Signs of the times
Stalled Condo Projects Tarnish Trump’s Name
Buyers Lambaste Developer, Whose Coffers Seem Secure
By ALEX FRANGOS November 16, 2007;
Even the Trump name isn’t bigger than the calamitous condo market. Donald Trump’s reputation as a real-estate developer could take a hit as some condominium projects emblazoned with his famous name run into trouble.
In recent years, Mr. Trump has lent his name, and in some cases his own money, to at least 20 projects in the U.S. and another half dozen abroad, including buildings in Dubai of the United Arab Emirates and Seoul, South Korea. While in some cities such projects are doing fine, others face slow sales, project delays and cancellations — and irate buyers.
In Tampa, Fla., buyers who placed deposits of $200,000 to $1.2 million on units in the 52-story Trump Tower Tampa are fuming. Nearly three years after the $260 million skyscraper was started, construction has stopped.
Meantime, a Fort Lauderdale, Fla., tower with Mr. Trump’s name on it was put on hold indefinitely last month, and a West Palm Beach project could be put on the shelf shortly. Construction on a Trump Tower in Toronto is just getting under way after years of delays and a reduction in height. And at Trump Tower Chicago, a hotel and condo project set to be the second tallest building in the city after the Sears Tower, 30% of the 825 units remain unsold as the condo market there slows.
Mr. Trump is known for focusing on the positive. “All of my stuff has been a great success,” he said in an interview Wednesday. “Nobody has even come close to the track record that I have.” He points to many other projects he is involved in that he considers outsized successes, including ones in Las Vegas, Hollywood, Fla., Miami, New York, Hawaii and the Dominican Republic. “Somebody says ‘how’s the market?’ I say not good except for Trump,” he says.
But the recent problems at developments bearing his name are evidence that no one is immune from the downdraft in the housing market. New housing projects throughout the country are suffering from weak demand and falling prices as banks tighten credit standards and a glut of empty units swells.
This time around, Mr. Trump personally is in little danger financially. During the last real-estate collapse in the early 1990s, he was pushed to the brink of bankruptcy because he was personally on the hook for hundreds of millions of dollars worth of debt. He later restructured his debt with the banks and worked his way back to doing real-estate deals.
In some recent condo projects, Mr. Trump has sold his name to developers for a fee and, in certain cases, he gets a portion of the sales in the building as well. In some he has contributed a minority slice of equity. This means, even if the projects fail, his financial exposure is limited, although his reputation may suffer. In other projects, such as in Chicago and Las Vegas, he says he is the lead investor.
At Trump Tower Tampa, which began its marketing in 2005, sales initially soared. The local development company, SimDag LLC, sold all 192 units and then, as the market skyrocketed, returned buyers’ deposits, raised the units’ prices and sold out again.
Then in August 2006, a city inspector examining a key part of the foundation known as the caissons discovered the plot of land wasn’t solid enough to support design. Construction never resumed.
In May, Mr. Trump sued SimDag in federal court in Tampa, charging the developer with failing to pay him much of his licensing fee and failing to execute on construction and sales milestones promised in the contract. Court documents filed by Mr. Trump’s lawyers say his involvement was limited to licensing his name to the developer for $4 million plus a cut of the sales.
But many of the buyers feel that they were led to believe that he had a much larger stake. “The only reason we bought into this was because of Trump,” says Don Wallace, a local restaurant owner whose wife, Elaine Lucadano, has interests in two units. “He’s bashing Rosie O’Donnell, and we’re twisting in the wind,” referring to Mr. Trump’s tabloid spat with the talk-show host. Jugal and Maju Teneja, who paid $528,000 to reserve a unit in October, filed a suit against Mr. Trump and SimDag in Hillsborough County Circuit Court, claiming they deceived buyers into thinking Mr. Trump was closely involved in the development of the tower.
Mr. Trump says his role as a licensor was disclosed in offering documents given to buyers, a point Mr. Wallace disputes. Mr. Trump also noted that his ability to deal with construction problems has been limited. “When I license my name to somebody, I don’t have the same power over a job,” he says. “I could have pulled the Tampa job off easily. Other people can’t pull it off easily.” Now, Mr. Trump says, the Tampa project has become a victim of the deteriorating financing and sales climate. “If there was a job today that was going to start…I would most likely say let’s wait a little while,” he says.
Overall, though, he says his projects are successful, even in markets that are suffering problems, noting his name indeed sells units. “How many times is Trump supposed to be selling out a building before they move forward?,” Mr. Trump asks. As for his brand image, he says: “Tampa doesn’t hurt me.”
