[clearfund]

ps: I am seeing some luxury homes coming in at 50% of their peak when bought in a new community with very little collective equity ($7mm home in the low $4mm – mid $3mm range).

These homes are racing towards the replacement cost of the structure which is typically $300/sf +/-depending on how ‘tricked out’ they got with their finishes and personalization.

[clearfund]

ps: I am seeing some luxury homes coming in at 50% of their peak when bought in a new community with very little collective equity ($7mm home in the low $4mm – mid $3mm range).

These homes are racing towards the replacement cost of the structure which is typically $300/sf +/-depending on how ‘tricked out’ they got with their finishes and personalization.

[clearfund]

ps: I am seeing some luxury homes coming in at 50% of their peak when bought in a new community with very little collective equity ($7mm home in the low $4mm – mid $3mm range).

These homes are racing towards the replacement cost of the structure which is typically $300/sf +/-depending on how ‘tricked out’ they got with their finishes and personalization.

[clearfund]

We developed luxury homes during the boom in country clubs, coast, etc in the $3mm-$6mm range.

One of the differences with they type of pain/foreclosure for this is the type of loans used to buy the homes. Because of the size of the individual loans they were not part of the fannie/freddie/gov cabal and are typically left on the books of the lender or whoever bought them.

Additionally, most 1st TD’s were apx $1mm to enjoy the tax write off then they would supplement the 1st with 2nds and leverage their stock portfolio to make up the balance. Thus, the first is not automatically underwater but the balance of the debt is. Additonally, a high portion of these loans are done by local banks, not the big banks, thus watch the local lenders sink under the wieght but that won’t make the headlines.

Foreclosures will happen, however, the are often done quietly and under wraps as a deed in lieu etc to avoid the ‘shame’. its an insiders market/sneaky shadow market.

[clearfund]

We developed luxury homes during the boom in country clubs, coast, etc in the $3mm-$6mm range.

One of the differences with they type of pain/foreclosure for this is the type of loans used to buy the homes. Because of the size of the individual loans they were not part of the fannie/freddie/gov cabal and are typically left on the books of the lender or whoever bought them.

Additionally, most 1st TD’s were apx $1mm to enjoy the tax write off then they would supplement the 1st with 2nds and leverage their stock portfolio to make up the balance. Thus, the first is not automatically underwater but the balance of the debt is. Additonally, a high portion of these loans are done by local banks, not the big banks, thus watch the local lenders sink under the wieght but that won’t make the headlines.

Foreclosures will happen, however, the are often done quietly and under wraps as a deed in lieu etc to avoid the ‘shame’. its an insiders market/sneaky shadow market.

[clearfund]

We developed luxury homes during the boom in country clubs, coast, etc in the $3mm-$6mm range.

One of the differences with they type of pain/foreclosure for this is the type of loans used to buy the homes. Because of the size of the individual loans they were not part of the fannie/freddie/gov cabal and are typically left on the books of the lender or whoever bought them.

Additionally, most 1st TD’s were apx $1mm to enjoy the tax write off then they would supplement the 1st with 2nds and leverage their stock portfolio to make up the balance. Thus, the first is not automatically underwater but the balance of the debt is. Additonally, a high portion of these loans are done by local banks, not the big banks, thus watch the local lenders sink under the wieght but that won’t make the headlines.

Foreclosures will happen, however, the are often done quietly and under wraps as a deed in lieu etc to avoid the ‘shame’. its an insiders market/sneaky shadow market.

[clearfund]

We developed luxury homes during the boom in country clubs, coast, etc in the $3mm-$6mm range.

One of the differences with they type of pain/foreclosure for this is the type of loans used to buy the homes. Because of the size of the individual loans they were not part of the fannie/freddie/gov cabal and are typically left on the books of the lender or whoever bought them.

Additionally, most 1st TD’s were apx $1mm to enjoy the tax write off then they would supplement the 1st with 2nds and leverage their stock portfolio to make up the balance. Thus, the first is not automatically underwater but the balance of the debt is. Additonally, a high portion of these loans are done by local banks, not the big banks, thus watch the local lenders sink under the wieght but that won’t make the headlines.

Foreclosures will happen, however, the are often done quietly and under wraps as a deed in lieu etc to avoid the ‘shame’. its an insiders market/sneaky shadow market.

[clearfund]

We developed luxury homes during the boom in country clubs, coast, etc in the $3mm-$6mm range.

