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earlyretirement.
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April 11, 2013 at 9:59 AM #761177April 11, 2013 at 10:03 AM #761179
UCGal
ParticipantOn the topic of hedge funds and bad real estate deals… Look at Stuyvesant Town in NYC and the big boys who bought it – then backed out of the deal, leaving CalPers, among others, holding the bag.
Not local… but it could happen on a smaller scale here.
April 11, 2013 at 10:11 AM #761180livinincali
Participant[quote=SK in CV]
Historically, the term “hedge fund” has meant an investment group that played with other people’s money. They “hedge” their bets. They buy in a method that gives them most of the profits, but caps their losses.These kinds of hedge funds haven’t been buying up real estate in droves. Much more traditional private equity funds have been. And they’ve been paying cash. Mostly all cash. And in doing so, they can’t be over-leveraged.
Someone suggested that these funds will eventually leverage their RE holdings. Not unlikely. But as a practical matter, they can’t do it cheaply with secured debt, because they cant get a single loan secured by thousands of properties. They would have to jump through similar hoops that small investors go through, financing each property individually. If it’s unsecured debt, then every penny of their asset value is at risk, and they have leverage, but no “hedge”.
I see no scenario where anything short of a catastrophic change in RE prices where PE investors could add to the catastrophe. They can’t create it. I’d certainly be open to suggestions of how it could happen. I just don’t see it.[/quote]
I don’t know I see articles like this Hedge fund Blackstone buying $100 million per week.
Look at BX balance sheet. 2 billion in cash 20 billion in investments. Looks like about 10 to 1 leverage to me.
Or Farallon group sets 300-400 million hedge fund using 60% leverage to buy real estate.
http://news.yahoo.com/exclusive-farallon-hedge-fund-raising-real-estate-fund-165122356–sector.html
Will it effect North County Coastal San Diego. Probably not. We haven’t seen much activity through the traditional channels. It would only be the case if they did some kind of bulk transaction that didn’t hit the court room steps. Probably the only way to know would be if there’s some kind of prominent management company in the North County Coastal rental market that has a large share of the rentals on the market.
April 11, 2013 at 10:24 AM #761181spdrun
ParticipantOn the topic of hedge funds and bad real estate deals… Look at Stuyvesant Town in NYC and the big boys who bought it – then backed out of the deal, leaving CalPers, among others, holding the bag.
http://www.npr.org/2013/04/03/175511949/…
Not local… but it could happen on a smaller scale here.
Difference is that the SFR’s and condos in SD Co are typically offered at anywhere from 6-10% cap now. Same in many NJ towns that I’m interested in.
StuyTown — let’s do the math. They paid about $500k per apartment. Average rent was likely about $2000/mo, what with rent control and stabilization of quite a few tenants. Management, maintenance costs, and property taxes likely eat 50% of this, so we’re left with $1000/mo, or $12k/yr per apartment, if VERY lucky. Yeah, the fucking fools bought at 2.4% cap.
April 11, 2013 at 10:30 AM #761182moneymaker
ParticipantI was talking to someone in the military yesterday that just moved into military housing and they said there was no wait list, so if the military vs. civilian market are in alignment that tells me there are plenty of rentals, just not enough SFH on the market to keep prices down.
April 11, 2013 at 10:52 AM #761183SK in CV
Participant[quote=livinincali]
I don’t know I see articles like this Hedge fund Blackstone buying $100 million per week.Look at BX balance sheet. 2 billion in cash 20 billion in investments. Looks like about 10 to 1 leverage to me.
[/quote]
BX is a primarily an PE firm. “Hedge” doesn’t apply to everything it does. That’s kind of what I was talking about. “Hedge fund” is now too often used to refer to all private equity. “hedge fund” and “private equity” are not synonymous. It’s current debt to equity is about .5 (which is NOT highly leveraged). But more importantly, BX doesn’t own the RE. It manages funds that own the real estate. If it owned the RE, it would show up on its balance sheet. It doesn’t. As far as I know, all the specific financial info for their RE funds is private (hence “private” equity).
April 11, 2013 at 10:57 AM #761184ParticipantAnd….
