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Nothing like being the world's premiere subprime borrower.
Musical chairs. Music stops. Bagholders exposed. Any questions?
Macklowe got the stuck with the 2000s equivalent of Rockefeller Plaza.
Maguire is just the typical double down California speculator.
Up and down both coasts we are seeing the same thing. No story here.
Help me on this.
Many years ago..., was it Japan that went on a buying spree in America, or was it The Arabs; probably a recession era, I just cant place details.
Anyway, seems that era is returning in another cycle.
Nothing is so satisfying as the schadenfreude of seeing supposedly wiser (and therefore richer) people making colossal mistakes. Does the envious heart lots of good. LOL.
The drop of the Nikkei Index at the Tokyo Stock Exchange in 1990 led to a chain reaction: banks and individuals preferred to hold cash rather than investments or to spend. In 1996, Japan went into a recession, which was exacerbated by the state policy to cut public spending, reinforce the monitoring of bank loans, and increase taxes, leading to even less spending. The big bang reform of the banks in 1996 involved...
What worries me is that if people like Macklowe, who have a herd of accountants and analysts to help out on deals, gor in so over their head, than what does that mean for the rest of the population, which only have TV's cheerleaders as advisors?
Then I see that he only put down $50M, so he's going to be feeling zero pain from this specific deal.
S&P on Maguire Properties:
Maguire Properties downgraded to 'B+', outlook cut to negative - S&P - Forbes.com
Prior to the 1980s, land prices in Japan had appreciated only modestly, leading to relatively undisciplined lending. During the mid-to-late 1980s, land prices in urban areas of Japan rose dramatically, creating substantial wealth for many individuals and fattening the balance sheets of companies. It was during this period that the land under the Imperial Palace in Tokyo was said to be worth more than the entire state of California. Banks lost major customers who could now borrow money directly from the global capital markets. As a result, banks began lending to smaller businesses and real estate ventures. 10 In the early 1990s, the Japanese bubble burst and property values plummeted
Did Harry Macklowe go to Trump University?
This is instructive IMHO:
Confounding almost the entire investment community, the Japanese have continued to pour billions of dollars into United States real estate in 1988, a new study reported today.
Confounding almost the entire investment community, the Japanese have continued to pour billions of dollars into United States real estate in 1988, a new study reported today.
The study also shows that the Japanese are no longer buying strictly top-of-the-line office towers in New York, Los Angeles and San Francisco. Now, they are acquiring properties ranging from combined retail-and-office complexes to industrial warehouses and are venturing to cities where they have not spent heavily before, including Chicago, Atlanta and Boston.
The study, by Kenneth Leventhal & Company, a Los Angeles-based accounting and consulting firm, said Japanese investors spent $8.96 billion on real estate in this country from Jan. 1 to Aug. 31 and will spend $7.04 billion more by year-end. The eight-month figure is a record, as would be the $16 billion total for 1988. Predictions Were Way Off.
Japanese Lift Purchases of U.S. Property - The New York Times
You know whats funny (kinda)...they transfered the asset bubble in Japan to America and then the bubble popped because of accounting and leveraged greed; enough, is never enough! Someone said it here earlier;
"Give them enough D-con and they'll poison themselves" Vladimir Ilyich Ulyanov
mort_fin | 01.05.08 - 1:31 pm |
Macklowe represents the greed of this era and the lesson to learn from MacBeth is that people seldom act alone, as its the condition of collusion that drives the pack to drink the bongwater!
DH phasing out
MPG Ownership, institutional ownership, 5 % ownership - MSN Money
As of the end of September while some institutions were selling modestly, others were piling into Maguire. Would be interesting to see data from end of December.
"666"
Isn't that at least reason to pause before taking the $1.8B leap?
Or maybe they bought it 105% of value and took out a few hundred million and don't give a hoot what happens next?
CR just observed Macklowe borrowed $7.6 and paid $6.8. So, the difference, from the peanut galleries is what??... a tip?
Reminds me of a James Grant book ("Money of the Mind"???) where he describes past excesses in New York commercial real estate investments. It seems like a large percentage of huge buildings in Manhatten never got built without a bankruptcy or two along the way... Huge debt was always taken on at the peak of prosperity to build these things, and then they had to redesign the buildings to scale them down (or be taller and house more offices to collect enough rent on the footprint).
In Macklowe's case it's pre-existing trophy properties, but it sounds like history rhyming again...
Anyways, Grant's book is a good one, if you are interested.
ShortCourage,
Sounds like the Skyscraper Indicator.
tj,
Yeah, although I guess most of the impressive ones (skyscrapers) are being built in other countries these days!
