May 26, 2018

Investors Opted To Push Already High Values Up

A report from My Northwest in Washington. “Earlier this month, The Seattle Times reported that in 2017, nearly 90 percent of new housing in the city was built in 18 percent of land zoned for residential. The median price of a single-family home is now pushing $820,000. But there are steps being taken. In an effort to address the lack of affordable housing, Seattle Mayor Jenny Durkan announced a streamlined process to build backyard cottages — an effort that has long been stalled at city hall. Additionally, people who cannot afford a home may be relieved to hear apartments are being overbuilt and rent may soon be on the decline. In fact, Matthew Gardner, chief economist at Windermere Real Estate says the city is already seeing that. ‘We went from supply-demand balance to actually being oversupplied,’ he said.”

From KMBC News in Missouri. “A downtown Kansas City developer will soon learn if its proposed ‘Three Light’ project in downtown Kansas City will get another round of tax breaks. The Cordish Cos. is asking for a 25-year tax incentive to build its new 300-unit luxury high-rise apartment building. ‘If we are able to move forward on Wednesday, we plan to start the $130 million Three Light building in early 2019, bringing us to a total of more than 900 apartment units in the Power and Light district,’ said Nick Benjamin, Vice President of Development for The Cordish Companies. ‘Without incentive, new construction high-rise apartment buildings aren’t feasible in downtown Kansas City, even with substantial rent growth.’”

From WHO TV in Iowa. “Higher rise living space is planned for downtown Des Moines, including more than 500 rental units. The city says 200 of those should be available by 2022, but some residents say that’s a lot of homes to fill. ‘I think it’s crazy. I just don’t think there is any need for it, but that’s just my opinion,’ Des Moines resident Jodi Aldini-Zepeda said. ‘The apartments they do have, are they vacant or filled?’”

“According to Zillow, there are currently more than 200 units listed as vacant downtown.”

From News 5 Cleveland in Ohio. “The cost of new construction in the City of Cleveland continues to rise with several current projects advertising townhomes and brownstones for well over $400,000. This is in stark contrast to the average annual income of a family in the Cleveland-metro area, which the U.S. Census Bureau places at just over $52,000. ‘What we’re seeing here in the City of Cleveland in terms of new residential construction is the majority of the focus is on the very, very high end,’ said William Mahnic is an associate professor in the Business and Finance Department at Case Western Reserve University.”

From NBC Bay Area in California. “A couple turned their home into an illegal hotel where a party held by guests last year ended in a shootout that sent partygoers fleeing from rooftop to rooftop and terrified neighbors, a San Francisco official said. A lawsuit filed by City Attorney Dennis Herrera alleges Erik M. Rogers and his wife, Anshu Singh, unlawfully rented their Bernal Heights home through short-term rental websites for at least 319 nights between June 2016 and October 2017, sometimes charging more than $800 a night.”

“The couple, who spends most of the time in Bali, Indonesia, also illegally converted the home into two units, Herrera said. Police were called to the home in October 2017 after a party ended in a gunfight that left one person wounded and more than a dozen homes and cars pierced by bullets in the quiet, residential neighborhood. Neighbors told police the gunfire sent dozens of partygoers fleeing through rooftops and backyards.”

“‘In the middle of a housing crisis you have a couple who aren’t even living in the country turning a house into an illegal hotel for tourists and partiers,’ Herrera said. ‘This could have been a home that kept one more family in San Francisco. Instead, it brought a deluge of gunfire to a quiet neighborhood.’”

From AM New York. “As the city looks to build its way out of the costly housing market, one stretch on the western side of Manhattan — from 14th Street in Chelsea to Columbus Circle — has been the epicenter of this effort. That community district has added about 28,000 units of housing — double the number of new digs in any other neighborhood — between 2000 to 2016, according to a report. Yet the cranes seem to be largely catering to the highest earners — renters in new buildings in 2016 had median incomes almost one-third higher than all renters citywide, the report found.”

“And amid an era of great demand for more affordable accommodations, Chelsea and Hell’s Kitchen have seen more of their apartments go unused: the rental vacancy rate increased from 3.9 percent in 2010 to 6.6 percent in 2016, the report found.Jonathan Miller, president of the Miller Samuel appraising firm, said in the wake of the 2008 financial crisis, more investors opted to put money into real estate development — pushing already high land values up. That environment makes it difficult for projects to profit without targeting the more affluent end of the market, Miller said.”

