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Failed Real Estate Deal Costs Florida

TALLAHASSEE — A multibillion-dollar Manhattan development formally unwound this week after costing the state’s pension system $266 million and fueling a debate over oversight of the $113 billion fund.

The formal announcement by a group that includes Tishman Speyer Properties and BlackRock Inc., who made headlines with a $5.4 billion purchase of a sprawling property in Manhattan — at the time the largest real-estate transacting in the nation’s history — won’t have much effect on the state’s pension fund, which already wrote off its $250 million investment in the Stuyvesant Town and Peter Cooper Village, a massive apartment complex.

“This should have no bearing on us one way or the other,” said Dennis MacKee, a spokesman for the State Board of Administration, which oversees the retirement fund. “Right now, it looks like what we have on the books is what it’s likely to end up as.”

What the board has on the books is $0, after essentially conceding that the entire investment is gone.

In addition to the quarter of a billion dollars invested in the property, the SBA spent $16 million to cover costs associated with its late entry into the venture. Because the state held an equity position in the project and wasn’t a creditor, it won’t benefit from the group’s decision to turn the property over to its creditors.

MacKee said the investment was part of the state’s strategy to diversify its portfolio generally and within real estate in particular. He said the state invests largely in safe bets, but does take on some high-risk projects in search of the rewards that can follow.

But the investment has also helped fuel a political battle between Attorney General Bill McCollum, a Republican running for governor, and Chief Financial Officer Alex Sink, the likely Democratic nominee for the state’s top office. The two sit with Gov. Charlie Crist, a Republican running for Senate, as trustees of the SBA.

Asked earlier this week about the project’s collapse, Sink called attention to her proposal to expand the trustee group and include more members with financial expertise.

“That’s why I’ve called for pretty serious reforms at the Tallahassee State Board of Administration and I hope that my legislation gets passed,” Sink said.

McCollum has argued that adding members to the board would require a constitutional amendment and has countered with his own proposal to instead overhaul the Investment Advisory Council, which advises the pension fund on its decisions.

“I firmly believe these changes will provide the additional oversight the trustees are seeking, in an effort to protect the financial future of all Tallahassee Florida Pension Fund participants,”

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Florida’s Long Road to Recovery

When John Kanas arrived in South Florida last May as the savior of the state’s largest homegrown bank, the $12.8 billion-asset BankUnited in Coral Gables, he did so with a wad of private-equity cash in his back pocket, a cushy loss-sharing agreement with regulators and a healthy dose of realism that “even our worst fears about the Florida market would be overly optimistic.”

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Morgan Stanley Posts $413m Q409 Profit as Real Estate Gains

Global financial services and asset-management firm Morgan Stanley (MS: 30.77 -1.25%) posted $413m of income from continuing operations in the fourth quarter of 2009, compared with a loss of $10.5bn in the previous-year period.

Net revenue of $6.8bn in Q409 brings the full-year net income to $1.35bn, compared with a net loss of $246m in 2008.

Firm-wide results for the full year reflected $1.9bn of net losses on real estate investments “amidst the ongoing industry-wide decline in this market,” Morgan Stanley said in the earnings statement.

Investment gains in the firm’s institutional securities division were $61m in the quarter, compared with year-ago losses of $1.85bn, driven primarily by gains on real estate investments. The increased gains drove full-year 2009 investment losses to $900m, compared with $2.7bn losses in the previous year.

Morgan Stanley’s asset management division saw a pre-tax loss of $55m in the quarter, despite net revenues in the Merchant Banking unit of $153m, driven by principal investment gains the real estate business.

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Real Estate Professionals Prepare Clients for Commercial Property Collapse

Despite the fragile progress made in the residential property market, real estate experts continue to predict a steep decline in the commercial real estate market.

“The last several years have seen liberal lending in the commercial market,” said Thomas Bible, Broker for VIP Executive Realty in Florida. “Though not as pervasive or severe as in the residential market, this reckless lending is possibly more threatening to our economy.”

Predictions for the commercial real estate market (which includes shopping centers, strip malls, apartment buildings, office buildings and warehouses) appear universally bleak.

The “Emerging Trends in Real Estate 2010” report issued by the Urban Land Institute and PricewaterhouseCoopers acknowledges that most investors will recognize massive losses in the commercial real estate market. Value declines will eventually total 40 to 50 percent off market highs. This will likely be the worst registered since the Great Depression.