[quote=livinincali]
Or Farallon group sets 300-400 million hedge fund using 60% leverage to buy real estate.
http://news.yahoo.com/exclusive-farallon-hedge-fund-raising-real-estate-fund-165122356–sector.html
[/quote]
from the article:
With its new fund, Farallon will target shopping centers, office buildings, warehouses and apartments that fundamentally have nothing wrong with them, but might be over-leveraged or mismanaged. It will target deals that require the Farallon fund to invest between $25 million to $50 million, the source said.
Kind of standard leverage for commercial RE investments. But they’re not buying SFRs.
April 11, 2013 at 11:05 AM #761185Participant[quote=spdrun]
On the topic of hedge funds and bad real estate deals… Look at Stuyvesant Town in NYC and the big boys who bought it – then backed out of the deal, leaving CalPers, among others, holding the bag.
http://www.npr.org/2013/04/03/175511949/…
Not local… but it could happen on a smaller scale here.
Difference is that the SFR’s and condos in SD Co are typically offered at anywhere from 6-10% cap now. Same in many NJ towns that I’m interested in.
StuyTown — let’s do the math. They paid about $500k per apartment. Average rent was likely about $2000/mo, what with rent control and stabilization of quite a few tenants. Management, maintenance costs, and property taxes likely eat 50% of this, so we’re left with $1000/mo, or $12k/yr per apartment, if VERY lucky. Yeah, the fucking fools bought at 2.4% cap.[/quote]
They also did that in 2006. A few things have changed since then.
April 11, 2013 at 12:05 PM #761186Participant[quote=SK in CV]
BX is a primarily an PE firm. “Hedge” doesn’t apply to everything it does. That’s kind of what I was talking about. “Hedge fund” is now too often used to refer to all private equity. “hedge fund” and “private equity” are not synonymous. It’s current debt to equity is about .5 (which is NOT highly leveraged). But more importantly, BX doesn’t own the RE. It manages funds that own the real estate. If it owned the RE, it would show up on its balance sheet. It doesn’t. As far as I know, all the specific financial info for their RE funds is private (hence “private” equity).[/quote]Private equity often employs leverage. The concept of leveraged buyout was invented by private equity. Of course this thread is about North County Coastal so I probably shouldn’t have brought PE into the thread at all.
North County Coastal is a special sub market that is far more likely to be effected by the Sorrento Valley economic center of high paying jobs than anything else. QCOM’s health is probably much more important than what private equity is doing if anything.
Housing for the marginal buyer is a highly leveraged asset in most cases. As long as carrying costs stay low (interest rates) and leverage available stays high (5% down or less) the housing market will be fine. As soon as one of those things goes away it will have some difficulties.
April 11, 2013 at 4:07 PM #761189bearishgurl
ParticipantThanks, SK, for clarifying the difference between a “hedge fund” and a private-equity REIT. I read the links CAR provided on this thread below (repeated by livinincali here) but didn’t possess your body of knowledge to actually determine if leverage was actually used in Blackstone’s and Santa Monica-based Colony Capital’s acquisitions (for example) or the degree at which these (SFR) acquisitions could have later been leveraged.
My understanding is that properties within coastal CA counties are not included in the (previously distressed) buy-and-hold portfolios of these two giant REITs. I am unclear if Blackstone has actually made any bulk acquisitions in CA. My understanding from the two e-mail messages I rec’d to start the thread below is that Colony had purchased up distressed SFR’s in bulk in the inland Counties of San Bernardino, Riverside, Kern, Fresno, Merced, San Joaquin, Sacramento and possibly Stanislaus.
http://piggington.com/as_predicted_frannie_is_beginning_to_sells_blocks_of_assets_in_b?page=1
It doesn’t seem as if there would be a good reason for lenders or Fannie/Freddie to unload in bulk SFR’s which are situated in urban CA coastal counties at deep discounts to REITs. My reasoning is that these REO’s were/are very salable due to having a good local job market and also traditionally having an otherwise “captive audience.”
April 11, 2013 at 4:28 PM #761191The-Shoveler
ParticipantFunny I was in San Jose two weeks ago and my colleague was telling me that BlackStone was buying SFH on the open market in the area (Sunnyvale, san Jose, mountain view etc…) (there virtually are no distress sales there these days).
