September 17, 2018

Many Investors Now Panicking Under Financial Strain

A report from the Ballina Advocate in Australia. “Australia is facing a ‘debt crisis’ - and the property market and our entire economy are at risk as a result. That’s according to the sobering 60 Minutes segment Bricks and Slaughter which aired last night, revealing the country’s property downturn was just the tip of the iceberg. According to reporter Tom Steinfort, the current slump is actually ‘more like falling off a cliff,’ with a number of real estate and finance experts claiming houses could plummet in value by up to 40 per cent in the next 12 months.”

“Mr Steinfort spoke with data scientist Martin North from Digital Finance Analytics, who said Australia was uniquely vulnerable when it came to an economic crash tied to a property downturn. ‘At the worst end of the spectrum, if everything turns against us we could see property prices 40-45 per cent down from their peaks, which is a huge deal,’ he said. There’s $1.7 trillion held by the banks in mortgages for owner-occupies and investors. And that’s about 65 per cent of their total lending. That’s higher than any other country in the Western world by a long way. We are uniquely exposed at the moment.’”

“Mr North said Australia was now in the same position as the US was back in 2006 and 2007 - a position which triggered an economic collapse. ‘As a society, and as a government, and as a regulatory system, we’re all banking on the home price engine that just goes on giving and giving and giving. It’s not going to,’ he said. ‘We’ve got a debt bomb, we’ve got a debt crisis and at some point it’s going to explode in our face.’”

“It’s a sentiment shared by Laing and Simmons real estate agent Peter Younan, who said the median house price in his patch in Granville in Sydney’s west had dropped from $1.2 million to $1 million in just one year - a shocking $200,000 plummet. He said foreclosures had also risen by 600 per cent in the region. ‘The mortgage stress is definitely being felt especially in this area,” he said.

“60 Minutes also spoke with several Aussie homeowners who gave harrowing details of the stress they faced trying to pay off their mortgages, including having their power turned off and being ‘hounded’ by their banks. But property investor Bushy Martin said the blame lay squarely at the feet of buyers who ‘mortgaged themselves up to their eyeballs’ in a bid to snap up dream homes before being able to afford them.”

“However, the segment has also sparked backlash online, with some claiming the situation had been exaggerated. One Reddit user branded the report as an example of ‘alarmist journalism and scare tactics,’ while another said it was ‘dramatic and cringe-worthy.’ And some said it was unfair to blame the banks for the situation, and that homeowners needed to take responsibility for their own decisions.”

“That was in response to comments made by one homeowner on the program, who said the bank had ’suddenly switched the mortgage to interest and principal,’ raising his repayments by 57 per cent. ‘The interest only part annoyed me the most. The bank didn’t ’suddenly change’ your repayment from (interest only) to (Principal and interest) your IO term expired. You a) knew this would happen and b) assumed the bank would renew it when it expired. I hope this speculator gets burnt first,’ one Reddit user said.”

“However, others slammed the banks for handing out multiple interest-only loans to buyers. ‘They raked in the cash from dodgy loans for years and are crying wolf now. It’s negligent beyond words,’ one Reddit user said.”

From Domain News. “Experts have questioned claims of a 40 per cent drop in Australia’s house prices, made over the weekend on 60 Minutes. Experts have rubbished the claims made on Sunday night, saying the very worst case scenario was presented. ‘Mortgage stress and falling prices were the primary factors of concern on the program, which claimed the number of foreclosures was rising, and the banks were obfuscating the real numbers.”

“Market Economics managing director Stephen Koukoulas said this was a weak claim. ‘There’s a whole lot of reasons to suggest prices are going to be weaker for a shorter amount of time, but it’s remarkably orderly,’ he said. ‘People aren’t rushing in to hand over their keys.’”

From ABC News. “Stagnant house prices are likely the new normal for property markets in much of Sydney and Melbourne, analysts are warning as prices fall for the 11th month in a row. Keiran Edwards is experiencing the new reality first hand. He is trying to sell the family home in Penrith on Sydney’s western fringe.”

