Monday, March 30th, 2009 at 6:18 PM
The Newland Seven
Remember the newly-built seven houses on Newland Court that back to Carlsbad Village Dr.?
They tried to sell the 3,400sf homes for around $1,500,000 EACH, beginning in mid-2006 when they were completed.
But no luck.
By the end of 2007 they were down to $1,199,000.
No luck there either.
Eventually the builder’s LLC made it into court, and in December, 2008, and the properties were listed in the mid-$800,000s and called a “court-ordered sale’ in the MLS. But after two weeks, all seven listings were cancelled.
I represented the sellers of this vacant lot when the builder bought it, and the buyer’s agent swore to me that he was made of money. But in January, 2009, the lender, United Commercial Bank, foreclosed on their $6,400,000 construction loan.
All seven properties were purchased at the trustee sale for $4,690,000, or an average of $670,000.
Want to guess who the all-cash purchaser was? The original buyer/builder of the project.
I believe he has since rented them out. If you can’t get your lender to give you a break, you can always pressure them into foreclosing, and buy ’em back at the trustee sale!
Here’s a link to the old youtube video tour:
http://www.youtube.com/watch?v=w03uFO49qvM
Posted on Monday, March 30th, 2009 at 6:18 PM in Builders, Foreclosures/REOs | 35 Comments » | 
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Maybe you have explained this and I am just failing to comprehend here but….
A guy buys some land and builds houses that he can’t sell. The company he founded has the properties foreclosed on and then he buys them back again at a discount and rents them?
I guess I don’t see the upside here. Am I just blind or is this some kind of illegal game he’s playing?
Jonathan | March 30th, 2009 at 6:31 pmE-G-O.
He can say to himself that he beat the bank, but you’re right, did he get anywhere? I don’t think he could sell them today for more than low-$700,000s, which means he breaks even.
But how much was his original investment?
They paid $1.45 million just for the dirt, so he needed to build the houses start-to-finish for $200/sf to actually break even at selling the houses today in the low-$700,000s.
$200/sf for hard and soft costs in 2006? He would have had to monitor every cost very closely to pull it off. I doubt that he could have done them any cheaper than $200/sf.
Jim the Realtor | March 30th, 2009 at 6:44 pmJim,
You said exactly what I was thinking, that if prices stopped falling right now he might break even. IMHO he’s stepped into the same “stuff” twice.
tj and the bear | March 30th, 2009 at 7:24 pmEgo, greed and stupidity.
IMO, he got what he deserved. Even with renters, those places will not produce a positive cash flow for years to come.
BTW, what do you think those houses would rent for?
JAP | March 30th, 2009 at 7:25 pmI figure $1/sf rents for all of Carlsbad, conservatively.
I used to say $1.25/sf, and for new product you could probably get it today, but the higher the rent, the more likely you’ll have trouble with the tenants, generally-speaking.
Jim the Realtor | March 30th, 2009 at 7:30 pmI tried to look at these homes last Christmas. They were in the MLS online for about two weeks; then they were in some nebulous MLS space where realtors could view the listing but no one else. My realtor at the time called to set up an appointment and was told there were none avaiable to see, although they were still “listed” as active in the (closed-to-the-internet) MLS. I drove by anyway when I was in town later that week. Several already had people living in them (flowers pots and toys in the driveways, etc).
So it appears that he leased them out before the court-ordered listings even expired AND refused to show them during this time. I suspect technically, the court order did not specify that the builder actually had to SHOW the homes, only list them at the court-ordered price.
The entire thing smelled fishy to me then. It smells even fishier to me now.
shoppingaround | March 30th, 2009 at 9:14 pm$20k/month would be a nice income… until you pay the taxes. Then no-one moves in except for a family of 14.
Anonymous | March 30th, 2009 at 9:33 pmI was just searching the active listings over 2,400sf between $450,000 and $550,000:
South San Marcos (92078):
16 short sales
1 REO
North San Macros (92069)
7 short sales
1 leased property (until May, 2010)
Foreclosures are contained!
Jim the Realtor | March 30th, 2009 at 9:52 pmJim,
I wanted to reiterate a point I made on the last thread, that of housing price bottoms coming late. We moved to LA at the height of the last local boom (‘89) and played looky-loo through to the local bottom (‘96).
You were obviously active during that period; what was your experience on SD’s peak & trough?
tj and the bear | March 30th, 2009 at 10:48 pmWhen people quit talking about real estate a bottom will follow.
Does someone have 150k they can loan me so I can get my house back at a trustee sale?
arizonadude | March 31st, 2009 at 7:10 amWhen people quit talking about real estate
I don’t think that’ll ever happen – people in So Cal are possessed by the thought of real estate.
I like the idea that it’ll be when the thought of buying real estate scares you to death, and we’re close to that now – by 4Q09 it’ll be like a horror flick.
