Real Estate Record

AND     BUILDERS'     GUIDE.          m





Vol. XVI.





NEW YOEK, SATUEDAY, DECEMBEE 11, 1875.





No. 404.





Published Weekly by

THE REAL ESTATE RECORD ASSOCIATION.

C. W. SWEET...............Pkesident and Tbeasubeb

PRESTON I. SWEET___■.......Secbetaby.

L. ISRAELS.........................BcsiKEss Matiageb

TERMS.
ONE YEAR, im advance....$10 00.

Communications should be addressed to

Nos. 345 AOT) 347 Broadway.

Mk. Chuech haviag supplemented his letter
on ''The Crisis in Keal Estate" by a second arti¬
cle, explaining more fully the views entertained
by him on this important topic, we will next
week surrender our entire editorial columns to
him, omitting for that ntimber otur comments on
the crisis. In justice to Mr. Church, as we de¬
sire to publish his views in fall, and not in part,
the first letter, promised last week, is therefore
laid over until next week, when both his articles
mil be publishsd, to the exclusion of our own.
---------^— * ii ^ * *---------------------------

THE CEISIS IN EEAL ESTATE.





in.





We continue the investigation of the causes
underlying the*present supreme crisis in Eeal
Estate.

BUILDING  LOANS.

The growth and extension of our city are due
almost wholly to so-called speculative building
—that is, buUding for prompt sale—in contra¬
distinction to building for investment only; the
latter is a luxury indulged in by corporations,
estates and private individuals, forming, how¬
ever, a veiy small proportion of the building ac¬
tivity of the city. Speculative building enlists
men pf brawii as well as brain, men of heroic
instincts, iron will and indomitable energy, men
who, if they were not builders, would be gen¬
erals, arctic explorers, or miners. Alas! too
often their only capital are their heroism and
enterprise. We can count on our fingers the
speculative builders who can, wholly unaided,
commence, complete, and caiTy into market a
building scheme of ordinary magnitude. The
fixed and unelastic nature of the business
affording no return of capital until ulti¬
mate sale, except by ihe risky and costly
way of mortgage, renders an abundant store
of ready money indispensable to the com¬
fort and success of building industry. Hence
arises the so-caUed Building Loan, a trans¬
action probably not unknown to some of
our readers. We will confine ourselves to
such explanations as will connect it with
our present subject. In its legitimate exer¬
cise tLis transaction consists of an agreement
or combination between a capitalist on the
one hand and a. piaster buiAer on the other,
designed  to  promote  mutual profit through





mutual co-operation. Money and energy, busi¬
ness shrewdness and mechanical skill—those life
forces of solid enterprise—unite to rear the fair
fabric of mercantile success upon the comer-
stones cf good faith and integrity. Whether
profit or loss attends the undertaking, success
is insured by its fundamental conditions.
Should great disaster overtake the venture, as
has been proved of late iu more than one hon¬
orable exception to the prevalent rule, the
losses, even then, are borne by the parties in
interest, not thrown unceremoniously upon con«
fiding and innocent creditors. Conceived in a
spirit of fairness, with the strictest regard to
proportions between ability to pay and incurred
obligations; pursued with caution and prudence
from first to last, the value-gauge being ready
money, not credit, these anterprises challenge
the admiration of men, and are the lasting
honor of our city. Such transactions constitute
the legitimate business of building, and embody
the highest principles of mercantile honor,
albeit they are classed as speculative in kind.

The converse of the picture is not so attract¬
ive. No more vicious use of property or abuse
of capital can be imagined than cf late years
has characterized many building-loan transac¬
tions. Tbeir peculiar method of procedur*
is thus described: The capitalist purchases lots
and sells them to the builder at a fixed profit of
25, 50, or 100 per cent, agreeing to advance
money as a loan, usually one half the cost oi the
improvenaent. The lot value, profit and loan
are secured by mortgages on the premises. Thus
handicapped with an enormous bonus, virtually
a shave paid for the use of money, the builder's
chance, as he is well aware, is poor enough of
reaping any thing but loss. He provides against
this contingency, or certainty, rather, by ap¬
propriating ior his private use a portion of the
money advanced as loan, fauppiying the de¬
ficiency by issuing his notes. When the acme
of the transacdon is reached, through the ex¬
haustion ot money supplies and the failure of
credit, the capitalist forecloses his mortgages,
cuts off iiU liens, aud becomes the owner of the
property. The builder is thus obliterated, and
the confiding creditors, mateiial men, subcon¬
tractors, and mechanics are left to whistle for
their dues. The underlying principle of this
transaction is the creation of fictitious and in¬
flated values by the unscrupulous use of money,
and is nearest akin to the process of watering
the stocks of railroad, mining, and other cor¬
porations. The party plajang the role of capi¬
talist, not infrequently being an officer of a
savings bank or insurance company, is thus
enabled to impose the whole risk and burden of
the transaction upon the company, while he, cr
the ring he represents, pockets the exorbitant
profit. If the evil results were confined to the
projectors, adverse criticism might be defied;
but, when the results involve the ruin of scores





of innocent creditors, and lend to unhealthy
speculation its strongest stimulus, public depre¬
cation and exposure become justifiable and im¬
perative.

Block after block of houses of imposing de¬
sign and convenient plan are now denominated
"gravejards," because they are the mausoleums
of buried capital, skill and character. The de¬
crees of courts absolve the titles from impedi¬
ments, and the unconscious occupant builds his
home around the spot that marks disaster and
dishonor. If other causes were lacking, this
one would alone suffice as the master cause that
has led to the late rampant inflation and sud¬
den and ruinous collapse of real estate values.
The illegitimate building loan represents the
lowest traits, nay, the vices of mercantile life;
avarice and greed on the one hand conspire
with chicanery and firaud ou the other; over¬
reaching capital with cunning, unscrupulous
mechanical skill.

The result, as might be predetermined on any
rational basis of mercantile calculation, is unerr¬
ingly and invariably stark ruin. Yet each period
of monetary ease and active speculation in this
city has developed its master minds and mock
heroes of building fraud. Easy times and a rising
market are ever the parents of this iniquity,
hard times and shrinkage of values being gener¬
ally baiTen of such schemes. So prevalent has
this class of building operation become of late,
and so notorious its results, thatit has tarnished
the otherwise fair fame of the craft, aud in¬
spired the public with a dread of contact with
such pests. Hence, when ths capitalist asserts
his rights by foreclosure of mortgage, he finds
himself the only bidder for the property put up
for sale.

The enormous shrinkage and depression
of the present crisis have precipitated upon
many a capitalist engaged in fostering these
transactions unaccustomed burdens and acutest
financial distress. The lesson thus bitterly
learned will not be soon forgotten; and for
many years to come the legitimate business of
building—than which none is more honorable
or commendable—will devolve on men of un¬
questionable financial and commercial standing.

We do not here animadvert upon the cases of
real and uncontroUabie misfortune liable to oc¬
cur in times like the present. The ancient and
sound rule for building projects is for hirp that
buildeth a house to first sit down and count the
cost thereof.

THE LABOB QUESTION.

The enactment of the eight-hour law may be
ranked by the future historian as one of the
brilliant achievements of.American statesman¬
ship, but we of the present generation have
faledes yet to discover any of the remarkable
benefits which it was designed to confer. The
I picture of the studious workman employing his
j Jeigure hours in the improvement of his miud