The Rare Exception Or Foreshadowing Of Things To Come?May 5, 2015
Purchased for $1.3 million in 2013 and extensively remodeled since, the buyer of the Potrero Hill home at 837 Wisconsin Street appears to be around $200K past due on his accumulated loans and the property is scheduled to hit the courthouse steps this afternoon with $2.2 million in debt and fees owed.
We’ll let you decide if this story is certain to be the rare exception or foreshadowing of opportunities to come.
UPDATE: The property sold on the courthouse steps for $1,945,374.91.
Comments from Plugged-In Readers
I doubt it happens on the same level as we saw a couple of years ago, but I do expect that more opportunities like this (foreclosures and short-sales) are on the horizon.
Before the last downturn , the earliest warning examples were popping up on Potrero Hill and Bernal Heights. I wonder if the same situation will repeat again? I am not convinced that real estate north of California Street, west of Gough, and east of Arguello Blvd ever experienced the percentage price reductions that were seen in many southern and far western neighborhoods.
that ^, wasn’t very good. the earliest signs were actually in bayview, and in condo flipping. Potrero Hill? never enough sales. nowadays i’d argue that bernal/mission/potrero are scarcely even the same. given there are so many more amenities + southward commutes so prevalent
A few housing early warning signs. Double digit drops in a handful of former tech darlings. A decent amount of construction that will bring new units online over the next year.
Indeed. Would be interesting to see how this plays out. I was a bit young in the 2000 boom-bust to really understand how things were transpiring, so it’s nice to be given an opportunity to see what happens (hopefully nothing bad).
after the dot com boom many of us were surprised because real estate never really dropped, only paused. The last recession was a different story.
Well, the dot-com crash and the 2001-2002 did put GWB in panic mode and he proceeded immediately with plans to promote homeownership nationally.
Also, locally the crash didn’t mean engineers were forever unemployed. There was a lot of shuffling around, with the biggest players hiring the best talent. GOOG did hire tons of people at the time. So did AAPL.
Plus, many dot commies had very decent savings or had cashed out already and had to find a place to store the money. Real Estate looked like a better place than the stock market.
Yes, thankfully the Federal Reserve slashed rates to their lowest ever rate and kept them there for the longest period ever. Everyone dependent on RE for a living should be grateful for the economic welfare the rest of the country gave you. Meanwhile, Main St has never really recovered, specifically _because_ of QE2.
Rents did drop quite a large amount after the dot com crash.
You can’t spin that as a conspiracy against Main St, can you?
Two beers is confusing the recent recession with the dot com crash, but they were very different things.. And yes, as anon points out, rents dropped A LOT after the dot com crash, as they are much more immediately impacted by supply and demand and thousands of people were moving away from San Francisco at the time (not all those pets.com employees immediately got new high paying jobs).
The asking rent has dropped quite a bit from the frenzy dotcom period. The house price not so much. The 2007 financial crisis has much great impact to real estate price.
Yup, LinkedIn is one of the high profile tech favorites that is down quite a bit (missing earnings estimates), as well as Twitter. Several household name tech companies are down. Should be watched carefully.
And now Zynga is laying off 18% of the company.
If they owe more than they paid for the house in the first place… isn’t this just someone who took on way too much debt? This sounds like a bad real estate move rather than an indication of financial apocalypse.
Most remodels during the run up have sold for significantly more than the purchase price plus cost. And properties with even gross defects have been getting snapped up with multiple offers.
So if a $1.3 mil pre-remodel with a few years market appreciation doesn’t go for $2 mil, that’s something. And it’s probably less than that even since loan fees are highly negotiable.
let’s wait and see what it sells for. even if this seller loses, it will be good to see how the sale will have an effect on comparable properties.
The funny thing about trendy neighborhoods… They’re always in crap neighborhoods and are always replaced by another trendy location in a crap neighborhood.
This house is very definitely not in the “trendy” part of Potrero Hill. Maybe once they raze the projects it will be.
My quick thought: people who are not experienced developers, who don’t have some type of in with planning, or who don’t have deep pockets shouldn’t attempt “extensive” remodels. Trying to cash in on the RE boom by accumulating massive debt is a bad strategy. I don’t know the back story here… We will see how this all plays out.
In todays market conditions, it doesn’t take expertise to be a flipper. Interest rates are at all time low. Buy a home, sit on it for a few years, sell and make a cool 10% return after interest and fees. No home improvement required.
