the Problems are the Path: Notice of Default Opportunity in Multifamily Unit

 

Startup bubble fueled by Fed’s cheap money policy finally burst in 2023

PUBLISHED THU, DEC 28 20239:00 AM 
• After years of record venture investments tied to low interest rates, cheap money has stopped flowing in startup land, leading to high-profile failures.WeWork and Bird declared bankruptcy in 2023, while pandemic plays like Hopin and Clubhouse faded into oblivion.“Prediction: 2024 is the year we finally bury the class of ’21 ZIRP ‘unicorns’ and start talking about a new crop of great companies,” Jeff Richards, a partner at venture firm GGV, wrote in a post on X.
• Easy Money created more risk than the inexperience entrepreneur.  The plan would to go back for more money when problems erupted.  Then came higher interest rates.  Failures, bankruptcies followed with empty offices and work from home.  Nothing new here!
This year, it all unwound. With the Fed lifting its benchmark rate to the highest in 22 years and persistent inflation leading consumers to pull back and businesses to focus on efficiency, the cheap money bubble burst. Venture investors continued retreating from record levels of financing reached in 2021, forcing cash-burning startups to straighten out or go bust. For many companies, there was no workable solution.

What is left are struggling real estate investment companies formed in 2020-2021 who now find themselves with loans maturing without and viable financially affordable choice.  Real Estate Property Taxes are not paid, negotiating with lenders fail, Notice of Default is the resultant outcome.

It is now time to begin to make the readers aware of the opportunities that exist.

NOTICE OF DEFAULT:  Recorded November 8, 2023 8:27 am, $1,764,469.01

12 unit multifamily apartment complex with 6 rented and 6 remodeling.  Unit has issue with ground water and requires subdrain or drain field installed.  Permits taken are questionable.  Planning department has mandatory occupancy requirements due by January 11, 2024.

Listing price $2,595,000.  Value on current rental Net Operating Income with 5% cap Rate = $2,222,390.00.  Proforma Value at 5% cap rate after improvements + $3,970,680.  (Estimates only).

Interested parties call 650-743-7249, write gary@mckaeproperties.com, text 650-743-7249.

Non-Disclosure Document required of all interested parties and will be provided before full disclosure of any details.

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The Problems are the Path: FED Speaks, "Much Ado About Nothing"

 "Much Ado About Nothing" is the title of a well-known play by William Shakespeare (1599).  The phrase was assimilated into the English language and used when someone is overreacting and makes a big deal or fuss over something unimportant.  

The Fed voted last week to hold rates steady once again, and its updated projections showed an expectation of three rate cuts in 2024. That caused a rally in stocks and bonds, with the Dow Jones Industrial Average jumping to a record high.

“It’s not what you say, or what the chair says. It’s what did they hear, and what did they want to hear,” said Chicago Fed President Austan Goolsbee said on CNBC’s “Squawk Box.” “I was confused a bit — was the market just imputing, here’s what we want them to be saying?”

“The market expectation of the number of rate cuts is greater than what the SEP projection is,” Goolsbee said.

Three Rate Cuts, to me, means that the FED is opening a safety valve in the event of a crisis in which the FED must step in and be the lender of last resort.  This does not imply Happy Days Are Here Again and we are returning to 0% rates again.  

The reality is interest rates are remaining the same and they will remain the same until the FED believes inflation is behind us or is appearing to be beaten.  

Mortgage rates will remain high, from a historic viewpoint.  Interest on credit cards will remain high all loans whether the asset will remain high.

Goldman Sachs has stated that the Residential Real Estate Market will be flat for 4 years.  Goldman forecasts FED to achieve soft landing in 2024, housing starts and home prices will tick higher while existing home sales will remain flat. 

Real Estate Investor and Mentor to the Residential Realtor community stated that the "US is entering the greatest real estate correction in my lifetime": Going to at epic levels".  The era will offer great opportunities for individuals to grab trophy properties from institutions that has never happen in our country.  

This may not be the return of 2007-08 when foreclosures on the market at highly discounted prices. It will mean that institutions or Commercial Investors of all sorts will be pressured by their maturing debt to sell at discounts that will allow buyers returns on their invested cash that matches returns on short term Treasury Bonds.

Will the FED control the Real Estate market or will it let the market regulate itself.  If the FED allows the Real Estate Market to regulate itself.  The FED will step aside and lower rates that fits the circumstances not the desire of investors and the Media supporting investors.  

The First Step is Rent Control that is going on numerous ballots.  Once that happens residential values stop going up and start consolidating.  

The FED's action and the subsequent rally in Stocks, Bonds and esoteric asset classes has in reality taken liquidity from the market.  Money held in saving vehicles went into those assets and out of the hands of consumer items to be purchased.

We have already been seeing prices or residential real estate sliding from list price to sales price; irrespective of the location.  Affordable homes have been the most resistant, but still seeing lower sales to list price with days on the market increasing.  The speculation or best stated the over pricing of homes by both seller and buyer has seen some dramatic cuts.  Movement to locales with lower entry levels in residential sales are becoming more noticeable and reportable in the Media.  

Commercial Real Estate still remains to be the best investment opportunity that Mr. cordone has referred to.  Too many novice investors without staying power are stuck in the same situation as large institutions owners with property of deconing cash flow and net operating income to cover debt.  A condition that eventually leads to foreclosure! 