One of the differences with they type of pain/foreclosure for this is the type of loans used to buy the homes. Because of the size of the individual loans they were not part of the fannie/freddie/gov cabal and are typically left on the books of the lender or whoever bought them.

Additionally, most 1st TD’s were apx $1mm to enjoy the tax write off then they would supplement the 1st with 2nds and leverage their stock portfolio to make up the balance. Thus, the first is not automatically underwater but the balance of the debt is. Additonally, a high portion of these loans are done by local banks, not the big banks, thus watch the local lenders sink under the wieght but that won’t make the headlines.

Foreclosures will happen, however, the are often done quietly and under wraps as a deed in lieu etc to avoid the ‘shame’. its an insiders market/sneaky shadow market.

[clearfund]

Allan – I think the SF is a good example of why anyone who buys that type of asset now has a higher chance of succeeding that did those that bought at historical record high values (and record low yields).

I would rather look at that type of bldg where the tenants have blown out, underwrite the new rent/downtime/ti/lc at levels meaningfully below ‘current’ market rents.

To your balance sheet focus, I am sure we’d all be happier with the identical asset as a significantly lower cost basis for all of the obvious reasons.

Is now the right time to buy that bldg given the others that may tumble behind it given the high level of over-leveraged, highly optimistic underwritten bldgs that you correctly state? I Don’t purport to know when to call a bottom. However, what I do know is the case for long term fundamentals (read: 10+ years of projected ownership). If you can achieve a low basis and capture a strong all cash yield (at some point in the next several years) in a top shelf SF bldg I think we’d sleep well at night and ultimately cash in at some point in the future.

12% offering: To be clear, I make no offer (or hint at one) of a 12%+ investment. My prior statement re: 12% was that I use that number as minimum all cash yield I would require upon achieving stabilization on the property when preparing the underwriting models. I feel that we can buy cash flow today for approaching 10%, however, I would expect any leased deal to go ‘backwards’ on income for a while due to rent reductions, etc to maintain tenants (lower rent is better than a vacancy). thus 12% is just a personal min yield requirement used in crafting my value/offer to submit to the lender to acquire the note.

Lastly re: “conservative assumptions” I do agree with you that the phrase can/has been used as ‘cover’ and BS many times over. However, it is just as likely that someone who uses that phrase is actually using conservative assumptions. Thus, to disparage someone due to a very subjective term is not appropriate without previously drilling down into their definition/idea of ‘conservative assumptions’.

The market has told me that my assumptions are hyper conservative due to the response I receive from lenders to my offers. My offers come with an explanation of how I derived my offer value (rents, vacancy factor, expenses, discount rate, etc) and they never have an issue with any of those items, just my price (which is a derived from the agreed upon assumptions).

As a further example of someone using the term “conservative basis” you might want to read the 3rd paragraph on page 2 of this link:
http://www.ticonline.com/buffett.partner.letters/1959.02.11.pdf

“…it has an intrinsic value of $125/share computed on a conservative basis…”
Warren Buffett, 1959 Partnership Letter

Not attempting to compare myself to ‘the man’ but it is possible, and probable, for someone to accurately, and ethically, underwrite deals in a conservative manner.

Moral of the story, not every property is worth buying, not every deal is truly a deal, but there are deals to be had if you are diligent and look hard. Don’t try to flip but rather underwrite for the long run, be as conservative as you can (even though my conservative assumption may not be your conservative assumption), and do your personal due diligence.

Happy New Year

ps: I was commercial real estate/REIT analyst for a top 2 wall street investment bank for many years so I too have seen the good/bad/ugly/losers/winners in Billions of real estate deals.

[clearfund]

Allan – I think the SF is a good example of why anyone who buys that type of asset now has a higher chance of succeeding that did those that bought at historical record high values (and record low yields).

I would rather look at that type of bldg where the tenants have blown out, underwrite the new rent/downtime/ti/lc at levels meaningfully below ‘current’ market rents.

To your balance sheet focus, I am sure we’d all be happier with the identical asset as a significantly lower cost basis for all of the obvious reasons.

Is now the right time to buy that bldg given the others that may tumble behind it given the high level of over-leveraged, highly optimistic underwritten bldgs that you correctly state? I Don’t purport to know when to call a bottom. However, what I do know is the case for long term fundamentals (read: 10+ years of projected ownership). If you can achieve a low basis and capture a strong all cash yield (at some point in the next several years) in a top shelf SF bldg I think we’d sleep well at night and ultimately cash in at some point in the future.

