Tuesday, October 9, 2007

A Bank Bet on Condos, but Buyers Want Out

By CHRISTINE HAUGHNEY

Published: October 9, 2007

Javier Miglin may walk away from an $80,000 down payment on a condominium with water views in Miami. Randal Mills may give up a $130,000 deposit on a 15th floor condo on the Strip in Las Vegas. And in San Diego, Jeanette Graham would just like to meet the neighbors.

Jack McCabe, a real estate consultant in Deerfield Beach, Fla., says the market downturn will hurt even successful developers. The three seemingly unrelated predicaments have a common thread that leads to Chicago, and Corus Bankshares, which financed the construction of each condominium development involved.

Whether buyers like Mr. Miglin and Mr. Mills close on their condos will be a crucial indicator for Corus. Many condo projects that started during the real estate boom are just being completed, and developers must begin repaying construction loans taken out before the market turned sour. If buyers do not close, and developers struggle, lenders like Corus may be left holding the bag. NEW YORK TIMES

City's Boom May Falter Over Costs

By JULIE SATOW

Staff Reporter of the Sun

October 9, 2007

New York City's building boom may be brought to a halt by something more mundane than monetary policy or global financial disruptions — it could be as simple as copper, diesel, and steel.

By the end of next year, the Producer Price Index for construction inputs — the price of materials that are used in a construction project plus the cost of diesel fuel — will rise by as much as 8% and continue to do so indefinitely, according to a report released yesterday by the Associated General Contractors of America. This is a drastic change from the previous 12 months, which saw construction inputs inch up just 1.6% for the year ending in August.

"This is a warning note," the chief economist at AGC, Ken Simonson, the author of the report, said. "Even a small percentage change can mean the difference of hundreds of millions of dollars in large projects in New York." THE NEW YORK SUN

Big banks dump the risk on investors

By David Weidner, MarketWatch

NEW YORK (MarketWatch) -- Wall Street finally found a buyer for all of that bad debt on its books: the regular investor.

After the single biggest wave of credit-related write-downs in Wall Street history, more than $20 billion and growing, it's investors who are holding the risk. For example, Merrill Lynch & Co. on Friday announced a $5.5 billion charge, the Street's biggest, and immediately investors sent the stock up 2.5%. See full story

Merrill simply followed the path laid down by Citigroup Inc. , which wrote off $3.3 billion and Deutsche Bank AG, which wrote off $3.1 billion and Morgan Stanley, $940 million. All saw their stock rise after dropping the write-down bomb.

The bet is that the bigger the write-down now, the less these institutions will have to write down in the future. This is like a baseball team that celebrates after losing by nine runs, because the odds seem somehow greater that it will lose the next game by a big margin. This logic has Richard Bove, an analyst at Punk Ziegal & Co., flabbergasted.

"These companies are not going to see their markets jump back immediately," he wrote in a note to clients. "Their earnings power has been lowered. This is a reason to sell not buy. The theory that if the company writes off $2 billion it should see its stock price up $1 and if it writes off $6 billion the stock should jump $3 is not one I can embrace."
MARKET WATCH