The Housing Bubble

A report from the Kitsap Sun in Washington. “As CEO of New Standard Equities, a Los Angeles-area investment company, Eddie Ring is betting tens of millions of dollars that renters will be as enthusiastic about Kitsap County apartments as he is. Investors — including several large California firms — spent more than $300 million on apartment complexes in the county in 2015 and 2016 alone. Most have upgraded the properties they purchased and are charging higher rental rates. For groups looking to park money in commercial real estate, apartments are hard to beat, said Victor Targett with Windermere in Silverdale. ‘There’s probably not a commercial market as strong as multi-family has been,’ Targett said. ‘Apartments have far exceeded the rest.’”

“Heather Roossien said the improvements made to her Silverdale apartment after a recent ownership change were mostly superficial. Old furnishings were painted to cover up blemishes and workers put new fronts on cabinets instead of replacing them. ‘The thing is, the price for rent is astronomical,’ Roossien said.”

The Flathead Beacon in Montana. “The current housing and construction boom in the Flathead Valley evokes the pre-recession boom of the early 2000s. But real estate and construction experts say it’s different this time around. The big push in the current boom is for multi-family housing and more affordable housing options. And there are likely more projects on the way — Tom Jentz, planning director for the city of Kalispell said the planning department has received interest for building between 500 and 1,000 more multi-family units. ‘You may only ever see half of that built, but what it is, it indicates the pressure,’ Jentz said. ‘We’ve never had the multi-family housing pressure before.’”

From the Coloradoan. “When Colorado State University students return to Fort Collins in the fall, about 400 will move into new housing designed just for them. More than 3,400 beds are expected to open in the next two years. Carrie Gillis, real estate manager of New Colony and Somerset apartments, believes the city’s rental market will soften as more units come online, but does not expect rents to reduce, given the increasing costs of building in Fort Collins. ‘We will have to have higher rents to get projects to pencil out,’ she said.”

The Post Bulletin in New York. “All over Rochester, the number of apartments is quickly growing. Permits for about 1,000 new apartment units were issued last year, slightly down from the peak of 1,165 units approved in 2015. While Med City residents might believe apartment complexes have been sprouting up around town forever, it is a recent trend. In 2014, just 124 new apartments were approved to be built in Rochester. Most of those new apartments are priced to be considered luxury or market rate.”

“Some local housing experts think this apartment boom might be starting to pass its peak and beginning to cycle down. ‘I believe we’re going to experience an oversupply. We’re already starting to see some rent stagnation,’ said Tom Hill, Realtor and CEO of Matik Management. ‘I think what we’re seeing is an overresponse to demand.’”

The Arizona Daily Star. “Homeownership, a key indicator of neighborhood stability, has dwindled near the University of Arizona — in some cases dramatically — over the past 15 years. In a dozen neighborhoods on the university’s borders, the rate of owner-occupied homes tops out at 42 percent and in some cases the rate is 10 percent or less. Those rentals used to be occupied by UA students, but increasingly that group is choosing plush new student-housing communities, leaving residents to worry about vacant, unkempt properties left behind.”

“Thirty years ago, when Diana Lett moved into the Feldman’s Neighborhood, her neighbors were her friends. From 2000 to 2015, the rate of owner-occupied homes in Feldman’s fell from 20 percent to 12.7 percent. ‘I’d like to have neighbors who stay for years and fix up their properties,’ Lett said. ‘I’d like it if I weren’t the only person on the block to pick up wind-blown trash, haul off abandoned televisions, call in broken streetlights, and otherwise take responsibility for the place looking halfway presentable.’”

The Journal Sentinel in Wisconsin. “A seven-story, 72-unit condominium building, proposed for Walker’s Point, would be the first major condo project in the downtown Milwaukee area since the housing bubble burst in 2008. South Water’s proposed site is where developer David Winograd had planned to build a 12-story, 164-unit upscale apartment development. That $30 million project would have had monthly rents from around $1,500 to $3,000.”

“But Winograd in March disclosed that he had dropped those plans. He cited both an oversupply of new apartment units in the downtown area and rising construction costs. That apartment boom, which lately has shown signs of slowing down, has been fueled by demand from both millennials and empty nesters for downtown-area housing. Another downtown housing boom – this one involving condos – ran from the late 1990s until around 2008. After the housing market collapse, followed by a global recession, demand for downtown condos largely disappeared.”

The Washington City Paper. “D.C.’s most notorious slumlord, Carter Nowell of Sanford Capital, is now facing bank foreclosure at two of his properties and is delinquent in mortgage payments on three others. The company has received millions of dollars a year in taxpayer subsidies by way of housing vouchers for low-income tenants. But financial data on these five properties, which together represent roughly a third of Sanford’s D.C. holdings, show a company in strong financial health through mid-2016, the period for which data is available.”

“Perhaps most striking is that Sanford’s borrowing history for each of the five properties in question, which are all in Wards 7 and 8, follows a similar pattern over several years. This pattern is well illustrated by the case of Sayles Place Apartments, which is currently in foreclosure.”

“Carter Nowell and his original business partner Patrick Strauss, along with Patrick’s wife Mary Strauss, signed a $3.8 million loan to buy Sayles Place in 2010. Four years later, Nowell more than doubled his loan amount to $7.25 million through a refinance with Basis Real Estate Capital II, part of the New York-based Basis Investment Group (an LLC in bad standing with the state of Maryland, which has since sold off all five of these loans), and the Strausses did not sign on subsequent mortgages.”

“In documents provided by Trepp Wire, Sayles Place is appraised at $9.5 million. The District’s tax assessment for the property is about half that amount, or $5 million. This is the pattern across all five properties. First Nowell and the Strausses sign for a loan. Later, the bank uses an appraisal value several millions higher than the purchase price. Nowell refinances, vastly increasing the loan amount and the Strausses drop from the deal. He makes regular payments on properties that are, at least on paper, in great financial health. Then in February of 2017 he stops making payments (with a brief return to current status in March at Sayles Place only).”

“The numbers in this pattern are most stark at Elsinore, where Nowell is currently on the hook for a loan of more than $12 million, even though he bought the property for a mere $2.3 million in 2014. In Trepp’s statements, Elsinore’s appraised value is $17.6 million. The District has assessed it at $8.6 million.”

“Nowell, who has refused media inquiries for the past several months, responded to City Paper’s request for comment on its foreclosures and delinquencies with an email statement. ‘Sanford Capitol [sic] owns several properties that are being driven into bankruptcy by the Attorney General, District agencies, and tenant advocates,’ wrote Nowell, making reference to lawsuits against the company filed by AG Karl Racine. ‘Each of these properties currently houses numerous tenants who haven’t paid rent in months or even years in some cases, severely limiting our ability to maintain and make improvements to these buildings. We are a business and do not have the unlimited resources of the District government.’”