1. Condo sales hit snag at Book Cadillac Buyers can't come up with more for down payments; developer won't refund deposits. Louis Aguilar / The Detroit News January 19, 2009 http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20090119/BIZ/901190370

2. Cold Reality of Recession The once-hot condominiums of the Westin Book Cadillac Detroit have hit the cold reality of recession. Just 16 of 50 buyers have been able to close on their condominiums three months after they had hoped to move into the historic downtown Detroit building. Dozens of Book condo buyers find themselves stuck between tough lending terms -- like coughing up tens of thousands of dollars to beef up their down payments -- and a developer determined to keep them from backing out. Meanwhile, the Detroit Investment Fund, a private investment fund aimed at city projects, is working on a second mortgage deal with the developer that will break the impasse. "We are caught in the exact same thing as the whole world is caught in: Banks have shut just about everything down," said John Ferchill, the Cleveland developer behind the $200 million renovation of the Washington Boulevard building. "We used to have five or six lenders on these deals and now we have one, maybe two. We're talking about people with great credit and have successful careers."

3. Closing Loans So far, National City Bank is the sole bank willing to close loans at the Book. National City also is an investor in the building. At one point, Book officials said 59 of the 63 condominiums had been sold, although nine potential buyers dropped out early. Most of the units were bought two years ago when they were first put on the market. The price of the condos range from the mid-$200,000s to $1 million-plus penthouses. The quick sale of the Book condos was hailed by city boosters as proof that downtown could support upscale living again. No condo in the city had ever hit the $1 million sales price before, and homes in Detroit rarely hit that mark. Now, the tough credit market has banks requiring buyers to come up with down payments of 10% to 20% to close on their condos. Two years ago, most potential buyers were told they needed 5% to close. Ferchill and the Detroit Investment Fund, a $52 million private capital fund, say they are finalizing a deal that will funnel money to buyers. "We are trying to work with them and get them a solution that will lower their costs," Ferchill said of the condo buyers. Fund officials confirmed the deal is in the works but declined further comment.

4. Several Want Out In the meantime, though, several buyers say they want out. "There's only 2 cities where I would feel comfortable investing that amount of money for a condominium," a buyer said, referring to Los Angeles and New York. "I need to ask when I will get a return on my investment and I don't believe that will be soon." Another buyer can't raise the additional $35,000 required by the bank to meet the closing costs. Another with a job connected to the ailing auto industry no longer feels comfortable making such a large investment. The buyers also said that after initial discussions with their lawyers, they fear it may take a larger down payment, amounting to tens of thousands of dollars, to get out of their purchase agreements. Ferchill defended his ability to keep the down payments, but wasn't sure if that meant paying more money. "We simply want people to honor their contracts. If they want to walk out of the deal, then it's in the contract they give up their deposits. I'm not that close to the situation to know if more money is required -- I hadn't heard that." Ferchill said. "I understand people are upset, but I think they know that the entire banking system has changed and we're working on creative solutions."

5. The Economics (1) Value of an asset: Here, the “user cost” of capital is the interest rate i. V = Value R = Rent i = interest rate

6. The Economics (2) For real estate: Here, the “user cost” of capital is the interest rate i minus the expected capital gain. How does this relate to the article? V = Value R = Rent i = interest rate