Real Estate Developers Hop On The Bailout Train

[Slew Foot]

http://biz.yahoo.com/cnbc/081222/28346350.html

How much money did they make during the boom years and how much did they save? Will they have to beg and plead in front of congress? Will they have to live in a solar powered home for a month before getting any taxpayer cash? Enquiring minds want to know.

 

[StageLeft]

Makes sense to me. Real-estate boom fueled by easy money, when it contracts just give them more money. I don't see the problem.

 

[AndrewR]

Originally posted by: Slew Foot
http://biz.yahoo.com/cnbc/081222/28346350.html

How much money did they make during the boom years and how much did they save? Will they have to beg and plead in front of congress? Will they have to live in a solar powered home for a month before getting any taxpayer cash? Enquiring minds want to know.

Yes, I was wondering if these "struggling" real estate developers are going to sell off their seaside homes in Florida, their ski chalets in Colorado, and their auto fleets to help their companies in these troubled times. Chances are slim, I'd reckon.

 

[IronWing]

Sigh. Once again you guys miss the bigger economic picture. These real estate developers you deride are responsible for creating millions of jobs for hard working illegal immigrants.

 

[Thump553]

This one is a total fail. Real estate development is the proverbial boom and bust business. It's very illiquid and cyclical where bankruptcy is almost necessary to flush out the wannabes. If their creditors were foolish enough not to get collateral, tough.

Bailing them out would hurt the economy, not help it, by eliminating the concept of economic risk.

 

[Fingolfin269]

Originally posted by: ironwing
Sigh. Once again you guys miss the bigger economic picture. These real estate developers you deride are responsible for creating millions of jobs for hard working illegal immigrants.

I laughed.

 

[wwswimming]

i bought a 1080p monitor which turned out to be too glossy. i would like the government to
subsidize my purchase of a replacement monitor with a more matte finish.

 

[IronWing]

Originally posted by: wwswimming
i bought a 1080p monitor which turned out to be too glossy. i would like the government to
subsidize my purchase of a replacement monitor with a more matte finish.

All you're going to get out of this mess is a patch of sandpaper.

 

[sactoking]

Actually, if developers start going BK it will be much worse than you think.

Municipalities require that developers post bonds that guarantee the on- and off-site subdivision improvements (street, sidewalk, sewer, etc.) will be installed by a certain date AND maintained until the lots sell. If the developer can't complete the improvements, the municipality has the right to call on the bonds and force the insurance company who underwrote them to install the improvements or pay the penal sum of the bond.

Insurance companies/Sureties stand to lose billions if developers continue to go BK and can't have the Subdivision Improvement Agreements amended to allow for more time. Some of the biggest players in this market are Zurich, Travellers, and AIG. Seriously, do you think AIG can withstand another multi-billion dollar hit? How many of you will lose health or accident insurance if Travellers goes under? Zurich (Farmer's Insurance) is a big player in P&C.

I'm pretty anti-bailout in any form, but don't think that this is just a 'developer' problem. If subdivisions continue to sit unbuilt (is that a word?), the surety bond industry could be decimated (which is bad, since the Miller Act mandates that the surety industry exist).

 

[Paddington]

We already had a real estate bailout. That's what the Wall Street bailout was for. =/

 

[venkman]

This might be case where an industry folding will be GOOD for an economy. We really don't need to build moar houses.

 

[AndrewR]

Originally posted by: venkman
This might be case where an industry folding will be GOOD for an economy. We really don't need to build moar houses.

Actually, we do -- they need to replace the craptastic ones that they slapped together during the boom. If we wait a few years, they'll fall apart anyway, however!

 

[sactoking]

Originally posted by: venkman
This might be case where an industry folding will be GOOD for an economy. We really don't need to build moar houses.

If developers go BK the result will not be fewer houses; the houses will still get built but more people won't have health/life/auto/etc insurance.

 

[theeedude]

"Well, now, they're people like any other people... They love money, but that has always been so... Mankind loves money, whatever it's made of- leather, paper, bronze, gold. Well, they're light-minded ... well, what of it ... mercy sometimes knocks at their hearts ... ordinary people... In general, reminiscent of the former ones ... only the housing problem has corrupted them..." -M. Bulgakov, 'Master And Margarita'

 

[HardcoreRobot]

sure why not... the thing is, when the govt. starts handing out money, unless you get some you are going to be left behind...

just like when they unwisely coerced fannie mae to loosen lending requirement to get poor candidates into housing... that was bad enough but now every other non-govt related lender has to do the same or they cant keep up.

we will regret the financial decisions recent administrations have been making for generations to come, that is, if we can postpone bankruptcy that long

 

[Thump553]

Originally posted by: sactoking
Actually, if developers start going BK it will be much worse than you think.

Municipalities require that developers post bonds that guarantee the on- and off-site subdivision improvements (street, sidewalk, sewer, etc.) will be installed by a certain date AND maintained until the lots sell. If the developer can't complete the improvements, the municipality has the right to call on the bonds and force the insurance company who underwrote them to install the improvements or pay the penal sum of the bond.

Insurance companies/Sureties stand to lose billions if developers continue to go BK and can't have the Subdivision Improvement Agreements amended to allow for more time. Some of the biggest players in this market are Zurich, Travellers, and AIG. Seriously, do you think AIG can withstand another multi-billion dollar hit? How many of you will lose health or accident insurance if Travellers goes under? Zurich (Farmer's Insurance) is a big player in P&C.

I'm pretty anti-bailout in any form, but don't think that this is just a 'developer' problem. If subdivisions continue to sit unbuilt (is that a word?), the surety bond industry could be decimated (which is bad, since the Miller Act mandates that the surety industry exist).

sactoking: Developers go bankrupt on every downturn, it's the nature of the beast. In fact the usual shaky financial condition of developers is precisely the reason municipalities require the performance bonds you mentioned. When the insurance company issues the bond, they take collateral in addition to their fees for doing so. I see no reason to protect the insurers on this risk-it's a very well known aspect of that line of business.

Generally speaking too, insurers don't take that big a loss on performance bonds. They bring in their own contractors to finish the job for the lowest cost.