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Portland Developer Goes Belly Up

It’s not the first story of its kind and probably not the last. Sunday’s front page Oregonian article detailed the rise and fall of Ryan Olsen Development in their story, Portland-area Builder Implodes. I don’t know the stories behind other builder’s woes or Ryan personally but the article felt more personal and well, sad.

Olsen rode into the housing market with a really good product for Portland. We sold at least one of his homes; new construction with an eye to fitting into the existing houses in the neighborhood. We had a good working relationship with his Realtor through both Ryan’s homes and other properties he sold. Olsen’s homes were “appropriate” and very well finished. He had a core competency of building one or two houses at a time in close-in North and Northeast Portland neighborhoods on in-fill lots.

When he got away from his core competency, everything went to hell in a hand basket. The combination of moving into subdevelopments, coupled with a brutal decline in the market for what he was building sent the company into a death spiral for which the end result will be the foreclosure auction of his personal home.

No matter how you feel about builders, developers, flippers and those who make or have made their living around the Portland housing market, you’ve got to give Olsen credit for going down with his ship and trying to make it survive to the bitter end. I don’t have the specifics but I expect a less moral builder could have exited and left others holding the bag much earlier than he did with less personal sacrifice.

24 Comments on “Portland Developer Goes Belly Up

  1. He went down with the ship but the ship was paid for with other peoples’ money, unfortunately. That’s what all smart entrepreneurs do.

    But do tell us how owing hundreds of thousands he can’t pay back and screwing lots of people out of money isn’t leaving others “holding the bag”?

    This young man’s story is a great illustration of the craziness of the bubble and the reason so many of us warned against it. Perhaps we can offer the nice young man a bailout so he can continue to pursue a business model that has no chance of succeeding without the unbridled greed of a speculative bubble market.

  2. But do tell us how owing hundreds of thousands he can’t pay back and screwing lots of people out of money isn’t leaving others “holding the bag”?

    He absolutely left others holding the bag. No doubt and I never said otherwise. What I did say was that he could have bailed sooner leaving them holding even bigger bags.

    If he wants his CCB license back, he’ll have to pay off the judgements against him first. Entirely fair.

  3. Sure, he’ll pay it back, just like Bear Stearns and the Macs will pay back the taxpayer. Uh huh.

    There’s no way in HELL Olsen will EVER, in FIVE lifetimes, be able to pay back his debts.

    That’s success in the New American Century. Make lots of money by screwing others out of theirs. His only mistake was not putting any away for himself so he could live well after the dust cleared. That separates the slick businessmen from the amateurs.

    I find that rationale amusing. “Well, he could have screwed even more people but stuck around.” Do you honestly believe he was trying to make things right by others by not bailing sooner? No, he was hoping for a miraculous comeback so he could be back on top again.

  4. I expect a less moral builder could have exited and left others holding the bag much earlier than he did with less personal sacrifice.

    Give me a break, Charles. There was nothing “moral” about going down with the ship. He simply had the hubris to think that he could turn it around late in the game. These are strategic decisions he made, not “moral.”

  5. The sidebars of this blog are blue. If you adjust your monitor accordingly I am sure you can make them red or whatever other color you want to see.

    In my opinion, and you are welcome to your own, Olsen (at least when he was doing one or two houses at a time (having never been to one of his subdivisions)) built a quality product. His exit from the market, while his own doing and financially injuring many in the process, does not bolster the Portland housing market in the long-term if what he might have built is instead built as a cheaped-out home.

    Be clear: I am not defending him, don’t know him and believe that he made some HUGE mistakes. Do I think he will repay? No, I don’t.

    I doubt there are very few in business who can’t be accused of throwing good money in after bad trying to save something that couldn’t/shouldn’t have been saved. Hubris/ego? Sure. How many in business people characterize themselves as pansies with no faith in themselves, their product or are unwilling to take risks? To restate: this is not an indictment or defense of the builder. His situation is what it is and it financially ruined him and hurt, if not ruined, others.

  6. Maybe the point of the story is that Happy Valley is not the “Portland Market”. The idea that you drive until you qualify is dead.

  7. Inventory is up 4-fold over 2005 in Portland. Sales are down 3-fold versus 2005 in Portland.

    After treading water for a year San Francisco is now down 27% YOY (dataquick stats). Even the most “special” close-in neighborhoods are showing double digit losses. Portland showed steeper price increases than San Francisco. Look out below PDX!

  8. If you read the article you’ll see that it’s not just business debt – he didn’t walk away early on from his business debts and keep his personal wealth separate and hidden away somewhere like he could have. He is losing his own house and maxed out his personal credit cards to try and keep his business going.

    I think Ryan will pay his debt off.

    But I think the key point in the article had to do with generational viewpoints. When I worked in the building industry a few years ago I often heard the older builders talking about the young guys who had never known a slow market, hadn’t lived through 20% interest rates in the 80s like they had. Ryan Olsen isn’t the only young builder going under, I’m certain.

  9. The fact that he didn’t separate his personal funds from the business shows his amateur status not his ethics.

    He’ll pay off his debts right about the time Andrew Weiderhorn makes good on his financial misdeeds or when they exhume Ken Lay and make him pay up for Enron.

  10. Does anybody not get burned at the stake on this blog? This guy really sounds like he was trying to make an honest go of it. He wasn’t trying to rip folks off or make something for nothing…unlike homeowners who ATMd their houses for bimmers, boats, and bamboo floors and the lenders that enabled them. As the article says, he was young and naive. He was certainly surrounded by builders, bankers, and friends that encouraged him to expand. I’m not trying to make an excuse for him, but I can understand how easily it could have happened to myself. Hopefully in this situation our nation’s bankruptcy laws will help him one day emerge a better more cautious builder having learned from his mistakes. Hey that’s why we have a bankruptcy system, so people like this can remain in society and give it another go. Instead of “bailing him out” is anyone in favor of building a debtors colony in Antarctica to send him along with all the homeowners that were foolish enough to overextend themselves and the bankers foolish enough to give them money?

