Taylor Swift got her start in the music industry at the tender age of 16, with the release of her eponymous country album in 2006. In the years since, the 12-time Grammy winner has transformed herself into a pop superstar and built her brand into a global powerhouse, selling more than two million tickets for her upcoming “Eras Tour” in a single day and announcing plans to direct an upcoming feature film. Along the way, she has become a savvy businesswoman who has often used her clout to shake up the music industry. Most recently, her decision to rerecord her older albums, ensuring that revenue from those streams go to her, caused a flurry of new standards from her label Universal Music Group NV to make sure other artists didn’t follow suit.
So it’s perhaps not surprising that, in the process of becoming a music-industry juggernaut, Ms. Swift has also amassed an empire in the real-estate world. Despite her relative youth, the 33-year-old has assembled a portfolio of homes worth at least $150 million. With a penchant for historic houses, Ms. Swift—using a variety of trusts and limited liability companies—has acquired significant properties in locations ranging from Nashville, Tenn., to Beverly Hills and Rhode Island. Since most of these properties were purchased years before the Covid-induced real-estate frenzy, their value has risen dramatically in the time they’ve been owned by the country-singer-turned-pop star. While Ms. Swift tends to hold her properties for the long term, she has also sold a few homes along the way, often for a substantial profit.
Some hotel owners that rode out the coronavirus pandemic are finding the recent travel rebound might not be enough to persuade lenders to extend new credit when their debts mature in the coming months or years.
Leisure travel has rebounded since the second half of last year, but the recovery has been much weaker for facilities with large meeting rooms that rely on business trips and conferences, partly because many meetings are now held remotely. Even as business-focused hotels can attract some vacationers, the numbers aren’t high enough to make up for the slow recovery in business travelers.
Persistently low occupancy rates for business-focused hotels have driven down their property values. As a result, lenders are asking hotel owners to put up more capital before agreeing to refinance their loans—but cash-strapped borrowers saddled with lots of debt might not be able to meet the requirements.
Banks are tightening lending standards because the values of certain hotels and other commercial-real-estate assets have been hurt by changing consumer and business habits post-Covid, said
Richard Shinder,
founder and managing partner of boutique investment-banking and fiduciary-services firm Theatine Partners. No one knows how those assets will be repriced in the future, he said.
“You compound that with higher interest rates, inflation and recessionary fears. You have multiple factors that are impacting lenders’ conservatism…around extending the credit,” Mr. Shinder said.
Hotels were hit hard by the pandemic, but the sector also benefited from government relief money and lenders willing to negotiate easier terms to help them get through the crisis. Now, rising interest rates and slowing economic growth are exposing some hotels that remain in bad shape and potentially pushing them into default.
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Tens of billions of loans backed by hotel properties as collateral are coming due in the next two years. Roughly $30.9 billion, or about 30% of the $101.63 billion securitized hotel loans in the U.S., are set to mature by 2024, according to commercial-real-estate brokerage firm
Newmark Group Inc.
Hotels are often financed by floating-rate loans with three-year terms, while loans for offices or retail centers are typically much longer, sometimes reaching 20 years. That means hotel owners are more exposed to a sudden interest-rate spike and have to refinance debt more frequently. The Federal Reserve has raised rates at the most rapid rate since the early 1980s to combat inflation.
But lenders that had offered loan extensions or forbearances in the early days of the pandemic are less likely to lend to the same borrowers because of economic uncertainties facing those hotels, said
Michelle Russo,
founder and chief executive of hotelAVE, a consulting firm focused on the hospitality industry that has provided services to roughly 1,000 hotels and currently manages more than 70 of them.
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Ms. Russo said one of hotelAVE’s client hotels “got a letter from the bank saying, ‘We just want you to know, nine months out, we are not renewing [your loan]. Don’t come to us.”
As many as 10 hotel owners in the U.S. filed for bankruptcy this January, compared with just two in January 2022, according to New Generation Research Inc., a data provider on corporate bankruptcies. Recent bankruptcies included two large hotels in Manhattan, a
Holiday Inn
in the Financial District and a Crowne Plaza in Times Square.
Still, a bigger surge in hotel bankruptcy filings is unlikely because of factors including high costs associated with the process, said
David Neff,
a lawyer specializing in hotel bankruptcy at Perkins Coie LLP. “If things go south, many of them will just hand the keys back [to the lenders],” Mr. Neff said.
Manus Clancy,
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senior managing director at commercial mortgage data firm Trepp Inc., said overall recovery in the hotel sector in recent months has been extraordinary, but sizable pockets of weakness linger.
Signs of distress are pronounced in the Midwest. Roughly 40% of delinquent hotel loans in the U.S. are backed by hotels in Midwestern states including Illinois, Indiana, Minnesota and Ohio, according to Newmark.
More hotels in the region are coming up against debt maturities. W Chicago City Center, a roughly 400-room hotel in the city’s main business district, the Loop, has a $75.5 million loan that was scheduled to be paid off this summer, according to credit-rating firm DBRS Morningstar. Its owner,
Park Hotels & Resorts Inc.,
defaulted on the loan amid the pandemic and negotiated with special servicer LNR Partners LLC to pay only interest on the loan until its maturity when the company is expected to pay off the loan in full. Interest-only loans are common in commercial real estate and typically the borrower pays a large lump sum, or balloon payment, at the end of the term. As of September, occupancy rates at the 22-story hotel with 14,000 square feet of meeting space had recovered to only about two-thirds of prepandemic levels.
In downtown Cincinnati, the value of the Hilton Cincinnati Netherland Plaza dropped 18% to $86 million in April 2021 from $105.5 million in 2019, when the loan was issued. This past fall, lenders on the hotel’s $72.4 million loan maturing in October 2024 moved to foreclose on the property.
