Your model is also assuming only the as listed homeowners dues @ $1200 month.  Most certainly this will rise as your neighbors in the building default, maintenance is deferred and special assessments come.  It’s not hard to see this rising by at least 30% and when that happens your NOI falls 30% and kills your cap rate value.  Alternatively that is a reason to argue for 7-8% cap rate.

I didn’t play with the calc but to look at this another way to justify >$800k value you probably need rents in the $6-7k range, that is 2 BR in Tribeca territory and these apartments aren’t in Tribeca.

I am surprised by the data in your comparable rentals section. Unless these units are furnished they rent for $2500, not $3,000 or more (check craigslist). There are a few on the market for $3,000 but they don’t rent, the $2,500 ones rent. Assuming a $2500 rent would further reduce the price…

If someone were seriously looking at buying in this tower, I would probably go through the comps and the asking rents and try to identify the most accurate comps to use in the analysis. With buildings like these, different floorplans and different floors can make a big difference in rental rates. Even identical floorplans with different views can rent for different amounts.

Unfortunately, my data source is the MLS, and if there are a number of Craigslist rentals at lower rates, the MLS will not pick those up.

Realistically, this unit on the third floor will have the lowest rents in the complex. If you can only rent this for $2,500, the values drop off significantly. At 8% cap rates the value is just over $100,000.

Wouldn’t it be ironic if my wild prediction of a unit selling for under $200,000 was bested by a unit selling for under $100,000?

The calculator goes haywire when I try to edit the % fields. I tried to change the % down and interest rate and it changes to the thousands. Anyone else have this problem?

You may have to convert it to a decimal when you input it. I.E. if you want 5%, you must enter 0.05. Another method is to enter the percent sign after the number, and the spreadsheet will convert it.

let’s go, numbers dont lie.

Mortgage delinquencies hit record high in Q2

Under what circumstances could this HOA be lowered? 

Cutting out amenities and services or a cheaper management company?

I read on one of the forums (I can’t seem to find it now) that a decent portion (maybe $400) is an easement to another land owner.

This is an area for some investigative reporting. The HOA dues are the real issue with this property. It becomes very clear from the cashflow analysis that all the value is wiped out by this fee.

Somewhere in that fee is a party who is raking in the money. It obviously does not take $1,127 per month per unit to operate that building and set aside reserves. I could easily see $400 or more per unit per month going to someone who is doing nothing.

There is a procedure for lowering HOA fees, but it is deliberately difficult, and if the egregious profit someone is making is hidden as a fee to the HOA, there isn’t much the HOA can do about it—other than perhaps a lawsuit.

If the management company is the one making the big bucks, they probably have a long-term contract with a prohibitively expensive exit clause. In fact, management companies often develop properties like this one to create their own cash cows. I don’t know if that is what is going on here. It depends on who is making the big money.

If there really is an easement holder getting $400 a month, perhaps TIC got their tentacles on the property, or perhaps the developer retained some easement right in order to extract the extra money over time. This may be the mechanism for siphoning the money out of the project. The question is then, “who gets this money?”

In all likelihood, these fees will not be going down any time soon. As long as the rents can cover the fees, the units will be occupied and the project will function. In the process, the fees may reduce resale values in there by 80%-90%, but that is the world of speculation….

another problem is it rounds. type in .035 and it’ll round to 4%

I don’t understand most of this but love the Tower of Babel by Pieter Bruegel the Elder. I saw this painting in Vienna two days ago. Yes, I am a faithful reader even when I am oversea.

All I can say about the > 50% roll back is “holy sh*t”...  I thought the general sentiment of Irvine residents is that Irvine is IMMUNE to this kind of rollback…  NOT!

Bottom line: fundamental valuation still rules when exotic financing is taken out of the equation.

IR,

Base on what you know and from your gut feeling, do you think this is going to be the fate of Turtle Rock, Turtle Ridge, Shady Canyon, Newport Coast in 2012-13?

From my experience, my reasonable assumption is this money ($400) does not go to TIC and Don won’t go so details for making this trick, the person that benefit this is the person, or 2 to 3 persons cover up each other, that in TIC in charge of this project, you know there are a lot of methods to operate this.

I wonder how the “200 degrees of glass walls” is measured or calculated.  I only see 90 degree.

It only shows the rounded number. The number it uses for the calculation will be what you input. I can increase the displayed decimal precision.