On a side note, paragon-re has been tracking the housing affordability index, which is nearing historic bubble lows.
That’s exactly why people look closely at examples like this one, the duncan house and the castro condo. And that’s also why the price swings can be so volatile. On the up swing, the fact that anyone can join the party juices up demand. On the downslope, these folks are quick to become additional supply.
Of course there’s levels to everything. Only some folks are so levered up that they need double digit appreciation to bail them out.
Remember too that the last big boom/bust had about a 2.5 year top. So there’s being right and there’s being early.
Holding is not flipping is not developing.
Bought for $1.3, owes $2M – so $700,000 either went into the buyer’s pocket, or into the property. Sounds like a newbie flipper who either had problems with renovation, or just scammed the banks.
When we see 100 of these, with renovations completed, yet the house is underwater, THAT would be a trend.
It would be nice to know where the editor got “extensively remodeled” from and how accurate that is.
Agreed that one or two isn’t a trend, but keep in mind the very low volume during the upswing this time around. One flip going bad out of 1,000 isn’t the same thing as 1 out of 100 or even fewer.
I read “bought for $1.3 with total debt of $2.2” and wonder how this was achieved, especially given that the lending environment is not wildly loosey-goosey.
Perhaps this is a construction/commercial loan, and they have different standards compared to residential mortgage loans?
Do a property address search on Redfin and it will show before renovation pictures. Good bones, easy renovation job. Without current pictures, not sure how extensive and expensive the renovation is, or whether everything of value have been stripped out. This is like the show “Flip or Flop” but with much, much higher numbers.
Status: Sold to Third Party
Estimated Debt: $2,182,853.63
Opening Bid Amount: $972,687.45
Sale Amount: $1,945,374.91
Property Address: 837 Wisconsin Street, San Francisco, CA 94107
Sale Location: At the Van Ness Avenue entrance to the City Hall
Uh… so why hasn’t this just been on the market as a property for sale? Wouldn’t a homeowner’s try to sell before foreclosure?
Denial is the handmaiden of foreclosure.
To do a conventional sale, he’d have to make the bank whole, plus kick in the agent’s fees.
Might be tough to get an agent to take that on if they felt they couldn’t get a price sufficient to do that. Else they’d spend all their time, effort and staging and end up with nothing when the property went to the courthouse steps.
The developer was trying to unload it for the last couple months at around 2m
Odd that it didn’t go, given that someone apparently now paid that much in cash at the auction.
If it was shopped around as a pocket listing, the condition was known so there isn’t the same risk as buying off the steps sight unseen. Plus anything under $2.2 would probably be a short sale involving protracted negotiations with the note holder. Why pay a quarter million more for a more complicated sale process. It’s not like the seller had much leverage with the foreclosure clock ticking.
Still like to see the final product on the market when all is said and done.
From what I can see in the records, this property was listed in August, 2013 for $899,000 and went into contract 10 days later for a final sales price of $1,301,000. At that time, 2bedroom/1bath homes in the area were selling in the $1-1.2 million range. Tax records show a mortgage from a private lender for $1,960,000.
One permit was taken out in February, 2014 to remodel the kitchen and bath, upgrade a half bath downstairs with a full bath, and create a new laundry room. Total cost was claimed to be $182,000. There’s no indication this work was completed. A second permit was filed in August for a 3rd floor addition, decks, existing bedroom remodeling, and three new baths with a cost of $100,000. The application expired and no permit was issued.
The property went back on the market in August, 2014 as “Contractor/Rehabber/Developer special!!” and listed at $1,995,000. It went into contract 73 days later but never closed.
As someone mentioned above, this looks like someone paid too much for the property, took on way more debt than they could handle, and bungled what they expected to be an easy flip. Not a herald of the apocalypse.
a rare exception? no. the developer who lost this one will certainly be losing others. she made a dozen or so bad buys, and was completely overextended. a foreshadowing of things to come? i don’t think that’s quite right either as all the mistakes are playing out right now.
You wouldn’t expect the first causalities of a slow down to be those who did everything right.
And this also illustrates that some who thought the latest run-up was an all cash no funny money story weren’t quite right.
