Two reports from the Wall Street Journal. “A flock of vulture investors is circling China: large money managers including Blackstone Group, Lone Star Funds and Oaktree Capital as well as Bain Capital. In the past few years global investment firms have invested more than $3 billion in nonperforming Chinese commercial loans, estimates PricewaterhouseCoopers. These investors are sifting through mounds of distressed debt for corporate loans they can buy at deep discounts to their face value—often 30 to 60 cents on the dollar.”
“China has dealt with waves of debt defaults in the past, but ‘what’s different about this cycle is that the amount is very, very large,’ said Zhang Xiaolin, chief investment officer at Lakeshore Capital, a private-equity firm that has been an active investor in nonperforming loans. ‘You have to discharge the flood somewhere.’”
“Last year, China’s four largest asset-management companies resolved roughly $70 billion in nonperforming loans, according to James Dilley, a Hong Kong-based PwC partner. The vultures are betting that China’s economy won’t go completely off the rails, and real-estate values will hold up even as growth continues to slow. They are also counting on Chinese banks not to flood the market with defaulted loans.”
“‘Because China has a long way to work out all its bad debt, authorities can’t just rip off the Band-Aid,’ said Kei Chua, a managing director at Bain Capital Credit. ‘There’s just not enough investors (in the country) to deal with it.’”
“Roughly 40 miles north of the refurbished apartment building in Suzhou sits a four-story commercial building that used to be a food and beverage establishment. After the loan went bad, it became part of a portfolio of more than 100 defaulted loans that Bain bought from a state-owned asset-management firm in 2017. After Bain took over the property, it broke the building’s leases, sourced potential buyers and sold it on Taobao early last year for 14.6 million yuan. That exceeded the loan’s unpaid principal balance and interest claims, which totaled 13.8 million yuan. The building has since been gutted, but has sat empty for months without any construction activity, according to nearby residents.”
“Brooklyn’s decadelong real-estate investment boom is over. The borough once attracted developers and speculators from across the globe looking to profit from an influx of high-income residents. But amid stricter rent regulations on some apartments and a glut in new construction, buyers are starting to look elsewhere.”
“The dollar volume of commercial property sales fell by 30% last year to $5.1 billion, according to brokerage firm TerraCRG, the steepest drop since the financial crisis. The decline was driven by a slump in the market for rental-apartment buildings, which tend to account for the largest portion of real-estate sales in Brooklyn.”
“‘We are going to see a lot of distress in the rent-regulated multifamily market,’ said David Schwartz, a principal at real-estate developer Slate Property Group. Slower rent growth offers a reprieve for thousands of people whose living standards were squeezed by years of surging housing prices but is likely to hurt debt-burdened builders. The dollar volume of apartment-building sales fell by 56% last year to $1.1 billion, according to TerraCRG.”
The Washington Post. “Millennials’ share of the U.S. housing market: small and shrinking. Because homeownership is the chief builder of wealth, the trend is ‘bad news for the economy overall.’ In 1990, baby boomers, whose median age was 35, owned nearly one-third of American real estate by value. In 2019, the millennial generation, with a median age of 31, owned just 4 percent. They’re not likely to reach 30 percent of the housing market — or even the 20 percent attained by the smaller Generation X at the same point in their lives.”
“Because homeownership is the chief builder of wealth for middle class families, if this trend continues ‘we’re looking at a generation that will have lower lifetime wealth,’ said Jenny Schuetz, a housing policy expert at the Brookings Institution. In many of America’s most desirable cities, the median price of a home is well beyond the reach of a typical salary. For the past several decades, developers in major metro areas like New York City have built a glut of luxury condos while ignoring the needs of the middle class.”
From Curbed Boston in Massachusetts. “Unit 2 in the two-unit 32 Temple Street in Beacon Hill runs to just 630 square feet. The condo is on the market now through EXP Realty for $669,900, or $1,063 a square foot. As high as that is, that tag could be considered a bit of a steal for historic Beacon Hill, especially considering the outdoor space. A recent report covering closed condo deals in the neighborhood pegged the median Beacon Hill sales price at the end of 2019 at $861,000 and the average sales price per square foot at $1,433.”
