Downtown's Resiliency during a slow economy

I think Bloomsbury would have been fine before the crash. People would have bought them at those original prices because the financing was so much easier to obtain and people were way out over their skis which is why the crash happened. So it made some sense at the time. I don’t know if the developers were completely unaware of what was coming or knew something was on its way but trying to get theirs before they got got.

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Good call…

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One advantage Raleigh has over some places like Miami or Vegas is that its economy doesn’t rely heavily on vacations or vacation homes. Second or third homes are a luxury and I imagine people don’t typically buy second homes during a recession, and I know people cut back on travel.

To some extent, as long as government remains the biggest employer, the city and downtown in particular, will have softer landings during a recession. Though, of course, government isn’t driving much of the development downtown, even though the state could likely earn pretty big payouts by leasing or even selling some of their parcels and building a high rise or two.

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I don’t know how many different projects we about to begin back in 2008 or how devastating it was as I was only 5, but what I can see is that many of the things that happened 11 years ago are happening again and I’ve worried about this for months. We are definitely due for a crash soon, but I don’t know when. Hopefully none of these projects get canceled due to a crash or stall construction due to a class. Places like Las Vegas had begun several projects prior to the crash had stalled construction and some of them have yet to finished or started back. I truly hope this situation doesn’t happen in Raleigh.

Genuinely curious what observations you made at the age of 5 that you can relate to in the financial sector that are similar to the current state of our economy. Whether it be locally or nationally I don’t see too many banks engaging in the risky behavior, like hedge fund trading with derivatives, that contributed to the recession. Always looking to learn, so let me know what you see that I don’t.

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If the fed raises funds rates that will slow things down, but it won’t evaporate $11 trillion out of the GDP like 2008. I randomly read The Big Short in college long before the disappointing movie, and the subprime mortgage derivative swapping at Lehman Bros and AIG was atrociously negligent - that book is at once facinating and disgusting. We are due for a cool down correction but, unless there is some ridiculous bllsht happening behind the veil on wallstreet propping up tech stocks, I think we’re not going to see another '08 crash.

The fed may one day need to bail out the $1.5 tr student loan bubble… But hey that’s actually an investment because many degree holders will then be able to advance through the economy, buying houses and such.

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No the housing which triggered the last crash is not the issue this time. Now it businesses that have taken on huge amounts of debt that will become a problem as interest rates rise then they roll over the loans or if variable rate when they reset. Large amounts of this debt was used for non-productive activities, such as paying dividends and buying back stock (IMO was mainly to drive up stock price to make the board and upper management’s stock options more valuable). Also a lot of this debt has been “collateralize” the same way that home mortgages where in 2000’s, which will cause problems just like home loans if business start to default on loans.

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The fed not raising rates right now, does not stop variable rate loans from going up. I have a mortgage that will reset next year and looks like rise by 2%. Not a big deal for me, I took it out in 2010 and been paying 2.5% for last 9 years. Payment will still be lower than 1 bedroom apartment in Raleigh for a house 5 times as big.

The Fed signaling it MAY NOT raise raise rates, does not mean they will not. I bet on at least one quarter % before end of year, unless economy goes into recession.

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I didn’t make the observation at 5, but I made the observation a few months ago. Not good at writing

The subprime mortgage stuff was exactly this at the time it was happening. We can call it out now thanks to hindsight, but most people didn’t understand it in real time.

I moved to Raleigh from Miami in mid-2006 because of the RE ridiculousness. Every crappy apartment complex was flipping overnight into “condos.” People were lining up down the street to buy tiny, junky studios for $250k. It was just too stupid to be sustainable. Miami bounced back thanks to foreign investors scooping up RE for pennies on the dollar (and thus reinflating RE prices). Plus people want to live a fantasy life there, so demand is always high. Raleigh never saw the impact at this level, probably because most people don’t think of it as Fantasy Land (which is a good thing, IMHO). The market is more reasonable and practical here, making it more stable (if maybe less exciting).

We’re probably not looking at something like 2008/09, but maybe we should be cautiously optimistic. Auto loans are supposedly the new subprime mortgages, but those won’t directly affect entire communities. Same with student loan debt. The indirect impacts of people defaulting on these loans, however, will have some kind of negative impact. There are probably other financial shenanigans going on that we’re not aware of, but who knows if/how those will affect the big picture?

I think many of the projects in the pipeline now are pretty solid, especially those undertaken by firms that may have more capital behind them. These projects seem slightly more demand-based than speculative, and I think that’s important.

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This is scary… Did not realize the increase in corporate leveraged debt

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I have been reading about this for sometime. found following just now in just a quick search and pulled first link.

Some quotes from story:

Ultra-low corporate bond yields have encouraged U.S. public corporations to borrow heavily in the bond market after the Great Recession. Total outstanding non-financial corporate debt has increased by over $2.5 trillion or 40% since its 2008 high, which was already a dangerously high level in its own right.