SimDag pins the delays on construction problems. “This wasn’t a story about a bad market. It’s a story about bad soil,” says David Hooks, a spokesman for SimDag. The developer says it is now being held up by a delay in obtaining construction financing and that the company is close to getting financing from a hedge fund it declined to identify.
The Trump name has driven the success of numerous condo projects. Mr. Trump says six months ago he received nonrefundable deposits for every unit on a project in Honolulu in one day. His says his interest in the project goes beyond licensing his name, but declined to give details. A condo-hotel tower in New York’s Soho that he is affiliated with has 4,500 inquiries of interest for 450 slots, though they aren’t for sale yet, he says.
But not all of Mr. Trump’s ventures have been runaway successes. His casino company was forced to seek bankruptcy-court protection in 2004. It emerged in 2005 as Trump Entertainment Resorts Inc., but has since struggled. In the condo market, some of Mr. Trump’s projects may be suffering in part from brand dilution. One person familiar with the Fort Lauderdale project Trump Las Olas said it was shelved partly because Mr. Trump has lent his name to two other projects nearby.
Mr. Trump denies there was any brand dilution, though he says Trump Las Olas didn’t make it because it “can’t compete with the Graves site,” a hotel and tower project that also bears his name in Fort Lauderdale, designed by architect Michael Graves. “Frankly, it’s a better site…It’s a more impressive building,” Mr. Trump says. Mr. Trump’s delayed condo-hotel project in Toronto fell behind a competing Ritz-Carlton, and the building now going up has 13 stories fewer than originally planned. However, Mr. Trump says the project is in good shape.
In Atlanta, two condo towers with the Trump name are about to be launched at a time when 5.8% of the homes there are for sale, the second-highest inventory of unsold homes in the country, according to Zelman & Associates, a housing-research firm. Mr. Trump says Atlanta is “a beautiful job going well.” Asked about Atlanta’s poor housing market, Mr. Trump said, “You know I can’t be everywhere. It’s like somebody says, ‘why didn’t you build here.
Survey reveals rising tide of tighter standards for prime loans
Federal Reserve publishes report on lending practices
Wednesday, November 07, 2007
Inman News About 41 percent of loan officers responding to a Federal Reserve Board survey in October reported they had tightened lending standards on prime residential mortgages during the previous three months, compared with 15 percent of respondents in a July survey. About 36.7 percent of the 49 respondents stated that credit standards “tightened somewhat” for prime residential loans, while 4.1 percent stated that credit standards “tightened considerably” during that period.
The October 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices also revealed that about 22.5 percent of the 40 banks that originated nontraditional residential loans reported that lending standards tightened considerably for those loans during the three months prior to the survey, with 37.5 percent reporting some tightening and the remaining 40 percent reporting that lending standards remained basically unchanged.
That compares with a total of 40 percent of respondents that reported tightening during the previous survey period ending in July. According to Call Reports, the 40 banks in the October survey accounted for about 70 percent of residential real estate loans on the books of all commercial banks as of June 30. Representatives for five of nine banks that originated subprime loans in the three months prior to the survey reported tightening standards for those loans, which was a roughly equal proportion to the July survey. The latest survey was mailed out to banks in early October and responses were due Oct. 18.
“About half of the domestic respondents, on net, indicated that demand for prime, nontraditional and subprime residential mortgages had weakened over the past three months. The net fractions reporting weaker demand for prime and nontraditional mortgage loans increased notably compared with the July survey, whereas the net fraction reporting weaker demand for subprime loans was only slightly larger than in July,” the report states.
In response to special questions about prime jumbo mortgage lending — for loans that exceed the federally established conforming loan limit, which is $417,000 for most states — about 45 percent of domestic respondents reported a decline in the volume of prime jumbo mortgages handled by their banks during the survey period compared to the previous three months. Between 30-47 domestic respondents participated in those questions, representing about 60 percent to 70 percent of all residential real estate loans on the books of all commercial banks as of June 30.
Among all respondents, about 55 percent reported either “moderately lower” or “substantially lower” volume in originations of prime jumbo mortgages during the survey period compared to the previous three-month period ended in July. Also, about 37 percent of all respondents reported that the share of new prime jumbo mortgage originations securitized by their banks during the three-month survey period declined in comparison to the previous three-month period. “Domestic banks tightened several lending terms on prime jumbo loans over the past three months,” according to the report, and “significant fractions of respondents reported that they had increased loan fees and spreads of mortgage loan rates over their cost of funds and that they had required more stringent income and asset documentation as well as higher minimum down payments.”
