May 1, 2017

If Their Plan Is To Exit, They Could Get Stuck

A report from the Seattle Times in Washington. “NEXUS, a new-construction, 382-unit condominium high-rise under construction at 1200 Howell St., underscored the pent-up demand for home ownership when it opened for public sales last month and subsequently sold more than 75 percent of its homes. Remaining homes at NEXUS include a mix of one-bedroom-plus-den, two-bedroom and three-bedroom homes priced from the low $900,000s. ‘Presales are back because the smart money is planning ahead,’ says Michael Cannon, the sales director for NEXUS. ‘Savvy buyers are locking in their future by investing today. A presale buyer doesn’t need to think about the move for another two years, and there’s no fear of price escalation or renovations. Current homeowners will also enjoy another two years of appreciation while their new condominium is being built.’”

From News Channel 5 in Tennessee. “Nashville’s first full-scale rooftop dog park hopes to draw in millennials in a very competitive housing market. With so many new apartments available in the market and more about to be completed, property managers are trying everything to get you to sign on the dotted-line. Other incentives being offered at apartment complexes around town include, salt water pools, outdoor fireplaces and on-site yoga studios. With the level of saturation in the Nashville area, experts said it’s a good time to be a consumer.”

“‘We have more than 400 residents and 100 of them have dogs,’ said Property Manager Courtney Dies. ‘This is what millennials want, this is the next level.’”

The Milwaukee Business News in Wisconsin. “Southeastern Wisconsin has sustained a construction boom for the past five years, particularly with multifamily housing developments being built in and near downtown Milwaukee. And while there are signs the market may be maturing as some developers and banks are putting the brakes on future projects, development and construction industry experts are confident the industry has not hit its peak.”

“One of the staples of this apartment boom has been high-end apartments in downtown Milwaukee targeted at millennials. According to Robert Monnat, a partner one of the city’s most prominent apartment builders, demand has never been higher for apartments, but high-end apartments for millennials have been overbuilt. ‘The market is beginning to exhibit normal characteristics where you have to think about what you are doing again,’ Monnat said. ‘It used to be biking downhill. At some point, you hit the bottom and you have to start pedaling again to get where you are going, and that is where we are. Projects are going to continue to get built, but they are going to get built only if there is true demand.’”

The Kokomo Tribune in Indiana. “The influx of housing to downtown Kokomo has left many wondering who is going to fill the apartments and townhomes and what could happen if some of the biggest projects flop. The biggest of Kokomo’s downtown housing projects, and its most talked-about, is 306 Riverfront District, a $32 million mixed-use development with 198 luxury apartment homes. the decision to undertake such an immense project wasn’t made by city officials, although they supplied the property. Instead, it was made by development firm Flaherty & Collins Properties after a meticulous market research process.”

“With roughly 9,000 people commuting to Kokomo for work but leaving at the end of the day to live elsewhere, Mayor Greg Goodnight and developers are focusing on what could become of Kokomo’s future. Goodnight said cities, similar to car companies, need to be on ‘the cutting edge of the next best thing,’ making the city attractive to people who could be convinced to move here. Flaherty & Collins Properties CEO David Flaherty, a person counting on an influx of commuters to fill the complex’s many luxury apartments, even noted that, ‘This project would not be possible without Kokomo Municipal Stadium.’”

The New York Times. “After a burst of construction, the luxury real estate market is awash with million- and multimillion-dollar homes for sale. Buyers are taking their time before signing on the dotted line, and sales agents and brokers have had to get more creative in drawing attention to their listings. ‘We’ve seen buyers come see an apartment four or five times and they’re still on the fence,’ said Steven Rutter, director of Stribling Marketing Associates, a division of Stribling & Associates. ‘There’s no sense of urgency.’”

The Real Deal. “The buyers who rushed into the Manhattan luxury real estate market in the frothy days of 2014 and 2015 did so with the expectation that their apartments would rise in value. But some have woken up just two years later to find that they must stomach a loss to resell their units.”

“So, what happens when buyer flip-flops? ‘When I got into this business, the sure bet was new development,’ said broker Dolly Lenz. ‘You get in first and you’re going to be able to flip it or resell it for 30 percent or even 50 percent more. In the case of 15 Central Park West, 100 percent. Today, buyers of new development better be very discerning and better have pen to paper because if their plan is to exit, they could get stuck like Leon Black.’”

“Private equity billionaire Black was a hot topic of conversation at the event, as a poster boy for the high-end real estate slump in Miami. He sold his condo at Faena House in Miami Beach for $12.5 million earlier this year, a steep discount from the $16.5 million he paid in 2015. Art giant Larry Gagosian flipped his penthouse at the same building for $12 million, a loss of nearly $1 million in just a year. Ken Griffin is also looking to flip his penthouse there. ‘It’s shattering every record again on the way down,’ Lenz quipped. ‘Leon Black just lost 25 percent plus 10 percent in closing costs. Hedge fund billionaire Ken Griffin is out before he’s in.’”

“The price crunch is also impacting developers, many of whom forked out top dollar for land several years ago with the assumption they could sell at record-breaking prices. Lauren Muss of Douglas Elliman agreed: ‘Every broker I’m dealing with is pretty emotional. They don’t want to hear it. It’s difficult to convince people of what their place is really worth,’ she said.”