“Hoteliers are having a refinancing problem now,” said
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Loren Balsam,
chief investment officer of hotelAVE. That is partly because some can’t come up with more capital to fill the financial gap created by lower property values that can only support smaller loans, he said. The skyrocketing cost of hedging has also been an issue, he added.
Since the Fed started raising interest rates in March 2022, the prices of some hedging instruments, which floating-rate loan borrowers use to offset interest-rate volatility, have risen to hundreds of thousands of dollars from roughly $10,000 on a multimillion-dollar loan.
At the same time, selling distressed properties has become more difficult. Hotel acquisitions have “slowed down significantly since midsummer” because of the rising cost of borrowing coupled with concerns about an economic slowdown and uncertainty about hotels’ property values, said
Miles Spencer,
co-head of lodging at Newmark.
“The majority of large private-equity [and] institutional investors are somewhat on the sidelines at the moment, waiting for some signs that it’s time to begin acquiring again,” Mr. Spencer said.
Write to Akiko Matsuda at akiko.matsuda@wsj.com
“On the one hand, Mallorca is a perfect leisure destination, while professionals can be in any major European capital for business in a matter of a few hours and also enjoying some quality leisure time before returning…”
The Mallorcan real estate market is about to be taken to “another level” with the dawn of a new era as a result of the award-winning global real estate brokerage The Agency having opened its new franchise office in Mallorca this week after a hugely successful launch in Portugal.
Netflix viewers in over 20 countries and in ten different languages will already be very familiar with The Agency and how its licensed agents operate as a result of the Buying Beverly Hills occu-soap which aired at the end of last year. It not only followed the agents and clients but also gave an insight into the philosophy of The Agency’s founder and CEO Mauricio Umansky and his billion-dollar brokerage that utilises world-class technology and innovative marketing strategies to assist agents and their clients in achieving their real estate goals.
Since its inception in 2011, the firm has set out to create an industry-disrupting model that would redefine the business and foster a unique culture rooted in the core philosophy of collaboration. The Agency has done that and much more and now it is operating in Mallorca.
The new global partner at the Portals office is Essex-born industry veteran and Managing Partner, Alby Euesden, with Danielle Andrews in charge of in-house marketing and communications with support of the team in the United States.
“I am delighted to expand The Agency’s brand throughout Europe with our first office in Mallorca,” said Alby Euesden.
“With its rich culture and history, great climate, and scenic coastlines, I am honoured to help bring The Agency’s white glove service and world-class brand to this unparalleled destination,” he told the Bulletin this week.
And Vice President of European expansion, sales and operations John Thorpe is just as excited about the new venture as The Agency’s founder.
“We’re thrilled to expand our presence overseas in Europe with the launch of our new franchise in Mallorca,” said Mauricio Umansky.
“Our partner Alby Euesden is one of the most respected real estate professionals in Mallorca, and we know he will be an incredible steward of our unique brand and culture.”
John is no stranger to Spain. He has owned a property in Torremolinos for the past six years and loves Spain and the islands.
“I live in Miami, so to begin with the climate is very similar, as it is across southern Europe and the Mediterranean in general. But life is much more laidback while the quality of life is also very similar, if not better. Portugal has got off to a flying start and we are more than confident that Mallorca will perform extremely well. Alby came to us with an extremely interesting and strong business plan and proposal. He clearly had the same mindset as The Agency and that is very important to us. On the back of the Netflix series, we had requests from potential global partners from all over the world, but we’re extremely selective and we not just a shop-front real estate service. Unlike in the States, I was surprised when I first came to Spain how anyone can set up a real estate company; no one has to be licensed. So, one way I look at it is like fast food. Do you want a quick, easy, cheap fix or do you want a bespoke boutique quality service, experience, advice, care and attention?
“After all, we’re talking about average properties of at least two million euros in highly sought-after locations and our clients have come to expect a first-class service all the way through the process of making a major investment and lifestyle decision. Our agents will take them through all of the stages from start to finish and beyond.
“We’re one big family and we include our clients in that,” John, who flew to Mallorca to attend the opening, explained to the Bulletin.
The Agency has rapidly expanded its presence across the globe throughout the past year, making it one of the fastest-growing luxury boutique brokerages in the world.
The Agency’s independent-owned brokerages are referred to and integrated as true global partners. Every Managing Partner, from both corporate or independently-owned offices, operates cohesively as one true global network.
Rather than simply using brand likeness in their marketing, The Agency’s global partners enjoy the same access to leadership, marketing, public relations, training, tools, and technology as the corporate offices. In Q1 of 2023 alone, The Agency is launching four new offices, including the new office in Mallorca, with more on the horizon in the coming weeks.
The Agency has closed more than $57 billion real estate transactions since 2011 and has grown to more than 70 corporately-owned and franchise offices across the globe, making it one of the fastest-growing luxury boutique brokerages in the world. Poised for further expansion with like-minded partners in strategic markets, The Agency is noted by The Financial Times as one of America’s Fastest Growing Companies.
“We have noticed a growing interest in Mallorca in the United States market for some time now, but while it is a US company, we’re not only going to be catering for the North American and Canadian markets but central Europe, the UK and Scandinavia, which are all important markets for Mallorca. To begin with we’re focusing on the South West and the stretch from Valldemossa to Soller,” Alby explained.
“But as we grow, so will our footprint across the island,” he added.
Alby admitted that all the talk of restricting foreign investment has made the market slightly nervous in the Balearics, plus the new 90-day ruling has not helped either, but he is confident that these are hurdles The Agency can and will overcome, especially should any form of controls ever be introduced.
And John was quick to point out there are incentives such as the Golden Visa and the new nomad visa scheme which are generating a lot of fresh interest in Spain and Mallorca.
“I wish the nomad visa had been around when I invested in Spain,” John said. “It would have made life so much easier and it is going to be a big attraction for the foreign market and that will work in our favour,” he added.
