Google’s New Home

Google is close to purchasing 111 8th Avenue, one of the largest buildings in Manhattan, for close $2 billion.  However, Google has competition.  Many entities from around the world are interested in purchasing the 2.9 million square feet from Taconic Partners. 

Courtesy of Google Images

The purchase of this building by Google, Inc. will help stimulate the economy because of the amount of third-parties in the transaction, and the tax dollars that will flow through New York City.  

Surprising Slide for Home Prices

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According to CoreLogic’s Home Price Index, national priced fell 1.5 percent in August 2010 compared to August 2009, even though the prices increased by 0.6 percent in July 2010 compared to July 2009.  Although, New York was one of the states with the highest appreciation, more three-fourths of the metropolitan areas around the country experienced declines. 

With mortgage rates and housing prices falling, it is an excellent time for the consumers to invest and try to stimulate the economy.  

The Price of a Free Lunch

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“Zero-cost” or “no cost” mortgages, which were popular during the housing boom, and were very poorly regulated.  However, today it is a lot more difficult to acquire a “no cost” loan due to stricter disclosure requirements.  But, what does one actually end up paying for these appealing agreements? In exchange for taking care of all the third-party fees, the lender increases the interest by a half to five-eights of a percent.  In a 30-year-fixed “no cost” mortgage of $300,000, the borrower would save $6,000, get an interest rate of about 5 percent, and pay a monthly sum of $1,610.  Whereas, a borrower who chooses a traditional mortgage would pay $6,000 upfront, get an interest rate of about 4.5 percent, and pay a monthly sum of $1,520 saving him about $32,000 over the thirty year period. 

The “Zero-cost” mortgages actually have a very high variable cost over the period of the mortgage.  A borrower must calculate all of the options before deciding on the type of loan, especially if the borrower does not have a broker.  The amount of transparency exponentially decreases when there is no broker involved, because the lenders are not required to disclose how much profit they are making on the particular loan. 

Mortgages Get a Boost

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Mortgage applications increased as record low interest rates fell even more.  The 30-year-fixed mortgage fell to 4.25 percent and the 15-year mortgage followed by hitting almost a record low of 3.67 percent.  According to the Mortgage Bankers Association, refinance and purchase applications rose 3.0 percent and 3.9 percent, respectively.

Although, rates were already low enough to attract an increasing amount of investors, the lack of job security is what is continuously causing the lack of investment in real estate even though the interest rates are close record lows.

Top 10 Worst Cities

The government and private companies are offering many incentives to invest in the real estate market because they are trying to stimulate the economy.  But, one must be careful to invest; there are cities where property values will continue to fall for some time.  Forbes has come out with a top 10 list -- the worst cities nationwide for investing in residential real estate. 

1.  Lakeland-Winter Haven, FL (MSA)

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2.  Reno-Sparks, NV (MSA)

3.  Orlando-Kissimmee, FL (MSA)

4.  Deltona-Daytona Beach-Ormond Beach, FL (MSA)

5.  Port St. Lucie, FL (MSA)

6.  Las Vegas-Paradise, NV (MSA)

7.  Boise City-Nampa, ID (MSA)

8.  Cape Coral-Fort Myers, FL (MSA)

9.  Phoenix-Mesa-Scottsdale, AZ (MSA)

10.  Warren-Troy-Farmington Hills, MI Metropolitan Division

The list primarily contains cities in Florida, Nevada, and Arizona because these cities were the most susceptible to speculative investing.  A majority of the sectors in today’s economy have already faced the worst of the recession and are on their way back up.  But, there are areas, like the ones on the Forbes top 10 list that have yet to bottom out and will take longer to recover from the downturn.  

Technological Advances for Landlords

Gene Fata, 80, owns eleven properties, and not too long ago, he was annoyed by the amount of backed up toilets and the high costs of heating in the winter.  But, that was before DiMi.  Gene’s son, Robert Fata, created a system called DiMi, which uses instant messaging to warn the landlord when a particular toilet is backed up or when the boiler in a particular building is turned up too high.  DiMi has made Gene’s life a lot easier, and has brought down his heating costs down by 60 percent. 

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Technological Innovations are often praised for increasing productivity and lowering costs.  But, they also have another positive externality.  Inventions like DiMi are also helping the environment.  When DiMi warns Robert about the backed up toilet, it saves the amount of water that is wasted and at the same times lowers the water bill.  

Transformation in Tribeca

Courtesy of  ny.curbed.com

The Sheraton Tribeca is finally opened for business on October 14, 2010.  The twenty-two story Starwood Hotel is equipped with 369 guest bedrooms, a terrace with outstanding views, and communal lounge with a fully stocked bar.  Moreover, the hotel is offering special deals for neighborhood residents who are looking to accommodate visitors and guests. 

The Sheraton, like many other businesses, is trying to stimulate the economy by offering special incentives to customers.  Such discounts not only pump more money in the economy, but they also start to restore consumer confidence in the market. 

Incentives: An Insight to the Real Estate Market

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The general population believes their interests match the interests of their real agents, but more often than not, that is not the actual case.  Research done by Steven Levitt and Stephen Dubner, authors of Freakonomics, illustrates that agents keep their own homes on the market for an average of ten days longer than their clients’ homes.  The agent has incentive to persuade the client to sell his/her home as soon as an offer close to the asking price comes on the table, rather than wait for an extra week for the best possible offer.  For example, if a house is put on the market for $1,000,000 and someone offers $950,000, the agent will tell the seller to take that offer.  This is because from the extra $50,000, the agent will only make an extra $250 in commission, but for that he/she will have to advertize and work for an extra week.  Therefore, the agent has an incentive to sell a house as soon as possible and move onto the next one. 

