S.E.C. Real Estate Observer

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Diamond merchants have promoted diamonds as the greatest gift to show true love. Many great “love of life” relationships have been cemented with Zircons without anyone knowing the difference. A few might wonder where a guy with such short supply could find the where-with-all to produce a 1 1/2 carat stone. Even if the lady guessed the truth, she would not pursue it because she wanted the love and the romance of it all (If the recipient were mercenary enough to get an expert opinion, the marriage was not meant to be. After all, it is the gesture that counts.).

Although the R.E. market is in a slump, some sellers cannot give up the value they had in mind from last year’s comparables. They are “out of the market” unless a good transaction mechanic can assist with an old S.E.C. formula to avoid the mental confrontation that you cannot trade in your old wife for Angelina Jolie and get $100K to boot.

Many have laughed that I still own a few hundred acres of “Kenny Johnson land” in E. Oregon and other “trading stock” parcels around the west. In times like these, when motivated “don’t wanters” are ready to change positions but are stymied because they told their mother-in-law who loaned them the cash to own what they own that it is (was last year) worth so much more than we paid for it, the poor guy is out on a limb of unrealistic wishfullness. It may have been worth $500K last year but will only go for $375K today.

Since the guy really needs to change, either the transaction mechanic has to decide to pass on the opportunity to deal with such a “boxed in” position, or he can confront the “real world” situation and solve the objective by getting the benefits needed. In addition, he can include a “must-take” of an un-measureable equity that allows the blushing bride to accept whatever the stone’s real value is to get the benefits of love and devotion. I told you I would get my price!

In an earlier article I once wrote for this missile, I had advised a “go faster” broker, who wanted to buy low, that blunt cash was not as effective in most cases as a combination of cash and other things, including an “overprice absorber” like some that I have in inventory. Regardless of how desperate “don’t wanters” may be, many will not be “insulted” (and accept the mental loss) by taking a price that is “that far below” their fondest hopes. There are many reasons they need to make a transaction to some of the benefits you offer, and a “Zircon” must-take may be the salvation for them to accept a solution that includes their joining in the not-looking-too-closely-at-the-seemingly-justifiable-value group.

The more “you can’t find it” qualities your Zircon has the better the catalyst. I found a building in my wife’s home state (a long way from home now) whose owner had moved his business away and leased out part to some local friends too cheaply. Consequently, he wondered if he would ever get anything out of the building before the loan came due in a month or so; thus, he listed it in REE.com. I proposed some free and clear land out west and some cash to pay off his loan, and he was preparing to take time off to go see the land. However, I convinced him that I had never seen it, he would never find it, and there was not a cash market for it. Nevertheless, it was great “trading sardines” (another ancient story). I said that he could find guys selling such for more cash on EBay and that he should look it up. We were both happy to close the deal. Now, he can tell all kinds of stories to his family and associates about how well he has done.

During the S&L debacle in the late ’80s, I proposed to a thrift in W. Oregon to sell me ten houses they had foreclosed on at a discount to their book basis, using “you can’t find it” land in E. Oregon as 20% down and a bunch of dentists with statements to sign on the 80% loans for the balance. This transaction did so much for their financial statement with the Fed that they could not turn it down; and the best thing about the deal for them was that the land was out of the audit area, could not be found for appraisal, and would last for at least three quarters before the Fed would write them down on it. Meanwhile, the loans I produced were re-saleable in the secondary market; so their nearly totally written-down houses (had been REO for months) now turned into their best asset and made them five times more liquid to the Fed.