But both John and Alby said that, as a result of the pandemic, the whole dynamics of the real estate sector and global business in general have changed.
“During lockdown, for example, while it may have taken a little while for me to have got my head around working remotely, conducting zoom meetings with partners and clients around the world became so much easier. In fact there was a very strong level of regular contact with everyone and that has become highly beneficial for us at The Agency,” John said.
“There has been no need for me to have been flying back and forth to the States to meet the The Agency, it was pretty much all conducted remotely and this has become a game changer,” Alby said. “Providing it is used professionally,” he added.
And The Agency, through Alby, has very high hopes for Mallorca.
“It’s the perfect location for people who may have two to three homes around the world to invest in. All of the global partners are in constant contact with one another and referring clients. With offices across the States in all major cities, in Canada, Mexico, the Dominican Republic, the Cayman Islands, the Bahamas and the Turks and Caicos Islands, for example, not to mention Portugal and Amsterdam and more European partners to come, our network is extremely extensive and that enables us to cover all of our clients’ needs. The world is a much smaller place today thanks to technology and transport.”
The Agency is an agent-first, tech-driven boutique luxury global brokerage representing clients worldwide in a broad spectrum of classes, including residential, new development, resort real estate, luxury leasing and vacation rentals. Breaking away from the traditional brokerage model, The Agency takes a collaborative approach to the business, fostering a culture of partnership in which all clients and listings are represented in a collaborative environment.
“On the one hand, Mallorca is a perfect leisure destination with golf courses, amazing beaches, coves, marinas, mountains, Palma and the airport all so close together and compared to distances people have to cover in other countries. Plus, people can nip around and explore the delights of mainland Spain by simply hopping on a short flight; and the same goes for professionals. They can be in any major European capital for business in a matter of a few hours while also enjoying some quality leisure time before returning to Mallorca,” Alby said.
“Also, having the direct flights from the States to Palma during the summer is a big plus,” he added. Alby knows Mallorca and the Balearics like the back of his hand. He has lived in Mallorca since he was four and is fluent in Castellano and Catalan. He has a wide range of experience with real estate throughout the island.
Known for his patience, calm demeanour, and thoughtful approach to the process, Alby is considered by The Agency as a very reliable guide for clients looking to invest, purchase or sell in Mallorca.
In his free time, Alby participates in endurance events for charity; he recently completed a 150 kilometre triathlon to help raise funds for Cancer Support Group Mallorca, so he has certainly got the stamina required to perform to the extremely high standards expected by The Agency and its clients.
“It’s about consistency and it’s a two-way stream between the clients and our partners,” John said.
“That is why the mindset is so important to us. We have a reputation to live up to while continuing to raise the bar in the global real estate market and we strongly believe that our new partner in Mallorca is going to help us do just that,” John added.
Mauricio has achieved nearly $4 billion in real estate sales and holds the distinction of selling the most homes in the country priced above $20M.
He has represented some of the world’s most noteworthy properties, including the Playboy Mansion, the first house in L.A. to sell above the $100M mark, Walt Disney Estate, and residences owned by Michael Jackson, Michael Jordan and Prince. Mauricio and The Agency also represent some of the world’s top developers and resort brands, including One&Only, Rosewood and The Ritz-Carlton.
“And we’re not in Mallorca for the simple sake of growth, that’s not what we’re about. When we make a commitment it’s for the long term and, as is the case with all of our offices, we will eventually have exclusivity over all of our properties,” John said.
“So, let’s make some noise.”
Most people have a travel bucket list, perhaps with 10 to 15 countries.
For this couple, it’s all 195 — and they’re more than halfway there.
Hudson and Emily Crider have visited 112 countries, but their journey together began long before that. Both are from the “same small town” of Lancaster, Pennsylvania. They met in fifth grade and started dating in high school, the couple said.
Speaking to CNBC via video from Chiang Mai, Thailand, the couple explained that their goal in college was to buy an RV and travel to all 50 states in the United States.
Hudson and Emily Crider in high school.
Hudson and Emily Crider
They began to save for that goal after getting married in 2012, but just a few years later, Hudson’s father died of a heart attack. “It was a reminder to us that we’re not guaranteed another day,” said Hudson, 32.
That motivated them to “sell everything and buy this old RV,” said Hudson. The couple left their jobs — Emily as a marketing manager in an agency, Hudson as a financial planner — in the Washington D.C.-Baltimore area, said Emily, 31. Just two years later, they accomplished their goal of traveling to all 50 states.
So they set their sights higher.
Now, as the couple pursue their goal of traveling to every country in the world, they spend less than when they lived in D.C., said Emily. “The thing we found most helpful is eliminating expenses,” said Hudson. “We don’t have a house, car, kids and also make sure to budget.”
The couple have met people on the road who have children, or a home that they’re renting out to travel long term, said Emily. “We really believe there’s not a right or wrong way to travel,” she said.
Hudson and Emily Crider on a safari in Kenya, Africa.
Hudson and Emily Crider
The couple work remotely while on the road to support their travels, said Hudson. They teach English online, create content on YouTube and Instagram, and sell products like clip-on hand sanitizer holders on Amazon.
Although every traveler has different circumstances, being able to research and read reviews on the internet makes travel “the most open that it’s ever been,” said Hudson.
The couple’s own style of traveling helps them save on food, attractions and local culture in countries they visit, no matter how expensive.
The Criders have traveled to every continent except Antarctica, they said. The following is their ranking of the world’s major regions based on the cost of travel — from the least to most expensive:
- Asia
- South America
- Africa
- Middle East
- Australia
- Europe
- North America
Food is one of the categories of travel that “people plan the least for,” yet it’s the cost that is “easiest to add up,” the couple told CNBC. In Bali, Indonesia, they kept those costs low by eating street food like nasi goreng, spending as little as $1 per meal.