On the other hand, Manhattist, Inc. understands the importance of our clients’ needs.  We realize how important it is to get the best possible price for a property, and that is not only important to the client but it is also important to our image.  Manhattist will spend as much time with a client as needed, and will do everything possible to satisfy the client.  

R.I.P Robert

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Robert Tishman, Co-founder and Chairman of Tishman Speyer, a leading real estate firm, passed away on October 11, 2010 at the age of ninety-four.  The firm’s properties include famous landmarks such as the Chrysler Building and Rockefeller Center.  Tishman Speyer is now being headed by Tishman’s son-in-law, Jerry Speyer, and grandson, Robert Speyer.  The real estate industry lost one the biggest American builders of this time.

Settling in Suburbia

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Suburban areas within a reasonable commute of Manhattan have been experiencing an increase in the prices, because residents from New York City are moving to these areas to save money.  Furthermore, since the economy is starting to stabilize a lot more people are open to investing in real estate.  Moreover, areas like Milburn, New Jersey and Great Neck, Long Island have great schooling systems that are also fueling the increase in demand. 

As the United States economy is emerging from the worst economic turmoil in history since the Great Depression, people are gaining more and more confidence in the market.  People are starting to take advantage of the low housing prices by investing in the market as well as gaining a new home. 

Foreclosure Freeze Dilemma

The people of the United States are pointing fingers at the banks for collusion and false foreclosures, but what is actually going on? First, the majority of the current foreclosures are not from the subprime mortgages; the subprime mortgages failed early on in the recession, and made their way through the system.  The current foreclosures are mostly from the fixed rate mortgages with principal reduction. 

The banks have halted the foreclosures because during the securitization and trading, they have lost track of who owns the rights to these mortgages.  And, according to the Washington Post, this is the primary issue in the current foreclosure freeze.  Every state has their own laws on trading mortgages, but the banks created the MERS system to bypass this issue. 

The financial intermediaries have created another complicated process that is leading the economy into more turmoil.  The issues with notaries and collusion are short term issues, but the lost paperwork and MERS system will cause the banks to be criticized by their primary investors, who provided funds for the securitized mortgages, but no longer own the rights to them.  

Foreclosure Freeze

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Federal officials including the House Speaker, Nancy Pelosi, are demanding a freezing on all foreclosures, and an investigation on the questionable foreclosures.  But, is Congress to blame for this wave of foreclosure fraud? Congress recently passed a bill sponsored by Representative Robert B. Aderholt, which would require one state to accept another state’s notarization rules, and the Ohio Secretary of State, Jennifer Brunner, suggested that this bill could increase foreclosure fraud.  GMAC Mortgage, JP Morgan Chase, and Bank of America are being scrutinized for possible improper foreclosures and evictions.   

Since the beginning of the economic crisis, the government has been pointing fingers at Wall Street for causing turmoil.  But, is the government to blame? The government has set up numerous agencies to supervise financial intermediaries such the OCC, the SEC, and the list goes on and on, and maybe these agencies have not been performing adequately.  Therefore, one must consider the possibility that when something goes wrong in the market, it may be a lack of government oversight and not just an excessive amount of Wall Street greed.  

Aggressive Landlords Take Charge

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The Manhattan rental market is heating up, and the vacancy rate is a lot lower than it was one year ago.  Landlords see that, once again, the status quo is changing in their favor, and are starting to take advantage of it.  Renters who received special promotions and discounts a year ago, are facing dramatic increases in their rent ($500-$600), and are on the verge of losing their apartments. 

If this trend does continue, a lot of residents will be forced to vacate their homes because they simply cannot afford to live there anymore, and the vacancy rates will start to increase in the areas.  And, once they start to lose a lot of clients, the landlords will once again start to lower the rents and offer incentives till the market is in equilibrium.   The economic recovery is still quite unstable, and landlords should not take a few temporary indicators to justify drastic increases in rent.

Corporate Neighbors Are Discouraged

Courtesy of Peter Arkle

Prior to 2006, a wealthy individual could purchase a prewar cooperative after an in-depth meeting with the neighbors/board members, and have no one else find out about it.  But, since 2006 all co-op sales are required to be listed as public records.  However, individuals have a found a new way to keep these purchases a secret; the investors are asking co-ops to break certain rules, and allow them to buy shares under corporate entities.  Usually, co-ops do not allow this because it is harder to track down the owners for maintenance and other fees (which in some cases can be more than the mortgage payments).  Cooperatives also do not like losing wealthy clients, and that is why some of them are starting to make case by case exceptions. 

After the unfortunate passing of the law in 2006, cooperatives should try to loosen their rules on the corporate entities buying shares in their buildings.  First and foremost, they will obviously attract a larger pool of clients who are extremely concerned about their privacy.  Moreover, since a co-op behaves like a public corporation with the residents as the shareholders, it should only be important for the “shareholders” to know information about the other residents of the building.  Therefore, the co-ops should support their clients and help them preserve their privacy.

New York City Dedicated to Supporting the Arts

Courtesy of therealdeal.com

Mayor Bloomberg, Governor Patterson, and Assembly Speaker Silver announced the creation of a $100 million fund for the development of the Performing Arts Center at the World Trade Center site.  This is a part of the grand plan to rejuvenate Lower Manhattan and the cultural environment there.  Furthermore, Lower Manhattan Development Corporation, the firm in charge of the federal funds, is planning proposals for infrastructure upgrades, development of East River Waterfront Esplanade and Piers Project, and maintenance of city parks.  The LMDC board will be voting on the proposals early next month, after taking into consideration the public’s view on these projects. 

The creation of this fund and the dedication of this large sum to the Performing Arts Center is a clear indicator of the importance of culture revitalization in New York City, and that it is at the top of the agenda along with other major developments.  And of course, the public’s opinions will have a great impact on the development of this project.