The Madoff Mess and Real Estate

The author of yesterday's article in the NY Times about Madoff's impact on the NYC real estate market made a guest appearance on the Brian Lehrer Show to flush out the article. Bottom line: Madoff scandal=big problem for development. One issue: a bunch of developers and real estate folks suddenly have a whole lot less cash. Another: ain't gonna be so easy to get cash. "Many of the developers...have lines of credit with commercial banks, and these lines of credit are secured by their personal net worth," said Michael Stoller, who joined the discussion. "Now their financial statement is inaccurate." Another: glut of office space, since many businesses lost their shirts in the last few days. And another: stalled or abandoned projects, oy vey. One developer apparently not affected by the Ponzi scheme is Bruce Ratner; not sure if you guys will think that's good news or bad.

Reality Check [WNYC]
Photo by broken aperture.

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Another important point made on Lehrer show yesterday was that this would have a big ripple on residential market in NYC. The article author pointed out that the unprecedented price increases of last few years in NYC were in part fueled by the very rich, who dragged up the overall market. Now that those same people are suffering big losses, a reverse effect will reverberate throughout the entire NY RE market. Both guests on the show yesterday stated that the impact would be huge - yet another reason to expect big discounts/price declines on properties in 2009 and beyond.

Posted by: Miss Muffett at December 19, 2008 10:21 AM

MM - you are monomaniacal!

Posted by: dittoburg at December 19, 2008 10:24 AM

No ditto, just amazed by the implosion upon us...

Posted by: Miss Muffett at December 19, 2008 10:27 AM

The "very rich" really have no effect on the market below...take your pick...$10MM, $8MM, $5MM...but they definitely have no effect on 95% of Brooklyn properties.

Posted by: daveinbedstuy at December 19, 2008 11:13 AM

No ditto, just amazed by the implosion upon us...

Why Miss Muffett? Did you think this Mutant Asset Bubble was sustainable?! Borrow money money that you can pay back? Nope this was and is a disaster and 2009 is going to be a horror show..

The What

Someday this war is gonna end...

Posted by: Return of The What at December 19, 2008 11:39 AM

Dave, that's wild. Do you really believe markets are entirely disconnected from each other?

Every apartment sold to a super-rich person paying bubble prices resulted in a seller sitting on a sudden windfall which they could use to buy another apartment or house. Some added borrowing and moved up; others reduced borrowing and moved down or out. Each one of those moves made it possible for someone else to sell into the bubble, so in the end, every ultra-rich purchase finances several other more normal ones. You ought to know this -- didn't you yourself pay for your Brooklyn home by selling a Manhattan apartment into the bubble?

In NYC, this trickle-downn financed the bubble at least as much as trickle-up from middle-class buyers able to access securitized mortgages to overextend themselves.

Now, the music has stopped for both these games.

Posted by: FinanceGuy at December 19, 2008 11:48 AM

Mad[e]off wit' yo' monay...

Real estate is falling down, falling down, falling down. Real estate is falling down, my fair asshat.

***Bid half off peak comps***

Posted by: Brownstones Half Off at December 19, 2008 12:42 PM

"'very rich' really have no effect on the market below"

There's only one economic pie from which we all take slices from. Now, may I ask what your hedge fund methods are?

***Bid half off peak comps***

Posted by: Brownstones Half Off at December 19, 2008 12:46 PM

Um, I think you mean "flesh out the article". Unless they sent it down the toilet.

Posted by: Vanderman at December 19, 2008 1:45 PM

I, for one, am bummed ole Bruce didn't take a bath on this one, but Forest City is in generally poor shape, since a ton of their debt is coming due in 2009, ha ha.

Posted by: Luce at December 19, 2008 10:16 PM

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December 19, 2008

The Madoff Mess and Real Estate

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