The Housing Bubble

A report from Michigan Biz. “West Michigan commercial real estate industry insiders see signs of a genuinely healthy market, albeit one that’s likely plateaued. With several large-scale projects currently under construction around the region, many wonder what comes next for the area. Q: Why do you think we’re now attracting these larger projects? Chris Beckering, executive vice president of Pioneer Construction, a Grand Rapids-based general contractor: ‘To some extent, that’s been a selffulfilling prophecy because there’s this magic number of 100 units for financing. You’re getting into a whole other tier of financing options when you’re over 100 units … so developers like to build them because they can finance them. When they’re done and stabilized, there’s a huge market for selling them.’”

From Fox 6 Now on Wisconsin. “The real estate economy in Wisconsin is hot. So why are taxpayers paying the price? A FOX6 investigation finds it’s all because of something called ‘tax increment financing’ — or TIF for short. ‘It’s a taxpayer subsidy of a real estate development,’ said State Senator Duey Stroebel, a Saukville Republican who is a realtor by trade. TIF-funded projects are helping cities, towns and villages across Wisconsin to re-invent themselves with new luxury apartments, town homes, condominiums, music venues, restaurants, shopping centers and more. That means taxpayers are fronting millions of dollars for private developments.”

“‘Why?’ Stroebel asked. ‘We are in a booming real estate economy… does the taxpayer really need to subsidize high-end apartments?’ In recent years, the senator says TIF use has exploded, even for projects built on valuable real estate. ‘It just doesn’t make sense.’”

From WGLT in Illinois. “The off-campus student housing business has changed drastically in the last decade, when ISU closed (and later demolished) two giant dorms and pushed 1,500 students into the private sector. Landlords—many of them developers themselves—have responded by building fancier and fancier apartments, trying to meet the demands of a modern college student. That’s continued this summer, as builders put the finishing touches on three new apartment buildings surrounding ISU.”

“It’s been like that year after year. Townwide Normal has seen 64 new apartment buildings with over 1,240 units built over the last decade, many for the ISU market, according to Town of Normal records. Yet there are signs that new-construction boom may soon be over, including the possibility of more on-campus university housing at ISU.”

“‘With this (Lodge expansion) project and a couple others, we’re probably at a saturation point,’ said Andy Netzer, general manager and managing broker at Young America Realty, the largest student landlord in Normal. ‘The supply and demand has shifted a little. For the next couple of years, you’ll not see a lot of new construction coming on. If we did more of this, we’d be creating our own vacancy somewhere else,’ Netzer added.”

From Bisnow on DC. “For years, D.C. apartment developers have built thousands of apartments, and they have leased them up quickly, satiating a seemingly endless desire for new rentals in the urban marketplace. But the tide is starting to turn. Vacancy in D.C.-area apartments in the second quarter rose from 2.7% in 2017 to 3.6%, according to Delta Associates’ latest report. While absorption has begun to slow, construction has not. Over the next three years, more than 29,000 apartments are expected to deliver in the region, up from just under 28,000 from 2017. ‘We had projected for the past year or two that absorption would steadily start to decrease, and that is steadily starting to happen,’ Delta Associates President William Rich said.”

From AM New York. “As owners put a slew of homes on the market, the bevy of choices dragged Manhattan home prices down 1.1 percent — the largest annual decline since the financial crisis, according to StreetEasy. Rental rates in Long Island City, Astoria and Sunnyside stagnated, and about 25 percent of units were leased at discounted rates, according to StreetEasy. Grant Long, StreetEasy’s senior economist, wrote that condos in that corner of the borough are often purchased as an investment that can be rented out.”

“‘Rents in Northwest Queens have been declining over the past year, driven in large part by the new construction in Long Island City,’ Long wrote. ‘But with increased competition on the market, they [investors] should be ready for renters to negotiate and be willing to offer concessions in order to stand apart from the pack.’”

