the rise in housing values in the city occurred after 9-11).
So what really happened here? Did people just go into a lemming-like denial of the true risk of another attack, and get sucked into the real estate bubble, along with the rest of the country?
Or did the risk of a second attack actually diminish, for whatever reasons -- greater security clampdowns, the idea that "lightening won't strike twice" in the same place, and so on...?
Maybe, for the landlords, it was the same sort of financial gamble that businesspeople take in Israel, where terrorist attacks occur with some frequency: the gamble is that the more militaristic their government and culture becomes, the more their investments are protected, and the more money they'll make.
"
any landlord who doesn't ask for an increase at this pt is probably worried about the future. if i were u, i'd test the waters and ask for a reduction in rent and terms."
My department at a public university just moved into one suite of a four-suite office building off campus, on the outskirts of town -- space on campus is maxed ot.
Two of the suites are empty -- big eviction notices on the door, one for a mortgage broker. The university now occupies the other two; they're going to make a low-ball offer for the property, and the landlord is listening. Tells you where commercial landlords are these days, at least away from the hotspots.
Actually this deal is worse than it appears at first glance. Reading the WSJ Article , negative debt service will continue for five years ! This deal coudn't get completed today and unless Macklowe sells at least a couple of his properties , It would seem very difficult to refinance the current debt and / or pay the bridge loan. The Journal further notes the paucity of CRE deals as a result of the recent and continuing credit crunch. A more likely outcome is that Fortress and DB will wind up with Maclowe's collateral backing the loans and this deal will wipe out most of Macklowe's personal assets-- I think his timing will in retrospect turn out to be as poor as Sam Zell's timing was excellent. Maybe he should sell a building or two back to Zell... with the understanding he will take a notable haircut. After all , Sam still says CRE is in fine shape , right ? LOL
Blackstone sold the best of Equities office buildings shortly after buying them.Since then cap rates have increased and commercial REIT prices are down over 20%. I have a question;when did commercial RE lenders eliminate debt service coverage from their underwriting tool bag ?
Jim , Macklowe's deal was done at the same time as Blackstone's purchase of Equity Office , right ? As I understand the transaction , the 7 buildings Macklowe ultimately bought were transferred directly to Macklowe so Blackstone didn't have to pay the real estate transfer tax ( slick move by the folks at Blackstone. ) Keeping in mind the lunatic lending standards used at that point in time for LBOs and M&As , lenders were simply following the herd rather than exercising prudent and conservative lending practices. Exhibit A would be toggle- bonds , just as one lunatic lending practice..... I think that's why 08 will be far worse than 07 has been. Next year , in addition to subprime / Alt A / jumbo loan issues , foreclosures skyrocketing , ARM resets and structured finance blowups ... we'll start seeing CRE prices continue to drop noticeably and corporate defaults spiking. Many of the LBOs of the past couple years will demonstrate the fallacy of lending mucho money to single b or ccc credits.
i think thats what amazes me the most here. i have a new assistant at work and i just spent an hour explaining to her why commercial real estate was really about the cold hard numbers and residential was all ethereal (there's no place like home!).
we had an hour long meeting with a CRE broker from WAMU where we went through everything.
DCR and Low-ish LTV's are the norm and have been for as long as I know (not terribly long mind you).
most banks/conduits/CMBS(those that are left)/life companies etc, are damn strict on a 1.2X and 75% LTV. and thats with all kinds of things backed out of the NOI: maintenance reserves on a brand new building with a 2 year builder warranty?? 5% vacancy rates on a single tenant building with a letter of credit for 100% of the lease amount! and on and on, so that the NOI used to calculate the value is worstest worstest case scenario.
then there is always the cap rate divined from the sky to value the property overall.
WAMU guy told me that DC's average Class A building cap rate was 6.3% per their records.
seems high to me given the recent trades, but thats ok.
anyway, who the hell loans billions on negative cash flow i.e. negative cap rate without something else major in the pipeline...perhaps these propertie are slated for major redevelopment?
sometimes in real estate just having a property available for purchase makes it the right time to buy, almost no matter the price. with a long, long, long term perspective - just being able to make an acqusition on somethings only comes around once in a generation.
this guy will figure something out. he'll bring in new equity partners and get squeezed down to a limited minority partner but he'll still be there.
that, and the banks are the ones with the real problem.
he'll get loan modifications and extensions and whatever else.
these guy sounds like a typical sue you for anything real estate guy.
such is life in the wild west.
bankers and developers are strange bedfellows.
often times we have to use our 'muscle through it' strategy with the banks.
as much as you don't want to default or have things foreclosed upon or whatever else, the banks want it just as less too.
if you can them just on the edge, thats probably the best place.
