real estate

Friday, December 21, 2007

Leasehold owners face tough decision

At the tail end of the leasehold era, the sleeping dragon has begun to rouse, bringing to light old problems with limited solutions for both lessees and fee owners.

Property records show that some 1,500 or so lessees and lessors on Oahu will face critical decisions in the next decade as the terms of their leases begin expiring in 2010. Leasehold owners at the Kailuan are the first set of owners to be in the throes of an 11th-hour decision about whether to stay or to go. To be fair, the situation also has forced Kaneohe Ranch, the fee owner of this property, to make a grueling decision that has long-term ramifications.

While the Kailuan represents only 18 of the 1,500 or so leases on Oahu that will expire in the next decade, for now it has taken over the dubious honor of becoming the next poster child for Hawaii's leasehold system.

Experts have said that finding a new business model for a decades-old contract that actually works in modern times is easier said than done.

If lessees decide to go, they know that they'll have trouble finding another home at an affordable price. But, if they stay, they know that their problems could double. On the flip side, fee owners who take back their lease at the term's end have the unhappy task of terminating long-term relationships with lessees and risking public censure. It's not an easy task either, for those that decide to renegotiate the lease or offer the fee.

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source: starbulletin.com

The Real Mortgage Fraud

Nothing is more fun than doing noble deeds with someone else's money, and right now, Democrats are getting ready for a rollicking good time. Contemplating the subprime mortgage problem, with numerous borrowers unable to pay their debts, the party's presidential candidates and congressional leaders have a simple solution: Fleece the lenders.

The troubles arose because banks and finance companies offered mortgages to millions of people who, despite their imperfect credit histories, yearned to buy homes. The loans generally start out with a low interest rate that, after a couple of years, rises substantially. Some homebuyers now discover that the reset payments are more than they can handle. On top of that, falling real estate prices mean some can't recoup by selling, because the home is now worth less than the mortgage.
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This spectacle has brought forth recriminations from politicians who picture the lenders as James Bond villains, cackling at the chance to toss hard-working families out on the street. In fact, this course is almost as bad a deal for lenders as it is for borrowers. They typically lose up to half the value of the mortgage on foreclosures.

From listening to the critics, you'd never guess that. Barack Obama denounces "predatory lenders" for "driving low-income families into financial ruin." Barney Frank (D-Mass.), who chairs the House Financial Services Committee, blames everything on an epidemic of "abusive lending."

But lenders who made bad decisions are already paying the price. Many mortgage companies have gone bankrupt. And if these loans are so unconscionable, the question is not why the foreclosure rate is so high but why it's so low.

According to the Mortgage Bankers Association, less than 5 percent of subprime adjustable-rate mortgages are in the process of foreclosure. The vast majority of borrowers are making their payments, keeping their homes and asking no one for a bailout.

Nor is it clear that soaring payments are the chief culprit. Foreclosures are most common in places where home prices are falling-such as California, Florida, Michigan and Ohio, which account for half of all foreclosures this year. Apparently many borrowers, seeing no point in paying off a $200,000 debt for the privilege of owning a $170,000 home, have elected to walk away from their obligations.

The remedies urged by Hillary Clinton, John Edwards and the like include placing a moratorium on foreclosures, freezing teaser rates for five years or more, and forcing lenders to reduce loan amounts to reflect deflated home values. These options are conspicuous for a couple major defects.

The first is that they punish lenders for the failings of borrowers. Why should someone who has kept the terms of a contract be penalized for the benefit of the party that didn't? A lot of people took a calculated gamble on interest rates and home prices. Had they bet right, they'd be reaping the rewards. Since they bet wrong, they are entitled to bear the consequences.

It's true that if lenders have committed fraud with phony information about their loans, they deserve to be separated from their ill-gotten gains. At the same time, honest ones shouldn't be punished for offering creative terms just because the loans sometimes go bad.

When we're talking about faceless institutions, it may sound reasonable to confiscate a share of their assets. But there's no reason to stop with these greedy usurers.

Say I sell my home at a handsome premium to someone who, we now learn, has been victimized by a "predatory" loan. Why should I benefit from the lending abuse? If the mortgage company has to sacrifice some of its profit so the buyer can avert eviction, why shouldn't I have to turn over a portion of mine? Most of us would fail to see the justice in this humane act of redistribution.

If the government imposes the punitive option, another problem will arise down the road: Lenders will be far less willing to offer credit to people with flawed credit records. Even the Bush administration's plan for mortgage companies to freeze rates on a small number of loans effectively warns lenders to steer clear of all but the soundest borrowers. As Yogi Berra might put it, if mortgage companies don't want to do business with certain customers, nobody is going to stop them.

The consequence of this approach is clear. We'd be robbing tomorrow's subprime borrowers for the benefit of today's. Of course, when it comes to proposed solutions, robbery seems to be the order of the day.

source: realclearpolitics.com

Hawaii residents face leasehold shake-up

During the next decade, leases at some 1,500 leasehold units are due to end, causing the potential transitioning of thousands of Hawaii residents.

Starting with the Kailuan, a Kailua co-op whose lease expires at the end of December, owners of some of these leaseholds inevitably will be displaced or subject to uncapped lease-rent increases. Some might even become homeless.

The Kailuan, potentially the first modern day multifamily lease surrender in modern times, has raised questions about how fee owners and leasehold tenants will fare as the market continues to transition.

