Breaking COVID19 News
In addition to the simple laws of supply and demand where the supply of money available for real estate purchases decreased due to the number of S & Ls closing , other conventional lending institutions became skittish and backed off ; even for the more conservative loans .
Enter the private real estate lender . For those who could think outside the box and use some creative thinking , loans were made that , in one person ’ s opinion “ was like shooting fish in a barrel .” An example of this was a loan I was privy to that , to this day , I cannot believe a conventional lender did not make ; the property was in the financial district of San Francisco and was considered a prime office building . The building was 80 % occupied and had tremendous positive cash flow from long term , stable tenants . The buyer was getting a severe discount because the son who was given authority by his father accidentally accepted an almost insulting lowball offer . Although the father tried to correct the mistake , the buyer refused to change the contract and threatened to sue for specific performance . By all accounts , the buyer needed a loan of 20 % LTV . Unfortunately [ or fortunately , depending on which side
of the table you are ], the banks were acting like a deer in headlights and would not commit to a loan ; thus , the buyer had to turn to hard money [ as it was called in those days ]. The terms were 14 % and 10 points for a three year loan with a one year minimum guarantee of interest . Although the buyer was not happy with the terms , he knew he was going to make a fortune on the building and be able to refinance once the economy got back to somewhat normal .
Then , in the late 1990s , we experienced the Dot Com bubble and burst . During the 1990s , more people were getting use to the World Wide Web . At the same time , a decline in interest rates increased the availability of capital . Add to that the Taxpayer Relief Act of 1997 which lowered capital gains tax . These combinations made more people willing to make more speculative investments . Many investors wanted
to ride the gravy train to invest at any valuation . Venture capital was easy to raise and fueled many companies that never had made a profit and probably never would .
In early 2000 , the Fed raised interest rates , leading to stock market volatility . At the same time , Japan entered a recession . In April 2000 , a judge ruled that Microsoft was guilty of monopolization and violation of the Sherman Antitrust Act . This led to a 15 % decline in the shares of Microsoft . On the same day of the judge ’ s ruling , Bloomberg News published a widely read article that stated , “ It ’ s time , at last , to pay attention to the numbers .” Within two weeks of that article , the NASDAQ had dropped 25 %. Many investors sold stocks just before April 15th in order to pay for gains they had realized from sales in 1999 . This compounded the decline of the NASDAQ . In addition , investor confidence was further eroded by several accounting scandals and the resulting bankruptcies that ensued . This spiral downward turned Dot Dom to Dot Bomb as it was known .
42