Surveys in the report also indicate that 2010 will be the worst time for investors to sell properties in the report’s 30-year history. According to the report, “A lackluster economic recovery characterized by problematic job growth will hamper the pace of any real estate market resurgence.”

According to Deutsche Bank commercial real estate analyst Richard Parkus, this is just the tip of the iceberg. He predicts huge losses and a huge number of banks failing as a result of the declining commercial real estate market.

As more commercial real estate property owners see tenants go bankrupt, downsize or invoke their escape clauses, they have begun to feel the serious effects of the economy. In fact, the national vacancy rate is expected to reach 18.5 percent to 19 percent by the end of 2010, the highest recorded since 1986. Without paying tenets, commercial property owners have little cash flow to make their impending balloon loan payments and may face foreclosure.

Some commercial real estate owners are taking a proactive approach to avoid foreclosure and protect their assets against financial decline and lowered property values. In fact, more and more real estate brokers are beginning to hear from their clients seeking help with a solution to turn their properties into viable assets.

“A few commercial property owners are beginning to look outside the relationship they have with their lender’s local representative, because the real decision making rarely happens at the local level,” said Mr. Bible “They want an equitable solution that maintains the relationship, so that everyone wins.”

Guardian Solutions, a commercial loan restructuring company based in Clearwater, Florida, has seen an increase in the number of real estate professionals contacting them in hopes of helping their clients.

“Property owners are increasingly feeling the stress of this down economy and can foresee only two viable options: holding on to a non-performing asset or foreclosure,” said Jeramie Concklin, Chief Executive Officer of Guardian Solutions. “Luckily, knowledgeable brokers have begun to realize the benefits of loan restructuring and are subsequently pointing their clients toward reputable loan restructuring companies like ours. It’s a win-win-win situation for the owners, the brokers and the lenders.”

“This recovery is going to take even longer than expected,” said Mr. Bible. “The commercial real estate market follows residential by about 18 months. I recommend that property owners seek assistance early in the game rather than wait for some sort of turnaround.”

According to Mr. Bible, commercial real estate professionals can serve their clients best by referring them to a reputable commercial loan modification company. Loan restructuring involves a multi-pronged approach to turn a failing commercial property into a viable asset. This may involve negotiating a modification to the original loan, revising an owner’s business plan, expenditure reductions, revamped pricing structures for franchise fees and legal maneuvers to protect assets.

“Having a third party loan restructuring company in your corner who is tenacious, a good negotiator and proactive is what every commercial property owner needs right now,” said Mr. Bible. “A good loan restructuring company can ease the entire process from the leasing and management of the asset, to the firm that will modify their debt structure.”

“Guardian Solutions can help commercial property owners restructure their loans by first evaluating an owner’s asset performance and market potential. From that type of information and other analytical data we compile, we can create a comprehensive restructuring proposal including strategies for modifying the owner’s current mortgage with the lender.” said Ira Friedman, Chief Operating Officer for Guardian Solutions.

Concklin added, “Armed with factual information and a realistic business plan, Guardian Solutions’ mediation staff enter negotiations with the lender to secure the most advantageous terms for the client, while addressing the concerns of the lending institutions.”

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Tallahassee Foreclosures Wholesale

Forclosure is a word that often gives rise to negative feelings. What many people do not relize is that a rise in Tallahassee forclosures gives a rise in oppurtunities. If you feel like the escalating costs of investing in Tallahassee foreclosure real estate have priced you out of the market, think again. Investing in Tallahassee forclosures can…

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Florida real estate agents report signs of recovery in property market as sales move up

Florida, one of the most popular US states with overseas real estate buyers and one of the areas to suffer the largest property price falls in the global economic downturn, is well on the way to recovery, it is claimed.

Property sales in November climbed 61% from the same month in 2008, the 15th straight month in a row in which existing home sales increases year on year, says a report from Florida Realtors. While condo sales increased 111% from last year, the report also shows and total sales are not far from peak levels in 2005 when Florida Realtors reported 17,219 state wide home sales that November.

