Major New York Apartment Complex in danger

According to this Wall Street Journal article from today, a major Manhattan apartment complex called Peter Cooper Village and Stuyvesant Town is in danger of defaulting. It’s market value in 2009 is now only half of the purchase price of $5.4 billion in 2006. The article warns that if this complex fails, it can create a major roadblock for America’s economic recovery. But why is it failing? Part of the answer is “a lawsuit that has hindered the owner’s ability to convert rent-controlled units to market rentals, and the debt load.” Evidently, the judicial branch of the government has instituted a policy that is preventing the apartment complex from doing business.

Currently, the investors of the apartment complex are trying to make deals for restructuring it’s debt. One of the major players for the restructuring talks is actually Singapore’s GIC. This shows once again how much influence foreign investors can have in America’s real estate market. Manhattan needs Singapore to stop its real estate from defaulting.

The economic downturn is making the unthinkable possible

Buying housing that you cannot afford is no longer solved by creative financing options. Instead, the solution is given by affordable housing. In a recent article by Time, How the Housing Market Is Fighting Its Way Back, we meet first-time homeowners who have benefited from deals offered by the economic recession and now live in houses that they could never imagine being able to buy.  What we see is a housing market that is getting healthier and where more opportunities are created.

Like so many other reports, this article addresses the hot topic of detecting the bottom of the economic downturn, here by looking at data on housing affordability. Fiserv is a resource when it comes to price indexes and they have compared U.S. home prices to household income. The latest figures show that homes are today only 7% more expensive than they were in 2000, before the real estate bubble.  As this gap diminishes we can expect more people to enter the housing market and purchase the home that was once beyond consideration.

How to end the High-End Real Estate freeze?

The key to selling high end properties lies in foreign investors

According to this recent Wall Street Journal article, the housing market is diving into two sections. The sales for low to moderate priced homes are on the rise, but sales for high-end homes are frozen. Price declines for high end homes are expected to accelerate.

So on the one hand, the market is turning up. But for the high end properties, there are apparently no buyers to stimulate this market, at least no American buyers. There is no doubt that such an imbalance in the real estate market can create some problems. If this trend continues, then high end properties will continue to decrease in value, and the overall economy could lose some significant capital.

But there is hope. If there are no domestic buyers, there is still a whole world’s worth of real estate investors who will be interested in American real estate. The key to increasing high-end real estate sales is to attract foreign investors into America and entice them to purchase real estate. Since high end properties are decreasing in price, it can be a very sound investment for international investors. The government should implement some new policies to ease the process of foreign investment in real estate. These investors, be they from Europe, China, India, Japan, or Australia, they can be our economic saviors.

Homeowners hoping to reduce property taxes

With the economic crisis, the real estate market crashed significantly and home valuations made just last year are no longer accurate these days. No wonder homeowners from all over America are applying for new valuation assessments and getting tax reductions for their property.

This goes to show that the US government does have established institutions ready which can help bring out something positive even in the worst of times. The tax system may be a hassle at times, but it is not all bad is it?

To read more details about the process for tax reduction, read the full article from the Wall Street Journal

Subprime Brokers finds new business as loan fixers

It is very alarming to see that the very brokers who lent out subprime mortgages (that eventually caused countless foreclosures and fueled the economic meltdown) are back to business again, this time disguised as “loan fixers.”

In this article, the NY Times chronicle the new loan fixing business of Jack Soussanna, who used to be a mortgage broker, is now working for a loan modification company. They charge a upfront fee of almost $3500, they promise to negotiate with lenders to lower existing mortagages for subprime home owners. Other companies, like FedMod, are also disguising as loan fixers who actually used to sell subprime mortgages.

The problem, these loan modification companies are charging money for empty promises; they never actually deliver the promises they make. In fact, more than 650 complaints have been filed against FedMod alone. State and Federal authorities have started to deal with such companies for fraudulent business practices. For example, the California Dept of Real Estate have ordered 210 businesses to terminate loan modification businesses.

From this article, one can see that government regulation is evidently extremely significant. The Obama administration first established the Federal Loan Modification program in order to help people. However, with free market economy there will be ambitious, profit-maximizing companies who prey on the vulnerable, unsuspecting citizens.. The judicial system can help contain the fraudulent practices with lawsuits, but is that enough to stop these loan modification firms? Do we need some concrete government policies to stop them?

Russian Investors Back to the U.S.

Real estate market may not have hit the lowest point, but it may be close, at least according to a few financiers in Russia. In five years, it is highly possible that they will be laughing at all the investors who are now too afraid of the market. It is certainly risky to put money in propertes now, but the rewards can be signficant as well.

Rich Russians Returning to U.S. Property Lured by Lower Prices [Bloomberg]

Need Storefront?

It looks like renting store space in Manhattan is going to be quite easy. After years of expensive rents, business entrepreneurs will have a much better time finding great places to attract customers. But then again, there may not be too many customers left.

Manhattan storefront vacancies at highest level since 2001 [Canada.com]

Commercial Market Going Sour

The conversations in recent days seem to have moved slightly from households to businesses. Perhaps the recent debacle at CIT Group, one of the nation’s largest commercial lenders, has spurred greater media coverage of the commercial market. As mentioned previously in this blog, people should place a greater focus on all the issues associated with commercial real estate. Now, major media sources finally realized the enormity of the problems and started reporting them, as pointed out by this article in the Wall Street Journal.

