Upstream / Mayberry

 Two of the strangest little projects in the NW finally received NODs today.

Mayberry Villas is a Homercraft’s project at McCarran (busy street) and Mayberry (pretty busy).  Half million dollar duets aimed at I’m not sure just whom.  Rich lock-and-leave Californian retirees, I guess.  Sketchy location, sketchy market, beautifully executed as are all Homercraft’s projects.  I think 6 of the 24 units have been constructed, and the foundations for the rest have been poured.  NODs for $2,700,000 and $3,500,000 were filed based on missed May payments.   As much as I could never figure out how this project had a chance to succeed, I really can’t fathom what will become of it in foreclosure.

Upstream is literally  Rancho San Rafael on the River – same developer, same basic unit design.  It is located on Dickerson near Ox Bow Nature Area, one of the oddest little pocket of the City, if you ever took my Northwest Side Story road-trip tour, you would know what I’m talking about.  I think 5 of the units sold original 10 units sold, so they plowed ahead with 8 more that are going splat in the noonday sun.  Upstream was always a weird little project, but I like weird, and there are some pretty amazing improvements to the area in the Reno planning pipeline.  None of the "prime" lots on the river have been developed yet, though they have been marketed for a couple years. $7,950,000 NOD from a missed February payment.  I’m incredulous that they held on that long.

I actually applaud these tow projects for their risk taking.  Both were really thinking out of the box, and would have been game-changers for their neighborhoods if they had succeeded.  But sometimes the box is there for good reasons.

Holcomb Townhouse are indeed listed starting at $159,900.  "Reserve your today!"  Extraordinarily weak marketing plan for what will be a troubled effort.  How would you have handled this one?

Derrick,  I’ve got 489- (and 322- ) profiled.  Very interesting decisions, and ones that might be worthy of a post – it would certainly generate comments!   If you want to give permission and give me your input, email me.  Contact link is with my head shot at the bottom of the page.   Despite the crap you flick my way on occasion, I have always valued your voice and perspective here.  Up for an autopsy, big fella?

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About Mike McGonagle

An architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective.. A former Chicagoan, Mike earned his MArch from Harvard University. Mike can be reached at mike@macassociates.com or 775-345-7435. His continued musings can be found on the REreno.com blog.
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60 Responses to Upstream / Mayberry

  1. Avatar DonC says:

    bob_c: “SO BB where does one put their money????? without
    taking extraordinary risk or lack of diversification????????”

    You might want to look at variable annuities. There were some very sweet deals available last year. Those are history but there are some new products that give you stock upside and limits on the downside — you can convert to bonds at an agreed upon price. The big problem with annuities has been the cost, and this is still true, though the fees are coming down.

    May be worth a look.

    Personally my favorite would be to dollar cost average into domestic and foreign index funds over say a five year period and then convert to bonds over the next 15 year period. So at the end of the 20 year period you’re in mostly short and intermediate bonds. Alternatively you could dollar cost average into an aggressive Lifecycle Fund (T Rowe Price) or even find a Lifecycle ETF.

    The reality is that there is no safe investment. People tend to think of losing money in nominal terms, but even preserving capital aka putting your money under the mattress can fall prey to inflation. The best I’ve ever come up with were I and E bonds in the 1998-2002 period. The I bonds gave you a real interest rate of 3% or 4% with an inflation percentage added, and the E bonds gave you a moving average of the five year note. But the deal was so good the government limited the amount you could buy.

  2. Avatar bob c says:

    the i bonds currently trade on the secondary market at 0.5 (2 year) to 2.1 (20 year)…..
    the days of 3.75 + the rate of inflation are gone

    people are expecting little ‘real rate of return’
    as inflation is usually understated….so its a preservation of capital type market…..thats why many fear asset bubbles are again growing, because
    holding shorter term fixed income is a break even proposition and holding longer term fixed income leaves you vulnerable to inflation and the huge defecit

  3. Avatar bob c says:

    so our accomodative fed is giving us another dose of what caused the problem….much like an alcoholic………but this time without the ‘fix’ the patient may have died before it could face detox…….hopefully the detox can begin soon

  4. Avatar skeptical says:

    bob_c:

    gold.

  5. Avatar smarten says:

    Hey Bob_C –

    I agree with your observation that “the reality is that there is no safe investment.”

    Many people don’t realize that bonds are nothing more than UNsecured IOUs. If you went into your local back and tried to get an unsecured loan, what kind of interest rate do you think you would have to pay? Now compare this rate to your typical much, much lower “high grade” corporate bond rate and my question has always been, why? Where’s the security that warrants the lower rate?

    Who would want to be a bondholder in GM? And please don’t talk to me about municipal bonds being so much “safer” – don’t we remember those [guaranteed by] Washington State bonds used to finance construction of nuclear power plants? When the project was abandoned, bond payments stopped and the State of Washington was able to avoid paying up pursuant to its “so called” guaranty…So much for “high quality” municipal guaranteed IOUs!

    These are some of the reasons why I personally have always liked real estate over any other type of “investment.” In the short term have we who are invested in real estate taken a hit? Yes. But if you were invested in the stock market late last year, what would have have said about taking a hit in the short run.

