[SK in CV]

[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.

[SK in CV]

And….

[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.

[SK in CV]

[quote=livinincali]
I don’t know I see articles like this Hedge fund Blackstone buying $100 million per week.

http://news.firedoglake.com/2012/11/15/hedge-fund-blackstone-buying-100-million-in-foreclosed-homes-every-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).

[SK in CV]

[quote=SD Realtor]I am not sure I see it either. One of the problems is the misconceptions of what sort of properties are held by industrial players. If you think that some entity holds 2000 sfr homes in San Diego county and they are generating income through property rentals you are about as wrong as can be. I do know that there are plenty of investment groups that purchase properties for flips but that is immune to long term interest rate issues. Now if you are talking larger commercial holdings that have 100’s or 1000s of doors per project then you are getting to be more accurate.

Steering the conversation back to what is most important for the generic engineer looking for a home on the I15 corridor, or Carlsbad, or Carmel Valley or Encinitas… very tough times and these homes will not be affected at all by any perceived commercial activity. The demand for these homes will be set strictly by the affordability for that same engineer and that is strictly determined by interest rates as well as the overall supply/demand curve.[/quote]

I think I mostly agree, though I’m confused about something you said here. I’m not aware of any big private equity RE activity in SD. Not saying it hasn’t happened, but it hasn’t been prominent in the news, nor have the numbers ever looked like they worked as well as they have in Phoenix, parts of FL, and some other small pockets across the country.

But this part…

Now if you are talking larger commercial holdings that have 100’s or 1000s of doors per project then you are getting to be more accurate.

seems to say just the opposite of what you said at the beginning of the paragraph. Are there a significant number of investors that have bought 1000 or more doors in SD, and are holding it? To add some context to what I’m talking about, I was told last week that there have been at least 100,000 SFRs acquired in the last 18 months in Phoenix by cash investors planning on renting and holding them. (I’m skeptical of the accuracy of that number, btw.)

Or are you talking about developers?

[SK in CV]

[quote=livinincali][quote=The-Shoveler]
The only mass exit I think that could occur would be caused by some economic catastrophe and it would be the leveraged players being forced most likely.
[/quote]

I personally don’t think it would take a catastrophe to end up with some hedge fund players getting overleveraged and blowing up. The past 20 years have seen plenty of examples of this. Fed lowers rates, people borrow at those low rates, and speculate with the money. Since that speculation doesn’t create any real economic growth or a sustainable environment it always ends up blowing up sometime. The fed says we’ll lower rates so businesses can invest but it’s far easier to borrow and speculate than it is to actually build a real business.

[/quote]

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.

[SK in CV]

[quote=Essbee]Alvarado Estates IS gated, at least it was the last time I walked in/out (2004 and ~2006).

Agree with the rest of your statement… the census tract there includes many thousands of college students with very low incomes, lowering the average.[/quote]

I stand corrected, I just took a look on google maps and the gate is pretty obvious. It wasn’t there in 60’s when the area was originally developed, through the 80’s for sure. Last time I was there was probably mid-90’s. Pretty sure it wasn’t there then.

[SK in CV]

[quote=moneymaker]Interesting site but I’m not a believer. How do you explain Yerba Santa Drive area in 92115? Have you ever driven through that neighborhood, it is frickin amazing how big the houses/lots are in this gated community.[/quote]

I don’t think that neighborhood (Alvarado Estates) is gated, at least if it is, the gates are new. I’m pretty sure those are public streets. The reason the average income is as low as it is, is that the tract includes the much more densely populated neighborhood to the east to College Ave., which is almost all college students.

[SK in CV]

To answer a couple of your questions that I don’t think have been addressed….yes, the work legally MUST be permitted and done by a licensed contractor. In CA, legally, there is no such thing as an unlicensed contractor. If they call themselves a “contractor”, by law, they must be licensed. I once won a double small claims suit against a seller and broker for unpermitted work done by unlicensed handyman, when the purchase contract called for it to be done by “a contractor”. It was also related to the termite inspection. Coincidentally, the bid provided with the inspection report was right around $20K. Seller had the work done for $1,200. And never paid the schmuck who did the work.

