MP Cost of Carry - Failing

While this blog continues to sound like a rant, it is merely exposing the "emotional" or "psychological" barriers to real estate investing. Much like any market, buyers hang on to hope without any logic or justification from the grade 5 Math that would convince them otherwise.

Rental markets are degrading quickly in the NYC/Hoboken area. There is a fundamental basis for this: those who would otherwise splurge on space without regard for return are now sharing or even moving back home. I am talking about couples, not just singles, who find themselves in this humbling situation. It is a testament to my thesis on why credit destruction has made this real estate correction UNLIKE previous ones. I provide this link to a recent Wall Street Journal article on rental building portfolios.
http://online.wsj.com/public/article_print/SB121919861213655575.html
Companies like Archstone-Smith came into Hoboken on the heals of a hot, low-vacancy trend not long ago, only to find themselves mispriced in their expectations. This revealed a lot about Hoboken's fundamentals; it is a young, eccentric demographic and mostly limited in its debt capacity. So when credit reins are tightened, true net worth is the only survival credential.

Although I spoke very briefly about the W Hoboken Residences in an earlier post, I revert to it here because a private company like Applied Companies with a vast apartment building portfolio is very vulnerable. Applied is the W's developer but only about 40 residential units are being offered (on a 99-year lease since the land is owned by the Port Authority). As I mentioned to a realtor friend, being private under such market conditions is a huge detriment. Only time will tell since a private company like Applied releases no notes on its financial condition. Stay tuned on that one!

Back to the topic at hand on renting and the price-to-rent ratio.

I don't choose to pick on any particular MP owner - because I regard all their options in dire straits - but let me note the investment predicament by example:
One of the larger units at 1025 MP measures 1,920 sq ft and is a 2 bedroom plus entertainment room plus den layout. These are NOT four bedrooms since a bedroom requires a window and closet by technical and legal definition. This unit had its closing in January 2007 for just under $1.1 million. Pretty good deal right?

Roughly a year later, the unit was seen listed (in April 2008, possibly earlier) for rent at a price of $6,250 per month. Since then, it has been fishing for a bite at prices of $6,000, then $5,900, and now $5,500 as cost of carry erodes all advantages of "holding out" for EXPECTED return on the investment.

The unit remains empty. And there are many in the same situation in the same building. Company is not a desired benefit under such conditions!

The problem here is that the trend is worsening. So unless the owner pulls a Merrill Lynch trick and sells out at MARKET (to start afresh), it will keep chasing the dropping ball since there is no end in sight for Wall Street's (and therefore Hoboken's) woes. See my earlier posts on implications and the cycle that we find ourselves in.

If the owner had listed the April 2008 rent at $5,000, $25,000 of income MIGHT have been recuperated - not to mention continued occupancy.

Let's see if they know what they're doing!