'Real Estate' Archive
Banks and mortgage holders are bracing themselves for the next wave of foreclosures as ARMs reset. What some other industry veterans are also bracing for is a wave of fires.
Bloomberg quotes James Quiggle, a spokesman for the Coalition Against Insurance Fraud, who states, “Home arsons follow foreclosure trends, with a lag. We’re facing a potential spike in arson like we’ve never seen before.”
According to housingwire.com, many homeowners whose homes have been foreclosed on damage the property before they leave. Punching holes in the drywall is often the least of it. Arson could be the worst, and if Quiggle is right, we’ll see a lot more of it.
So what does this mean? Neighborhoods are already suffering as more and more houses are left vacant. Vagrants move in, causing damage; untended lawns and properties lead to deterioration, which in turn affects the entire block.
An Atlantic Monthly article discusses what happens when suburban neighborhoods empty out, and it’s not pretty. Across the country, property and other crime rises in unlikely suburbs, leading to an unexpected irony; homeowners who fled cities because of crime and poor schools are now leaving the same conditions in their wake.
So what happens now? Will suburban communities recover? As neighborhoods deteriorate and gas prices continue to rise, will people make the return journey and head back to the cities? What will happen to the schools, the tax base, and infrastructure (roads, sewer, fire, and police)?
Here’s one solution. Mortgage holders don’t want to foreclose on homes. When there are just a few foreclosures it’s a costly headache, so the current deluge is unmanageable, whether banks admit it or not. So what if, instead of removing the homeowner, the mortgage can be rewritten as a rental contract? Obviously the bank will take less money in rent than a house payment, but it will keep the house occupied and kept up, the property stabilized, and the neighborhood a little bit safer.
Better to keep a fire from starting than to have to put it out.
The slow-motion collapse of Fremont General is the latest news from the mortgage crisis front; the company has acknowledged that it is out of cash and out of time. The wounded mortgage company is selling its retail banking operations and its loan portfolio, but its shareholders will likely not see a penny, or, as is often the case with bankruptcies, even a fraction of a penny.
Cry me a river, say homeowners facing (or already in) foreclosure. An interesting report from housingwire shows that many homeowners eligible for loan workout or mitigation efforts are not receiving those services. That being the case, it means that some foreclosures could be prevented. Lenders hate foreclosures. They’d much rather be repaid. That’s why it’s in their best interests to work harder with borrowers to keep them in their homes and paying back their loans. We’ve all been hearing a lot more about “jingle mail” — that’s when borrowers walk away from their homes and simply mail the keys back to the banks. Banks hate jingle mail.
Another couple of evocative phrases we’ve been hearing a lot have been “moral hazard” and “skin in the game.” The Fed risked defanging moral hazard when it bailed out Bear Stearns — by not letting the investment bank fail, critics said, its executives were protected from their bad decisions. They no longer had “skin in the game.”
If Bear Stearns was too big to fail, then what about the vast population of homeowners facing foreclosure? Should we bail them out too? Turns out plenty of people don’t like the idea of bailing out homeowners, even though by stabilizing their loans we can stabilize the entire economy (that’s what I mean by being too big to fail). The fact is, critics say, there’s plenty of fraud on both sides of the contract, and how do we know who is morally worthy to save and who we let fail? We want to know that the perpetrators are punished and the victims are rescued. However, with the high volume of loans, I don’t know how you would even begin to go about sorting it out.
I’ll leave the last word to the one man who can sum it up so well — Dr. Seuss:
“And this mess is so big, And so deep and so tall, We cannot pick it up. There is no way at all!”
While pundits argue over whether the recession is already upon us or has yet to start, I remember the last one.
Not the early 2000s, or the 1980s, or whenever people like to say the last recession was. Those weren’t recessions. Those were minor dips. Those were market corrections. Those were nothing.
I mean the 1970s. The big one, when it was more comforting to call it a recession even though it really looked more like The Great Depression.
Here’s what happened in the 1970s. My dad — like a lot of other dads — lost his comfortable white-collar job. He got a job driving a home heating oil truck. He was lucky.
My mom — like a lot of other moms — had to find work. She got a job as a lunch lady at the elementary school. She was lucky too.
