Trendy Gansevoort South Not So Chic for Credit Suisse

Father and son hotel developers William and Michael Achenbaum envisioned the Gansevoort South becoming one of the trendiest of South Beach’s trendy locales when they reopened the renovated, 334-room hotel in 2007.

It has indeed become a chic venue for celebrities and party people alike. No so much for lenders.

A Credit Suisse AG unit that supplied the Achenbaums an $89 million mezzanine loan on the hotel has declared a default and scheduled a foreclosure auction of its ownership stake for Jan. 28. The Achenbaums in turn are attempting to negotiate with the Credit Suisse unit to buy back the mezzanine loan and retain ownership of the hotel on South Beach’s Collins Avenue.

A statement released this week by the Achenbaums notes that the Gansevoort South’s hotel is “profitable and capable of covering its respective debt.” However, sales of the project’s condominiums have been weak, leaving the hotel alone to support the entire project’s debt, which it can’t, the statement reads. The owners intend for the hotel to remain open as the ownership situation is sorted out.

All told, the Gansevoort South has 334 hotel rooms, 259 condos, a rooftop pool and 63,000 square feet of shops, salons and restaurants. It has a $314 million mortgage that has first claim to the property ahead of the mezzanine debt. Brokerage Jones Lang LaSalle is handling the Jan. 28 auction. The story was reported earlier by the Miami Herald.

The Gansevoort South is one of four such hotels operated by the Achenbaums’ Gansevoort Hotel Group. The company owns two other Gansevoorts in Manhattan and manages one in the Turks and Caicos islands.

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Real Estate News: Loan Mods Disappoint, Lehman Sells Funds

Real Estate News compiles a daily wrap-up from each morning’s Wall Street Journal and other news sources.

Foreclosure Rescue Disappoints (WSJ): Fewer than 5% of borrowers participating in the U.S.’s foreclosure-prevention program, about 31,000 in all, have received permanent loan modifications.

PCCP to Acquire Lehman Real-Estate Funds (WSJ): Lehman Brothers is expected to announce the sale of two real estate private-equity funds. PCCP will acquire the two funds, which have roughly $2 billion in assets under management.

Mortgage Rates Rise for First Time in Five Weeks (WSJ): The 30-year fixed-rate home loan remains below 5%, averaging 4.81% for the week ended Dec. 10.

U.S. Households’ Net Worth Rises (WSJ): The net worth of U.S. households rose 5% in the third quarter as stock markets continued rebounding, the Federal Reserve said Thursday.

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Drop in Foreclosure Filings May Be Temporary

Foreclosure filings fell for the fourth straight month in November but were still higher from year ago levels, according to figures released Thursday by RealtyTrac, as loan modifications help hold down new foreclosures.

The number of default notices and scheduled auctions and repossessions fell by 8% in November from the previous month and to their lowest level since February. But foreclosure activity is still up 18% from one year ago.

The main driver behind the depressed foreclosure numbers: more loan servicers are aggressively working to modify loans—so far with limited success. The Obama administration said yesterday that of some 650,000 trial loan modifications so far,  just 10,000 have converted into permanent modifications. (See Mortgages Trimmed for 10,000 Homeowners)

One big question heading into 2010: What happens to foreclosure levels if more modifications aren’t made permanent? The likely answer: Foreclosures continue to rise. Also expect to see an increase in short sales, where borrowers sell their home for less than the amount they owe.

For now, the administration’s tack is one of “shaming” loan servicers to do a better job making loan modifications. Many borrowers say they’ve given up trying to get a loan modification because the process is too confusing and complain that they’ve had to resubmit the same paperwork a half-dozen times.

But as HSH.com notes, other borrowers haven’t completed the paperwork that’s needed to document their income and to demonstrate hardship. More than half of all borrowers haven’t submitted any paperwork or have submitted incomplete files, according to the White House.

One possibility is that the administration will relax documentation requirements for loan modifications in order to make those workouts permanent.

