A report from the Orange County Register in California. “The talk of ‘risk’ isn’t a subject frequently heard among housing analysts and industry insiders. It’s also a good time to be in the transactions business with the quick pace of dealmaking. (Note: Many of these upbeat ‘experts’ are paid by the real estate industry.) This same thinking, though, overlooks the high possibility that today’s cheap loans and coronavirus fears could soon become memories. Not to be a buzz-killer, but all this enthusiasm seemingly forgets that buyers hold most of the risk and nobody should overlook the yo-yo-like trends in California’s real estate market.”
“The cost of being wrong can be steep. Look at California’s largest price drops in annualized terms. In the short-run, worst-case losses averaged 26% a year since 1990. In the medium-term, price depreciation was as bad as 6% a year. For lengthy ownerships, you essentially broke even. Please note that this unpleasantness isn’t just residue from California housing’s bubble-bursting collapse into the Great Recession. That debacle took 11 years, from 2007 to 2018, for the market to return to its old peak price.”
“You see, the painfully stagnant real estate market of the 1990s is often ignored. That sluggish statewide economy translated to eight years (1990 to 1998) between record highs. The substandard profits came with a higher frequency of losses: 32% in the short-and-medium timeframes (one to 10 years) vs. a 6% chance of decline in the long run. And Southern California’s worst periods were price drops averaging 27% a year in the short run vs. 6% drops a year in the medium-term vs. a dip of 0.4% yearly in the long run.”
From Reality Blurb. “Thomas Girardi will be evicted from his $16 million home in Pasadena, California any day now. During a court hearing, a federal judge ruled to allow the attorney to stay in the home for the time being as he also wondered if Thomas’ wife, Real Housewives of Beverly Hills star Erika Jayne, was aware of the bankruptcy proceedings against him. As the report explained, the large home is far too expensive for the plaintiff’s attorney to maintain.”
“According to Reuters Legal report from Pasadena Now, Thomas’ brother, Robert Girardi, who was named as his temporary conservator weeks ago, struck a deal with bankruptcy trustee Jason Rund that was described by U.S. Bankruptcy Judge Barry Russell as ‘fairly straightforward.’”
“‘There’s no way the debtor can service the mortgage on this property,’ Leonard Pena, an attorney representing Robert, said during Tuesday’s hearing. ‘He plans on moving, but obviously we didn’t want it to happen overnight.’”
The San Francisco Chronicle in California. “The recent $17.5 million sale of 150 Glenbrook atop Mount Sutro brought another stat to our attention: the highest elevation home in the city. The more than 7,000-square-foot John Maniscalco-designed Clarendon Heights home is San Francisco’s highest private residence above sea level.”
“As is typical of transactions at this price point, co-listing agent Stacey Caen couldn’t reveal much about the sale particulars, but she could say that the sellers were ‘owner-users’ and ‘design enthusiasts and professionals’ who lived in and loved the home after it was completed in 2018. The home went on the market for $22 million late last summer ‘due to the owners’ center of gravity pulling them to their residences in Southern California,’ she said. The price dropped to just under $20 million in early December, and it sold for $17.5 million, or more than $2,300 per square foot, in mid-February.”
The Philadelphia Business Journal in Pennsylvania. “The Covid-19 pandemic could breathe new life into efforts to sell a 32-acre Main Line estate recently reduced in price by $4 million. The Gladwyne property has been on the market since July 2016, when it was listed for $28 million. The asking price has steadily declined, and the latest drop brought it down 21% from $18.9 million to $14.9 million.”
“Completed in 2011, the 12,700-square-foot mansion has six bedrooms, six full bathrooms and three half bathrooms spanning three floors. Andrew Barroway purchased the land at 100 Maplehill Road in 2006 for $12 million. He spent another $23 million and three years building his dream home, bringing the total investment up to $35 million.”
“The property has received offers, but none that Barroway has been willing to accept, said Misha Haghani, a broker who holds the listing. ‘I think it really does have tremendous value,’ Haghani said. ‘If someone’s looking for quality, the replacement value on this property is going to be double what the purchase price is going to be. Someone is going to do very well on this property.’”
“The difficulty in selling the home stems from its price point, Haghani said. Though Gladwyne’s 19035 ZIP code is one of the wealthiest in the country — with an average household income of $844,700 — the house’s price is still well above the typical home value of nearly $1.1 million in the area. 100 Maplehill Road is the second most expensive listing in Montgomery County, beat out only by a $23.95 million property at 1543 Monk Road which has also been on the market for years. The Monk Road property was listed again in March 2020 after an unsuccessful listing in 2013 and multiple price drops over the years.”
From Realtor.com. “Nationally, home prices are up in just about every nook and cranny of the country. But wait! The realtor.com data team discovered a few places where home prices are actually falling. The Destin, Florida area has seen an increase in offseason tourism as parents and children are able to work and go to school remotely, according to Jacqui Luberto with Realty ONE Group Emerald Coast. However, the market is saturated with condos, which is likely helping to drag median prices down. On the other end of the spectrum are the $1 million-plus homes that aren’t selling. Median list price: $469,000. Median list price change: -15.6%.”
