We're all doomed. Doomed! DOOMED!!!
Posted on 10/23/2005 12:24:56 PM PDT by ex-Texan
Tom Barrack is selling most of his U.S. portfolio. Maybe you should be nervous too.
NEW YORK (Fortune) - Tom Barrack, arguably the world's greatest real estate investor, is methodically selling off his U.S. real estate holdings as prices drive the market to nosebleed levels.
He likens the current real estate market to a game of polo.
"I feel totally safe playing polo on a field full of pros," says the bronzed 58-year old. "But when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don't know when to hold back."
It's the same with U.S. real estate right now. "There's too much money chasing too few good deals, with too much debt and too few brains." The amateurs are going to get trampled, he explains, taking seasoned horsemen, who should get off the turf, down with them.
(Excerpt) Read more at money.cnn.com ...
"There's too much money chasing too few good deals, with too much debt and too few brains." The amateurs are going to get trampled, he explains, taking seasoned horsemen, who should get off the turf, down with them.
When top real estate investors are tipping their hands openly, events are becoming very tenuous indeed. Major REIT insiders and hedge funds have been selling into the housing bubble now for over six months. (Learn More?) The refinance industry is a game for losers now. Yet, major web sites have hundreds of banner ads displayed, urging people to refinance today.
Does anybody with half a brain want to borrow 90% of their current home value today? For what reason? Pay off all your credit cards, buy a new SUV, remodel the house, and take the excess and plough it all into the stock market? With the new Bankruptcy Act in force, borrowers will be dead meat when their homes fall in value. Foreclosures will flood the market. Debtors will pay and pay for many years after their homes have been taken back by the bank.
Nothing to see here, people. No bubbles here. No bubbles anywhere. Time to move on.
I heard months ago that even Robert Kiyosaki (the "Rich Dad, Poor Dad" guy who IMO fueled a lot of amateur RE speculation) is not currently in the market.
Cool, does that mean property values will plummet bringing down my taxes? No, didn't think so.
Did anyone notice that nowhere in the article did it state a single property Barrack has recently sold?
Sounds like he's priming the pump to me.
it is called gambling.
know when to hold em, know when to fold em
applies to
* gambling
* stock market
* real estate
* ...
(ok, it is more than chance... but capitalism=risk, there is no way around that fact)
while i agree with the whole "amateurs" are going to get trampled -- that is true in the stock market too -- i think banks providing high risk mortgages (100% financing, interest only loans, ARMs that they know the buyer won't be able to afford in 3 years, etc.) are much more the root cause of any current problems than "too much money chasing too few good deals".
the bursting bubbles will be somewhat isolated... around here you can still go to the sheriff's sale and pick up a house for $30k. when the bubbles do burst (a) banks are going to be the losers and will happily take short sales versus loosing it all and (b) you're going to have a lot of people needing someplace to live.
Bookmark for later reading.
A big Dem and Clinton supporter, along with his partner Winnick of Global Crossing ... and of course a friend of that other Dem Donald Trump.
I would take anything he says with a grain of salt, if not as a contra-indicator.
For example, in my market, only 20% of condo purchasers are investors, a number that has remained steady for 20 years. The rest are owner-occupiers. There is no bubble to burst, at least not in my town. Builders are under cost pressure, but they have years of profits to fall back on, so the project gets built. They just may have to settle for a 15% profit instead of the projected 25%. Of course thay'll tell anyone fool enough to listen that they are losing money on the project and just have to give you cheaper Chinese granite for your counter tops. It's all the usual BS.
Increasing construction costs should increase the value of existing homes. I think this guy is full of it. Perhaps he's trying to drive some risk-averse speculators out of the market to increase his profit margins.
Thanks for the free "advice", Barrack, but I'll hold what I have for the long term.
BTTT!
"Real pros don't announce their true strategies. He's hoping the little guy will panic so guys like him can bottom feed."
ok, I've now read the Fortune article that the CNN article is based on.
http://www.fortune.com/fortune/investing/articles/0,15114,1117911-5,00.html
As can be expected CNN has taken the article and twisted it into what they want it to say, i.e. "the sky is falling".
All it is is a real estate mogul who knows a good deal when he sees it and a bad deal when he sees it. Worldwide. He also chases 20%+ returns.
And, as stated in the ORIGINAL article, he is not "dumping" his U.S. investments, just not buying them up as quickly. In reality he "dumps" practically everything he buys -- he's a property flipper, but one who plays with a few more zeros at the end than the rest.
