‘All Bets Are Off’ For Palm Beach Condo Tower
The Palm Beach Post reports on another failed condo project. “When a Las Vegas lender plunked down money from retirees, investors and even a medical research firm’s pension fund to finance construction of a West Palm Beach high-rise condo, everyone gambled that red-hot Florida real estate was a sure thing.”
“Low-income residents of the apartment complex moved, heavy construction equipment rolled in, millions of dollars were borrowed and dozens of investors saw double-digit returns on investments. Now, all bets are off.”
“Lender USA Commercial Mortgage Co. and its related companies, better known as USA Capital, filed for Chapter 11 bankruptcy protection in Nevada on April 14. ‘Up until last week, we had no inkling that anything was wrong,’ said Virgil Birgen of Nevada, who invested $150,000 to build Sail Club at Clear Lake.”
“About 200 people from across the country gave Nevada-based USA Capital or a sister company money to fund the four-tower, 590-unit luxury high-rise. Just six months after the mayor and two city commissioners donned hard hats and wielded shovels for an October groundbreaking, Sail Club has stalled.”
“One apartment building has been leveled, but two others remain open, their ovens and water heaters pulled from the wall. A refrigerator stands in the middle of one parking lot, an abandoned portable toilet is in another. Mattresses rotted to their springs lie on the ground. Windows are broken. Yellow flowers have begun to grow up the side of 20-foot-high piles of rock and sand left undisturbed since Christmas.”
“So, why has construction ground to a halt? ‘To be blunt, we are a handful short’ of sales needed to nail funding for the first phase of construction, Richard Kohn said.”
“Investors said they weren’t aware of progress, or the lack of it, at Sail Club, or any other projects. But their checks from USA Capital with the promised returns always came. ‘We have always gotten paid,’ said an investor in the local property who asked that her name not be used. But when she recently asked to withdraw her $100,000, there were weeks of delays. Then the company went into bankruptcy court. ‘I didn’t get anything back,’ she said.”
Last year when these projects were being announced, and even the media admitted that some would never be built, many on this blog asked how could this not end up in disaster. Now with mattresses sitting in the parking lots of empty buildings and investors having lost everything, we know.
Yes. The moral of the story is don’t invest in something with the name USA, national, or federal in its title. Also never eat or shop where “genuine”, “authentic”, or “world famous” are part of the businesses name. If the investments, products, or meals were so good, they wouldn’t need to use those kinds of words in their titles. Buyer beware. This is my world renown, authentic, genuine opinion.
Good rules of thumb. I would like to add, except for Burger King, any restaurant that advertises itself as “Home of The” Something is past its prime, resting on its laurels, a tourist trap, or a combination of all three.
and add to that … luxury living
Ben,
Slightly OT but: looks like you’ve gotten the word out or at least that the masses are catching on. See link to CNNmoney poll question with 18k responses:
Is it a good time to buy a house?
Oops. Here’s that CNNmoney link.
http://money.cnn.com/POLLSERVER/results/24595.html
What happens when you have massive inventory increases, and most of your customers decide to wait? Ask the high tech world that, and you will get a very solid answer….
This in fact is the tip of the iceberg, and what a large iceberg it is!
that’s a very encouraging poll result
hey ben, didn’t Trump cancel his Tower in Phoenix??? correct me if i’m wrong, but there was an article where he slipped out the back door when no one was looking
It’s fun to think in the abstract about this craziness coming to a halt, but its sobering and sad to see how its going to destroy lives.
Simmsays…
http://www.americaninventorspot.com
Yes, it’s sad that people are so stupid with money in the first place.
People do foolish things. I would think the average investor in USA capital spent more time researching who his NFL team is drafting in the first round than he spent on his investment decsion. Sad but true. People will spend hours trying to save a few dollars on a purchase but hardly anytime on a major investment.
I hope that 100K represented a significant portion of her life savings.
The investors deserve to feel the pain of all the people forced to move from their apartments thanks to their stupid project.
I don’t get it . How could they of lost money yet ? They didn’t really start construction yet ,just a bunch of bulldozing . There is more here than just a project stopping . Somebody should turn the project back into rentals .
At this point they most likely exhausted the Venture Capital purchasing the rentals, and starting the demo (very expensive in order to comply with local waste, and health regulations). They most likely where hoping to sell to a couple hundred fools before construction began, and the early investors would have a huge appreciation. Now they have half torn down condos that you cannot rent, and no money for rehab. Worse of any scenario. Cannot build, or rent!
BTW I do think that the upper managers might make a significant killing out of the bankrupcy at the expense of the investors, ie, bonuses to stay, etc.
