Lake Las Vegas is the latest in a long line of disasters for Credit Suisse investors
The Mercury News reports in their breaking news section that “Santa Clara County luxury home sales pick up in April,” suggesting that this is a “notable occurrence.’ They then go on to detail the fact that sales are down 50% from last year; the median price is down 9% from last year, and sales in April almost always increase from March. I guess they have to report something. Mercury News
The Vancouver Sun takes a look at Credit Suisse’s “mountain of debt,” and wonders at the likely ROI on some of their dubious loans. Since a judge ruled their lending practices predatory and removed their lien on the Yellowstone club, poor old Credit Suisse are likely to be facing any number of lawsuits from the suckers investors they sold the notes to. The latest in a long line of disastrous (for Credit Suisse’ investors) US resorts in trouble is Lake Las Vegas, a luxury community based around an artificial lake in the Nevada desert. No comment. Vancouver Sun
Speaking of artificial lakes in the desert, the amount of “market recovery,” increased activity,” “exciting investment opportunities,” and “resilience,” in the UAE luxury property markets is quite staggering – desperate even, and somewhat outweighed by the continuing decline in sales volumes and prices. In fact, I do wonder just exactly how many press releases will eventually have come out of the UAE before any of them are true. The first ever property auction in Dubai was held last week. Not a single property sold. It is worth bearing in mind when reading anything from a “news,” source based in the UAE, that all the majors are government owned, and the notion of a free press is somewhat alien in that region.
The same issues affecting the luxury real estate markets do not seem to be impacting certain sectors though. According to the AP, a “supersuite” that could hold 300 people and luxury suites with kitchens, full bars and fireplaces will be offered to big spenders at the new Madison Square Garden. The renovation is somewhat behind schedule, and somewhat over the original $500 million budget, but the developers are happy to proceed regardless. Associated Press
The same can not be said in Dallas, where the Mandarin Oriental hotel group has scrapped it’s plans for yet another luxury hotel in the city. “We just walked away from our Dallas project,” Richard Baker, Mandarin Oriental executive vice president, said during a panel discussion at a New York University hotel-industry conference in Manhattan on Monday. “That city has been overdeveloped in luxury, both hotel and residential.” Wall street journal
The same article mentions a disturbing trend that I am seeing lately. Rather than foreclose on a property and sell it off, banks are getting more and more into the property development business. Barclays bank has just taken on a $40 million renovation project in Manhattan instead of foreclosing – 475 Fifth Avenue. The amount of debt for equity swaps going on around the world is staggering. The Spanish banks have been doing this for some time, and it is difficult to guess at just exactly how much real estate they are holding as “assets,” on their balance sheets. Even a non-economist such as myself is aware that owning an office building is not quite the same as having the cash. In fact, the European Central Bank was forced to buy 60 billion Euros in Spanish covered bonds last month. Oddly, this information went almost un-noticed by the news papers, but the money was “quantitatively eased,” i.e. conjured up from thin air.
The rest of the world’s banks are now beginning to do the same as the Spanish banks. Unfortunately, the banks are now effectively government-owned. Which means the real estate is now government owned. On top of the massive amount of government owned real estate already, and the stunning amount of government capital being poured into the system, it is difficult to see how this can turn out well.
Bradford & Bingley, one of several UK mortgage providers taken over by the British government has just defaulted on interest payments on £325 million of subordinated bonds – Bloomberg. The British government recently re-wrote the law to allow this, but B&B is already looking at more than 5% of their outstanding mortgages in default, with losses expected in the region of £600-700 million this year. One good thing to come of it is the government has had to employ double the number of people needed to hound borrowers into making payments from 200 to 400, which means 200 less unemployed.
