Very Few in Ivy’s League
In housing and real estate insight, the name Zelman has few equals.
Here, CNBC’s Diana Olick taps into commentary from Ivy Zelman on how to read into starts, permits, and foreclosures data releases that have streamed through the past couple of days.
Altered States
It’s April 16, do you know where your money is?
Click on image for access to ProPublica "The Map of Bailout Recipients"
Orange County Register reporter Matt Padilla called attention to this analysis of Troubled Asset Relief Program fund allocations to date.
You gotta feel for Montana and Vermont, which just can’t seem to get in under the TARP like every other state.
Good News du Jour Department
Real estate is local.
Real estate trends occur one local market at a time.
Here’s two upbeat notes from opposite coasts. A third would make a trend.
Mark J. Perry’s Carpe Diem blog reports the following: NoVa Home Sales Increase for 12th Straight Month.
Here’s the graphic he’s supplied, an oh-so-rare look at measurably higher sales volume year-on-year.
Click on image for Northern Virginia Association of Realtors site.
Here’s what Perry’s comment is:
The data suggest that the Northern Virginia real estate market is way past its bottom, and has been making a solid recovery and strong comeback for many months. And yet doesn’t much of the national news suggest that real estate markets in most parts of the country are still years away from a recovery?
It’s a different story on the Left Coast. A story of foreclosure sales. The question is, can foreclosure sales (and 60% sales of other existing for-sale homes) keep up with the pace of foreclosures?
Calculated Risk quotes this report from DataQuick.
The number of homes sold in the Bay Area rose for the seventh month in a row in March, the result of continued bargain hunting in the East Bay and other foreclosure-discounted communities. The past year’s steep drop in the median price slowed significantly, indicating that the market might be near its price bottom, a real estate information service reported.
Speaking of recovery, Builder magazine asked five real estate analysts to offer their take on which five markets might make it across the gulch soonest. Here’s their response.
One way or another, it’ll be a market at a time. With fewer local newspapers around, we can only hope that there’ll be headlines enough to take note when it begins to happen.
Bottom Fishers
CNBC’s sets up a five-up on housing and commercial real estate developments today.
Brother Act: Chapter 11 won’t stop Raleigh-based St. Lawrence Homes from making a go for the other side
Dad was a vintage movie theater proprietor in upstate New York, whose six-day work weeks and 14 or 15-hour workdays in the 1960s and ’70s rub off directly on his daughter and sons, who consider work fun and laugh a lot on the job. The older brother starts out as an electrician working job sites for Ryan Homes’ Buffalo division in the 1970s; the younger goes into school teaching, but not for long.
They’re the Ohmanns, Bob Ohmann who founded and is the CEO of Raleigh, N.C.-based St. Lawrence Homes on a bank loan that allowed him to do exactly one spec and two pre-sales, and his kid brother Rich, who joined Bob as head of marketing after the venture got its footing.
Bob’s early experience with inhospitable housing cycles came when he’d shifted gears from doing electrical work on new houses to selling them for Ryan Homes in the Buffalo area.
“In the 1970s, they had a little thing called the gas crisis, and interest rates were up around 19%,” Bob Ohmann recalls. “Still, out on French Road [Buffalo] the Ryan Homes folks would set up a card table out in a field, and people would line up at the card table to buy a new home from them. No matter what, you got to stay in touch with what people need. Even today, a couple’s about to have their first kid, and my bet is they’re not thinking we need to move into a two bedroom rental apartment. More times than not, they’re thinking they need a new home.”
From one spec and two pre-sales in Raleigh in December 1989, the Ohmanns built their company into a $191 million powerhouse, closing 489 homes in 2006, peaking at about 600 in 2007. Then, time warp hit. The Carolinas, like Texas, withstood the worst of housing’s dislocation just about all the way through 2007 before the Carolinas market and their company succumbed to gravity.
“We started to feel it go a little soft around August ['07], but then we had a great November—sold about 50 houses that month—and we thought then that it was going to be a good snapback, but then everything collapsed,” says Bob Ohmann.
On Groundhog Day 2009, as most people began their vigil for the end of one of the grimmest winters in memory, Ohmann elder sought protection under Chapter 11 bankruptcy laws. Within five days after filing, the Ohmanns had secured Debtor-in-Possession financing from Raleigh-based community lender Capital Bank.
Their story with lenders is all too familiar. They started banking with a local bank called Pioneer, which was acquired by regional bank Centura, which was acquired by international financial company RBC. Their major lender today, SunTrust, bought the regional bank, Central Carolina Bank, they’d initially set up business with.
