Archive for the ‘Real Estate’ Category:
A sober look at the Canadian real estate market:
According to investment analysts, Canadian citizens are feeling more optimistic about their financial futures than they have since 2011. Consumer confidence indexes leapt by a full five points to a resounding 99 halfway through 2012. Data collected by Nielson reflected the fact that only seven out of 58 analyzed countries enjoyed such dramatic rebounds. Ideally, such optimism would have a profoundly positive impact on the economy, launching increased spending and rising property values. Idealism, however, has no place in the property market today. Happy homeowner outlooks could potentially dig consumers into deeper debt holes because the optimism boom bares no reflection on the reality of the national economy.
Forty percent of Canadian citizens believe that property purchase is currently an excellent idea. Inflation levels are dwindling, which is responsible for much of the boom. Hourly earnings have also climbed by just over three percent. Nationally, retailers are focusing on exploiting the opportunity to claim additional market share by offering reduced prices. In Canadian minds, financial circumstances are looking bright, yet in reality, citizens are heavily weighed down by increased debt loads. Only 38% are funneling their negligible disposable incomes into debt relief. Almost half of Canada`s consumers are aware that they exist in a recession, but many of these foresee a far brighter future for the economy within the next 12 months. The perspectives of central banks are far gloomier than those of consumers. As 2013 dawned, The Bank of Canada saw a subtler outlook for the rebound. Intentions to stimulate the potential rebound have been reigned in as bonds rise and the Canadian Dollar declines. The Bank of England aims to push up rates, an action that has been avoided for three years.
Analysts such as Nielson offer little more than the personal perspectives of local consumers. A more realistic perspective of the housing market can be found from investment analysts seeking to draw a clearer picture of household debt and property sales. Price rises have begun to dwindle as the housing market finds balance. In an attempt to calm down debt loads, attempts are being made to discourage lending by increasing interest rates on loans. At the close of 2012, those in the know were in a panic about the imminent rates increases that were expected to arrive. Governor Mark Carney had been encouraging rate hikes to save unwary consumers from taking on additional debt loads. On 23 January, these expectations were analyzed again in terms of the low inflation rate and currency changes. Carney took a kinder approach to rate hikes and increases are now expected to occur only in April 2013. Some more optimistic analysts predict rate increases only in 2014.
One of the main goals of stimulus packages is the intention to keep inflation beneath two percent. The property sector is also a concern, but it appears to be balancing itself out despite continuing increases in building. The resultant rising inventories are not expected to cause dramatic imbalances in the housing sector.
Certain strategists are even interpreting the pending rate increases as prequels of future rate cuts. Carney has stated that he has not ruled out the option. The housing sector has improved slightly, which means that adjustments have become less necessary. Investment analysts predict that Canada will have experienced a full economic recovery by 2014, a slightly less optimistic vision than that communicated in 2012.
Debt to income ratios are expected to find equilibrium at the current level as consumers spend more carefully on credit. Despite these positive changes of opinion, if the housing sector rebounds, the results may negatively impact income-debt ratios in the future, which is decidedly risky for the economy. For ten years, the housing market has been working towards a boom and a growth of property credit is one of Carney`s most profound concerns. Demand for property experienced a sudden upsurge, followed by a dramatic decline in demand. Real estate professionals found themselves in a sudden market crash. In response, The Bank of Canada tried to induce a bubble by pushing interest rates down. The decline might have dire impacts on the local economy. Job loss, recession and the debt crisis happened simultaneously, pushing housing values down by as much as 22 percent. It is suspected that consumer confidence was responsible for the crisis. Inflated property offers may well have banished households into too much debt, perfectly demonstrating the power of overconfidence. National debt relief remains one of the most efficient ways to stabilize first world country housing bubbles that coincide with credit balloon.
NO Promoting, NO downline building, NOT MLM, NO products to buy and NOTHING to sell
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…wait until you see what’s in the cards for commercial real estate.