One of the advantages my parents had — and by extension their children — was that they were not afraid of hard work. They had lived through the Depression after all, and they had lived through World War II and they knew what it was like to scrimp, save, and salvage. That plus a pretty impressive garden carried them — us — through. But it sure wasn’t easy and it sure wasn’t fun.
So now it’s 2008. Once again, the go-go exuberance of Wall Street has led to a serious worldwide economic downturn. Sound familiar? The decade leading up to the 1929 stock market crash was the Roaring Twenties. What will they call the decade leading up to 2008? The Naughty Aughts?
People are worried that this is a recession? I’m worried that, with the economic news coming in from all over the world about banks and financial institutions caught in the subprime mortgage crisis (see the Bloomberg link, above), stock markets dropping everywhere, and the US Fed chairman lowering interest rates in what seems like a last-ditch effort to stimulate the economy, we’ve got more than a recession on our hands.
Better start planting those gardens.
Sears Holdings, the underwhelming retail force created by the combination of Kmart and ailing Sears, Roebuck in 2005, is on the skids. Following an impressive post-merger run up, Sears’s shares have slid from a 52-week high of $195-plus-change to less than $85 last week. How’s that for a bumpy ride in the stock market?
Investors, awed by the financial prowess of the mastermind behind the merger of Sears and Kmart, Edward S. Lampert (whose hedge fund ESL Investments owns 48% of Sears Holdings), are losing patience — and money — waiting for the long-promised turnaround. While Lampert’s financial magic worked to improve Sears Holdings’s financial performance for a while, its retail operations remained stubbornly in the dumps. I’m willing to bet that most recent visitors, myself included, to Sears’s stores have come away unimpressed. (The extent of my activity at the company’s stores is limited to two quick trips to a nearby Sears to purchase white T-shirts for my kids’ school projects.)
With investors balking and shoppers avoiding its stores, Sears Holdings last week announced an organizational shakeup. The retailer is restructuring around five business units in a bid to give each unit’s management team “greater control, authority and autonomy.” The new structure includes business units to manage Sears’s real estate holdings, its brands (such as Craftsman, Diehard and Kenmore), and the online operations.
Skeptics, who have long wondered how Lampert aimed to turnaround the country’s fourth-largest retailer without investing in its stores, view the new structure as designed to facilitate a breakup of the company by making it easier to spin off or close business units. But those who viewed Lampert’s interest in tired Sears and third-tier discounter Kmart as a real estate play from the start — and were “OK with that” while the US commercial property market was booming — now face the prospect of Sears selling property in a softening market.
While Lampert and Sears have been mum on the fate of its real estate holdings, the popularity of sale-and-leaseback deals (where a retailer sells its stores to raise capital and then leases them back from the buyer) has grown with rising commercial property values. But the current credit crisis may crash that party.
Under Lampert, Sears Holdings has shown it can weather a retail slump. But piling on a real estate slide would put the double whammy on the 121-year-old business.
January is named after Janus, the Roman god of doorways and gateways, looking forward and backward at the same time. Since this is a time of reflection on the past and predictions for the future, let’s crank up the Wayback Machine (or at least a few previous blog entries) and take a look at what the past year has wrought.
January: Last year at this time, the world and I were agog over Robert Nardelli’s payout from Home Depot for a lackluster year. The answer to the question, “what is bad-to-mediocre leadership worth?” was, “about $210 million — and the CEO-ship of Chrysler.” Pretty nice work if you can get it.
February: Hah! This is where I blithely predicted that the subprime mortgage crisis will go away by itself, and we would all learn a lesson by the closing credits. That’s why I get paid the big bucks for my trenchant business analysis. My neighbor did sell her house, though.
The spring and summer saw the growing effect of the subprime mortgage meltdown. By the fall, deals were collapsing left and right. Additionally, Barclays surrendered its bid for ABN AMRO, and I, well, declared my love for Tata.
Even more tellingly, in May, Bear Stearns-funded Everquest Financial announced its IPO, in June it withdrew it, and by August Bear Stearns co-president Warren Specter was fired.
So how about some predictions? Well, let’s see. We won’t see any more high-profile resignations, as all the lambs have been sacrificed, but I for one will be very interested in Ralph Cioffi’s career over the next year. Virgin Money will buy Northern Rock. Residential housing will recover in fits and starts, with some markets recovering sooner than others. And (really going out on a limb here) Tata will buy Jaguar and Land Rover.