After it is all said and done, some other Vulture capitalist swoops in and buys the whole thing for like 10% of the cost!… Most likely someone in USA capital management that is in the “know”.
I know a few developers. They run money around all over the place, from one project to another, to level cash-flow. I wouldn’t be surprised if this developer lost all of the money on an unrelated project.
I thought developers weren’t allowed to “co-mingle” funds between projects…or is that only in California? We had a developer in SoCal (had about 5 developments of about 600 houses) go under when he started pulling money from his “ok” projects to put into his “uh-oh” projects. Eventually the whole house of cards fell in, there were foreclosures and lawsuits, and the developer ended up being arrested and charged (I forget for exactly what, but I thought it had to do with co-mingling funds).
They did demolish one of the buildings and kick all of the residents out. That didn’t come for free.
Also, the article mentioned that they did pay investors their promised returns. How could the investment yield a return before a single condo had been sold? That “return” could only have come from the investors’ own principal. I think this project has a little bit of a pyramid scheme in it.
That’s what people on this blog don’t seem to get their downfall was because of mis-management of funds.
A similiar event happened in Australia in March. With people investing in an Australian version of USA capital, can’t remember its name. One guy even put his entire lump sum retirement payout into and lost everything. 5 to 10% of your net worth goes to zero over night I can feel sorry. Anyone can make a bad decision or be tricked. 50 to 100% of their assets or retirment funds, what were they thinking?
OT: Thanks Ben for the US News article. At least there are a few objective reporters out there. The homebuilders are under pressure today. Support for HGX is at 250, and we’re closing in on that. Will it hold? I think not if interest rates keep rising, and thay are.
CAVEAT EMPTOR
I know there is a lot of read below and my question is any of true other than date it was sent?
For release:
Tuesday, April 25, 2006
Median price of a home in California at $561,350 in March, up 13 percent from year ago; sales decrease 15.1 percent
LOS ANGELES (April 25) – The median price of an existing home in California increased 13 percent in March and sales decreased 15.1 percent compared with the same period a year ago, the California Association of REALTORS® (C.A.R.) reported today.
“March is the month in which we typically see the market gear up for peak season activity, and this year is no exception,” said C.A.R. President Vince Malta. “Seasonally adjusted statewide sales increased 4.9 percent compared with February and the statewide median rose 4.8 percent compared with the prior month. This is very similar to March 2005, when sales rose 4.4 percent month-to-month and the median price registered a 5.5 percent increase.
“The level of sales activity remained below the record-setting levels that occurred over the last two years, but the pace of sales appears to be picking up,” he said. ”Many buyers who had adopted a ‘wait-and-see’ approach with respect to interest rates earlier this year realize that while rates are higher than they were six months or a year ago, they still remain just above historically low levels.”
Closed escrow sales of existing, single-family detached homes in California totaled 539,170 in March at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide. Statewide home resale activity decreased 15.1 percent from the 634,700 sales pace recorded in March 2005.
The statewide sales figure represents what the total number of homes sold during 2006 would be if sales maintained the March pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
The median price of an existing, single-family detached home in California during March 2006 was $561,350, a 13 percent increase over the revised $496,890 median for March 2005, C.A.R. reported. The March 2006 median price increased 4.8 percent compared with February’s revised $535,480 median price.
“The inventory of homes for sale fell from a 6.6 month supply in February to 4.8 months in March,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “Unsold inventory climbed significantly in the first two months of this year as listings increased and sales declined. Although the supply of homes for sale increased again in March, this was more than offset by a seasonal increase in sales, prompting a decrease in the unsold inventory index. We expect the supply of homes relative to sales to decline gradually over the next few months, although inventory levels will likely remain higher than those of the last two years.”
Highlights of C.A.R.’s resale housing figures for March 2006:
. C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in March 2006 was 4.8 months, compared with 2.2 months (revised) for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.
. Thirty-year fixed mortgage interest rates averaged 6.32 percent during March 2006, compared with 5.93 percent in March 2005, according to Freddie Mac. Adjustable mortgage interest rates averaged 5.42 percent in March 2006 compared with 4.23 percent in March 2005.
. The median number of days it took to sell a single-family home was 44 days in March 2006, compared with 30 days (revised) for the same period a year ago.
Regional MLS sales and price information is contained in the tables that accompany this press release. Regional sales data are not adjusted to account for seasonal factors that can influence home sales. The MLS median price and sales data for detached homes are generated from a survey of more than 90 associations of REALTORS throughout the state. MLS median price and sales data for condominiums are based on a survey of more than 60 associations. The median price for both detached homes and condominiums represents closed escrow sales.