Trying street food is a “great way to taste local food and culture,” said Emily. Their favorite Asian cuisines include pad Thai and khao soi from Thailand and Vietnamese banh mi, she said.
The couple save on housing, their second biggest expense, by doing homestays with locals. In Bali, they stayed with the “sweetest family” for just $4 per night, said Emily.
Hudson trying an organ sandwich in Marrakech, Morocco.
Hudson and Emily Crider
The couple also use Couchsurfing.com, a site where travelers can find locals offering free housing. In Switzerland, they stayed with another couple who made them raclette, a traditional Swiss dish, and took them paragliding, said Emily.
Homestays are a great way to connect with local people, said Emily. “When you’re quickly going to a place and taking pictures of tourist sites, you don’t always get the full picture.”
South America was the third cheapest for activities, at an average of $15.00 per experience, the couple told CNBC. Many activities were free, they added.
The couple research and budget for the main activities they want to do before visiting any country, they said.
Hudson and Emily Crider on a hike in Patagonia, South America.
Hudson and Emily Crider
They hiked through “amazing” places like Patagonia and Peru without booking a guide, said Hudson. With online resources, “it was so easy to find it ourselves,” he said.
The couple call this “do-it-yourself style travel,” where they find transportation and explore cities without having to book a tour, said Emily.
“Do-it-yourself” travel even extends to safaris, according to the couple.
In East Africa, Hudson and Emily rented a car and drove through the Serengeti on their own.
Hudson and Emily Crider camping during their self-drive safari in the Serengeti in Tanzania.
Hudson and Emily Crider
“It was more of an adventure than we signed up for, but it was a good way to save money,” said Emily.
Transportation typically means metros, buses or tuk-tuks instead of taxis and Uber, the couple said.
Hudson and Emily Crider in Petra, Jordan.
Hudson and Emily Crider
But renting a car can also be worth it.
The couple spent the most on transportation in the Middle East, at an average of $14.00 per ride, they told CNBC.
“If anybody’s traveling to Jordan in particular, rent a car — it’s a great way to meet local people,” said Hudson.
The couple spent $85 on a harbor cruise in Sydney that went past the Sydney Opera House. “We prefer to spend a little less money on housing and food and more on experiences,” said Emily.
They spent the most on activities in Australia, with an average of $42.50 per experience. Transportation, however, was the second-least costly, at an average of $3 per ride.
The cruise was also an example of how the couple create content on the road, as they partnered with a company to promote the experience, said Hudson.
By saving a little bit in every category, the couple save a lot of money in the long run, they told CNBC. They did the same in Europe, which was the second-most expensive for housing, food and transportation.
It helps to spend less time staying in the more expensive areas, said Hudson. Compared with Paris, cities like Prague and Budapest are “equally beautiful” but have housing that is “half the cost,” he added.
Hudson and Emily Crider paragliding in Switzerland.
Hudson and Emily Crider
To get around, the couple used the Eurail unlimited pass to travel to as many places as they wanted within a booked time period, said Hudson. Budget airlines like Wow Air and Ryanair were also “amazing” options, he said.
“We would get a €12.00 flight and spend more on getting the Uber to the airport,” he quipped.
They used Google to find accommodations based on budget, then booked using Airbnb or Booking.com for the “best deals,” said Emily. They typically did a “really cheap hotel or motel” in Europe as it was often less expensive than a hostel, she added.
Although New York consistently ranks as the most expensive city in the U.S., it is a popular destination for travelers who visit North America, said Hudson.
The couple got around by walking or riding on New York’s “amazing” subway system for $2.75 per trip, he said. They used Google Maps to access bus and metro times in almost every major city they visited, they said.
They also said they use blogs and Facebook groups to find suggestions for public transportation too.
Hudson and Emily try to strike a balance between “comfort and cost” when picking accommodations, they told CNBC.
That often leads to a choice between air conditioning and Wi-Fi, said Hudson. (They rarely compromise on the Wi-Fi.)
Reading an accommodation’s newest reviews gives a “current update of someone’s experience staying there,” said Emily.
“We don’t book places without reviews within the past four or five months.“
A hostel room where the Criders stayed in Sydney, Australia.
Hudson and Emily Crider
Bonus points on credit cards also help to save money, said Emily. “Chase Sapphire Preferred and Reserve cards are our favorite because those can be transferred to a lot of different hotels and airlines,” she said.
The couple plan for future trips by using Google Flights to notify them if a flight price drops below a certain amount, said Emily. Instead of being fixed on one specific destination, pick five places you want to visit and set notifications for them, she recommended.
As for Hudson and Emily, they have set their sights on more places than that.
They are headed to West Africa next, they said.
I have an adult son who is 27 years old and works in the tech industry. He is doing well, but he is not disciplined when it comes to money. He has been living in an 800-square-foot apartment in one of the most expensive cities in the U.S. Buying a place on his own is out of the question given his salary, current property prices and rising interest rates.
My solution to rescue my son from his tiny apartment is to buy a house for him. He is not married. I want him to sign a promissory note and pay me back interest-free over the next 20 years. I want to somehow insert this promissory notice into the title so that he will not be able to sell the house without my consent. Also, if he does not keep up with his payments I will have recourse to take action. I am 99.99% sure that all my concerns will end up groundless, but I want to have this in writing to be sure.
His monthly payments will be important but not critical to my daily life. I have more than enough money to cover my expenses, but it is important for me not to create an opportunity — even to the most innocent mind — for doing something silly. I want to be fair to my son, who has been a very good kid, but I do not want to compromise too much during my own retirement years. I have been working since I was 14 years of age (I’m now over 65), and I recently retired comfortably.
Is this a good plan? Should I proceed with it? Is such a promissory note sufficient, and can that be inserted into the title in the same way a lien works? I love my son, but he is not careful about how he spends his money. I hope that this process teaches him a bit of financial responsibility and that his quality of life improves significantly. That is my main objective.
