The Housing Bubble

A report from the American Statesman in Texas. “Home sales in Pflugerville in January and February are less than half of what were sold in the same period last year. But Brandy Guthrie, president of the Austin Board of Realtors, said that dip does not indicate a weak market. Instead, she said, it is more indicative of a market moving toward normalization. That normalization follows two years of a ‘red-hot’ and ‘record-breaking’ real estate market in Central Texas, she said, which still remains robust this year. She noted the median price of homes rising from about $240,000 in January to $250,000 in February as homes continue to sell quickly and regularly receive multiple offers.”

“Guthrie said a continuing stream of new homes in Pflugerville will continue contributing to a robust Central Texas market. But with demand still high, it will remain a seller’s market. ‘Right now we have a housing shortage,’ she said. ‘Until we can get additional supply for the region, prices will continue to increase.’”

The North Bay Business Journal in California. “2016 was a strong year for apartment sales in Marin County, with multiple offers the norm for both five-plus-unit complexes and smaller, two- to four-unit properties. Both categories saw year-over-year price increases, with some southern Marin prime apartment properties selling at over $500,000 per unit. In central and northern Marin cities, prices are now $201,000–$409,000 per unit, depending on location and amenities. The majority of central Marin prices is currently around $300,000 per unit.”

“Smaller properties also received price increases in 2016. Southern Marin fourplexes sold for as high as $3.55 million. Duplexes in both Tiburon and Sausalito are now selling for $1.8 million–$2.3 million. Just two years ago, the same-sized duplexes were selling for $1.4 million–$2.0 million. Capitalization rates for five-plus-unit properties ranged from 2.69 percent for complexes with 30 percent upside in rents to around 4 percent for apartment properties that sold with rents near or at current market rents.”

“At the same time apartment sales were strong, southern Marin apartment rental rates continued to soften as more new apartments and condos came to market in San Francisco. Southern Marin two-bedroom luxury apartments that were renting for over $4,000 per month in the past two years are now renting for around $3,400–$3,600.”

From Arlington Now in Virginia. “Question: I’ve been renting my unit at the 1800 Wilson condos in the Rosslyn/Courthouse area for the last five years and am wondering why I used to get more rent five years ago than I do today, despite keeping the unit in great condition for each renter. Any ideas? Answer: You may have heard that over the last five to six years, the rental market has hit all-time highs across the country, so it makes sense that you’d expect your rental income to increase. However, the increased rental demand and previously undersupplied luxury rental market in Rosslyn got the attention of some major developers, who recently built larger luxury rental buildings nearby.”

“Don’t expect a huge jump because rental supply is substantially higher now and Central Place, above the Rosslyn Metro station, just started leasing 377 luxury units. However, many of these apartments are in the ultra-luxury market.”

From The Real Deal. “Criminal charges are looming for scandal-plagued Malaysian businessman Jho Low, who has been accused of stealing billions of dollars from a state development fund. Prosecutors’ plans involve charges of wire fraud and money laundering against Low and others, according to the Wall Street Journal, characterizing the scheme to siphon money from the 1Malaysia Development Bhd. as one of the largest-ever cases of financial fraud.”

“In addition to criminal charges, the Department of Justice is looking to seize additional assets from Low, including his $165 million, 300-foot yacht. It is also looking to seize a luxury apartment in Paris and a penthouse in London. Separate from the criminal investigation, the DOJ filed civil lawsuits this past summer, seeking to seize more than $1 billion in assets, including art and luxury real estate in New York City.”

From Crain’s New York Business. “Brookfield Properties has seized control of the Brill Building by foreclosing on a mezzanine loan it held against the Times Square property that had slipped into default in recent months. Real estate investment firms Brickman & Associates and Allied Partners had purchased the building for $185.5 million in 2013, then sold a minority share to additional partners last summer in a deal that valued the property at $310 million but also heaped on debt, according to reports at the time.”

“The takeover took place after the building’s owners couldn’t execute on a plan to lease its roughly 40,000 square feet of retail space for sufficient rents to make their investment pay off. ‘We made an investment four years ago that was predicated on certain retail rents, and instead those rents dropped tremendously, and we couldn’t generate the cash flow we expected,’ said Steven Friedman, Brickman’s chief investment officer, who confirmed his firm and its partners turned the property over to Brookfield. ‘Across the spectrum you’re seeing retail just getting creamed for a variety of reasons, and this is an unfortunate result of those problems.’”

“When it comes to retail, Brickman is far from alone. Urban Outfitters CEO Richard Hayne recently compared the challenges facing retailers to the housing bust during the Great Recession. ‘Thousands of new doors opened, and rents soared,’ Hayne said of the rapid increases in retail capacity that marked the 1990s and early 2000s. ‘This created a bubble, and like housing, that bubble has now burst.’”