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Market Perspective

 

Shadow inventory has not gone away.

Sarasota Herald-Tribune, Aug. 28, 2012

Southwest Florida real estate developer Henry Rodriguez remains worried about shadow inventory.

Data he obtained from the FDIC shows that the rate of default on real estate-related mortgages across the country climbed from 1.1 percent in the first quarter of 2007 to a high of 7.98 percent in the first quarter of 2010.

Since then, the default rate has remained above 7 percent and was last measured at 7.84 percent in the first quarter of 2012.

“What this data tells me is that although the banks have written off these loans there is definitely a huge ‘shadow inventory’ and there is no doubt about that. Rodriguez said in a message to the Herald-Tribune. “This also tells me that the situation has not dramatically improved nationally when you look at the macro picture. We are now attempting to extrapolate from these reports this region’s numbers.”

Regarding the commercial market, Rodriguez said delinquencies remain stable. But $1.7 trillion in commercial mortgages will mature within in four years.

“The banks cannot kick that can down the road as the commercial mortgages will have “hard defaults” as opposed to 30 year mortgages on residential,” Rodriguez said. “I do not see banks desirous of refinancing those loans.”

 

CRE marketplace instability is a systemic problem.

Jan. 27, 2012
It seems like residential market pricing has bottomed out in the Southwest Florida region, but that is certainly not the case in the CRE marketplace, nor is it clear with the national home marketplace.

In March 2010 I wrote to Mike Braga at the Herald-Tribune about the commercial real estate mess that was to come. By “mess” I’m talking about the $1.3 trillion in bank CRE loans coming due to mature in the next 4 years, and the fact that 50 percent of them are under water.

The lack of liquidity provided to the $20 million-and-less CRE borrowers and the “resets” in the commercial mortgage-backed securities marketplace have posed a structural problem in the CRE markets. As someone who buys distressed debt and assets, I’m in a position to benefit from this trend, but I would much rather be buying stabilized assets. That stability is, ultimately, the best thing for our country’s economy.

Is the problem a “solvency issue” created by “liquidity” or the other way around? It is a classic “Which came first – chicken or egg?” situation.

In my opinion this is truly a systemic problem for the whole country, but especially here in Florida. And Washington seems to be unconcerned, presumably because buildings do not vote!

This complicated issue is playing out exactly as I thought. The private equity, hedge funds and life Insurance companies are stepping in and rebuilding the secondary market, but not at the pace of the resets. Banks are hesitant to reset the principle balance to their own end borrowers (in an open fashion) due to the “moral hazard” on the other CRE asset holders that have performing loans.

Short and intermediate opportunities remain very strong for private Equity and potentially long-term opportunities may be forthcoming for private equity to take the place of the liquidity provider of choice in the CRE marketplace – a traditional Community and Regional Bank market. 

 

Why not take a page from Texas’ Book?

Audiocast, Red County Economic Outlook, September 2011
Henry Rodriguez is an entrepreneur and passionate about his family, community and the state of Florida. Henry was on Governor Rick Scott's transition team and recently appointed to the Board of DirectorsEnterprise Florida. He believes that jobs cannot be created or sustained unless we as a nation become net producers of products and related services. In this exclusive interview with Henry before he takes his seat on the Enterprise Florida Board, I discuss with him his philosophy about job creation, energy exploration and development and changing the Florida model for growth. Henry talks about leaving the current model of Florida and becoming more like Texas.

 

After sell-off in ’05 – ’06, it’s back in the market.

Gulf Coast Business Review, May 2011

Prominent Sarasota real estate investor and developer Henry Rodriguez wisely began to sell off the bulk of his holdings in 2005 and 2006. Now he wants to get back in the market. Rodriguez, whose projects include a Wal-Mart Supercenter that revitalized an area of south Sarasota County, specifically plans to get back into commercial real estate — in a big way. His path back will be through Woodmere Capital Holdings and Woodmere Capital Management, funds he set up to purchase distressed commercial real estate properties on the Gulf Coast and the I-4 corridor.

 

Commercial real estate problems ahead.