"Other U.S. properties occasionally catch his eye too. In January he plunked down $305 million to buy a rental-apartment tower on the ocean in Marina del Rey, near Los Angeles, from Zell's Equity Residential. Why? Barrack calculated that a quick conversion to condos would give him a windfall."
ooh noo, the sky is falling... not.
The reason Barrack likes casinos is that he's licensed to operate casinos in all the major markets, while most other private equity firms and other financial players don't have licenses. Hence, they're locked out of the market, and can't bid against Barrack. For Barrack, casinos are a safe, exclusive preserve, far from the frenzied melee that's makes every other part of U.S. real estate such a dangerous place to play.
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Hmmm... must have bought off enough of our mafia government to 'make it happen'...
'while i agree with the whole "amateurs" are going to get trampled -- that is true in the stock market too -- i think banks providing high risk mortgages (100% financing, interest only loans, ARMs that they know the buyer won't be able to afford in 3 years, etc.) are much more the root cause of any current problems than "too much money chasing too few good deals". "
Nicely put. I've been reading several RE sources watching this unfold (for example, http://thehousingbubble2.blogspot.com/ - ultra RE bears, but good reading nonetheless), and there's a stink in the air, and it's hard if not impossible to trust ANYONE with a stake in RE right now, bear or bull.
Inventories are rising past seasonal norms, prices are dropping and properties are sitting on the market longer, the refi market is maxed out and teh lenders are looking at more "creative" deals to lure in customers (and focusing on illegal immigrants, which makes my blood boil), and the lenders are talking about tightening up lending standards in the next years, which screws the ARM I/O people right in the pooch. In 2-3 years, when those people find themselves with monthly payments they can't match, they can't sell their property for a profit, and can't refi...it's going to get UGLY. The new bankruptcy laws don't help, or the results of Bush's so-called tax reform committee.
I think we may possibly see a bigger bailout than the S&L's, which ticks me off. This has been all about greed, pure and simple. RE has been run up to mind-boggingly high prices, and while some have gotten rich, the downside will be devestating for the rest - and for us who are'nt in the game at all.
From what I've read this is mostly psychological, and the sheep are getting nervous. More media reports are focusing on the negative, a flip from 6 months ago with the "You're crazy not to get in on the game!" nonsense. It's all exactly like the .com boom - nobody thought the ride would end, and all the nice stories on the TV of teenagers making millions from websites drove everyone to try the game - and we don't need to rehash the result.
If you made money off this boom, good for you. You were lucky. If you bought in the last year in any of the big markets with "creative" financing...my prayers are with you.
"the bursting bubbles will be somewhat isolated... around here you can still go to the sheriff's sale and pick up a house for $30k. when the bubbles do burst (a) banks are going to be the losers and will happily take short sales versus loosing it all and (b) you're going to have a lot of people needing someplace to live."
I'm hoping it'll be regional. I'm really, really, really hoping. If it hits the worst case scenario, we're all screwed. Hopefully it'll just work itself out nationally, but regionally, it will probably be painful. Very painful. I have relatives that foolishly refied and used their houses as ATMs to pay off debts and buy toys - they're at retirement age, if they can't refi, their kids will be supporting them when they lose their houses.
Right now it's cheaper to rent, it just makes more sense, here in CA. Investors are practically giving rent away, hoping to flip the property down the road and getting their current losses back. Properties selling for 700K - to one mill can be rented for 2K a month. Single and one bedroom rentals are returning to pre-.com boom prices, which is much more attractive than the insane prices on 600 sq, ft. condos we're still seeing. 2-bedroom apartments are a steal right now.
I won't gamble on a 5-700K I/O mortgage for a property worth 2-300K - and at the top of the property tax bracket, either. My Dad did'nt raise a fool. I saw what happened in the late 80's to the RE market here in NorCal, and it was ugly.
Here's hoping that we get through this okay!
Not that I wish anyone ill, but I have not yet bought a house, so a decline/collapse can only be good for me personally. Oh wait, I do wish one particular person ill, but that is all I will say.
One other factor here that hasn't been mentioned very much is the series of recommendations by the presidential commission on tax returns regarding tax deductions on mortgage interest and property taxes. If those tax deductions are eliminated or substantially changed, the impact on the residential real estate market would likely be devastating.
It would make sense: I just paid a too-high price for a home. NOW it'll all fall.
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