Property Grunt

Sunday, April 09, 2006

NYT Grand Slam

It was a triple play of NYT articles on three of my favorite subjects, doormen,foreclosures and OPs.

My professional opinion of doorman is that I highly respect them in what they do. Although many a doorman have come forward in my time of need what you all might find surprising is that when I buy I wish to avoid living in a doorman building.

"Doormen know everything," said Stephen C. Brandman, 42, the chief operating officer of Thompson Hotels, a luxury boutique hotel chain. Until recently, he lived in a doorman building on Park Avenue, and he lived full- and part-time in his hotels that had doormen before and after his marriage.

This is completely true. They see who comes in and comes out of a building. They know who is moving in and moving out. Who is selling and who is buying. They all have access to any apartment that has a spare key behind the desk.

Doormen also moonlight as contractors and painters in their own building, which means they have the lay of the land of every apartment they have been in.

I remember one listing where I was invited to take a look at the place after the renovation and buyer had moved in. I was a little wary but the exclusive broker assured me that it was completely all right and got the doorman to hand him the key.

A successful doorman must be gregarious with everyone in the building. But the downside of that is they are also gregarious with everyone else. That is one of the reasons why agents will “take care” of the doorman because they provide an invaluable source of information about a building. They also serve as the agent’s PR manager if a resident is looking for representation.

I once worked for a very powerful publisher/media mogul. She was engaged in a vicious and protracted divorce with her very rich second husband at the time. Even though he had moved out of their Upper West Side apartment, she claimed that he was still keeping tabs on her very closely through the building’s doormen. I can only assume this suspected surveillance was probably one of the reasons why the divorce took 10 years to conclude.

Foreclosures were the siren song that brought me to the real estate world. The idea of taking the advantage of the misfortune of others by buying property at below market value and turning it into a windfall was quite alluring to me. That is until I learned how foreclosures really worked.

Those of you who wish to take advantage of the stupid people who took insane mortgages better read this article. It provides a great education about the process.

Foreclosure auctions, which occur after a lender or government agency forecloses on a parcel, building or apartment, are a judicial process in New York, meaning that they are run by the court system. Such auctions may have piqued the interest of novice investors anticipating a rise in interest rates and the inability of some owners to meet their financial obligations. Yet while there is a tantalizing possibility of getting a deal, people who are intimately familiar with foreclosure auctions in New York — lawyers, mortgage bankers, brokers and former auction regulars — advise steering clear of them.Success is not impossible, but to even set foot in the ring you must put in hours of due diligence and overcome myriad obstacles, including competing against auction goers who have mastered the art of the bid. "You really have sharks at these sales," said Bruce Bronster, a partner in the Manhattan office of Dreier L.L.P. — his litigation group has handled more than 3,000 foreclosures. "You're a guppy. And you're going up against very seasoned and sophisticated guys."

That is a significant advantage because foreclosed properties are frequently in disrepair and the interiors can rarely be inspected before bidding. There may be lead paint, asbestos and bug or rodent infestations. Even worse, there can be title disputes.

Some auctions become so frenzied that prices are driven above market value. Others are simply canceled.

Winning can mean inheriting environmental liabilities and squatters. You will also have to pay 10 percent of the purchase price on the spot (with a certified check or cash) and the balance usually within 30 days, so you must secure financing in advance or you could lose your down payment.

"You don't know exactly what you're getting," said Melissa Cohn, the president of the Manhattan Mortgage Company. "That's the biggest risk."
Remember, a foreclosed property was once a headache for someone and when you buy it, that headache will belong to you.

What I was amazed about was some of the rookie mistakes that were being made by professionals in the business.

Yet despite the pitfalls of foreclosure auctions, people do make money from them. When a house Dorothy Somekh liked in Southampton turned out to be in contract, the broker told her about a foreclosed property that was up for auction by sealed bid. Ms. Somekh put in a bid without viewing the property because she was working and could not drive out to Long Island to see it.
The next day she went out and fell in love with the house (even though it was boarded up) and asked her broker to tell the owner that she would make a higher offer than the winning bid. But her broker told her it was too late — someone else had outbid her. Ms. Somekh, a broker herself for Halstead Property, insisted. She offered $151,000 — and, in a rare turn of events, got the house. Since then she has spent $150,000 to $200,000 renovating the property and thinks it could sell today for $1.6 million.
"It was a really good deal," Ms. Somekh said. "That's why you always have to take a chance. Don't take no for an answer."

Ladies and Gentlemen, never ever do what Ms. Somekh did. You never buy property sight unseen. Just read these two entries for reference.

For all we know maybe the first buyer never existed. All sorts of craziness could have ensued that would have crippled her finances. Yes she did well, but I would never condone her actions.

