A report from Houston Agent Magazine in Texas. “Y’all, I hate to lick all the red off your candy, but the days of a super-hot real estate market are behind us (at least for now). While on the surface, that sounds like a bad thing, I have news that will make your day. A recession is your time to shine! Calling your past clients is nonnegotiable. After you exchange pleasantries and the person realizes you might have an inside scoop to share, they will lower their voice conspiratorially and say, ‘So tell me — is the market crashing?’ After all, they’ve seen the news. Be upfront about the current market conditions, and provide them with realistic expectations — even if it means acknowledging a loss.”
Fortune on California. “The mega-realtors and brokers of L.A. are apocalyptic about what the new tax will do. ‘I think that it is the worst thing [to] happen to the real estate market in Los Angeles since 2007, 2008,’ Los Angeles-based realtor Josh Altman told Fortune. At this point, Altman thinks ‘there’s going to be a lot of inventory and that’s going to affect the market,’ a mansion glut, if you will.”
The San Francisco Chronicle in California. “Fueled by the tech boom, downtown San Francisco became the nation’s most expensive office market. Office work, concentrated downtown, accounted for more than 75% of the city’s GDP and the area generated 95% of the city’s business tax revenue in 2021. Now it is the emptiest market in the nation. The office vacancy rate soared to a record high 29.4% this month, nearly eight times the 3.7% vacancy rate at the end of 2019.”
“‘It’s sort of ground zero for remote work’s impacts,’ Arpit Gupta, an associate professor of finance at New York University who co-authored a widely read doom loop paper last year, told The Chronicle during a recent San Francisco visit. ‘There’s a little bit of desolation in the air, so it definitely seems a little bit apocalyptic to me.’”
“‘Before the pandemic, a lot of cities just sort of took an attitude towards their residents that they had no other choice,’ Gupta said. ‘You have to live here, be it in San Francisco or New York or some other high-cost city. And that means you can kind of get away with offering those residents a poor quality of living. You can have very high house prices. You can have poor quality of governance. And people just don’t have a choice. They have to stay there and live in the city. What’s changed now is that people do have a choice.’”
From Bisnow. “Office towers in the heart of the country’s biggest cities had always been the gold standard of commercial real estate. Now, owners of all but the newest and best buildings and the banks holding their debt are locked in a negative feedback loop of sinking value and vanishing liquidity. Without some sort of intervention or assistance from federal regulators or a bailout from elected officials, industry advocates say the office sector could collapse — and drag regional banks with it, causing the sort of broad financial catastrophe that nearly occurred with Silicon Valley Bank.”
“‘We’re at risk of what happened in 2008 and 2009, but this time for commercial real estate rather than mortgages,’ CCIM Institute Chief Economist and former commercial real estate adviser to the Federal Reserve KC Conway told Bisnow. ‘We’re going to see a lot of maturity defaults this year, and if there’s no capital to fill in, you’re going to see price discovery, and the water will drain out of the pool and reveal that people are not wearing swimsuits. The stress from Covid hit, and everyone said, ‘We can’t collapse the economy, so let’s paper over everything we can and make sure that nothing blows up until Covid is solved,’ Conway said. ‘And so now that’s coming due.’”
The Commercial Observer. “‘During my 10-plus years at Signature, we originated over 7,000 CRE loans totaling over $35 billion,’ George Klett, the former head of Signature’s real estate practice, wrote in a column for CO. ‘We had zero losses.’ It was, according to Klett, only when regulators insisted on diversifying Signature’s portfolio that trouble came. ‘We were told that we were heavily concentrated in CRE loans and that that was extremely risky. … As Signature decided to diversify its business, I became concerned. When they opened offices in California and other states, and began accepting deposits from crypto companies, I sold all of my remaining SBNY stock.’ Klett was proven painfully correct in that call.”
The Washington Post. “Flush with cash from a booming tech industry, Silicon Valley Bank executives embarked on a strategy in 2020 to juice profits that quickly triggered an internal alarm. An internal model showed that higher interest rates could have a devastating impact on the bank’s future earnings, according to two former employees familiar with the modeling who spoke on the condition of anonymity to describe confidential deliberations. Instead of heeding that warning — and over the concerns of some staffers — SVB executives simply changed the model’s assumptions, according to the former employees and securities filings.”
“‘Management always wanted to tell a growth story,’ one former employee involved in the bank’s risk management said. ‘Every quarter, there was always this pressure to deliver earnings.’”
