The key thing is that the buyers had already taken on the loan against the building.
Quote :
"The mostly vacant building was auctioned off eight months after Bridgeton Holdings defaulted on a $45 million mortgage loan. The investor bought the tower in 2018 for $62 million, or $685 per square foot.
LNR, a unit of Connecticut-based Starwood Property Trust, had been acting as special servicer for the $45 million loan. The LNR affiliate took over the loan this month from the original lender, Dallas-based LStar Capital.
Bridgeton, which told lenders last summer it would stop payments on the loan, owed more than $47 million by the April 18 auction.
Because it had taken over the loan from LStar, LNR could have simply credited the $6.56 million auction bid against the more than $47 million Bridgeton owed on the building, instead of plunking down cash at auction, according to the Business Times.
"
So really the reduction is vastly less than is stated in the headline.
What difference does it make? It cost them more than $6.56M in the end but to deduct the building at a fair price they had to auction it and nobody bid higher than that.
My understanding is this was a foreclosure auction and that the lender bought it (but I'm not actually sure if it was the lender, because articles are saying it was the 'special servicer).
At California foreclosure auctions, my understanding is the lender will usually bid up to the loan balance or their estimate of what they can sell it for with some marketting and time. That it sold for $6M to the lender tells you that nobody was prepared to make an offer on it given the time constraints, not that the fair market value is $6M. The lender will operate it and prepare it for sale and buyers will be able to take their time to do due dilligence etc, and most likely it will sell for somewhat more than $6M.
The purpose of a foreclosure auction include clearly establishing a change of ownership. If the lender pursued judicial foreclosure and a deficiency judgement, the fair market value will be litigated some time after the sale, and the borrower may need to make up the difference between the loan balance and fair market value.
In downtown St. Louis, ATT tower sold for half of that, right there in the middle of downtown. Sold for 200 million in 2016. So, if we go by office buildings that have sat unoccupied for a while, SF is still maintaining good value.
Turn that on its head: what kind of huge office building is only wroth $6 million? A really crappy one. Based on personal experience with that building I'd rather have 3x SFH.
I am not sure this is the correct take, they happened to have assumed the debt prior. But the building was sold independently for this price at a public auction. They had to do this to find the fair value of the building to deduct it from the debt. You could have bid 6.57M and won if no one bid after. Now they own the building and the remainder of the debt.
Some people believe that it’s hard to convert office space into housing. Meanwhile there are people living inside sewage tunnels, cars, the concept of guardians in the UK (who live in office spaces), etc.
I’d be extremely happy to have any of those “hard conversion” offices to live. Naysayers should mind their own business and stop believing in nonsense.
How the hell do you default on a $45 million loan at the same time while buying another property in the same area for $27 million?
This is the kind of stuff that pisses everybody off. The hoi polloi get raked over the coals for college loans while the haut monde blithely skip right past $40 million in debt.
> How the hell do you default on a $45 million loan at the same time while buying another property in the same area for $27 million?
Similar to how you can restructure your medical debt, which doesn’t show up on credit reports anymore, while buying a new car on financing. Separate sets of books.
Real estate is the messy underbelly of capitalism. Since only debt (= mortgages) creates money (and growth) you have to cut them some slack. The economy won't work if you're asking too many questions.
Mortgages aren’t only one among many phyla of dollar-denominated debt, they‘re not even the biggest [1][2]. And fiscal spending can create new money without debt. Debt is the monetary channel’s mechanism.
My understanding is that office buildings don’t usually have the windows, ventilation, or plumbing required to support apartments. A retrofit would be expensive and would leave you with a ton of cave-like rooms in the interior.
I think it's less about the pragmatics of the things you list, and more about the permits.
I could walk into a lot of commercial spaces, including my office and turn it into a code compliant dwelling myself with stuff from Home Depot I can fit in my truck.
I can't get it approved, permitted , by the city of SF, even if I did it by the books.
There are literally people who show up to the permit office with wheelbarrows.
If you want to fix housing in SF, fix the permit office.
