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marmot

Banks or Developers.... Whose at fault?

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My discussion and questions are in terms of NWA only, not the nation as a whole.

Barber, Terminella, Israel, Combs, Growth Group, now Ruskin Heights......

The list goes on and on. My question is regarding all the developers getting foreclosed and sued for not performing, and then banks who are getting countersued for not providing.

Are the banks in the right for foreclosing on all these projects, and the developers are just trying to save face by countersuing?

Or are the banks truly employing some shady practices to try and get their money back quicker.

It just seems there are too many examples of greed, ignorance and ego on both sides. I don't think you can put usually-savvy developers/businesspeople in the same category as first time home buyer who got in over their head.

In each development circumstance someone made a bad, bad decision, whether it is the lender or borrower, and that someone needs to take their lumps and move on.

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My discussion and questions are in terms of NWA only, not the nation as a whole.

Barber, Terminella, Israel, Combs, Growth Group, now Ruskin Heights......

The list goes on and on. My question is regarding all the developers getting foreclosed and sued for not performing, and then banks who are getting countersued for not providing.

Are the banks in the right for foreclosing on all these projects, and the developers are just trying to save face by countersuing?

Or are the banks truly employing some shady practices to try and get their money back quicker.

It just seems there are too many examples of greed, ignorance and ego on both sides. I don't think you can put usually-savvy developers/businesspeople in the same category as first time home buyer who got in over their head.

In each development circumstance someone made a bad, bad decision, whether it is the lender or borrower, and that someone needs to take their lumps and move on.

Well I know you want to focus on just NWA but I think a lot of the trouble started on a national level. I think developers here simply followed suit and seeing what developers were doing everywhere else in the nation. Lax laws and deregulation allowed banks to take more risk and loan money out. With it being so easy to get loans a lot of people who couldn't previously afford to get a home could. But one problem is that you were having people get loans who really didn't understand what they were getting into. That and then you also had people 'flipping' homes and such. Buying a home then simply selling it off a little later with no intention of really living there. It was more of an easy investment. Once people speculating got involved things just really got out of hand. You had home prices sky rocket well past what they were really worth. There was a lot of money to be made but there was a lot of risk as well. Nobody was ready when the bubble finally popped. I'm not sure you can blame one side and not the other. If anything I think it boils down to the general idea that the industry would self regulate itself more or less.

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Well I know you want to focus on just NWA but I think a lot of the trouble started on a national level. I think developers here simply followed suit and seeing what developers were doing everywhere else in the nation. Lax laws and deregulation allowed banks to take more risk and loan money out. With it being so easy to get loans a lot of people who couldn't previously afford to get a home could. But one problem is that you were having people get loans who really didn't understand what they were getting into. That and then you also had people 'flipping' homes and such. Buying a home then simply selling it off a little later with no intention of really living there. It was more of an easy investment. Once people speculating got involved things just really got out of hand. You had home prices sky rocket well past what they were really worth. There was a lot of money to be made but there was a lot of risk as well. Nobody was ready when the bubble finally popped. I'm not sure you can blame one side and not the other. If anything I think it boils down to the general idea that the industry would self regulate itself more or less.

But these are experienced businesspeople involved in these deals, not single home buyers or flippers. Multi-million dollar deals involving bank executives and seasoned, seemingly knowledgeable developers.

IMO, their actions can't be attributed to a "follow the herd" mentality.

But, maybe they were ALL blinded by the easy money from the Fed and the high real-estate prices.

Regardless, the foreclosing and counter-suing is just strange to me. Someone is at fault in each situation, not both or neither.

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But these are experienced businesspeople involved in these deals, not single home buyers or flippers. Multi-million dollar deals involving bank executives and seasoned, seemingly knowledgeable developers.

IMO, their actions can't be attributed to a "follow the herd" mentality.

But, maybe they were ALL blinded by the easy money from the Fed and the high real-estate prices.

Regardless, the foreclosing and counter-suing is just strange to me. Someone is at fault in each situation, not both or neither.

No you can't blame it all on the 'follow the 'herd mentality'. Overall I don't think you can blame it on just one thing. A lot of factors happened to come together at the same time and caused this big mess. As far as developers go, maybe some were influenced by the fact that they saw other local developers coming out with big developments and were worried about being left behind. For our area I think one thing that also influenced things was the fact that we were booming in a number of areas. I think that probably also helped 'blind' developers into going into these larger more expensive developments. We were booming and I think some thought we were perhaps over the hump and developing into a larger more 'urban' metro. I think once things started going bad banks got worried and wanted to get back as much of the money they could from the risky loans they made. But from the developers point of view I think many of them were just wanting to try to wade things out till the economy got better. The counter suing is a bit strange and not all developers are counter suing. I've heard of some instances of it, but to be honest I haven't closely followed all the details on what exactly happened in those counter suits.

