Real  Estate   Record





AND BUILDERS' GUIDE.





YoL. xxn.





NEW YOKK, 8ATÜIIDAY, SEPTEMBEK U, 1878.





No. 548.





Published Weekly by

Cbc %ml (Ssktc .Ilecarir ^ssodattan.

TERMS.
ONE YEAK. in advance.. ..SlO.OO.
Coinniiinications should be addressed to

C.   W.   SWEET,

Nos. 31.5 AND .MT Broarway





EFFECTS OF BUILDING- LO.-VNS.
Ihiilding loau transactions, as commonly prac¬
ticed in this city, are Justly censurable because
extremely vicious in their eH'ects. We have
heretofore ruug the changes ou the abuses of
these transactions, and, as we have rea.son to be¬
lieve, with perceptible re.sults. We intend to con¬
tinue our exposition of tbe.se abnse.s, whether lueu
will hear or forbear—in tiie exi>ectatiou, which
wo are certJiiii will not bedi.sjippointing—that the
public sensa of justice aud fair dealing, when
(iroporly instructed und arou.sed, w-ill so severely
rebiike and coudemu these Operations as to render
their prosecution dillicult if not impoiwible, and ul-
limatelytocompel theirtotal abandonment. The
l'uilding loan, legitiniately conceived, has a true
and benclicent olUce, which we intend at a con¬
venient season to deline. At present we iiropose
to set forth what appear to be tho most obvious
elfects of illegitimate, unsound and fraudulent
building loans.

1. The iiumedinte and most noticeable effect is
an artilicinl iullation of laiui prices. In almost
any speeulation the mau wholuis little or nothing
to lose is indifferent as to the price he may be
called upou to pay for' the commodity in which
he s^ieculates, provided he can obtain it ou ea-sy
urms. In the class of building schemes which
we are now couteinplating, solvent and responsi¬
ble builders are rarely willing to engage, and the
excuse and pretext for framing them is that the
builder, who proposes to embark in them, is desti-
tute of ready money, and therefore requires to
be assisted in the transaction by the loan of capi¬
tal. It is an old saying that nothing helps a
luaivs credit more than to candidly admit a
<lericieucy of cash. This saying is often verified
in matters of building loans. It would seem that
the more impecunious the builder can prove him¬
self to be the more he will commend himself to
the good favor of the building loau capitalist.
The capitalist, however, is far froni being un-
mindful of tho extent of tho risk which he is
called lipon to incur. After having made up his
mind to run the gauutlet of this risk, and to take
tho cbances of a safe Dutcome from it, he then
insists upou indemnity in tho shape of an aniplu
bonus. To avoid the penalties of the usury law
this is usuallly charged as profit or excess of price
for the land. In reality it is nothing more or less
than a bonus charged for the use of the money
which forms the vital dement of the transaction
and which must imperatively bo loaned in cou¬
nection with thö .sale of tho land. This bonus is
regulated by the cupidity of the capitalist and
the supposed solvency or lack of solvency of tho
builder. Whatever its proportipns piifty be, it
appears &a so much additional prico realized by
fcite saJe .q£ )tjie iand,   Whe^ jtUe traasactiou i»





recorded, this price thus largely aud artilicially
iii Ilated is paraded as the value of the land osten¬
sibly- determiued by the merits of a bona fide
tran.saction, wherebj- ignorant and iiiexperieiiceil
pereoiis aro luisled. Land owners throughout the
city, aud particularly those owning lots in the
neighborhood of tho published transaction, are iin-
uaturally and unwarrautably stiniulated in their
view.s, aud though unwilling to ruu the risks at¬
tending such building loan ventures, aud prefer-
ring to seil their lots to solvent buildei-s for cash
or for cash and mortgage, thej- are reallj- deterred
from doing .so bj' the delusorj' effect of those arti¬
ficial transactions. Ctuses are bj- no means rare
of the addition of twenty, thirtj-, fortj- or fiftj-
per cent. to the market price of lots as the con¬
sideration for a building loau ; that is, a lot
which would bring under ordinarj^ cii'cnm.stances,
wheii offered on the market, teil thoiLsaiid dollars,
niaj- be turned into a buihling loan transaction at
tweive, thirteen, fourteen or fifteen thousand dol-
lai-s. This fact goes far to e.xplaiu the vagueuess
.ind uiicertaintj- which cbar.icterizes the curreut
quotations of much of the vacant propertj- of
Kew York.

2. Another acknowledged effect of these trans¬
actions is to unduly enlarge the cost of building.
The bonus paid for the use of money loaned is not
the last or the largest exaction riiade from tlie.se
builders. Shrewd inaterial men and sub-contrac-
tors quicklj- learn the nature of the underttiking
and estimate the cbances of its issue. Upou such
estimate is based the scale of charges to be
exacted for materials und labor; and the prices
charged are, os a rule, largelj- iu exce.ss of those
which would be accepted if the dealings were
had with a builder of acknowledged strength or
if readj' money could be gimranted in payment.
In this waj', to enlarged lot value must be added
enlarged cost of buildiug, which places the projec-
tor of such schemes outside of the pale of compe¬
tition with solvent and responsible builders and
renders the profitable marketing of his production
a diflicult or impossible task.

