We have a feeling that the winds of financial climate change are blowing ill to the United States of America. After the storm in subprime lending blew through the United States in the spring, it looked as though the bad weather was over. But there’s more where that came from, reports USA Today. Foreclosures in Minneapolis rose 100% in 2006. And they’re expected to rise another 100% in 2007.
More than a million houses may be foreclosed this year – of which, 60% are the victims of subprime mortgage lending. Nor is the damage expected to stop when the New Year is rung in on January 1st, 2008. There will be even more foreclosures next year, says the Mortgage Bankers Association. Bears Stearns (NYSE:BSC) has got a fever in the subprime chill. Even Goldman Sachs (NYSE:GS) has a few sniffles.
But so far, the pain is being felt only down in the lower depths of American society. The poor, minorities, the disfavoured, the underprivileged lads in bad neighbourhoods – those are the one who are losing their homes. Naturally, the bleeding hearts are coming forward with the dopiest solutions. The NAACP proposes a moratorium on foreclosures – an act of desperate foolishness, which would almost surely cut off mortgage credit to poor people for decades. And the clowns are rushing in, too – proving once again that there is no situation so bad that earnest politicians can’t make worse. The Buckeye State has come up with a cockeyed plan to bail out troubled borrowers. Ah yes…hacks rush in where the seasoned pros of the subprime industry now fear to tread.
But enough of the troubles of the unwashed…let’s turn our heads in a different direction. In New York City, another trophy building has changed hands – the old New York Magazine headquarters. It is being sold for US$313 million – which works out to US$660 per square foot.
How much can you rent a place like that for? Well, current rents are about US$64 a square foot, not even 10% of the purchase price. Let’s see. If the cost of money were only 6%…that would leave the buyer with less than 4% to pay all the expenses…depreciation…maintenance…taxes…management. We’re not experts at commercial property investing, but we don’t see how these numbers are going to work out.
Markets and Money