> would leave you with a ton of cave-like rooms in the interior
I get into this debate every time this comes up, but this was my (illegal) first apartment in New York. It was great. It’s prudish tendencies like outlawing apartments with no windows that force folks like me, who would put black-out curtains anyway, to compete for housing with families who do need natural light. All while an office building lies vacant.
Not sure if it's hard but it's definitely costly. Looks like average renovation costs (after some quick googling) $100-$200/sqft and with an average office tower floor size of 25000sqft it's going to be at least $2.5M per floor.
Is there such a thing as scrap value for a building? If you tear it down are there any materials worth scavenging or is the only real value in the land?
>> For example, the Deutsche Bank Building in New York, demolished in 2011, contained about 40,000 tons of structural steel. At that time, scrap steel prices averaged around $200 per ton, yielding an estimated $8 million from steel alone.
Readit News
The key thing is that the buyers had already taken on the loan against the building.
Quote :
"The mostly vacant building was auctioned off eight months after Bridgeton Holdings defaulted on a $45 million mortgage loan. The investor bought the tower in 2018 for $62 million, or $685 per square foot.
LNR, a unit of Connecticut-based Starwood Property Trust, had been acting as special servicer for the $45 million loan. The LNR affiliate took over the loan this month from the original lender, Dallas-based LStar Capital.
Bridgeton, which told lenders last summer it would stop payments on the loan, owed more than $47 million by the April 18 auction.
Because it had taken over the loan from LStar, LNR could have simply credited the $6.56 million auction bid against the more than $47 million Bridgeton owed on the building, instead of plunking down cash at auction, according to the Business Times.
"
So really the reduction is vastly less than is stated in the headline.
Dead Comment
[1] https://www.costar.com/article/642008108/one-of-st-louis-tal...
At California foreclosure auctions, my understanding is the lender will usually bid up to the loan balance or their estimate of what they can sell it for with some marketting and time. That it sold for $6M to the lender tells you that nobody was prepared to make an offer on it given the time constraints, not that the fair market value is $6M. The lender will operate it and prepare it for sale and buyers will be able to take their time to do due dilligence etc, and most likely it will sell for somewhat more than $6M.
The purpose of a foreclosure auction include clearly establishing a change of ownership. If the lender pursued judicial foreclosure and a deficiency judgement, the fair market value will be litigated some time after the sale, and the borrower may need to make up the difference between the loan balance and fair market value.
I’d be extremely happy to have any of those “hard conversion” offices to live. Naysayers should mind their own business and stop believing in nonsense.
This is the kind of stuff that pisses everybody off. The hoi polloi get raked over the coals for college loans while the haut monde blithely skip right past $40 million in debt.
Similar to how you can restructure your medical debt, which doesn’t show up on credit reports anymore, while buying a new car on financing. Separate sets of books.
make new entity, sell new bonds with a new proposal on how new people will potentially make money.
Mortgages aren’t only one among many phyla of dollar-denominated debt, they‘re not even the biggest [1][2]. And fiscal spending can create new money without debt. Debt is the monetary channel’s mechanism.
[1] https://www.statista.com/statistics/274636/combined-sum-of-a...
[2] https://en.m.wikipedia.org/wiki/National_debt_of_the_United_...
(With ground floor for retail businesses that are generally appealing to residents of the building, such as a cafe.)
I think it's less about the pragmatics of the things you list, and more about the permits.
I could walk into a lot of commercial spaces, including my office and turn it into a code compliant dwelling myself with stuff from Home Depot I can fit in my truck.
I can't get it approved, permitted , by the city of SF, even if I did it by the books.
There are literally people who show up to the permit office with wheelbarrows.
If you want to fix housing in SF, fix the permit office.
I get into this debate every time this comes up, but this was my (illegal) first apartment in New York. It was great. It’s prudish tendencies like outlawing apartments with no windows that force folks like me, who would put black-out curtains anyway, to compete for housing with families who do need natural light. All while an office building lies vacant.
I only know that because it tanked a developer from doing the conversion on a downtown SF property last year, and that made hacker News.
>> For example, the Deutsche Bank Building in New York, demolished in 2011, contained about 40,000 tons of structural steel. At that time, scrap steel prices averaged around $200 per ton, yielding an estimated $8 million from steel alone.