A report from Verify. “In the summer of 2021, the market started to slow down. However, Zillow Offers according to Mike DelPrete didn’t slow down with the market. ‘What happened is they ended up buying a lot of houses and overpaying for a lot of those houses because they didn’t see those brake lights,’ he said. ‘They didn’t see the market start to cool.’”
The South Florida Business Journal. “Mike Pappas CEO of Miami-based brokerage Keyes, said companies in the iBuyer business risk losing money if they overpay for homes or if there’s a market downturn. Given the cost of overhead and marketing for this business, he doubts many of them are profitable. Bloomberg reported that Zillow lost $380 million on its overall Zillow Offers operation. ‘This is the toughest year yet to evaluate the value of homes,’ Pappas said.”
The Seattle Times. “A lawsuit filed in federal court Tuesday alleges Zillow illegally failed to disclose to shareholders that it was struggling to accurately predict home prices for its house flipping business, which ultimately led the company to shutter the operation this month. The suit, filed on behalf of shareholder Dibakar Barua, alleges that misstatements and/or omissions by Zillow executives drove up Zillow share prices that later plummeted when the company announced it would shut down Zillow Offers.”
“In earnings calls in May and August, CEO Rich Barton said Zillow Offers was ‘surpassing our internal expectations’ and ‘continues to accelerate.’ During a Sept. 13 industry conference, Chief Operating Officer Jeremy Wacksman said, ‘We were really encouraged to see while we saw these incredibly hot markets, the strength and the appeal for Zillow Offers just continues to grow and we’re even more confident now that this is going to be a service really in all-weather markets,’ according to the complaint.”
The California used shack sales people. “California’s housing market continued to maintain a healthy sales pace above pre-pandemic levels even as sales have dipped from 2020, (C.A.R.) said today. California home prices continued to level off as the market moved further into the off-season, dipping below the $800,000 benchmark for the first time in seven months. C.A.R. Chief Economist Jordan Levine said: ‘Slower sales activity suggests that the market is returning to its typical seasonal pattern and further market normalization can be expected in the upcoming months.’”
The San Diego Business Journal in California. “San Diego County apartment owners have lost an estimated $2.4 billion in unpaid rents since March 2020, according to a study. ‘We’re not talking about big real estate trusts with reserves to manage through this kind of crisis,’ said Alan Pentico, CEO of the Rental Housing Association. ‘Nearly 70% of our members are mom and pop operators who own 15 units or less and still need to make mortgage and tax payments on their properties, even if their residents are unable to pay rent.’”
“Renters who skipped rent payments cut across all income levels, according to Lucinda Lilley, president of the Rental Housing Association and vice president of FBS Property Management in San Diego. Half of the landlords surveyed said that they were hit with missed payments. Among those with significant payment lapses, property owners said that they were owed an average of five months back rent, totaling about $5,000 per apartment, according to the study.”
The Commercial Observer. “Clouds hover over office properties in New York City due to COVID, with values dropping by $28.6 billion, or 16.6 percent from the previous fiscal year, according to an October report released by New York State Comptroller Thomas DiNapoli. The analysis also shows that values to the city’s office market are not expected to rebound to pre-pandemic levels until 2025.”
“And, yes, unknowns still abound. To wit, Jonathan Miller, president of real estate appraisal and consulting firm Miller Samuel, said the true impact of office valuations in New York and beyond may not be felt for years, given that many properties are currently protected by long-term leases. ‘We’re not going to know for sure for several years, if not longer, but I certainly can’t imagine how a reversion to the pre-pandemic level becomes the norm,’ Miller said. ‘The footprint that companies used to require is being recalculated and in most cases that’ll be much smaller.’”
“Ran Eliasaf, managing partner of real estate private equity firm Northwind Group, noted that at the height of the pandemic, when many people fled New York City, there was concern that there would be seven years of condominium inventory, but the market has recovered at a far quicker pace. Inventory is now likely closer to two to three years.”
“Retail had the biggest property valuation dip from pre-pandemic at minus 37.19 percent as of June followed by office at minus 36.03 percent, according to data from research company Trepp. Lodging was the third most distressed asset class in that time frame with a 27.94 percent reduction, per Trepp.”