[SK in CV]

[quote=joec][quote=SK in CV][quote=joec]
We all know rents have been going up 5-10% the past few years… [/quote]

No, they haven’t.[/quote]

You’re saying rents aren’t up 5-10% since 2008/09? I am not saying it is up 5-10% EVERY year, but definitely up that much the past few years to make the rent/own equation not that obvious for most folks and why people are rushing in since their rents are going up, mortgage rates are lower, etc…[/quote]

5-10% total over 4 or 5 years? Yes. Rents were pretty much flat in most parts of the county in 2009 and 10. They rose in 2011 and 12. It’s possible that rents overall are 10% higher now than 2008, but probably not much more than that. I don’t think we’ve seen a 10% increase in rental rates in any one year in a couple decades.

[SK in CV]

[quote=joec]
We all know rents have been going up 5-10% the past few years… [/quote]

No, they haven’t.

[SK in CV]

It was always deductible. The Tax Reform Act of 1986 changed the rules so that personal interest (like credit card debt and car loans) became non-deductible. It also set caps on the amount of qualified home mortgage (and 2nd home) interest that was deductible. Prior to that, substantially all interest was deductible.

[SK in CV]

[quote=moneymaker]Ok now 30 year treasury @ 2.85%[/quote]

It was below 2.5% last summer.

[SK in CV]

[quote=The-Shoveler]Interest rates and enabling selling blocks of REO’s to Big investment houses.

Also Ben (official statement) denying that QE had any effect on Stock market and housing.

These aren’t the droids you’re looking for.

Really there was no pressure applied to banks (not).

In a larger sense, even without housing you would still need a fair amount of inflation to monetize these debts.

Housing is just the most direct way to inject money into state coffers.[/quote]

Starting at the end…

How so? Specifically, how is housing a direct way to inject money into state coffers?

Now, back to the beginning…I asked about government (not the Fed) action which had as its intent to re-inflate housing prices.

I would accept that the Fed, is at least in part, motivated to inflate housing prices, but it’s not their primary motivation. The Fed is bankers. The vast majority of housing debt is not owned by bankers. It was almost all private money and the GSE’s.

It’s unclear to me how selling big blocks of debt, or REO inflates housing prices. Bankers suck at dealing with distressed assets. They always have. It has always been the way that large quantities of REO and distressed debt has been dealt with. They sell them cheap, the faster the better. In the past, it has at times stabilized prices, but I can’t think of a single RE bubble in the past that it has re-inflated prices. (This IS different than past bubbles. The question here is not outcome, but rather motivation.)

I’m not sure how Bernanke’s claim that the QE programs have not had any effect on housing or the stock market is the least bit pertinent to the discussion. Nor do I have any recollection of him actually saying that. It seems contrary to the stated aims of the programs.

[SK in CV]

[quote=The-Shoveler]I also believe that this was the entire reason for the Fed-Gov tireless reflating of the housing bubble.

THEY HAVE TO.

There is no other way to bail out local municipalities[/quote]

That only makes sense in CA, where the state and municipalities have only limited flexibility to adjust property tax rates. Other states have political pressure to keep property tax rates down, but not the statutory limitations that exist in CA. If the Fed were pushing inflation, the argument would have some merit. They haven’t. And it’s unlikely they ever will.

Beyond that, I don’t think there have been any government fiscal policy where the intent was to re-inflate RE prices, only to stop falling prices. Which govt action do you think has been undertaken with the intent to re-inflate prices?

[SK in CV]

[quote=Want_to_Retire]You definitely get better demand and appreciation in Coastal CA. However, even in the depth of the slump, I was actively looking and didn’t see any property in South Coastal OC that I can cash flow with 25% down. So, like ctr70, since I would never buy a negative cash flow rental in CA just hoping it appreciates, I ended up buying in dusty ol’ Phoenix. So far, tenants have been good. I think making a broad statements about “better tenants” in CA is interesting, I think it depends on diligent screening and luck in either state.

Now if I had just bought something in South OC hoping for appreciation and put up with some cash flow losses, I’d be eating steak tonight! Or if I had looked in San Diego, doh![/quote]

Most of Phoenix has appreciated at least as much as SD has over the last 15 months. So you should have both cash flow and appreciation, where in OC, you’d have negative cash flow and appreciation. I suspect you bought both at the right time and the right place. Particularly if you can keep it rented to the same tenant. (turnover kills)

[Author]

Posts