As their success trajectory steepened in the years 2003, ‘04, ‘05, and ‘06, they found themselves at the local and regional land dance with some new players with hugely deep pockets.
“They [the public home builders] were printing stock and printing money, and they’d come in and bid up the price of all the land,” says Rich. “We were thinking, we have to go get some land or we’ll run out, but we were paying prices that were way too high because the publics had bid it all up.”
Now, the publics are dumping that land, getting tax carryback money from the IRS, and then coming back into the land market to buy the land at enormously reduced prices. “They got their bail out,” Rich says. “They should be happy.”
Meanwhile, banks continue to exert pressure on builders who owe them land acquisition and development payments as well as construction loan project financing.
“We’re not blaming anyone for what’s happened, but the business just doesn’t work the way it used to when it comes to home building finance,” says Bob Ohmann. I.e., no one takes your call if you’re trying to get through to a big bank.
Today, their company has cut 75 percent of its staff, has turned to real estate brokers as its sales force, has renegotiated as many deals as it can with trades and materials suppliers, and has introduced new entry-level product under its BroadStreet Homes line. It’s doing its damnedest to build and sell 150 homes in 2009 to pay the bills, keep the lights on and the doors open.
Apart from the faceless, nameless big bank lenders where it’s well nigh impossible to get a returned phone call, the other big challenge they’ve had is with some of the subs that have been absorbed into big conglomerates, especially in the concrete business.
The Ohmann name’s not on the company signage, but the brothers Ohmann like to think of their name as backing the value of every St. Lawrence Home.
“Bankruptcy isn’t giving up,” says Rich. “It’s a way to get enough time to reorganize and save the business.”
As they fight each day for survival, two key “learnings” occur to Bob and Rich Ohmann, and they think other private home builders who may get sucked into the default vortex might benefit from knowing them. One is company data. The more straightforward and simple and correct all the company accounting is, the better the relationship will be with multiple creditors and lenders who’ll have to agree on modified terms and cuts. So, keep all accounts in good order and be able to understand and explain every part of the balance sheet to make things easier on yourself if you get in trouble.
The other thing is this. If you’re headed into trouble and plan to work yourself out of it, do some work on your Web site before you announce that you’re filing. Analytics show that you’re going to get an awful lot of hits on your site the minute you file, and you want all the explanations and articulation of the go-forward plans need to be there when word surfaces that you’re reorganizing.
How do they rate their odds of getting to the other side? Rich’s opinion on the matter: “My brother Bob is like a guy up in the bridge of a ship, and he doesn’t care if there’s rocks, or icebergs, or tsunamis ahead; he’ll still say ‘full speed ahead.’ Me, I’m just really good at steering.”
Housing Starts and Fits
Single family housing starts scratched out a 2,000-home improvement in March from January’s adjusted record low of 356,000.
Here’s Calculated Risk’s picture of the current total starts and one-family data.
Click image for access to Calculated Risk's "Housing Starts: Near Record Low" post.
Calculated Risk’s take-away comment:
Total starts and single family starts declined in March (compared to February), and are both just above the record low set in January. This is the second month in a row with starts slightly above the record low – this is just a slight increase in total starts and single family starts are essentially flat with the record low.
It is still too early to call the bottom in January, however I do expect housing starts to bottom sometime in 2009.
Starts data reflects the mayhem in the credit markets dating back to late September ‘08, which shut down construction and project lending, and seized up residential construction mid-hammer blow.
- The Wall Street Journal report on housing starts.
- The WSJ’s panel of economists debate “the bottom.”
- The Census Bureau’s release on Starts, Permits, and Completions.
- The New York Times reports on surging foreclosures and plunging starts.
It’s made it a toughest-ever winter for home builders of all sizes and stripes.
Builders say they’re reduced to two positions: Cash and fetal.
Weekends they like to work, but with no one coming through the model homes over the weekends, a good number of them have nothing better to do than to sit on the couch, remote in hand. After the drama at Augusta this past weekend, one home building executive writes:
I watched the final holes of the Masters but my sports highlight this weekend was the final game of the Frozen Four NCAA Hockey Championship from the Verizon Center on Saturday night. Boston University beat Miami of Ohio in overtime after scoring 2 goals in the final minute of the game to tie the score.The game and result was further proof that nothing good is happening in Ohio and that some cosmic power is either staring down with the stink eye or sticking needles in a voodoo dollish map of the United States.
General Growth Collateral Damage
General Growth Properties succumbed this morning, with a Chapter 11 filing in U.S. Bankruptcy Court in New York, taking with it The Rouse Company and residential real estate entities including The Howard Hughes Corporation.