From Curbed San Francisco in California. “Is luxury relative? Surely the soaring asking price for the penthouse 41A at Lumina—more than $9.99 million—has to be considered the acme of excess, being among San Francisco’s most expensive homes for sale. And yet, that price represents a significant stumble for the unit, which this time last year asked more than $11.4 million. While prices sometimes fall, this price cut is deceptively larger than it seems.”
“Once upon a time, the city marveled at the grandeur and audacity of Lumina’s most expensive home, a penthouse that sprawled over two stories asking the borderline plutonic price of $49 million in 2015. Even before it was built, headlines called Lumina the priciest building in San Francisco. But as SFGate points out, this now $9.99 million penthouse is essentially the same one that dropped jaws back then. No, the unit hasn’t cut $40 million off its price in five years. Instead, the sellers divided it into two homes.”
“The result, however, was not one but two high-end East Cut condos that haven’t sold yet. Last year’s $11.4 million listing for penthouse 41A was itself a price drop from previous years, and now it’s down again, as is neighboring 41B, which nows asks $7.49 million. If both penthouses sell at the current asking, the combined price of roughly $17.5 million would represents a decline of more than 64 percent from the original ambitions.”
From The Real Deal. “Bank of New York Mellon faces a reckoning from residential foreclosure cases in New York that date back to the subprime mortgage crisis. The bank — along with its debt-collector partners Shellpoint Mortgage Servicing and law firm McCabe, Weisberg & Conway — are accused by a class-action lawsuit of systematically trying to foreclose on mortgages after the state’s six-year statute of limitations had passed.”
“Mark Anderson, an attorney at the Queens-based law firm Shiryak, Bowman, Anderson, Gill and Kadochnikov, which filed the case, said his firm noticed an uptick in foreclosure cases initially filed in the wake of the subprime crisis more than a decade ago and now being revived, despite the statute of limitations expiring. ‘I have over 500 cases that are dealing with this issue — and that’s just my firm,’ said Anderson. He believes thousands of homeowners could qualify to be part of the suit if it gets class-action status.”
“Bruce Bergman, a partner at Berkman Henoch who specializes in representing lenders and servicers in mortgage foreclosures, described a statute-of-limitations response to debt collectors as ‘deadly to lenders.’ In a November alert to potential clients, Bergman lamented the state of affairs: ‘How many ways can borrowers vanquish lenders with a statute-of-limitations defense?’ he wrote.”
“Anderson said that while he’s won several cases for borrowers by arguing that the statute of limitations had expired, the lender and servicing firms usually succeed because borrows don’t know about the statute of limitations. ‘Nine times out of 10, no one’s going to say a thing,’ he said. ‘One time out of 10, a person like me comes in and says this is beyond the statute of limitations.’”
From DS News. “Daren Blomquist, VP of Market Economics at Auction.com, said in an article this week, ‘With so much focus on monitoring for the launch of another economic recession, an emerging home price correction could be taking flight under the radar.’ Home price correction is already transpiring, and the industry is beginning to see some weakening of the housing market.”
“Blomquist emphasized that ‘these local market declines won’t be driven by an economic recession or by destined-to-fail mortgage products, but by migration patterns triggered in large part by buyers chasing affordability—a trend that was already evident in 2019.’ Already 13% of local markets posted annual price declines in Q3 2019, according to Auction.com’s analysis of data from ATTOM Data Solutions. Several higher-priced markets were among those that posted price declines.”
“For example, prices in Bridgeport, Connecticut, dropped 4.8% over the year in Q3 2019, while prices in San Jose, California, dropped 3.2%. While slowing and depreciating home prices may help bring affordability to some markets, Blomquist also pointed out some negative effects, including lower home equity and a potential for an uptick in home loan defaults.”