In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 89.8% percent or 369 of 411 cities and communities showed an increase in their respective median home prices from a year ago. DataQuick statistics are based on county records data rather than MLS information. DataQuick Information Systems is a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. (The top 10 lists are generated for incorporated cities with a minimum of 30 recorded sales in the month.)
Note: Large changes in local median home prices typically indicate both local home price appreciation, and often, large shifts in the composition of housing market activity. Some of the variations in median home prices may be exaggerated due to compositional changes in housing demand. The DataQuick tables listing median home prices in California cities and counties are accessible through C.A.R. Online at http://www.car.org/index.php?id=MzYwNTQ=.
. Statewide, the 10 cities and communities with the highest median home prices in California during March 2006 were: Laguna Beach, $1,827,000; Burlingame, $1,720,000; Beverly Hills, $1,665,000; Los Altos, $1,626,000; Manhattan Beach, $1,625,000; Newport Beach, $1,520,000; Coronado, $1,463,750; Saratoga, $1,391,000; Los Gatos, $1,300,000; Calabasas, $1,259,500.
. Statewide, the 10 cities and communities with the greatest median home price increases in March 2006 compared with the same period a year ago were: Reedley, 58.9 percent; Atwater, 52 percent; Twentynine Palms, 48.8 percent; Barstow, 45.7 percent; Beaumont, 45.6 percent; Taft, 44 percent; California City, 43.1 percent; Burlingame, 40.4 percent; Porterville, 40.3 percent; Highland, 36.8 percent.
Leading the Way…® in California real estate for more than 100 years, the California Association of REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 185,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
Leading the Way…® in California real estate for more than 100 years, the California Association of REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 185,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
It takes a lot of money to rent heavy moving equipment, clear rubble etc. Plus, what about all the lost income of renters paying their rents - how do you fill up such a massive complex with rent paying renters again.
The fund also probably paid a massive premium to purchase the property from the previous owners.
During my finance education they drilled into our head, over and over, diversify, diversify, diversify.
You shouldn’t have to get a degree to know that, why aren’t they teaching basic econ/finance in highschool? Everybody should get a fake portfolio in 10th grade to play with which they can use to buy lunch. So if they invest all of thier money in Sony because they like the PS3 and lose it all they’ll have learned real lesson.
According to Buffett, diversification is crap.
The only single criteria is to find a sound investment. But obviously not everyone has a good nose!
When will small investors stop taking investment advice from a billionare risk manager. There is a huge amount of difference between the risk tolerance of a reinsurance company that has $40 billion in liquid assets and $90 billion in capital managed by professional risk managers (not just Buffett) and your $100k retirement savings.
John Boggle (founder of Vanguard) has far better free investment advice for investors than Buffett ever gave. Buffett is pretty sharp, but Berkshire is far more complex than it seems most investors believe it is. I wonder how many Buffett fans have a good concept of how they earn the majority of their money? It isn’t Coke and See’s or Fruit of the Loom.
“During my finance education they drilled into our head, over and over, diversify, diversify, diversify.
You shouldn’t have to get a degree to know that, why aren’t they teaching basic econ/finance in highschool? Everybody should get a fake portfolio in 10th grade to play with which they can use to buy lunch. So if they invest all of thier money in Sony because they like the PS3 and lose it all they’ll have learned real lesson.”
I work in a field that involves a lot of buying. We often negotiate contracts where we pre-pay sizeable sums, usually on an annual costs basis. We’ve been seriously burned in the past when companies have gone under, taking our prepaid money down with them. We’re then faced with the additional costs of finding new vendors and setting up the same deal all over again. We all know we can only protect against this risk by diversifying our purchasing.
So, what does management decide to do? Sign an exclusive contract with one vendor. Not only are we facing a huge risk if that vendor ever goes out of business, we’re no longer allowed to shop for bids. They can and do charge us whatever they wish. Our management has made it very clear that they won’t tolerate any of us speaking out against this new policy.
So: when people with advanced education degrees and years of professional experience are making suicidally stupid decisions like this,
don’t expect anything better from the average citizen with a high school diploma.
The madness - or corruption - has taken root at all levels.
I wonder how much management is getting out of this deal? Promise for future retirement?
Sounds like the U.S Government
There are really two separate aspects to the Sail Club fiasco. They are clearly severable. The first problem is the failure of the funding source. Once Homes for America Holdings Inc. lost their funding, through no fault of their own, one should expect construction to temporarily stop.
