Wed October 31 2012
The Children's Investment Fund Foundation will loan $400 M ot Los Angeles based CIM group to construct432 Park. 432 Park will be (really?) the tallest residential building in America at 1395 feet. A CIM principal notes that his firm is obtaining debt that is low priced and flexible, flexible presumably for the borrower not the lender. CIM has raised 2/3 of the $1.245 Billion price tag in equity. But the $400 M is a non recourse loan meaning that 432 Park will be the only collateral.
The average asking price is $5800 a square foot and about a dozen are actually under contract, wow,talk about a secured deal! For perspective which is what we provide here, that means a 2,000 sf condo would fetch $11.6 million. I checked the numbers on my Big Red Debt Calculator twice and yes that would be for one condo.
What could go wrong? So we have the Kingdom Tower at one kilometer going up in Saudi, the tallest building ever on the West Coast, possibly to be built with no tenants signed up, and now 432 Park the tallest residential building ever at one of the highest per sf prices ever.
Meanwhile, Vancouver Home Sales Hit the Brakes. Vancouver has been the home of the 1800 sf million dollar bungalow. The hot air is coming out of that balloon just as some of the most audacious commercial projects ever planned come off the drawing boards. This is the typical collision of impossible to fulfill dreams planned amidst topping markets where anything seems possible.
Interestingly on pages C 10 and C 11 of today's WSJ, after literally mentioning that sales are down 33% in Vancouver in a news article, the WSJ in an ad urges interested parties to advertise in its upcoming Real Estate investment Trust REIT. Folks, I cannot make this stuff up. REITs were one of the big causalities of the 1973-74 meltdown.
Perhaps I exited too early on Sept 18 but this is precisely the way the 1973-74 bear market began, overconfidence with REITs sold to the public as widow and orphan's investments. note the Children's Investment Fund (presumably a charity for some orphans) is doing just what investors did in 1973. Our point here is that with the announcement of every new skyscraper project, we have evidence that market risk, via excess optimism, is getting higher and higher.
The older I get the more I am amazed at the accuracy of old stories and sayings we have heard all our lives. Remember Jack's Beanstalk? The winner owned the beans that built the stalk. The losers lived at the top of the stalk. Indeed Jack stole the gold that belonged to the 'giants' at the top of the stalk. Gee nothing changes.
Social Mood is peaking....
Note to readers As holders of CAT, MCD, DD, AMD Dell, HPQ, FB, Groupon, and Zynga have discovered, the bear market can overtake one faster than you might think. We are in the waning days of the bull move from March 2009. The vast majority of gains lie behind us with this above sample of stocks, some famous others recent also rans, the bear market will begin at different times for different classes of assets. Risk is high, and going higher if in fact the overall market advances with even fewer stocks making new highs. This would be a classis concentration in the Last Man Standing, think Musical Chairs. Socionomics is not an exact science calling a market turn on a dime, but the evidence as above continues to mount that a high in social mood is in the making.