“Hawaii is synonymous with tourism, which hasn’t exactly been a good thing over the past year. In December, visitors entering the state plunged 75% compared with the same time a year ago, according to preliminary data from the Hawaii Tourism Authority. That drop has led to massive job losses in the leisure and hospitality sector. In the Honolulu area, unemployment has reached 8.1%—well above the national rate of 6.7%.Honolulu, HI. Median list price: $975,000. Median list price change: -12.2%.”
“Located in Central Illinois, Bloomington allows relatively quick access to major cities like Chicago, St. Louis, and Indianapolis. But a struggling economy and a statewide exodus, partly due to rising taxes, have hurt Bloomington’s housing market. Recent layoffs at Bloomington-area manufacturing companies, restaurants, and Illinois State University means there are fewer people in the workforce. Average wages dropped as well. Median list price: $117,000. Median list price change: -8.3%.”
The Washington Post. “Nearly a year since coronavirus-related shutdowns began affecting large swaths of the American economy, more businesses are filing for bankruptcy as Chapter 11 filings were up nearly 20 percent in 2020 compared with the previous year, court records show. Bankruptcies filed by entertainment companies in 2020 nearly quadrupled, and filings nearly tripled for oil and gas companies, doubled for computer and software companies and were up 50 percent or more for restaurant owners, real estate companies and retailers, compared with 2019, data from the research firm show.”
“There were 5,236 Chapter 11 filings in 2019, but 6,917 last year, a tally at least 30 percent higher than any of the previous four years. Because bankruptcy filings lag other signals of economic distress, experts say the worst may be yet to come. Bankruptcies stemming from the 2007 financial crisis didn’t peak until 2010.”
“‘Bankruptcies don’t cause damage to the economy,’ said Ed Flynn, a consultant to the American Bankruptcy Institute. ‘The damage has already been occurred when the bankruptcy is filed. Higher bankruptcies is more a symptom of economic harm than the cause.’”
“Restaurants have been one of the hardest-hit sectors on almost every measure during the pandemic, and experts say the worst of the fallout is likely still to come. Los Angeles bankruptcy attorney Rosendo Gonzalez, who serves as a court-appointed bankruptcy trustee in some cases and represents other companies for their own filings, said restaurant clients he has talked to are either closed or hanging on by a thread. Some will just walk away from their locations and not bother filing, he said. Others may wind up filing for Chapter 7, meaning all of their assets are liquidated and they do not reopen.”
“‘Restaurants I know are having a hard time. And it’s just a question of when they are going to file,’ Gonzalez said. ‘I think there is going to be an increase across the board, of all types and chapters. I just don’t know when it’s going to happen.’”
“As the value of retail and office space has plummeted during the pandemic, it has plunged development projects underwater, meaning the values of the properties are lower than the amount the owners owe. Jim Hammond, chief executive of New Generation Research, said real estate companies with heavy debts will be at risk. ‘Even a return to normal may not be enough to save them,’ Hammond said.”
“Retailers’ woes have begun to trickle down to some of their suppliers, however. On Feb. 15, Country Fresh, a provider of fresh fruit snacks, salads, sides and soups to convenience stores and other markets, filed for Chapter 11. Based in the Houston, the company listed hundreds of thousands of dollars in debts to packaging, logistics, shipping and marketing contractors. ‘Pandemic-related supply chain and business disruptions have affected Country Fresh and our customers dramatically over the past year,’ said Bill Andersen, Country Fresh chief executive. He said the company and its assets would be sold.”
From Bisnow. “Malls once part of Simon Property Group’s nationwide portfolio have seen their worth fall off a cliff, with appraisers slashing a handful of valuations up to 88% in recent weeks. Simon designated 13 of its properties as ‘non-core’ in its latest earnings report. Anchor tenants increasingly vanished from those malls even before the coronavirus pandemic, and all but two of those assets have been transitioned to their lenders, according to DBRS Morningstar.”
“The approximately 520K SF collateral at Crystal Mall in Waterford, Connecticut, recorded the most dramatic fall, from a valuation of $153M in 2012 to just $18.7M in February, an 88% drop, according to CMBS tracking firm Trepp. Simon was in the process of transferring the mall to its lender as recently as January. Appraisals for other malls that were until-recently owned by Simon have had nearly as drastic drop-offs in their valuation.”
“The Square One Mall in Saugus, outside of Boston, saw its valuation drop 75% collateral valuation, Trepp reported. The value dropped from $201M at the time of the CMBS loan’s securitization in 2012 to $50.5M this month. The Dover Mall in Delaware, a 554K SF center valued at $129M in 2011 was lowered to $41M in February, a nearly 69% chop. The 385K SF non-anchor space at Mall at Tuttle Crossing in Dublin, Ohio, saw its valuation of $240M in 2011 fall to $80M under a new appraisal, Trepp analysis revealed in December. Both malls are in receivership.”
“The Emerald Square Mall in North Attleboro, Massachusetts, was handed to JLL by a federal judge in November, The Sun Chronicle reported. The imminent closing of Sears at Emerald Square is expected to trigger co-tenancy clauses, according to a Fitch Ratings note, which would downgrade the rating of the loan. The mall behind $97.7M in CMBS loans hasn’t yet seen its valuation cut — it was appraised at $167M in 2012.”
“When talking about the malls on which Simon had nonrecourse CMBS debt, CEO David Simon said some of the deals could be restructured, but acknowledged the publicly traded firm was comfortable handing back the malls, rather than try to rescue them.”