Trump: Best Real Estate Investimg Market Ever Is Now

I saw this banner ad on a Yahoo Finance page yesterday. Donald Trump is offering a free seminar on how to invest in real estate. If you go to the site, you are greeted with a video that proclaims "This is the best real estate investing market in the history of our country!"


You would think real estate properties are the last thing that any sane person wants to invest, given what has transpired since 2007.

Anecdotal evidence in the local residential real estate market shows there are buyers, a great many of them, buying across the board - from trailer homes to multi-million-dollar beach properties. Real estate professionals in the area say many of these investors are cash buyers, including foreign buyers, buying up short sales and foreclosures. Higher-end properties that are not short sales or foreclosures have started to move. The inventory level is actually back to where it was at the peak of the housing bubble: mere 4.6 months.

Is it possible that the real estate market is clearing, at least the residential market? Or is it just the banks are withholding the inventory and the worst is yet to come?

Tweet

Blackrock and Tishman Walk Away from Manhattan Apartment Project

Morgan Stanley has done it. Now Blackrock is doing.

The joint venture of Blackrock Inc. and Tishman Speyer Properties has decided to return the key to the lenders and walk away from the Manhattan apartment project.

Tishman Venture Gives Up Stuyvesant Project (1/25/2010 Wall Street Journal)

"A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom.

"The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006—the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments.

"The property's owners signaled they would be unable to reach a deal with lenders and instead decided to allow creditors to proceed with what amounts to an orderly deed-in-lieu of foreclosure, which means a borrower voluntarily gives the property back to lenders to avoid a foreclosure proceeding." [The article continues.]

The property was acquired for $5.4 billion, but is currently valued at less than $2 billion. The joint venture is underwater by $2.4 billion, as its mortgage is $3 billion (1st) and $1.4 billion (2nd), according to the AP article on the subject.

When a big financial firm and a big property management firm do it, it's called "strategic default", a wise business decision; if a distressed underwater homeowner does it, it is called "walk away", with a stigma of irresponsibility attached.

The article also mentions other investors in the project, who is set to lose almost all their investment:

"By some accounts, Stuyvesant Town is only valued at $1.8 billion now, less than half the purchase price. By that measure, all the equity investors—including the California Public Employees' Retirement System, a Florida pension fund and the Church of England—and many of the debtholders, including Government of Singapore Investment Corp., or GIC, and Hartford Financial Services Group, are in danger of seeing most, if not all, of their investments wiped out."

CALPERS again. But the Church of England??? What is the world coming to?

GIC is set to lose $575 million in the form of mezzanine loan backed by the property, on top of $200 million in equity. Ouch.

Tweet

Treasury Department Has Plan C To Solve Financial Crisis

Did you know they now have Plan C to solve financial crisis? I didn't. I didn't even know they had Plan A and Plan B, or any Plan at all.

Treasury Works on 'Plan C' To Fend Off Lingering Threats
(by David Cho and Binyamin Appelbaum, 7/8/09 Washington Post)

"As the financial system tries to right itself after its near-collapse last fall, the Treasury Department has assembled a team to examine what could yet bring it down and has identified several trouble spots that could threaten the still-fragile lending industry.

"Informally known as Plan C, the internal project is focused on vexing problems such as the distressed commercial real estate markets, the high rate of delinquencies among homeowners, and the struggles of community and regional banks, said government sources familiar with the effort.

"Part of the mission is assessing which firms are the most vulnerable and trying to decipher what assets these companies hold and whether they pose a danger to the wider financial system. Plan C is a small-scale, relatively informal approach to a problem the administration hopes to address in the long term by empowering the Federal Reserve to oversee systemic risk."

"The creation of Plan C is a sign that the government has moved into a new phase of its response, acting preemptively rather than reacting to emerging crises, officials said.

"We are continually examining different scenarios going forward; that's just prudent planning," Treasury spokesman Andrew Williams said."

Huh? Now, can you tell what the hell they are talking about? Does this look like a newpaper article written by a reporter who actually digs in to find out more about this Plan, or does this look like a cut and paste job from the Treasury Department's public relations office handout?

"The officials in charge of Plan C -- named to allude to a last line of defense -- face a particular challenge in addressing the breakdown of commercial real estate lending."

OK, so it is about commercial real estate. And what is Plan C, exactly? The article doesn't say, and doesn't even speculate.

Remember this from March? The Treasury Secretary Tim Geithner said the plan (whatever plan he was talking about at that time - I suspect it was PPIP which has shrunk from $1 trillion to mere $40 billion) would work (and therefore he didn't need Plan B), all that was required was "will", not "ability":

(Doesn't his forehead look like a Klingon?)

Tweet

Skyscraper, Anyone?

Now the consumers are supposedly in a much cheerful and positive mood, how about some skyscraper shopping?

"Have I got an office tower for you" on MSNBC.com says skyscrapers across the US are being sold at firesale prices. How "firesale"?

How about $100,000 for a 40-storey office building at 1330 Avenue of the Americas, New York?
"The 1330 Avenue of the Americas building — which sold for close to $500 million three years ago — was auctioned last month for the minimum to a Canadian pension fund unit after owner Harry Macklowe defaulted on a $130 million loan.

"Loan defaults in the worst commercial real estate market in decades have created tens of billions worth of distressed properties across the nation, sometimes forcing cut-rate auctions of landmark skyscrapers. Developers are falling behind on mortgages as tenants leave and can find no financing to cover payments, analysts say.

"So they are selling skyscrapers at a drastic discount, with the condition that the new buyer take on the enormous amounts of debt connected to the properties."

(Hmmm, so that's the hitch...) But analysts think this is just the beginning.

""This is a train wreck that's coming in the large office towers," said Matthew Haines, chairman of the Propertyshark.com real estate Web site.

"Real Capital Analytics, which tracks commercial real estate transactions, counted over $86 billion worth of distressed properties in the country as of April, over $6 billion in Manhattan.

"Many of the towers that are likely to go up for sale were bought at inflated prices during the boom three to five years ago and could lose over half their value at sale, analysts said."

"The only major property sales that are likely in the next several months, analysts say, are distressed properties with delinquent loans.

""No healthy owner in their right mind would try to sell a property in this environment," said Fasulo. He said devalued sales of skyscrapers represent "a trickle right now. It will turn into a flood over the next 12 months.""

SRS (real estate (commercial) double short ETF) anyone? (Of course IYR - real estate long ETF - would be the obvious contrarian trade, if you are so inclined.)

Tweet