That’s right, the next train wreck will be in commercial real estate. Couldn’t be worse than last year’s residential market crash? That remains to be seen. But it’s coming soon, probably as early as the second quarter of next year, and there’s nothing that can prevent it. The government will intervene, trying desperately to delay the day of reckoning, and may even succeed. For a while. But make no mistake about it, that train is going off the tracks no matter what.
Every part of the sector – from multifamily apartment buildings to retail shopping centers, suburban office buildings, industrial facilities, and hotels – has accumulated a huge amount of defaulted or nonperforming paper. It’s an impossible, swaying structure that cannot long stand.
Just ask Andy Miller.
Andy is one of the most knowledgeable people around when it comes to commercial real estate. Co-founder of the Miller Fishman Group of Denver, he has spent twenty years buying and developing apartment communities, shopping centers, office buildings, and warehouses throughout the country. He’s also worked extensively – especially lately – with asset managers and special servicers (those who handle commercial mortgage-backed securities, or CMBS) from insurance companies, conduits, and the biggest banks in the U.S., advising them on default scenarios, helping them develop realistic pricing structures, and making hold or sell recommendations.
It isn’t easy. Commercial real estate sales are off a staggering 82% in 2009, compared with 2008, and last year was worse than ’07. No one is selling at depressed prices, but it hardly matters as there are no buyers, either because they’re afraid of the market or can’t meet more stringent loan requirements. Two years ago, the value of all commercial real estate in the U.S. was about $6.5 trillion. Against that was laid $3-3.5 trillion in loans. The latter figure hasn’t changed much. But the former has sunk like a bar of lead in the lake, so that now between half and two-thirds of those loans will have to be written down, Andy estimates.
“If the banks had to take that hit all at once, there wouldn’t be any banks,” he says.
And it’s actually worse than that. As even average citizens became aware during the subprime meltdown, loans in recent years were bundled into exotic financial vehicles that could be sold and resold, a class generically known as conduits. These commercial mortgage-backed securities, while less well known than their cousins built upon home loans, are nonetheless ubiquitous.
Three guesses who were among the significant buyers of CMBS. If you said banks, banks, and more banks, you got it. Thus these folks are sitting not only on their own malperforming loans, but on a whole lot of everyone else’s toxic junk, too.
This is how bad conduits are: A 3% default rate last year jumped to 6% in 2009 and is expected to double again, to 12%, in 2010. An entity that takes a 12% hit to its portfolio – and this includes countless banks, pension and annuity funds, international institutional investors, and others – is in deep, deep trouble.
The real tsunami is coming, probably in the second quarter of 2010, Andy estimates. Because that’s when banks will have to start preparing for the wave of mortgages that were written near the market top and are maturing in 2011-12. Unlike home loans, commercial loans tend to be relatively short-term in nature (average 5-7 years), because – outside of apartment building loans backed by Fannie or Freddie – there are no government programs to subsidize longer-term ones. These guys mature in bunches.
According to a recent Deutsche Bank presentation, the delinquency rate on commercial loans as of the end of 2Q09 was greater than 4%. Of these, they expect that north of 70% will not qualify for refinancing. Imagine what will happen to the estimated $2 trillion in commercial mortgages that mature between now and 2013.
And even that is not the end of it. There’s a second huge wave on the way in 2015-16.
Problem is, instead of trying to meet this inevitable challenge head on, asset managers have decided to believe in such phantoms as the tooth fairy, honesty at the Fed, and an economic turnaround powerful enough to bail them all out. De Nile is not just a river in Egypt.
To be fair, it’s difficult to envision what an intelligent, aggressive response would look like, given the breadth and depth of the crisis, and the lack of resources available to deal with it. Miller recently met with a group of asset managers from a number of different, prominent banks. They reported that they’re completely overwhelmed and can’t even begin to cope with the sheer volume of problem loans on their calendar. It’s so bad that they’re now dealing with some borrowers who haven’t paid a cent in a year and a half.
