Vulture funds looking at Florida real estate
I have been in touch with a few private equity firms looking to make a bulk purchase of property in the Sarasota area. There are alot of "vulture funds" or "opportunity funds" looking to pick up Florida real estate at depressed prices. They typically seek out hurting condo developers who are sitting on a ton of inventory and make offers to purchase condos in bulk at reduced prices. Once they purchase them they typically rent them out for several years.
The money comes from all over. Basically, these private equity firms or vulture funds are just a group of wealthy individuals pooling their money together to purchase in large quantity. Buying in quantity allows them to get a price discount and better returns on their money. I even read that Jack McCabe, the economist who spoke in Sarasota last week, has created a McCabe Acquisitions LLC to purchase distressed property.
This can be a good thing for the market. In a market like this reducing inventory levels will lead to a more balanced market. Demand will increase because buyers will be less apprehensive about the market.
While our inventories are hovering around a historic high we appear to be in a better situation that south Florida. I recently heard that there were 24,000 condos for sale with another 19,000 new condos scheduled to be completed soon.
Here are a few of the buildings where the developer is still trying to sell units.
Alinari
Broadway Promenade
Rivo on Ringling
Kanaya
Positano
1350 Main
Phillippi Landings
Bel Mare at Riviera Dunes
Promenade at Riverwalk
I am forgetting a few but this is the bulk of them. We appear to be in much better shape than south Florida.
The money comes from all over. Basically, these private equity firms or vulture funds are just a group of wealthy individuals pooling their money together to purchase in large quantity. Buying in quantity allows them to get a price discount and better returns on their money. I even read that Jack McCabe, the economist who spoke in Sarasota last week, has created a McCabe Acquisitions LLC to purchase distressed property.
This can be a good thing for the market. In a market like this reducing inventory levels will lead to a more balanced market. Demand will increase because buyers will be less apprehensive about the market.
While our inventories are hovering around a historic high we appear to be in a better situation that south Florida. I recently heard that there were 24,000 condos for sale with another 19,000 new condos scheduled to be completed soon.
Here are a few of the buildings where the developer is still trying to sell units.
Alinari
Broadway Promenade
Rivo on Ringling
Kanaya
Positano
1350 Main
Phillippi Landings
Bel Mare at Riviera Dunes
Promenade at Riverwalk
I am forgetting a few but this is the bulk of them. We appear to be in much better shape than south Florida.
Labels: Florida news, Florida real estate, Sarasota real estate news
posted by Marc Rasmussen at
7:27 PM
4 Comments:
Marc said:
"We appear to be in much better shape than south Florida."
I can and do appreciate your desire to stay positive in the midst of all this doom and gloom, but the fact remains that "doing better than south Florida" doesn't matter if you're someone who is holding investment properties in this area that were purchased in the last 2-3 years. Standing right next to the flames as opposed to being IN the fire doesn't matter much as ultimately both people get burned.
One way I could see this debacle BEGIN to get rectified is if the banks (who are in the process of writing off bad debt anyway) would readjust EXISTING loans made to those borrowers who wish to continue holding their properties and who purchased in the last 2-3, years back to current appraised prices, or possibly back to 2003 average prices.
That is, if you bought a house in Sarasota for say, $250,000 in 2006 and the appraised value is now $185,000; you would get a new 30 year fixed rate mortgage based on $185,000. There would need to be stipulations placed that would require the borrower that received this benefit not being permitted to sell in the next 3-5 years - or some provision that would keep those houses from immediately coming back on the market.
In effect, the banks would take the hit (which they have anyway) - and the taxpayer would certainly end up paying a good portion as well. It's understood that this idea does go against free market principles and would be derided and ridiculed by many.
The thing is, the banks (and essentially our country) have two choices: we can continue this bleeding process and have the economy go into a deep recession (the level to which no one knows), or we can take proactive steps to get through what was one of the biggest credit and housing bubbles of our country's history.
The foreclosure process is a lengthy and costly proposition for the mortgage lenders. And even after going through a foreclosure and getting the property back, the lender is then many times faced with a run down property that has depreciated in value even more than when the process started.
It would be far better financially for the lenders to negotiate workable new mortgages for those borrowers in financial distress than to go through with a foreclosure. The lenders know they're going to take a hit, they might as well mark to market their holdings and allow those original borrowers who still want to keep those properties to do so at reasonable rates.