12% offering: To be clear, I make no offer (or hint at one) of a 12%+ investment. My prior statement re: 12% was that I use that number as minimum all cash yield I would require upon achieving stabilization on the property when preparing the underwriting models. I feel that we can buy cash flow today for approaching 10%, however, I would expect any leased deal to go ‘backwards’ on income for a while due to rent reductions, etc to maintain tenants (lower rent is better than a vacancy). thus 12% is just a personal min yield requirement used in crafting my value/offer to submit to the lender to acquire the note.

Lastly re: “conservative assumptions” I do agree with you that the phrase can/has been used as ‘cover’ and BS many times over. However, it is just as likely that someone who uses that phrase is actually using conservative assumptions. Thus, to disparage someone due to a very subjective term is not appropriate without previously drilling down into their definition/idea of ‘conservative assumptions’.

The market has told me that my assumptions are hyper conservative due to the response I receive from lenders to my offers. My offers come with an explanation of how I derived my offer value (rents, vacancy factor, expenses, discount rate, etc) and they never have an issue with any of those items, just my price (which is a derived from the agreed upon assumptions).

As a further example of someone using the term “conservative basis” you might want to read the 3rd paragraph on page 2 of this link:
http://www.ticonline.com/buffett.partner.letters/1959.02.11.pdf

“…it has an intrinsic value of $125/share computed on a conservative basis…”
Warren Buffett, 1959 Partnership Letter

Not attempting to compare myself to ‘the man’ but it is possible, and probable, for someone to accurately, and ethically, underwrite deals in a conservative manner.

Moral of the story, not every property is worth buying, not every deal is truly a deal, but there are deals to be had if you are diligent and look hard. Don’t try to flip but rather underwrite for the long run, be as conservative as you can (even though my conservative assumption may not be your conservative assumption), and do your personal due diligence.

Happy New Year

ps: I was commercial real estate/REIT analyst for a top 2 wall street investment bank for many years so I too have seen the good/bad/ugly/losers/winners in Billions of real estate deals.

[clearfund]

Allan – I think the SF is a good example of why anyone who buys that type of asset now has a higher chance of succeeding that did those that bought at historical record high values (and record low yields).

I would rather look at that type of bldg where the tenants have blown out, underwrite the new rent/downtime/ti/lc at levels meaningfully below ‘current’ market rents.

To your balance sheet focus, I am sure we’d all be happier with the identical asset as a significantly lower cost basis for all of the obvious reasons.

Is now the right time to buy that bldg given the others that may tumble behind it given the high level of over-leveraged, highly optimistic underwritten bldgs that you correctly state? I Don’t purport to know when to call a bottom. However, what I do know is the case for long term fundamentals (read: 10+ years of projected ownership). If you can achieve a low basis and capture a strong all cash yield (at some point in the next several years) in a top shelf SF bldg I think we’d sleep well at night and ultimately cash in at some point in the future.

12% offering: To be clear, I make no offer (or hint at one) of a 12%+ investment. My prior statement re: 12% was that I use that number as minimum all cash yield I would require upon achieving stabilization on the property when preparing the underwriting models. I feel that we can buy cash flow today for approaching 10%, however, I would expect any leased deal to go ‘backwards’ on income for a while due to rent reductions, etc to maintain tenants (lower rent is better than a vacancy). thus 12% is just a personal min yield requirement used in crafting my value/offer to submit to the lender to acquire the note.

Lastly re: “conservative assumptions” I do agree with you that the phrase can/has been used as ‘cover’ and BS many times over. However, it is just as likely that someone who uses that phrase is actually using conservative assumptions. Thus, to disparage someone due to a very subjective term is not appropriate without previously drilling down into their definition/idea of ‘conservative assumptions’.

The market has told me that my assumptions are hyper conservative due to the response I receive from lenders to my offers. My offers come with an explanation of how I derived my offer value (rents, vacancy factor, expenses, discount rate, etc) and they never have an issue with any of those items, just my price (which is a derived from the agreed upon assumptions).

As a further example of someone using the term “conservative basis” you might want to read the 3rd paragraph on page 2 of this link:
http://www.ticonline.com/buffett.partner.letters/1959.02.11.pdf

“…it has an intrinsic value of $125/share computed on a conservative basis…”
Warren Buffett, 1959 Partnership Letter

Not attempting to compare myself to ‘the man’ but it is possible, and probable, for someone to accurately, and ethically, underwrite deals in a conservative manner.