The state’s prices though are still far from 2005’s peak of $250,500. Florida’s median sales price has fallen 12% from $158,200 a year ago to $139,000 in November. In 2004, November’s median sales price was $192,400, which shows how quickly the bubble grew. Prices after the burst, however, seem to be inching toward 2004 levels, the report points out.

‘The continued, gradual absorption of housing inventory will help stabilize home prices. National research notes that housing affordability is at its peak and the highest on record,’ said Cynthia Shelton, Florida Realtors’ president.

‘Along with still low mortgage rates, it means that the buying power of a typical family has never been better,’ she added.

For the second consecutive month, all of Florida’s metropolitan statistical areas (MSAs) reported increased home and condo sales. Of the smaller markets, Tallahassee reported 174 homes sold in November, an increase from 100 a year earlier. That market’s median sales price dropped 5%, however, to $162,000 from $170,000 a year ago.

Meanwhile the latest report from the US Census Bureau and the Department of Housing and Urban Development shows that overall in the US sales of new, single family homes in November dropped 11.3% from the previous month.

Sales in November reached a seasonally adjusted annual rate of 355,000, according to the report, a fall from 400,000 in October and a 9% drop from November 2008’s 390,000. The South led all regions in sales, totalling 179,000 sales in November, according to the data. The West was second with 79,000 sales. The Midwest had 68,000 sales, and the Northeast moved 29,000 homes in November.

Florida, one of the most popular US states with overseas real estate buyers and one of the areas to suffer the largest property price falls in the global economic downturn, is well on the way to recovery, it is claimed.

Property sales in November climbed 61% from the same month in 2008, the 15th straight month in a row in which existing home sales increases year on year, says a report from Florida Realtors. While condo sales increased 111% from last year, the report also shows and total sales are not far from peak levels in 2005 when Florida Realtors reported 17,219 state wide home sales that November.

The state’s prices though are still far from 2005’s peak of $250,500. Florida’s median sales price has fallen 12% from $158,200 a year ago to $139,000 in November. In 2004, November’s median sales price was $192,400, which shows how quickly the bubble grew. Prices after the burst, however, seem to be inching toward 2004 levels, the report points out.

‘The continued, gradual absorption of housing inventory will help stabilize home prices. National research notes that housing affordability is at its peak and the highest on record,’ said Cynthia Shelton, Florida Realtors’ president.

‘Along with still low mortgage rates, it means that the buying power of a typical family has never been better,’ she added.

For the second consecutive month, all of Florida’s metropolitan statistical areas (MSAs) reported increased home and condo sales. Of the smaller markets, Tallahassee reported 174 homes sold in November, an increase from 100 a year earlier. That market’s median sales price dropped 5%, however, to $162,000 from $170,000 a year ago.

Meanwhile the latest report from the US Census Bureau and the Department of Housing and Urban Development shows that overall in the US sales of new, single family homes in November dropped 11.3% from the previous month.

Sales in November reached a seasonally adjusted annual rate of 355,000, according to the report, a fall from 400,000 in October and a 9% drop from November 2008’s 390,000. The South led all regions in sales, totalling 179,000 sales in November, according to the data. The West was second with 79,000 sales. The Midwest had 68,000 sales, and the Northeast moved 29,000 homes in November.

Florida, one of the most popular US states with overseas real estate buyers and one of the areas to suffer the largest property price falls in the global economic downturn, is well on the way to recovery, it is claimed.

Property sales in November climbed 61% from the same month in 2008, the 15th straight month in a row in which existing home sales increases year on year, says a report from Florida Realtors. While condo sales increased 111% from last year, the report also shows and total sales are not far from peak levels in 2005 when Florida Realtors reported 17,219 state wide home sales that November.

The state’s prices though are still far from 2005’s peak of $250,500. Florida’s median sales price has fallen 12% from $158,200 a year ago to $139,000 in November. In 2004, November’s median sales price was $192,400, which shows how quickly the bubble grew. Prices after the burst, however, seem to be inching toward 2004 levels, the report points out.

‘The continued, gradual absorption of housing inventory will help stabilize home prices. National research notes that housing affordability is at its peak and the highest on record,’ said Cynthia Shelton, Florida Realtors’ president.

‘Along with still low mortgage rates, it means that the buying power of a typical family has never been better,’ she added.