Barring further actions from the government and from lenders, this credit crunch will cause increasing numbers of credit card defaults and even more foreclosures as it becomes almost a self fulfilling process.
Another issue that needs to be corrected is the tax liabilities that borrowers face when a debt is relieved by a creditor. The person just took a huge financial loss so now the IRS is going to tax the amount that banks or creditors relieved. Where is the person going to come up with money to pay taxes when they were in financial trouble in the first place? What a screwed up idea that is.
The government was slow to admit there was even a problem. Now that it's right in front of us, it's time for drastic action to get the ship righted, IMO.
ToddinFL
Todd, just why should anyone bail you out for your bad investment decision?
If things had gone your way, you would have been quite happy to take the profit for yourself when you sold your properties. Would you have shared that profit with the bank, or would you have given some of the after-tax profit to the government - NO WAY!
Now that the market hasn't moved your way, and your gamble (because that was what it was) hasn't paid off, how dare you think you are entitled to a hand out to cover your losses.
Why should any bank increase their losses by helping you out? Why should the bandk pass your loss on to their customers? The bank didn't make the loss -- you did.
Why should taxpayers cover your losses? The people didn't make your loss -- you did.
Hate to break this to you but, bailing you out won't stave off a recession. The recession that is coming was caused by folks like you who greedily overextended themselves and built up the price of property to unrealistic levels. Your greed will cause the rest of us to suffer in the coming years. Why should we bail you out when you actually caused the problem? Let me say that another way so you get it - you caused the bubble AND the recession - why on earth should we give money to you?
It was you who made the decision to invest, and it is you who should take responsibility for your decision. Stop being so greedy, stop asking for undeserved welfare and either wait out the market or take your loss like a decent human being.
Actually I need to apologize to Marc. I thought the comments from "anonymous" were actually from Marc, and it wasn't until I had posted a response that I realized as much. Sorry Marc, that was very unfair on my part.
Mr./Mrs. Anonymous, come on out and join the discussion. But there's no need to hide behind complete anonymity. Give us a name of some sort, even if it's made up.
As far as the rant from "anonymous", my point is that the banks are taking a hit. And the taxpayer is also going to foot a good portion of the bailout as well. Everyone knows it so let's get to fixing the problem for the long term instead of using bandaids.
It's actually financially beneficial to the banks and ultimately the taxpayer, if those people who wish to hold their homes LONG TERM are put in a position to do so - while the banks save money by avoiding foreclosure proceedings.
The problem with the current aid package for distressed borrowers is that you have to be late on your payments 2-3 months before you get any help. There are likely MANY people you just skating on thin ice maxing out their credit cards and HELOCS to make their payments.
What this "bailout package" essentially does is string out the ultimate failure of those borrowers who are trying like mad to stay current on their bills. At some point, they too will not be able to meet their obligations, they'll face credit impairment which in turn will cause even more foreclosures and bankruptcies.
If we as a country don't look at the current situation as one that involves all of us, then the economic weakness will be MUCH worse and the recovery pushed further back - actually several years back, IMO.
This bailout package doesn't benefit the general populace in any way. It DOES benefit the vulture funds and hedge funds that will pick up distressed RE at 10-20 cents on the dollar several years down the road.
Just my opinion, as always.
ToddinFL
Fed chief Ben Bernanke just gave a speech to a group in Florida and said that the mortgage crisis will likely continue. He went on to suggest that banks and lenders adjust write down principal and thus reduce payments for those who have negative equity.
Excerpts from his comments follow:
One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner.
"Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," Bernanke said.
With low or negative equity in their home, a stressed borrower has less ability -- because there is no home equity to tap -- and less financial incentive to try to remain in the home, he said.
Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. "They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again," Bernanke said.
Still, Bernanke suggested such longer-term permanent solutions may work better than shorter-term and temporary ones, where the distressed homeowner could find himself in trouble again. "When the mortgage is `under water' a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure," he said.
To date, permanent home mortgage modifications that have occurred have typically involved a reduction in the interest rate, while reductions of the principal balance of the loan have been quite rare, he said.
"Measures that lead to a sustainable outcome are to be preferred to temporary palliatives, which may only put off foreclosure and perhaps increase its ultimate costs," Bernanke said
Unbelievable! A Fed chief who actually came out and finally made a legitimate suggestion for helping to resolve this problem. It's exactly what I suggested should be done back when this entry came on the blog.
ToddinFL
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