With so much carnage building, it's amazing (not) to hear all the happy talk on CNBC/Bubblevision per Fleck, Bloomberg, even Fox business that Powell and the other thieves at the Fed have stuck it, and we'll all glide to a perfect landing. Who has list touch with reality? Them or us?
Just another socialist/commie scheme dressed up like a grotesque, capitalist zombie looking to expand "renter nation" where 95% of the serfs will never own personal property.........unless you count he plastic Chinese made crap they buy from Walmart as personal property.
Don't worry about the "syndicates." They rode in on borrowed money to further the commie agenda, and there's plenty more where that came from to bail them out. Sure, there'll be some consolidation, there's always consolidation of the syndicates........like Bear Stearns and Lehman we consolidated. But betting this is a systemic problem in a world of syndicate-friendly, printer money, would be foolish.
What happened to the billions in unpaid rent?........unpaid utility bills?..........unpaid car loan?.........unpaid student loans?..........during the scamdemic?...........They were syndicated.
I DONT UNDERSTAND (Just another socialist/commie scheme dressed up like a grotesque, capitalist zombie) Educate me please ( I am a simple person and I live in England
In a "free market, capitalistic society" the government doesn't come in and guarantee rent payments to landlords; it doesn't subsidize utility companies so people can go 6 months without paying their utility bills.
In a free market, republic it is not the duty or responsibility of government to ensure payments are made to keep the music playing and the wheel spinning 'round. It is not the government's place to make stupid loans to people so they can go to college, and then tell the students they don't have to pay them back.
That's the kind of stuff that goes on in socialistic, communistic, fascist societies.
In my opinion, the US has been a socialist country since FOR was in office. We have gone back and forth, but precedence has been set by the federal government that they can change the rules anytime they need to bail someone out. Governments love socialism. It puts them in control of everything and makes everyone dependent upon them as if they were God.
Fact.......Over 50% of US households receive a regularly scheduled check from the government. How any real American can deny our socialist bent is beyond me.
So basically these firms fell victim to adjustable rate mortgages? lol
Any data as to why they were over leveraged? Were the properties distressed due to the rent moratorium, and these firms thought they could out last the moratorium? Or, despite the moratorium, the inventory was still stressed, pushing higher property values?
Either they were buying as business with a broken model. (Renters living off the property for free for a year or more), or these firms bought at the top using bad loans.
Your last comment is accurate, but I'll try to provide some additional context and detail.
- The Fed has enabled bubbles across capital markets over the last 10-15 years. So, the bubble in apartments was already there prior to the liquidity injections during the covid panic. The massive liquidity dump at that time added fuel to the fire.
- Apartment transaction volume was high while rates were low, but lending was always dominated by Fannie and Freddie, and HUD to a lesser extent. In order to compete, wholesale lenders (mainly big banks like JPM, etc) needed to offer a product that would be more attractive than standard "agency" loans.
- Bridge loans offered up to 85% of purchase price at acquisition, but also provided funds after acquisition for renovation, making leverage even higher. As a syndicator/sponsor, higher leverage means higher fees and less work raising equity. And a lot of the equity that was raised was raised online, as the general public got into the speculative spirit and threw their stimulus checks at any opportunity to gamble.
- Bridge lenders also accepted pro forma underwriting, meaning they would lend based on what the sponsors were projecting performance to be down the road, not what performance had been in reality.
- Operating performance at apartments has been strong, even throughout the moratorium. Rents continued to increase as people got priced out of the home market.
- Bridge loans used variable rates and short durations. Syndicators/sponsors were simply throwing downside cases out the window and betting on continued rent increases, unrealistic renovation plans and ZIRP forever. I saw several of the underwriting models from these sponsors and to call them aggressive or unrealistic would be an understatement.
- As the bubble raged on, cap rates (Net Operating Income divided by purchase price) declined to never-before-seen levels. At the peak of the bubble, many apartment properties were trading with cap rates around or even below 3%. Historically cap rates are in the 6% range for this asset class.