The cap rate is a good indicator, but ultimately if you are looking to make an investment wouldn’t you look at the final ROI?  The ROI would vary based on the size of the downpayment and the financing rate.  So I think it would be useful to provide a matrix (downpayment varying by row, and interest rate varying by column) of ROIs.

It’s amazing how zillow estimate is close to 900k on this property.

FWIW - I checked a condo that sold for $170k in 2005 in a nicer section of Broward Co. FL, now listed for $50k.  Per your calculator, rental equivalent is $400/mo.  It’s a crash-n-burn apt-to-condo conversion.  Comp unit on craigslist for $800/mo. 

I think the market for people looking to rent units like this Broward Co. one is near-zero.  Either they already have a place or have moved back in with the parents.  I’ll bet a lot of people will either be looking to move to cheaper places or negotiating rents down.

For rental type investment properties, you need an actual occupant, while appreciation linked or vacation properties can possibly draw from a larger pool, especially given current conditions.  The number of potential occupants is given by job & other local conditions.  It is easy to conceive of a situation where the number of available rental units exceeds the number of occupants in an area putting massive downward pressure on rents & unit prices.

Going to 200,000.

Is this building really called the North Korea Towers?

Perhaps these monstrosities can be converted to section 8 housing?

Wouldn’t that be something?

Zillow’s estimates are totally made-up.

I worked for 6 years for First American, one of the major innovators, and a premier provider of automated-valuation models (AVMs) in the industry.  Unlike Zillow, First American certified every single one of their AVM’s against rigirous mathematical procedures, and produced MONTHLY reports of how each and every valuation performed against LIVE data, in every single zipcode in the United States where such data was available (read: 85-95% of the counties, depending upon quarter).

In my opinion Zillow’s valuations are a crock.  They represented nothing more than the pent-up-dreams of homeowners who continually called Zillow during the bubble saying something like “I just looked up my valuation on your website, and it seemed way too low. The bank is going to give me X dollars for my re-fi. You should change my house’s valuation to Y.”

THAT, IMHO, drove Zillow’s valuation algorithm - not strict, mathematical, verifyable calculation and certification procedures.

BTW - First American’s (and others’) AVM’s were not totally at fault for the bubble.  These AVM’s were tuned to respond with numbers that matched what the over-zealous speculators would be willing to pay for a property.  In a sense, the AVM’s were continually tuned to include greed, and routinely produced valuations that matched the behavior of those speculators they modeled.

What I find informative was that these AVM’s were often set against eachother by the banks and mortgage companies, and a “the highest one wins” mentality was used to select an AVM to support a desired home valuation.  The practice is called “shopping for a valuation”, and - while expressly illegal - was a routine practice in the industry.

Yes, AVM’s were a tool. Yes, AVM’s modeled greed. Yes, AVM’s colluded in the delusion that was the bubble.  But, in the end, like almost everything in nature, (or so we’re being told in the schools), “the bubble” was the fault of “us humans”.

- Mike S.

The HOA on this place is about $50 less than the apt I rent about 3-4 miles from the beach.  Geez, this sounds like a good deal, I can take on a monthly PITI nut of $3k+ and then pay rent for the rest of my life.  No thanks realtards!

I am assuming the condo association could declare BK without affecting the credit of the owners.

If so, I’ll bet that the bankruptcy judge would make major changes in the HOA services and fees.

I have a funny feeling this is already being discussed with the condo board (no inside info, just speculation).  Otherwise, the people who are still there and not in default will be subsidizing an ever-larger group of condos in default.

I wonder what % of owners have simply stopped paying the HOA— wouldn’t this drive up the fees to the other homeowners?

Missing the Lite Brite graphic

I think you really need to re-examine your vacancy allowance.

its only 5%?  one month per two years?

Since every time the apartment turns over, it has to go off the market for paint/carpet for a week or more, then get rented again, even in the best of times this seems optimistic unless you are assuring yourself of attracting renters using a below market rent.

(unless you are in Tribeca, as was said above)

on IHB, yes.  But as IR crossed out, it is officially called Marquee Park Place.  If you google it, http://www.irvinehousingblog.com/blog/comments/marquee-park-place-high-rise-hell/ is actually the 4th listing, a post from October 2006.  GO IHB.  tee hee.

I had to read that again.  It’s amazing how things have changed in that last 3 years.  In that thread, there were all sorts of Marquee residents defending their proud purchase.  The kool-aid was stronger than heroin at the time…

TRidge and Shady Canyon?  Yes, a 50% or more is likely before they were wildly overpriced to everything to begin with.