The Bush administration has so far not supported efforts to increase the conforming loan limit — which would aid states where the typical home price is higher than this limit, and most buyers must use jumbo loans and other forms of unconventional financing that are challenged by a credit crunch — and Congress has wrestled with an increase in this limit. In response to survey questions about the commercial paper market, about half of domestic and 75 percent of foreign institutions reported that they tightened, on net, lending standards and terms to provide backup lines of credit for commercial paper programs during the survey period.
Commercial paper is a promissory note issued to finance the short-term credit needs of large institutional buyers such as banks and corporations. Commercial paper often matures in a short period of time and is generally considered to be a low-risk investment.
Also, the survey revealed that about 25 percent of domestic respondents and 60 percent of foreign respondents tightened lending standards and terms of credit for unsecured commercial paper programs with satisfactory ratings in the ability to repay short- term debt obligations, while fewer than 10 percent of domestic respondents and about 40 percent of foreign respondents said they had tightened lending policies on credit lines for commercial paper programs receiving top credit ratings.
Mogul’s advice to Realtors: Don’t keep your day job.
The Southern California market will get worse before it gets better, he warns a gathering. One survival strategy: Slash prices, now.
By Peter Y. Hong, Los Angeles Times Staff Writer November 3, 2007
Even Realtors can lose faith in the housing market. Speaking to a gathering of industry professionals Friday, longtime California real estate titan Fred C. Sands called the housing market “pathetic” and said some agents needed to start looking for other work.
“If you’ve been in it for five or six years and are barely making a living, you might want to think about what you were doing before and get back into it — you can come back in a couple of years,” Sands told members of the California Assn. of Realtors meeting in Universal City. In the short term, the local real estate market “is not going to get better,” Sands said.
He added that he could speak with candor because he was no longer in the home-selling business. Sands now leads Vintage Capital Group, an investment firm that focuses on commercial real estate development. Such frank remarks are rare at gatherings of famously upbeat real estate agents, but Sands said those in the business needed to remember the last slump and realize “the last five or six years were not normal.”
The soaring market of a few years ago will be followed by a correspondingly sharp decline, he said: “The longer the up cycle, the more excess there is, and the worse it is for what follows.” Few homeowners and real estate agents would find room to quibble with that. An estimated 12% of Californians will sell their homes at a loss this year, said Realtors association economist Leslie Appleton- Young, up from about 2% in 2006.
Slumping sales and prices have also brought hardship on many agents, many of whom were drawn into the profession during the housing boom that began in the late 1990s. There are now 540,000 licensed real estate agents and brokers in California, up 50% from 2003, according to the state Department of Real Estate. But more than half of those agents haven’t been involved in a transaction in the last 12 months, a Realtors association board member said.
Sands on Friday asked audience members who worked in the San Fernando Valley to raise their hands. “I feel your pain,” he told them. He suggested that those who planned to stay in the business focus on affluent Valley areas or “move to the Westside.” Prices have remained stronger on the Westside and in other affluent areas, in part because buyers there are less likely to use loans with low teaser rates that are now adjusting higher.
But wealthy areas won’t escape unscathed, Sand said. “We saw 25-year-old guys buying $3-million houses,” he said of the questionable mortgage practices of recent years. “Someone who makes $100,000 a year can’t afford a $2-million house, but that’s what’s been going on,” Sands said.
“The idea that everyone is supposed to own a home is baloney,” he added. Sands counseled agents that property prices must be cut drastically to “get in front of the crisis.” Otherwise, agents will “follow it down like a dope” and get even less for the properties, if they can sell them at all, he said.
Speaking with Sands was Alan Long, president of the Southern California region of Sotheby’s International Realty Inc., who also told agents to cut listing prices to speed sales. Rising foreclosures could cause prices to fall 20% below 2005 levels, he said. Long counseled agents to drop sellers who aren’t willing to lower prices.
“Let go of the fear another agent will take over and sell it — they won’t,” he said. Long said agents could survive by working with buyers, emphasizing to them the advantages of purchasing from a position of strength. Agents should “go with the flow” by using the downturn to prod buyers, he said. “We are salespeople. We have to be positive.” That remark prompted Sands to interject: “But if you go too far, you lose credibility. People need to know what’s happening.”
email@example.com Times staff writer Annette Haddad contributed to this report.