Moving from a trading room desk to a real estate development project is a real eye-opener...Now that I’m dealing directly with real estate agents, commercial and residential mortgage bankers, homebuyers and builders, I’m a better investor for my clients.
Park City, UT (PRWEB) January 20, 2015
Former securities trader and current investment manager and real estate developer Sean Kelleher has discovered that decisions made behind a trading desk don’t always translate to the real world. In 30 years at some of the largest financial institutions in Manhattan, Kelleher traded billions of dollars’ worth of mortgage securities before entering his first real estate development project, a residential project called Echo Spur in the historic Old Town district of Park City, Utah.
While a longtime investor in the securities backed by residential home loans to individuals and current President of a money management firm headquartered in Miami, FL, as a trader Mr. Kelleher rarely had to read a mortgage or talk to a mortgage banker as trading positions were held for seconds or minutes. Now, as a money manager, his investment strategy is more long term, but the focus is nonetheless on the mortgage securitizations themselves. But after having a front-row seat to the breakdown of the securitization markets that greatly contributed to the economic and housing crisis of 2008-10, Kelleher has found that the impact of the fallout is still reverberating through the economy.
“Moving from a trading room desk to a real estate development project is a real eye-opener,” Kelleher says. “The protection of government guarantees and subordination on the mortgage securities we trade results in a loss of informational content on the underlying loans and their origination process, resulting in decision-making with imperfect knowledge. Sitting at a desk staring at trading screens is not conducive to understanding how the real world functions. Now that I’m dealing directly with real estate agents, commercial and residential mortgage bankers, homebuyers and builders, I think I’m a better investor for my clients.”
Additionally, the regulatory environment inhibits balanced risk-taking and common sense lending decision-making. Regardless of reports to the contrary, he claims, commercial banks are still gun-shy when it comes to real estate lending. For example, when Kelleher asked one of the largest U.S. banks for a loan to begin construction, pledging his entire property as collateral such that the loan only had a 25 percent loan-to-value, he was denied. Additionally, when he has worked with a lender to sell a property, he has found that appraisals are wildly variable, with the larger banks evaluations coming in substantially lower than local financial institutions.
“The big banks, in particular, simply do not want to lend to any properties that do not fit a very narrow box even if the deal has substantial compensating factors,” he explains. “And we’re not building on the fringes; my buyers are well-qualified and our property is in a highly coveted area of a world-class mountain resort town. It’s the resort equivalent of real estate on the Upper East Side of Manhattan or the Victoria District in Hong Kong.”
Banks will finance the construction process once Mr. Kelleher has secured a purchaser, a much lower risk proposition. But he’s not willing to wait; Mr. Kelleher has started to develop a real estate lending fund, hoping to raise capital to fill the gap created by the big banks and provide residential lending on “Common Sense” terms for homebuyers. Fortunately, for his development project, the real estate market in Park City is thriving as is the local ski industry with Vail Resorts taking over Park City Mountain Resort and Canyons Resort with plans to interconnect the two to form the country’s largest ski area.
“I’ve really come full circle: I’ve been a mortgage securities trader, investment manager, real estate developer, and now – hopefully - a lender,” he stated. Despite the challenges Kelleher has faced in his first real estate foray, he notes that his work as a developer and potential lender has made him a better securities investor as well; his investment strategies performed extremely well in 2014 in part due to his observations regarding the lack of lending capacity in the residential real estate markets.
“Every bond trader and money manager on Wall Street should have to work for a mortgage banker in Poughkeepsie or with a home construction crew in Albuquerque before getting on to a trading desk in New York,” Kelleher said. “I’m convinced it would make them better investors over the long term.”
Echo Spur homes, offered by Berkhshire Hathaway HomeServices Utah Properties, range from $2.7 to $3.5 million with a five percent discount offered to the first homebuyer. The eco-friendly development is the first in Park City to utilize solar, superinsulation and water management strategies across each home. For more info, visit http://www.echospur.com.
About Echo Spur
Located in the highly coveted Old Town neighborhood of Park City, Echo Spur is one of the last multi-lot developments in the historic district. Seven contemporary, eco-friendly homes will utilize the latest solar, superinsulation and water management strategies to reduce the cost of homeownership and provide a superior living experience. Old Town’s first sustainable development, Echo Spur is within easy walking distance to Main Street’s cultural offerings and hundreds of miles of trails. It is within one mile of world-class ski areas Park City Mountain Resort and Deer Valley Resort and three miles from Canyons Resort. Park City is a convenient 35 minute drive from Salt Lake City International Airport. Two percent of home lot sales will be donated to the Park City Community Foundation and Kimball Art Center. For more info, visit http://www.echospur.com.