All Over The World

I know I should be do some type of retrospective of the past year's events, but I don't really feel like it. I would like to instead talk about 2010.

Gawker had an interesting piece on how housing arrangements are changing in this economy.


One particular article that got my interest was a report of what was going on in Tokoy.

Sayonara to the Rabbit Hutch: Living With Roommates in Japan

Kumi Tahara, 27, and Kana Arai, 32, stepped into the void, founding a real-estate agency named "Tokyo Girls' Real Estate." They persuaded some landlords to let them slice up four-bedroom apartments into as many as 10 smaller rooms, which they then started renting out to young Japanese women. "After the Lehman shock, a lot of gaijin [foreigners] left, and there are some places that have been vacant for more than half a year," says Ms. Arai, who wears a pink sequined bow on her head and favors miniskirts and knee-high boots. "The landlords pay the redesign fees and we're able to increase the rent."

Last weekend, I met a person who was visiting from London, he informed me that because of financial meltdown, foreigner workers from Australia, New Zealand and other countries were laid off and had to leave which left a ton of vacancies in the residential rental market. And of course this person took advantage of the situation.

It is not just Tokyo or London but also Manhattan, Las Vegas and other areas that experienced insane amounts of growth and were hiring like mad. It was this surplus of people that was one of the reasons why the rental markets of these cities were on fire.

Recently I had the opportunity to invest in a rental property that honestly was a steal. It was in a great location and teh seller was very motivated because there were several deals on the property that had fallen apart. However, I decided to abstain from the purchase. And it ended up getting snatched up by another buyer. I am not kicking myself over not buying because from my own personal research and from the stories I just presented, I am unsure of the health of the rental market. There is no ROI if it can't be rented. Market conditions indicate there will be more opportunities, so I will wait.

Economy Stems the Flow of Tourists to New York

But the recession has interrupted the mayor’s vision, as businesses large and small have felt the effects of the tourism decline this year.

At Souvenirs on 5th, a gift shop on West 34th Street, Carlos Flores had time to rearrange merchandise just 12 hours before the crystal ball was to begin its descent toward the throng in Times Square. The store was fully stocked with all manner of T-shirts, key chains and other keepsakes expressing a global fondness for the city and, especially, its police force and firefighters. But few were selling — for the posted $15 or even at a haggler’s discount.

“My boss is really suffering,” lamented Mr. Flores, who said he lived in Astoria, Queens, and had been selling souvenirs in the city for 10 years. “We used to work here, like, 10 guys, now it’s just 3 people. This time of year, we used to work 24/7. Now there’s no people. They’re not spending money.”

Mr. Flores said a rise in the number of American customers had offset some of the decline in European shoppers, but not nearly enough.

I think a lot of people are going to be investing in staycations in the coming year.

And if you are not concerned about next year. Well these two articles might give you a moment to pause.

Is It All Just A Ponzi Scheme?


Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else


Happy New Year!

Surf's up

I am taking a break. Even in this s**tstorm, I am taking a breather from blogging. I might pop in once before next year.

And sometimes they come back.

Instead of the powerful landlord evicting the immigrants, the immigrants evicted the powerful landlord

This was a quote from an article regarding the sale of a very large portfolio of buildings back in 2007. The sellers had a reputation of following the substandard low income housing model much to the chagrin of their tenants. The sellers deny this of course and place the blame on their tenants.

When I read that quote, I shook my head because it was just another example of the differences between the thinking of the rich and poor.

Real estate is an illiquid asset, which is why real estate investors, particularly landlords always leave their options open whether it is to sell or to file bankruptcy. As long as that option leads to maximum profitability.

When that landlord sold his portfolio, it wasn't because his tenants ran him out of town it was because of the market. He realized this was the best time to cash out because everything was overpriced and there was very little inventory to go around. Which is why he sold.

And whatever victory these tenants proclaimed was Pyrrhic at best because they realized the new owners were worse.

"It is hard to believe, but the new owners are worse," said Juan Haro, leader of the Movement for Justice in El Barrio, a community organization that for over two years has battled abusive landlords in East Harlem.

Now here's where it gets interesting.


Tenants Struggle as a British Landlord Goes Bust

December 22, 2009
Tenants Struggle as a British Landlord Goes Bust
By CHRISTINE HAUGHNEY

Foreign investors were a major force in New York’s real estate boom of the last decade, with families and companies from Dubai to Australia swallowing weekend apartments and Midtown office towers. In 2007, the roster of international investors came to include a British firm, Dawnay Day, whose executives had a splashy reputation for spending millions on fine art and yachts.

