Tuesday, January 31, 2012

When real estate scoundrels pretend to be saints

"As God is my witness, I can GET YOU FINANCED!"

Now that Andy Rooney has passed away, it’s my turn to talk about what annoys me most. In the commercial real estate industry, I am annoyed by real estate scumbags-turned-saints.

Now we all know that the real estate industry does not naturally attract saints. It may attract sincere people, but mostly people who just sincerely want to become rich.

Sometimes, when a convicted fraudster, perhaps a mortgage broker, is led from court in handcuffs, he or she may say, “But I was making the dream of homeownership a reality for underprivileged families!” in a tone of voice so sanctimonious as to make one wonder why Mother Theresa herself wasn’t a mortgage broker, too, until one considers that people with bad credit who lie about income and assets might not actually deserve homeownership.

Those people who must announce their integrity!

The louder he proclaimed his honor, the faster we counted the spoons”--Ralph Waldo Emerson

Two weeks ago I received a comment on my Costa Rican tree farm scams post which basically said that my comments did not apply to a company named Ethical Forestry, which owns teak farms in Costa Rica and uses telemarketers to lure UK citizens to invest in trees.

If the proof of integrity is in the name of the company, this gives me an idea to create The Ethical Bridge Company. The company’s purpose will be to ethically sell the Brooklyn Bridge, not like all those other Brooklyn Bridge salesmen who give bridgeselling a bad name. 10% of your purchase money will be used to buy wheelchairs for crippled orphans.

It may be no coincidence, too, that the only client who ever cheated me out of my fee proclaimed his Christianity in every conversation we had. Have a blessed day in Hell, Mr. Scott.

Those ethics awards!

A developer once deceived my bank into making a $30 million land speculation loan at a 5% interest rate and 97% loan-to-value ratio. The loan was allegedly for the purpose of constructing a surface parking lot supposedly worth $65 million, according to their appraiser (but had just been bought for $24,375,000). When I raised doubts about the developer’s intentions, the loan officers dismissed them, pointing out that the developer had just received an “ethics award” from a realtors’ organization. Ethics awards from realtors? What could be next -- a humanitarian award from Osama bin Laden?

In any event, the Chief Lending Officer who rigged this deal is now being sued for $300 million by the FDIC (Federal Deposit Insurance Corporation).

Those philanthropists!

Eighteenth century philosopher Samuel Johnson once said “Patriotism is the last refuge of a scoundrel.” Let me update Johnson by adding the word “philanthropy” to the list. Some of the best known “robber barons” of the 19th Century (and at least one from the 20th) became philanthropists. My alma mater, the University of Chicago, was founded by one such philanthropist, John D. Rockefeller. Bernard Madoff was also a known philanthropist.

Take Richard Simring, for instance, a co-conspirator to Ed Okun, who I mentioned in my international real estate syndication fraud post. Before confessing his guilt, he was also serving as the Chairman of the Board of the Voices for Children Foundation, a charity that raised money to advocate for abused or neglected children, in addition to serving the Lighthouse for the Blind and serving on the board of directors of Educate Tomorrow, a foundation making education attainable to children in the third world nations of Niger and Miami, Florida.

Young Irish real estate mogul Darragh MacAnthony dropped out of college to sell timeshares in Spain and ended up founding MRI International, which took funds from UK and Irish investors to buy overseas vacation homes and furnishings. The company was headquartered in Spain and went into liquidation in 2009, and hundreds, if not thousands, lost their cash deposits, for which MacAnthony faces Spanish litigation for “theft by swindle and misappropriation of funds”. He is also chairman of the Helping Hands Group, a charity that provides free transport, training and physical therapy to brain-injured or learning-disabled adults, and chairman of the Peterborough United Football Club. What a nice man. Meanwhile, an “MRI Victim Support Group” of more than 800 members has protested in front of the UK Prime Minister’s House (10 Downing Street).

The real estate industry often accommodates such paradoxes. When I was in banking I sometimes had to present the unpleasant news that we had been deceived by a borrower, only to hear an admonishment such as “How dare you question his integrity! Don’t you know he’s chairman of the Pathetic Crippled Children’s Foundation?” Charity and honesty are not necessarily synonymous, and I hypothesize that the biggest crooks often turn to charitable giving to assuage the guilt they feel in receiving ill-gotten gains. Everyone wants to feel good about himself.