Commercial Loans Failing at Rapid Pace [Wall Street Journal]

New IPOs for REITs

Now it looks like investment firms are trying to raise money through real estate investment trusts (REITs). They plan to use the money to help ease the present stress on lending. REITs were quite popular for a few years, with many people taking advantage of these trusts as a way to get into the real estate market without buying actual properties. However, given today’s dismal outlook on the market, it is highly questionable that investors will give a warm welcome – or any welcome at all – to these IPOs.

U.S. REITs Seeking Billions in IPOs, Follow-ons [Reuters]

Commercial property market in London getting better

In a huge move this week, the Union Investment Real Estate purchased an office building in a prime London location for £141.5 million ($230.5 million). And this is just one of several purchase deals in the past week.

What does this mean? It’s means that the commercial property market in London has stabilized and things should be going up from here. The volume of investment in this particular market is increasing, which is a good sign indeed. The government doesn’t seem to be interfering, let’s hope that the free market dynamics will start to reach toward a new better equilibrium.

Click London Office Deals Pick Up for the article from the Wall Street Journal

NYC Announces Affordable Housing Project

Great news, New York City just announced on Wednesday that they’re starting a new pilot program to convert as much as 400 condo units into affordable rental units for middle-income families. House owners and developers are given a subsidy given that they promise to rent to middle-income families.

With NYC as an example, this article also suggests that other cities will follow with similar projects to restore abandoned homes and complexes from foreclosures. Looks like the empty houses left behind by subprime owners will be put into use by the local governments. Let’s hope for more active government programs to help the current economy.

Kudos NYC!

Click here to read the full article from the Wall Street Journal

Consumer Confidence vs. Housing Price

Consumer confidence is down, so is the housing market. Are there any correlations? According to a report by Radar Logic, this occurrence has been true since 2007, but not necessarily in the previous years, when home prices shot through the roof while consumer confidence remained relatively flat.

Housing Values Shape Consumer Confidence [The Real Deal]

A New Way to Gauge Investors’ Opinions

If you are interested in other investors’ opinions of the real estate market, two new exchange-trade funds (E.T.F.) that reflect the price changes in homes have just become available on June 30, as pointed out by an article on the New York Times. E.T.F. is very similar to a stock index, and the price fluctuates according to the values of the underlying assets. In this case, the asset values are tracked by the housing prices of the 10 largest cities in the United States. Therefore, the price changes of these two funds (MacroShares Major Metro Housing Up E.T.F. and MacroShares Major Metro Housing Down E.T.F.) may give you an idea what other investors are thinking about the direction of the market on a daily basis.

Is It Time to Invest in Real Estate? [New York Times]

Newfound Attention on Commercial Real Estate

Congress and the Federal Reserve do not seem at all optimistic about recovery in the real estate market. According to information presented at the Joint Economic Committee on Capitol Hill, the lowest point will be arriving in 2012, at least in the commercial market. Those kinds of predictions – which, more often than not, turn out to be far different from what actually happens – are nothing new. We have been hearing for a long time that the recovery will not come in a long time and that the economy will be in deep trenches for years to come.

However, what is particularly interesting about the article is that it addresses the issue of commercial real estate. Much of the attention has been placed on the housing bust, that is, the residential market, with good reasons. It is natural that people focus on the fact that their neighbors or themselves are losing their homes. Nonetheless, the hardships experienced by those involved in commercial real estate should certainly gather a little more attention. After all, we are talking about empty office buildings, closed shops, parts or the entirety of cities being deserted due to economic troubles. On the other hand, for people looking for businesses, it is certainly worth pointing out that many companies are now relocating to places with lower rents, providing opportunities for relocation firms and quite a few commercial brokers to find some lucrative deals.

Commercial Real Estate Is a ‘Time Bomb,’ Maloney Says [Bloomberg]

Revival and Regression in Harlem

There was an interesting article on the New York Times on July 7 (see link below) about the gloomy housing market in Harlem. Surely, Harlem is hardly a high-end neighborhood, but it did experience tremendous revitalization during the last decade. From 2004 to 2007, as indicated by the Times, plenty of residential units have gone into the millions. New businesses, shops, renovation works, and construction projects have led to an influx of relatively affluent residents, thus driving up the housing price.

The article offers a rather depressing outlook that the boom has become bust, at least during the last two years. Without doubt, the market cooled down, which is the case for most places in the United States. However, is Harlem done?

Given the current economic conditions, some of the new businesses and shopping areas are also bound to suffer greatly. Nevertheless, a decade worth of improvements will not go away anytime soon. The new buildings are already constructed. The old buildings are already rehabilitated. The residents are still wealthier than before.

Harlem may no longer generate the same level of enthusiasm from investors than it did a few years ago, but it is very likely that the historic neighborhood still has great investment values. When the market begins to recover, Harlem will probably continue its revitalization process. If that were to happen, the best time to invest may very well be right now.

Harlem’s Real Estate Boom Becomes a Bust [New York Times]