Risk, Ruin and Riches
Leverage is the main factor in the spectacular profits to be made in real estate. If an investor acquires a property with only ten percent down and it doubles in value, he can sell at a profit of one thousand percent. In good times, because the Federal Reserve Bank is turning on the cash spigot, lending institutions will provide up to one hundred percent of new construction costs, secured by a mortgage on the land and improvements. A shrewd developer can actually end up with a completed project and not be a penny out of pocket if he overestimates construction costs, gets kickbacks from contractors, and persuades the original owner of the land to take a partial down payment and subordinate to the construction loan.
Author Jim Powell focuses on the personalities involved in the biggest real estate deals of all, with as much as $1.5 billion on the bottom line. They are an impressive group of tough-minded but visionary entrepreneurs who have started with little and ended up multi-millionaires, or billionaires, or broke. Powell covers their dealings with politicians, money lenders, architects, real estate brokers, contractors, labor unions, and, of course, lawyers. The reader gets a good introduction to this volatile game, with its lure of fabulous profits and risks of total ruin.
One of the major risks is a sudden turnaround in the national economy, which can depress rents and leave the developer paying more interest than he collects from tenants. Or it could be a spot recession, such as the oil glut that has adversely affected Houston, Texas, and wiped out many high rollers. In Powell’s most harrowing chapter, he analyzes the deadliest building disaster in American history, the collapse of three “skywalks” inside the chasm-like lobby of the Hyatt Regency in Kansas City, killing 144 people and injuring 239 more.
Since so much of this book is devoted to discussions of projects incorporating the most advanced architectural concepts, it is disappointing that it contains only eight pages of illustrations. Otherwise it cannot be faulted.