Follow me on Twitter for more housing news: Twitter.com/NickTimiraos

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Real Estate News: Embracing Rentership, Few Loan Mods Made Permanent

Real Estate News compiles a daily wrap-up from each morning’s Wall Street Journal and other news sources.

The New American Dream: Default and then Rent (WSJ): Thanks to a rare confluence of factors, more families feel that the new American dream home is a rental.

Mortgage Program Reaches 10,000 (WSJ): Fewer than 5% of homeowners enrolled in the Obama administration’s mortgage-relief plan had their payments permanently lowered to more affordable levels by October, a report said.

Data Raise Fears of China Property Bubble (WSJ): China’s urban property prices grew at their fastest pace in 16 months in November, increasing concerns a market bubble may be forming.

Firm Takes Heat on East Palo Alto Crime (WSJ): A wave of robberies and burglaries is hitting East Palo Alto. One reason behind the surge is the financial troubles of real-estate firm Page Mill, some say.

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Real Estate News: Dubai World’s W Hit, Housing Inventory Declines

Real Estate News compiles a daily wrap-up from each morning’s Wall Street Journal and other news sources.

Dubai World’s $282 Million Hit: W (WSJ): Dubai World’s private-equity arm made a last-ditch effort to keep control of the W Hotel Union Square in Manhattan in a foreclosure auction but ended up losing the property, which it bought for $282 million.

Housing Inventory Declines (WSJ): The supply of homes available for sale declined 2.4% in November compared with the month before, according to ZipRealty Inc.

Hot, Cold for REIT IPOs (WSJ): The initial public offering for Pebblebrook Hotel Trust priced on Tuesday, while Chesapeake Lodging Trust pulled its IPO.

Naked Ambition for Rick’s Cabaret (WSJ): Strip-club operator to build new club near Dallas airport.

A Big Bet on Spanish Property (WSJ): Colonial’s planned debt refinancing signals an improving market.

Simon to Buy Outlet Landlord (WSJ): Simon Property acquired outlet-center owner Prime Outlets for $700 million in cash and stock, plus $1.6 billion in assumed debt.

Chicago’s Hotel 71 Sale Upends Condo-Hybrid Model (WSJ): A Chicago hotel that was part of developer Robert Falor’s ill-fated effort to build a condo-hotel empire has sold for a fraction of its debt.

GE Capital Expects to See $7 Billion in CRE Losses (MarketWatch): Executives from GE Capital, a unit of General Electric Co., said on Tuesday that the company expects to have about $7 billion in unrealized losses in the battered commercial real estate sector.

In a Soft Leasing Market, Pet Shops Find Room to Grow (NYT): New Yorkers may be buying fewer luxuries for themselves in this recession, but they seem reluctant to skimp on their pets. As a result, real estate professionals report, there is a small explosion of pet retailers in New York City.

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Real Estate News: House Flipping Part II, New Century Charges

Real Estate News compiles a daily wrap-up from each morning’s Wall Street Journal and other news sources.

House Flipping Makes a Comeback (WSJ): Four years after the collapse of the U.S. housing bubble, flipping homes is back in fashion. But today’s game is only for those with cash, lots of local market knowledge and strong nerves.

Former New Century Executives Charged (WSJ): The SEC filed civil fraud charges against three former executives of mortgage lender New Century Financial, alleging they misled investors and improperly overstated profits.

Loan Delinquencies to Decline (WSJ): Mortgage and credit-card delinquencies are expected to retreat next year as bad debt works its way off lenders’ books.

Push to Finish Tallest Tower (WSJ): The stalled construction of the Chicago Spire, a 150-story luxury residential building, may get a boost from unionized construction workers desperate for jobs.

Banks Step Up ‘Short Sales’ As Foreclosures Mount (Bloomberg): Banks are beginning to go along with short sales in increasing numbers, three years into a U.S. housing slump that pushed the economy into a recession and cut resale values by 30% from a July 2006 peak.