Moral of the story, not every property is worth buying, not every deal is truly a deal, but there are deals to be had if you are diligent and look hard. Don’t try to flip but rather underwrite for the long run, be as conservative as you can (even though my conservative assumption may not be your conservative assumption), and do your personal due diligence.

Happy New Year

ps: I was commercial real estate/REIT analyst for a top 2 wall street investment bank for many years so I too have seen the good/bad/ugly/losers/winners in Billions of real estate deals.

[clearfund]

Allan – I think the SF is a good example of why anyone who buys that type of asset now has a higher chance of succeeding that did those that bought at historical record high values (and record low yields).

I would rather look at that type of bldg where the tenants have blown out, underwrite the new rent/downtime/ti/lc at levels meaningfully below ‘current’ market rents.

To your balance sheet focus, I am sure we’d all be happier with the identical asset as a significantly lower cost basis for all of the obvious reasons.

Is now the right time to buy that bldg given the others that may tumble behind it given the high level of over-leveraged, highly optimistic underwritten bldgs that you correctly state? I Don’t purport to know when to call a bottom. However, what I do know is the case for long term fundamentals (read: 10+ years of projected ownership). If you can achieve a low basis and capture a strong all cash yield (at some point in the next several years) in a top shelf SF bldg I think we’d sleep well at night and ultimately cash in at some point in the future.

12% offering: To be clear, I make no offer (or hint at one) of a 12%+ investment. My prior statement re: 12% was that I use that number as minimum all cash yield I would require upon achieving stabilization on the property when preparing the underwriting models. I feel that we can buy cash flow today for approaching 10%, however, I would expect any leased deal to go ‘backwards’ on income for a while due to rent reductions, etc to maintain tenants (lower rent is better than a vacancy). thus 12% is just a personal min yield requirement used in crafting my value/offer to submit to the lender to acquire the note.

Lastly re: “conservative assumptions” I do agree with you that the phrase can/has been used as ‘cover’ and BS many times over. However, it is just as likely that someone who uses that phrase is actually using conservative assumptions. Thus, to disparage someone due to a very subjective term is not appropriate without previously drilling down into their definition/idea of ‘conservative assumptions’.

The market has told me that my assumptions are hyper conservative due to the response I receive from lenders to my offers. My offers come with an explanation of how I derived my offer value (rents, vacancy factor, expenses, discount rate, etc) and they never have an issue with any of those items, just my price (which is a derived from the agreed upon assumptions).

As a further example of someone using the term “conservative basis” you might want to read the 3rd paragraph on page 2 of this link:
http://www.ticonline.com/buffett.partner.letters/1959.02.11.pdf

“…it has an intrinsic value of $125/share computed on a conservative basis…”
Warren Buffett, 1959 Partnership Letter

Not attempting to compare myself to ‘the man’ but it is possible, and probable, for someone to accurately, and ethically, underwrite deals in a conservative manner.

Moral of the story, not every property is worth buying, not every deal is truly a deal, but there are deals to be had if you are diligent and look hard. Don’t try to flip but rather underwrite for the long run, be as conservative as you can (even though my conservative assumption may not be your conservative assumption), and do your personal due diligence.

Happy New Year

ps: I was commercial real estate/REIT analyst for a top 2 wall street investment bank for many years so I too have seen the good/bad/ugly/losers/winners in Billions of real estate deals.

[clearfund]

Allan – I think the SF is a good example of why anyone who buys that type of asset now has a higher chance of succeeding that did those that bought at historical record high values (and record low yields).

I would rather look at that type of bldg where the tenants have blown out, underwrite the new rent/downtime/ti/lc at levels meaningfully below ‘current’ market rents.

To your balance sheet focus, I am sure we’d all be happier with the identical asset as a significantly lower cost basis for all of the obvious reasons.

Is now the right time to buy that bldg given the others that may tumble behind it given the high level of over-leveraged, highly optimistic underwritten bldgs that you correctly state? I Don’t purport to know when to call a bottom. However, what I do know is the case for long term fundamentals (read: 10+ years of projected ownership). If you can achieve a low basis and capture a strong all cash yield (at some point in the next several years) in a top shelf SF bldg I think we’d sleep well at night and ultimately cash in at some point in the future.