“‘I thought we might sell it in the first week,’ he told 7.30. ‘Someone would come in and go, yeah, that’s mine. It just hasn’t happened.’ He bought the house six years ago and renovated it himself. Until it went on the market, he thought its value had doubled. ‘I just assumed that people would straight away walk in and love it, like I loved it all those years ago when I bought it,’ he said. ‘But even saying that, they maybe do love it but are having trouble getting finance.’”

The Daily Mail Australia. “Home borrowers are being warned to brace for bad news with the proportion of houses and units selling for a loss at the highest level in five years, new figures show. Across Australia, one in 10 homes sold during the June quarter fetched a lower amount than the purchase price, data from Core Logic showed. The proportion of loss-making sales, at 10.2 per cent, was at the highest level since the three months to October 2013, with apartments more likely than houses to burn the seller.”

“In some Australian capital cities, more than half of all units sold were being offloaded at a loss, with six of the seven mainland capitals seeing a double-digit proportion of apartment owners losing money at sale time.”

“In Perth, 23.4 per cent of homes sold at a loss, followed by 20.1 per cent in regional Queensland. Inner-city apartments fared particularly badly, with 53.4 per cent of central business district Perth units selling at a loss during the three months to June 30. Brisbane’s inner-city was also a bad place to invest with 32.4 per cent of units fetching less than the seller had previously paid, compared with 22.3 per cent in Melbourne’s inner-city.”

“In Darwin, a whopping 71.1 per cent of units sold at a loss during the June quarter, a jump from 51.9 per cent during the same period a year earlier. Sydney, however, was the least risky capital city market to buy a unit, with only 3.1 per cent of units in the city and the inner-south selling at a loss, in Australia’s most densely populated locality where 71 per cent of dwellings sold are apartments. ”

“Across Australia, 9.4 per cent of capital city properties sold at a loss compared with 11.6 per cent in regional markets. Investors were more likely to get assaulted financially, too, with 10.1 per cent of them making a loss, compared with 9.8 per cent of owner occupiers, following an Australian Prudential Regulation Authority crackdown on investor loans.”

From ABC News. “You know things are tough in the property market when a seasoned real estate agent sells his own family home and chooses to rent instead. Greg Rossen has been selling homes in Perth’s wealthy western suburbs for decades, but even he doesn’t have the confidence to invest in housing at the moment. And he can’t see it getting better anytime soon.”

“‘No-one can predict the future, but for my own self I have sold out of the market and I am renting a family property because I don’t see any light on the horizon,’ he said. ‘Investors need to be mindful of where they think the cycle is and make up their own mind. But there is a body of thought, that I subscribe to, that conditions are not good and I believe they could well get worse.’”

“After strong price rises across 12 suburbs — largely at the premium end of Perth’s property market — the Real Estate Institute of WA recently claimed ‘aspirational suburbs are really leading the way in the property market’s recovery.’ ‘It’s lovely to quote certain suburbs where you have what appears to be an increase in price, but in reality, if we look at the total metropolitan market, those are almost anecdotal,’ he said. ‘We are coming off a low base so statistics can lie and they need to be very closely looked at.’”

“Mr Rossen said those price rises were attributable to ‘pent-up’ demand but the broader market ‘is generally in a bad condition.’ He noted that while prices in Nedlands have risen 15 per cent over the past year, he recently re-sold three properties in the area for 10 per cent less than he sold the same houses for a decade ago. He said a ‘devastation’ in commercial rents as well as tenant vacancies in both the residential and retail sector continued to point to poor market conditions.”

“LJ Hooker Rockingham Baldivis director Paul Baird-Murray said the area south of Perth in which he worked was currently saturated with properties for sale, the majority of which were bought as investments, ‘Some of them have actually said ‘but I thought rents just kept going up, I thought property prices would just continue,’ Mr Baird-Murray said. Many investors were now panicking because they were under financial strain or feared further market falls. But Mr Baird-Murray said they were unrealistic about the value of their property in the crowded market.”