From Community Impact on Texas. “The supply of apartment units coming online in the Greater Austin area—and in the Cedar Park and Leander area—is outpacing the demand for those types of products. According to Apartment Data, three out of the past four years have seen more than 11,000 units added to the Austin area market annually. ADS President Bruce McClenny said the area market tends to operate better at delivering 7,000 units per year. ‘There’s just been too many units delivered, so there’s been an oversupply of units,’ he said.”

From KOMO News in Washington. “William Shadbolt shows off his newly remodeled Belltown studio he owns and has rented for $1,195 a month. But, he has decided to sell it, not because he no longer wants to be a landlord, it’s that he no longer likes being a landlord in Seattle. ‘After all the different ordinances the City has passed, it just wasn’t worth renting out property in the City of Seattle,’ said Shadbolt.”

“And he’s not alone. A just-completed study by researchers at the University of Washington, paid for by the City of Seattle found 40 percent of landlords survey indicated they have sold or will be selling rental properties in the city because of the new rental restrictions. Meanwhile, real estate website Zillow has found rental prices in Seattle still very high but flattening out. ‘Data from May and June of this year see rents dip in the city,’ said Aaron Terrazas, Senior Economist at Zillow. ‘This has happened in other major cities in New York, Washington, D.C. and San Francisco in the past few years and its finally catching up to Seattle,’ said Terrazas.”

The Bay Area Reporter in California. “Due to a variety of factors, from changing demographics and consumer behavior to rising rents and costs to do business in San Francisco, there is a glut of vacant commercial spaces along Market Street between Octavia Boulevard and Castro Street. Over a decade ago, Bevan Dufty, when he was the neighborhood’s supervisor, led an effort to plan for what residents wanted to see in the design of the dozen buildings being proposed for vacant lots and former gas stations along upper Market Street. With half of the projects now built, Dufty recently told the B.A.R. that he has mixed feelings about their impact.”

“During the middle of most weekdays in the Castro, Dufty said, one could roll a bowling ball down the sidewalk due to the lack of people in the area.”

The Desert Sun in California. “Jerry Marymont’s house – a three-bedroom property overlooking the tenth fairway of a private golf course – was set to net him $13,000 during the Coachella Valley Music Festival. But Marymont says he hasn’t seen a cent from the booking. The company he hired to manage his rental, Luxe Vacation Homes, shut down on July 6, leaving Marymont among a group of Coachella Valley homeowners that say Luxe checked out of the local vacation rental industry without paying them for recent reservations.”

“Marymont estimates the company owes him $18,000 in total – a sum he thinks is likely small compared to the debts other homeowners could claim. ‘I guess I was one of the lucky ones,’ he said.”

“Instead of splitting income with each homeowner, they say the company used rent to fund its operations and depended on revenue generated from subsequent guests to pay back homeowners for previous bookings. In a February 2018 court deposition, Luxe Vacation Homes CEO Justin Steubs estimated that the company owed homeowners $700,000.”

“Steubs did not consent to an interview, citing the advice of his attorney. In a written statement to The Desert Sun, he denied accusations that Luxe Vacation Homes is a Ponzi scheme and accused a former partner, Eleazar Lua, of defaming Luxe in a previous interview. Steubs said increased competition prompted Luxe to close. ‘Unfortunately, due to competing market forces and internal corporate restructuring issues, Luxe Vacation Homes has encountered financial difficulties and has decided to wind down and close,’ Steubs wrote.”

“To understand how Luxe Vacation Rentals unraveled, The Desert Sun is drawing from interviews with homeowners and 375 pages of court documents and real estate disciplinary records. The court papers include a February 2018 deposition in which Steubs describes the Luxe business model as ‘a ticking time bomb’ and acknowledges using homeowners’ money to fund operations.”

“Based on the financial information court-appointed accountant H. Les Kornblatt was able to gather, Luxe Vacation Homes appeared to be insolvent every year from 2012 to 2017. ‘The only way the company has survived in recent years is by use of the excess cash flow generated from property ‘guests’ over the actual payment of rents collected to company clients,’ Kornblatt wrote. ‘Sort of like a Ponzi situation; as long as the ‘guest’ base continues to grow, then there is cash flow to meet the corresponding obligations.’”