Rumor Mill on the Streets of Manhattan

January 10, 2008

I arrived at La Guardia Airport in New York City on Tuesday afternoon. The good news was that the weather was fantastic. It was in the high 60s, which was unprecedented in New York City for the month of January. The weather was just what I needed after arriving in Chicago last week on the coldest day of the Winter season (I think it was something like 15 degrees below zero with wind chill). Brrrrr!!! In fact, the first thing I did when arriving in Chicago was to go to Target and buy some long underwear. It was that freakin’ cold! I used to live in downtown Chicago for 4 years so I should know cold, but that day was damn cold! Maybe living in Miami for so long has made my blood thin out a bit or something.

My arrival in New York City, however, soon turned sour after learning that my luggage was lost by American Airlines. Regardless, I checked into my hotel and tried to make the best of my trip. My luggage did finally arrive at 3am that night (the next morning).

Last week, I wrote a post mentioning that I would be in New York City from January 8-11 for the Real Estate Connect NYC 2008 Conference. I was contacted by one hedge fund analyst and two investment groups that wanted to meet me while I stayed in New York City. They each had an interest in the Miami condo market.

Today, I attended the first day of the Real Estate Connect Conference and listened to a few industry leaders speak about the market. I also picked up some great information in conversations with people in the hallways as well as the hedge fund analyst that I met with later in the evening.

Okay…enough with the boring stuff. Let’s get to the goods! The following is the rumor mill that was revealed to me throughout the day. This is just what I’ve heard. I am in no way saying that the rumors are true (although these rumors came from accredited sources).

• WCI will declare bankruptcy within the next two weeks. Shares of WCI, the developer of One Bal Harbour, dropped 52.98% today on worries that WCI will declare bankruptcy. Standard & Poor affirmed WCI’s junk rating status and provided a negative outlook for the company. (Can you say “Pink Sheet”?) WCI was provided an extension until January 16, 2008. That’s a very short extension. My source disclosed to me tonight that the bank is probably finally realizing that it is in their best interest to pursue bankruptcy proceedings rather than delay the inevitable. The mathematics makes sense for the bank to do so. Most banks loaned about 65 percent of the total construction costs. As of right now, according to public records, WCI has closed 50.3 percent of the condo units at One Bal Harbour. If I were the bank holding onto the construction loan for One Bal Harbour, I would foreclose on this development immediately. The lender could at least offset their other losses with the gains they may realize with the sale of the defaulted units at One Bal Harbour. They know that it’s a strong development…I know that it’s a strong development. Until the investment funds step in, however, there’s still a lot of risk.
• Marina Blue closings have been pushed back 2 months and possibly even longer. I heard this rumor when I was in Miami on Monday but I didn’t accept it until tonight. I’ve heard that Marina Blue has no clue when closings will begin. Somebody please tell me that I’m wrong! I’ve heard this one from multiple sources though.
• Opera Tower is delaying closings another month. I’ve heard this one from multiple sources as well. What the hell is going on with this development? It keeps delaying its closings. Weren’t closings supposed to realistically begin around September? I was recently misquoted about Opera Tower in the papers. I was quoted as saying something along the lines that Opera Tower will have a 50 percent default rate. I actually said that Opera Tower will have at least a 50 percent default rate. Just my opinion though. Also, just my opinion is that this development is doomed. There’s a large lawsuit against the developer of Opera Tower. You may think I’m crazy but I think in six months my 50 percent default rate for Opera Tower will be considered an overzealous prediction.
• Here’s the big one. Countrywide Financial Corporation is going to declare bankruptcy within the next three weeks. Countrywide has lost about 44 percent of its value within the past 5 days. Rumors around Wall Street are that this turkey is just about roasted and ready to be eaten. We should see this one fall soon…and it’ll make a huge thud on the Street when it does.
• This one isn’t so much a rumor. Quantum on the Bay began closings and the development isn’t even close to being completed. (From what I’ve heard) TCO was granted in order to avoid a lawsuit pertaining to how long the development took to be completed. My guess (and only my guess) is that some money (maybe a lot) was transferred between the developer and city to get the TCO done to avoid lawsuits against the developer.