“Local resident Steph Moses said ongoing land development in the area was exacerbating the problem. She and husband Daniel have an investment property in Port Kennedy, between Perth and the regional city of Mandurah. They had intended to keep the property for the long term, but were recently forced to list it for sale. ‘I was given the diagnosis that I had stage four cancer so we had to change a lot of things,’ Mrs Moses said. ‘I have had to stop work because of my illness.’”

“The only offer they have had on the property was $70,000 less than they paid for it. ‘If you want to build a house, you get $10,000-$15,000 for building a new home, so there is no incentive for the first-home buyers market to buy an established property,’ Mrs Moses said.”

September 15, 2018

My House Got Stolen In The Housing Bubble

A report from the Bakersfield Californian. “Ten-and-a-half years ago, sorting through the day’s mail, I would often marvel at the number of let-me-sell-your-home postcards from real estate agents. We were surely half-millionaires on paper, I remember thinking, because our nothing-special suburban house had, apparently and quite suddenly, nearly doubled in value. I had known something wasn’t quite right, but the glitter of found money was dazzling — just not dazzling enough, fortunately, for me to suggest that we do something about it. And so we sat and watched.”

“Millions of other dazzled Americans took the leap, though. Then, 10 years ago this weekend, it all collapsed. Lehman Brothers filed for Chapter 11 protection, an event generally acknowledged as the start of the Great Recession. The abyss began swallowing homes — and lives.”

“Scott Shaw of Bakersfield saw much of it play out before him. The retired postal worker was selling real estate in the months leading up the bubble’s bursting, and he remembers how one seller in particular, in way too deep, didn’t fully grasp what has happening.”

“‘I went out to show a house that the owner had paid about $950,000 for, then used his equity to buy furniture, a swimming pool, more cars, et cetera,’ Shaw said. ‘Now he was trying to sell it for somewhere in the low $700,000s, and he asked me if he would have to pay the loans back. Wow! I had to catch myself from laughing. ‘Yeah, you’ve got to pay it back.’”

“The seller was a self-employed truck driver and his wife had a minimum wage job making sandwiches at a hospital. Their stated income had been enough for them to qualify for their loan.”

“Dawn Reichel puts it like this: ‘My house got stolen in the housing bubble.’ It wasn’t just any house. It was Reichel’s family home. The roof she’d grown up living under. Her parents had given it to her and her husband when they’d moved out. Now she was losing her inheritance. ”

“‘We got a ridiculously high appraisal, then refinanced,’ said Reichel, who lives in Bakersfield. ‘We did a bunch of home improvements. We used the money to rebuild the fence, fix the roof, repaint the house, upgrade our air-conditioning system. When we went to refi again at the end of the term, our house was worth $100,000 less than we owed.’”

“Their monthly house payment almost tripled from $890 to $2,400. They had to walk away. And when the house was auctioned off one Christmas Day it went for $58,000. ‘When you’re 50 years old and you’re watching everything go down the toilet, it’s not conducive to a happy marriage,’ she said.”

“Reichel still has not recovered financially. She has been a renter ever since the meltdown, though she says she is slowly but surely getting back on her feet. Reichel blames the American condition. ‘So much of it is our sense of entitlement,’ Reichel said. ‘We feel that we have to have everything, so we get everything and then we find out we don’t need everything. But we’re willing to take risks to find out.’”

“And so we did. Have we learned? Check back in 10 more years.”

September 14, 2018

It Is Very Much A Confidence Game

It’s Friday desk clearing time for this blogger. “The price of a tech mogul’s Los Altos Hills compound is now listed for about $38 million less than the original asking price, Socket Site has discovered. In Silicon Valley, where real estate is scarce and high-paying jobs abundant, homes famously sell for over asking, so it’s interesting that the price on this one has dropped so dramatically. The house at 27500 La Vida Real first went on the market with a big splash for $88 million in November 2015. The five-bedroom, 12-bathroom home never sold and the price was then dropped to $68 million last May and then to $55 million in June. Still without a buyer, is now listed for $49.99 million, that’s roughly 43 percent less from the original asking price.”