It was then, after a meeting with a New York landlord at an art show in Miami, that the British firm plunked down $225 million for 47 rental buildings, most of them in East Harlem.

The plan, in a gentrifying neighborhood, was to repeat the success its executives once found in the transformation of the south London neighborhood of Brixton. Dawnay Day would ease out its mainly lower-income residents, rehabilitate the apartments and charge a new generation of younger, more affluent tenants substantially steeper rents.

The efforts, though, didn’t get far before the recession spread across the globe and Dawnay Day went bust. Now, as part of one of the United Kingdom’s largest real estate insolvencies of the recession, the firm’s yachts are up for auction, and their expensive art has been stripped from the walls of its former London headquarters.

And in the 47 buildings, anger, uncertainty and a degree of misery have set in. At tenant meetings, renters complain of gaping holes in their ceilings and walls that allow rats to freely roam. The properties face foreclosure, and it is very possible that the buildings may fall back into the hands of the landlord some tenants say neglected them long before they attracted a foreign buyer.

“They were a multinational corporation guided by greed,” Juan Haro, director of the housing rights group Movement for Justice in El Barrio, who has worked with tenants in the buildings, said of Dawnay Day. “They failed miserably. They crumbled financially and they were a victim of their own devices.”

Saying the federal government has not adequately responded to the broader real estate crisis, a group of tenants are planning a demonstration for Tuesday at the Bank of New York Mellon, which holds the mortgage on the Dawnay Day properties.

Big surprise.

Now I am focusing on this situation from a real estate perspective not a moral one so please excuse me if I my tone sounds callous even admirable but I truly feel that there are many key points one can learn from this situation.'

The deal, which had been discussed for weeks, was completed during Art Basel, an annual art collectors’ gathering where Dawnay executives agreed to meet Mr. Kessner. Mr. Kessner recalls chatting with the company’s two head executives, Peter Klimt and Guy Naggar, about the final price and letting his son Michael stay and manage the buildings.

I don't hear any mention of any brokers representing involvement. Why? Because these guys already met and agreed on a price. The last thing they needed was an additional cost. I am sure Robert Knakal would have been smacking his lips over a deal of this size but it was not to be.

Besides the cost, it was the seller's advantage for the buyer to not be represented by a commercial because the broker would have been able to hammer out a better deal for the buyer.

Back in Harlem, where Dawnay Day had hired Michael Kessner to manage the buildings for them, there was general confusion. Mr. Kessner said he stopped receiving guidance from Dawnay Day after the company folded and had little direction to go by.

“Their office basically just shut down,” he said.

Now this was a critical error on part of the buyers and shows their ignorance of how New York Real Estate works. In certain situations you want to keep certain people around and there are situations where you want to dump them. What Dawnay Day should have done was scoured the entire building staff of any influence of the previous owners and recruited an outside property management company to take over.

However each situation is different and I am sure that loyal inside man made every effort to preserve the profitably for the new owners and did not contribute in anyway to the current state of foreclosure. And I am sure the inside man was not feeding information real time information to the former owner of the deteriorating conditions of the building and plotting a strategy to retake their portfolio at rock bottom prices.

Which brings me to this quote.

Mr. Kessner said he would bid on the foreclosed properties “at the right price.”

The right price will definitely be at the fraction of the original selling price. Banks are not in the business of managing real estate only loaning money for real estate. And with the commercial market on the verge of imploding, they will be more than happy to dump this onto someone else's lap.

It is so brilliant in its simplicity because technically the original owners never even left. They were just sitting on the sidelines waiting for the next opportunity. These original owners weren't even on the hunt for new properties since they probably knew that the buyers were way over their head and it was only a matter of time that they would be in the driver's seat. And now the cycle begins anew.

As I said before, in real estate investing, you always keep your options open and exercise the one that leads to the most profitability. Whether it means stepping forward, backward, around or just waiting it all comes down to what will bring you the most money.

Why? Because at the end of the day real estate is a business and the objective of a business to make a profit.

New Bern Home Sales

46 Home sales from Dec.1-Dec.20 2009 have been recorded. This compares to the following sales in previous years.

46 sales in 08

95 sales in 07

131 sales in 06

It is good to see sales this month are in line with sales last year during the same time period. You cannot compare them to 06, 07, because we will never see sales like that again. Those were unsustainable numbers that the new banking regulations will prevent from happenning again.

Have a safe and wonderful. Christmas.

Jesus F**king Christ!

Those were the first words I uttered after getting this press release from Kelly Kreth.