For the second consecutive month, all of Florida’s metropolitan statistical areas (MSAs) reported increased home and condo sales. Of the smaller markets, Tallahassee reported 174 homes sold in November, an increase from 100 a year earlier. That market’s median sales price dropped 5%, however, to $162,000 from $170,000 a year ago.

Meanwhile the latest report from the US Census Bureau and the Department of Housing and Urban Development shows that overall in the US sales of new, single family homes in November dropped 11.3% from the previous month.

Sales in November reached a seasonally adjusted annual rate of 355,000, according to the report, a fall from 400,000 in October and a 9% drop from November 2008’s 390,000. The South led all regions in sales, totalling 179,000 sales in November, according to the data. The West was second with 79,000 sales. The Midwest had 68,000 sales, and the Northeast moved 29,000 homes in November.

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Top 10 Real Estate News Stories of 2009

As we’re getting ready to say goodbye to 2009, I have just two words … good riddance! Like many Americans, hubby and I took advantage of lower prices to buy a home, but like many Realtors, my income took a dive (a shocking 40 percent off last year.) In general, for real estate, it was a lousy year … but at least eventful. Thanks to all the MoneyWatch readers who sent in your comments and questions — I’m sorry that I couldn’t answer them all! Below, in a trip down memory lane, were the top real estate stories of 2010:

1) Foreclosure numbers cross three million. Unfortunately, it looks like the cycle won’t peak till next year, when the stat might hit four million.

2) Mortgage modifications start — slowly. Although hundreds of thousands of homeowners have applied for relief, the number of actual modifications granted has been just a fraction of that, less than 32,000. Every month, MoneyWatch issues a report card of the banks that are doing modifications best (and worst) — and we’ll keep doing that in 2010.

3. Renters return to renting again. Some of the foreclosures we’ve seen have been a natural cleansing of the system, as people with a marginal economic foothold (who really should be renters but bought during the bubble) got thrown back in the rental category. (Statistically, according to the Census, the homeownership rate has been around 65 percent — it’s now down from a peak of 69.1 percent in 2005 to 67.6 percent in the third quarter of this year).

4. It’s the jobs, stupid. Other defaults we’ve seen have been unemployment-related, as people who could formerly afford their house payments lost their incomes. In “Jobs and Real Estate Still Tied Together,” my colleague Ilyce Glink explains that the outlook for real estate is still dark until some of those jobs come back.

5. Credit is still crunched. Here in Manhattan, my mainstay market of “upscale family homes” — which are $2-$3 million apartments — died big-time, because borrowing $2 million became tougher than getting a kidney. More than one of my top competitors folded, including the local Coldwell Banker-branded firm. As of this writing, it looks like mortgage lending is coming back, but slowly.

6. Starter sales boomed. The first-time homebuyer tax credit, which was meant to support and stimulate the lower end of the market, did its thing, helping more than 1.4 million homebuyers (Including a four-year-old). The credit was extended into 2010, covering closings through June with contracts through April.

7. Madoff’s homes start selling. A billion-dollar Ponzi scheme unraveled in 2008, catching as victims many who had counted themselves lucky to be able to invest with “Uncle Bernie” Madoff. 2009 was the year that reparations began to be made: the Federal government began to auction off Madoff’s homes. Sadly, as of this writing, 86 percent of the victims’ claims had been denied. Still, I can tell you that there are four ways in which your house is better than Bernie Madoff’s.

8. Banks got indulgent. Certainly not everyone kept drinking champagne, but there was a strong streak in the financial industry of giving out bonuses while Rome burned, as though it wasn’t somehow our money that was keeping the sector from the brink of collapse. No story of 2009 better exemplified this “What, Me Worry?” attitude than that of a Malibu banker (later fired) who partied in the foreclosed house of a Madoff victim.

9. Interest rates, and some currencies, stayed low. When I complain to my boss — or any other old real estate hand — about the tough real estate market, I get an eyeroll and a speech about how it was so much harder in the late ’80s, with double-digit interest rates. Mortgage rates mostly in the fives kept the crash from being worse than it was and the weak dollar brought in some foreign investment. A weak pound, meanwhile, propelled London real-estate prices to new, record highs.