“Loudoun County Supervisor Matt Letourneau said residents often oppose any move to add housing in their communities for one simple reason. ‘They’re tired of sitting in traffic,’ he said. ‘Frederick County, Maryland, and Loudoun County, Virginia — both are seeing a lot of growth in housing. Route 15 goes between those two — it’s a parking lot from Leesburg to Point of Rocks,’ Letourneau said. ‘Every afternoon. I mean, literally, a parking lot.’”

“John Foust, a Fairfax County Supervisor said there’s no shortage of market-priced housing. ‘The challenge is obviously what the market won’t deliver — and that is affordable and workforce housing,’ he said.”

“They each saw year-over-year declines, but Arlington’s was smaller and, as a result, the county posted the largest average per-square-foot price for real estate across Northern Virginia in August. At an average of $456 per square foot, Arlington was down 3.4 percent from $472 a year before, but Falls Church (which had seen a per-square-foot cost of $530 in August 2017) was down 18.3 percent to $433. Alexandria, which placed third in Northern Virginia at $374, was down $22 per square foot, or 5.6 percent, for the month.”

“A rise in interest rates and slowing home sales have caused a decline in Dallas-Fort Worth residential mortgage activity. North Texas home loan activity fell 6 percent in the second quarter compared with the same period last year, according to Attom Data Solutions. The number of D-FW home purchase loans was down 15 percent. Any decline in home loan originations is significant for North Texas, which has one of the country’s largest concentrations of mortgage industry businesses and workers. Several companies have already begun cutting back on the ranks of workers because of the reduced loan activity.”

“The decline in home mortgage activity in North Texas comes as housing activity is slowing in many neighborhoods. ‘I would expect this somewhat disappointing spring selling season will be a bit of a wake-up call for home sellers, and they will eventually consider lowering asking prices, which in turn will bring some buyers back to the table,’ said Daren Blomquist, senior vice president at Attom Data Solutions.”

“The Foxrock childhood home of Nobel laureate and writer Samuel Beckett, which has been on the market since 2013, has dropped its asking price by €1 million following a change of selling agent. Cooldrinagh was originally brought to market in the depths of the downturn, seeking an ambitious €4.25 million. This price was later amended to €3.5 million, though it still failed to attract buyer interest. Now the property is being returned to market with a 21 per cent price drop and a €2.75 million asking price.”

“The fall in rents has created a lot of buzz in the real estate market with tenants taking advantage of the situation, going for better options. ‘The rents have gone down between 15 and 20 per cent in many areas. This has given people an opportunity to negotiate with their landlords or look for other options as new buildings keep coming up,’ Salman Jalil, head of property division at Al Balushi Investments, told Muscat Daily.”

“Q: Can you say that the administration of high rents by landlords and realtors was responsible for the large number of vacant houses in Ikoyi, Lekki and Maitaima among others? Chief Kola Akomolede, Principal Partner, Kola Akomolede and Co: Again this is another problem we had, over the years during the boom years; we were living in artificial economy. The rents people were paying were just unreasonable. The high rents were not determined by market forces. For example, people are paying as much as $100,000 on a 3-bedroom flat in Ikoyi. I don’t know anywhere, even in America where people pay $100,000 as rent for a 3-bedroom flat; talk less of Ikoyi in Lagos? The rent was artificial. So with the boom coming to an end, some of the owners found it difficult to see the reality when rents started falling and people were asking them to take $50,000 and $40,000.”

“Initially they were saying no because the reality did not dawn on them on time. Some of them are still vacant till today because of the owner are not yet aware that the situation that created that artificial rent is no longer there. There still have those artificial rents especially in Lagos and Abuja. But the truth is that nobody that works honestly will be able to be paying $100,000 as rent. That is why some of these houses are still vacant.”