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I agree that it did start on a national level in most cases. In Barber's case I think it was his own ego that got him in trouble and the economic downturn finished him off- that could be the case with some others also. Just a few years ago there was talk of the economy being recession proof and the good times lasting forever, not only nationally but locally by some people. The housing crisis caused by easy money/risky banking practices started the downturn both here and everywhere else. Developers and banks were doing what they thought was business as it was supposed to be done and now both are trying to save their own necks. Obviously the banks have the upper hand but some developers are trying to fight back and in some cases have been successful.

The place to lay blame is in the lack of oversight by the federal government of lending practices. Now it is recognized that the financial sector regulation is in need of overhaul although some firms seem to be trying to go back to business as usual.

My 2 cents....

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Here's an article that covers a lot of detail over the banking and developers problems. It even covers a lot of the individual developers. A very good read with a lot of facts.

http://www.nwaonline.net/articles/2009/08/...zdevelopers.txt

Wow. Great link. Addresses my question exactly.

I still don't get the "no one could have predicted this" mentality/cop-out. Were they predicting the real estate boom would last forever? I guess I don't understand how smart business people can take on so much risk with no thought of any consequences in such a dynamic environment as real estate.

We invested in a couple of spec houses in Centerton a few years ago. We made good money on the first, and broke even on the second as the bubble burst. We had opportunities to go much bigger, and had access to seemingly easy money to do it, but we didn't. Good thing too, b/c we would be buried. I guess cooler heads prevailed for us.

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Here's an article that covers a lot of detail over the banking and developers problems. It even covers a lot of the individual developers. A very good read with a lot of facts.

http://www.nwaonline.net/articles/2009/08/...zdevelopers.txt

That is a good article- very thorough. I wonder how many of those 8,615 approved lots are actually in subdivisions that are ready to build homes in? It makes a big difference if they are just approved on paper or at the point where they will be built on.

The Morning News gets some of the most rude and hateful comments you can read. It's depressing to see how low some people can go and how it reflects on the area. I know they don't want to censor anyone but some of the nonsense comments would be better left unsaid- especially when they go off on their racist rants.

You are a voice of reason on there, Mith. :thumbsup:

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Wow. Great link. Addresses my question exactly.

I still don't get the "no one could have predicted this" mentality/cop-out. Were they predicting the real estate boom would last forever? I guess I don't understand how smart business people can take on so much risk with no thought of any consequences in such a dynamic environment as real estate.

We invested in a couple of spec houses in Centerton a few years ago. We made good money on the first, and broke even on the second as the bubble burst. We had opportunities to go much bigger, and had access to seemingly easy money to do it, but we didn't. Good thing too, b/c we would be buried. I guess cooler heads prevailed for us.

I'll still be the lone voice of dissent on the issue of "the market." There IS still a market here. You just have to build a product that people want to buy. I have sold a half-dozen residential properties this year, ranging from lots to houses in the $500K category. I just bought a house on spec, redid it, and sold it (closed) in 59 days total, start to finish (104 W. Boles). I am redoing a house now at 432 N. Willow that I am already entering into a contract to sell, and it was not listed and won't be done until December 15th. Give the market what they want and you can sell it. All the stuff that doesn't sell won't sell for a reason. It is either undifferentiated, overpriced, or just plain bad!

My feeling is that all the developers who have failed have failed because they weren't providing what the market wanted.

M

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I'll still be the lone voice of dissent on the issue of "the market." There IS still a market here. You just have to build a product that people want to buy. I have sold a half-dozen residential properties this year, ranging from lots to houses in the $500K category. I just bought a house on spec, redid it, and sold it (closed) in 59 days total, start to finish (104 W. Boles). I am redoing a house now at 432 N. Willow that I am already entering into a contract to sell, and it was not listed and won't be done until December 15th. Give the market what they want and you can sell it. All the stuff that doesn't sell won't sell for a reason. It is either undifferentiated, overpriced, or just plain bad!

My feeling is that all the developers who have failed have failed because they weren't providing what the market wanted.

M

Spot on.

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The latst Skyline Report shows that there are still houses being sold- the number of unoccupied new houses is down 75 percent from the peak 2 1/2 years ago. I don't see an indicatiion as to whether or not they are developer owned or bank owned but it's good to see that the situation is turning around and economic recovery is happening. Prices in general are still falling but as demand picks back up and exceeds supply that should change. (learned that in ECON 101 :P )

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I'll still be the lone voice of dissent on the issue of "the market." There IS still a market here. You just have to build a product that people want to buy. I have sold a half-dozen residential properties this year, ranging from lots to houses in the $500K category. I just bought a house on spec, redid it, and sold it (closed) in 59 days total, start to finish (104 W. Boles). I am redoing a house now at 432 N. Willow that I am already entering into a contract to sell, and it was not listed and won't be done until December 15th. Give the market what they want and you can sell it. All the stuff that doesn't sell won't sell for a reason. It is either undifferentiated, overpriced, or just plain bad!

