Browse Tag: Wall Street Journal

On Bitcoin And Property Prices: Nowhere Near Ready For Prime Time

The bitcoin logo

The new international digital currency Bitcoin has found itself in the news quite a bit over the past couple of years. The novelty of Bitcoin’s story is attractive — a currency not beholden to any central bank nor any state is something that causes imaginations to run, and makes us review the relationships between the deals we make and the stuff we use to transfer value in those deals. Dollars are, after all, only one (supremely popular) means of facilitating payment.

Beyond that rich area for thought lies the fact that Bitcoin’s value in dollars has, in the long term, climbed sharply. Some see a speculative bubble destined to messily pop, some see the early days of a permanent and true digital currency.  Many lie somewhere in the middle while a whole lot of folks are left wondering what the heck Bitcoin is.

What is Bitcoin?

I don’t want to make anyone’s eyes glaze over, but the fact is, explaining Bitcoin properly requires a lot of computer-nerd vocabulary and experience. As readers of The Source already know, I have a some depth in technology topics.  The question is: can I explain Bitcoin without drowning anybody in jargon?  Let’s try:

The simplest and most useful way to put it is like this: Bitcoin is a “secure” way to carry value on your computer or pad or phone.  You convert dollars to Bitcoins (BTC) using an Bitcoin exchange and you carry around and spend Bitcoins in the same way you carry around files on your computer or send messages such as e-mail or text.

That’s it, for now anyway.  The hows, wheres and whens are all nerd stuff and I’ll be glad to answer any questions in comments.  But for now: Bitcoins are magic pieces of digital information that carry value measured in dollars. Or Euros.  Or Yen, etc.

“Secure” Doesn’t Mean “Stable”

While Bitcoin is by design secure, meaning the amount of BTC you have and spend is protected against a wide variety of theft, (theft from your machine, theft in transit, theft during transaction) Bitcoin is not by any means stable.  By that, I mean the predictability of the dollar value of BTC is a very different beast than the dollar value of, say, the Euro or the Yen, just to take a couple of examples.

The rate at which dollars are traded for BTC is determined by markets, the oldest and most famous of which is based in Japan, called Mt. Gox.

A quick look at the charts of trading in BTC will show what I mean by avoiding calling BTC “stable”.  Unlike traditional currency markets, BTC can see radical loss in value in just one trading day.   These crashes are eye-popping, the latest having lost nearly 50% of the “currency”‘s value.

The most recent crash was spurred by an announcement that the biggest Bitcoin startup in China, called BTC China, would no longer accept deposits in Chinese currency (the yuan).

In other words, Bitcoin is money that could be worth half what it was yesterday around the world if one country decides to enforce capital controls.

Property Transactions Using Bitcoin: Seller And Buyer Beware

From where I”m sitting, using a crash-prone currency to conduct real estate business seems to be risky, risky stuff.  Yet, all that observation does is prove that my appetite for risk is always going to be less than somebody else’s.

Today, that somebody else is a home seller in Southampton, NY who says he will accept the $799,000 sale price in Bitcoin

Cash-strapped buyers eyeing a particular four-bedroom home in Southampton need not fear: the seller will also accept Bitcoin for the $799,000 asking price.

That may be a tricky price to nail down however, as the digital currency’s value has been all over the place in the past 12 months. Philipp Preuss, who is selling the home, told the Wall Street Journal that with this transaction, the Bitcoin price will be determined by the average exchange rate on the day the sale closes.

He would also accept a combination of Bitcoin and cash, he told the Journal.

“There might be international buyers, or a younger computer whiz who came into a little bit of coin overnight,” Preuss told the Journal. By opening up the sale to accept the digital currency, he said he is “expanding my buyer base.”

Preuss said he had to give his broker, Amadeus Ehrhardt of Brown Harris Stevens, a crash course in the currency.

“Aside from what I hear on the news about it here and there, I didn’t know much about Bitcoin,” Ehrhardt told the Journal. “But people are always interested to see what’s new and people like options.”

Prime Time: Not Yet

Obviously it’s early in the history of Bitcoin and in digital currencies more generally.  But I feel safe saying that the financialization and stability requirements of commercial real estate transactions — transactions that rope together so many skill sets and variables as it is — mean this industry isn’t likely to embrace Bitcoin with the same enthusiasm that other business sectors might.  A currency that sheds half its value overnight just doesn’t make the grade.

 

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Lenders And Special Servicers Avoiding Foreclosures, Managing Recovery

Commercial property in Carnotstr., Berlin.

Securitizing commercial real estate financing into CMBS was a trend that hit a peak before the economic downturn of 2008.  Defaulting on financing that underlies instruments from which shares were sold to investors calls for the use of “special servicers” – management companies who, upon the event of a default of a given loan, represent the interests of those clients who own pieces of the troubled commercial mortgage-backed security.   These companies are, in much the same way as banks in similar situations, under great pressure to avoid foreclosures.  These specialists in dealing with defaulted mortgagel oans have been leading the way in creative methods to do just that.

The burst of creativity is timely.  A recent Wall Street Journal piece by Anton Troianofsky and Eliot Brown spells out that the workload for special services has jumped as the total of CMBS defaults have risen – around 16% over 2009 year-end numbers.

The firms, known as special servicers, are dealing with an influx of souring loans backed by commercial-mortgage-backed securities, or CMBS: a total of $90.9 billion as of the end of September, compared with $73.8 billion at the end of last year, according to credit-rating firm Fitch Ratings. But the pace at which those loans have been resolved has picked up at an even faster rate, with $27.9 billion recovered by special servicers from bad loans in the third quarter, compared with $8.9 billion in the first quarter, according to Fitch.

Many of those bad loans are simply getting modified and extended, pushing the borrower’s day of reckoning to a day into the future when, both sides hope, the market will improve to a point at which the property owner can refinance. But in other cases, servicers are trying more unusual methods to dispose of properties through sales or other means as they work through a volume of distressed loans that is testing the legal apparatus built up by Wall Street’s boom-time securitization binge.

Read the entire article here.  Looking for definitions of special servicer or CMBS?  Check out C-Loans databank.