Commercial office buildings usually have longish 5-10 year (sometimes 20 for major tenants) fixed rate leases with escalators for expenses. If the Macklowe buildings have an average rent of $55/s.f. (I have no idea, but for the sake of the argument that's a reasonable guess) then you don't even have to believe that the present $80 market will continue to see the buildings turning positive as the leases roll over. It may be 5+ years out, but with inflation on your side and constrained supply, it could work out fine for Macklowe. He just has to hang in there (assuming I'm in the ball park on the present rent roll).
Gary @2:21 I remember all the excitement
about Canary Wharf. How big a disaster
was it for the investors when things
settled down? My possibly mistaken
impression is that the property turned
out to be worth something eventually.
mbartv, sure. That's if everything goes sailing along. But then, what if one day one or more of the tenants fail to pay the rent? When you see where this economy is headed, dont you think we're looking at rising probabilities of non-payment ahead?
geoff: sure, I think NYC is in for quite a setback - the ratings scams are going to hurt the brand for a long time to come. So the Macklowe thing is no sure bet, but I can see why it could work out (long term) given the resilience NY has shown in the last 30 years. Put it this way - I'm glad I'm not one of the bankers.
There is also a possibility that the landlord is just repositioning the timing of your lease. He didn't offer a year extension, just 4-6 months. Why? Where I live (Minnesota), landlords hate to see a place go vacant in the late fall because there is no market until May or June. Some will refuse to write a lease that ends in December through March.
MThood 10:53, no offense taken, but perhaps I wasn't clear enough. (or maybe I misunderstand your question?)
It has been pointed out by others that houses are still selling, if they are reasonably priced. In other words, the problem is not lack of demand, or interest rates available, so much as it is unrealistic prices. I was supplying anectdotal evidence of that.
I think other comments I have made indicate that I much agree with the consensus views expressed here. If anything, my expectations about RE collapse are far gloomier than the consensus.
When you are moving out of a United Dominion apartment, don't forget to budget at least $1,000.00 for cleaning and small repairs they will stick you with. If you try to talk to them about reasonability, it goes straight to collections. They won't sue you because they would lose, but it will go straight to collections and get reported to the credit agencies.
For as long as I have been in the commercial RE business permanent loans on to be built buildings have been underwritin on the basis of capitalizing tomorrows rents less yesterdays expenses. The result has been a loan commitment of about 85% of economic value.If the developer purchased the ground at a good price and built the project himself he could end up owning the completed project with little or no equity on his part.It is important to note that in the past no developer of sound mind would enter into a deal in which the projects free and clear return was less than the constant on the permanent loan commitment.In my opion the underwriting standards of lenders today when combined with the low free and clear returns todays developers are willing to accept will result in losses to both parties.
I'm still trying to get my head around $800,000,000.00 in closing costs. Seems like you ought to be able to shuffle paper cheaper than that. Don't these guys know how to bargain those costs down? Or maybe they did and I don't know,...I'm guessing a billionaire has a few tricks up his sleeves.
i am not sure if this has been brought up, but basically on his way to becoming a billionaire Macklowe took advantage of a lot of people. People will be out to get him on this deal. He has a ton of covenants with Fortress that he will not be able to meet. Fortress consists of a bunch of crushers that won't look you in the eye while they take everything they feel they are owed. Macklowe made an all or nothing bet and lost. Unless an wealthy oil dude from the middle east comes in and bails him out due to the weak dollar, he will go bankrupt. This was a completely unnecessary bet for a billionaire.
Approximately $5.0 Billion of the debt must be paid off in February.
Hopefully the FHA loan limit is raised to 5 billion before February, and they change to allow commercial loans. Then Macklowe and Son can get a "workout", too.
S-R-S!!
