Wednesday, January 6, 2010

Sudden and Complete Ruin

There is a man in Seattle who has been one of my heroes. His name is Mike Mastro. Back in 2005, when it was estimated he was worth 600 million dollars, I read this article in the Pget Sound Journal with interest and admiration...

Friday, July 22, 2005
The ritual: Father and son, Mastros share lunches and profits
Puget Sound Business Journal (Seattle) - by Jeanne Lang Jones Staff Writer
"Every weekday except Friday, for nearly 20 years, real estate investors Mike Mastro Sr. and Mike Mastro Jr. have eaten lunch together at their favorite Italian restaurant near Pioneer Square.

At straight-up noon, the Mastros walk across the courtyard of Il Terrazzo Carmine in Seattle, with the younger Mastro often a respectful step behind his father. Their favorite waiter is so accustomed to their routine that just before the Mastros arrive, he sets out a pot of hot water for the son's mint tea.

The discipline and precision of the Mastros' daily routine flows into other facets of their lives as well: their exercise habits, their reading -- and perhaps most notably, their business. Says Bob Wallace, prominent Bellevue developer: The elder Mastro "is as astute an investor as there is in the real estate industry."

Over the years, Mastro Properties has built a reputation for staying ahead of the market, as when Mastro Sr. and another investor had the prescience to develop office buildings that The Boeing Co. eventually bought in 1989 for $211 million.

So where are the Mastros putting their money today? One word: housing.

The Mastros stepped into the residential real estate market more than five years ago, and they've only upped the ante since then. The company owns a substantial portfolio of raw land, which it prepares for resale to homebuilders after adding basic infrastructure such as streets and sidewlks...

"I'm not really concerned about a real estate bubble," Mastro Sr. said. Regarding Pierce County, where much of their investment is based, he said, "That area has seen a lot of escalation in pricing in the past 10 to 12 years, and the economy in the area continues to grow." ...

The Mastros' disciplined lifestyle has them both up at 5:30 a.m. to exercise and read the newspapers before work. But while the elder Mastro heads to a downtown gym to work out on a series of machines, followed by a turn in the steam room and a dip in the Jacuzzi, his son practices yoga and meditates.

Even though the Mastros have now eaten thousands of meals together at the same restaurant, neither would think of going anywhere else -- except on Fridays, when Mastro Sr. has lunch with his wife...

Both Mastros are firm believers in the time-honored principle that you make money only when you buy, not when you sell, real estate. They are careful buyers, and right now they like residential real estate. A lot.

Currently, the company has some 5,100 lots in its portfolio, mainly in outlying suburban neighborhoods in Pierce and Snohomish counties, where vacant land is more readily available and cheaper...

Mastro Properties typically acquires raw lots for roughly $50,000, then resells them for between $120,000 to $150,000, after preparing the land for development. Mastro Sr. declined to say what his profit margin was after improvement costs but said, "It is a profitable business."

Earlier this spring, the company said it planned to sell about 1,300 lots this year. At an average lot price of about $122,000, that would add up to about $160 million. Sales have been a bit slower than expected, but the elder Mastro isn't worried about his investments and firmly believes Pierce County will remain a strong residential market for the foreseeable future."

A series of articles have been written about him in 2009. Here is one...

Friday, July 10, 2009
Developer Mike Mastro’s troubles mount
Puget Sound Business Journal (Seattle) - by Kirsten Grind and Jeanne Lang Jones Staff writers
"A longtime, prominent Seattle developer is facing a mounting string of legal actions as he struggles to pay off millions of dollars in loans at dozens of banks across the Pacific Northwest.

Michael Mastro Sr., for years among the most successful commercial developers in the Puget Sound region, is quickly becoming a source of concern at banks — both because of their direct exposure and because of what his troubles say about the potential pain still ahead in the commercial real estate market, according to people familiar with the matter.

Mastro, and his company, Mastro Properties, owe about $500 million to more than 25 banks in Washington and Oregon, including local banks, such as HomeStreet Bank, and national lenders such as Wells Fargo and Bank of America, according to a Mastro company associate and other people familiar with the matter.

