Inside commercial hard money lending.
California’s budget crisis is in a fervor.
Politicians need to learn that you can’t spend what you don’t have. Unfortunately, too many politicians were “writing checks [their] body can’t cash”. They promised everyone the world, but didn’t think of how they were going to pay for it.
Gov. Arnold Schwarzenegger declared a fiscal emergency Monday and called lawmakers into a special session to address California’s $11.2 billion deficit.
The state’s revenue gap is expected to hit $28 billion over the next 19 months without bold action.
Schwarzenegger declares fiscal emergency in Calif.: Financial News – Yahoo! Finance.
The landlord of the office space leased to Washington Mutual in Pleasanton may be without lease payments when JPMorgan/WaMu leaves the space.
This is but the beginning of the tumult that commercial real estate may feel as jobs are lost and companies vacate their space.
Washington Mutual’s departure from Pleasanton could do more than eliminate 1,200 jobs and erode the local economy and office market: The exit could leave the failed thrift’s landlord in the lurch without rental payments.
Why? Washington Mutual was placed into receivership by the Federal Deposit Insurance Corp. Under the terms of the deal whereby JPMorgan Chase obtained Washington Mutual’s assets through the FDIC receivership, JPMorgan can decide to cease making rental payments when WaMu vacates the five-building complex at the corner of Johnson and Franklin drives in Pleasanton.
The AP is reporting today that California’s jobless numbers jumped to 8.2% this month, a 14 year high.
Much of the unemployment is related to the collapse of the subprime industry and the ensuing fall of the housing market in California. Countrywide, IndyMac Bank, and other now defunct lenders have gone out of business throughout the state, leaving their workforce unemployed. Locally Diablo Funding closed in October of 2007 leaving 650 mortgage consultants without a home.
The Contra Costa Times is reporting that WaMu/JPMorgan Chase is laying off 1,600 Bay Area workers. The East Bay cut almost 3,000 jobs in Ocotober, bringing the annual total to 22,000 so far in 2008.
A number of the nationwide home builders have been forced to layoff their work force. The construction trades have been dramatically impacted as companies are hesitant to spend money on structures they may not need if consumer demand continues to decrease.
On top of rising unemployment the AP is reporting that California’s unemployment fund is almost insolvent.
The state’s unemployment insurance fund is expected to have a deficit of $2.4 billion at the end of 2009, forcing it to borrow from the federal government for only the second time since the program was established in the 1930s.
The unemployment numbers can negatively impact commercial real estate in a number of ways.
All of these things are signals that commercial real estate will go through a cyclical downturn. There will be a period of decline as households, banks, and nations deleverage.
All this news does not mean that commercial real estate is in a death spiral. Quite the contrary. The darkest of night comes before the dawn.
I believe that now smart investors will begin to reenter the market. Not the speculators, that were looking for a quick buck and were hoping for appreciation.
Property values will actually make sense down here on planet earth with real numbers and real calculations. The mythical world of the last 5 years will have to be forgotten.
The bubble has burst and a new day is dawning.
I think home prices are coming back to reality.
Despite an increasingly uncertain economy, thousands of homebuyers around San Francisco Bay kept snatching up foreclosed homes last month, dragging down the median home price by 41 percent from a year ago, a real estate tracking firm said Thursday.
The median home price in the nine-county region plunged to $375,000 in October, compared with $631,000 in the year-ago period, according to San Diego-based MDA DataQuick.
Last month’s median price was down 6.3 percent from September and nearly 44 percent from the peak median of $665,000 in the summer of 2007.
NorCal median home price plummets 41 percent – Yahoo Finance.
The FDIC has leased 200,000 square feet of space in Irvine. I wonder if this is a sign of things to come or just a coincidence?
FDIC to open temporary office in Irvine – Los Angeles Times.
(HT: Calculated Risk)
The Wall Street Journal is reporting that Calpers, the California Public Employees’ Retirement System, has lost 35% of the value in its land and residential real estate investments.
As of August 31, 2008 the fund had a total of $233.4 Billion under management. Only 10.1% of that amount is allocated to real estate assets. The fund as of June 30, 2008 had lost only 2.4% overall.
The nation’s largest public pension fund, known as Calpers, is paying dearly for its ill-fated decision to become one of the most aggressive real-estate investors among public pensions.
Amid the rapid decline in the housing market, the value of Calpers’s investments in land and housing projects across the country had fallen 35%, to about $6 billion, as of June 30, according to recent performance results released Wednesday by the California Public Employees’; Retirement System.
The losses are likely to be larger now because the values were based on appraisals completed at the end of March. Since then, land values have cratered nationwide, as evidenced by the bankruptcy-protection filing of one high-profile Calpers undertaking, the LandSource land venture in California. An investment vehicle funded by Calpers sank $970 million in that venture, which holds 15,000 acres outside Los Angeles.
The NY Times has an interesting article on the California town of Mountain House that sprang up during the housing boom. The first homes were sold in 2003 and according to the article 90% are underwater on their mortgages.
The NY Times also has a map of the locations where homes are worth less than their mortgages.
The Wall Street Journal has another article on an East Bay town this week.
Antioch, California is the focus of an article by the Journal regarding IndyMac Federal Bank’s (formerly IndyMac Bancorp) efforts to stem the tide of foreclosures.
FDIC Plan Tests Limits of Leniency – WSJ.com.
The FDIC is taking steps to modify as many delinquent loans as possible. There are some complications with the process, including loans that IndyMac Federal Bank only provides the servicing for.
IndyMac sold many of the loans it made to various investors. IndyMac still services the loan by collecting payments, keeping track of interest owed, and filing the necessary tax forms. IndyMac is limited in its ability to negotiate with the borrower because it is no longer the lender, the investor that bought the loan is now owed.
I also liked the WSJ’s efforts to give an accurate description of those that had borrowed money from IndyMac. Some used loan proceeds to buy other houses. Others have stopped paying and have “socked away money he saved by not paying IndyMac” and stored it in a safe.
Not all delinquent borrowers are “down on their luck”.
The Golden State is going to be in for a rough year. The Associated Press is reporting that the state may deliver just 15 percent of the requested amount to California cities and farms.
Calif. to cut water deliveries to cities, farms – Yahoo! News.
Fewer crops may be planted if there is no water for the crops. In economic terms this could mean higher prices for some of the every day food stuffs that Californians enjoy.
Californians had better pray for rain.
Commercial Mortgage Lender for Owens Financial Group a California based hard money portfolio lender.
phone: (925) 280-5388