“Martin, before you call this man a liar, you should know that he’s chairman of the Pathetic Crippled Children’s Foundation.”
Cartoon art was purchased from CartoonStock and captions changed.
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Monday, January 30, 2012

Appraisal in Perth, Australia

This is my third appraisal assignment in Perth. This assignment is similar to any appraisal of a Class C downtown office building in the U.S., only that Perth is experiencing classic “boomtown” economic conditions as a result of it being the corporate hub of the Western Australian mining industry. Chinese demand for Australian minerals has created a huge economic boom for this region, which had previously been languishing between the years of 1990 and 2005.

Price inflation in Perth has been so profound that a can of coke in a convenience store costs 2 Australians dollars (equivalent to $2.12 USD) and a McDonalds breakfast costs 3 times the price in Los Angeles. My host told me that his son is a truck driver earning $180,000 per year, and when I asked other Australians, they confirmed that it was an ordinary wage for Western Australian truck drivers. Some of my appraiser friends in LA would gladly cross the ocean for work paying like that.

The subject property is an older office building constructed in the 1960s and showing its wear. The owner has a plan to renovate the building into commercial condominiums (AKA “strata” in Australia and the UK) and a conditional commitment from an Australian bank once the renovation has been done. My client was to serve as a bridge lender in the mean time and was only interested in “as is” value, however.

The building is 92% occupied in a CBD office market with 96% occupancy, and is predominantly occupied by an English language school and a commercial fitness center.

An English language school is a good tenant to have in Perth, which is very much a city of immigrants. I did my own informal survey of the locals, asking “Are there too many immigrants in Perth?”, to which 28% responded “Yes”, 20% responded “No” and 52% responded “No speak English”. OK, I made this all up – just trying to keep you readers awake.

The main Perth office district, though, is located two blocks south of here on St. Georges Terrace and Adelaide Terrace (same street, two names), and includes high-rise office towers adorned with the names of major banks, whereas the subject is in a secondary, lower-density location of older buildings, some dating back to the 1920s, and can be characterized as a middle-income pedestrian retail environment. There are several nearby restaurants serving either Kebabs or Korean food, for instance.

As is sometimes the case in appraising properties slated for renovation, the owner wanted me to appraise the property as if renovated and subdivided into condos (or strata), whereas the lender was only interested in “as is” value, or what they could sell the property for tomorrow. Despite Perth’s booming economy, it is interesting to note that office buildings trade at capitalization rates in the 8 to 10% range, well above those of California, possibly indicating either that Australian real estate investors have less appetite for risk than U.S. investors or else that there is a feeling that the Western Australian gravy train might not last forever. The fortunes of this region are very tied to China, and if China sneezes, Perth could catch pneumonia.

PS: I've found another low-cost way to get to Australia from the U.S. (besides the unreliable Air Pacific) -- China Southern Airlines. The connecting point is Guangzhou. The Chinese air hostesses are eager to please, but haven't quite mastered conversational English. They serve meals in record time, but when they ask "May I take away your plate?" I found that my usual answer, "Not yet" sounds like "Yes" to their ears, as my unfinished meals got quickly and efficiently whisked away.

Upgraded to first class from Guangzhou to Perth, I was greeted by two airline representatives who were to promptly escort me through customs and security to the first class lounge. When I asked, "Is there food in the lounge," one representative replied, "I don't know about that." When I responded, "Could you let me stop at a restaurant first?" he then replied, "Oh, I thought you were asking if there were fools in our lounge." Rest assured, I am willing to share first class lounges with fools, as long as they are not children.

Be sure to watch the hilarious "in-flight exercise" videos, in which two robotic, unblinking air hostesses perform Tai Chi-inspired exercises while the narrator dispenses pearls of ancient Chinese medical wisdom for each exercise, such as "Subdue the liver, extinguish the wind." What wind would that be?

Next stop: Nayarit, Mexico.