Sarasota Herald-Tribune, May 2010

In response to a Herald-Tribune story about commercial real estate foreclosures:

“The non-partisan TARP oversight committee in a February 2010 report calls this issue the ‘biggest economic threat to the stability of the United States economy. The shame is we CAN avert this financial disaster in Florida. I have never been an alarmist, but I am not overstating this commercial real estate issue when I say it will be an unattended disaster to Florida’s economy. On the other hand, I think the residential market has stabilized and will start moving up eventually. That residential stability will not be enough to avert this commercial real estate issue in Florida, which will be hit disproportionately.”

Read the Herald-Tribune story.

 

Rodriguez sees a W (double dip recession) in 2010.

Sarasota Herald-Tribune, October 2009

“Nationally, Rodriguez sees the current weak recovery ending with another downdraft, a so-called W-shaped recession. "Once the stimulus winds through the economy, we will have a potentially difficult 2010," he said.  

 

Influential Developer Says a New Economy must be built.

SRQ Magazine, 2009

One would expect a prominent developer in the Sarasota area to be itching for a new construction boom, but Henry Rodriguez, president of Rodriguez Investment Management, says leaders need to know that when a turnaround in the economy happens, we will not simply face the same conditions we have before. “The world has changed,” he said. “We are not going to see the spectacular growth we have in the last decades, really going back to 1973 when we decoupled the dollar from gold in the Nixon era. The era of printing money has reached a crescendo now.”

Rodriguez sits on Enterprise Florida, a private-public entity advising officials and acting, as Rodriguez describes it, the de facto Commerce Department for the state of Florida. To rebound from the current fiscal crisis Rodriguez says we must look toward a production economy, and one built on savings and hard work. But is frustrates sometimes with leadership that still seems to rely on the old systems. While he has worked closely with many of the area’s elected officials on a variety of political issues, he gets hot when discussing matters like impact fees.

“Public officials have not come to accept the new normal,” he said. “We have impact fees that were calculated at the height of the boom, but we need homes built that are in the $150,000 to $250,000 range now. When impact fees make up 10 percent of the cost of that home, it is an unfair, unsustainable tax on economic development.”

 

The recession’s already here.

Sarasota County EDC Annual Economic Outlook Luncheon, January 2008
“Mr. Henry Rodriguez was the only one on the distinguished panel that predicted that the recession had already started. This prediction was prior to the ‘New Normal’ event of September 2008.”


Keynote Speaker: Alex Sink, Chief Financial Officer, State of Florida. Local outlook panelists: Henry Rodriguez President, Rodriguez Investment Management, Larry Fineberg, Vice President Leasing, Benderson Development Co., Inc. and Mark Vitner, Senior Economist, Wachovia Bank, N.A.

Go to the EDC’s Audiocasts.

 

Housing will be back, but not after a substantial price drop.

Sarasota County EDC Investor Luncheon, November 2007

He (Rodriguez) feels that in the latter part of 2009, housing will come back, but prices will drop by 24 percent before that happens. “It might even be 2010 before Sarasota County really gears back up.”  This statement was considered at the time to be a very bearish prediction prior to the Lehman collapse. We have overbuilt based on excessive speculation. Sarasota County has the highest cost of living in Florida. Miami is still building, but the huge influx of Europeans has influenced their housing growth. The housing boom in Sarasota/Manatee/Charlotte Counties is over. He also said that the days of special assessment for our property insurance are around the corner, especially if we do get hit by a category 4 or 5 hurricane.

 

Trouble ahead for the high-end condo market.

November 2005

There’s an absolute glut in the high-end condo market.  Developers who cater to the super high-end condo market may have an interesting phenomenon occur in the next six to 18 months.  “However, those catering to homes that are $600,000 and less have a very wide audience.  Sarasota will always be an appealing place for those with houses between $200,000 and $600,000.

I love much of the architecture that’s coming out as a consequence of some of these beautiful developments.  I’m just concerned about the fundamentals of the extreme high-end condo market, which are the very instruments that are displacing marinas, restaurants, and other businesses on the water.  I’m a firm believer in the markets.  The market is going to correct, and the market will probably reinstate those very businesses that have been displaced.

 

Content in the Market Perspective section of this Web site is intended for informational purposes only and should not be relied upon to make predictions or recommendations of any kind for any asset type. These articles and past and future predictions convey the opinions of Mr. Rodriguez or other individuals. Any investment carries risk and the information contained in these articles does not constitute legal, accounting, tax consulting or other professional advice. Before making any decision or taking any action relating to the issues addressed herein, please engage a qualified and independent professional adviser.