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NFL’s Glazer Sells in Palm Beach’s Biggest Deal of 2009

Malcolm Glazer, the owner of the NFL’s Tampa Bay Buccaneers who also has controlling stakes in soccer team Manchester United, has closed Palm Beach, Fla.’s biggest deal of the year with the sale of a nearly-12,000-square-foot spread on 3.8 acres for $24 million. The buyer was real estate investor Jeff Greene.

Called La Bellucia, the nine-bedroom, nine-and-a-half-bathroom home at 1200 S. Ocean Blvd., had a price tag of $27.5 million and was on the market for less than 30 days, says Dana Koch of Corcoran Group, who shared the listing with Paulette Koch. The oceanfront home has stone and hardwood floors, outdoor terraces and an oversized swimming pool.

Willey J. Kingsley, a physician and capitalist in Rome, N.Y., built the home in 1924. He named it after his wife, Lucy, according to the Palm Beach Daily News. The home exchanged hands several times over the years, and Mr. Glazer’s company, First Allied Jacksonville Corp., bought it in July 2000 for $14 million. “Their plan was to renovate the entire property back to its former grandeur,” Mr. Koch says. But he says the Glazers decided against the renovations and have decided to remain in their current home nearby, also on Palm Beach’s Billionaire’s Row. Though the Glazers never lived in La Bellucia, they maintained the property “meticulously,” Mr. Koch says.

Mr. Koch says the unit had multiple offers and that the quick sale didn’t surprise him because it was “priced properly.”

Unable to sell a 25-acre estate in Beverly Hills, Calif., Mr. Greene, the buyer of La Bellucia, put that property up for lease in October, asking $250,000 a month. Mr. Greene bought the unfinished property out of receivership for $35 million in 2006 and has spent nearly three years and $15 million finishing it. The 43,000-square-foot main house has 11 bedrooms, 14 bathrooms and a 6,000-square-foot ballroom. Six acres of vineyards produce 400 cases of wine annually on the property. Mr. Greene held his wedding there in 2007, but, he says, the home is too lavish for him and his wife to occupy full-time. Instead, they spent most of their time at a Miami condominium.

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Real Estate News: Sillerman’s Hotel Burden, Dubai’s American Investor

Real Estate News compiles a daily wrap-up from each morning’s Wall Street Journal and other news sources.

Paradise Lost for Wealthy Resort Novice (WSJ): Trophy hotel investments made during the real-estate boom have turned into major burdens for some ultrawealthy investors, including Robert Sillerman.

Dubai Crisis Snags American (WSJ): The Dubai debt crisis is billed as a distinctly Middle Eastern affair. But it turns out there is an American in the middle of the action: 43-year-old deal maker David Jackson.

Ten Questions for Home Buyers (WSJ): Here are 10 questions that prospective buyers or renters ought to ask to find out how green a house or apartment is.

BofA Tosses Aside Mortgage Crutch (WSJ): Bank of America sold a $60 million bond deal backed by commercial mortgages, the first such deal to be sold without government baking in more than a year.

Soured Loans Put Lenders on the Hook (WSJ): Fannie Mae and Freddie Mac are aggressively bouncing back defectively underwritten loans to lenders as home loans sour at a rapid clip. The result: higher loan-loss reserves for the lenders.

State of the Cooper Union (WSJ): Its angled forms and slashed openings upend conventional notions of “contextual” harmony. But, as Ada Louis Huxtable reminds us, Cooper Union’s latest building is as radical today as its Foundation Building was 150 years ago.

When Parents Gift a Down Payment (WSJ): A reader asks if her parents, who aren’t U.S. citizens, will be on the hook for taxes if they give her $150,000 to help buy a house. June Fletcher explains.

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Bob Toll Struggles With a Cash Burden

As the holiday season approaches, spare a thought for Robert Toll. While the rest of us scurry after trifles in the malls, he must figure out what to do with $1.91 billion in cash and Treasury securities.

