This little nugget was in Saturday’s Arizona Republic:
Last week, Phoenix-based real-estate investment firm Right Place Properties spent investors’ money to purchase multifamily housing units, promising a healthy return on their cash.
Then on Monday, the company and its designated broker, Red Door Commercial, shut down their Web sites, disconnected the phones, laid off the bulk of their employees and told investors and others that their money was all but gone.
Company officials say they were blindsided by rapid property-value declines in October and a lending-capital freeze that made it impossible to continue executing their business plan of buying run-down apartment buildings, renovating them and selling the units as condominiums.
(my emphasis in bold)
WTF? Have these people been living in a cave the past two years?
How in the name of heaven could a “real estate investment firm” and a real estate brokerage be “blindsided” by property value declines and lending issues?
Knock knock knock. Anyone home?
“It’s true that through last week we were continuing to close escrows,” Right Place principal owner Earl Ricker said Thursday. “It really didn’t sink in until the weekend that continuing operations would put our ability to manage our existing properties in jeopardy.”
So let me get this straight. You’re closing escrows one week using OPM (Other Peoples Money) and then the next week you’re practically out of business, shutting down web sites, laying people off and telling investors that they won’t be getting any money back.
And the fact that you can’t stay afloat in this market “really didn’t sink in until the weekend”???
You were “blindsided” by rapid property value declines. In Phoenix Arizona.
You’ve got to be kidding me.
There are an abundance of home price indexes out there. Have you heard of the S&P Case-Shiller Index? (Well, evidently not given the stunning ephinany you had over the weekend.) Here’s a chart of it I made for the Phoenix metro area. Similar charts are available in about a half a bazillion other places:
Blindsided — by a steady and precipitous drop in home values over the past 2+ years.
Don’t like the Case-Shiller Index? Fine. Here is a chart from a recent Wall Street Journal article showing trends from six popular home price sources. The measurements are different, hence the actual numbers don’t match up, but note the shape of the curves — they are all very similar.
A third grader can read these charts. All show a peak in roughly mid-2006 and declining values since then. Yes, real estate investments is local, and even in the Phoenix market there are isolated instances that have bucked against these trends. But how a real estate investment company and their designated broker can just wake up one morning and realize their business is in the toilet and their model is fundamentally flawed is beyond me.
These investors have apparently been making administrative, marketing and renovation payments — “hefty” payments according to the article. No renovation has occurred, and there are now no plans to sell the units.
“We do not have the cash to refund to investors” said Right Place principal owner Earl Ricker.
Really. Then what did you do with the money?
If I were an investor in Right Place Properties, I sure would have a whole lot of questions right about now….