Please let me know what you think.
Loving Father
Dear Father,
It’s safest to make financial decisions with a cool head and a steely resolve. Of course you love your son, but you should not allow emotion to rule your finances. This will be one of the biggest purchases — if not the biggest — you make in your lifetime, and you will be relying on a third party to pay the bills. Seek legal and financial advice before promising anything.
You would need to arrange — with a real-estate attorney — a promissory/mortgage note and a deed of trust. The former outlines the terms of the loan: the interest rate (0% in this case), when each payment is due, the length of the loan, etc. The latter establishes that your son is obligated to repay the loan and outlines exactly what happens if he defaults.
Alternatively, you could reduce your financial commitment by giving your son a down payment or paying for a portion of the house so that the mortgage repayments are within his reach, cosigning on the loan and putting both your names on the deed. With the 30-year interest rate edging closer to 7%, however, this may be a less attractive option.
If you did cosign on a mortgage with your son and you contributed to the closing costs, that contribution could be viewed by the Internal Revenue Service as a gift if it’s more than the annual exemption ($17,000 for an individual in 2023). Under current rules, an individual may give away $12.92 million in assets or property over the course of their lifetime.
Neil Carbone, trusts and estates attorney at Farrell Fritz, said you could provide your son with an intrafamily mortgage loan. “Intrafamily loans can be good estate-planning vehicles because the interest on such a loan is generally lower than can be obtained through a commercial lender,” he says.
“The interest rate will typically be set at the AFR, or applicable federal rate, which is the lowest rate that can be charged without the loan being considered a gift. Another benefit of an intrafamily loan is that the repayment terms can be more flexible than a commercial lender may be willing to provide. “
For example, the loan can provide for payments of interest only for a period of time, with a balloon payment at the end, he says, and the loan must be carefully documented and the mortgage will be listed as a lien against the property, so you will have protection if your son fails to make the payments.
This gift would change his life and show him how fortunate he is to have such a generous father, and he should — in theory — change his ways. Unfortunately, however, life rarely works like that. Financially reckless people don’t change overnight and, if the years I have spent writing this column have shown me anything, it’s that free gifts rarely spark a complete transformation.
In fact, they risk doing the opposite. Free gifts often have the capacity to seem like a reward for imprudent behavior. Although you expect your son to meet his monthly obligations, as any landlord will tell you, you should prepare yourself for a missed payment here and a missed payment there, or for 90% of the payment one month and 100% the next, followed by 70% the next.
You should ask your son some questions before you go ahead with this: Has he paid off his credit-card debt? Does he have six months’ worth of emergency savings? Would he submit to a monthly “wallet check” over a period of six months to make sure he can stick to a budget and resist the temptation to overspend? Would he agree to meet with a financial planner?
You should also meet with a financial planner to “stress test” your finances. How would a default affect your credit? Will you incur a gift tax? What if you had a medical emergency or needed long-term care? From what you say in your letter, your son may not be in a position to help you out. Do you have long-term care insurance?
And be prepared for the unexpected. Home values generally go up over time, but they can also fall without warning. The housing market has been on a tear for the last three years, but there could come a time when property values fall and the house is worth less than what you paid for it, or less than what you owe if you decide to take out a mortgage.
Alternatively, you could create a trust for your son’s benefit and put the house in that trust, and make a gift of cash to the trust, which could be used to purchase the house, Carbone adds, and as a beneficiary of the trust, your son could be permitted to live in the house rent-free provided that he pay for the upkeep of the house. (Or, preferably, charge him rent and ask him to be responsible for the upkeep, so it keeps him accountable and also helps with your own cash flow.)
Hard knocks, learning from past financial mistakes and wins, and appreciating the value of a dollar by working hard for what he has — along with advice from a financial adviser and trusted attorney — are far more likely to help your son than the proverbial gift horse. Your son, like millions of people his age, is living in a small apartment and getting a sharp dose of reality.
It is, regrettably perhaps, a rite of passage. But it will help build character and allow him to appreciate any steps he takes up the property ladder in the future. He may even look back on this part of his life fondly. The gift of a house should be more than a way to teach him a bit of financial responsibility. In fact, I recommend him meeting a series of goals if you decide to sign on the dotted line.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
More from Quentin Fottrell:
Getting a second dog to fix the first dog’s behavior? Not the best idea.
If you were one of the 100 million or so who sat down Sunday to watch Super Bowl LVII, you noticed a pair of dog-focused commercials.
The first, from The Farmer’s Dog, was so sweet it threw my heart into a woodchipper. But then came the second ad, courtesy of Amazon. It implied a disappointing message: Getting a second dog can fix your first dog’s behavior problems.
“PSA: Do not be fooled by the [Amazon] dog commercial,” Diamond’s Friends Pet Rescue wrote on Instagram. “Getting a second dog is not the solution to fixing behavioral issues like separation anxiety.”
In fact, adding another dog could double the destruction. Instead, this fictional family should’ve spent their time and money making sure their first dog was mentally and physically healthy. Then they could decide whether another dog is a good idea.
The Commercial
The first third of the 90-second commercial features a family and their dog at the beginning of the COVID-19 pandemic. Like a lot of us three years ago, they’re all working and learning from home, happily spending all their time with the dog. But then it’s time to go back to the office and school. As they head out the door, the family’s dad tells the dog, “We’ll be back soon. Be a good boy.”
That doesn’t happen. After some forlorn gazes out the window, the dog gets destructive, breaking a lamp, strewing trash everywhere, shredding clothes and furniture, and chewing the remote. He ignores his mom on the treat dispenser, and the struggling family seems to ostracize him. (The four humans standing together, arms crossed and staring at him from a distance is particularly bad.)