That is the hoard of liquidity as of Oct. 31 on the balance sheet of Toll Brothers Inc., the home-building company where Mr. Toll serves as chairman and CEO. That stash isn’t earning a lot of cash for the shareholders – probably around 2% a year, or $38 million, says Megan McGrath, an analyst at Barclays Capital. So she and other analysts naturally are wondering how some of it might be put to better use.

Playful as usual on Thursday’s quarterly conference call with analysts, Mr. Toll was coy about his plans for the loot. “We are thinking about all of our options,” he said.

Here are a few of them:

• Rush out and buy lots of land from foreclosing lenders and other distressed sellers. Mr. Toll confirmed that the company, along with lots of other builders, is ogling land parcels, but Toll Brothers isn’t bidding very aggressively. “Having gotten whacked” by write-downs of land bought at silly prices during the housing boom, Toll Brothers will proceed cautiously in sifting through the rubble, “at least until our memories fade and we get greedy again,” Mr. Toll quipped. “We want to make sure we don’t repeat past errors in overpaying.”

• Start putting roads and other infrastructure on land already owned by the company in preparation to build lots of new houses. But Mr. Toll was cautious about how many homes can be sold in the near future. The company said it expects completed sales to be lower in the current fiscal year than they were in the one ended Oct. 31. Demand in recent months as been “choppy,” Mr. Toll said. He expects that the outlook will be clearer in a few months, after the holiday-season lull in home sales.

• Pay off some debt early to reduce interest expenses. Toll Brothers’ net debt already is low, just 7.4% of capital. Still, Mr. Toll said “we are thinking about paying down debt.” That would help Toll Brothers edge closer to profitability.

• Buy back shares. That probably would give at least a slight boost to the stock price. Mr. Toll said the company might consider it.

• Pay a special dividend. Toll Brothers doesn’t pay dividends. But, since it is the season to be jolly, perhaps an exception could be made? “Probably not,” Mr. Toll said in his best Grinch-like tone.

What do the analysts think?

At Barclays Capital, Ms. McGrath says it would make sense for Toll Brothers to pay down some of its debt but still keep a fairly large chunk of cash available in case any spectacular land deals pop up. She doesn’t expect any aggressive moves to spend cash in the near term. “Companies want to feel more confident that we are in a sustainable, long-term recovery” before opening their wallets. Judging by Mr. Toll’s cautious comments Thursday, she says, “he’s not there yet.”

Ivy Zelman, chief executive of Zelman & Associates, says Toll Brothers “should definitely consider a special dividend,” though she doesn’t expect one to be paid. She agrees that paying down debt would be another wise move.

Gentle Readers, we’ve heard from Wall Street. Can you help Mr. Toll by offering more imaginative spending suggestions?

Please follow me for housing news on Twitter at: http://twitter.com/jamesrhagerty

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Is a Loan Modification Just Another Exotic Mortgage?

The Obama administration’s effort to modify mortgages is heading into overdrive in a bid to make sure that borrowers who have received trial loan modifications can have that workout made “permanent.”

So far, most criticism on the Home Affordable Mortgage Program, i.e., HAMP, has centered on why so few borrowers with trial modifications are converting into permanent modifications. The common refrain from loan servicers is that they haven’t been able to get paperwork from borrowers to help finalize the loan modification — important because servicers get paid for each mod, and need to prove that borrowers actually face hardship.

But at ForeclosureRadar’s blog, Sean O’Toole raises a different, potentially more problematic issue: “Permanent” loan modifications last for only five years. He posits that reason for the low uptake of the loan modification program:

Maybe borrowers have figured out that this program is really only another exotic mortgage like one they fell prey to when they bought or refinanced the house that resulted in their current predicament. HAMP and the administration’s newly announced campaign isn’t digging borrowers out of a hole. It’s only digging them a new one, and delaying the inevitable.