Just kidding (kinda), though I have to say, pondering the losses to come to some of the cartel of families who control NYC real estate does give me a bit of a lift going into the weekend. Spoken as a long-term commercial and residential tenant...
That's not a debtor problem. It's a lender problem. Mr. Macklowe can sleep well.
"FB" just doesn't cut it for this one does it?
Like theroxylandr said, it's the banks problem.
That's not a debtor problem. It's a lender problem. Mr. Macklowe can sleep well.
Yeah, that actually looks like a pretty good bet to me if he only risked $50 million of his money. He could have netted well over a billion.
If only people knew what their hedge fund managers were doing with their "investments".
Well, if ever there was a loan that a bank (or whatever) deserved to be "piered" with, this would be it.
A 110% LTV deal. Good grief.
theroxylandr and all, this is a recourse loan. The Macklowes pledged almost all their entire family wealth to guarantee these loans.
Much of his fortune is on the line, including a $1 billion personal guaranty by Mr. Macklowe ... should Mr. Macklowe default on the bridge loan, Deutsche Bank and Fortress -- which holds 70% of the loan -- could grab his interests in a list of 11 New York commercial buildings that Macklowe Properties owns, in addition to the partial stake in the GM building.
Fortress/Deutsche Bank could also gain access to as much as $1 billion of Mr. Macklowe's personal fortune. Forbes recently listed Mr. Macklowe as No. 239 on its Wealthiest 400 list, estimating his personal wealth at $2 billion.
While personal guaranties or "recourse" loans were common in the '80s, many developers avoided them after the real-estate crash, as banks were able to reach out for their personal belongings to cover defaulted loans.
Best to all.
Maybe they can slice up this like a CRE CDO, sell the stuff to China or the Rock?
Wow!
And we thought the Poor People Are Sharks!
This is Sharks (with friggin' laser beams on their heads)!
7.6 Biiiiiilion Dollars! [pinky to mouth]
Now, you listen to me! I want trading reopened right now. Get those brokers back in here! Turn those machines back on! - Mortimer Duke, Trading Places, 1983
CR - this story was basically floating around in the NYTimes in late August. I meant to send it to you, but thought for some reason you had already covered it. Anyway, here is the link :
Parallels - Free Upgrade
Ooops...copied wrong link :
So Many Deals, So Much Debt - NY Times
Oh-oh. Then it's not an investment, it's a hobby.
Seriously, I wish the most brave and active entrepreneurs all the best. People like Macklowe will be in big need when this mess is over. Someone needs to build up the economy back from ruins.
The Macklowes are not sub-prime so I see no reason to worry...
Just reporting in from Houston: Mortgage crisis puts drag on area home sales.
404 Error, No such article | Chron.com - Houston Chronicle
Prices in the entry level segment down 13%, think that's year over year. August sales down less than 1% YoY, while September expected to be down 4-5%. Year to date foreclosures increased 78% over last year's.
Unfortunately no info about the mid level market. I know a couple having difficulty moving into their new mid level home due to not being able to sell their entry level home. I'm curious how common that is and will become.
Cheers,
About a year ago, I met a guy who suggested a "housing crash party" when the whole thing was officially on and generally acknowledged. I saw him again a few weeks ago and asked if he had any thoughts/guesses on when we'd be having the party. He said, "When the first guy jumps."
So you say this guys' loan is due in February '08?
On a more serious note, this is the greatest news ever. I've got so many friends in NYC who want to buy homes. Stuff like this can only help that market, and, by extension, probably most of the US.
OT: Does anyone know how to look up when a "Notice of Default" has been sent and how long the forclosure process normally takes? My landlord is not paying the mortgage so I am currently living rent free but I want to have an idea of how long I have until the bank takes it.
I have checked Yahoo forclosures but don't see it coming up yet.
Mr. Macklowe and his son Billy [not his goat, Sunny]...so folksy, no? Does Mr. Macklowe have a first name?
No.
So is the message that this housing market is not fussy about its victims?
MoT:
Foreclosures laws
Here's the google search term
foreclosure process states - Google Search
[12th link so it wasn't easy to find.]
Greenspan Nailed in Interview w/ John Stewart
The Great Loan Blog
The Macklowes pledged almost all their entire family wealth to guarantee these loans.