BID ON THE CITY ANNOUNCES FIRST $1 AUCTION EVENT

TO BE HELD FEBRUARY 1, 2010

New York, December 21, 2009 – Bidonthecity.com, the first and only online real estate trading platform for Manhattan residential and commercial real estate properties, announces today that they will be holding a first-time $1 auction event on February 1, 2010, live in their Fifth Avenue showroom and online simultaneously at www.bidonthecity.com.



Bidding for each of 13+ luxury Manhattan properties will begin at a minimum bid of just $1. The bidding event will run from 12pm-4pm at 15 minute increments.



Properties up for sale range in size from studios to five bedrooms, and range in price from $225k to $5m. All properties are located in top-notch buildings and are not distressed properties.



Potential bidders can view a complete list of properties up for $1 starting bid on http://www.bidonthecity.com/searchResult.php. Open houses for these properties will be taking place in December and January. For dates and times of Open Houses, interested parties can also find that information at the above link. Properties from the following neighborhoods will be up for bid: Upper East Side, East & West Harlem, Chelsea and Midtown West.



“We are excited about the opportunities in real estate in 2010 and want to provide both buyers and sellers with a fast, efficient and transparent way to get the prices on luxury Manhattan properties,” explains Vlad Sapozhnikov, co-founder and managing partner, Bid on the City.”

By no means am I taking any shots at BOTC. I saw this business model coming 6 years ago and they are just an indication of what is to come. They will play a significant role in the future of real estate. However, the fact their minimum bid is a buck just goes to show how much as changed since the market crashed. One could argue that this is all a publicity stunt but I disagree. Instead of whipping up numbers on their own, BOTC wants the market to decide what a property is worth. Is this foolproof? No. But it will be useful to learn from.

This is bad or good. Depending on who you are.

Snafu may overfill city shelters, rendering 3,000 subsidized housing vouchers worthless

NYCHA Chairman John Rhea Thursday blamed the move - which could push thousands into the city's already crowded shelters - on Congress, a lower-than-usual attrition rate in the program and unprecedented demand.

"NYCHA has had to make the tough decision," Rhea said.

The decision will not affect families who already receive subsidies, but the agency will "not be issuing any new vouchers, period," he said.

More than half the vouchers - 1,833 - had been given to families and individuals who were once homeless.

This is going to have some really nasty consequences. Expect a lot more homelessness and if they aren't stretched to their limits, shelters and other forms of aid are going to be overwhelmed.

If there is a bright side to this situation it shines on landlords who won section 8 housing. Although they are considered to be a difficult to manage, section 8 housing has the advantage of having an uninterrupted source of cash flow courtesy of Uncle Sugar. We are talking milk money straight from the teet.

A landlord with section 8 housing will probably have an easier and more profitable time cashing out.

What time is it?

Looks like the Fed is sticking with the same game plan.

Text of Fed statement on interest rates and economy

Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months. Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales.

Financial market conditions have become more supportive of economic growth. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009. These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1.

The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

So what does this all mean?

This is obviously a good time to buy real estate since the market is now in recovery mode. And if you have good credit, cobbled together a decent down payment and are not an all around credit risk you could probably lock in mortgage at a really sick rate. But don't bother looking for a refi until the market kicks back up.


Interest Rates Are Low, but Banks Balk at Refinancing

This says it all.

Andrew Knapp, a sales executive in Bartlett, Ill., has tried twice to refinance, which would save his family several hundred sorely needed dollars every month. Lenders said the house had lost value and the Knapps had too much debt. “There was no urgency for them to do anything,” Mr. Knapp said.

The most recent Federal Reserve survey of lenders found that they were continuing to tighten terms for business and household loans. Banks say they are under pressure from regulators to raise their cash reserves, which means fewer loans. They also argue that a troubled economy breeds extreme caution.

“More than ever before, lenders are very conscious of making good quality loans,” said Michael Fratantoni, the vice president for research at the Mortgage Bankers Association. “They are looking at the value of the collateral and the credit quality of the borrower.”

There is no incentives for lenders to enter the refi game because that bats**t insane no holds barred market does not exist, so whatever value these properties once had is now gone. So any plans to refi some cash out of your property to buy another is probably not going to happen.

So what is a buyer to do?

Well I hear house flipping is back in vogue.

Or you can play the buy and hold which only works to your advantage is if you get absolutely amazing price on your property which isn't too hard these days and as I stated before, depending on your financial status and how much of a down payment you can acquire. However whether it is cash flow from an investment property or your own household income, you better have the money to make your payments. But it will all be worth it once the market recovers and the appreciation kicks in. But you have to be able to wait.