To be sure, the five-year period tries to give borrowers a lifeline—a chance to get their life back on track. In five years, the thinking behind the plan goes, more borrowers may be financially whole again, able to make their mortgage payments, or, if housing prices have stabilized, some may be able to refinance or sell their homes.

But what about those borrowers who have loans modified who aren’t ever going to be able to afford their higher payments, which is what they’ll have to pay after the five-year modification expires?  Are loan mods just creating a new batch of loan resets and delaying the inevitable foreclosure for borrowers who bought too much home, or who were sold a loan that they didn’t understand and couldn’t afford? Mr. O’Toole is blunt in his criticism:

The new hole offered by HAMP is all the downside with none of the upside.

The downside: exotic re-financing, by which they make payments affordable today, but leave homeowners in the same boat down the road when payments ratchet back up after 5 years.

The bonus downside: there is no reasonable expectation that home values will appreciate anywhere near enough to get these loans above water before the 5 years is up, or before the homeowner runs into a real life event like job loss, divorce or job relocation — leaving them stuck in an upside down prison of debt.

The column in today’s NYT by Floyd Norris raises the same prospect, while offering a little more leeway to the administration.  While he writes that it’s “conceivable that this process is doing more to drag out the foreclosure crisis than to alleviate it,” he adds:

“[P]erhaps we should not be too critical of anybody involved in the modification effort, either the administration or those trying to arrange modifications. The mess was made years ago, when bad loans were made and the ready availability of credit was driving house values to unsustainable levels. Cleaning it up is not going to be a pleasant experience for anyone.”

UPDATE: HSH.com weighs in, noting that while the mods are complicated, they may not necessarily qualify as exotic. That’s because borrowers can calculate upfront the monthly payments they’ll have to make in year five, and then in years six, seven, and eight as interest rates are gradually returned to the lesser of the original interest rate or the market rate when the loan modification was completed.

Follow Nick for more housing news on Twitter: www.twitter.com/NickTimiraos

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Real Estate News: Dubai’s High Rise, General Growth Bids Loom

Real Estate News compiles a daily wrap-up from each morning’s Wall Street Journal and other news sources.

Dubai’s High Rise And Then Steep Fall (WSJ): Dubai’s construction boom was fueled by easy credit, a poorly regulated market overrun by speculators, and cheerleading from Dubai officials.

Brookfield, Simon Position to Bid on General Growth (WSJ): Brookfield Asset Management and Simon Property have bought portions of General Growth Properties’ bank debt and bonds to position themselves to make bids for all or part the mall giant.

House Builders Missing a Trick (WSJ): House builders have enjoyed something of a rally lately, doubling and even tripling their share prices. But is their future built more on hope, rather than firm foundations?

Mortgage Rate at 38-Year Low (WSJ): Mortgage rates generally fell again this week, with the average rate on 30-year fixed-rate mortgages reaching the lowest level in at least 38 years, according to Freddie Mac’s weekly survey.

British Home Builders Want Stimulus (WSJ): U.K. home builders have started restocking land banks and opening new development sites amid signs of stabilization in the housing market, but cautioned that there will be no sustained improvement until mortgage lending picks up.

Why Many Home Loan Modifications Fail (NYT): The banks, and the government, are soon going to have to decide what to do about borrowers who are making the modified payments but have not provided the documents after repeated efforts to obtain them.

Bair Weighs Principal Cuts to Fight Foreclosure (Bloomberg): Federal Deposit Insurance Corp. Chairman Sheila Bair may ask lenders to cut the principal on as much as $45 billion in mortgages acquired from seized banks, expanding her bid to aid homeowners as unemployment rises.

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Coldwell Banker Wants to Ship Me to Aruba

The Internet is aswarm with listings of homes for sale. Even Overstock.com has them, appropriately enough in today’s glutted housing market.

So how is a real estate broker to draw Web traffic to yet another listings site?