Some say that the leasehold crisis of the 1990s is rebrewing. Many landowners have, and some eventually will, offer lessees the opportunity to purchase fees. Some properties, however, will be redeveloped.

The uncertainty already has begun to impact real estate purchasing decisions and pricing on Oahu and it's caused considerable angst about who ultimately will pay the price as the leasehold era comes to an end in the next 20 or so years.

source: starbulletin.com

Hawaii improves its home-foreclosure ranking

Hawai'i improved one spot on a national home-foreclosure ranking in November, though foreclosure activity was still higher than it was in the same month last year.

There were 113 foreclosure filings last month in Hawai'i, a 53 percent increase over 74 filings in November 2006, according to California-based real estate research firm RealtyTrac.

But at one filing per 4,346 households, the state's foreclosure rate was seventh-lowest in the nation, down from eighth-lowest in October.

In November 2006, Hawai'i was 10th-lowest in foreclosure filings.

Nationally, foreclosures rose 68 percent to 201,950 last month compared with a year earlier, and equated to one filing per 617 households.

The highest rate was in Nevada, where there were 6,694 filings, or one per 152 households. The lowest rate was in Vermont, where there were six filings, or one per 51,224 households.

Compared with earlier this year, Hawai'i's jump in filings was the smallest since May, when filings decreased 1.5 percent. In five months this year, Hawai'i's foreclosure rate has been up by 100 percent or more over the same month last year, so November represented a bit of a slowdown in the trend.

Foreclosures are rising nationwide because many consumers can't keep up with mortgage payments and face difficulty trying to refinance or sell their property as the housing market slows and prices drop in some areas.

In many cases, defaults are rising because interest rates are resetting at dramatically higher rates on exotic loans heavily marketed to subprime borrowers over the past several years.

While Hawai'i's housing market is tightening, it has maintained relatively low foreclosures thanks to mostly stable home prices and a strong job market. Local lenders also say borrowers generally were more conservative and didn't take out as many of the riskier loans as in some Mainland markets.

By comparison, Hawai'i foreclosures during the mid-1990s housing slump roughly ranged between 300 and 400 a month. Since the recent ballooning of foreclosure filings began in June, the monthly average is 120.

RealtyTrac for its report counts a range of document filings in the foreclosure process, from default notices to auction notices and bank repossessions.

Because of the methodology, the data may include more than one foreclosure filing on the same property, so the data are a somewhat imprecise measure of homes lost to foreclosure.

The data also miss nonjudicial foreclosure notices that aren't recorded publicly, and situations in which homeowners in mortgage default are working with lenders in hopes of avoiding foreclosure action.

source: honoluluadvertiser.com

Sale of 2,100 acres on Oahu falls through

Efforts to sell the George Galbraith Trust's 2,100 acres in Central O'ahu have fallen through.

Bank of Hawaii, which serves as the trustee of the estate, said it canceled negotiations with the buyer, Waialua 86, which outbid several investment groups in January for the former pineapple lands.

The bank said it plans to relist the property.

"Over the past months, the trustee had been engaged in an extended effort to finalize contract terms with a potential buyer," Bank of Hawaii spokesman Stafford Kiguchi said.

"However, with the addition of recent, unexpected new terms from the buyer, the trustee determined it would be in the best interest of the trust to terminate negotiations."

Kiguchi would not say what the new terms were.

Gerald Wong, managing agent for Waialua 86, declined comment.

Robert Hastings, president of the local real estate appraisal firm of Hastings Conboy Braig & Associates Ltd., believes it will be harder to sell the property today than it was a year ago due to the recent turmoil in the financial markets.

"The problem with the capital markets makes it much more difficult to finance something like this," Hastings said.

"Two or three years ago, there were a number of wealthy investors who would buy land to hold. There still may be people like that around, but there aren't as many today."

Most of the Galbraith property — which lies adjacent to Wahiawa and four miles north of Mililani town — was leased to Del Monte Fresh Produce, which announced last year that it was getting out of the pineapple-growing business in Hawai'i.

The land does not include Poamoho Camp, which was acquired by local developer Peter Savio, who in turn sold individual lots to former Del Monte pineapple workers.

When first listed in 2005, the Galbraith lands were expected to fetch between $30 million and $50 million, local real estate experts have said.

Waialua 86's managers include Mainland investor David Chang, who heads CCL Holdings (USA) Ltd.

CCL is part of a family of companies that includes shipping interests in Hong Kong and a Southern California residential developer.

CCL once owned the Ko'olau Golf Course and clubhouse before selling it to First Presbyterian Church of Honolulu about a year ago for $20.5 million.

CCL acquired the Ko'olau Golf Course for $12 million in a 1997 foreclosure sale.

The George Galbraith Trust is a $90 million private trust set up in 1904 to benefit the heirs of cattle rancher George Galbraith. Galbraith came to Hawai'i from Ireland in the mid-1800s on his way to the California Gold Rush.

But he ended up staying here and later acquired the Central O'ahu properties.

Under the terms of Galbraith's will, the trust began termination proceedings this year. Those proceedings will include the eventual liquidation of the estate's stock and bond holdings and the sale of its real estate.

Proceeds from the liquidation are to be divided among Galbraith's more than 600 beneficiaries, who are scattered throughout Hawai'i, the Mainland, Canada, Australia and Ireland.