DaveNYC so he's going to be feeling zero pain from this specific deal.
Nope, he's already in default on 510 mil on some other properties and according to the article, to round up this package of loot he had to advance a 1 bil personal guarantee. That's a lot of pain. And from the article:
There is widespread speculation in the real estate industry that the Macklowes may be forced to unload some of their properties at a discount to creditors including a sizable stake in the G.M. Building. At worst, they could be forced to shed much of their portfolio.
Oh, and the Kushner Companies mentioned are another interesting story. Charles Kushner was one of the prominent names in the McGreevey scandal. Article. In the wake of that I believe some of the NJ holdings were liquidated.
A lot of people with decades of experience in Real Estate could not see this coming,and some of them are very smart people.I know quite a few people who have been around a long time who told me that Real Estate NEVER goes down in Sonoma County.Well,it does,and has.The common factors are that they are all people who never had experienced failure,or they were people who do not habitually question common assumptions.Murphy has played an important role in my life,and I have learned to have Faith in God and my .45.All others bring Data.
MOM,
he is regarded as a shrewd, brass-knuckles negotiator
That, and going yachting during the crisis, would give several of us Australians a serious sense of deja vu.
This guy sounds to me like a smarter (because he does seem like a competent manager) version of a 70's/80's Oz tycoon called Alan Bond.
If so, you can bet on 2 things:
1. There is no way, under any conceivable circumstances, that he is going to make good on that personal guarantee.
2. When push comes to shove, the banks are going to find that his holdings are going to be structured so that they hurt worse than he does if the whole structure collapses. Then he'll start "negotiating" on an "OK; I'll just walk away then" basis.
I know of a good cooper if he wants a spiffy barrel to wear when this is all over.
Economists say 2008 will be a year to forget
Analysts at American Economic Association now see recession as a given
Many analysts gathered at the American Economic Association's two-day annual meeting spoke of a recession as almost a given but differed over how severe it will be.
OPEC Producing Adequate Oil, President Khelil Says (Update2) - Bloomberg.com
Separately, Christophe de Margerie, the chief executive officer of Total SA, Europe's third-largest oil company, said he expects ``high prices for a long time.''
There's not enough production capacity to meet demand,'' de Margerie said in an interview today on Europe 1, a Paris- based radio station.With strong demand like today and the inability to raise production, I don't see how prices could fall strongly and quickly.''
Pedaling Prosperity Propaganda: Rhetoric of Depression? -- Seeking Alpha
It is not a matter of recession or no recession; that is a distraction. Rather it is a matter of stagflation or Japan-style depression. A plain old recession would be a miracle.
"...recession as almost a given but differed over how severe it will be."
Roubini's latest blog entry says it will be "worse" than the 2000-01 or 1991 recessions. That would mean rather like the 1979-81 or 1974-5 ones. Humdingers.
The 1985 Plaza Accord dollar-devaluation agreement which pushed the yen up from 240 to 130 over a few years, powering the Japanese buying spree. America had a big "Half Off!" sticker on it for Japanese purchasers in the late 80s, right when domestic land values were exploding, allowing all sorts of leveraging etc.
I started following Japanese news from the late 80s (Karuna Shinsho WAS my diety) and when I hit the ground in Tokyo in 1992 I saw firsthand what the Showa bubble had done to Tokyo. . . they discovered polished marble, metallic accents, and big-ass glass in the architecture.
OT - Interesting article on rate setting in UK where we have a (price) inflation problem...
"But it should be the economics that counts. And, the economics strongly indicates that lower rates could well unleash UK inflation. The economics also says that the credit crunch - and high inter-bank rates - will only be fully solved once the big banks, having revealed their true sub-prime exposure, start trusting each other again. Lower base rates will delay that happening."
Interest rates have been hijacked by politics - Telegraph
I love market bottoms. I wait for years to pounce on them. Of course, to have a market bottom we must have a market top. And for that we must have people overpay at the top. So Macklowe and Maguire are among the bagholders... God bless them!
Oh well, at least the properties were worth something when they bought them!
But they won't be worth much when I buy them.
Just as the US property collapse is beginning, the Japanese have finally recovered from theirs.
Japan's New Rich Party Like It's 1989
- NY Times
Kind of ironic.
Perhaps their stock market, having gone nowhere for nearly twenty years, will now do the reverse of what most of us suspect the US stock market is about to do...
anonymous:
It was both Japanese and arabs although the Japanese were on the real buying spree. The japanese purchases of Rockefeller Center and office buildings in LA, Pebble Beach and hotels in NY were the high water mark. The arabs were not as high profile. I personally sold a major suburban Chicago office building to the arabs in the early '80's, and of course they bailed out Citibank.