- When the Fed did raise rates in mid-2022, valuations adjusted abruptly, debt service increased sharply, and syndicators with bridge loans were under water. As these loans mature, there is a big gap between what can be refinanced and the existing loan balances. Investors now have the choice of either letting their investment go to zero, or throwing good money after bad to keep it afloat. The syndicators themselves are likely to take the fees they’ve already earned and move on to the next exploit.
While the behavior described affected many participants in the multifamily market, even seasoned operators, it's important to note that the availability of loans that require essentially no credit standards attracts the most speculative and high time preference market participants, many of them with little or no experience in real estate or investment management. That creates a perfect storm of irrational behavior, where speculators scramble to buy assets, driving up prices and loan volumes, attracting more speculators, etc.
Will be a bloodbath? So you expect the printer to be broken by then?
Since 08/09, we are in a new era. It's called create a bubble, and when it pops, we print up what we need to bail out those we like and then pike all the crap into those we don't like, and hut the flush handle. It's a great way to build syndicates that tow the line........and cuts down on "blood baths." We've gotten so good at it, you rarely even know the bubble has actually popped.
When do we become the USSA and start paying people to dig ditches?
Shit! Unlike the USSR, the USSA can just pay people without needing to dig the ditches. The US gov is doling out billions to NPCs......weekly.
The Fed and their Fascist masters over in the corporate world will be thrilled to let a bunch of private business go belly up.......so their monopoly fascist pigs can pick up the good assets for......I would say pennies, but hell, even pennies are worth more than the money they are using to raid and plunder the assets of "small business."
Fed own? What are you talking about? You are under the impression that they care if those businesses exist. Stop thinking like one of the serfs and think like a bankster. You'll see more clearly.
You might fear a "bloodbath," but Dracula would love it. It is all a matter of persepective.
With so much carnage building, it's amazing (not) to hear all the happy talk on CNBC/Bubblevision per Fleck, Bloomberg, even Fox business that Powell and the other thieves at the Fed have stuck it, and we'll all glide to a perfect landing. Who has list touch with reality? Them or us?
Just another socialist/commie scheme dressed up like a grotesque, capitalist zombie looking to expand "renter nation" where 95% of the serfs will never own personal property.........unless you count he plastic Chinese made crap they buy from Walmart as personal property.
Don't worry about the "syndicates." They rode in on borrowed money to further the commie agenda, and there's plenty more where that came from to bail them out. Sure, there'll be some consolidation, there's always consolidation of the syndicates........like Bear Stearns and Lehman we consolidated. But betting this is a systemic problem in a world of syndicate-friendly, printer money, would be foolish.
What happened to the billions in unpaid rent?........unpaid utility bills?..........unpaid car loan?.........unpaid student loans?..........during the scamdemic?...........They were syndicated.
I DONT UNDERSTAND (Just another socialist/commie scheme dressed up like a grotesque, capitalist zombie) Educate me please ( I am a simple person and I live in England
In a "free market, capitalistic society" the government doesn't come in and guarantee rent payments to landlords; it doesn't subsidize utility companies so people can go 6 months without paying their utility bills.
In a free market, republic it is not the duty or responsibility of government to ensure payments are made to keep the music playing and the wheel spinning 'round. It is not the government's place to make stupid loans to people so they can go to college, and then tell the students they don't have to pay them back.
That's the kind of stuff that goes on in socialistic, communistic, fascist societies.
In my opinion, the US has been a socialist country since FOR was in office. We have gone back and forth, but precedence has been set by the federal government that they can change the rules anytime they need to bail someone out. Governments love socialism. It puts them in control of everything and makes everyone dependent upon them as if they were God.
Fact.......Over 50% of US households receive a regularly scheduled check from the government. How any real American can deny our socialist bent is beyond me.
So basically these firms fell victim to adjustable rate mortgages? lol
Any data as to why they were over leveraged? Were the properties distressed due to the rent moratorium, and these firms thought they could out last the moratorium? Or, despite the moratorium, the inventory was still stressed, pushing higher property values?