'S. By adroit handling of the money furnished as
loan, a skilled practitioner in these Jobs can man¬
age to take on the character of unquestionable
responsibility, aud bj- displaj' of cash or bj-
the adoption of astute business tactics, he can laj-
the foundation of an extensive nnd generous
credit. This element of risk, however, the sub-
contractors and material men are obliged to allow
for in their calculations, and when credit is
granted they are vei-j- sure to make a correspond¬
ing Charge for the samo. Tho obtaining of a füll
measure of credit maj- be considered a nece.s.sarj-
aiid most successful stroko on the part of buihl¬
ing loau projectore because it enables them to
husband the cash reeeived froni the loau and
invest it where it will do the most gootl, and also
to eiilist the interest of their creditoi-s largelj' iu
the fate of their undertakings, therebj' eusuring
the progress of tbe Avorks to n moro advanced
stage than thej* would otherwise be able or likelj'
to carrj- them. To win the confidence and obtain
the credit of a few leading material men and sub-
contrntitoi^s is onliuaril v- sufilcient to determine the
fate of the remaining contracts. Mechanics are
nojs ahvaj-s of equal Intelligeijce or shrewduess,
and the niijior ones are apt fco be ied by ihe
example o^ their superiors,  Moreover, the cünsi4





erations that the builder is iu po.sses.siou of a
large tract of land, and is entitled bj- his contract
to receive large paj-meiits of ca.sh in the waj- of
loaus, uro usuallj- sullicient with the average
mechanic and material lueu to establish a claim
for liberal credit, espeeiallj- when coupled w-ith
the teiiipting inducement of extra price.

-l. A neces.sary step iu the progress of theso
Scheines is to be able to secure from some
monej-ed iustitution a suflicieiit sum as loan on
bond und mortgage to eyalile the builder «ther
to paj- off the capitalist. eutirelj- or to Ic.avo his
claini a minor one, consisting whollj- or largoly
of the profit which he set out to rcnp from tho
transaction. Without the pro.spect of .such au
outh't few capitalists would be willing to [lut
inouej- in these schemes.

To the initiated and well-inforiiied no explana-
tioii is needed of the waj- in which these iustitu¬
tion loaus are manipulated. Wedo not care just
now- to discuss tbe nature of them for tbe bcucRt
of othens. Suflice it lo say that the introduction
of Institution loans into such Scheines as tlie.se is
quite if not altogether a matter of the di.stant
past. But the imperilling of Institution funds
in unsafe mortgages maj' be classed as one i'ossi-
ble effect of these transactions. During the pres¬
ent J-ear there has beeu no co-operation between
institutions nnd the projectors of unsound buihl¬
ing schemes. If anj- revival of fornier practice
in this resiject should occur, we shall not shrink
from what w-e esteem to be our dutj- in attracting
tho attention of the public to any such abuse. It
is proper to say, as a matter of past historj-, that
loans have beeu made in connection with s-pecula-
tive building Scheines that were not onlj- uuwar-
ranted bj- the facts of the case, but actuallj' dis-
graceful as thej- were disastrous to all parties
coneerned in them. Fortuuatelj- this statement
ueed not pass for idle clamor or malicious cavil,
since the resuits of many of these unwise acts
have alreadj- been .spread before the public. In¬
stitutions, some of which are now bankrupt, have
been therebj- needlesslj- saddled with the titles of
propertj- through foreclosure of such mortgage
loans from which thej- are likelj- to realize onlj- a
small percentage of their original investment.
Into the historj- of these transactions corporate
managers would be loathe to have an inipartial
and .searching investigation instituted.

'). These illegitimate transactions iu ordinarj-
tinies greatlj- exceed in number the legitimate
building tranwictions, nnd as tho financial re¬
suits of the former .are usuallj- di.sastrous to the
builder, the effect is produeed of niakiiig bank¬
ruptcj- appear to be the normal condition of the
building trade. Within the {last few- j-ears in¬
stances have been multiplied where buildings
havo been comnienced under a building loan con-
ti-act, and after having .proceeded to a certain
stage Short of eompletion, the propertj- has been
sw-ept aw-aj- by foreclosure of the capitalist's
mortgage, leaving the builder and his creditors
to settle their accounts outside of anj' resources
connected witli the buildings themselves, and
generallj- in the courts of bankruptcj-. For a
whileso couimonlj-did such ca.ses occur, the (pierj'
usuallj' pi'opounded in reference to a block of new
buildings was not whether they hiul been sold,
j but v.'hether thsy had been foreclosed, as .the
' aecessory and preparatpiy Btep ff> their tln^il di^-