“The number of construction permits issued by the government rose more than 10 percent from a year earlier in the first seven months of this year. Liu Pei-chen, a research fellow at the Taiwan Institute of Economic Research, said it remains to be seen whether the local property market has bounced back. The economist said the local property market has been faced with a supply glut, so even though the value of the newly launched housing projects is expected to hit NT$1 trillion (US$32.47 billion) this year, less than 40 percent of the projects are expected to be sold. Liu said the local property market remained awash in empty homes.”

“An investor who purchased an off-the-plan ‘dream home’ in Brisbane from cold-calling property spruikers lost more than one-third of its value when he resold, despite several years of booming residential property markets. Mal Jones, a father of three, says he was persuaded by a ‘free’ trip to Queensland with his wife, Michelle, and persuasive pitches about tax breaks, leveraging and confident predictions about future growth.”

“But eight years after investing $415,000 (including commissions, management and refinancing costs), the property was sold for $295,000 – a loss of $120,000, or almost 29 per cent. ‘I trusted advisers’ professional opinion,’ Jones, whose children are aged between and 17 and 27, says about the deal. ‘It is very much a confidence game about future returns and I bought into it,’ he says. ‘I feel stupid about the outcome. I should have done more due diligence.’”

“In 2010 Jones accepted an invitation from a cold caller to have an adviser from Reventon, a Melbourne-based property company, visit his Eltham home for a ‘free’ consultation valued at $300. Property prices were running red hot in 2010 after a succession of interest rate cuts intended to protect the Australian economy from the global financial crisis. His purchase was financed with two loans with interest rates of more than 7 per cent. The intention was to find a tenant and let rent pay off the mortgages as rising capital boosted the resale value.”

“But property prices tanked and the highest weekly rent was $350, which meant an annual shortfall of about $12,000. Jones estimates total commission payments to be more than $40,000. ‘Foolishly we believed everything we were told about rising markets, capital gains and rental income,’ says Jones, who wishes he had consulted with his accountant and third parties to analyse the deal. ‘I went into the deal with eyes wide open,’ he says. ‘It looked too good to be true – and it was.’”

“Jones says he is grateful he got out when he did because similar properties in the same postcode are selling for even less.”

“His experience is consistent with market analysis by BIS Oxford Economics that found the number of negative or flat off-the-plan transactions in Brisbane was 26 per cent and 53 per cent respectively. ‘The substantial apartment pipeline, particularly in inner Melbourne and inner Brisbane, will deepen this issue with commencements on track to increase and remain high in the next two years,’ it concludes.”

There Seems To Be Surprise After Surprise

A report from the Denver Post in Colorado. “Developers in metro Denver are churning out so many luxury apartments it is depressing rents in the priciest neighborhoods, forcing landlords to provide more concessions and shrinking the premium tenants pay to live downtown. But is it a bubble ready to burst? The real estate community remains divided about what comes next as a record number of units continue to hit the market in Denver.”

“‘I personally believe that Denver is overbuilt,’ Kelley Klobetanz, chief underwriter at Greystone & Co. in Denver., told attendees at a multifamily conference hosted by Bisnow in Cherry Creek on Thursday.”

“Charlie Williams, a senior vice president at KeyBank in Denver, countered that for four years observers have worried about overbuilding in apartments. He even passed on deals that looked too speculative, only to see them succeed. Maybe it takes 18 months instead of 14 to fill a building, or more concessions need to be offered, but every time a new project hits the market, it eventually gets filled, he said. ‘We are a market that is diversified finally. Denver isn’t a boom and bust town anymore,’ he said.”

“But that doesn’t mean the market isn’t straining to absorb what is being built. David Pierce, a market analyst with CoStar Group, detailed the downward pressure all the new supply is having. About one in seven units downtown come with concessions like a month or more of free rent versus 1 in 10 elsewhere. Five years ago, a developer who built or purchased Class A units outside Denver’s core would have enjoyed rent increases of 20 percent versus only 10 percent for those who followed the herd and stayed in the urban core, Pierce’s numbers show.”