Anon, despite an MSM-led kerfuffle about high profile CRE acquisitions by Japanese in the 1980s, the foreign investors with greatest US holdings were the Netherlands and the UK. Japan came in at a distant fifth place.
We had better information about Imelda's shoes than about foreign investment in domestic property. Sound familiar?
One of my friends, a white collar retiree from Ford, just told me that he is mailing in the keys. He has informed the bank that he will not be making any more mortgage payments. He bought a retirement home in Florida, but can't sell his suburban Detroit home and can't afford two mortgage payments.
This is an example of default on mortgage payments becoming more acceptable among the middle class. This family is very solid, and it's hard for them to take this step, but they know others who are doing it and it just makes economic sense for them...
detroit,
to add to that. a friend of mine moved to Missouri for a job just after getting married. Bought a house in 04, and then wanted to move again in 07 so bought another and is now stuck with 2 mortgages. don't know where he goes with all this, but I imagine they had a stressful holiday. choices are not good, but so far no talk of jingle mail.
"There Will be Blood" wins top critics' awards
There Will be Blood wins top critics' awards
| Reuters
Looks appropriate to the situation.
Interesting, I just posted a summary of my deep dive into GGPs portfolio. I individually valued all 260 of their portfolio properties to come up with a cash flow and valuation situation. In the process, it gave me a unique insigt into the commercial sector in about 30 different markets. Long story short, I disagree with those who believe that the CRE correcion will not be sharp or significant. A few REITs have a big one coming, rents are too high and credit is too tight with earnings and consumer spending dropping rapidly.
See Reggie Middleton says... | The Commercial Real Estate Crash Cometh, and I know who is leading the way! | Reggie Middleton's Boom Bust Blog
--
What part of bubble-mentality don't people grasp?
Demand is "secular" and "the prices will only go up."
Therefore, buy at any price and borrow money at any terms, because the price increases will allow for refi, if needed, and rent increases will cover the deficit in not too distant a future.
Everything looks and feels wunderbar in the Bubble Land.
The banking Crooks, helped by the Fed and USG, have guaranteed the Greater Depression in America in more ways than one. Now, we just need to watch the events unfold during 2008-10.
Jas
yo, stone: ever actually use the .45 or do you just have to show it?
Reggie,
You are "da man."
I admire your analysis and insights.
Now, we just need to watch the events unfold during 2008-10.
Jas
What is you outlook for the currencies, commodities, global equities, global bonds, global commercial and housing R/E markets durring that time frame?
Inquiring minds want to know.
matty,I never used the .45 except on the range,no failures to feed or fire for 8k rounds.I have had to use a pistol,once.And my feet several times.
Anonymous @ 11:07, your uppance will come. One of the sacred rules of this forum is.. Thou shall neither awaken by mentioning nor inquire a follow-up from He Who Shall Not Be Named.
So is it written, so shall it be done.
Developer defaults (several are listed):
SunCal Mission Lakes LLC
Loan amount: $74.3
Location: About 515 acres north of 7th Standard Road northwest of the intersection with the Calloway Canal.
Details: In late September, the subsidiary of Irvine-based Suncal Cos. defaulted on a loan from Lennar Homes of California Inc. Officials from Miami-headquartered Lennar Corp., a national homebuilder, said they would take the property back when it foreclosed, but declined to say what the companys ultimate plans are for the proposed 5,300-home Mission Lakes project.
404 - Page not found
Since it appears to be ask Jas a question time, Jas (or anyone else), do you have any take on Canadian banks? It would seem that more than a few (TR? RY?) might be ultimately as vulnerable to the mortgage mess as some of our local banks. It's clear that Canada is in as big a bubble as ours.
ahh... Maguire and Macklowe...
couldn't have happened to a nicer bunch of guys.
On the surface, it looks like both guys may get crucified, but you know how things are in business...
owe the bank 1 thousand, it's your problem, owe them a billion, it's theirs.
I'm sure that Macklowe did go to Trump Academy...
I'm thinking about how Trump pulled off renegotiations with all the lenders back in the day when his casinos were all failing (the first time).
What I read by surfing the net would indicate that while Canadian banks have some exposure it is nowhere near that of US banks. Does anyone have better info? Canadian Imperial Bank has been hardest hit. Others less so.
Jas,
I'm having a problem with the Marvex-3000 they installed in our branch. It seems the caliber poised on the first grid sliding armiture is messed up.
Can you help?
"CR just observed Macklowe borrowed $7.6 and paid $6.8. So, the difference, from the peanut galleries is what??... a tip?"
