Tuesday, 02 June 2009 01:00

Miami and LA Move to the Northeast - Don't Say I Didn't Warn You.

Required reading for this post is my comments on the NYC condo market which seems to have wrinkled a few overly-sensitive feathers. Be sure to read through the comment section. Then be sure to read The Truth About the Banks Has Been Released: the open source spreadhseet edition and The Re-Release of the Open Source Mortgage Default Model. After that, if you're bored, there is always the T2 Partners analysis or even the NY Times' perspective (yeah, its the MSM, but it makes sense).

From the WSJ:

NEW YORK (Dow Jones)--Florida-style desperation to move condo inventory is headed for a neighbor of the Big Apple.

Metrovest Equities, developer of The Beacon in Jersey City, plans to auction 25 one- and two-bedroom luxury units June 27 at a nearby hotel. A dozen units are being offered "regardless of price" - an attention-grabbing measure designed to draw traffic. Suggested opening bids range from $150,000 to $250,000; they were originally priced from $380,000 to $700,000.

The condo auction - aggressive for this region, but common in the Sunshine state, which is battling a multi-year inventory glut [so is the northeast, it's just that no one is admitting it, at least not yet, but the evidence is overwhelming. The real estate depression is much closer to the epicenter than it is to the end!] - is designed to close out sales in the first phase of the project, 315 units in two buildings, as well as accelerate sales of the second phase, 25 live/work condos in a third building, the developer says. The sale is also another indicator that the New York area, which long seemed buffered from the nation's housing crash, is weakening as job losses and foreclosures mount. [Wait until all of the supply working its way through the system actually starts to register in the dangerously lagged but popularly followed stats]

The Beacon project - a $350 million-plus transformation of the 10-building Jersey City Medical Center - opened for sales at the height of the housing frenzy in late 2005. Buyers rushed to sign contracts - 40 a month, at one point - for the development replete with floor-to-ceiling marble, a billiard room with $1 million of sculpted artwork, two theaters, a hot tub and an 8,000-foot sundeck with a bar and barbecue grills.

But, by the time it was delivered in 2007, some buyers changed their minds or couldn't secure financing, says George Filopoulos, Metrovest Equities' president.

While the original phase, a former office building and hospital connected by a lobby, was 90% presold, "when the market fell down the tubes, we lost about 50 original contracts," he says. It is now 77.5% sold and occupied. [After 5 years (approximated) of debt service , where the developer had to carry a construction loan, unless they were forced into a bridge to permanent loan by their lenders and four years of marketing and sales, they are only 78% sold - Think what that portends for the guys who just broke ground last year or are opening for sales this year! Referene many of those developments in the "lying eyes" post that I made a few days ago.]

The timing of the initial wave of condos was far from ideal, but Filopoulos isn't giving up on restoring the art-deco campus built between 1931 and 1943. Billed as the largest historical residential restoration project in New Jersey's history, it will ultimately comprise 1,200 residences in 10 buildings and 80,000 square feet of retail space. [I wouldn't bet the farm on this. Bubble time ain't coming back anytime soon. After all, that's why they call it a "bubble"!]

Completion of five phases - originally set for 2010 - is now more likely between 2012 and 2014.

"The work is very intense, number one," Filopoulos says. "Number two, the market conditions changed significantly from when we first started."

Last modified on Tuesday, 02 June 2009 01:00

2 comments

  • Comment Link RobieB Wednesday, 03 June 2009 10:07 posted by RobieB

    JPM AND CITI WERE VERY BUSY IN THE 1ST QUARTER. THEY EACH ARE ON RECORD FOR 6 BILLION IN LOAN MODS WHILE WFC AND B OF A ONLY HAVE 1.9B EACH. I GUESS WE KNOW WHERE SOME OF THE STATED PROFITS CAME FROM! PROBLEM IS PEOPLE WILL WALK FROM THE LOAN MODS WITHIN A YEAR WITHOUT A CHANGE IN PRINCIPAL BALANCE.

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  • Comment Link NDbadger Tuesday, 02 June 2009 21:48 posted by NDbadger

    In their article, they make a comment that 30% of homes sold in the past 5 years are underwater. They note that the number is likely understated. They also note the number comes from Zillow. I actually believe the number is grossly overstated, especially for homes requiring nonconforming loans. Nothing in our area is going for the prices on Zillow, and I have had many people tell me the same. Also, every time I check Zillow, prices seem to come down further. If their not underwater yet based on Zillow, they will be soon.

    This is why I am reluctant to take my shorts off the banks, despite the huge government subsidies. It just seems that the losses are too great.

    And what happens when these guys pay off TARP? Do they just have to go back on in a few quarters? JPM has huge C&I exposure. Their troubles are only beginning.

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