CURRENT MARKET OPPORTUNITY REVIEW
“Sometime every decade, real estate markets act irrationally, providing the prudent investor with great rewards and little risk”.
In the last six years, we have seen some incredibly irrational real estate purchases.
Seasoned investors have sat on the sideline watching the madness of the crowd as emotions such as greed got the better of flippers and investors. Prices escalated rapidly as a result of the bidding frenzy as investors assumed they would be able to flip the units and did not pay regard to operating income and cash flow required to pay the debt.
Thanks to the Fed's low interest rate policies of the past six years, builders happily obliged, anticipating and predicting greater and endless demographic support. It is now a couple of years since the frenzy ended. Sales of homes and condominiums have subsided dramatically and the market is weak. Just as the buying frenzy ended, this temporary downtown is also expected to resolve itself as a result of market influences.
During the 1980’s the United States Congress created the Resolution Trust Corporation (RTC) which became the largest owner of real estate in economic history as it was created to operate the hundreds of failed Savings and Loan Associations as well as to operate and sell each association’s real estate assets. The U.S. Government became the largest owner of real estate including condominiums, rental apartments, office buildings and hotels.
It was 1988 – 1990 when one investor and two real estate brokers conceived and informally created a real estate opportunity fund, to take advantage of the all consuming but temporary real estate market downturn.
Two years later in 1992, Patriot American Investors was officially founded by Gerald Guterman. The first purchase by the partners was made in the fourth quarter of 1992 and beginning in 1993, Patriot completed the simultaneous purchase of twenty-seven separate office buildings and a number of hotels from the RTC. The buildings were located in eight states and contained almost six million square feet of multi-tenant office and retail space, in addition to the hotels.
That was a terrific time to purchase real estate. Buyers that understood the short term aberrations of the market and the irrational behavior of invnestors were able to flourish. Short term aberrations of irrationality are just that, short term. Experience from analyzing previous cycles demonstrates similar cycles of over reaction and panic. Savvy investors with patience and perseverance that can anticipate the correction and recovery cycle have an inevitable advantage.
OPPORTUNITY AND EXIT STRATEGY
Once again, these latest events remind us that History is the best teacher and once again, the opportunity to take advantage of these circumstances is available to us today.
We are just ending this latest cycle of condominium housing irrationality. Astute investors are once again entering the market to take advantage of the lower pricing forced on this most recent group of developers and sponsors.
Once again, after several years of “straight up” pricing and a belief in the infallibility of their decisions, developers jumped into a market fueled by changing demographics (“raw” population increases), but with little understanding of the characteristic changes that had taken place within those demographics, during the last ten years.
At some point the market will always slow down and correct. Shifts in population, over building, over-pricing, or any other number of factors will appear and like all other markets, a temporary slowdown and correction will occur. An overheated condominium conversion industry was not equipped to deal with slowdown periods because generally the reserves for each project contain only a small allocation of funds for short periods of time to cover the developer’s over-optimistic time period required for conversion and sales.
Our Buyout Team's Strategy
Now, here we come……cash in hand and prepared to deal. The developer must sell or go down in flames. There is no choice and very little time. As you all probably understand from your own life experiences, any problem can be solved in various ways, except cash flow. You must bring cash to the table.
This is our exit strategy…..We make our money on the day we buy the property. We collect our money on the day we sell.
As our buyer, you are the beneficiary of our proven experience and expertise in large project acquisition and financing. You are the beneficiary of our “investors’ edge”. We have completed the negotiations with the original developer / seller and the transaction is ready to go, right now…..
Your Incentives & Equity
Your “walk in” equity is one of the highest for any buyer of a conversion condominium and includes two categories; (i) payment of all buyer’s closing and financing costs and (ii) your voluntary participation in the Master Leasing Program, designed to provide the you with the highest “cash on cash” returns generally available in the industry .The following costs and expenses are paid for you at closing….
- all mortgage financing charges (including mortgage points, if any)
- all mortgage recording costs
- all mortgage banker’s processing and administrative costs
- all transfer taxes
- all appraisal costs
- all title insurance, fees and legal costs
AND
After the closing of your purchase and completely at your option, a Master Lease Program is available to you at no extra cost. You can be assured that the monthly rental payments to you will be the highest in the competitive market. During the two year Master Lease Term, the total Base Rental Amount paid to the Buyer/Owner will be sixteen (16%) percent of the Buyer/Owner’s Purchase Price plus $6,000.00, payable in equal monthly installments for twenty-four (24) months.
Additional payments as required by the Lease will be paid when due and the total sum of additional payments over the twenty-four (24) month period will include;
- all home owner’s association payments for two years
- all property taxes paid for two years
- all management fees paid for two years
- all utilities paid for two years, including electric (cooking, heat, hot water, lighting clothes dryer, washing machine, air conditioner), water, sewer and cable.
Of course the developer rents the unit and collects and keeps the rent, but our team will take care of leasing the Unit, all tenant administration and all maintenance and repairs during the term of our Lease. |
