Why DE Shaw Had Layoffs: It Tried To CREATE A New Mexico Town And Now Owes $150 Million

Business Insider ^ | 10/13/2010 | Courtney Comstock

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New details on DE Shaw's failed real estate venture in New Mexico shed some light on why the fund had to lay off so many employees two weeks ago (at least 150).

Last week, we found out that DE Shaw's layoffs hit the hedge fund's real estate division harder than any other.

Now, the Wall Street Journal has details on the deal that probably caused those layoffs - a failed New Mexico community that DE Shaw planned in 2006 with SunCal Cos, a developer.

According to the Wall Street Journal, DE Shaw and SunCal bought a 55,000-acre property—twice the size of Boston—in New Mexico for $250 million. They wanted to create a new town with residential, commercial and industrial areas.

Then the financial crisis struck, the firms abandoned the project, Barclays foreclosed on the property last month, and now D.E. Shaw and SunCal have only a few weeks to come up with the money needed to pay off the lenders, says the WSJ.

DE Shaw apparently owes about $150 million.

This news is pretty embarrassing for the huge, secretive quant fund.

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During its heydays, DE Shaw was one of the highest paying Hedge Funds on Wall Street.

I once saw one of their hiring ads that had this sentence: "Only Ivy League Graduates Need Apply"

OTOH, they call themselves a Quant Fund (they pride themselves in using Quantitative/Mathematical analysis to come up with the most profitable trades/investments).

[lack-of-trust]

At the end of the last boom, Colorado had several devleoper created “Towns” that went bust.

It worked like this, developer buys large tract, incorporates it as a “Town” floats municipal bonds to pay for infrastructure (roads, water, sewer) and then builds and sells... except when the boom ends and the town has thousands of vacant lots, huge payments to make to bond holders and only a dozen tax payers.

Remember reading about the poor home owners getting tax bills for hundreds of thousands of dollars.

[CodeToad]

They obviously failed any common sense approach to risk management. Stupid Suckers. There is nothing funnier than a smart person who isn’t.

[CodeToad]

“Remember reading about the poor home owners getting tax bills for hundreds of thousands of dollars.
“

Yep. We are tryingto buy but we have found one housing area after another with $10,000/year tax bills because only 10% of the community built out, leaving the homeowners with 10 times the taxes they were supposed to pay if the entire area built out.

[Mr. Bird]

I tend to doubt a $150 million loss is really taking much of a bite out of DE Shaw. More likely, they are getting out of real estate altogether unless and until the market sorts itself out.

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RE: There is nothing funnier than a smart person who isn’t.

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Here are samples of the test you must go through to be part of DE Shaw’s elite quantitative analyst community :

http://www.quantnet.com/forum/showthread.php?t=1238

Pass the above test, and you get a guaranteed 6 figure salary.

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RE: I tend to doubt a $150 million loss is really taking much of a bite out of DE Shaw

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Yep, their Asset Under Management is something in the order of $22 Billion.

However, they have been experiencing record redemptions from investors recently. That is why they had to lay off close to 10% of their workforce (about 150 people).

That was unheard of before. I believe most of those who got laid off were from the real estate division.

I wonder what their now retired founder — David Shaw is thinking right now...

[CodeToad]

Proof that DE is filled with mental midgets that think they are smart because they didn’t get their thumbs caught in their shoestrings or didn’t pee on themselves in the bathroom. Those questions are 9th grade level knowledge. Usually stupid people don’t know what they don’t know so they think they know everything.

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RE: Those questions are 9th grade level knowledge.

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I didn’t know that our 9th grade kids can program in C++

[CodeToad]

In my high school Assembly, FORTRAN, COBAL, and BASIC were all offered through the local community college and taught at teh school. C++ is child’s play.

[CodeToad]

P.S Those C++ are about as lame as can be. Again, stupid people that think they are smart as some of the dumbest questions.

[SeeSac]

In my high school Assembly, FORTRAN, COBAL, and BASIC were all offered through the local community college and taught at teh school. C++ is child’s play.

Then you must be one of the elite taking home a six figure income ...

[CodeToad]

“Elite” is not really a good word to use since I am in a building with at least 200 people that make 6 figures. Every one of them could ace that DE “test”, which is nothing more than a ego trip for college kids, as are all such tests.