February 8, 2017

Investors Have Overpaid Severely And Foolishly

A report from the Wall Street Journal. “Trulia findings point to a critical imbalance in the market: There is a significant and growing shortage of lower-priced homes and a glut of high-end ones. Sales of new and existing homes were slow in December, in part because of a shortage of inventory at prices buyers can afford. Even as the economy strengthens and first-time buyers appear to be coming back into the market, they are being confronted with an abundance of listings they can’t afford and few they can. ‘The big, high-level takeaway is that most Americans are looking for a starter or trade-up home but there are a ton of premium homes on the market,’ said Felipe Chacon, a housing analyst at Trulia.”

From Bisnow on New York. “New York City is still the No. 1 destination for foreign capital in the world, according to this year’s AFIRE rankings, but it is no longer an environment in which foreign money — particularly from China — will buy anything in the market at any price. This year, China has clamped down on outbound foreign investment, and firms caught flouting the new laws will be punished harshly, China First Capital CEO Peter Fuhrman said. While most New Yorkers in commercial real estate are aware of the capital slowdown, Fuhrman said they are probably not taking it seriously enough.”

“‘I have the perception that the full weight and severity of these capital controls hadn’t been fully felt here,’ Fuhrman said. ‘It’d be fair to say that the Chinese central government dropped a financial bomb on its businesses.’”

“One of the Chinese government’s chief concerns when instituting the investment restrictions, Fuhrman said, is over outbound investors getting fleeced while paying record-breaking prices. ‘A concern of Chinese regulators is their investors have been really bad buyers,’ Fuhrman said. ‘This can sadly be seen more and more in the larger real estate deals they have done. What they are extremely concerned about is just about every acquisition the Chinese have made, is they have overpaid severely and foolishly, and that has spurred a loss of a lot of Chinese sovereign wealth.’”

The Real Deal on Florida. “An Argentine investor looking to buy luxury real estate in South Florida can expect to pay 403 percent more today than in 2007. That’s how much value the Argentine peso has lost against the dollar, according to a newly released Esslinger Wooten Maxwell report. A Venezuelan buyer would likely have to pay 365 percent more today than in 2007, and a Russian buyer would have to shell out 149 percent more. The statistics explain why the once robust flow of foreign investors purchasing luxury condos and single family homes has slowed to a trickle.”

“Miami Dade’s luxury condo inventory, defined as $1 million and up, skyrocketed 69 percent from the fourth quarter of 2015 to the fourth quarter 2016, according to EWM. At the same time, $1 million-plus condos only accounted for 4.5 percent of total condo sales in Miami-Dade during the fourth quarter of last year. In Broward, luxury inventory rose 34 percent. At the end of 2016, condo prices dropped 21 percent, year-over-year. Miami-Dade is facing a 47-month supply, and when it comes to condos priced between $2 million and $4.9 million, Miami-Dade has a 58-month supply of inventory and Broward County has a 76-month supply.”

“At $5 million and above, Miami-Dade has a 108-month (or nine-year) supply of condos and Broward has an eye-popping 19 years, or 228 months, worth of supply. EWM Realty International CEO Ron Shuffield said the inventory glut and the slower sales pace is putting pressure on sellers to slash their asking prices. ‘Many of our sellers are coming to that realization,’ he said. ‘We’ve had a lot of success [telling] many of our sellers that they need to reduce prices.’”

The Mercury News in California. “Santa Clara County’s commercial real estate market suffered a slump in 2016 compared to the white-hot year of 2015, but the sector should bounce back this year, according to a new forecast. ‘After the biggest year on record in 2015 for office activity, we sort of had nowhere to go but down,’ said Jeff Fredericks, executive managing director of the San Jose office of Colliers International, a commercial realty brokerage that issued the new report. ‘We predicted that office activity would come down to earth, and so it did.’”

“The report did point to a troubling trend of rising sublease space that is appearing as tenants vacate offices that they had already rented. At the end of 2016, Santa Clara County had 2.6 million square feet of office space available for sublease — double the 1.3 million square feet that were available at the outset of 2016, Colliers reported. Sublease space represented 29.8 percent of the office space available at the end of 2016, a huge jump from the 19 percent figure at the beginning of 2016.”

“In a sign of a possible bubble for commercial real estate — and overbuilding — about 5.7 million square feet of Santa Clara County office buildings that are completed shells or are under construction are not leased and have no commitments from occupants. A year ago, that uncommitted figure was 1.7 million square feet. ‘There are cracks in the armor,’ Fredericks said. ‘But it is still a fundamentally strong commercial real estate market in Silicon Valley.’”