The second problem is more serious. That problem is the failure of Homes for America Holdings Inc. to secure a new funding source. And why can’t they? Richar Kohn, co-founder of Homes drives it home: “To be blunt, we are a handful short of sales needed to nail funding for the first phase of construction.” So construction stopped because of the lender’s problems, but the Sail Club’s REAL problem is that they’re building a white elephant for buyers who’ve since fled the market.
There was nothing fraudulent or bad in this.
“To be blunt, we are a handful short of sales needed to nail funding for the first phase of construction.
This was a simple go/no go decision. A lot of money was spent in preparation with the assumption the units would sell. The lenders came forward and made the loan in phases: certain conditions had to be met before the next phase of funding would be met.
One of the criteria was presales. The company needed X presales before the next phase of funding. The sales were not met so the funding was not made.
Anyone who runs their own business understand this concept.
I agree. The comment that the investors were never told that there was any problem was also absurd. If the investors didn’t understand the risk they should have. Why on earth did they think they being paid 15% to 18% in a 4% world.
No investment company that is struggling would announce it to their investors. It wouldn’t do the investors any good and would only guarantee a bankruptcy. What were they supposed to do? Make a public announcment that things look bad and everybody ought to ask for their money back?
Finally voices of reason on this issue with this Company. I guess you do have to run your own company to understand certain things a lot of folks on this blog were way off base on the problems with this deal and company.
Ben Bernanke’s speech is out. He spoke about housing. “House prices, which have increased rapidly during the past several years, appear to be in the process of decelerating.” Dollar declines on speech.
More info:
http://bubblemeter.blogspot.com/2006/04/ben-bernanke-speech.html
David
Bubble Meter Blog
I get the impression that Bernanke is a dove rather than an inflation hawk. Helicopter is on the pad, packed with cash & ready for take-off…
I’ve found it helps to read the Fed testimony before reading what the media has to say about it..
http://www.federalreserve.gov/BoardDocs/Testimony/2006/20060427/default.htm
I’d like to develop my own “bias” before the media persuades me into theirs.
Grim,
Thx for supplying that link. I’m wondering if the media will care to spotlight the part about future SS, medicare, medicaid, and hard choices coming for us in the near future.
decelerating ?
tanking ,dude
10 year rate retreats
five year bond is rallying as the helicopter gets fired up
Your second line needs to be *seven* syllables.
“Your second line needs to be *seven* syllables.”
ROFL! we have some astute members here
Is there anything correct it this letter from an Agent other than date?
For release:
Tuesday, April 25, 2006
Median price of a home in California at $561,350 in March, up 13 percent from year ago; sales decrease 15.1 percent
LOS ANGELES (April 25) – The median price of an existing home in California increased 13 percent in March and sales decreased 15.1 percent compared with the same period a year ago, the California Association of REALTORS® (C.A.R.) reported today.
“March is the month in which we typically see the market gear up for peak season activity, and this year is no exception,” said C.A.R. President Vince Malta. “Seasonally adjusted statewide sales increased 4.9 percent compared with February and the statewide median rose 4.8 percent compared with the prior month. This is very similar to March 2005, when sales rose 4.4 percent month-to-month and the median price registered a 5.5 percent increase.
“The level of sales activity remained below the record-setting levels that occurred over the last two years, but the pace of sales appears to be picking up,” he said. ”Many buyers who had adopted a ‘wait-and-see’ approach with respect to interest rates earlier this year realize that while rates are higher than they were six months or a year ago, they still remain just above historically low levels.”
Closed escrow sales of existing, single-family detached homes in California totaled 539,170 in March at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide. Statewide home resale activity decreased 15.1 percent from the 634,700 sales pace recorded in March 2005.
The statewide sales figure represents what the total number of homes sold during 2006 would be if sales maintained the March pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
The median price of an existing, single-family detached home in California during March 2006 was $561,350, a 13 percent increase over the revised $496,890 median for March 2005, C.A.R. reported. The March 2006 median price increased 4.8 percent compared with February’s revised $535,480 median price.
“The inventory of homes for sale fell from a 6.6 month supply in February to 4.8 months in March,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “Unsold inventory climbed significantly in the first two months of this year as listings increased and sales declined. Although the supply of homes for sale increased again in March, this was more than offset by a seasonal increase in sales, prompting a decrease in the unsold inventory index. We expect the supply of homes relative to sales to decline gradually over the next few months, although inventory levels will likely remain higher than those of the last two years.”
Highlights of C.A.R.’s resale housing figures for March 2006:
. C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in March 2006 was 4.8 months, compared with 2.2 months (revised) for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.
