Financing

Commercial Real Estate, Financing, Office Buildings, Real Estate Investing

Parkview II, 333 Cypress Run, Houston

Everyone knows having money gives you a big advantage when you try to make money. But think about the advantage already owning real estate gives you when you’re trying to buy real estate.

Imagine a buyer bidding against a crowd of competitors on a pair of fully-leased West Houston office buildings—say, Parkview I and II:

“They’re not active buyers and they had a specific need with 1031 exchange money,” says Marty Hogan, associate director in Houston for Holliday Fenoglio Fowler LP. Texas is a non-disclosure state so he won’t discuss the sale price of the 333 Cypress Run properties, but local experts confirm that similar class B buildings are trading for $110 per sf to $120 per sf.

Hogan says the assets attracted 10 offers, with a partnership from Greenwich, CT ending up with the deal because it offered a short due diligence and certainty of close. “The buyers also had a large amount of equity and the purchase wasn’t contingent on financing.” Hogan tells GlobeSt.com. “Given the market at this time, they weren’t high-leveraged buyers looking to get 80% to 90% of the purchase price financed so that was appealing.”

Sure, a lot of cash in the transaction is going to be pretty attractive to a seller. But other aspects of 1031 exchange requirements—if the buyer knows that’s what you’re doing—give like-kind-exchange buyers a decided advantage in any market: The seller knows you’ve got time constraints to complete the deal. And that you’ll likely have to pay a lot of taxes if you can’t pull it off. You look like a sure thing.

Of course, if the seller knows that you have no other 1031-exchange options available and the terms of your deal aren’t fully worked out yet, that’s another story.

KBS Sells 176,471-SF Duo to 1031 Exchange Buyer [Globe St.]

Photo: Parkview II

1031 Exchanges, 77094, Buying and Selling, Commercial Real Estate, Financing, Office Buildings, Real Estate Investing

09/12/07 11:14am

IRA Mortgage Investors: Hoping for Foreclosures?

Foreclosures, Mortgages, Real Estate Investing

Some individual investors who’ve been using IRA money to invest in mortgages have been cheering as foreclosures have become more common, reports the Wall Street Journal:

No one tracks IRA loan defaults, but experienced individual lenders say it has happened rarely — though they are bracing for an uptick, given the shaky state of the housing market in many areas.

“You don’t want them to pay you,” says Charlie Adams, a Houston investor who has made about 20 mortgage loans through his and his mother’s IRAs in the past 10 years, typically charging 15% interest for one-year loans. “What’s the worst thing that can happen — you wind up owning a house at 70% of its cost?” He lends no more than 70% of a property’s value and charges interest-only payments. More conservative lenders will go no higher than 50%.

With the one foreclosure he’s done, his mother had lent $40,000 to a renovator to refurbish a house worth $85,000. The borrower made 12 months of interest payments, then stopped, and did not make the balloon payment due. Mr. Adams foreclosed on the house, his mother’s IRA spent $14,000 to finish fixing it up, and they sold it in three months for $85,000, he says, adding that he helped his mother’s IRA increase in value to $140,000 from $50,000 in five years.

Great, but you’ll need to make sure you have enough IRA money in reserve to handle this kind of “good fortune”:

For investors, one risk in foreclosing on a house is racking up so many expenses — from legal fees to repair bills — that the IRA runs out of money. If that happens, the IRA owner faces a difficult choice: Get a loan, or close out your IRA and pay any taxes or penalties.

Using a self-directed IRA to fund mortgage or real estate investments can make sense: for a lot of people, an IRA is the largest pool of money available. Self-directed individual-retirement-account companies Entrust, Pensco Trust, and Guidant Financial have seen a dramatic increase in real-estate lending activity within their IRAs, the article reports.