The total cost of commercial property acquisitions, particularly highly-leveraged, upside potential property, often entails multiple additional expenses, fees, and reserves, specifically the usual suspects (title fees, legal, mortgage recording tax, lender fees, etc.), as well as items such as interest reserves (to cover debt service shortfalls while Macklowe leases up and increases rents), capital expenditure reserves, and tenant improvement and leasing commission reserves.
It is highly unlikely that Macklowe "cashed out" at all on this deal, outside of a possible developer fee.
"So is it written, so shall it be done."
That is very closed mind of you as while I may or may not agree with He Who Shall Not Be Named it would be interesting if he could stop with the depression stuff and lay a few actual down to earth predictions which could be easily followed.
I'm an atheist so what is written doesn't mean squat to me by the way and that also means I don't scarily do it that way.
I way was early expecting CRE and the REITs that owned them to take a hit. I foolishly had puts on Equity Office Properties as Sam Zell rode it to the top of the market and sold with impeccable timing. And MetLife sold that huge Manhattan apartment complex for something like $5b around the same time. Who said you can't time the market?
"Who said you can't time the market?"
altghough I agree Zell is quite the guy, don't neglect luck in his actions.
that said, many of us at the time wondered if Zell selling would later be called "the peak" in retrospect.
sigh.
--
Anon: Jas, What is you outlook for the currencies, commodities, global equities, global bonds, global commercial and housing R/E markets during that time frame?
Euro has peaked against the USD, by which I mean not more than 5% upside from here. Swissie will out-perform the Euro as a Safehaven currency. JPY should go below 100.
A COMMODITY BUST is a certainty during 2008-09.
Bull market in USTs and other European sovereign debt will continue. Yield on USTs will fall below 2%.
Biggest BUST in CRE and RRE in all the building bubble areas, especially, CRE in Dubai.
The time frame is 2008-09. By 2010, the whole world will recognize the depression. The dye is cast. Bankers have misbehaved like crazy, to put it politely and mildly.
Please dont listen to economists (I mean 99% of them) as to what lies ahead. They are bred, i.e., trained, to be blind to downturns. How many of them have read Smith and Schumpeter recently? They are lazy and most are bubble-meisters. ECRIs Lakshman Achuthan gets my E-Con-Turkey of the year award for 2007 for claiming stronger housing activity during Jun-Nov 2007. Crooks employ e-con-meisters for propaganda purposes.
Jas
no failures to feed or fire for 8k rounds
I suppose it's not a Colt, then.
"What I read by surfing the net would indicate that while Canadian banks have some exposure it is nowhere near that of US banks. Does anyone have better info? Canadian Imperial Bank has been hardest hit. Others less so."
Thanks, James. That's the same info I culled from my search. However, logically it doesn't seem possible that a country that's experienced a bubble similar to ours could have banks that are not exposed to stinky mortgages. My mom bought a shack of a cottage in Ontario when she was a college student that now is "worth" over 400K. It's a tiny, remote place that's livable maybe five months a year with mosquitos the size of humming birds at every turn. I sense great pain ahead for Canada, and (perhaps) for their banks.
--
It is important to note that the CRE IS COINCIDENT TO LAGGING INDICATOR OF THE ECONOMY.
When you start to see trouble in CRE the recession has begun. OC is a very good example today. CRE in Silly.con Valley was another one during 2001 -- as CRE free fell, the Private Employment declined 19.92% in two years!
Jas
Why should Canada's economy suffer as much as the U.S? They have two good things going for them where the U.S. economy is most vulnerable:
A COMMODITY BUST is a certainty during 2008-09.
Including precious metals?
"And MetLife sold that huge Manhattan apartment complex for something like $5b around the same time. Who said you can't time the market?
Bob_in_MA"
$5.4 billion for an aging complex with a cap rate of 3.1, sold to a group of which CalPERS is a major sucker, er, player.
As Warren Buffet said " when tides go down, then you see who has been swiming naked".
--
Scam Market Forecast...
The coming week will mark three months since I called the Market Top in real-time on HBB (10/11/07). Major indexes are down 10% since then and S&P500 and Dow have never breached the highs reached on 10/11/07.
I see no reason for the Market Top call to not to stand for years, if not decades.
Recession has been confirmed with multiple economic data series and depression is highly likely. Under such economic climate 20-50% decline from the peak is very likely in 2008. And much more to come during 2009-10.
Jas
"Why should Canada's economy suffer as much as the U.S? They have two good things going for them where the U.S. economy is most vulnerable:
You might be right, rich. Perhaps my single-minded focus on real estate has biased my views. I just anticipate that Canadian RE will get hit as hard as US RE. My uncle was visiting recently and telling me how houses in Regina were doubling in price. I don't know if you've ever had the pleasure of visiting, but Regina is a godforsaken place. If it's in a bubble, Canada is in for a large ration of pain.