I thought that’s crazy, also I can tell you the start-up’s up there are going ballistic. I am seeing guy’s in their 50’s and working for large companies who have been there 10-15 years leave for start-up’s.
It’s crazy.April 11, 2013 at 4:38 PM #761192Participant[quote=The-Shoveler]Funny I was in San Jose two weeks ago and my colleague was telling me that BlackStone was buying SFH on the open market in the area (Sunnyvale, san Jose, mountain view etc…) (there virtually are no distress sales there these days).
I thought that’s crazy, also I can tell you the start-up’s up there are going ballistic. I am seeing guy’s in their 50’s and working for large companies who have been there 10-15 years leave for start-up’s.
It’s crazy.[/quote]WOW, if I could move NOW, I would start interviewing in SV for a great job if old people are actually being hired in SV!
After all, I’m not dead yet :=0
I’m wondering what Blackstone is really buying in Santa Clara County. I can’t in my wildest dreams imagine that it is SFRs. Even as high as the rents are there, the acquisition cost and taxes of only a modest SFR are very, very high there.
Could it be condos or row homes? Or could it actually be on the other side of the Dumbarton Bridge (Fremont) or around the east side along the Nimitz fwy to SJ.
I’ll believe it when I see it.
There are still plenty of SFR’s to buy up in BK’d Stockton.
April 14, 2013 at 9:51 AM #761277Scarlett
ParticipantWhat segments of the sellers “demographic” have changed so dramatically? I mean, comparing to a more normal housing market. I am curious why is the inventory bottom low. It seems to me the prices have recovered quite a bit from the “bottom”, we’ve worked our way through most of the short sales and foreclosures – I think. Are that many more people still underwater? Are the banks holding on to the foreclosures “tsunami”?
Is the low inventory not as bad compared to normal market because even though at any given point not many houses are on the market, they go in escrow within days, compared to weeks in a more normal market?
April 14, 2013 at 11:51 AM #761280SD Realtor
ParticipantThose are good questions Scarlett. I don’t really have many answers for you. Agreed that we have seen strong price recovery, especially over the past 6 months. Yes there are still alot of people underwater but nowhere near as many as there were in 2009. Furthermore that number is being whittled down daily. No the banks are not holding onto foreclosures as well. The supposed tsunami believers who I always said were grasping at straws are totally empty handed. I didn’t quite get your last 3 lines. The low inventory is bad, as bad as it has ever been. Even in the bubble days we didn’t have inventory like this. It becomes challenging for everyone. It makes the decision making process border on irrational for some. Buying becomes fed by fear rather then logic. Appraisals become much harder becaue prices gap up rather then appreciate normally. It is just a situation that most buyers should not participate in unless they are adequately prepared.
April 14, 2013 at 11:56 AM #761281Participant[quote=Scarlett]What segments of the sellers “demographic” have changed so dramatically? I mean, comparing to a more normal housing market. I am curious why is the inventory bottom low. It seems to me the prices have recovered quite a bit from the “bottom”, we’ve worked our way through most of the short sales and foreclosures – I think. Are that many more people still underwater? Are the banks holding on to the foreclosures “tsunami”?
Is the low inventory not as bad compared to normal market because even though at any given point not many houses are on the market, they go in escrow within days, compared to weeks in a more normal market?[/quote]
Scarlett, I’m not trying to be a pest, but I’m surmising from your earlier post on this thread:
[quote]Hello SDR, How about the North County area – Carlsbad, San Marcos, Encinitas? Is that market so crazy as well? Now that I have a job in Carlsbad we’re thinking of getting a house up there in the general area. I like those neighborhoods. Our limit is 600K and a cursory look on sdlookup yielded less than a dozen listings total (4 bdr SFH). But if it’s that crazy and have to offer above the LP and compete with cash offers…we’d rather rent some more than deal with that.
Thanks![/quote]
…that you and Rhett haven’t bought a home in SD yet?
I seem to remember that you posted as early as 2008 that you were looking for one to buy and several of us here tried to assist you in-depth as to your questions on financing, properties and areas on multiple threads here over the years.
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