Investors Use Their IRAs To Make Home Loans [Wall Street Journal]

Financing, Foreclosures, IRAs, Mortgages, Real Estate Investing

Condos

08/17/07 10:40am

Mosaic: Second Tower Rising

Development Strategy, Financing, Hermann Park, Highrises, Mixed Use, New Construction, New Construction: Residential

Mosaic Tower Under Construction, July 2007

The glass tower is half full: 218 of the 394 units in the first Mosaic tower have been sold, reports the Houston Business Journal. Are those just the north-facing units? Because directly to the south, the second tower is ready for liftoff:

Phillips Development & Realty LLC of Tampa, Fla., which is developing both condominium towers near Hermann Park at a cost of $203 million, secured a $141 million loan from Chicago-based Corus Bankshares Inc. last week to refinance the first building and finance the second one. . . .

Phillips says the company financed the first Mosaic tower as a rental property because that was the only way to secure funding.

Why is it called Mosaic? There are a lot of tiny units in there, 18 to a floor, averaging 980 square feet. They start at $165,000.

Mosaic orders double-dip as second condo tower moves forward [Houston Business Journal]
Mosaic on Hermann Park

77004, Condos, Financing, Hermann Park, Mosaic and Montage, New Construction, New Construction: Residential

08/08/07 10:13am

Elrod Place: Credits Crunched

Katy, Proposed Developments

Katy residents upset with the prospect of a new low-income housing development in their community have won a round: Elrod Place, a 126-unit, 25-acre project proposed for 3700 Elrod Place—near Katy’s Bridgewater subdivision—won’t be able to get the $12 million in state housing tax credits the developers had applied for. The Texas Department of Housing and Community Affairs has denied the application by Barry Kahn of Hettig/Kahn Holdings.

State denies tax credits for low-income housing project [Houston Chronicle]
Is more low-income housing in store for the Katy area? [Inside Katy]
Low-Income Housing: Any Takers? [Swamplot]
Clay Rd. & Elrod Rd. [Google Maps]

77449, Financing, Low-Income-Housing, NIMBY, Proposed Developments, Tax-Credits

Augusta Pines

07/24/07 10:22pm

Where the Real Estate Market Got Too Hot

Financing, Fraud, Insurance, Spring

Burned Shell of 7802 Links Crossing Lane in Spring For months, the giant, burned-out shell of a home has been sitting on an acre lot at the corner of Links Crossing Lane and Augusta Pines Parkway in Spring, less than half a mile from the baby Bermuda grass fairways of the Augusta Pines Golf Course and its 100,000-sf “southern style” clubhouse. But now Harris County Fire Marshal investigators are reporting that the fire that destroyed the 7000-sf McMansion in February was a poorly concealed arson. While owner Michael Macomber was vacationing in the Bahamas, a man named Adnan Aquil filled the home with 25 five-gallon cans of gasoline he had purchased over several days from Wal-Mart and arranged them so they would ignite spectacularly.

According to investigators, Macomber has now confessed that he paid Aquil $10,000 for his handiwork, before filing a $1.2 million insurance claim.

What made Macomber do it? Was he tired of being overextended on an overmortgaged, overpriced, and oversized home in an overmarketed subdivision in Northwest Houston?

“He was holding on to everything,” [Harris County Senior Arson Investigator Dustin] Deutsch said. “His credit score was getting impacted, payments were getting impacted. The county probably didn’t appreciate him bouncing his tax check. . . .”

Of course there’s more to the story:

“After further scrutiny of the closing paperwork, investigators determined that the residence’s value was grossly overvalued by a local real estate appraiser,” Harris County Arson Investigations officials stated in a media address. “It was also learned that Macomber grossly inflated his stated income to the mortgage company. This embellishment included forged financial documents and other misleading credentials.”

In return for paying an inflated price for the Augusta Pines McMansion in March 2006, Macomber allegedly received a $171,000 kickback from the seller. In all, seven people, including a neighbor couple, have been charged in fraud related to this home. According to KHOU, every house on the street has been foreclosed on.

Yes, it’s a short street.

