I am really amazed to observe that an article about real estate must either
be over the top optimistic (Fortune Magazine, April 1, 2011, cover story)
or tragically pessimistic (Wall Street Journal, April 18, 2011, "Housing
Slump Continues") In reality, I don't think we need to be looking for a
quick recovery or be concerned that this downturn will last forever. The
long cycles of real estate and other illiquid investments just require investors to wait it out and remain solvent in the meantime.
Unfortunately this doesn't sell papers. Readers crave shock value. (I
guess that is why Rupert Murdoch has billions more than me.) Real estate itself is
considered to have one of the longest cycles due to the inherently slow
process of dealing with troubled assets.
The beauty of real estate is that it is actually backed by hard assets;
however we must realize and be content that it can take years and in some
cases decades to reposition. Unlike stocks or bonds that have a very liquid
market available for trading, the real estate market is much smaller and
the process is much slower. Additionally, the laws that make real estate
such a valuable investment (ownership system dating hundreds of years
old) are also what help to draw out activity. The average foreclosure in
America takes more than 20 months from the time a borrower stops paying
their mortgage until the time the bank can foreclose. Add in time to sell
after foreclosure and you will probably wait almost 2.5 years for an asset
to become performing again. Compared to the 2.5-day process for stock
margin calls, that makes real estate 365 times slower to deal with than
stocks.
What this means is that instead of reporting good news followed by bad
news and then good news again, the real estate market is a slow news
business that takes years - not days, weeks, or even months - to adjust.
Until the defaults that started happening in late 2008 and early 2009 followed by the
holdouts that gave up in 2010 are filtered through the system we are not
going to start the upward phase of our growth cycle.
At Signature Community we have been dealing with some difficult
situations with our assets. Fortunately, we dealt with them very early on in
the cycle and have made it through the process with most of our assets.
Additionally, we have been active in buying assets and mortgages for the
past few years and realize the opportunities have still not materialized
mainly because of the reality that we are still either early in the recover cycle or still in the downward swing. Many
have jumped back into real estate in reaction to media reports that the
market is back, but we have been patient because we are concerned with what remains to
be dealt with before the market can recover.
We feel that our patience will be rewarded in the future and will allow us to make deals for the entire market upswing which, in my estimate, will
probably be measured in years or decades - not months.
Thanks for being patient with us at Signature Community. We expect that
you will be rewarded appropriately in due time.
Nickolas Jekogian
CEO
Signature Community
917-763-3500
www.ASignatureCommunity.com
Blog -http://www.nwjceommm.blogspot.com/
"Si3" Signature: Ideas, Innovation, Implementation!
Send ideas to: ideas@asignaturecommunity.com
No comments:
Post a Comment