The 1985 Plaza Accord dollar-devaluation agreement which pushed the yen up from 240 to 130 over a few years, powering the Japanese buying spree. America had a big "Half Off!" sticker on it for Japanese purchasers in the late 80s, right when domestic land values were exploding, allowing all sorts of leveraging etc.
I was on the other end of that pipe back then - lol. I was selling stuff to John Deere (make that TRYING to sell stuff to them - the Japanese were killing us). Then one day the commodity manager (buyer) I called on called me (very unusual)... said "Ummm why don't you come down to Waterloo, I got a package or prints I'd like you to look at..."
Turned out these were many of the parts the Japanese had been selling them... they were very competitive at 240 JPY to the dollar.... eh not so much at 130 JPY to the dollar. Same parts, same quality and now almost twice the price in dollars. We cleaned up and held that business until... well China came along (went to China about 2002 or so, still there).
In the intervening years... Japan had a few 'issues' let's say.
Plaza generated fallout all over, not just in RE... but the problem wasn't Plaza, it was the decade PRIOR to Plaza where Japan failed to let its currency float to reflect its growing national strength & wealth... when it finally let go there were all sort of imbalances cut loose and swinging about. We're likely to see the same thing with the RMB... not an exact repeat but a 'rhyme'.
Thanks Jas
If you can keep it civil on the comments and not so hysterical I welcome your views. I agree on several of your points by the way.
To everyone else
I have been reading and posting on this blog long before Tanta, It is a pain in the ass to type in handles and e-mail addresses as I delete cookies after every post so Anonymous is easier and faster. I witnessed the food fight between Tanta and Jas in which he included some comments that were uncalled for. Keep it civil and no personal attacks and it will be much better for all. Disagreements are fine just not the name calling. Agree to disagree.
My uncle was visiting recently and telling me how houses in Regina were doubling in price. I don't know if you've ever had the pleasure of visiting, but Regina is a godforsaken place. If it's in a bubble, Canada is in for a large ration of pain.
Is it as 'nice' as Winnipeg (or 'Winterpeg' as eastern Canadians call it - with only two seasons: winter and fly season)?
Personally I like Winnipeg but that says more about me than Winnipeg.
prk,it is a Kimber cdp11.It took 600 rounds to break in.My colt is completely reliable as well,but it is 94 years old and I got tired of collectors screaming at me for using it,or begging to buy it and I wanted something just a tad smaller for carry.
Anonymous | 01.06.08 - 12:50 pm |;
Sorry handles are so tiresome to you personally but with the posting volume here your methodolgy sucks. It diminishes the value of the conversation even if what you have to say has content value. The overuse of Anonymous is causing a tragedy of the commons phenomenon. Similarly when participants can be traced back to their comments there is a very useful form of self policing that occurs. Grow up and get a screen name and stand behind your comments.
"Is it as 'nice' as Winnipeg (or 'Winterpeg' as eastern Canadians call it - with only two seasons: winter and fly season)?"
My family is in fact from the Peg. While it has its charms, holy crap is it cold.As to Regina... A few years back I was there in April for a funeral. Five feet of snow on the ground, air temp (largely because of the wind) was brutal. The day of the funeral, my cousin from Regina shows up... in cargo shorts and a T-shirt. She looks at me cockeyed when I say that it's cold.
"said they would take the property back"
How unusual.
Thanks Lionel - my daughter almost went to U Manitoba (Minnesota where I live & Manitoba have 'reciprocity' so our kids can go to school there at the same cost as a Manitoba resident and they can do the same in Minnesota). She didn't go but four of her classmates did and loved it.
As for Canada & recession - I think Western Canada will do great (energy & ag commodities offsetting weak timber)... Easter Canada will get hit VERY hard... weak auto mfg and a strong Loonie will do double damage.
I was calling on companies along the 401-403 Loop six months ago and they were cutting back and shutting down like crazy - they were AHEAD of the slow down in the US for sure.
Again - like the US - it will be a mixed bag... ag & energy will rock, mfg & RE will crater. One foot in boiling water, one foot stuck in ice... overall pretty 'comfortable'.
... The cash flow from 666 Fifth represents only about two-thirds of the amount needed to service the debt on the building a shortfall of about $5 million a month according to Real Capital Analytics, a research company in New York.
Ahhh... this is the essence of ponzi finance right here. Don't worry about not being able to service the debt -- the appreciation of the asset will take care of that for you.
The Kushner Companies were apparently betting that some greater fool was bound to come along. Alas, as it turns out, that was them.
Better luck next time.