Didn't the Hunts do something similar around 1980 when they tried to corner the market in silver? They were soon gone from the Forbes 400.
From Traders Log
Nelson Bunker and William Herbert Hunt were the heirs of oil tycoon H.L. Hunt. The family was one of the richest in America at the time. In the early 1970's the family decided to buy silver as a hedge against inflation, and amassed it in great quantity. In the fall of 1979, the Hunt Brothers, along with some wealthy Arabs formed a silver buying pool and bought up 200 million ounces- the equivalent of half the world's deliverable supply. The price of silver had moved from $2 per ounce in 1973 to $5 per ounce in early 1979 and then rocketed as high as $54 in early 1980.
The officials at COMEX moved to check this cornering of the silver market by raisng margin requirements. The highly leveraged Hunt Borthers were unable to meet their margin calls, and were forced to sell. The price of silver fell dramatically; on March 27th 1980 the price fell 50% in one day, from $21.62 to $10.80. The Hunt Brothers were forced to declare bankruptcy. Bache Group, which handled of the trades for the brothers, was financially ruined.
I recall Bunker saying later he learned a lesson: "Don't risk everything you've got to get something you don't need to have."
A few days ago, my daughter and SOL put their starter home on the market for $119K, and got a firm offer for the full amount on the first day.
Nice property, but it was priced to sell. So RE is not dead yet.
As for Macklowe, he does have plenty of tall buildings to jump out of. It's difficult to feel sympathy for a billionaire. As Balzac said, "Behind every great fortune lies a crime."
Yep, he can lose 95% of his wealth and still be a millionaire.
Explain to me why Tishman-Speyer is still going on with their takeover of Archston-Smith. They've buying ASN at a cap rate of approximately 4.25%, but their borrowing costs are north of 6%. They too have delayed interest for the first few years. But does anyone really think that rents go up in this type of environment?
Perhaps they're making a huge bet that Bennie and the Feds really get inflation going. If we get Zimbabwe type inflation, they've gotton a steal. Otherwise, how does this work?
There's 3 big problems in NYC.
I thought Archstone was overvalued then. Now, more overvalued.
Buffett claims or claimed shortly after 9/11 that sooner or later terrorists would set off a nuke in NYC. In light of that I marvel that so much money still goes into NYC real estate. Think what just one nuke in a big urban center would do to major urban RE values all over the world. Or is the risk worth taking?
"Does anyone know how to look up when a "Notice of Default" has been sent and how long the forclosure process normally takes? My landlord is not paying the mortgage so I am currently living rent free but I want to have an idea of how long I have until the bank takes it."
That depends on which state you live in CA is 111 days, My kids just moved last weekend because of the same thing.
Not sure how your landlord not paying the mortgage automatically releases you from your contract to pay him/her rent. Could it be your landlord can't make the mortgage payment since you've opted to stop paying rent?
All the articles say that NYC CRE is still red hot and that rents are risingi signicantly. I'm looking at the Fortress Investment Group (FIG) with a market cap of 1.96b and they are the source of $900m in bridge loans? If Macklowe "jumps" he may not be alone.
It always amazes me to see how the ones who have money falling from the sky rarely see it as plain good luck. Most will think it's related to their greatness, let it go to their head and take even bigger bets.
"Not sure how your landlord not paying the mortgage automatically releases you from your contract to pay him/her rent. Could it be your landlord can't make the mortgage payment since you've opted to stop paying rent?"
I don't know about Ministry of Truth's situation but my kids in CA just went threw this crap and the landloard felt kind of like an ass trying to collect rent with a NOD hanging on the door and told them they could stay rent free, he wan't paying the bank and was going to loose the property anyway. Let the bank eat cake. Here is a link for CA eviction procedure.
Landlord Gets Foreclosed
Are you renting and worried about what might happen if the landlord gets foreclosed on? You should be concerned, because once the bank forecloses, they can kick you out.
It's surprising to hear that in this tenant-friendly state, but that's what Jim Burmeister, eviction attorney here in Carlsbad, has confirmed.
How will you know that your landlord is in trouble?