10. Celebrities — they’re just like us!On a bigger scale, celebs have the same real estate problems that we all do — can I find my dream home, and can I hold on to it? In 2009, reality TV celeb Victoria Gotti fought foreclosure, movie star Nicolas Cage lost two homes, and music powerhouse Madonna — after years of trying to find her dream pad — got her secret garden.

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US commercial property loan defaults soar

The default rate for commercial real estate loans held by banks reached the highest in 16 years and the outlook looks worse, according to a report by a research firm released on Monday.

The picture for loans underlying commercial mortgage-backed securities looks as bleak, according to another report.

The national default rate for commercial real estate mortgages held by banks and other depository institutions reached 3.4 percent in the third quarter, up 0.52 percentage point from the second quarter, according to research firm Real Estate Econometrics.

It was the largest one-quarter increase since quarterly data became available in 2003.

At 3.4 percent, the U.S. default rate for commercial real estate mortgages — on office, industrial, hotel and retail properties — held by banks, thrifts and other depository institutions was the highest since 1993, when the default rate was 4.1 percent.

The default rate is the percentage of loans on a dollar basis that are past due 90 days or more or that are in non-accrual status, meaning lenders don’t expect to be repaid in full, according to Real Estate Econometrics.

For apartment buildings, the default rate was reached 3.58 percent, up from 3.14 percent in the second quarter. The default rate on multifamily mortgages also has more than doubled over the last year.

Some banks that had large exposure to commercial real estate are not suffering because they had strong risk management practices, conservatively analyzed loans and had in-place structures that hold someone accountable for the loan.

Real Estate Econometrics sees the default rate for commercial real estate mortgages held by depository institutions hitting 4.0 percent in the fourth quarter of 2009, about 5.2 percent by the end of 2010, and peaking at 5.3 percent in 2011.

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Tallahassee Housing Starts

The Tallahassee economic recovery is getting little help from the home building industry.  Construction of homes unexpectedly plunged last month to its lowest point since April, the Commerce Department reported on Wednesday.

The weak figures show that builders fear there are not enough buyers to soak up the glut of unsold homes already on the market.

They also illustrate how much the fledgling recovery depends on government aid. Builders held back in part because of uncertainty in October about whether Congress would extend a tax credit for home buyers. Earlier this month, lawmakers renewed the credit and extended it to more buyers.

Even with government support, the weakness of the housing sector is dragging on the economy.

The report on home construction said building of homes and apartments fell 10.6 percent in October to a seasonally adjusted annual rate of 529,000, from an upwardly revised 592,000 in September. Economists had expected a pace of 600,000.

“There has not has not been much improvement in the underlying demand for new and existing homes,” said Mark Vitner, senior economist with Wells Fargo Securities. “That’s a warning for 2010.”

Developers, faced with weak demand and competition from bargain-priced foreclosures, have scaled back sharply. The number of homes under construction last month fell 3.4 percent to 560,000, the lowest on record dating to 1970.

Jack McCabe, a Deerfield Beach-based real estate analyst, thinks a huge portion of recent homes sales in Florida were “directly attributable” to the tax credit.

“I think you can make a pretty strong case that nearly half of the recent sales are due to the tax credit stimulus,” McCabe said. That has hurried along buyers who might have already been looking to purchase in 2010 more than it has brought new buyers to the table.

Once credit ends, sales are likely to drop, a notion bolstered by the government’s report on Wednesday, McCabe said.

“Now that they have extended the stimulus, I expect we will see people continuing to buy through the spring. But come May, once the stimulus is gone, I think we’re going to see a sharp drop in sales,” he said.

That could mean “sales go back down to where they should be, which could be about half of this inflated market right now.”

“Once you get to that equilibrium of inventory, then it makes a lot more sense for people to say, ‘I can buy the house that I want, the way I want it, for the same price I can pick up a short sale or foreclosure,'” Anderson said.

“It’s still not a great market,” said Brad Hunter, chief economist with Metrostudy, a real estate research firm.

“But it’s not as bad as it was six months ago.”

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Things Improve… Across the Pond

Some non-local world news:  China’s real estate boom continues.  3Q profits of the major players all reported a large incraese in profit.

Some analysts think the 4 BRIC nations (emerging markets of Brazil, Russia, India, and China) will lead the global economic recover.  Maybe the real estate markets will follow a similar pattern.  Maybe we’ll see recovery there first before US/Europe.

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