ECRIs Lakshman Achuthan gets my E-Con-Turkey of the year award for 2007 for claiming stronger housing activity during Jun-Nov 2007. Crooks employ e-con-meisters for propaganda purposes.
I suspect this guy was targeted because of his organization's past credibility and bought out to be a David Lereah/Jack Grubman type shill.
If you notice with these bubbles there's always bunch of guys who sell their reputation for a fat wad of cash.
If people respected my opinion I know I would!
Lionel,
One of the best things the U.S. could do to restore economic health would be to take Canada's health plan and import the model, line for line. It works, Canadians basically like it, and it costs half as much (per GDP) as our broken system.
It might take us a decade of gradual change to import Canada's model, with fairness and minimal disruption. But it would be worth it.
You can argue whether INDIVIDUALS are better off with our health system vs. Canada's. But nationally, in the aggregate, Canada's system is simpler, fairer and far less costly.
P.S. When you turn on the evening news and see all the hugely expensive pharmaceutical ads that YOU are paying for, doesn't it make you sick?
Yeah, everything else the US has nationalized has worked out so well. Transit, education, emergency response, financial regulation. Who knows, maybe we'll get it right with healthcare. Porcine Autonomous Aviation is more likely.
I'm with you on this, rich. Despite all the negative stories reported in the US about the state of Canadian healthcare, I've never heard a single relative complain about it. In fact, my grandparents were cared for quite well. (Although I don't think its a national health system; I believe each province is responsible for their own system.)
OT
This is a follow-up to the "airport bubble ad" that CR posted last weekend, by Kimball Hill
"Beleaguered homebuilder Kimball Hill Inc. has delayed filing its fiscal 2007 annual report but said it expects to post a substantial net loss in its fourth quarter and fall out of compliance with a key loan agreement. "
Kimball Hill expects 'substantial' quarterly loss - Chicago Real Estate Daily
"
Then I see that he only put down $50M, so he's going to be feeling zero pain from this specific deal."
Not true, he secured 1 billion of lending with his own wealth/properties.
--
PRK: "Including precious metals?"
No. Silver is not precious, though. Copper will be as cheap as dirt, as was the case in 1930s.
People need to brush up on their history of the Great Depression because Bernanke was appointed precisely for the threat that already existed. The E-con-meister-In-Chief has only made it worse in the process. I know that most people have faith in intervention. It guarantees a worse outcome than the one that would have taken place in the absence of the intervention. Free market Republicans!
Greenspan-Bush-Bernanke have already guaranteed the Greater Depression. With the policies of 2001-present.
Jas
Gee, I hope copper gets cheap. It pains me to do plumbing with the price 4x higher. Since my plumbing projects are intermittent, the price hikes always surprise me. The damn price of water heaters blew up too.
Tom Stone- landlord in Oakland? You have my utmost respect for courage. (I grew up in Alameda)
The hurdle rate for making investments has gone up in general, said Ms Mulcahy. I think what we see in the US is heightened anxiety. We see the financial services industry tightening their belts, and rightfully so, based on the impacts there.
FT.com / Technology - Xerox warns companies cutting IT spending
Jas -
Why dont you think silver is a precious metal?
What are your views on oil?
MTHood, regarding Morvex-3000 you know the caliber poised on the first grid sliding armiture?
Okay, there's a three-digit setting there, where the post and the armiture meet. Now, when the system was installed, the angle of cross-slide was put at a maximum setting of 1.. if you reset it at the three-mark like it says in the assembly instructions, I think it will solve any clogging problems in the machine.
SNL Transcripts: Sissy Spacek: 03/12/77: Ask President Carter
that was me
Rob Dawg
As Sabastion found out handles can be jacked, besides that I play by my rules not yours.
(Although I don't think its a national health system; I believe each province is responsible for their own system.)
Yes but within certain boundaries established by Ottawa. The way I understand it the provinces get to execute the mandate that all Canadians are entitled to heath care. There is some cost sharing between province & Ottawa but how they execute the mandate is really up to the provinces.
regarding switzerland. i dont know, they are up to their ears in finance industry, UBS has troubles and i doubt you can base the entire economy on chocolade and swiss watches once the financials get into some serious troubles
besides they are no longer on the gold standard since the referendum in 2001. a fiat like any other fiat.
colleagues of mine were on longer bussiness trips to switzerland and its quite expensive there compared with germany or austria. a service based economy.
on other note i red an article that now that malta and cyprus have joined EU their CONmen in ECB will vote to lower rates along with spains, ireland, greece and italian members of ECB council. and now with these two new members, the northern countries like germany are outnumbered in the council 11 to 10. sounds bad.