Once the landlord has missed a few payments, the bank will post a notice of default on your front door. That's when the process begins, and you have at least 111 days before the bank can take the house. So you have some breathing room, but a couple of things will occur to you:
If the bank can kick you out, they'd do that formally with an eviction notice. If you realize that a foreclosure is underway, you might as well surrender to the fact that you're going to be moving. I wouldn't risk an eviction notice, I'd be making plans to get out around the 111th day.
bubbleinfo.com » Page not found
If the landlord collects rent and does not pay it to the bank for mortgage payment, it is called rent skimming. My landlord was good enough to seek legal counsil and informed me that they are no longer going to collect rent since they are not paying the mortgage on the property. They however can collect expenses on the property like HOAs which I am paying.
Here is California's code on Rent Skimming
CAL. CIV. CODE § 890 : California Code - Section 890
brave and active entrepreneurs
People should certainly be rewarded for taking risks, but its a lot riskier to work in a coal mine than to invest in one.
Poor Mr. Macklowe
Billions lost to his own greed
A rentier no more
CR , do you see any chance for Macklowe paying off said loans or at least rolling over the 5 billion due in Feb 08 ? That would seem to be a tough sell if the properties have declined in value from the time of the sale , coupled with negative debt service to boot ? Why hasn't Macklowe sold any of these properties as Blackstone did with numerous properties bought from Sam Zell ? Thanks For your insights in advance !
unirealist wrote:
"A few days ago, my daughter and SOL put their starter home on the market for $119K, and got a firm offer for the full amount on the first day.
Nice property, but it was priced to sell. So RE is not dead yet."
unirealist,
This is just a question, so please don't take offense. Do you notice any difference between the persuasiveness of your statement above versus what CR, Tanta and a number of other people contribute every day?
I'm just curious: do you see a difference or not?
"Why hasn't Macklowe sold any of these properties as Blackstone did with numerous properties bought from Sam Zell ? Thanks For your insights in a vance !"
Mr. Mcklowe may be the greater fool. Or at least now that foreigners won't by diced and sliced 110% ltv crap anymore. S&P and Moody's aren't coloring this turd anything but brown.
"including a $1 billion personal guaranty by Mr. Macklowe"
But that is money he SHOULD have put in originally. That he only had to guarantee it is a good deal for him. His calculation is simple: is it worth a personal billion or two to keep the deal afloat when the $5 billion is due? That means the $5 billion requires refinancing for $3 or $4. Maybe by then he can swing it.
Someday, Billy, all this will be yours.... heh, heh.
2 pts:
1.Greenspan Nailed in Interview w/ John Stewart
AG supports the Austrian monetary theory. the FRB is NOT supposed to believe in this! what the heck was he doing? he clearly admits to being manipulated by politicians WRT interest rates. what does this say about BB?
Interesting: United Dominion REIT, my landlord just offered a 4-6 month extension of my lease (exp Jan) in downtown DC at same rate, w. same free parking. Do you think they're getting ready for a wave of condos/rentals hitting the market? Or maybe proving the rents for a re-financing. Its not really a great deal, but I'm not moving then, so I'm taking it.
Think what just one nuke in a big urban center would do to major urban RE values all over the world. Or is the risk worth taking?
We live with risks no matter where we are in this world. In the SF Bay Area it is impossible to get earthquake insurance at an affordable price. Yet the price of housing and the odds of a big earthquake continue to rise.
Thanks DannyHSDad, that is good information.
Oh hai,
I've got five bucks! Anoyne wanna back me to buy that half million dollar house down the street?
Kthxbye!
Lol Investing....
mbartv
any landlord who doesn't ask for an increase at this pt is probably worried about the future. if i were u, i'd test the waters and ask for a reduction in rent and terms.
i might add i'm speaking as a commercial landlord myself.
To James, who cited Buffet's remark about terrorists eventually blowing up NYC:
You raise an interesting issue. I am a longtime New Yorker (transplanted many years ago from Texas). Right after 9-11 there were stories in the NYTimes about people fleeing the city, out of fear that another attack would come soon.
Everybody thought real estate values would plummet. But it's very odd, because in fact just the opposite thing happened: demand for NY housing skyrocketed, and prices went through the roof (most of the rise in housing values in the city occurred after 9-11).
So what really happened here? Did people just go into a lemming-like denial of the true risk of another attack, and get sucked into the real estate bubble, along with the rest of the country?