U.S. corporate debt is now at an all-time high of over 45% of GDP, which is even worse than the levels reached during the Dot-com bubble and U.S. housing and credit bubble:

Corporations have been using the proceeds of their borrowing to boost their stock prices via share buybacks, dividends, and mergers & acquisitions, instead of making the long-term business investments and expansions that were typical in the past

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Well think it was more people not paying attention and ones creating problem to greedy to stop. I remember a friend and I talking about the problems we saw coming, during our weekly “solve all the worlds problems” lunches for several years before the SHTF. Was not much we could do about it other than be prepared for end.

Not pointing fingers, but part of problem is people pay to much attention to petty issues and not real problems.

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Dear God in heaven - RALEIGH isn’t a “fantasyland” !!! Well shit …

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Yeah, people got blinded by the hype more than caring about stuff that actually matters. The scarcity factor also kicked in: people saw housing skyrocket in price, so they felt they needed to get in before things went even higher and before rentals all but disappeared. The writing on the wall in 2005-2006 is why I left. Like you said, nothing I could do but prepare.

It will be interesting to see how the corporate debt situation plays out. The article is from August 2018, so I wonder if this trend has tempered at all or if it continues unabated.

@Olga Hopes and dreams = crushed. Time to move to S FL where life is beaches and palm trees! :beach_umbrella:

During the great recession there was still demand for space in Raleigh. From my perspective the biggest issue was that the recession was brought on by negligent lending practices, and new lending regulations were put in place that severely restricted capital. Developers had to have greater than 100% collateral for their projects. Even if you had demand for the space or companies ready to sign lease agreements you couldn’t borrow the money to build a $100M building unless you had assets of $150M.

Valentine Commons was started around 2010 and the reason it got off the ground is because the land owner had no debt on the property and was able to bring in Capstone. Things loosened a bit, but Stanhope was a similar situation because Kane had the assets to back it. Everyone was competing for very few dollars and it severely limited the size of projects for moderate size developers. It was especially hard because assets backing one project couldn’t be used to back another. At 150% capitalization the national developers were stretched thin alot faster.

I think that even in a recession there will still be development in Raleigh, as long as commercial lending isn’t over regulated. The government, universities, medical and biotech make us somewhat more resilient than many places.

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Exactly. Those negligent lending practices were brought on by federal government policies. They wanted to up home ownership in the US to 70% and the only way to do that was to allow people who were previously not qualified for home loans to now all of a sudden to be qualified. And when people began purchasing over valued homes and the market started tanking then everything went to hell. We were lucky that home values in the greater Raleigh area did not rise up that high like it did in many places across the country.

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While there was clearly a lot of activity in condo conversions, the bigger problem was the speculation on new build condos for flipping. As you know, in the early 2000s, people in Miami were having a lot of success putting 20% down on pre-construction condos, and then flipping the contracts a few years later when the building was completed. People were often making 100% or more on their invested money in a short period of time. A lot of the people were not big investors, rather they were ordinary citizens with homes and mortgages. So how did they get their 20% down money? Well, they were taking out home equity loans on their rapidly accelerated valued primary homes. For those who got into and out of that game in the first five years of the Millennium, they really cleaned up. For those who got caught in the late cycle (post 2005), how do I say this politely?..they lost their asses. When home values plummeted, they now owed more than their homes were worth, and when the buildings were completed, they couldn’t afford to close on them because they neither could get a loan, nor did they have the cash to close. They almost all walked away from their 20% down payment. Many people are still under water, or bankrupt.
Today, a huge majority of condos and closings are all cash deals. At one point, it was like 3/4 of all closings were cash deals.

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I respectfully disagree. I bought a condo in that time period and my building was practically sold out prior to completion of construction. Bloomsbury was REALLY pushing the market in terms of price and wasn’t offering things that other buildings did. They didn’t have a pool. They didn’t have a gym. Heck, they still have some surface lot parking for Heaven’s sake. Mostly, they were REALLY expensive for that time in the market. The same was true for The Quorum. Both buildings also had an inordinate number of large units when Raleigh’s DT condo market was (and probably still is) primarily a 2/2 & 1/1 market. As a side note, The Dawson had the same problem with giant condos on every corner of every floor. They ended up carving many of them up into smaller units after the fact to get that building sold out.
When Bloomsbury sold post recession, units were sold under market (those lucky buyers). I believe that they probably would have sold out earlier if the model for the building was more in line with the market at that time.
I remember thinking that it was a mistake to build a neo-Victorian building, next to a railroad track and with rear views overlooking Central Prison. IMO, I would have built an edgy loft style building with a clean and modern aesthetic, with more modest finishes, and for a lower price. I would have been careful about the number of large units, and I would have put them all on the top floor of the building: creating a larger pool of attainable units on the market in the aforementioned 1/1, 2/2 model for prices comparable to other buildings of its time.
But that’s just my opinion. :wink:

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