“So what are developers doing? Last year, they increased the supply of downtown units by about two-thirds over the annual average going back to 2014. They are doubling down rather than pulling back. In the most expensive submarkets, like Cherry Creek and the Golden Triangle, rents are falling. Another warning sign comes in the narrowing spread in rents between Class A units downtown and the older or lower quality Class B and C units. Typically, tenants have paid a 50 percent rent premium to live downtown in the nicest units, but now the gap is only 25 percent, and even lower once concessions are included.”

“‘The premium to live downtown has narrowed,’ said Pierce, who offered a silver lining.”

From Tulsa World in Oklahoma. “The University of Oklahoma will likely have less of a budget loss than anticipated during the current fiscal year, its president said Thursday. At a University of Oklahoma Board of Regents meeting, James Gallogly said the state’s flagship university was originally going to have about a $15 million operating loss for the current fiscal year, but the university has found about $12.3 million in cost-savings since he took the helm on July 1. He said that the now-projected loss of about $3 million will likely change as he continues to evaluate the budget and identify further cost-saving measures.”

“‘We’ve also discovered some items that we were not aware of relating to some budget categories that weren’t properly accounted for,’ Gallogly said. ‘One of the things I’ll just simply say is that our budgeting process is very weak, and, as a result of that, there seems to be surprise after surprise.’”

“Gallogly first made headlines in June when the then-incoming OU president expressed alarm about the university’s debt obligations, which are more than $1 billion including interest. He then said layoffs were possible as part of the cost-saving measures. At the regents meeting at OU-Tulsa Thursday, Gallogly also described the negative fiscal impact of certain OU student-housing projects on the university.”

“He said the university’s two residential colleges — Headington and Dunham — have about a 63 percent occupancy rate between the two, which equates to about a $2.3 million loss. If 100 percent occupied, the colleges would run about a $1 million loss, Gallogly said.”

“‘At this moment we have about $81.7 million of debt related to those two colleges,’ said Gallogly. ‘I would also point out that one of the things that we learned in the process of during the construction period that the university had contributed an extra $10 million to construction from general funds so this project has been a very, very difficult project for the university. It does have a significant financial loss.’”

“One of the financial ’surprises,’ according to Gallogly, is the expenses incurred by the Cross housing-project. ‘We had been told that we had no fiscal responsibility related to that project and we weren’t involved in the debt,’ said Gallogly. ‘It turns out … the cash amount that goes out the door from the University of Oklahoma related to the Cross project is about $7.1 million a year.’”

The Union Tribune in California. “Materials for construction of San Diego’s newest buildings are rising fast and some in the industry say it might slow the building boom that has altered downtown’s skyline since the end of the recession. Slowed rent growth and increased labor costs are also seen as problems for the building industry.”

“There are enough major building projects ongoing, especially downtown, that it might be a while before anyone notices a slowdown in construction. Companies like Canadian-based Bosa Development have no option but to continue construction on major projects, such as its planned tower off Broadway that will be the tallest residential building in San Diego County’s history.”

“‘It’s ridiculous,’ said Nat Bosa, president of the company, said of steel price increases. ‘It’s costing us a few million bucks more.’”

“Rent prices are still going up, but they have slowed considerably compared to past years and the influx of new apartments has meant more open units. New apartment complexes have the highest vacancy rates, according to CoStar. East Village’s newest tower Shift — known for its orange 240-foot tower — has a vacancy rate of 73.6 percent. It has 368 apartments and opened this spring. AV8, a 130-unit aviation-themed complex in Little Italy that opened this spring, has a vacancy rate of 76.9 percent.”

“Darcy Miramontes, executive vice president for commercial real estate firm JLL, said it is possible developers might decide to sit on land where they have already gotten approvals to start building. ‘I know there is a perception out there that there are a lot of greedy developers,’ she said, ‘but I will tell you that no developer is really hitting it out of the park on returns at this point.’”

“Bosa said it will ultimately be up to market conditions in the coming years if the cranes that have dotted the skyline for several years will continue. ‘If the market (renters and buyers) is willing to pay for it, then it’s OK,’ he said. ‘If the market is not willing to pay for it, then everything comes to a halt.’”