Either they were buying as business with a broken model. (Renters living off the property for free for a year or more), or these firms bought at the top using bad loans.
Your last comment is accurate, but I'll try to provide some additional context and detail.
- The Fed has enabled bubbles across capital markets over the last 10-15 years. So, the bubble in apartments was already there prior to the liquidity injections during the covid panic. The massive liquidity dump at that time added fuel to the fire.
- Apartment transaction volume was high while rates were low, but lending was always dominated by Fannie and Freddie, and HUD to a lesser extent. In order to compete, wholesale lenders (mainly big banks like JPM, etc) needed to offer a product that would be more attractive than standard "agency" loans.
- Bridge loans offered up to 85% of purchase price at acquisition, but also provided funds after acquisition for renovation, making leverage even higher. As a syndicator/sponsor, higher leverage means higher fees and less work raising equity. And a lot of the equity that was raised was raised online, as the general public got into the speculative spirit and threw their stimulus checks at any opportunity to gamble.
- Bridge lenders also accepted pro forma underwriting, meaning they would lend based on what the sponsors were projecting performance to be down the road, not what performance had been in reality.
- Operating performance at apartments has been strong, even throughout the moratorium. Rents continued to increase as people got priced out of the home market.
- Bridge loans used variable rates and short durations. Syndicators/sponsors were simply throwing downside cases out the window and betting on continued rent increases, unrealistic renovation plans and ZIRP forever. I saw several of the underwriting models from these sponsors and to call them aggressive or unrealistic would be an understatement.
- As the bubble raged on, cap rates (Net Operating Income divided by purchase price) declined to never-before-seen levels. At the peak of the bubble, many apartment properties were trading with cap rates around or even below 3%. Historically cap rates are in the 6% range for this asset class.
- When the Fed did raise rates in mid-2022, valuations adjusted abruptly, debt service increased sharply, and syndicators with bridge loans were under water. As these loans mature, there is a big gap between what can be refinanced and the existing loan balances. Investors now have the choice of either letting their investment go to zero, or throwing good money after bad to keep it afloat. The syndicators themselves are likely to take the fees they’ve already earned and move on to the next exploit.
While the behavior described affected many participants in the multifamily market, even seasoned operators, it's important to note that the availability of loans that require essentially no credit standards attracts the most speculative and high time preference market participants, many of them with little or no experience in real estate or investment management. That creates a perfect storm of irrational behavior, where speculators scramble to buy assets, driving up prices and loan volumes, attracting more speculators, etc.
Wow. Thanks for the time and thorough walk through.
https://www.bloomberg.com/news/articles/2023-12-14/manhattan-apartment-rents-see-first-year-over-year-drop-since-2021
Excellent article. Written for general understanding of the subject. 2024 is going to be soup line year all around the business world. UGH!!!!
Will be a bloodbath? So you expect the printer to be broken by then?
Since 08/09, we are in a new era. It's called create a bubble, and when it pops, we print up what we need to bail out those we like and then pike all the crap into those we don't like, and hut the flush handle. It's a great way to build syndicates that tow the line........and cuts down on "blood baths." We've gotten so good at it, you rarely even know the bubble has actually popped.
When do we become the USSA and start paying people to dig ditches?
Shit! Unlike the USSR, the USSA can just pay people without needing to dig the ditches. The US gov is doling out billions to NPCs......weekly.
The Fed and their Fascist masters over in the corporate world will be thrilled to let a bunch of private business go belly up.......so their monopoly fascist pigs can pick up the good assets for......I would say pennies, but hell, even pennies are worth more than the money they are using to raid and plunder the assets of "small business."
Fed own? What are you talking about? You are under the impression that they care if those businesses exist. Stop thinking like one of the serfs and think like a bankster. You'll see more clearly.
You might fear a "bloodbath," but Dracula would love it. It is all a matter of persepective.