  11. “Does anybody not get burned at the stake on this blog?”

    If you need a lot of sympathy, understanding and nurturing in your life then real estate probably shouldn’t be your chosen career field.

    Considering what the market has been going through lately it seems a little naive to think that anyone would give a crap about someone who was involved in any way, shape or form with real estate speculation. Anyone who wants to be a rapacious capatilist, myself included, needs to embrace the possibility of failure as an outcome.

    And we don’t need a debtors colony in Antartica, being exiled to that one bedroom apartment in Gresham should be punishment enough.

  12. Re: Debtor colonies in Antarctica

    Yes, by all means. The greedy should be exiled. For decades we’ve been hellbent on punishing people for simply being POOR, taking away benefits, forcing them into low-paid work. Essentially shredding the social safety net. And you want us to shed a tear for a guy who jumped on a bubble with greed written all over it, made millions and pissed it all away? I’d love to see what his personal spending habits were like. The Oregonian likes to paint guys like him with sympathy because they’re totally in the tank with the RE-greed industry but I’d bet my last dollar he spent like a fool on luxury items. Just like the storyr the Oregonian ran a few weeks ago about the “poor Russians” whose American Dream was tarnished. Why, all they did was buy 5 houses in Happy Valley with no money down, trading their credit ratings to their friends. And then they took out equity loans to buy luxury goods! Oh, and now the poor things can’t pay it back because the Ponzi Scheme blew a gasket! Even Ryan Frank was defending them on his blog.

    Do you understand that people like Olsen and many others in the real estate industry, from mortgage brokers to bankers to agents, have devastated our financial system?

    The bailout should come in the form of a tax levied on every real estate transaction that occurs from now to when society gets paid back. Just like the Superfund was funded by a tax on oil and chemical companies who created most of the environmental contamination, the money lost during the real estate bubble should come from the banks and the industry itself.

  13. More great housing news…Portland taxpayers: BEND OVER!

    City’s vision for South Waterfront threatened

    http://www.katu.com/news/25727604.html

    Daycare, I bet this one really makes you excited? So how will your neighborhood benefit (or suffer) from this mess?!?!

    And $$$$ 25 billion $$$$ for the Freddie and Fannie bailout…keep working y’all, we have developers and banks depending on your hard earned, hard taxed $$$$$.

  14. But Bearlee, they’re entrepreneurs, the ones taking the risks to build up society.

    With other peoples’ money!

  15. It is a shame to see so many people being hurt by this market. The Bend Oregon real estate market is no different.

  16. Naysayer, this reminds me of my spouse’s currently favorite quote which he has quoted only about a thousand times in the past year or so. It’s a Nouriel Roubini quote: “Privatize profits, socialize losses.”

    http://www.rgemonitor.com/blog/roubini/

  17. I ran some numbers today as the mortgage rates jumped to highest levels in 2008.

    For a $417K loan:

    Monthly payment for 30 years at 5.5% APR = $2367

    Monthly payment for 30 years at 6.5% APR = $2640

    Monthly payment for 30 years at 7.5% APR = $2915

    Monthly payment for 30 years at 7.5% APR = $3206

    So if I could afford a 417K house today at 5.5% and decided to wait, the effective price I will pay in future for the same house if the mortgage rates increased by 1, 2 or 3% are as follows:

    1% increase:
    Effective price = $465K ($48K increase)

    2% increase:
    Effective price = $514K ($97K increase)

    3% increase:
    Effective price = $565K ($148K increase)

    Bottom line, if you wait to buy a house you can afford today and mortgage rates go up (which is a significant possibility), you will end up paying a lot more for the same house. Maybe in some parts of CA and FL you may even out at the end if you waited, but in Portland? No way!

  18. Also, note that mortgages will only get difficult to get and that too after paying high upfront costs in loan origination fees. I was told by a broker last week that their loan origination fee (discount pts) is 0.75% today, up from 0.25% a few weeks ago and they are considering increasing it to 1.0% if banking risks continue.

    And at higher interest rates equity grows slower.

  19. “Bottom line, if you wait to buy a house you can afford today and mortgage rates go up (which is a significant possibility), you will end up paying a lot more for the same house.”

    You are assuming that the same house will cost the same amount of money in the future. If the house costs less in the future, you could end up paying the same or less, even at higher interest rates.

    Those of us who believe in free market dynamics think that the higher cost due to rising mortgage rates will decrease demand. The decreased demand will cause prices to fall. Tightened credit requirements will only exacerbate the fall in demand.

    I’m not one of those types who thinks the free market is the best solution for everything. But I do think that the underlying mechanism of supply and demand influence prices, for better or for worse. And costlier mortgages will only move demand in one direction: down.

  20. “I was told by a broker…”

    A profession that will shortly cease to exist.

    “Maybe in some parts of CA and FL you may even out at the end if you waited, but in Portland? No way!”

    I smell fear.

  21. What our friend daycare fails to understand is that as the rates go up, prices will have to go down. You can always refinance later but you can’t go back and drop the price you paid.

    Well, you couldn’t until the Congress decided to pander to stupid homedebtors. Then again, the homedebtor rescue act will only help a handful of people and won’t do a thing to bring back the 2005 hysteria. A lot like watering a dead plant…….

    Game over. Time to wake up and smell the crash, DC.

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