The Williston Herald in North Dakota. “Vacancy rates went up quite a bit during the downturn, stoking fears that the multifamily sector had overbuilt for the long-term need in the Williston region. However, with crude oil prices in the $60 range, Williston apartments have filled up fast. Despite the fact that apartments are running out of room, however, Mike Elliott, managing principal of Energy Real Estate Solutions doesn’t expect to see too many more multifamily units built, at least, not in the near future.”

“The replacement cost on multifamily is $180,000 to $220,000 per unit, Elliott said, ‘and they are still trading below $100,000. So it will be a long time before we see developers for multifamily units coming back to market.’”

September 13, 2018

A Little More Motivated Than Normal

A report from Bloomberg on New York. “Manhattan apartment vacancies dropped in August to the lowest level in more than four years as landlords, facing the end of peak leasing season, focused on filling empty units before the slower winter months arrive. Taken together with a decline in rents and an increase in concessions, it’s a sign that landlords cared more about finding tenants than pushing the line on prices. ‘These landlords know what comes after the summer so, yeah, they definitely want to fill these vacancies as best they can,’ said Hal Gavzie, executive manager of leasing at Douglas Elliman.”

“Owners offered sweeteners, such as a month’s free rent or payment of broker fees, on 35 percent of new leases in August, up from 24 percent from a year earlier, Miller Samuel and Douglas Elliman said. The median rent, with the value of those concessions subtracted, fell 2 percent to $3,310. It was the third straight month with a decline.”

“‘The past few years, the strategy of being aggressive and not willing to react to market conditions caused them to rack up more vacancies,’ said Gary Malin, president of brokerage Citi Habitats, which released its own report on the rental market Thursday. ‘They learned their lesson.’”

The Wichita Eagle in Kansas. “The Douglas is no more. The 240 posh downtown apartments at Douglas and Market will now be known as ReNew Wichita — the result of a recent change in management. As of last Friday, the apartments at 200 E. Douglas are managed by California-based Trinity Property Consultants. Previously, they were managed by the South Carolina-based Greystar, which operated the complex since its opening last year. The most notable change: Rent has been lowered by about $200 per apartment.”

“Studios now start at $650 per month, while one-bedrooms start at $850 and two-bedrooms start around $1,200. Previously, the cheapest studio at The Douglas rented for about $890 per month. ‘The property’s gorgeous, but the main thing we hear from people is the price point,’ said Kim Lewis, who is the new community manager for ReNew Wichita.”

“The property is currently at about 74-percent occupancy, Lewis said. The new management wants to fill those vacant units — so much so that the first 10 applicants who move into the complex will receive two tickets for a Royal Caribbean cruise (good for up to three years). ‘The reason we’re a little more motivated than normal is because we’re at the tail end of leasing season,’ Lewis said. ‘We just don’t want to go into the winter months and have a huge amount of vacancies.’”

“All the amenities of the luxury complex will stay: included with the rent, residents get valet parking, 175 cable TV channels and internet, as well as access to the ‘Sky Lounge’ with rooftop wading pool, a ‘bark park’ with dog wash, a 24-hour fitness center and more.”

The Advance Titan in Wisconsin. “The Annex of Oshkosh informed students it would not be ready for move-in on Monday, Sept. 3, three days before the start of the fall semester. The luxury student housing told residents that move-in day would start Labor Day, even doing hard-hat tours every so often to show residents what the place looked like.”

“According to an anonymous source, promises were made about the readiness of the apartment complex. ‘We came in for a tour and the guy was just like, ‘Oh yeah, don’t worry about it, we have a hundred men here today. It’ll be fine.’ And that was like a month before that,’ the source said. ‘I came again and it looked the same from the outside.’”

“On Wednesday, Aug. 29, The Annex emailed residents telling them that they would have to push the move-in time on Sept. 3 from starting at 8:30 a.m. to noon, adding they will be having a final inspection that Friday, three days before move-in day and that there is a possibility they may not get approved. Residents were informed that The Annex had booked rooms at a temporary hotel in anticipation.”