Seven charged in arson, insurance fraud scheme [Spring Observer]
Mortgage fraud burns homeowners [KHOU]
Several charged in alleged fraud and arson scheme [abc13.com]

Photo of 7802 Links Crossing Ln.: KHOU

77389, Arson, Augusta Pines, Fraud, Insurance Fraud, Mortgages, Spring

07/23/07 7:38pm

The Dirty Little Secret Behind the Montrose Foreclosure Hump

Fraud, Highrises, Homebuilders, Montrose, Mortgages

Tremont Tower in Montrose

Twenty-five Montrose homes were foreclosed on this month, reports the Houston Business Journal. That’s a huge increase from last July.

[Mike] Weaster, a Realtor with Century 21 Excel Realty, currently has about 45 foreclosed homes in the Montrose area listed for sale.

“There’s been a big time increase — I’ve never seen anything like this,” he says. “It’s something that is so unique to Houston that I can’t even tell my buyers what’s happening.”

What could be the problem? In Houston overall, there was no increase in mortgage foreclosures: 2,090 last July; 2,085 this month. So what is it with Montrose?

Well, here’s a clue:

Many of the foreclosed homes in Montrose have never even been occupied by the homeowner and were instead purchased by investors who apparently weren’t able to sell them, according to Weaster, who says he comes across first-payment defaults in Montrose at least once a week.

Weaster believes speculation investors and bad loans have taken a toll on the trendy neighborhood.

Still stumped? What if you learned that twelve of this month’s foreclosures alone were at the same address? And what if you discovered that the building at that address was the Tremont Tower?

Yeah, that Tremont Tower, at Yupon and Westheimer. The one featured in an article called “Contractors from Hell” in People magazine in 2005. And in the Houston Press. The one the Lemon Lady used to picket.

Does that help explain?

Montrose housing in state of shock [Houston Business Journal]
Ownership Wrongs [Houston Press]
The Lemon Lady Goes to Washington [Swamplot]

77006, Financing, Foreclosures, Highrises, Montrose, Tremont Tower

07/18/07 9:43am

Why Mortgage Closing Costs Are So High in Texas

Insurance, Mortgages

Bankrate’s annual survey of home-mortgage closing costs shows Texas has the second-priciest mortgage closing costs of any state. How come? Title insurance and title searches. Texas has the most expensive in the country:

. . . the insurance department sets (or “promulgates”) the rates, with heavy input from the title agencies and insurance companies. Because the state establishes the rates, title companies don’t compete for consumers by offering lower prices.

How do title insurers compete in states where regulators set prices? According to a report issued in April by the Government Accountability Office, “title agents do not market to consumers, who pay for title insurance, but to those in the position to refer consumers to particular title agents, thus creating potential conflicts of interest.” The report says the industry is rife with kickbacks and undisclosed referral fees among title agents, real-estate agents and lenders.

The study showed that title insurance in Houston (the only Texas city polled for the study) averaged $1,185.06 for a $200,000 mortgage, 68 percent higher than the national average of $707.30. Title search costs averaged $305.08, 54 percent higher than the national average of $197.71.

In his blog, report author Holden Lewis adds a personal comment:

As a native of the Lone Star State, I urge my erstwhile neighbors to ask their members of the Lege why they allow the insurance department to get bulldozed by the title insurance industry. Maybe Texas could set a reasonable objective to have the fifth-most expensive title insurance in the country? That’s doable, right? I mean, Texas doesn’t have to be No. 1 in everything. Or maybe the state could force title insurers to compete in a free market — although cartels are pretty good at making a mockery of a market.

New York has costliest mortgage fees [Bankrate.com]
Closing costs averages: Texas [Bankrate.com]
In closing . . . [Mortgage Matters]

Closing Costs, Financing, Mortgages, Title-Insurance, Title-Searches

06/19/07 11:24am

Avoiding Capital Gains Taxes with 1031 Exchanges: How To Check Up on Your Qualified Intermediary

Fraud