John Rubino got a hold of a 31 page report from real estate development / management firm Colorado Santa Fe, going over their view of the current situation and game plan through 2010. Bottom line - crash expected, they're selling into it, shorting it, and raising cash for a huge push to acquire distressed assets in 2008 - 2010.
Very wise I would say. Might adopt some of this myself. Enjoy.
THE BIG PICTURE
We believe that the apparent ‘irrational exuberance’ in the real estate market is, in reality, an asset bubble that has been inflated by a flood of capital attracted to real estate. The effect of this flood has been to drive down yields and push up prices. We believe this value trend is unsustainable and that we are at a crucial inflection point. Based on the analysis detailed below, we believe that cap rates will inevitably rise back to trend (and possibly overshoot), thus driving values down dramatically.
HOW WE GOT HERE
Phase I: Stimulus through Monetary Easing
Phase II: Illusion Becomes Reality
Phase III: Lenders “Pile In” (the final period of play)
Phase IV: Inflection Point Achieved (the cost of money rises)
Phase V: - The Future: Look Out Below
Implication: Based on the speculative excess we have observed, we believe this housing boom will almost certainly be followed by a long and painful housing bust.
COLORADO SANTA FE’S ACTION PLAN
2006 and 2007: Sell most existing properties:• Quickly liquidate condo conversions ($75 million)• Liquidate most retail and industrial properties ($200 million)• Short stocks of retail REITs, homebuilders, real estate companies, mortgage insurance companies, and suppliers (construction, copper).
2008-2010: Return to Real Estate (at Cycle Bottom):• Raise equity pool of $250 million and buy distressed property on a massive scale ($1 billion).
June 11, 2006
Housing bubble bust strategy from the internal playbook of a real estate developer
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17 comments:
smart money is out. smarter money is not only out, but shorting the companies who are going to get killed - home depot, the builders, the lenders, the mortgage insurance companies etc
the smartest money is doing both the above and also moving all of their assets out of dollars
and the very very very smartest money? they're buying gold right now too
Congress has a plan too. Just before Memorial Day they passed legislation that allows the FHA to offer "flexible" financing to the subprime market. Yes now Juan the landscaper, and nail extension technician LaQuisha can get the same zero-down, interest only loans those "wealthy" McMansion owners used!
Whooo-hooo! I see developers pulling out those plans for the big houses and downsizing them for the little people. There's federally-guranteed money out there now, and they're goin' to get it!
Just turn the McMansions into Triplexes. Sell the Attic, First Floor and then the basement as low income housing (see NYC_COP). Then collect the Corporate Welfare from Uncle Sam.
"Smart Money is OUT of real estate. . .June 2005"
I remember sitting in an expensive restaurant in Carmel (near Pebble Beach) last June, and overheard a rather loud patron telling his "clients" that "smart money left real estate by March 2005.". . .he advised his clients to sell any of their holdings. . .I remember the famous quote of Warren Buffet - "the reason I am so rich is because I sold too soon."
"Lenders will not be likely to hop on this titanic and most assets will be totally ruined in terms of needing repair etc."
Here in CO lenders are still making loans for commercial development as though that segment is immune from any economic fallout of the redidential bust. In our little town (48K population) there are nine new banks under construction, and it looks like most will open their doors this Fall, right in time for the official start of the housing panic.
Either these guys are complete fools, or they know that Bernanke will back them up with "liquidity" to keep the ship afloat. I suspect the latter -- they know the fix is in.
The "fix is not in." It isn't BBs job to preserve asset bubble, it is his job to pop them. Just imagine him wrestling with two conflicting choices; the US banking system, the dollar and inflation VV stocks and real estate. Wow, he's relly going to have to think long and hard before deciding. Not.
The Empire State Building was finished in 1930 and opened for the depression!
I had this strategy in place for a while now. It has been very successful so far. You can check ou the dtails at my blog.
Real estate will crash and it will stay down for a while (I think)...these guys will just lose their money in 2010 instead of now.
There is no fix, most of those "banks" are last second projects, new projects in CO are DOWN while Foreclosures are about ready to skyrocket.
In otherwords, the September-December period looks likely for a recession to begin.
going off past experience, yes the fix has been in. But I sense a change.
My current hypothesis (need more data) is that Bernanke's talk of inflation is all a ruse. We are really in for massive deflation that will bankrupt much of the public while the rich pick up their property for pennies.
Note the tightening by BOJ lately.
Followed by a hyperinflation that kills the dollar.
Just a theory.
BoJ was loaning money at zero interest, so their "tightening" is somewhat laughable. The central banks can't let housing collapse because it will pull everything down with it. They will string this mess out with massive injections of money. Long term rates will come down by the end of the year.
I hope and pray we're in for a deflationary period.
How else could this mess really be fixed?
It would be pure insanity to prolongue it.
No, you do not want asset deflation. Once it starts, deflation can continue forever and there literally is no bottom. Inflation is bad, but it's also self-limiting.
Bernanke has said many times he will never allow deflation to take hold in the U.S. economy. I believe him, and that is why I think he and the other central bankers will inflate their way out of this debt problem.
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