one last thing about these malta and cyprus new ECB council members. as every good crook they served until few months ago at US FED. i think this is what Jas tends to call bred crooks
I would caution against assumptions that some of the CRE low cap rate deals are insane. It depends on lease turnovers. See Reggie's GGP analysis linked above for a very sophisticated analysis and handling of turnover rents. I grew up in Peter Cooper Village, one of the Met Life properties sold last year, and the value indicated by the cap rate on existing controlled rents was considerably below the value of the property as Co-op units - of course it depends on how big a piece of the pie the tenants will eventually get. I think we can assume that prices agreed upon and financed in last year's easy credit environment and seemingly healthy economy will look high compared to what we will see with a credit crunch and a recession. But in many cases the major NY buildings will have major tenants whose present leases at well below market rents will turn over in a few years. Will the market be lower than what was underwritten last year - I'm sure it will. Will it be so low as to make the deals completely uneconomic? I don't know without spreading the lease turnovers.
Will the market be lower than what was underwritten last year - I'm sure it will. Will it be so low as to make the deals completely uneconomic? I don't know without spreading the lease turnovers.
I tend to agree but the question I would ask is do the current owner-landlords have the wherewithal & diverse cash flow sources to carry the properties if their tenants get into financial trouble? Its clear from the article that 'Big Mack' probably doesn't else we wouldn't be hearing of his funding problems.
Even if an entity is currently 'upside down' on asset values it isn't a crisis until there isn't cash flow to meet the current obligations. I'm guessing that is going to start happening more and more this year as debt rolls over and they can't refi the roll over.
It isn't just happening in suburban tract developments anymore.
Revro,
Too late. The Marvex-3000 is the least of my problems now. The ceiling is dripping and the Allman Brothers ain't working.
--
History lesson that applies to CRE The two railroad building booms in the US during 1800s and the following busts are quite instructive. I realize that it is not the same but the investment mentality that underlies is the same.
In every boom X years worth of demand is built in Y years, with Y being significantly less than X. So, what happens in the remaining (X-Y) years? Building bust.
It is not a rocket science.
Jas
Lionel,
I agree with you about the Canadian RE bubble being as big as the US. Record low affordability in the 3 western provinces. I spend a lot of time in the most bubbly market in North America (Vancouver) and most people here are still in denial. Alberta has started to deflate in the last half year, but no sign of a slowdown yet in Vancouver.
P.S. I looked into Canadian banks over the summer. RBC and TD Trust seem to be the strongest.
--
On ECRI
ac,
BTW, another bear and I pointed out to Achuthan, in an ECRI forum, in August that he was working with known BAD data in Mortgage Applications. It became a common knowledge that lot more people were applying and lot less applications were being funded. But he continued to use the bad data that inflated the WLI growth rate and use that to bolster bullish forecast for the economy. The last three weeks have seen the biggest collapse in the Mortgage Applications data ever recorded. Finally, the data is getting corrected.
On 12/24/07 Bubble-meister Achuthan said: Typically a -5% to -6% reading [in WLI growth rate] is needed for a recession.
The latest growth rate, for period ending 12/28/07 was 6.2%.
What does the Bubble-meister has to say now? that a recession could still be averted.
Jas
Thanks for the info, Mike in AZ. I'm a pretty conservative investor and have been shorting through proshares (SRS has been very good to me.). I just can't get the thought out of my head that there are some fat targets to short individually. If you look at the 5-yr charts on the Canadian banks, they all seem to have jumped steadily. The question is: did they do this through the same type of lending practices as many US banks, or are they pretty well insulated. It seems as if each Canadian bank has expanded by buying smaller banks in the US. THis indicates to me that they might be more exposed than anticipated. However, that is merely conjecture (based largely on the size of the bubble there, i.e., is it really possible to have a bubble without shoddy lending?).
"No. Silver is not precious, though. Copper will be as cheap as dirt, as was the case in 1930s."
I tend to agree that silver might be over rated. Photographic use was huge and now is tending towards zero outside the developed world. Even so it has a use as a coin/money or store of value and is still extensively used in electrical contacts.
But the idea that copper is going to be real cheap again seems like a fantasy. At one time you could more or less get copper as pure copper from the ground but i imagine those days are long gone.
China is needing tons and tons of copper. Even if the US tanks or even totally dissapears! i just cant believe that copper useage will tank too. Just not going to happen. It is like imagining oil will go back to $10 a barrel anywhere short of some kind of massive global catastrophe.
In the 1930's life did not end exactly.
Wow! I am sounding like i am defending Robyn;-)
But the idea that copper is going to be real cheap again seems like a fantasy.
I think the answer to that one starts by defining 'real cheap'.
