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Real estate record and builders' guide: v. 16, no. 404: December 11, 1875

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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