NEWS FROM ST. LOUIS FED: Student loan debt may be contributing to the gap in homeownership among generations: Nearly 50% of Millennials with at least some college education have student loan debt in their 30s, compared with only 13% of Boomers at the time they were in their 30s. This student loan debt for Millennials could be making it more difficult for them to save up for a down payment on a house.

Closing item: Rents are down 3.3% nationwide.  Softening of rents will affect home prices.  Don't expect some crisis or collapse in either home prices or rents.  The case maybe more a reality check for landlords, home sellers, and agents.  The prices they are asking are out of line with choices available to the condition of the house.  The reality check will be seen in Zillow Estimates and other real estate on line services who use algorithms.  The numbers are just past over priced properties to create estimates that will no longer be valid going forward.  Remember high interest rates will slowly erode confidence on spending or overspending.  The end result is to be selective in home purchases, negotiate and investigate. 

As before, call or write for any question you may have and think of me of your "in the know real estate professional".

The problems are the Path: Man Plans GOD Laughs

 I love that phrase.  Its origination is a mystery to me, it could have come from something Biblical.  Throughout my career there are numerous times when chaos was created, that GOD was laughing at the plans of Man. Ladies, don't get offended.  Biblical references all reference Man not both sexes ( the main reason I think this is a Biblical Quote).  In fact, I doubt if chaos would have been created if Woman Planned.   

The past plans of Man of lower interest rates being a new normal has created chaos for those both of minimal net worth and experience to those of substantive net worth and education and experience to fall into a crisis of credit and net worth devaluation.  The Trillion or so dollars in Office Building Debt that is supposed to come due in February 2024 is one example of the plans of Man that go awry.  The expectation that both office buildings would remain full and rising rates were guaranteed were matched with add on loans that were short in duration or worst variable rate loans.

1. Plan #1. Rapid rise in interest rates would confine consumer spending and corporate profits and cooling a Red-Hot Economy.  It has not worked out.  Homeowners refinanced mortgages at low rates.  Corporations borrowed at low rates.  The large cash reserves created by the lower rates were put into Government short term debt at +5% rates.  GOD Smiles!

2.  Plan #2. Add to debt using lower interest rate add on debt expecting to refinance all debt at lower rates.  The rate rise created chaos.  Owners face inability to cover debt payments with drop in occupancy of office buildings. Debt refinancing is at higher rates.  New rates and financing will not be covered by income from property. GOD giggles.

3. Plan #3 Investor Groups create investment pools to buy, fix and flip commercial properties and single family rentals.  Property construction costs uncover expenses not planned, market softness that will not cover total costs, lenders refinancing rates too high to cover costs.  Add to this investors were looking for short term investments not longer term developments.  GOD Laughs

4.  Plan #4. FED plans on rate rises will stop rising home prices and month rent.  Rents continue to rise and home prices are not falling to plan.  The refinancing of mortgages leave owner reluctant to sell and loose the low rates for newer higher rates.  GOD Continues to Laugh

Rental Houses Aftermath

Investors have been shedding rental properties from the period 2017-2022.  California with the most single family rentals in the nation at 15% or 2.1 million units lost 87,548 units.  Across the US the only states that have had an increase is Texas, +53,414, Alabama, +7473, Mississippi, +1747, New York, 6017, Montana. 3753, Oklahoma, 1818, Maryland, 1471, Rhode island 3251.

Who owns houses taken off rental?  California ranked #1 with 6.8 million units, 9% of US total.  Texas is at 6.3 million, Florida is at 4.8 million, Pennsylvania at 3.4 million and New York at 3.2 million.  California added 400,768 owners of single family homes in the past five years, a 6% gain.

Bottom line it is a movement from Weak Hands to Strong Hands as single family homeowners with a 10,20,30 year time frame think long term and hold residential real estate.  Speculators added to GOD's laughter. California still retains the title of most rentals in the US at 23%, down from 25% since 2017 versus 18% in the US.

Liquidations of real estate in the Bay Area has the distinction of the "Most In The Red Sellers" in the country.  One in eight sellers in this part of the country have taken a loss.  That may be a small number when the losses from the Commercial Real Estate Market take hold.  From small commercial properties of less than $10 million to those of hundreds of millions of dollars and more have yet to be totaled.

According to Redfin from August to October 2023 the average loss per sale in San Francisco and San Mateo county was $122,500.  Lesser in other parts of the Bay Area, but still a loss.

Zillow continues to forecast lower home prices, minus 2%-minus 5%, throughout the US in 2024 with two exceptions Phoenix and Tucson Arizona and South Pines North Carolina.

2024 will continue to see lack of inventory, some weakness in sales prices that will be depend on area to area.  Demand will fluctuate for location within a city or town, to location within a state to location within the country.  Demand will be affected by interest rates and mortgages.  At present there is a 52% chance the FED will lower rates by May 2024.  52% is not something I would make a long term decision on.  A slight % in a flip of a coin!

Don't make your real estate decision for the short term.  Think long term like the recently deceased partner of Berkshire Hathaway, Charlie Munger, think 10,20, 30 years out.  NO MATTER HOW OLD YOU ARE!

Buy real estate that you can create value, not fully valued, if you are cost and value conscious; irrespective of, it being commercial, single family rentals or single family residences.

As before, call or write for any question you may have and think of me of your "in the know real estate agent".