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TROUBLE IN TEXAS: Huge Multifamily Owner Nears Collapse

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moh malekpour

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TROUBLE IN TEXAS: Huge Multifamily Owner Nears Collapse

Apartment Giant MBS Cos. Goes Deep in Arrears on More Than $600 Million in Loans


MBS Cos., one of the largest multifamily property owners in the country, is delinquent, in default or in danger of becoming so, on more than $900 million in loans. For Michael B. Smuck (the MBS in the company name), that means he is in danger of seeing his apartment empire dissipate for the second time in his nearly 30-year real estate career.

Based in the New Orleans area, MBS Cos. owns and operates more than 65 apartment complexes totaling about 17,000 units - all in Texas.

Smuck's debt problems have been the subject of whispered conversations among financial firms and analysts for the past month as the extent of the company's financial problems slowly came to light. Those same financial analysts fear if MBS defaults, it could spell losses for many and affect property recovery operations, potentially for years to come. It will also generate a huge spike up in CMBS delinquencies, expected to be reported this week or next.
 

Brad Ellis

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Moh,

Looks to me like he left out two letters in his last name- as in Schmuck- if you are not familiar with that work, ask any friend of yours who speaks a bit of Yiddish.

Has to take a ton of stupidity in such a good apartment market.

Brad
 

Karl

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Moh,

Looks to me like he left out two letters in his last name- as in Schmuck- if you are not familiar with that work, ask any friend of yours who speaks a bit of Yiddish.

Has to take a ton of stupidity in such a good apartment market.

Brad

No stupidity on his part he used the loans for all the additional goodies instead of what they were probablly suppose to be used for. Now the bank will have all those renter headaches & he's got all that money to go have fun with. we havbe same thiong here many have very large sums of money from stupid lenders that gave it to them for Holes in the dirt. Got one that has give several million dollars for a 200 acres of open space surrouinded by few hundred acres of open space. Sorry but I think it's the lenders that were STUPID.
 

Couch Potato

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Having read the article, I don't think it is a case of stupidity on anyone's part. More just a case of being in the wrong place at the wrong time.
Smuck's current troubles can be traced back to Hurricane Katrina in 2005, the worst natural disaster in U.S. history. The hurricane devastated the coastal areas of Alabama and Louisiana and wiped out MBS Cos. headquarters and operations in Metairie, LA. The firm reportedly lost everything, including property and tenant files. Many of its employees (two-thirds by some estimates from individuals CoStar contacted for this story) left the area altogether. Smuck's companies, including MBS Management, which manages many of the complexes, seemingly never fully recovered.

Following the hurricane, Smuck made many of his vacant apartment units, particularly in the Houston area, available to displaced and homeless Gulf Coast refugees. Those residents have been paying low rents subsidized with money coming from the U.S. Federal Emergency Management Agency (FEMA). While, that may have helped MBS increase occupancy at some of its units, it also likely prevented it from maximizing the properties' income streams.

Over the course of this year, FEMA has stopped issuing checks to displaced Katrina victims, cutting a source of revenue for some of MBS Cos.' properties.
I can see where providing shelter to refugees is a stupid financial move, but I would not call it a stupid thing to do.
 

George Hatch

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I doubt those loans are going bad primarily because of the rent concessions. The vacancies the hurricane victims filled probably existed prior to the hurricane; if so, that could easily be the reason these properties are having problems servicing their debts.

Also, it doesn't take many mistakes on the development side to wipe out the company's bottom line. Unlike California, Texas hasn't been a hot spot for apartment investors and they haven't seen the massive runups that we had here.
 

Brad Ellis

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Karl,

Sorry but I think it's the lenders that were STUPID.

Until the lawsuit that takes back all that money and all the assets if they find out he fraudulently applied those monies. And they will.

Brad
 

Couch Potato

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I doubt those loans are going bad primarily because of the rent concessions. The vacancies the hurricane victims filled probably existed prior to the hurricane; if so, that could easily be the reason these properties are having problems servicing their debts.

Also, it doesn't take many mistakes on the development side to wipe out the company's bottom line. Unlike California, Texas hasn't been a hot spot for apartment investors and they haven't seen the massive runups that we had here.
Certainly other things were involved, but the big problems came when FEMA quit paying for the refugees. Many of those tenants who were still occupying the apartments were of the deadbeat variety. So not only were they not rented at market rents, they were occupied by people who needed to be evicted. Ask any apartment company how well they would operate if all their records were suddenly lost and most of their employees suddenly moved away at the same time. I'm sure they saw the rent from FEMA as a way to get through the crisis, but in hind sight it probably just delayed the inevitable. They likely would have been better off liquidating the company after Katrina.
 
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