“He described the city’s efforts as well-intentioned, but likely to add to the glut of luxury housing rising across the city without adding a significant amount of affordable homes. ‘Trickle-down housing policy doesn’t work,’ said Emily Goldstein, senior campaign organizer at the Association for Neighborhood and Housing Development advocacy group. ‘What we have in New York City at this point is a glut at the top end of the market that has not resulted in rents coming down or burdens being alleviated at the lower ends of the market. It’s resulted in high-vacancy at the top end of the market.’”

From the Democrat and Chronicle in New York. “The investigation into possible illegal acts within developer Robert Morgan’s real estate portfolio has moved quickly, leading to criminal charges alleging fraud to obtain $167.5 million in loans over six years, federal authorities said. But the indictment of four men — including the son and nephew of developer Robert ‘Bob’ Morgan — does not mean that the investigation is over, U.S. Attorney James P. Kennedy Jr. said at a news conference in Buffalo.”

“‘In this case, we noticed irregularities in the manner mortgages were obtained,’ Kennedy said. ‘That led to this investigation. We’re looking at everything.’ The criminal charges focus on seven properties in Buffalo, Syracuse, Avon, and Pennsylvania. ‘These seven properties are where we started and we’ll continue to investigate their properties,’ Kennedy said.”

“Todd and Kevin Morgan and two business associates — Frank Giacobbe and Patrick Ogiony — are accused of bank and wire fraud. Giacobbe and Ogiony are part of the Buffalo-based mortgage broker, Aurora Capital Advisors LLC. The charges allege that the foursome — Todd Morgan, 29, of Rochester and Kevin Morgan, 42, of Pittsford, along with Giacobbe, 43, of East Amherst, and Ogiony, 34, of Buffalo — conspired to provide lenders with falsified income data to help secure loans. They also allegedly staged vacant apartment units to dupe inspectors into thinking they were occupied.”

“They are accused in a 62-count indictment of conspiracy to commit wire fraud and bank fraud; wire fraud; and bank fraud. The alleged acts took place between March 2011 and June 2017 following an investigation that has been underway for the last 18 months, Kennedy said.”

“In a written statement released Wednesday afternoon, Robert Morgan said that ‘in light of recent events,’ his nephew and his son had been suspended from the company without pay. ‘Morgan Communities continues to cooperate with a federal investigation related to federally backed loans placed to several developers through a specific mortgage broker,’ the statement said. ‘We have been and continue to be current on all loan obligations.’”

“Federal authorities noted that the mortgages, some backed by federal lending entities Freddie Mac and Fannie Mae, were packaged into bundles and sold to investors — a practice that was central to the 2008 housing crash. The indictment alleges out-and-out fakery was involved when a Morgan limited liability company was seeking to refinance the project in the fall of 2014. A refinance of this sort typically involves combining several smaller loans into a single, larger obligation.”

“Giacobbe and possibly others created a fictitious $1.37 million loan and allegedly persuaded their lender, Arbor Commercial Mortgage, to roll that sum into the amount the Morgan company was refinancing, the indictment alleges. The indictment said Giacobbe ‘created and conspired to create’ paperwork related to the non-existent loan. Giacobbe is accused of pocketing $63,000 in broker’s fees from the $6.3 million transaction with Arbor. The indictment does not say what happened to the extra $1.37 million that Morgan company borrowed.”

“Other overt acts alleged in the 32-page indictment include faking paperwork and submitting inflated property appraisals to persuade lenders to provide bigger-than-needed loans, and at least one other instance in which a mortgage was allegedly fabricated to plump up a refinance.”

“Whether the indictment signals that lenders are falling down in their ability to spot fakery remains to be seen. It also remains to be seen if there are other instances in which investigators find evidence of exaggerated values and inflated loan amounts in Morgan’s property empire. There are plentiful examples of Morgan projects in which a property’s apparent market value is dwarfed by the size of the loans secured by that property.”

“The Democrat and Chronicle has examined public records for 31 Morgan developments in Monroe County. In all but one of those projects, mortgage loans exceed the assessed value of the property and are often 1½ to 2 times greater. Why loans exceed the apparent property value in so many cases is not clear.”