Saturday, April 26, 2008
Finance: Palm Beach Mansions, Get 'Em While They're Hot
Recently, there has been an interesting confluence of stories in my community that caught my attention and prompted me to do this cartoon for the Palm Beach Daily News. I’d been hearing rumblings that lenders were beginning to foreclose on various people after extended periods of non-payment with little or no repercussions.
Last week, the Palm Beach Post, ran a front-page story stating that the number of foreclosures in March had nearly quadrupled over the previous year. Almost on cue, I began seeing reports on CNBC of hedge funds that were buying blocks of financially distressed property at 20 or 30 cents on the dollar.
Meanwhile on the island of Palm Beach — that enclave of the rich and famous where billionaires regularly buy and sell mansions in the $40 to $ 75 million range — the real estate market has never been better. In fact, it’s booming. It’s not unusual to see several announced sales in this price range per month. Most recently, former Goldman Sachs partner John Thornton purchased an oceanfront mansion built by billionaire businessman Sidney Kimmel for a reported $81.5 million. The house had only been listed for a short time, and Kimmel got his asking price.
All this got me to thinking: Hmmmm, Fed steps in to back hedge funds and investment banks … and foreclosed properties mean write-offs galore for mortgage issuers. How low do they have to go before they can reasonably get out from under their position? And flush funds can’t wait to buy at bottom feeder prices. Could this be what’s prompting a flood of new foreclosures?
My grandfather had a Palm Beach construction company during the Great Depression. They were kept quite busy building houses on the island at the time. But wages were so low that he would cook a big pot of fish chowder on the site for his crew every day. For most of them, it was the only hot meal they got.
You know the old saying, “The rich get richer” … and we pay for it with inflation and taxes.