A report from WKRN in Tennessee. “A broken deal has left a Murfreesboro couple with a broken dream after a case of iBuying went bad. Zach Griest, Owner of Zach Taylor Real Estate, says his clients are upset, counting on Zillow to close. They went under contract with them in September and planned to close in May 2022. Before they were aware Zillow Offers was being terminated, they went under contract for a newly constructed home, putting down a $5,000 non-refundable deposit. Now, they’re stuck. ‘They got an email from Zillow Friday that says, ‘yes, we’re canceling the deal, we’re out,’ he said.”
“Griest said he spoke to a representative on the phone who told him a similar story. ‘I said, ‘we can close we can close tomorrow, let’s move up the closing date,’ and she said, sorry ‘we’re at capacity, we’re not going to do it,’ Griest said.”
The Real Deal. “Zillow is facing two class-action suits for allegedly misleading investors and failing to inform them in a timely manner about the struggles of its iBuying business. More lawsuits may be forthcoming as Zillow does damage control in the wake of closing Zillow Offers, through which it used a proprietary algorithm to buy and sell thousands of homes.”
“Both lawsuits accuse the company of drumming up positive sentiment about its iBuying activities with ‘materially false and/or misleading statements’ in the months before it closed the operation, and of failing to disclose ‘material adverse facts’ surrounding them.”
The San Jose Business Journal in California. “Months after a real estate investor warned that ballooning costs could wipe out investments in a pair of condo properties, would-be homebuyers at the sites could soon face a similar loss. The outcome of a Dec. 3 court hearing could see down payments wiped out for prospective homebuyers at The Almaden and Savant at Irvington, a pair of under-construction condominium complexes linked to defunct real estate developer SiliconSage Builders LLC and its CEO, Sanjeev Acharya.”
“The Mercury News reports that the upcoming hearing will be about a deal struck by Stapleton and Acres Capital, the primary lender for both The Almaden, a 91-unit residential project at 1821 Almaden Road in San Jose, and Savant at Irvington, a 93-unit residential project at 42111 Osgood Road in Fremont. Proposed by the receiver, the deal would enable Acres to finish construction so the properties can be sold — but would also let Acres void financial obligations like purchase agreements made prior to the SEC’s case against Silicon Sage, thus erasing their deposits.”
“But a group of homebuyers are working to save their deposits, stating in the court filing that ‘Acres needs to have some of the deposit contracts voided so that it can sell the completed condominiums without having to sell to the original buyers or refund the deposits.’ They stated that at least 16 purchase contracts across both sites could be voided if the deal goes through. To give an idea of the potential loss, Marwan Naboulsi stated that he paid a $995,000 deposit on two units at The Almaden.”
“Both Savant at Irvington and The Almaden were the subject of a warning issued in September by another real estate investor, TriGate Capital. It warned that costs for the projects had increased dramatically and even if they were completed, investments in the projects could be wiped out. TriGate accused Stapleton of inefficiently managing the properties and undermining their financial stability.”
From Bisnow New York. “British co-living company The Collective may lose its Brooklyn development site amid the company’s financial woes. Lender Acres Capital initiated a foreclosure on 1215 Fulton St., which The Collective purchased in 2019 for about $33M with plans to turn it into one of its first locations in the United States. It recently defaulted on another Brooklyn site in Williamsburg at 555 Broadway, where it fell behind on payments on a $49M mortgage.”
From CBC News in Canada. “As prices skyrocket, recent data suggests people who own more than one property in Ontario make up more than 25% of buyers in the province. It’s a stark contrast to just 10 years ago when investors made up the smallest percentage of residential real estate transactions. ‘It’s unusual in the sense that investors now make up the biggest segment of buyers in Ontario. So they surpass first- time buyers, they surpass the number of people moving. So they’re the biggest segment,’ said John Pasalis, president at Realosophy Realty.”
“‘The risk is that when prices are rising investors are the optimists in the market … and they actually push home prices up higher than they otherwise should be,’ he said. ‘But when the market cools, the investors actually become the pessimists. And they’re the first ones to exit the market, which accelerates potentially a downward trend and makes our whole housing market far more vulnerable than it otherwise would be.’”
“While some argue more supply is needed to cool the market, Pasalis points to other cities like Phoenix, Ariz. and Las Vegas, Nev., which have room for more supply, but still saw huge real estate bubbles. More supply, he says, could just attract more investors. ‘When investors are the biggest segment of your buyer base — no amount of supply is enough,’ said Pasalis.”
“The trend is also concerning to Ron Butler, one of the founders of Butler Mortgage. He says he’s watched as investors outbid many of his clients who are first-time buyers. ‘We’ve seen our clients forced to the upper limit of their affordability. But that’s the only option they have is to be at the highest point that they can possibly achieve from a borrowing point of view,’ said Butler.”
“Butler says he’d like to see intervention to stem the behaviour of investors from all three levels of government — before it’s too late. ‘That’s not going to have a great ending, in my opinion. It’s just not,’ said Butler. ‘It’s either going to result in a generational shift of people leaving the province or it’s going to result in eventually some kind of price deterioration that’s going to catch a lot of people off side.’”
The Daily Mail. “Australia’s longest-serving treasurer has blamed the Reserve Bank for the extraordinary surge in house prices across the country. Peter Costello, who held the senior ministerial post from 1996 to 2007, was scathing of the central bank’s decision to cut the cash rate to a record low of 0.1 per cent and then promise to leave it there until 2024. ‘The Reserve Bank got it wrong,’ he told the ABC’s 7.30 program. ‘It said that it could hold the three-year rate at 0.1 per cent out to 2024. It couldn’t. It was an irresponsible statement to make.’”
“Reserve Bank of Australia Governor Philip Lowe had, until recent months, promised to leave the cash rate on hold until 2024 ‘at the earliest’. Mr Costello, once mooted as a potential prime minister, said those promises encouraged more people to buy a home and get a fixed mortgage rate. ‘I suppose they were saying to people, ‘Try and get a fixed mortgage because we can hold the rates out to 2024,’ he said. ‘They now admit they can’t and in fact, it would be irresponsible of them to try if inflation took off. The Reserve Bank can’t give you cast iron guidance for three years and you’d be foolish to take it.’”
From Bloomberg. “China Aoyuan Group’s dollar bonds declined, dragging Chinese junk notes down with them, as a report saying the company failed to pay a trust loan in full revived concerns about stress among the country’s developers. Aoyuan’s 2023 note fell 5 cents on the dollar to 27 cents, while its bond that matures in January declined 7.4 cents to 32.7, Bloomberg-compiled prices show. Moody’s Investors Service late Monday cut its rating to Caa2, citing concern over the size of the firm’s debt maturing next year.”
“Builders ‘have a lot of work to do going into year-end to just be ready for the next set of maturities,’ Ninety One Singapore portfolio manager Wilfred Wee told Bloomberg TV. ‘Developers do need to shape up or ship out,’ he said, noting the sector has some $3 billion of notes coming due next month and $9 billion of onshore and offshore in the first quarter of 2022.”
“A set of Kaisa Group Holdings offshore investors has hired advisers, people with knowledge of the situation said. Kaisa’s failure to make least some of the payments on dollar debt started the clock on a 30-day grace period that the company has until it’s in default. S&P Global Ratings said on Nov. 10 that for Kaisa, ‘a default scenario is inevitable within the next six months.’ Many of the company’s bonds are trading at around 40 cents on the dollar, or less. Kaisa previously defaulted on bonds in 2015, and then restructured its borrowings. Among Chinese developers, it is the third largest dollar-debt borrower.”