Or did the risk of a second attack actually diminish, for whatever reasons -- greater security clampdowns, the idea that "lightening won't strike twice" in the same place, and so on...?
Maybe, for the landlords, it was the same sort of financial gamble that businesspeople take in Israel, where terrorist attacks occur with some frequency: the gamble is that the more militaristic their government and culture becomes, the more their investments are protected, and the more money they'll make.
Just a thought.
Reminds me of the Reichman family and Canary Wharf . . . that was a huge bust at the time. Olympia and York, meet Macklowe Partners . . .
"
any landlord who doesn't ask for an increase at this pt is probably worried about the future. if i were u, i'd test the waters and ask for a reduction in rent and terms."
My department at a public university just moved into one suite of a four-suite office building off campus, on the outskirts of town -- space on campus is maxed ot.
Two of the suites are empty -- big eviction notices on the door, one for a mortgage broker. The university now occupies the other two; they're going to make a low-ball offer for the property, and the landlord is listening. Tells you where commercial landlords are these days, at least away from the hotspots.
Actually this deal is worse than it appears at first glance. Reading the WSJ Article , negative debt service will continue for five years ! This deal coudn't get completed today and unless Macklowe sells at least a couple of his properties , It would seem very difficult to refinance the current debt and / or pay the bridge loan. The Journal further notes the paucity of CRE deals as a result of the recent and continuing credit crunch. A more likely outcome is that Fortress and DB will wind up with Maclowe's collateral backing the loans and this deal will wipe out most of Macklowe's personal assets-- I think his timing will in retrospect turn out to be as poor as Sam Zell's timing was excellent. Maybe he should sell a building or two back to Zell... with the understanding he will take a notable haircut. After all , Sam still says CRE is in fine shape , right ? LOL
Blackstone sold the best of Equities office buildings shortly after buying them.Since then cap rates have increased and commercial REIT prices are down over 20%. I have a question;when did commercial RE lenders eliminate debt service coverage from their underwriting tool bag ?
Jim , Macklowe's deal was done at the same time as Blackstone's purchase of Equity Office , right ? As I understand the transaction , the 7 buildings Macklowe ultimately bought were transferred directly to Macklowe so Blackstone didn't have to pay the real estate transfer tax ( slick move by the folks at Blackstone. ) Keeping in mind the lunatic lending standards used at that point in time for LBOs and M&As , lenders were simply following the herd rather than exercising prudent and conservative lending practices. Exhibit A would be toggle- bonds , just as one lunatic lending practice..... I think that's why 08 will be far worse than 07 has been. Next year , in addition to subprime / Alt A / jumbo loan issues , foreclosures skyrocketing , ARM resets and structured finance blowups ... we'll start seeing CRE prices continue to drop noticeably and corporate defaults spiking. Many of the LBOs of the past couple years will demonstrate the fallacy of lending mucho money to single b or ccc credits.
right??
i think thats what amazes me the most here. i have a new assistant at work and i just spent an hour explaining to her why commercial real estate was really about the cold hard numbers and residential was all ethereal (there's no place like home!).
we had an hour long meeting with a CRE broker from WAMU where we went through everything.
DCR and Low-ish LTV's are the norm and have been for as long as I know (not terribly long mind you).
most banks/conduits/CMBS(those that are left)/life companies etc, are damn strict on a 1.2X and 75% LTV. and thats with all kinds of things backed out of the NOI: maintenance reserves on a brand new building with a 2 year builder warranty?? 5% vacancy rates on a single tenant building with a letter of credit for 100% of the lease amount! and on and on, so that the NOI used to calculate the value is worstest worstest case scenario.
then there is always the cap rate divined from the sky to value the property overall.