What do you do if, as Andy thinks is the case, 85-90% of the entire commercial real estate market is under water relative to its financing? What happens to a property when its value drops way below the loan, a seller can’t get enough money to get out, a buyer can’t raise enough money to get in, and the bank can’t afford to foreclose? Simple. It just sits there, carried along on the bank’s books at some inflated “mark to fantasy” price that makes the institution’s balance sheet look passable. The industry even has a catchphrase for the situation: “A rolling loan gathers no moss.”
In the case of a retail store, a bankrupt tenant walks away. Andy looked at just the part of Phoenix where his firm does business and found 90 vacant big box stores, with an aggregate floor space of 8 million square feet. If Christmas season is as lackluster as cash-strapped consumers are likely to make it, there will be many others to follow.
The hotel business is terrible. Overbuilding based upon travelers who went into debt to finance lavish vacations is taking its toll on tourist destinations. At the same time, business travel has seriously contracted. Flights into Las Vegas, which caters to both, have been slashed so much that even if every seat on every remaining flight were filled and visitors stayed for an average number of days, the hotels still couldn’t break even. In industry parlance, banks are now engaged in “extend and pretend,” i.e., giving hotels three- to six-month loan extensions in the hope that things will somehow improve in the near future.
Office space is doing okay in central business districts, but not faring well elsewhere. Some estimates tab the national office vacancy rate at over 16.5%, compared with 12.6% in January 2008. It exceeds 20% in parts of Atlanta and San Diego, and in many places in between.
Multifamily apartment buildings – and the very creaky Fannie and Freddie are carrying a load of them – may be the next to topple. As values deteriorate and landlords are faced with loans coming due, there is no incentive to fix whatever goes wrong. If, for example, you have a $10 million loan maturing in two years, and the property value has declined to $6 million, why would you spend half a million to fix leaky roofs? The question answers itself. Yet, as capital spending needs are not attended to, the apartments deteriorate. Which leads to working-class tenants replaced by meth labs. Which leads to even lower property values. And so on. In the end, when the banks are forced to take possession, they will be left with either expensive repair jobs, or the cost of demolition and a total write-off.
As the overall commercial real estate crisis escalates, the banks will do the same thing they did last year: run to the government, palms outstretched.
How will Washington respond? Good question. On the one hand, further bailouts will further infuriate the public. But on the other, the political sentiment will be that allowing the banks to fail will have even more dire consequences.
The Fed has already tried to let some of the relentlessly building pressure out of the balloon through TALF (Term Asset-Backed Securities Loan Facility). But that hasn’t worked, because TALF only backs the most senior, creditworthy bonds in a CMBS pool. Those aren’t the problem. The problem is the junior notes no one wants.
In order to increase market liquidity and get conduits moving again, the government will likely be forced to create a guarantee program similar to the FHA, Miller thinks, whereby short-term money (on the order of 5-7 years) is made available. Will that just push our problems five to seven years down the road? Quite possibly. But what is being purchased is time, the only thing left to buy. The hope, of course, is that it’s enough time – for the real estate market to stabilize, prices to return to more “normal” levels, and the world to turn all hunky dory.
Rock, meet hard place. Let all the troubled banks fail, and the consequences will range from some excruciating but short-term pain, to a plunge into full-bore depression. Prop them up with yet more newly printed fiat money, and anything from high to hyperinflation will inevitably result, along with the possibility of extending the problem well into the next decade.
Both are frightening prospects. We don’t want either, but realistically, we’re going to get one or the other. Let’s be clear, it won’t be the end of the world. However, it will be the end of the world as we know it. That makes it imperative to prepare for the new one that’s coming.
Source: Escape from America Magazine
Hello dear readers. A while back I introduced you all to a private property development investment opportunity that I am involved in. Back then we were looking for new members in order to fund a new development we were working on and eventually we gathered all the additional capital we needed. Shortly thereafter we closed to new investors. This was back in April of this year.
Now in the meantime things have moved on and we find ourselves yet again in a situation where we need a few more members to put together some new lucrative property development projects.
So what I am saying in a rather roundabout way is that we are once again opening our doors to new investors!
If you’re a serious investor this an opportunity you would not want to miss.