Rich, Lionel, dryfly et al, totally agree on many points. Family is scattered around southern Ontario. Manufacturing is hurting and several cousins are nervous about jobs. Re real estate, looked at a waterside apartment in Collingwood last time I visited my folks and they wanted $600k!!!! Yeah right. Madness. Vancouver is in a bubble I think and Whistler's bubble has already popped - interesting to watch it and then watch the America replay.
Re the health care, have lived many places and I have to say I prefer the UK system to Canada's. I know many of you are choking right now. I marvel as my relatives wait paitently for MONTHS for treatment, even surgery, like its the most normal thing in the world to wait. In the UK if you don't want to wait you can pay or get health insurance to cover it. I like having that option.
The US must work towards universal coverage. It's the only civilised thing. Can't afford it? Cover everyone under 18 - it's not their fault if their parents are poor or don't have cover. And make people who have made poor lifestyle choices (obese, smokers, drinkers, etc) pay huge amounts.
Anonymous said to Rob Dawg at | 01.06.08 - 2:23 pm |
"As Sabastion found out handles can be jacked, besides that I play by my rules not yours."
correction anonymous w/o screen name,
here we play by CR's and Tanta's rules.
(yeah I guess someone could slide by posting from different machines with different IP addresses etc...but what a nuisance...better to play nice.)
"ECRIs Lakshman Achuthan gets my E-Con-Turkey of the year award for 2007"
Agreed, but I would further credit him with by far the highest quality lying I have ever seen. He keeps a straight face even though he's lying through his teeth. I would enjoy seeing him interviewed with a lie detector running, to see if there's ice in his greedy money sucking viens. I pity anyne that listens to his nonsense, besides Tennis-8 and Sebastian of course.
Re MetLife sale of Peter Cooper Village: If Tishman & CalPERS are counting on a coop conversion to bail them out, good luck. There are still a substantial number of rent-stabilized tenants (not as difficult as rent-controlled, but not as easy as market-rate)in those buildings, including a fair number of lawyers. Plus, the NYS Atty. General gets to weigh in on approval.
As an aside, buyouts for rent-controlled tenants in NYC can go from $100K to $1 million.
OT - Posted for the amusement factor. Orlando, FL development residents find out it was built on WWII firing range. School has live bombs and even a WWII tank buried on grounds.
Engineer: Tank Found In Pit At Middle School - Orlando News Story - WESH Orlando
"ORLANDO, Fla. -- Residents near a local middle school said they find it hard to believe that no one knew about the World War II bombing range the school was built on.
The Army Corps of Engineers detonated 400 pounds of explosives found on the school property on Saturday.
...
"A World War II tank is physically located in one of these pits," one engineer said in reference to the size of the pits.
"The best of the experts tell us that it is safe," Sen. Bill Nelson said.
Officials said that because the explosives are buried six feet or more underground, it is not a danger.
Residents are not buying the claims that no one knew the history of the school property.
"This was 1940. It's not like it was 50 centuries ago. It would be recorded. This is the government and the U.S. military and there is no reason why this shouldn't be recorded in public record," one Vista Lakes resident said.
..."
"But the idea that copper is going to be real cheap again seems like a fantasy.
I think the answer to that one starts by defining 'real cheap'."
Well for example are nickels likely to be ever be less valueable as metal than as money again?
dryfly, I agree that cash flow is the issue. It sounds like the Macklowe deal had a debt service reserve built in to cover the period before the lease rolled, but who knows if it was enough.
Lex, I'm assuming that the buyer of Peter Cooper and the tenants will have to make a deal. A lot of those lawyers would like to buy a nice 2 BR for a couple hundred thou below market. It will be a forced marriage but they have interests in common.
It may be my professional bias, but generally underwriters of mf and commercial properties aren't totally daffy as the individual deal sizes are bigger. The single family lunacy could happen because the units were all glommed into statistical constructs, and noone had any responsibility for anything.
That said, in a credit glut everyone throws out their good sense. The most salient thing I've read all weak is the past several years statistic on low defaults of high yield bonds, meaning the zombies weren't put out of their misery, just refinanced. Ditto credit cards and auto loans. This has a way to go!
"Yield on UST's will fall below 2%."
I agree. And to some extent, that will also help retain the values of both CRE and RRE. However, the Fed has to stop the commodity run first. Whatever is going to happen is happening right here and right now. If the Fed and FCB's are not able to lower rates because of Pm's and oil and in turn has to raise them to defend the system ala Volker, there is no telling what catastrophic events will transpire.
Fortunately, we will have the answers to most of our questions sooner rather than later.
Shoulda been reading CalculatedRisk... suckers.