The smartest person in this article is Ms. Hoagland.

In 2004, a year after leaving her Wall Street job, Julia Hoagland decided to make her living by investing in real estate, some of which she wanted to buy at foreclosure auctions. She attended auctions in Brooklyn, Queens and Manhattan, and read through property files in the cramped basements of courthouses.
Still, she watched shells of apartments in Harlem go for $900,000, places that would require many thousands more to renovate. In another instance, the owner of an apartment in Brooklyn refused to let her in with an inspector and an electrician — even though a day earlier his wife said they would be welcome.
"Needless to say, I decided being a landlord isn't for me," said Ms. Hoagland, who became a broker with the Corcoran Group instead. "You basically have to close your eyes and jump off and hope there's water in the pool."

Do not dismiss Ms. Hoagland. She did everything she was supposed to do and I strongly feel that she chose the appropriate exit strategy. As a broker she has the option of walking away from a deal. Once a contract is signed and a deposit is put down, the buyer and seller are chained to the table.
People have to understand that foreclosures are a completely different animal then the normal real estate transaction. Unlike a normal transaction where you walk in and show your money, foreclosures require a tremendous amount of finesse and legwork.

A foreclosed property is known as a non-performing asset. These are assets that banks hate because they do not generate any profit, they add to the overhead of a bank because they are now responsible for the property in question and banks do not have the infrastructure to play landlord. Therefore they are under pressure to unload these properties.

But that doesn’t mean they will unload these properties on anyone. They are going to work with people that they know have the money or at least the credit to handle these purchases. What often happens is that the guy heading the real estate owned group at a bank will call his contacts and let them know about a set of new foreclosures and scrub out the entire list of the more viable properties and what hits the web are the crumbs that no one wants. They also need to have the infrastructure to maintain these properties. Remember, the former owners particularly ones that used these properties as their primary residence will most likely be very unhappy with their circumstances and will take their frustrations on their soon to be former home.

The same goes for tax liens. Often tax liens are touted as one of the most profitable forms of investing because of the high rate of interest rate it brings in. But remember you have to spend money to make money. What usually happens is that someone walks into the county office with an enormous check to buy up all the prominent liens, foreclosures and leaves the crumbs behind for the rest of the general public to fight over.

Remember. Once a foreclosure reaches public domain whether it is online or a courthouse auction, the good stuff is already gone and what is available for sale may become overpriced through the auction process.

You can make a tremendous amount of money in foreclosures and tax liens but it requires an endless of time, money and patience. You have to be constantly watching your back so you don’t screw yourself over.

Joyce Cohen’s the Hunt touches upon the subject of Manhattan Park and OPs (Owner pays.) in her latest hunt involving the Thompson girls. Mrs. Thompson and her daughter Tori entered the world of Manhattan rentals when Tori was signed to a modeling agency. They undergo the predictable rental hazing ritual of bait and switch ads and dishonest agents.

One of the places these poor souls eventually moved into was Manhattan Park.

It was the fact that the fee surpassed the rent that really rankled. So Mr. Tam then suggested Manhattan Park, a high-rise on Roosevelt Island, where a big one-bedroom, for $1,795, carried only a one-month fee. He warned her about its distance from Manhattan. But she thought the apartment was beautiful and the island quaint. She bought furniture and moved in with Tori.

They had no idea it would take Tori, who had a nighttime restaurant job in Midtown, nearly two hours to get home after midnight. "In the subway her cellphone doesn't work, and I'm home pacing," Mrs. Thompson said. She felt isolated, too. "I just couldn't figure out where the people were," she said. She called Mr. Tam and said, "I don't have a good feeling." She regretted her earlier refusal to pay the fee for 84th Street.

The last time I checked, Manhattan Park was offering a 3 month OP for brokers. I hope the Thompsons did not have to pay the difference.
As I have touched upon in a previous entry, Roosevelt Island is a very tough sell.
OPS aka no fee apartments are listings that clients love and agents hate. OPs are not always a bargain. First of all if a landlord is putting out an OP for a listing it is because there is something wrong with the apartment and they need to get the apartment rented out immediately. So they are willing to shell out a months rent to an agent. Because the fee is so minuscule the agent will often ask the client to pay the difference, which clients loathe.

Another reason why OPs are horrible deals is that the landlord will have the cost of the op built into the rent, which is why ops are usually higher in rent or the landlord will jack up the rent when the lease needs to be renewed.

I do applaud the Thompson family for making this sacrifice for their daughter particularly the mother for moving up there with her child. Tori is well aware of what they are doing for her. I hope that Tori is also taking classes for a college degree as a back up for her modeling career. As Judge Judy says. “Beauty fades, dumbness is forever.”