RELATED: How Do Dogs Communicate With Each Other? Actions Speak Louder Than Woofs
But then we see the humans gathering around a laptop. They’re buying a heavy-duty kennel from Amazon—but not for their dog. The kennel arrives, and the family opens it to reveal a second dog. The two pups offer each other some introductory sniffs, and the commercial ends with the two of them napping together with one of the kids.
So let’s get into why that was decidedly not great.
What the Amazon Family Should’ve Done
When he’s left alone, the dog in the commercial seems to be showing signs of separation anxiety, boredom, or depression, according to Jenna Stregowski, RVT and Daily Paws’ pet health and behavior editor. His usual routine with his homebound family has been upended, and he lacks the cognitive ability to understand and adapt to the change, she says.
(Also, dogs don’t speak or understand conversational English, so his dad telling him to be good while they’re gone does precisely nothing.)
“He’s just finding his own coping mechanisms,” Stregowski says. “For dogs, chewing and ‘destroying’ things are enriching and entertaining. He doesn’t think about it as destruction—it’s an activity to relieve his unwanted emotions and release pent-up energy.”
So what can you do to prevent this type of behavior?
- Get help: A certified trainer or a pet behavior expert will be the best resource to help your dog feel at ease when they’re home alone.
- Make a plan: Figure out where to put your dog when you leave, make sure they have stuff to do, and decide whether you need to hire any help. We even have a template for that.
- Practice the plan: The family in the commercial didn’t prepare their dog for their new routine at all, and you want to avoid that mistake. Try leaving for brief periods each day to see how they handle it, making your absences last longer each day so your dog gets used to it.
- Wear them out: Before you leave for the day, play fetch in the yard or head out for a walk. Hopefully, your dog will be too tired to cause mayhem. If they have excess energy or you’re going to be out of the house more than eight hours, consider hiring a dog walker or pet sitter.
- Leave them something to do: This can be a KONG filled with peanut butter or another interactive toy. Hopefully, getting the treats and goodies will be more fulfilling than ruining your house.
- Dog-proof the pup’s space: Closed doors and better dog gates could’ve prevented much of the Amazon dog’s destruction. Make sure your dog has access to what they need, but otherwise close off other parts of the house. It’s also a good idea to train your dog to get comfortable with a crate in case you need to keep them there when you’re gone.
Finally, make sure you talk with your veterinarian if your dog is destroying things or peeing or pooping inside while you’re gone. You’ll want to rule out any medical problems.
Why Is the Second Dog a Bad Idea?
It’s an unwise decision because the first dog’s mental health is in a bad place, Stregowski says. A new dog can be a fabulous addition to many families, but the Amazon family probably would’ve ended up with two dogs with behavior issues.
Why? Stregowski has a few reasons. The second dog might copy the original dog’s behavior. Or the new dog might detect the other dog’s stress, making the second dog stressed as well. Then there’s an obvious one: This family didn’t provide enough enrichment for one dog, let alone two.
RELATED: Do Dogs Have Emotions? What Science Says Your Pup Feels
Rather than treat a second dog as a “fix,” families should consider whether they can provide for another pet. Stregowski listed several questions to ponder:
- Is your dog physically and mentally ready for another pet in the house?
- Does your dog get along with other dogs?
- Can you dedicate the time and resources to caring for this new pet? Are you prepared to change your daily life to care for the new addition?
- Will you make sure to introduce them correctly? The Amazon family rushed into introductions, which could have led to a dogfight.
Most importantly: Will your life and both dogs’ lives improve under your stewardship? If yes to all those questions, you should start looking for adoptable pups and find your dog a new best friend. Leave behavior issues to the pros.
Falling prices may be luring buyers back into the U.S. housing market, but don’t let that fool you — homes are still far from affordable.
Prices in many U.S. housing markets have been declining over the past year and buyers are starting to make purchases again. But is now the right time to buy?
A careful look at the cost of mortgages over the past couple years suggests that prices aren’t nearly as low as they could be, and that over the life of a mortgage, buyers are actually paying far more for their homes than they would have in 2021 when housing prices peaked.
Two solutions are needed to address this affordability crisis: buyers need to fully leverage their negotiating power, and cities need to encourage new housing.
As an example, consider John, who found his dream home: a two-bedroom, two bath townhouse, close to his job, with enough space for his family, and good access to everything they need. John was hesitant to buy — prices were high and still rising — but on Nov. 10th, 2021, he closed the deal. He bought the home for $400,000 on a 30-year fixed rate mortgage with a 20% down payment and a 2.98% interest rate. It was perfect: only $1,346 a month to service the mortgage.
But what if John had waited a year? National average interest rates on that type of mortgage were 7.08% in November 2022. If he had closed on the same home for the same price a year later, with 20% down, and a 30-year fixed rate mortgage, his mortgage payment would have been $2,146 per month — almost 60% higher. John might not have been able to afford his dream home if he had waited for prices to fall, and would have had to settle for something smaller and less convenient.
Now consider the example of John’s friend Carla, who waited to buy. Price spikes forced her to put homeownership on hold. But lately, Carla is seeing price cuts and hearing stories about how the market is starting to recover. Now seems like the time to buy.
Carla finds a home valued at $400,000. She has good credit and enough money saved for a 20% downpayment, but the monthly payment is the big concern. Assuming she could get an interest rate close to the national average of 6% — twice as high as what John’s mortgage was in 2021 — she would have to negotiate the price down by $95,000 if she wanted to have the same monthly mortgage payment as her friend.
That’s a cut of almost 25% of the total price of the home. No major U.S. city has seen prices fall far enough to make a home in early 2023 as affordable for homebuyers as it was in late 2021. Even in areas where prices are still being cut, buyers need to be careful not to buy too quickly.
Prices can and should be brought down further. Buyers need to leverage their negotiating power to pull them down as far as possible.