“In an apparent bet that interest rates would go down last fall, SVB sold for a profit the financial instruments it used to hedge against the risk of higher rates, according to a company presentation. Instead, the opposite happened. ‘They thought they could never go wrong,’ said a former bank official who spoke on the condition of anonymity to discuss internal business practices, recalling an internal stress test in late 2018 or 2019 that showed SVB could lose at least a third of its deposits over two years. Executives directed that that model also be reworked. ‘If they see a model they don’t like,’ the official said, ‘they scrap it.’”
The Globe and Mail in Canada. “1748 E. 55th Ave., Vancouver. Asking price: $1,990,000 (Nov. 9, 2022). Previous asking price: $2.28-million. Selling price: $1,850,000 (Jan. 12, 2023). Snowy weather was a setback for showings. Listing agent Bryan Yan started off at $2.28-million but didn’t get any offers. He dropped the asking price below $2-million and that triggered interest. He received two offers and the sellers accepted the offer that was subject-free. Last year, Mr. Yan forecasted a price drop of 10 per cent or more this year, and that’s what happened with this house, he says. About a year ago it would have sold for at least 10-per-cent more. The listing was an estate sale.”
“‘It’s a really old, outdated house that needs to be updated,’ Mr. Yan says. ‘But it’s in a good location on a 43-foot lot. And there aren’t many sales around Fraser right now.’”
The Daily Mail. “Yet another construction company has gone into administration as the industry experiences a financial crisis brought on by soaring building costs. The Lloyd Group, a civil design and construction group, went into voluntary administration on Friday with about 59 projects still uncompleted, including 30 in New South Wales and 29 in Victoria. The development came on the same day as one of Australia’s largest construction companies, Porter Davis Homes, went into liquidation with more than 1,500 projects still yet to be finished.”
“An owner of one of the unfinished houses, Sojuy Gosh, was brought to tears after finding out the company went into administration. The father-of-two was told he and his family would be able to move into the home in May last year after giving hundreds of thousands of dollars to Porter Davis. ‘With all the time and energy we invested, it’s not something we expected,’ Mr Gosh told A Current Affair.”
News.com.au in Australia. “Disgruntled tradies have allegedly vandalised a woman’s home in Melbourne’s southeast following the collapse of builder Porter Davis on Friday. The new mum told the Herald Sun about $50,000 worth of damage had been done to her Berwick build after sink and bathroom taps were intentionally left running, flooding the property with 7cm of water. All of the doors and walls were also scratched with a knife. The woman, who did not wish to be named, told the newspaper she believed the damage was caused by subcontractors working on the home.”
“‘I’m completely devastated and shocked,’ she said. ‘We worked so hard and put a lot of money into this house to only hope we could bring our new baby home this week. What they have done has not affected Porter Davis at all but unfortunately only us as now the damages are more than what we had remaining on the house.’”
“According to the Herald Sun, a number of under-construction homes with Porter Davis signage were targeted by heartless looters across Melbourne over the weekend, with clients reporting ripped fixtures, shattered windows, smashed cabinetry and stolen furniture. It comes after another Porter Davis customer shared her distressing story with ABC Radio on Monday morning. Speaking to ABC 774 Melbourne host Ali Moore, the woman named Kayla revealed that she and her husband had paid more than $800,000 for their home, which was just four weeks away from completion.”
“‘We’re supposed to be moving in on April 30 and then all of a sudden my husband and I read it in the paper at 9.30am on Friday morning … complete shock,’ she said. ‘The worry and stress since Friday – we’ve been going to the site three, four times a day, making sure that no one’s going on site, no one’s trying to get in, because we’ve been reading in the papers that people have been breaking in and stealing stuff. We’re just so worried. We can’t even get in because the house is locked. We were told that we can’t get keys, we were told that we can’t enter on site, and so we go there just watching a house that’s just sitting there.’”
“‘Who’s responsible for our site, who’s going to look after our site now? We have an almost complete house, what if somebody breaks in? Who’s responsible for that? And we’ve been just left up in the air,’ she said. ‘We don’t know whether it’s insured, we don’t know who’s responsible if something happens to it. And when you’ve handed out more than $800,000, it’s like we’re vulnerable. What’s going to happen?’”
“‘We’ve been very patient. We’ve been renting for two years, we’ve got a mortgage, now interest rates are going up. We’re paying a mortgage for a house we don’t have or we don’t know what’s going to happen to.’ She added, ‘This house was meant to be our forever home, we poured all of our savings into it and now we don’t know what’s going to happen.’”