A report from the New York Times. “For Claudia Ruffle, living in a co-housing community was a lifelong dream. So she was among the early supporters of what was envisioned as Connecticut’s first co-housing community. Ms. Ruffle and a friend contracted to purchase one of the attached housing units there, and sold their home in New Haven in anticipation of closing in 2019. But their closing date kept getting extended. And then members of the community were told that the project was having a cash flow problem.”
“The entire project went into foreclosure. And Ms. Ruffle’s dream — and finances — was dashed. ‘That money is now gone and there’s no way for us to retrieve it,’ she said. ‘We lost about $170,000. And we both have very low incomes. Ever since, we’ve been living in not good circumstances at all.’”
“Housing Enterprises, a consulting firm in Enfield, helped the group win a $2.6 million housing grant from the state to make some of the units affordable. ‘A lot of people lost money,’ said David Berto, the president of Housing Enterprises. ‘There was a whole group of people who put in money to buy the land, and some of those weren’t home buyers. They were just people who wanted to help, including me. We have all lost money and that’s just the way it is.’”
The Desert Sun in California. “The City of Palm Springs has issued a letter to fractional ownership real estate company Pacaso saying it considers the business a timeshare operation. The letter, sent in early December and obtained by The Desert Sun through a public records request, orders Pacaso to cease operations in the city ‘immediately.’ It calls Pacaso’s position that the city’s timeshare ordinance doesn’t apply to the company ‘not legally tenable.’ The company hired a lobbyist to help it deal with the letter.”
“Founded by former Zillow executives, Pacaso’s business model centers on buying high-end homes in popular vacation markets and selling shares in them to investors. These homes are purchased under newly-created limited liability companies, or LLCs, which serve as the financial vehicles for the Pacaso transaction. Once all shares in a home are sold, Pacaso transitions to a property management role.”
“The city letter cited a range of factors justifying the ban on timeshares in single-family residential zones, chiefly issues relating to housing affordability and negative impacts on nearby residents’ quality of life. The city argued that Pacaso’s model would also create ‘secondary effects’ on neighborhoods similar to short-term vacation rentals, with multiple different occupants, guests and cleaners cycling through a home in a week.”
From KXAN in Texas. “Maria Lopez, an elementary school custodian, bought a brand new house in 2016. When she moved into her new home in the south Austin development Lennar at Bradshaw Crossing, she hoped for a fresh start. But Lopez said soon after moving in, she began noticing cracks growing in the corners of her walls. Lopez’s struggles with her foundation are not unique in her neighborhood. Email after email sent to KXAN from homeowners in Lennar at Bradshaw Crossing detail cracking in walls of their homes and driveways, and the slow-going process to get repairs covered under their warranties.”
“Geotechnical engineering experts say Texas, and Austin specifically, is known for having particularly problematic soil for building single-family homes. ‘In Texas, let me tell you, the particularly bad clays are pretty much along I-35: Dallas, Ft. Worth, Waco, Austin,’ said University of Texas Professor Jorge Zornberg, a geotechnical engineer.”
“Nicholas Bressi, an Austin attorney who has sued Lennar and several other developers related to construction, said the foundation failures being experienced in Bradshaw Crossing are not unique to Lennar developments. ‘The problem with track builders, or someone coming in and building 100, 200 homes in a neighborhood, is they are not going to do 200 soil tests,’ Bressi said. ‘They typically do a pattern sampling throughout the 200 tracked areas, which may include 50 samples. If you are building 200 homes and are doing 50 samples, it is Russian roulette what you are building on.’”
The Standard on Kenya. “The farm-gate prices of onions had just crossed the Sh100-a-kilo mark when John Wambugu met Archangel Barachiel, the Angel of Good Fortune. Half an acre was going for half a million. It sounded like a bargain. Wambugu whipped out his calculator and punched in numbers. Then he made a call he regrets to this day. ‘Within three days, I had bought the land and was ready to start farming,’ he says. It was a huge miscalculation.”