My feeling is that all the developers who have failed have failed because they weren't providing what the market wanted.

M

Agreed. There is and always will be a market for real estate, its just a matter of determining the dynamics of it. Its next to impossible to create a market (i.e. $400+/sq ft condos) regardless of the outlying economy.

You have been able to make this determination, and stick to your guns. You haven't let your ambitions get overzealous and run wild with risky predictions. At least, it seems that way to me.

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The latst Skyline Report shows that there are still houses being sold- the number of unoccupied new houses is down 75 percent from the peak 2 1/2 years ago. I don't see an indicatiion as to whether or not they are developer owned or bank owned but it's good to see that the situation is turning around and economic recovery is happening. Prices in general are still falling but as demand picks back up and exceeds supply that should change. (learned that in ECON 101 :P )

Z--It is true that prices, in general, may have fallen but they have not fallen in downtown Fayetteville. It is a small island but it has held up very well and increased slightly in the past few years.

M

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Z--It is true that prices, in general, may have fallen but they have not fallen in downtown Fayetteville. It is a small island but it has held up very well and increased slightly in the past few years.

M

Yes, downtown seems to be doing well. Guess it's an example of supply and demand working- the type of housing and location can't be duplicated so there is limited supply to meet the demand. You certainly don't have to worry about someone coming in and building a new subdivision of historic homes.

I stopped and checked out the project you did further north on Willow a few months ago- very impressive. The attention to detail and quality of work was amazing. It was surprising how large that house is- from the street it looks much smaller. Even the garage with it's living space is beautiful.

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Yes, downtown seems to be doing well. Guess it's an example of supply and demand working- the type of housing and location can't be duplicated so there is limited supply to meet the demand. You certainly don't have to worry about someone coming in and building a new subdivision of historic homes.

I stopped and checked out the project you did further north on Willow a few months ago- very impressive. The attention to detail and quality of work was amazing. It was surprising how large that house is- from the street it looks much smaller. Even the garage with it's living space is beautiful.

Thank you, Z. Our design aesthetic is geared around making a house that fits in to the neighborhood, has some historical reference, doesn't use any fake materials, and isn't pretentious looking from the street. We moved in this house ourselves. Feel free to knock on the door any time!

M

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Anyone been reading the "Going for Broke" series in the ADG on Sundays? It is a series of profiles of local developers and their stories through the boom years and subsequent recession. It is a fascinating series and gives a lot of detail into what has happened, both good and bad. The ADG's description of the series makes it seem as if it was mostly the developers' own financial gambling that was their downfall but the stories themselves tell a story of mistakes by the banks as well. It seems in most cases the banks were all too willing to lend and the developers too willing to borrow. The series will continue through the rest of the year.

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There is a lengthy, but good, article on NWAOnline right now about Terminella and his latest lawsuit against Metropolitan where he claims he's going to take the bank down.

http://www.nwaonline.com/news/2010/dec/12/part-seven-tom-terminella-banking-revenge-20101212/

I'm sure banks, Metropolitan included, were all too eager to make loans on grandiose developments that they shouldn't have, but I fail to see how the bank is at fault for Terminella's collapse, and the courts (to date) have agreed. I find it unlikely he'll succeed in doing anything to Metropolitan other than cost them more attorney's fees (which will be passed onto their future customers one way or another...), and the idea that he'd like to take them down just seems like sour grapes. My opinion: You overextended yourself and the bank may have gone along with it for a while, but at the end of the day, you can't blame anyone but yourself for bad business decisions, Mr. Terminella. Stop wasting your time and money (which you still owe to a number of banks, so it's only loosely "your" money) and focus on fixing your problems instead of looking for someone else to blame.

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Just one excuse after another.

The guy certainly looks like he's been through the ringer...44? Looks 60+.

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I dunno if any of you saw it but we were named the "developer of the year" in Fayetteville last week. It was a nice honor and we are proud to be recognized. Mark

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I dunno if any of you saw it but we were named the "developer of the year" in Fayetteville last week. It was a nice honor and we are proud to be recognized. Mark

Congrats! :D

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I dunno if any of you saw it but we were named the "developer of the year" in Fayetteville last week. It was a nice honor and we are proud to be recognized. Mark

Congratulations! I read that in the newspaper- well-deserved!

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