Even if large banks had regulators curbing risky lending, interest rates have been so low that investors with fewer constraints have been looking everywhere for yield. Just like in any frenzy this can’t have been the only hard money/private equity type who looked on one hand and saw rock bottom interest from bonds and on the other hand at rocketing real estate prices and bidding wars on flips.
your words have nothing to do with the case in point
Well you’re the one that implies she didn’t do every thing right.
It was clearly financed at more than the purchase price.
And many people did believe that this type of highly leveraged situation wasn’t happening this time around.
And if one lender did this, it’s hard to believe they’re the only one.
why? show me one other case of a spending spree like this, with construction lending immediately made available … mostly not utilized, serving to only encumber further?
Because last time around greater than 100% LTV lending and questionable standards ran rampant, the practice was very lucrative and many if not most of those involved escaped without serious legal or financial penalties.
When another run up in prices occurred why wouldn’t these people go back to their old tricks when they know how much money can be made and never felt the consequences of their actions.
This hasn’t been happening with federally regulated banks because of heavy post-financial crisis regulatory pressure. But as this example shows, not every loan is made by a traditional bank.
you’re using “greater than 100 percent” pretty liberally there anon. this person got multiple 180% loans, it looks like. no, this whole thing was and is weird.
You always see the weirdest/worst cases fail first.
And the 180% (Actually just less than 170%) is off the initial purchase price. Last time around people absolutely cashed out increasing amounts as the perceived value of their home increased. A few years of 13% appreciation and some value add from the remodel and some Excel jockey could justify the amount lent. Not saying it would be a good justification, but like I said Worst In, First Out.
And who knows if they’re related to the original investor group as that other anon stated, but it looks like that IGA Investments that EBGuy dug up as a buyer has a web page:
“Securing Investor money through trust deeds. IGA Investments Inc is looking for potential lenders interested in learning about our company and educating them on the benefits of becoming a lender. We are always engaging in great new project opportunities for our future lenders. Plus, we provide our current lenders with education and training through our proven system. ”
And boy does that look like a bubble time flipping group to me.
Collect money from investors/limited partners, pool it and make whatever crazy deals you want. Plenty of opportunity to make money as a manager/general partner from salary, fees, profit participation on the way up, weird side deals…
2005 is alive!
ok, just under 170%. off the bat. Not the same thing as years of 13% appreciation, viewed in hindsight. I mean, not even remotely the same thing. What we have here is a person who didn’t know what she was doing using funds that nobody else gets, because there’s no such product. There’s a backstory and I don’t know it. Somebody leveraged something else, I’ll wager. Someone’s family is worth much more than this and lives in another country, or something. Not sure. Just a hunch.
The “Developer” bought 10 properties for $15M simultaneously with a hard money loan from SoCal. It’s an important reminder that life isn’t HGTV…..
A developer makes his/her money on the purchase price of the property first. $15M on 10 properties w/ loans is just asking for trouble. Had developer got 10 for $7.5M, it would have been a completely different story.
just trying to understand. the property was purchased for $1.3M less than 2 years ago in an open market transaction. then, an unknown amount of work took place, leading it to be marketed as a “Contractor/Rehabber/Developer special!” in August for $1.95M when, presumably, the flipper enountered hard times. it didn’t sell then but it did sell just now, on the courhouse steps with all of the no inspection, no financing, limited buyer pool caveats for $1.91M. correct?
if so, I think it is a foreshadowing of even more bubilicous times ahead. what a crazy high price for those circumstances. but, yes, let’s focus on the bad decisions of the bank and the flipper rather than the real estate itself.
did it sell? or did the first take back the property?
See “Sold to Third Party” from inclinejj
yeah, but who is inclinejj and where did he/she gather that information?
I think the auction results and title transfer are public record so it would be foolish of someone to make something up. Plus the editor linked to his comment in the update.
The more serious factual discrepancies are if the home was indeed extensively remodeled or if the developer took the money, pulled the permits and did little or no work. Also, Redfin does not show the property being listed August 2014 as someone above claimed.
maybe. but maybe the lender is made up of a group, and one of its members took the lead in the foreclosure. and redfin need not be made privy.
so, if it was an auction, and the winning price was $1,945,374.91, I’m pretty sure that the buyer doesn’t matter. presumably there was someone different willing to pay $1,945,374.90. remember, the opening bid was $972,687.45
extensively remodeled? try gutted. and I bet the lender took it back. what was being auctioned for a 960K start? surely not the whole kit and caboodle. that would be impossible. so it was the construction loan, right. Messy, messy stuff.
err, 972K start , that was
One has to ask: Is the name “SS Dreambuillders LLC” a hattip to SocketSite? Looks like one of their other projects, 226 Roosevelt Way, already bit the dust on April 7, 2015 (Trustee Deed).