“Towards the end of the season, he was still in for a big harvest. Then one day, while he was in Eldoret, a call came. The valley inside which he had bought the land was a river course. All the onions were gone, as had the topsoil. This, he learned, happens whenever heavy rains fall. ‘It turned out that the man who sold to me was disposing of the land after realising he could not do anything economically viable on it,’ Wambugu says.”
“Paul Syagga, a former professor of land economics at the University of Nairobi, says that while the seller should give full disclosure when selling land, it is upon the buyer to conduct due diligence. ‘That is why we have the Latin phrase Caveat emptor,’ Prof Syagga says. Caveat emptor roughly translates to ‘let the buyer beware’ and is a disclaimer that places responsibility on the buyer to conduct due diligence before making a purchase.”
From Bloomberg. “Zhenro Properties Group Ltd.’s spiraling bond prices show just how risky it is to invest in Chinese developer debt — even when a repayment looks imminent. The firm’s $200 million perpetual bond was trading at 93 cents on the dollar before it plunged 59.3 cents Friday, after concerns emerged that the firm may not proceed with a planned redemption of the note in March. The borrower’s dollar bonds extended steep declines Monday and its shares were poised for a fresh low after falling about 70% since Thursday.”
“Transparency worries are resurfacing in China’s real estate sector as investors try to avoid nasty surprises. Concern about hidden debt and a spate of auditor resignations has already prompted a repricing of risk among dollar bonds as creditors reassess developers once deemed relatively resilient to the credit crunch engulfing the industry.”
The South China Morning Post. “The chairman of China Vanke, the country’s third-biggest home seller by sales, issued a clarion call to his staff, urging them to gear up for a bruising battle that may make or break the company this year. ‘We are on our last legs, which means there are no other options,’ said Yu Liang during the company’s annual staff meeting on January 9, according to an internal document seen by the Post titled ‘You will win, if you dare to fight’. ‘Many of us have not comprehensively understood the situation we find ourselves in.’”
“Yu said the so-called golden age of the past two decades, when home prices only went up and developers made billions of yuan from selling homes, had come to an end, referring to the slowdown in China’s US$1.7 trillion housing market that has affected many industry players. During last month’s meeting, Yu more or less repeated what he has said in the past, asking employees to book cheap tickets and hotels when travelling and cut their spending on treats and gifts.”
“Yu said that he himself had asked his assistant to stop booking first class flight tickets for him and to only buy the cheapest available flight as he wanted to set an example for employees across the company. ‘We must let everyone know that we are now fighting a war, and everything is not the same as before.’”
From Reuters. “The U.S. Federal Reserve announced on Thursday that its 2022 round of large bank stress tests will include a severe decline in commercial real estate prices and turmoil in corporate bond markets. The hypothetical recession the Fed will use as the basis of its tests also envisions unemployment spiking to 10% over two years. Commercial real estate prices will fall 40% over that time frame, while corporate debt and other assets will collapse in value. The test will be applied to 34 of the nation’s largest banks.”
From Kiplinger. “Since the pandemic began, regulators have not been pressuring banks to take action with respect to defaulted loans. Historically, banks have been willing to ‘kick the can down the road’ with respect to defaulted loans if they could do so without significantly impairing the accounting value of the loans with respect to the banks’ capital requirements. Regulators’ current attitudes have allowed the banks to do just this.”
“While the regulators’ laissez-faire attitude has had a definite positive short-term effect on the economy, at some point the regulators know that the effect of their actions will cause banks to have misleading financial statements.”
“It is not likely that regulators’ behaviors will change before the midterm elections later this year. At some point, however, they will have to stop allowing banks to avoid classifying loans. Otherwise, they risk allowing the banking system to continue to mispresent the value of its loan assets, with all the risks of that situation impacting the creditability and stability of the banking system.”