The Wall Street Journal reports extensively on what it terms “one of the largest real-estate failures in U.S. history, capping a precarious, months-long effort to juggle the crushing $27 billion debt load it shouldered in past acquisition sprees.”
The Las Vegas Sun runs this story this morning.
Earlier Wednesday, debt rating agency Standard & Poors said it had learned that a loan backed by the Grand Canal Shoppes at the Venetian resort was transferred to special servicing after General Growth, the mall owner, couldn’t come to terms with servicer LNR Partners Inc. on an extension. This means General Growth is in danger of defaulting on the loan.
The balance on the loan, which matures May 1, is $393.7 million, S&P said.
The New York Times notes the list of the key creditors:
Among the companies listed as General Growth’s 100 largest unsecured creditors are Eurohypo, a unit of Germany’s Commerzbank that holds $2.6 billion worth of loans; Wilmington Trust and the Bank of New York Mellon, representing several classes of bonds; casinos including Mandalay Bay and the Venetian; and an assortment of retailers such as Sephora, Guess?, Borders and Macys.
In its bankruptcy filing, General Growth said that it sought permission to retain a bevy of advisers, including the investment bank Miller Buckfire, the turnaround consulting firm AlixPartners and the law firms Weil, Gotshal & Manges and Kirkland & Ellis. The document was signed by Marcia L. Goldstein, the chair of Weil’s well-known bankruptcy practice.
An industry observer draws our attention to dismaying specifics with respect to the residential development implications in GGP’s filing. Here’s our note this morning from “Jennifer.”
Click on image for access to Summerlin, Nev., info
Key to the discussion of which entities are in bankruptcy is the definition of “GGP Group”. Page 62 of the document says “GGP, along with its approximately 750 wholy owned Debtor and Non-Debtor subsidiaries and affiliates, collectively “GGP Group”. On that same page there is a footnote to the document which says that its Exhibit “A” lists all of the entities for which Chapter 11 bankruptcy was filed on April 16th.
At the bottom of page 64 of that document, I was startled to see the following comment blithely made by the Debtor: “In addition to its core shopping center business, the GGP Group also owns and develops large-scale, long term master planned communities. GGP Group has five master planned communities in and around Columbia, Maryland; Summerlin, Nevada; and Houston, Texas. These communities contain approximately 18,500 saleable acres of land.”
I then went to Exhibit “A”, listing the 200+ new Chapter 11 debtors and scrolled down. I saw Chapter 11 Debtor names which included entities with Town Center Drive in them, and five entities with “Howard Hughes” in them, including The Howard Hughes Corporation and Howard Hughes Properties, Inc., as well as reference to a Canal Shops entity.
The standard “First Day” motions for the bankruptcy cases have been filed, including the all important motion to obtain authorization to keey paying the Debtors’ employees, and to pay them any unpaid prepetition wages. There is no indication yet as to when the first day motions will be heard.
In the Debtor’s Motion for Joint Administration of Cases (Court Document #2) which I read, it says that the GGP Group has a large unsecured line of credit, but it doesn’t say anything about how much money is available to be drawn. That document also says that most of GGP Group’s financing is through mortgages on specific properties.
That does not bode particularly well for the Summerlin operation, because it means that any land sales which are occurring have their cash proceeds tied up, as “lender’s cash collateral”, which an angry mortgage lender is not necessarily likely to let them use.
I am afraid that this is not a good day in the history of Columbia, Maryland, Summerlin, Nevada and ??? in Houston, Texas.
The “Next Wave” of pain in real estate–based on trillions of dollars of commercial mortgage backed securities debt due over the next several years and not enough capital access to offset it–has now begun.
Residential gets another blow as a result.
No Pressure, Shaun
The 100-day HUD Secretary’s got lots on his plate.
The bucket list is a mile long and three miles wide. With roots in affordable housing, he can’t simply focus on the single family foreclosure problem, even though that’s huge.
Demands for his time and attention are compelling. Good thing he’s young.
Banks to The Donald: Ha! Ha! Ha!
Kick start the banks into lending money again, and the real estate business would be just fine.
The Donald in all his loose canon glory speaks for about eight minutes on how real estate developers would be glad to get back in the game were it not for the banks, as well as about government financial and economic policy, and of course, about gaming.
Trump may not be the most edifying interview, but he’s a master spinner and always amusing.
Here he is on CNBC’s Sqawk Box, talking to one of the show’s hosts Joe Kernen.
Hedge Clipped
Remember all the economists were saying in 2007 that subprime mortgage woes were contained and wouldn’t spill over into the broader economy?