As I recall, TRidge prices were 50% _more_ than TR.  That was pure speculation.

TR is back to 04 pricing.  I think it will go to 03.  There seems to be a floor being created because (a) there are not many housed in TR for sale and (b) when compared to TRidge, TR at 04 is way cheaper than TRidge at 04.

So, yeah, I think TRidge wmay well become the “Gardens of North Korea”.

Quail Hill?  Oh God!  That place has the potential -IMHO- to become the “Ghetto of Pyongyang”.

Newport Coast, well there are areas just north of the old dump, with all them fancy french names and the stuff along the toll Road (between Jamboree and Bison) that will likely crater.  All of that stuff was built after ‘00.  Again, hugely overpriced from day one.

Shady Canyon?  Well, it all depends on how well funded those people are.  If they are well funded, those folks may just stay.

Look at it from this point of view:  Newport Land Rover Service is doing good business because the folks that bought Land Rovers there had the money regardless of the value of their homes.  Meanwhile, Land Rover of Mission Viejo is screwed because those folks were leasing by using their homes as ATM.

So, the more high end you go and the more established the area the less likely that the mortages are toxic.  Also, the older the area the less price speculation (driven by the developers) there was.

Well we’re movin on up,
To the east side.
To a deluxe apartment in the sky.
Movin on up
To the east side.
We finally got a piece of the pie.

Fish don’t fry in the kitchen;
Beans don’t burn on the grill.
Took a whole lotta tryin’
Just to get up that hill.
Now we’re up in teh big leagues
Gettin’ our turn at bat.
As long as we live, it’s you and me baby
There ain’t nothin wrong with that.

Well we’re movin on up,
To the east side.
To a deluxe apartment in the sky.
Movin on up
To the east side.
We finally got a piece of the pie.

Zillow is also frequently fooled by REOs.  That is, when the bank takes back a property in a failed auction, there is a “sale” recorded at an arbitrary figure, usually the total amount owed, which is frequently significantly above the actual current value of the property.  Zillow should throw out that figure, but a lot of time they don’t, artifically boosting their Zestimate.  You can see this in their graph of values over time for a given property-the price often will be falling until the foreclosure, then it will shoot up to the recorded amount of the foreclosure “sale”.

Of course, then the house soon (in theory) is put on the market as an REO, and Zillow will show potential buyers the inflated value.

I just read some of those posts.

It is like reading letters from happy titanic passengers. It is like they had no idea what was about to happen. IR predicted this problem and, they just continued oblivious to their impending doom. It is really eerie. They just bashed him without thinking of the logic or data that was being presented.

Maybe the city of Irvine can contact HUD and form a housing authority here.
Those towers would make excellent affordable housing or a project. Lots of room and space for families and the pools/facilities can be converted to allow recreational activities for children to encourage safe after school activities. The former concierge areas can be converted into aid and assistance areas. It is a safe place that according to the posters in 2006 allows comfortable living with or without a form of transportation. This place would make the perfect housing authority.

The Irvine Marque Housing Authority.
A safe place to live for everyone.

I don’t think that the Irvine Company or “Don” (do you know him personally? )has a piece of this any longer. 

This was the Fluor Daniel headquarters since the 70’s and maybe the 60s, they or their successor is probably the easement benefactor. 

I don’t know if they bought the land or it was on a long term lease, but when this started to get developed (Edwards Theater, Sport Chalet, CPK) in the mid 90s, newspaper articles never mentioned the Irvine Company at all,at least that I recall.

Mike,

I enjoyed reading your comment. I can picture the workings of these models and how they adapted. These programming monsters competed to survive. In the end, they did mirror the animal instincts of their creators. Delusion in the Machine.

I wonder how many homeowners in denial are going to Zillow or Cyberhomes or whomever to “shop” for the highest value. Whatever service panders to the delusion best will probably emerge the dominant player.

LOL!

The marketing people from the Marquee just gasped at the thought of this creme de la creme project going affordable.

At the rate prices are dropping, people won’t need a special affordability program because market prices will be affordable.

I don’t believe I missed that…

:(

Did you know that if you run a Google image search for Lite Brite, the IHB image is the first to appear?

Thanks TonyE for your opinion!

You’re funny re:  Quail Hill!  but I absolutely agree with you.

Where was IR all day?  I’d like to hear his thoughts on this.

Not only that, but the building is in the Santa Ana School District, so we can finally achieve Larry Agran’s dream: to house our workers in Irvine, without having to force their kids to change school district.