“He pointed out that homeowners often rely on home equity as a ‘safety net’ in the case of a loan default. Particularly, recent homebuyers with loans backed by the Federal Housing Administration may be vulnerable as they have little or no equity at their disposal. Another recent market development that can make the market vulnerable is the large sales of non-performing loans. About 42% of former GSE loans sold in NPL sales have fallen into foreclosure, and another 24% remain unresolved.”
The Aspen Times in Colorado. “The note-holder on a Snowmass spec home that went bankrupt last year has taken ownership of the property through a foreclosure sale. Okean Investments of Florida Inc.’s sole bid of $6.99 million at Wednesday’s foreclosure auction at the Pitkin County Courthouse gave it possession of the home at 999 Brush Creek Road, which had been developed and owned through a limited liability corporation controlled by Peter Droste.”
“Droste could not be reached, but his counsel in the bankruptcy proceedings said he’s cutting his losses. The six-bedroom, 10-bathroom home at one time had been advertised for $16 million. Construction on the home was completed in 2015. ‘He’s gone through this battle with Pitkin County … and I think he’s resolved himself to move on,’ said attorney John LaSalle of Carbondale.”
From North Jersey in New Jersey. “Mary J. Blige has had her Saddle River mansion on and off the market since 2015, when it was originally listed for $13 million. The price on the mansion has dropped multiple times in the past several years. Blige’s mansion was pulled from the market in 2018 and put back on in 2019 for $6.8 million. It has since been pulled off the market again, according to the Zillow listing. Russell Simmons listed his 17,874-square-foot Saddle River mansion for sale for a cool $18.9 million in 2018 but the price has continually dropped. The eight-bedroom, 15-bath mansion was taken off the market after its price dropped to $4.9 million, well below Simmons’ original asking price, according to the Trulia listing.”
“Former Knicks star Patrick Ewing briefly rented out his seven-bedroom Cresskill home for $25,000 a month before listing it for sale. The house was originally put up for sale in 2015 for $6.9 million before Ewing offered it for rent. The price on the 1.8-acre estate dropped to $3.9 million in 2019.”
From Crain’s Chicago Business in Illinois. “A house in Elmhurst designed by Frank Lloyd Wright came back on the market Jan.10 with its price reduced to $850,000, which is about what the half-acre of land it’s on is worth. Built in 1901 and owned since 1994 by the sellers, the well-maintained Prairie-style house has original stained glass, a hefty brick fireplace, wood banding and other hallmarks of Wright’s design. It first came on the market in September 2007 at just under $2 million, and the price steadily dropped in the dozen years before September 2019, when it went off the market unsold at a little under $950,000.”
“At the new-for-2020 price, the sellers are asking approximately what its half-acre would be worth to a builder of new homes, Crain’s analysis of recent years’ teardown prices in Elmhurst found. The house can’t be destroyed—the owners gave an easement to the Frank Lloyd Wright Conservancy in September that would prevent that—but the low price is emblematic of the deep trough that the market for Chicago-area Wright homes is in.”
“It’s long been established that the architect’s homes don’t sell for a premium over more conventional homes, but in recent years a new reality has emerged: Wright homes generally sell for less than the rest of the market. On a per-square-foot basis, the Elmhurst house is priced about 20 percent below the average for similarly sized homes in the town, Crain’s research shows. In late December, a Wright design in Glencoe sold for about 52 percent of the going price for same-size houses there. (The house needs updating, but so do some of the comparables.) In Riverside, a lavishly restored condominium section of a large mansion that Wright designed in 1910 sold in February after eight years on the market for about $192 a square foot, compared to an average of about $250 a square foot for million-dollar sales in that suburb.”
From KJRH in Texas. “If you’re looking for a deal, the price tag of the massive estate of the late T. Boone Pickens was just reduced. The huge Texas panhandle ranch named ‘Mesa Vista Ranch’ is now going for $220 million! That’s actually down $30 million since it went on the market in 2017.”