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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: bozwood who wrote (16701)	7/19/2004 3:22:33 PM
From: Elroy Jetson	Read Replies (2) of 110194

How much did real estate prices decline in Texas during the mid-1980's? Construction of the Tanglewood Apartment complex, located in an exclusive part of the city, had been completed in late 1984 for $64 million and partially rented. This "luxury" complex consisted of two and three bedroom apartments with all amenities. The bank foreclosed on the project and sold the complex to a group of investors from California for $18 million in 1986 - a $46 million dollar discount from the construction value. Based on available rents, I estimated the value of the apartment complex for the investor group at only $16.4 million. Although I'm sure this investment was eventually profitable for them, the $18 million price they paid represented a 10% ($1.6 million dollar) premium over what my analysis showed it was worth. In this example real estate prices declined somewhere between 72% and 75% over a two year period. The bankrupt property development group and the bank which subsequently failed shared the $46 million loss on construction cost.

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