From Bloomberg. “Surging construction costs are sending delinquency rates skyrocketing among Brazilian developers, persuading a growing number of lenders to dump their loans and creating a feast for distressed-asset funds. ‘I’m dealing with explosive demand from banks trying desperately to sell loans they made to construction firms,’ said Eduardo Martins, a partner at MGC Holding, one of Latin America’s biggest distressed-asset managers.”
“The delinquency rate for builders reached as high as 20% in May for loans carrying market rates, meaning borrowers weren’t paying on time on 3.4 billion reais in loans, according to the central bank. That’s in a year with record real estate lending: New loans for builders and individuals reached an all-time high of 194.9 billion reais in the 12 months through August, more than doubling from the previous 12 months, according to Abecip, the association for real estate financing.”
“‘Those firms bought a lot of land expecting interest rates would remain low for longer, and now they’re having a hard time finishing their projects,’ said Diego Fonseca, a partner at Jive Investments. ‘The bigger builders can hold off on new launches to save cash to survive, but even some publicly traded ones are facing challenges.’ Ferreira expects an increasing number of loans to be offered for sale in 2022, because ‘people and companies in Brazil have never been so leveraged.’”
From Domain News in Australia. “Few areas in Melbourne have seen bigger increases in property values than the coastal suburbs of the Mornington Peninsula. However, there are signs that prices in the vogue locale have finally reached a high watermark. ‘The market hit its peak in the June quarter, with an annual increase of 21.1 per cent,’ said Nicola Powell, Domain’s chief of research and economics. ‘We’re now seeing softer rates of growth – we’re into negative territory – so, it does show that the market has turned a corner in the Mornington Peninsula.’”
“While there are several factors behind the cooling market – including stricter lending criteria – Dr Powell added that buyers have a ceiling, and it’s most likely been reached.”
From Finews. “The manager of a $3 billion Asia bond fund at UBS has reportedly left with sizable year-to-date losses and significant holdings in China’s real estate sector – including Evergrande debt. Singapore-based Ross Dilkes has left UBS asset management after first joining 16 years ago. Currently, UBS is amongst the top five holders of Evergrande bonds at $274 million as of September 30, according to public data, which includes holdings invested client money like the Asian High Yield fund. The fund also has sizeable positions in other troubled developers like Sunac China and Kaisa Group. Year-to-date, Dilke’s fund has lost around 18 percent with approximately half of its holdings in real estate.”
The South China Morning Post. “Corporate bond defaults in China are expected to continue to rise in 2022, as highly indebted property developers and enterprises owned by regional and local governments struggle to access new funding after a multi-year borrowing spree, according to Moody’s Investors Service.”
“Onshore defaults by Chinese non-financial companies rose by 19 per cent to 98.7 billion yuan (US$15.5 billion) in the first three quarters of this year, while offshore defaults rose 28 per cent to US$7.8 billion this year. The amount of offshore defaults in the first nine months of this year exceeded the entirety of 2020. Over the next four quarters, about 8.7 trillion yuan of onshore corporate debt is set to mature, with 18 per cent held by ‘comparatively weak’ companies, according to Moody’s.”
“Also, more than half of the US$116 billion in offshore corporate bonds set to mature in that period are held by high-yield or unrated companies, the ratings agency said.”
From Reuters. “Ailing Chinese property developer Evergrande faces a battle to pay its debts. With around $300 billion in liabilities it’s been lurching from one deadline to another, often paying at the last minute. Now it looks like that’s taking a very personal toll on Chairman Hui Ka Yan. He’s reportedly been selling off luxury assets to help pay the debts.”
“Hui rose from humble origins in a Chinese village. Four years ago his net worth was estimated at $45 billion. But it’s now thought to be down to around $11 billion. Chinese authorities have told him to use some or all of his wealth to help Evergrande honor its debts. There has been no word from him or the company on any of the reported sales. Hui is also a big collector of valuable Koi carp, a traditional symbol of good fortune in Chinese culture. Right now though, his fortune – in every sense – seems to be running short.”