Of course, negotiating prices can only do so much. The Federal Reserve has been attempting to drive down prices by pushing up interest rates, but the effort so far hasn’t been effective. Lower prices lure buyers; things won’t be more affordable in the long term without broader fixes to the market.
For many of the regional U.S. housing markets, the ultimate problem is limited supply. Housing advocate Up For Growth estimates that the current housing supply deficit in the U.S. is more than 3.5 million units, with other estimates suggesting it could be as high as 20 million.
Buyers can leverage their negotiating power to bring down prices, and the Fed eventually will start to cut interest rates. In the meantime, the U.S. needs more housing. Municipalities need to do all they can to pave the way for developers: loosen density restrictions; shorten permitting times and untangle the red tape — especially for affordable housing.
Until that happens, affordable housing will remain out of reach for most Americans. Among buyers who can even afford to consider returning to the market now, buying a home, particularly in strained coastal housing markets, is an expensive project. Prices can go down further, and buyers should put pressure on both government and the market to see that they do.
Jeremiah Ludwig is an independent housing policy researcher, based in Washington D.C.
They were like haute couture for the real-estate world.
Investors in a new model of mortgage bonds created over the past decade to finance trophy commercial real estate and star property owners are about to find out what higher mortgage rates mean as a mountain of debt comes due.
More than $45 billion of loans on some of the nation’s most recognizable office buildings, hotel chains and other commercial properties are set to mature through 2024, debt that was tucked away into bond deals known as single-asset, single-borrower (SASB) securities, according to a tally by DBRS Morningstar.
The bonds, tied mostly to large loans of $200 million to $1 billion each, helped finance high-end buildings and well-heeled borrowers in the era of rock-bottom interest rates that prevailed in the wake of the 2007-2008 global financial crisis.
Now, owners of many of these office towers, hotels and multifamily developments soon face big, balloon payments to satisfy their debts in cities and towns across the nation altered by the pandemic. Loans also have become more costly to take out, and harder to come as the Federal Reserve wages its battle against high inflation.
“Everybody is going to be watching this,” said Zach Streit, a founder of Way Capital, a debt and equity commercial real estate advisory firm in Los Angeles.
“It’s the head of the dog, because it is some of the largest assets, with the biggest sponsors,” Streit said, adding that what happens in the large-loan market will filter into everything else.
Iconic, but concerns
Lending at low rates helped propel commercial property prices to record highs during the pandemic, helped along by annual mortgage bond issuance that in 2021 hit a 14-year high of nearly $140 billion, according to data from the Securities Industry and Financial Markets Association.
The trend on Wall Street for decades had been to bundle up dozens of smaller commercial property loans into $1 billion bond deals, to help diversify the risks. The twist over the past decade was to lean heavily into debt that hinged on a single, trophy asset or top real estate owners.
Some of the buildings, like the sprawling Parkmerced apartments in San Francisco transformed neighborhoods, while the Seagram Building on Manhattan’s Park Avenue has been credited with giving rise to sleek, modern skyscrapers.
Bond investors often jumped at the chance to own even a sliver of debt on iconic buildings, but now both Parkmerced and Seagram sit near the top of a pile of maturing large-loans “of concern” for 2023 and 2024, according to lists compiled by analysts at DBRS Morningstar.
To be sure, concerns about maturing debt on specific buildings only point to potential trouble ahead, not a guarantee of it. High-profile real estate operators often have many options to avoid defaulting, such as writing a bigger equity check when looking to refinancing, bringing in other forms of capital or additional partners, or even selling a property.
Also, while the DBRS Morningstar analysts pegged the loan payoff rate for mortgages in single asset, single borrower property bond deals at a low 62% in 2022, they expect roughly 75% of loans to pay off this year and 94% in 2024.
A spokesman for RFR Realty, owners of the Seagram Building, declined to comment. Parkmerced owners Maximus Real Estate Partners didn’t immediately return a call or email seeking comment.
A ‘new reality’
Trophy buildings in places like Manhattan and San Francisco were long known for retaining their appeal in past economic downturns, at least before the pandemic changed expectations around working from the office five days a week.
San Francisco has been reeling from a wave of layoffs in the technology sector in recent months, but also has been one of the slowest big U.S. cities to recover from the pandemic.
Weekly office occupancy rates for the New York and San Francisco metro areas were still pegged below 50% in early February, according to Kastle System’s 10-city national average
Many commercial property owners made use of loan extension options available during the pandemic, which could be running out right as loans come fully due as interest rates reset higher. Many loans in the past decade required borrowers only to pay interest, but not to shrink their loan balance.
Specifically, the Parkmerced loan “of concern” carries a low 3.25% fixed rate, and it comes due in December 2024, according to the DBRS report, while other floating-rate loans carried rates as high as 8.47%
Many fixed-rate property loans are based off the 10-year Treasury yield
TMUBMUSD10Y
plus some basis points, to compensate for default risks. Treasury yields rose and U.S. stocks
SPX
were heading lower over the past week on concerns about how long the economy might face even higher interest rates as the Fed keeps up its inflation fight. The benchmark 10-year was at 3.73% on Friday.
“Right now, rates probably are in the high 5s to mid 6% range,” said Anuj Gupta. chief executive officer of A10 Capital and a veteran commercial real estate lender.
Gupta expects a portion of the maturing, floating-rate debt in bond deals to qualify for refinancing into longer, fixed-rate loans, but he also sees borrowers who might need to put more equity to properties as prices wobble, or the use of more costly mezzanine debt and other forms of funding to stabilize buildings.
“I do think the real-estate market has already capitulated to a new reality,” he said.
‘My son is not careful with money’: I want to rescue him from his ‘tiny’ 800-square-foot apartment. Should I buy him a home, and have him sign a promissory note?