Jim the Realtor | March 31st, 2009 at 7:15 amtj,
My favorite example of the previous downturn is 5385 Los Robles in Carlsbad.
It sold in October, 1988 for $260,000, and it was fixed up nice but not high-grade.
It sold again in May, 1995 for $246,000, after being run down by tenants for seven years.
It might have been around $300,000 at the very peak in 1990, but given the difference in condition, it may have been a 10% to 15% peak-to-trough.
It’s in one of my three areas that I predicted will beat the odds this time too – I said -10% or so for superior properties in the infamous coffee bet a couple of years ago.
Jim the Realtor | March 31st, 2009 at 7:21 amArizona Dude-
Is this house in Maricopa County? If you are serious, let me know. In AZ you only need $10,000 to bid at the Trustee Sale. Upon receiving a winning bid, the bidder has 24 hours to bring in the balance of funds. There is hard money available with low ($700) upfront costs 30% down. I have a contact who is out there bidding daily. If you are interested, let me know.
Local Boy | March 31st, 2009 at 7:51 am“I figure $1/sf rents for all of Carlsbad, conservatively.”
So, as income property, those 3,400 square foot houses are worth roughly 300k – half of what the builder paid for them. I guess he’s looking for some heavy appreciation.
Anonymous | March 31st, 2009 at 7:57 amIs the dude’s name Donald Trump?
spartacus | March 31st, 2009 at 8:00 amWho was it that said Europe’s aristocracy was based on land and the U.S.’s was based on Real Estate (or something like that..).
In some sense, the double flip thing the builder wants to do isn’t a bad idea. I do a fair amount of corporate bankruptcy work. A lot of that is simply expunging debt in exchange for equity. So here, he reduced his debt, the bank took a bit of a bath (but not completely since they did get the auction price) and he can try to sell at a profit or rent and generate income.
Will it work? Who knows. Maybe it works at the lower price, maybe it doesn’t. Plenty of companies have emerged from bankruptcy only to make a return trip a few years later. But, the basic idea, of shedding debt and attempting to alter the cost structure of the “business”, is actually a completely rational move.
Former RB Resident | March 31st, 2009 at 8:08 amI’m betting an insanely optimistic appraisal made this deal happen in the first place. Probably by one of the bank’s hand picked appraisers. The bank deserved a big loss.
I’d imagine the developer took a big hit as well, (+$2MM?). It also sounds like he has some very real credit and probably had to lay out more cash to get it back again. Probably a 5 year interest only loan, which means he’ll need well over $3,200/month to cover interest only payments depending on how much he put for a down payment/cash equity. I’m sure the bank put some more hurt into this “work-out” as well.
However, this arrangement still seems very sensible. The best move that anyone with real estate can do right now, (banks, developers or individuals), is lease and hold back product from the market.
Mozart | March 31st, 2009 at 8:15 amFunny, I’m trying to perform a mortgage modification to deleverage even when we really can afford our home. And I’m looked at as a ‘loser’ by some.
3clicks from da Beach | March 31st, 2009 at 9:53 amI am surprised that the bank did not have someone running up the price at the trustee sale agianst the original buyer.This seems like a very smart move on the buyers part.Problem is not a lot of people have cash on hand to do that.
Local boy, what is your email address?
Thanks
arizonadude | March 31st, 2009 at 10:07 amAZ–I don’t think the banks will typically care enough to do that. Also, there are so many properties going to sale each day that most never even get bid on the first place. The guy I know that is out there typically buys between 3-6 properties per week–he bids for people and charges his buyers a nominal fee if the bid is accepted–many successful bidders place hard money on them temporarily to bridge the gap until permanent financing is in place, or the property is re-sold. I wish the system in SD worked that way–here you need all cash at the courthouse steps to qualify to bid! I have spent numerous days standing there for hours and never had a successful bid–sort of gave up trying.
Here is a good email for me–
Local Boy | March 31st, 2009 at 10:28 amcarsonclc@yahoo.com
I called a HUD office a few weeks ago – trying to perform a mortgage mod through the Making Homes Affordable plan. The ‘counselor’ flat out said. Double escrow, purchase the house through a third party, short sale. Can you believe that? Wow.
3clicks from da Beach | March 31st, 2009 at 10:31 amlocal boy
arizonadude | March 31st, 2009 at 10:37 amThanks for the information.I have never been to a trustees sale but the whole process seems very interesting.You seem to have lots of experience.That is cool that your friend has found a very unique niche to bid for buyers.I will contact you with a couple questions. Thanks
It seems like he is working 24/7 and has a team of people doing research, but he did manage to find a nice niche and enjoys doing it–most other Realtors out his way seem to be compaining about the market. For me, I am new to the Trustee Sale game, I think if I were in AZ, I would be a bit more motivated to keep trying because of the easier system–It is tough here. The trustees are slow at getting the opening bid figures–some are posted 1/2 hour before auction. That, coupled with the high purchase prices, not to mention the fact that sometimes you can’t get in the poeprties to access the condition or occupancy status–makes it frustraiting.