12% offering: To be clear, I make no offer (or hint at one) of a 12%+ investment. My prior statement re: 12% was that I use that number as minimum all cash yield I would require upon achieving stabilization on the property when preparing the underwriting models. I feel that we can buy cash flow today for approaching 10%, however, I would expect any leased deal to go ‘backwards’ on income for a while due to rent reductions, etc to maintain tenants (lower rent is better than a vacancy). thus 12% is just a personal min yield requirement used in crafting my value/offer to submit to the lender to acquire the note.

Lastly re: “conservative assumptions” I do agree with you that the phrase can/has been used as ‘cover’ and BS many times over. However, it is just as likely that someone who uses that phrase is actually using conservative assumptions. Thus, to disparage someone due to a very subjective term is not appropriate without previously drilling down into their definition/idea of ‘conservative assumptions’.

The market has told me that my assumptions are hyper conservative due to the response I receive from lenders to my offers. My offers come with an explanation of how I derived my offer value (rents, vacancy factor, expenses, discount rate, etc) and they never have an issue with any of those items, just my price (which is a derived from the agreed upon assumptions).

As a further example of someone using the term “conservative basis” you might want to read the 3rd paragraph on page 2 of this link:
http://www.ticonline.com/buffett.partner.letters/1959.02.11.pdf

“…it has an intrinsic value of $125/share computed on a conservative basis…”
Warren Buffett, 1959 Partnership Letter

Not attempting to compare myself to ‘the man’ but it is possible, and probable, for someone to accurately, and ethically, underwrite deals in a conservative manner.

Moral of the story, not every property is worth buying, not every deal is truly a deal, but there are deals to be had if you are diligent and look hard. Don’t try to flip but rather underwrite for the long run, be as conservative as you can (even though my conservative assumption may not be your conservative assumption), and do your personal due diligence.

Happy New Year

ps: I was commercial real estate/REIT analyst for a top 2 wall street investment bank for many years so I too have seen the good/bad/ugly/losers/winners in Billions of real estate deals.

[clearfund]

Gentlemen – I bowed out of this conversation as it veered way off track from the initial topic of purchasing Non-Performing Loans to a philisophical discussion of investing vs speculating and whether real estate is a worthy endeavor (now I am hesitant to call it an investment…). As a fund manager I still have a job to do (and hopefully keep). My paid content writer was fired last year.

Whether anyone wants to, or chooses not to, invest in real estate is fine. This is why there are investments in gold, emerging markets, treasuries, etc with risk, return, and fundamentals all across the spectrum.

I believe that if one chooses to dive into commercial real estate, now is the time that opportunities will begin to surface, albeit not every transaction is worthy.

In today’s environment one of the best avenues to properties with distressed ownership is via the direct bank channel (note I stated distressed ownership vs. distressed property…very different). Now working your way to these loans and a real discount/pricing from the lender is 1,000x more difficult than any video promoter will let on. Banks don’t want to accept reality and take the hit any more than the former owner did.

Thus, if this thread can get back on topic via anyone with tangible experience acquiring notes as a principal, taking the property through foreclosure dodging lawsuits/bankruptcy filings, and repositioning the asset into a profitable cash flowing deal, I’d love to hear your experiences.

[clearfund]

Gentlemen – I bowed out of this conversation as it veered way off track from the initial topic of purchasing Non-Performing Loans to a philisophical discussion of investing vs speculating and whether real estate is a worthy endeavor (now I am hesitant to call it an investment…). As a fund manager I still have a job to do (and hopefully keep). My paid content writer was fired last year.

Whether anyone wants to, or chooses not to, invest in real estate is fine. This is why there are investments in gold, emerging markets, treasuries, etc with risk, return, and fundamentals all across the spectrum.

I believe that if one chooses to dive into commercial real estate, now is the time that opportunities will begin to surface, albeit not every transaction is worthy.

In today’s environment one of the best avenues to properties with distressed ownership is via the direct bank channel (note I stated distressed ownership vs. distressed property…very different). Now working your way to these loans and a real discount/pricing from the lender is 1,000x more difficult than any video promoter will let on. Banks don’t want to accept reality and take the hit any more than the former owner did.

Thus, if this thread can get back on topic via anyone with tangible experience acquiring notes as a principal, taking the property through foreclosure dodging lawsuits/bankruptcy filings, and repositioning the asset into a profitable cash flowing deal, I’d love to hear your experiences.

[Author]

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