Mastro values his assets at more than $600 million — more than enough to cover his debts — and he expects to recover. But court documents and people familiar with the matter indicate he presently appears to lack the cash flow to make loan payments...

Mastro’s enviable portfolio, sterling reputation and relationships with many financial institutions through a long, successful career, helped him amass millions of dollars in loans and assets, according to people who have worked with him.

“He always paid you back,” said a person familiar with the situation. “That’s also why everyone got in bed with him so much — he’s always been true to his word.”

But in recent months, Mastro has raised alarms by indicating he is unable to keep up with all of his interest payments, according to court documents and people familiar with the issue.

Some banks already have taken action against Mastro, filing a number of lawsuits and winning court judgments of $1 million or more after he allegedly failed to make payments on loans. Others have recently moved their Mastro loans and credit lines to a secured position, by insisting the developer back up his loans with property."

October 9, 2009


"Mastro made false statements to investors and omitted important information, the state Department of Financial Institutions' securities division said...

The division began investigating Mastro in February. In the charging papers, it said it intends to fine the developer $100,000 and order him to stop accepting any more money from individual investors...

Over the years, Mastro raised more than $100 million from more than 175 investors he referred to as Friends & Family, using the money to buy and develop property and make loans to other developers.

The charging papers say he provided the investors with little information when they loaned him money, failed to adequately disclose risk, and kept them in the dark when his empire began to crumble last year.

Mastro's 40-year real-estate career came to a halt this summer when three banks forced him into bankruptcy involuntarily, charging he was not paying his debts. After initially resisting, Mastro, 84, agreed to enter bankruptcy.

In documents filed with U.S. Bankruptcy Court last month, he reported $249 million in assets against nearly $587 million in liabilities, most of that owed to banks whose debt is secured by the properties that Mastro bought or developed with their money.

The Friends & Family investors are listed mostly as "unsecured" creditors, the last group to be paid when Mastro's assets are liquidated. It's highly possible they will get nothing."

To me it is a very sad story of a man who has worked all his life, then lost everything.

Here is Job's story...

Satan answered the Lord, “I have been patrolling the earth, watching everything that’s going on.”

8 Then the Lord asked Satan, “Have you noticed my servant Job? He is the finest man in all the earth. He is blameless—a man of complete integrity. He fears God and stays away from evil.”

9 Satan replied to the Lord, “Yes, but Job has good reason to fear God. 10 You have always put a wall of protection around him and his home and his property. You have made him prosper in everything he does. Look how rich he is! 11 But reach out and take away everything he has, and he will surely curse you to your face!”

12 “All right, you may test him,” the Lord said to Satan. “Do whatever you want with everything he possesses, but don’t harm him physically.” So Satan left the Lord’s presence.

13 One day when Job’s sons and daughters were feasting at the oldest brother’s house, 14 a messenger arrived at Job’s home with this news: “Your oxen were plowing, with the donkeys feeding beside them, 15 when the Sabeans raided us. They stole all the animals and killed all the farmhands. I am the only one who escaped to tell you.”

16 While he was still speaking, another messenger arrived with this news: “The fire of God has fallen from heaven and burned up your sheep and all the shepherds. I am the only one who escaped to tell you.”

17 While he was still speaking, a third messenger arrived with this news: “Three bands of Chaldean raiders have stolen your camels and killed your servants. I am the only one who escaped to tell you.”

18 While he was still speaking, another messenger arrived with this news: “Your sons and daughters were feasting in their oldest brother’s home. 19 Suddenly, a powerful wind swept in from the wilderness and hit the house on all sides. The house collapsed, and all your children are dead. I am the only one who escaped to tell you.”

20 Job stood up and tore his robe in grief. Then he shaved his head and fell to the ground to worship. 21 He said,

“I came naked from my mother’s womb,
and I will be naked when I leave.
The Lord gave me what I had,
and the Lord has taken it away.
Praise the name of the Lord!”

22 In all of this, Job did not sin by blaming God."

Disaster. Ruin. It tests your mettle. And your character.

Job is famous for the troubles he faced.
And for his response to his troubles...

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