I am introducing this opportunity to you with great reluctance because frankly I and the majority of existing investors want to keep this to ourselves. However we find ourselves in the situation where if we wish to work on any project in the coming year we need a small infusion of additional capital. We wish this wasn’t the case but consider this your lucky chance to get in on the “rich man’s” game of property development.
Did You Know 20% of the Forbes TOP 400 millionaires list real estate development and investments as their primary source of wealth? That should tell you something!
Now let me tell you a few details about what we’ve got going on property wise and where your money will be put to work:
The first project involves the purchase and development of a gorgeous waterfront property. What we have in mind is to develop and sell cottage lots – essentially recreational lots. The property lends itself beautifully to this use as it’s located right on the shore of a large river and offers a magnificent view.
Expected return on this project is around the 200% mark (including principal)
The second project is a waterfront RV Park business. I bet you’re wondering what’s with us and waterfront properties. Well you see this is the kind of development we do – we work only with waterfront property because it is more valuable and that means more profits for us, and you of course – should you choose to join us.This project is barely started and we already have 16 RV spots already sold.
Expected net return is above 30% per year.
The third project is also a waterfront RV Park – we sure love these RV parks!This one is very close the the previous one – they’re just down the road from each other. It is smaller then the previous one but the return should be the same.
Now before I tell you how you can join I want you to read the two previous posts I made when I first made this opportunity available to the public. These posts contain some further details that I want you to know before even considering joining us.
Go here for the original introduction to this opportunity:
Also please see the subsequent post I made with further details:
*Don’t skip either one as they’re equally important*
Now, let’s move on to another very important detail. To become a full member and start making money, you will be required to make a minimum unit purchase of $525 (Canadian Dollars)
We tell you this up front because we want you to know we are serious and we don’t want to waste your time and ours if you are not.
All interested parties please e-mail me at the following address:
Make sure you mention “Private Real Estate Investment Opportunity” in the subject line or something similar so I know what you’re e-mailing me about – don’t just send me a blank e-mail!!
Wishing you all the best!
By Kenneth R. Harney
Los Angeles Times
Thursday, September 24, 2009
Who is more likely to walk away from a house and a mortgage — a person with super-prime credit scores or someone with lower scores?
Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to “strategically default” — abruptly and intentionally pull the plug and abandon the mortgage — compared with lower-scoring borrowers.
National credit bureau Experian teamed with consulting company Oliver Wyman to identify the characteristics and debt management behavior of the growing numbers of homeowners who bail out of their mortgages with none of the expected warning signs, such as nonpayments on other debts.
With foreclosures, delinquencies and loan losses at record levels, strategic defaults and walkaways are among the hottest subjects in residential real estate finance. Unlike in earlier academic studies, Experian and Wyman could tap into credit files over extended periods to identify patterns associated with strategic defaults.
- Among researchers’ findings are these eye-openers:
- The number of strategic defaults is far beyond most industry estimates — 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year’s fourth quarter.
- Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they’ve fallen behind on other accounts.
- Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.
- Two-thirds of strategic defaulters have only one mortgage — the one they’re walking away from on their primary homes. Individuals who have mortgages on multiple houses also have a higher likelihood of strategic default, but researchers believe that many of these walkaways are from investment properties or second homes.
- Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore — a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion — are far more likely to default strategically than people in lower score categories.
- People who default strategically and lose their houses appear to understand the consequences of what they’re doing. Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters “are clearly sophisticated,” based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines of credit until after they bail out on their main mortgages, sometimes to draw down more cash on the equity line.
Strategic defaulters may know that their credit scores will be severely depressed by their mortgage abandonment, Tantia said, but they appear to look at it as a business decision: “Well, I’m $200,000 in the hole on my house, and yes, I’ll damage my credit,” he said of defaulters. But they see it as the most practical solution under the circumstances.
The Experian-Wyman study does not try to explore the ethical or legal aspects of mortgage walkaways. But it does suggest that lenders and loan servicers take steps to screen and identify strategic defaulters in advance and possibly avoid offering them loan modifications, since they’ll probably just re-default on them anyway.