NAIVE REAL ESTATE GAMBLER
By The Worldwide Church of God Skeptic
Who has had more experience in real estate, Joe Millionaire Tkach or Legacy Partners ? In my previous article, The Tkach Dynasty: Divine-Right to Wealth, I observed that attempts to re-develop the Pasadena real estate were under a curse. Interestingly, since then, the Legacy Partners redevelopment project has collapsed and the cultmasters are still tinkering with revised plans and new partners (suckers).
The important thing to observe here is that as more time passes, we are progressing further into the deflationary phase of the monetary cycle. This has grave consequences for real estate values and liquidity, especially in overvalued California.
Why are the millionaire Worldwide Church of God executives trying to redevelop the Pasadena property instead of just selling it outright ? Could the reason be that it would not fetch enough money for their golden retirement dreams if it was just dumped at already falling market prices ? How much money are we talking about ? Well, their latest plan has around 1,500 apartments and let's say they hope to get $200k each for them (and that would be hopeful, even for California). That would make for a $150 million pot of gold reckoning on a wholesale price of $100k per unit (being California, you can bet that they will try to retail them for double this). But how much of this would the Worldwide Church of God see ? My guess would be $50 million if they are lucky. By offloading development to partners, the Worldwide Church of God is reducing risk, but also reward. Besides, the banks would not loan the Worldwide Church of God money like in the old days when Herb could borrow $10 million to complete his palatial auditorium. A real estate insider tells me that Californian banks are so wary of overvalued real estate that they will only lend 20% of a project's cost ! Now that the Worldwide Church of God takes in only $20 million per year, yet spends $5 million more, their credit rating no doubt stinks. And this could be a clue as to why they want to go into the high density residential business : Are they in debt and need more than the raw value of the land which may fetch only 20 to 25 million (if they act fast) ?
THE BIG RISK
Real estate has had numerous severe crashes in the last century. The first disaster of note happened shortly after the "flash depression" of the early 20s that Herb blamed his business failure on (of course it wasn't Herb's fault). Shortly after this downturn, land prices crashed in Florida as they were having a speculative boom not unlike California in the late 1990s. Note the lag of a few years between the recession and the real estate crash; this is important as we are a few years down the road from an historically unprecedented speculative mania. The next downturn was after the market crash of 1929 when real estate was devastated for 10 years. Then there were two more downturns: a severe one in the early 70s and another one in the early 90s that, significantly, hit California hard. The point here is that every bad recession takes out real estate after it has run its course a few years (the last thing to fall, as we see now, is residential development and sales). The stock market bubble of the 90s was larger than that of the 20s which led to a 10-year depression. This is the danger that the Worldwide Church of God execs are flirting with as they try to boost the value of the property with redevelopment. While they have been messing around, first with the Legacy fiasco and now with new partners, we are approaching the third anniversary of the 2000 stock market crash and the real estate collapse is following right on cue as it did in the 1930s.
Here's what Joe Millionaire should do: he should dump the property, as is, while it's still worth something and then distribute the proceeds not amongst his millionaire buddies and those overpaid ministers but return the money to the titheslaves. If they don't, they will see the value fall from 20 to 10 then 5 million and their partners will abandon them just like wise Legacy did. They should do the same thing they did with Big Sandy: just bite the bullet and dump it for what it will get even if it is at a huge loss (I wonder how many millions were wasted building Ambassador University ? And all this money to patch up their current deficits and exec salaries!). How must the Hammer family, who originally donated that property, feel ? I guess you could say the Hammers got hammered !
Now what about Herbie's folly, the Ambassador Auditorium ? Nothing can save this fiscal disaster. And since spendthrift California is $35 billion in debt (which, alone, is enough to start a recession), there will be absolutely no funds available to subsidize the arts. In fact, they will have to raise property taxes which will accelerate the real estate crash. Why do you think millionaires like Tkach, Schnippert and Kelly live in California; it's because property taxes on their mansions are capped at 1%. Compare this to New York state where property taxes are 3%. Given California's fiscal emergency, they will quickly exploit this imbalance and stick it to the overvalued Californian real estate exacerbating the crash.
Even in inflation-adjusted dollars the Ambassador Auditorium represents unprecedented extravagance. The Worldwide Church of God can not expect to recover a fraction of that "investment" (actually Armstrong's insane edifice aspirations). Its 'business model' was dependent on now discredited eschatological and soteriological assumptions including 100,000 plus fearful contributors. It lasted a mere 20 years remarkably similar to the fate of the movie palaces of the late 20s which cost a similar amount only to fall to the wrecking ball 20 years later with the introduction of television.
Present day suckers contributing to the Tkach/Scnippert/Kelly cult must be alarmed by the massive liquidation of assets and virtually zero accountability in the key areas of executive compensation, benefits, "bonuses", perks, and retirement payouts. At least Armstrong was just plain mad, but these men are increasingly viewed as being very sane and scheming. However, it does appear that their greed has overstepped this time as the unfolding real estate crash will destroy their plans
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