Coldwell Banker Real Estate has just launched a beta site whose features include something called BlueScape, designed to help you figure out what kind of home you’d adore. The idea is loosely based on features from other shopping sites, such as Amazon and iTunes, that recommend things to you based on what you bought in the past. Even though iTunes recently had the nerve to suggest I might dig Barry Manilow, I decided to have a go at BlueScape.

Since BlueScape doesn’t know what kind of homes I bought in the past (none of them were bought online), it shows me pictures to gauge my emotional responses. When a picture pops up, I can click on a thumb’s up icon or a thumb’s down.

Here are some of the images I saw: clusters of cherries in a tree, autumn leaves, a sunset over a bay, paint samples, a purplish sunset, a golf course in the mountains, a brick McMansion, a bench by a lake, a young couple carrying shopping bags down an urban sidewalk while nuzzling each other, snowmobiles and a close-up of a welcome mat. After about 20 images, I’d had enough, so I clicked for “results.”

Here’s what I learned: I should consider a bungalow in Altona, N.Y. ($250,000), a three-bedroom house in Port Charlotte, Fla. ($369,900) or a cute little yellow home with a pool in Aruba ($397,500).

“We really wanted to make this a re-envisioning of what we thought a real estate site could be,” explained Michael Fischer, senior vice president of marketing at Coldwell Banker. He says BlueScape isn’t for people who already know just where they want to live and are ready to make an appointment with a Realtor. Instead, it’s for when “you are in that dreaming phase.” The overall site, he said, is designed to be useful but also can be “infotainment.”

If anyone finds this all a bit too whimsical, there is an easy fix, at least for now. Click on a link from the beta and you’re whizzed back to the “classic” Coldwell Banker site.

Please follow me for housing news on Twitter at: http://twitter.com/jamesrhagerty

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Lawmakers Want to Make Higher FHA Loan Limits Permanent

As the Federal Housing Administration begins considering how to pull back from its expanded share of the U.S. mortgage market, the agency could face pressure from some lawmakers and those in the real-estate industry who don’t want the FHA to do anything too dramatic.

Lawmakers from high-cost housing districts, for example, want to ensure that the FHA doesn’t disappear from their neighborhoods. They’ve introduced a bill that would make permanent the higher loan limits that Congress temporarily expanded last year. That allowed the agency to insure loans as large as $729,750 in the nation’s most expensive housing markets, up from a $362,000 national cap. California now accounts for around 13% of FHA-backed loans, up from less than 2% during the housing boom, partly because of the higher limits.

Without the higher county-by-county adjustments, “many areas of the country will not get the benefit of the FHA,” said Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee. “We didn’t think it was fair for California to be frozen out of the program.” Mr. Frank said he thinks limits should be increased to around $800,000.

Shaun Donovan, the secretary of the U.S. Department of Housing and Urban Development, said the agency believes the expanded loan limits should be temporary. The larger loans account for less than 2% of all FHA-backed loans. While default rates are slightly lower than on all FHA-backed loans, the loans have little seasoning, because the FHA only began insuring larger loans last year.

Other lawmakers, meanwhile, want to bring back programs that allowed borrowers to receive FHA-backed loans without making down payments. Congress last year ended widely-used programs that had allowed sellers to fund down payments to borrowers through non-profit charities, and the FHA says that those programs have eroded the net worth of the agency’s reserves by $10.5 billion. At Wednesday’s hearing, Reps. Al Green (D., Texas) and Gary Miller (R., Calif.) pressed for the FHA to find new ways that would let buyers qualify for FHA backed loans without making down payments.

“Let’s develop a program for persons who can pay for a home but who are without the necessary down payment,” said Mr. Green, who said he nonetheless understood why there was “a great deal of consternation” over the seller-funded down payment programs.

FHA borrowers are still able to use gifts from state housing finance agencies or relatives to make down payments. Housing officials are unlikely to support any effort to bring back the seller-funded gift program. “The biggest concern and issue is about having an interested party in the transaction providing a down payment,” said Mr. Donovan. “That has been what has led to the incentives that led the program in the wrong direction.”

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