A win win situation.

PS: I wonder if anyone who bought into that building knew (or cared) about the school district.  I guess when this place was a High Falutin’ place it would make no difference as it was either childless occupants or folks so rich that private school was expected.  Now that they prices have crashed from Mt. Whitney down to Death Valley, more “normal” folks might be interested, but the school district must be a real downer.

Why does he call it North Korea Towers?

hahaha.  I like the first comment.  It includes this: “having the concierge handle my package”

Maybe this place is worth a lot more money than you think if it turns out part of the price includes having your package handled.

It’s the no lights on at night.  NK is easily found on a nighttime satellite image because it’s black.  NKT has so few residents that the place is dark at night too.

I am of the opinion that the new areas and the high end is going to get crushed. I think the beach communities might see 2/3 off before we find a bottom. Most Irvine neighborhoods will see 40%-50% off the peak.

Item 18 page 5 of 6 (notes), typo. Dammit I keep looking at the notes and you have two page 18s, etc.

Got it now.

This reminds me of a new “condo” complex that was built down the street from me.  It’s probably been finished for close to a year now - but I don’t think anybody has moved in yet.  My wife wants to know why anybody would move into a condo complex that doesn’t even have a pool.

A modest amount of research shows that the twin towers are managed by Action Property Management, one of the larger companies that generally offers fairly competitive pricing, and average service. Standard contracts offer annual renewal, and it’s not all that difficult to switch, but only a few OC property management companies will have the expertise to manage a high rise.

The problem stems not from the management company, but rather from the fact that you have a lot of costs divided among 228 units. The association will cover property insurance, liability insurance, directors and officer’s insurance, a monthly management fee, salaries for a concierge, part-time manager, 24 hour security services, and a series of contracts for elevator maintenance, gate maintenance, fire sprinkler maintenance, pool service, landscape service, janitorial services, a lighting maintenance contract, window washing, utilities for the common areas, government fees, et cetera.

Reserve funding will cover maintenance and replacement of major components.

The two things that skew the costs of a place like this are the labor costs for providing on-site services and all the extra costs involved in maintaining a high rise building.

Don’t forget that there are directors elected by the unit owners who direct the management company, and approve every contract. There’s no reason to believe that they’re not relatively competent, and that they’re getting competitive bids on every one of the contracts that they approve, which is fairly standard industry practice.

I know this seems crazily expensive, but if you start to add up the costs of operating a highly complex, high-service building, there’s no reason to start making baseless accusations.

IR, in case you are no longer monitoring comments on Tuesday’s post, here are the typos I posted about noticing in the Property Valuation Report:

‘Very cool service for your target customers.

I noticed a few typos in your sample report.  Presumably you’re going to have someone properly proofread your template before you start having people pay for this document (not sure if I happened to see all of them).

“a properties minimum value” -> “a property’s minimum value”

“a impound” -> “an impound”

“savings typical run” -> “savings typically run”

“paid buy” -> “paid by”’

so it costs over $250k a month for those services?  doesn’t seem likely to me….

My post from June RE: Skyline Towers.  A viable comp because they also have Santa Ana schools.

http://www.irvinehousingblog.com/forums/viewthread/3227/P75/#115515

My guess for the Skyline properties was high 100s low 200s.

That thread of comments was priceless.

I have always wondered if condos like these are where the bulk of the option-ARMs are hiding out.

Thank you. I will go through and change them.
I appreciate your help.

Can you fix the “Number of Years” field?

The PMT() function is using a fixed “360” payments over 30 years, but should be B6*12.

Oops.

Should be B7*12, not B6*12

Thank you! I made the change.

We’re already 40% off the peak.  An REO just up the street from me went for around $770K.  Granted, it was pretty well run down -old beat up rental house- and was sold on the cheap side in ‘04 for around… $800K.  At two stories, 4b/2.5ba, 2100 sq feet that comes out to be $366 sq/foot.

For reference, I did a refi in April.  Our appraised value (based on actual comp sales in April) was $376 per sq/foot.

So, someone overpaid for the REO (my house is bigger so I get less per sq foot but then my house is rebuild and in good shape…).

At the peak our chateau was going for $490 sq/foot.  I think we’ll hit 300 per sq/foot at the bottom.

This is, of course, TR, in a rather well stable neighborhood, so as you can see… this means that most of the new areas in Irvine, specially the would be High End areas in the flats will more than crushed, they’ll go down a Black Hole.