    If you believe in this country then like most other asset classes, real estate will recover and because of leveraging, IMO will again out perform most other investments. In the interim, most real estate has a rental value which unlike stocks or bonds can be accessed to offset one’s carrying costs. If you can ride out the ups and downs and can look to the long term, time will heal all wounds.

  6. Avatar DonC says:

    Bob, I was talking about the “I” series bonds, the current variation of the old style savings bonds. They don’t trade. In fact you can’t trade them. These bonds are not very attractive at the moment, I wouldn’t touch them with a ten foot pole, but as a FYI they’re described here: http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

    For a few years they were stellar — a 4% real rate of return plus inflation. The only downside was you could only buy $30K per SS# per year, but when combined with the E bonds, which were also attractive, a couple could stash $120K/year, not a huge issue for a lot of people.

    Tax treatment was also super, state tax exempt and federal tax deferred for at least 30 years. Today they look especially attractive given that 10 year Treasuries don’t carry even a 4% nominal interest rate and taxes aren’t deferred, but at the time they were largely overlooked because everyone assumed that stocks were going to go up 15% a year … indefinitely!

    As a FYI, the Fed’s accommodate policy had little to do with the housing bubble. The studies released yesterday show that very clearly. (Ditto for the notion that this was all created by Fannie and Freddie). The housing bubble had to do with too much money from developing countries chasing too few assets, given a big push by WS firms chasing fees, enabled by Phil Gramm and all those drinking the Kool-Aid of the efficient market hypothesis who thought the Wild West was a good template for modern financial markets.

    I’m still in shock that John McCain picked the person most responsible for the meltdown as his chief economic adviser. I guess he was serious when he said he didn’t have a clue about the economy! LOL (He did, however, do far better with his second pick).

  7. Avatar Sully says:

    DonC; your tone seems to have changed since last Oct. when Paulson announced the need for a financial rescue of Goldman Sachs and AIG. Have you changed your mind or were you simply mis-understood before?

  8. Avatar DonC says:

    One interesting point about Derrick’s condo purchase — which has been completely overlooked — is the role that housing plays in adding to the risk of a household’s investment portfolio.

    Housing can amp up the risk, or it can dampen it, depending on how and on what terms the household chooses to finance the purchase of a home. Basically the less you finance the less you leverage, and the less leverage the less of your capital you put at risk.

    For example, say Derrick paid $400K cash for his house. Let’s also assume that he could have put only $40K down and assumed a mortgage of $360K, and then put another $80K down on four other properties.

    In the latter case he would have scored huge wins if the market has continued to go up, but he would have completely lost his $400K if the market did what in fact it did — which is to go down. Rather than focus on the fact that he “lost” money, it seems more useful to focus on the fact that his essentially conservative approach limited his losses.

    Also the nominal loss doesn’t look so bad when you examine it more closely. At the beginning he had a house and at the end of the process he had a condo plus cash. It’s not such a bad outcome.

    Note that it would have been better from a financial standpoint to start with the condo plus cash and end up with the house. In this regard, what has always amazed me is that people wait for a big upswing in housing prices before they decide to move up, but they’d be a whole lot better off moving up when the housing market is down and prices are compressed. I guess that’s just a variant of everyone jumping into stocks after they’ve made the big move.

  9. Avatar DonC says:

    Sully — No I haven’t changed my mind at all. I think Paulson and Bernanke saved the day. That doesn’t mean I liked what they had to do. I’m actually more critical of Geithner — he just seems too willing to let these guys off the hook. I don’t see anything in place that would stop a similar disaster from happening again. Personally I just don’t think unregulated, undisclosed, and reckless gambling is a good thing. I also don’t think that WS provides a great deal of value added. Boring is beautiful so to speak.

    I’m with Barney Frank on the AIG salaries. All these guys whining that if they don’t get a zillion dollars they’ll quit and the world will end. As some have mentioned, it’s like the captain of the Titanic claiming he’s indispensable. WS wants to think there is the special guy who will make all the difference when in fact that’s not really the case. When all you’re doing is para-mutual gambling, there has to be a winner for every loser, even if winners and losers are randomly assigned.

  10. Avatar DonC says:

    smarten says “And please don’t talk to me about municipal bonds being so much “safer” – don’t we remember those [guaranteed by] Washington State bonds used to finance construction of nuclear power plants?”

    A big problem with munies is that the data you get is horrible. The financial arm for the cities just don’t do a very good job and the ratings agencies have no independent way of verifying the numbers. My joke is that munies are a good example of the blind leading the visually impaired.

    Unfunded pensions are a big risk in this area. Most people don’t realize this, but Texas has a bigger unfunded pension problem than California, and that’s saying a lot. A lot of cities will need to go bankrupt, though that doesn’t mean they’ll default on their bonds.

    Hard to argue with your idea that “time heals all wounds.” I’d just say it a bit differently, which is that empirically we know that asset classes that underperform in one period tend to overperform in the next period. Unless of course they don’t. For example, I believe Houston real estate still hasn’t come back in nominal terms to the levels enjoyed in the late 80s. I don’t even want to think about Detroit ….

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