WAMU guy told me that DC's average Class A building cap rate was 6.3% per their records.
seems high to me given the recent trades, but thats ok.
anyway, who the hell loans billions on negative cash flow i.e. negative cap rate without something else major in the pipeline...perhaps these propertie are slated for major redevelopment?
ok so i just read the article ha.
sometimes in real estate just having a property available for purchase makes it the right time to buy, almost no matter the price. with a long, long, long term perspective - just being able to make an acqusition on somethings only comes around once in a generation.
this guy will figure something out. he'll bring in new equity partners and get squeezed down to a limited minority partner but he'll still be there.
that, and the banks are the ones with the real problem.
he'll get loan modifications and extensions and whatever else.
these guy sounds like a typical sue you for anything real estate guy.
such is life in the wild west.
bankers and developers are strange bedfellows.
often times we have to use our 'muscle through it' strategy with the banks.
as much as you don't want to default or have things foreclosed upon or whatever else, the banks want it just as less too.
if you can them just on the edge, thats probably the best place.
Commercial office buildings usually have longish 5-10 year (sometimes 20 for major tenants) fixed rate leases with escalators for expenses. If the Macklowe buildings have an average rent of $55/s.f. (I have no idea, but for the sake of the argument that's a reasonable guess) then you don't even have to believe that the present $80 market will continue to see the buildings turning positive as the leases roll over. It may be 5+ years out, but with inflation on your side and constrained supply, it could work out fine for Macklowe. He just has to hang in there (assuming I'm in the ball park on the present rent roll).
well yeah but thats simply a bet on the continued tenant demand i.e. business growth.
Gary @2:21 I remember all the excitement
about Canary Wharf. How big a disaster
was it for the investors when things
settled down? My possibly mistaken
impression is that the property turned
out to be worth something eventually.
mbartv, sure. That's if everything goes sailing along. But then, what if one day one or more of the tenants fail to pay the rent? When you see where this economy is headed, dont you think we're looking at rising probabilities of non-payment ahead?
geoff: sure, I think NYC is in for quite a setback - the ratings scams are going to hurt the brand for a long time to come. So the Macklowe thing is no sure bet, but I can see why it could work out (long term) given the resilience NY has shown in the last 30 years. Put it this way - I'm glad I'm not one of the bankers.
mbartv,
There is also a possibility that the landlord is just repositioning the timing of your lease. He didn't offer a year extension, just 4-6 months. Why? Where I live (Minnesota), landlords hate to see a place go vacant in the late fall because there is no market until May or June. Some will refuse to write a lease that ends in December through March.
MThood 10:53, no offense taken, but perhaps I wasn't clear enough. (or maybe I misunderstand your question?)
It has been pointed out by others that houses are still selling, if they are reasonably priced. In other words, the problem is not lack of demand, or interest rates available, so much as it is unrealistic prices. I was supplying anectdotal evidence of that.
I think other comments I have made indicate that I much agree with the consensus views expressed here. If anything, my expectations about RE collapse are far gloomier than the consensus.
unirealist
My bad. Sorry.
I think the "So RE is not dead yet" statement through me off. Got your point, and sorry to pester you.
When you are moving out of a United Dominion apartment, don't forget to budget at least $1,000.00 for cleaning and small repairs they will stick you with. If you try to talk to them about reasonability, it goes straight to collections. They won't sue you because they would lose, but it will go straight to collections and get reported to the credit agencies.
For as long as I have been in the commercial RE business permanent loans on to be built buildings have been underwritin on the basis of capitalizing tomorrows rents less yesterdays expenses. The result has been a loan commitment of about 85% of economic value.If the developer purchased the ground at a good price and built the project himself he could end up owning the completed project with little or no equity on his part.It is important to note that in the past no developer of sound mind would enter into a deal in which the projects free and clear return was less than the constant on the permanent loan commitment.In my opion the underwriting standards of lenders today when combined with the low free and clear returns todays developers are willing to accept will result in losses to both parties.
I'm still trying to get my head around $800,000,000.00 in closing costs. Seems like you ought to be able to shuffle paper cheaper than that. Don't these guys know how to bargain those costs down? Or maybe they did and I don't know,...I'm guessing a billionaire has a few tricks up his sleeves.
i am not sure if this has been brought up, but basically on his way to becoming a billionaire Macklowe took advantage of a lot of people. People will be out to get him on this deal. He has a ton of covenants with Fortress that he will not be able to meet. Fortress consists of a bunch of crushers that won't look you in the eye while they take everything they feel they are owed. Macklowe made an all or nothing bet and lost. Unless an wealthy oil dude from the middle east comes in and bails him out due to the weak dollar, he will go bankrupt. This was a completely unnecessary bet for a billionaire.