SS Dreambuilders LLC also owned 2724 21st Street which had a NOTS filed on 3/31/2015. Looks like they were able to sell that one on 4/28 instead of hitting the auction block.
The property at 358 Roosevelt Way was also owned by SS Dreambuilders LLC and received a NOTS on 9/23/14. Looks like it was sold to IGA Investments on 12/4/14 (who, incidentally, was also a buyer on 2724 21st Street).
Another SS Dreambuilders property was 262 Roosevelt. NOTS on 7/29/14. Deeded to another LLC on 9/8/14.
SS Dreambuillders LLC appears to be pretty active on this side of the bay as well. Trolling the Alameda County Recorders website, it looks like NODs and NOTS started coming in fast and furious this past March (2015). First Trustee’s Deed on May 7, 2015.
Just noticed another Trustee’s Deed on April 28, 2015 (Alameda County).
Googled SS Dreambuilders LLC, office in Oakland, CA. Linkedin profile shows a Sophie Han as owner, graduate of Cal. Is this the “she” developer everyone is referring to?
Good Lord! Too many accessible info. on the net. I should have a talk w/ my attorney to preserve privacy.
why did you feel that was necessary? what is it to you to share someone’s name?
To save the unwary innocents who may be in harm’s way? See “ENFORCEMENT PROGRAM UPDATE” – page 4
The Bloomberg piece did say that these deals are often cross-collateralized. So maybe there’s some universal default type provision where a default on one property is a default on them all?
mmm….I was originally thinking we may not have a repeat of 2008 as I did not hear / see banks giving individuals foolish loans as was the case in the mid 2000’s — but I do wonder how much money has come into the market from “investor groups” as this could also be the type of funding that as with the 2008 loans can dry up very quickly.
Does anyone know if there is any data on the number of properties bought by investor groups in SF since 2008 or the total amount these groups have invested? These type of groups may also be able to get more favorable loan terms than individuals — which in turn would mean the current market is more leveraged than I have thought…
3 expensive properties under construction/renovation at once? That would stretch any single individual buyer unless they had deep pockets — this guy clearly does not. Most sane people do one property at a time, get it sold or rented and then move on to the next project. This guy simply bit off far more than he could chew and couldn’t juggle the jobs fast enough to meet his monthly obligations. It’s an amateur error and one he won’t likely repeat if he gets a second chance at it in the next run up.
Yes and no. Sophisticated developers with multiple construction crews do it all the time. Then again, they have a better grasp of economics and timing.
Small fries folks like myself is simply happy about the one missing piece of IKEA furniture is more than 1/2 off today. Score!
Ahh, well look what Mr. Bloomberg served me up for Breakfast:
“Real estate buyers seeking money to renovate and flip U.S. houses are getting help from some of the world’s biggest investment firms.
Colony Capital Inc., Blackstone Group LP and Cerberus Capital Management are among the companies that have started making bridge loans to investors who buy homes to sell them quickly for a profit. Borrowing costs — traditionally the highest in residential lending — are tumbling as the firms compete for customers.”
“Everybody just jumped in,” said Filler. “The risk is people start to relax underwriting guidelines to chase loans. As this becomes more competitive, there will be more pressure to do that.”
And the money quote:
“Dominion gives JWB 90 percent of the home’s purchase price and 100 percent of rehab costs, he said. That compares with 85 percent of both purchases and renovation it gets from lines of credit with institutional lenders”
2005 is alive indeed!
OK. I stand corrected. Perhaps she used Genesis, and 85/85. The numbers would seem to fit. Dominion is seemingly not in the California market?
They seem to only serve the east coast. Based in Baltimore even!
But I have to assume that if they’re doing it in Baltimore than someone is trying something similar out here.
UPDATE: A Foreclosed Upon Dreambuilders Flip Returns
SS Dreambuilders is run by crooks. They have multiple lawsuits against them. If you have issues with them please contact me as there may a class action lawsuit coming against its proprietors. They also do business under crossdial construction and technologies.
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