. Thirty-year fixed mortgage interest rates averaged 6.32 percent during March 2006, compared with 5.93 percent in March 2005, according to Freddie Mac. Adjustable mortgage interest rates averaged 5.42 percent in March 2006 compared with 4.23 percent in March 2005.
. The median number of days it took to sell a single-family home was 44 days in March 2006, compared with 30 days (revised) for the same period a year ago.
Regional MLS sales and price information is contained in the tables that accompany this press release. Regional sales data are not adjusted to account for seasonal factors that can influence home sales. The MLS median price and sales data for detached homes are generated from a survey of more than 90 associations of REALTORS throughout the state. MLS median price and sales data for condominiums are based on a survey of more than 60 associations. The median price for both detached homes and condominiums represents closed escrow sales.
In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 89.8% percent or 369 of 411 cities and communities showed an increase in their respective median home prices from a year ago. DataQuick statistics are based on county records data rather than MLS information. DataQuick Information Systems is a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. (The top 10 lists are generated for incorporated cities with a minimum of 30 recorded sales in the month.)
Note: Large changes in local median home prices typically indicate both local home price appreciation, and often, large shifts in the composition of housing market activity. Some of the variations in median home prices may be exaggerated due to compositional changes in housing demand. The DataQuick tables listing median home prices in California cities and counties are accessible through C.A.R. Online at http://www.car.org/index.php?id=MzYwNTQ=.
. Statewide, the 10 cities and communities with the highest median home prices in California during March 2006 were: Laguna Beach, $1,827,000; Burlingame, $1,720,000; Beverly Hills, $1,665,000; Los Altos, $1,626,000; Manhattan Beach, $1,625,000; Newport Beach, $1,520,000; Coronado, $1,463,750; Saratoga, $1,391,000; Los Gatos, $1,300,000; Calabasas, $1,259,500.
. Statewide, the 10 cities and communities with the greatest median home price increases in March 2006 compared with the same period a year ago were: Reedley, 58.9 percent; Atwater, 52 percent; Twentynine Palms, 48.8 percent; Barstow, 45.7 percent; Beaumont, 45.6 percent; Taft, 44 percent; California City, 43.1 percent; Burlingame, 40.4 percent; Porterville, 40.3 percent; Highland, 36.8 percent.
Leading the Way…® in California real estate for more than 100 years, the California Association of REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 185,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
Leading the Way…® in California real estate for more than 100 years, the California Association of REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 185,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
Sail Club will not be the only condo complex to fail in WPB. Two have been built downtown and they sat virtually empty all winter. I know, I drove by them on my way home from grad school every Tuesday/Wednesday. There are probably another 4-6 projects planned downtown and 3-4 are currently under construction. Many, if not all, of the units have doubled in price before a hole was dug. These condo towers will be tanking in value as each brick is laid. Add in all the apratment conversions (soon to be reversions) and you start to see the mess we have in WPB. I am trying like hell to get out of here, hopefully to ATL.
Definition of a Ponzi Scheme:
But their checks from USA Capital with the promised returns always came. ‘We have always gotten paid,’ said an investor in the local property who asked that her name not be used. But when she recently asked to withdraw her $100,000, there were weeks of delays. Then the company went into bankruptcy court. ‘I didn’t get anything back,’ she said.”
Bingo Curt;…I was waiting for someone to say it….Classic pyramid scheme…If all goes well, everyone is a happy camper….If the market stalls, and new rounds of funding (fools) stop, the deal implodes…All those early round fundings did nothing more than service the massive leverage…
California real estate sales fall 15%
does anyone have content of this report
posted as an article here yd old sport
Is this statement from a realtor correct?
For release:
Tuesday, April 25, 2006
Median price of a home in California at $561,350 in March, up 13 percent from year ago; sales decrease 15.1 percent
LOS ANGELES (April 25) – The median price of an existing home in California increased 13 percent in March and sales decreased 15.1 percent compared with the same period a year ago, the California Association of REALTORS® (C.A.R.) reported today.
STOP SPAMMING
Bernanke sounds like he’s embraced the republican CowardSpeak. This is sad.
Condo tower? What condo tower? It is kind of hard not to laugh, but it is also scary the extent to which this shows a pure bubble. Big sums of money changed hands and now there is nothing to show for it. These people must really envy others who have properties with severely reduced values.
The upcoming housing implosion is going to have a major impact on the economy in S. Florida. There are more realtors, loan officers, and construction related here than I can ever remember. The rampant speculation and the subsequent crash is going to take years to unwind.
Remember, the resets are coming…. soon to a theater near you.
Anybody in Orlando know of a condo called Thornton park? Owners seem desperate to sue anybody, in lieu of not selling their 1.2M condos….