I have an adult son who is 27 years old and works in the tech industry. I love my son, but he is not disciplined when it comes to money. He has been living in an 800-square-foot apartment in one of the most expensive cities in the U.S. Buying a place on his own is out of the question given his salary, current property prices and rising interest rates.
My solution to rescue my son from his tiny apartment is to buy a house for him. He is not married. I want him to sign a promissory note and pay me back interest-free over the next 20 years. I want to somehow insert this promissory notice into the title so that he will not be able to sell the house without my consent. Also, if he does not keep up with his payments I will have recourse to take action. I am 99.99% sure that all my concerns will end up groundless, but I want to have this in writing to be sure.
“‘I am 99.99% sure that all my concerns will end up groundless, but I want to have this in writing to be sure.’”
His monthly payments will be important but not critical to my daily life. I have more than enough money to cover my expenses, but it is important for me not to create an opportunity — even to the most innocent mind — for doing something silly. I want to be fair to my son, who has been a very good kid, but I do not want to compromise too much during my own retirement years. I have been working since I was 14 years of age (I’m now over 65), and I recently retired comfortably.
Is this a good plan? Should I proceed with it? Is such a promissory note sufficient, and can that be inserted into the title in the same way a lien works? My son is not careful with money. I hope that this process teaches him a bit of financial responsibility and that his quality of life improves significantly. That is my main objective.
Please let me know what you think.
Loving Father
Dear Father,
For many young people living in big cities in 2023, an 800-square-foot apartment would be an absolute luxury.
It’s safest to make financial decisions with a cool head and a steely resolve. Of course you love your son, but you should not allow emotion to rule your finances. This will be one of the biggest purchases — if not the biggest — you make in your lifetime, and you will be relying on a third party to pay the bills. Seek legal and financial advice before promising anything.
You would need to arrange — with a real-estate attorney — a promissory/mortgage note and a deed of trust. The former outlines the terms of the loan: the interest rate (0% in this case), when each payment is due, the length of the loan, etc. The latter establishes that your son is obligated to repay the loan and outlines exactly what happens if he defaults.
Alternatively, you could reduce your financial commitment by giving your son a down payment or paying for a portion of the house so that the mortgage repayments are within his reach, cosigning on the loan and putting both your names on the deed. With the 30-year interest rate edging closer to 7%, however, this may be a less attractive option.
If you did cosign on a mortgage with your son and you contributed to the closing costs, that contribution could be viewed by the Internal Revenue Service as a gift if it’s more than the annual exemption ($17,000 for an individual in 2023). Under current rules, an individual may give away $12.92 million in assets or property over the course of their lifetime.
Neil Carbone, trusts and estates attorney at Farrell Fritz, said you could provide your son with an intrafamily mortgage loan. “Intrafamily loans can be good estate-planning vehicles because the interest on such a loan is generally lower than can be obtained through a commercial lender,” he says.
“The interest rate will typically be set at the AFR, or applicable federal rate, which is the lowest rate that can be charged without the loan being considered a gift. Another benefit of an intrafamily loan is that the repayment terms can be more flexible than a commercial lender may be willing to provide. “
For example, the loan can provide for payments of interest only for a period of time, with a balloon payment at the end, he says, and the loan must be carefully documented and the mortgage will be listed as a lien against the property, so you will have protection if your son fails to make the payments.
“‘This gift would change his life and show him how fortunate he is to have such a generous father, and he should — in theory — change his ways. Unfortunately, however, life rarely works like that.’”
This gift would change his life and show him how fortunate he is to have such a generous father, and he should — in theory — change his ways. Unfortunately, however, life rarely works like that. Financially reckless people don’t change overnight and, if the years I have spent writing this column have shown me anything, it’s that free gifts rarely spark a complete transformation.
In fact, they risk doing the opposite. Free gifts often have the capacity to seem like a reward for imprudent behavior. Although you expect your son to meet his monthly obligations, as any landlord will tell you, you should prepare yourself for a missed payment here and a missed payment there, or for 90% of the payment one month and 100% the next, followed by 70% the next.
You should ask your son some questions before you go ahead with this: Has he paid off his credit-card debt? Does he have six months’ worth of emergency savings? Would he submit to a monthly “wallet check” over a period of six months to make sure he can stick to a budget and resist the temptation to overspend? Would he agree to meet with a financial planner?
You should also meet with a financial planner to “stress test” your finances. How would a default affect your credit? Will you incur a gift tax? What if you had a medical emergency or needed long-term care? From what you say in your letter, your son may not be in a position to help you out. Do you have long-term care insurance?
And be prepared for the unexpected. Home values generally go up over time, but they can also fall without warning. The housing market has been on a tear for the last three years, but there could come a time when property values fall and the house is worth less than what you paid for it, or less than what you owe if you decide to take out a mortgage.
Alternatively, you could create a trust for your son’s benefit and put the house in that trust, and make a gift of cash to the trust, which could be used to purchase the house, Carbone adds, and as a beneficiary of the trust, your son could be permitted to live in the house rent-free provided that he pay for the upkeep of the house. (Or, preferably, charge him rent and ask him to be responsible for the upkeep, so it keeps him accountable and also helps with your own cash flow.)
Hard knocks, learning from past financial mistakes and wins, and appreciating the value of a dollar by working hard for what he has — along with advice from a financial adviser and trusted attorney — are far more likely to help your son than the proverbial gift horse. Your son, like millions of people his age, is living in a small apartment and getting a sharp dose of reality.
It is, regrettably perhaps, a rite of passage. But it will help build character and allow him to appreciate any steps he takes up the property ladder in the future. He may even look back on this part of his life fondly. The gift of a house should be more than a way to teach him a bit of financial responsibility. And I’m not sure it will help him in that endeavor. In fact, I recommend you have him meet a series of financial goals before you decide to sign on the dotted line.
You have the opportunity to give your son a head start, but I hope that he also learns how to stand on his own two feet.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
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