Local Boy | March 31st, 2009 at 10:54 amAlso, FYI, it is often illegal to bid on your own item at an auction. Its ostensibly shill bidding. Trustee sales can be different, but in a true “auction” sellers should check with state laws before trying to bid up their own assets via auction.
Former RB Resident | March 31st, 2009 at 11:07 amTechnically he wasn’t bidding on his own property. At the time of the auction the property belonged to the bank, not him, so its perfectly legal. Generally speaking, the buyer in a short sale is not supposed to have any relation to the owner because of the possibility of collusion.
As far as the bottom goes, I think the bottom for lower end homes comes when they are priced at a point where they make sense from a cash flow perspective as rental properties. That is because there is little difference between a low end townhouse or condo and an apartment and the marginal buyer right now is the investor, not homeowners. In some areas we are already there.
For higher end homes, there is always a decent premium to rental value because the higher income people who live in these homes place a large premium on homeownership and the freedom to decorate or remodel as one wishes. Few wealthy people choose to be renters. The premium obviously got ridiculous in recent years and the question is how low will that premium drop.
Devin Espindle | March 31st, 2009 at 11:32 amVery Well put Devin!
Local Boy | March 31st, 2009 at 12:02 pmDevin,
My point was the BANK can’t bid up the property, because they own after the foreclosure. They can set a reserve and not accept lower bids.
The rest of that is well put. I was on a realtor website the other day that had several houses (castles, really) that had prices like “$10.2 million or $11,000 a month to rent”. Really, how big is THAT rental market?
Former RB Resident | March 31st, 2009 at 1:59 pmSo… what happened to the $1.7 million? That is the approximate difference between the original loan and the new loan. Was it paid to the bank as mortgage payments over time or did it disappear into the buyer’s pocket or something else?
D Max | March 31st, 2009 at 2:03 pm“I like the idea that it’ll be when the thought of buying real estate scares you to death.”
– I think this concept applies to the stock market but not to the real estate market. That is, you can not strictly use the fear-index to time the bottom in real estate. For real estate, the bottom of the volume ALWAYS proceeds the bottom of price. So the bottom of the price will actually happen when there’re lots of people buying.
temecula_guy | March 31st, 2009 at 2:09 pmThis is not hard to understand. For stock market, the release of inventory is immediate. That is, if someone who wants to sell, he can sell immediatelly. So the bottom is formed when all the people who want to sell already sold. It is not so true for real estate market, even when a guy is willing to sell, it takes a while for him to do so. So the inventory is always hanging there. It has to take a lot of buyers to clear that inventory before the price starts to stabilize.
We are seeing inventory at the lowest level for a year in place like Temecula/Murrieta. We are seeing inventory closes to the lowest level in place like San Marcos/Vista. And we are seeing Carlsbad’s inventory still at very high level. I think that’s a better indicator than the fear-index.
Few wealthy people choose to be renters.
I’d like to see data to support that statement.
Also, depends upon your definition of “wealthy”. Have you seen the rents that Donald Sterling, the billionaire owner of the Clippers, charges for his various tower apartments around LA?
tj and the bear | March 31st, 2009 at 3:52 pmOkay, anyone paying attention above had to note that the difference between the peak and trough of the last RRE cycle was seven, count’em 7, years.
That downturn was more regional and doesn’t even rank against this one in terms of severity, so that means 7 years is the absolute best we can hope for this go-round.
Seven (7) years from SD’s peak (per CAR data) puts us at mid-2013, so if you’re anxious to buy… CHILL! It’s a long ways down from here. If you think it’s a deal now, it’ll be a steal later.
tj and the bear | March 31st, 2009 at 3:56 pmFor me the peak-to-trough around here was end-1990 to mid-1995, and little over five years.
This time? July 2004 to now is almost five years.
Jim the Realtor | March 31st, 2009 at 4:29 pmJim, but in 1990s, there weren’t massive government efforts to DELAY the inevitable. And I agree with views on piggington when the bottom is really depends on where you want to buy.
temecula_guy | March 31st, 2009 at 4:53 pmLast cycle, the fall in prices was not nearly as rapid as the present cycle, so who knows. 1994-97 felt to me like it was pretty flat. I bought my current house in 1993 and it never really felt like it fell in value. Be careful of overanalyzing this stuff.
Kingside | March 31st, 2009 at 5:14 pmIs this legal, are they going to get away with it?
curious | April 6th, 2009 at 7:29 pm