“According to an anonymous source, on Saturday, Sept. 8 residents were able to move into the Annex, but not without having some problems. ‘They were supposed to have the elevator working and everything, and they weren’t working at all,’ the source said. ‘So everyone had to carry their things. It was insane.’”

“Many of the units still have chipped paint, no screens on the windows and some residents even got reassigned units because theirs weren’t ready. ‘When I got into the apartment, it looked very rushed,’ said Mailine Yang, a resident at The Annex. ‘There were holes in the wall, drywall dust on counters and dents and cracks in the walls. It’s pretty disappointing to see that in a brand new complex.’”

From KTRK in Texas. “Some students moving into off-campus housing at Prairie View A&M University say their move-in has been nothing but chaos. Students who applied to live at the brand new Panther Hill Apartments say their move-in date was delayed several times and they say the new construction units aren’t completed.”

“‘There’s debris everywhere, her bedding was still in boxes, a construction worker had to come in and put her bed together. It’s dirty,’ said parent Tracie Watson.”

“Watson says they had to clean up the mess from construction in their daughter’s apartment, the furnished apartments are missing furniture and they say they had to assemble some of the furniture. Some students moved in as workers were still painting the walls. Construction trash litters the hallways, equipment is parked outside doors and in some cases, the new tenants say the air conditioning isn’t working either.”

From Crain’s Chicago Business in Illinois. “Suburban apartment landlords keep hiking rents, but they’ve lost some of their pricing power. Ron DeVries, senior managing director in Integra’s Chicago office, attributed some of the slowdown to a shift in jobs from the suburbs to downtown. At the same time, landlords in some suburbs are having a harder time raising rents amid competition from new buildings.”

“The rising rents of the past few years have fueled a suburban construction boom, with developers adding 1,363 units in the suburbs so far this year and another 4,148 under construction, according to Integra. Developers completed 2,831 suburban apartments in 2016, an annual record, and 1,843 last year.”

“The construction is spread out over a large metro area, reducing the risk of a glut, but some suburbs where developers have been especially busy have felt the impact. On the North Shore, which has added 1,917 apartments since the beginning of 2015, the median net rent fell 6.2 percent in the second quarter from a year earlier, more than any other suburban submarket, according to Integra.”

“Landlords in northwest suburban Des Plaines will also face competition over the next year or so from three new apartment developments totaling 619 units. ‘That’s going to be a challenge,’ DeVries said. ‘That’s quite a bit of inventory for one community.’”

September 12, 2018

Consumed By People Who Are Not Here

A report from Next City on Massachusetts. “A large percentage of Boston’s luxury condos are going to LLCs and trusts rather than owner-occupants according to a new study, which claims that the city’s high-end building boom isn’t doing much to address the local housing shortage. Researchers from the Institute for Policy Studies (IPS) examined property records for roughly 1,800 condos in 12 newer luxury buildings throughout the city, the Boston Globe reports. The condos generally sell for over $3 million apiece.”

“They found that over 35 percent of the units were owned by LLCs or trusts that obscured the real owners and beneficiaries. What’s more, 64 percent of the owners didn’t claim the residential exemption offered by the city, which may indicate that Boston isn’t their primary residence.”

“‘I wouldn’t even call these buildings a housing market,’ study author Chuck Collins recently told the Globe. ‘It’s just another asset class for a segment of investors looking for an alternative to the stock market. It’s not a home. It’s a wealth-storage unit.’”

From Curbed Boston. “In some buildings, the shares of LLCs and those units not claiming the residential exemption are particularly high, according to the study. For instance, 56 percent of the 51 units in the Mandarin Oriental at the Prudential Center ‘are owned by trusts, LLCs, and shell corporations, and fewer than 18 percent claim a residential exemption.’ At Downtown Crossing’s Millennium Tower, 35 percent of its 443 units ‘are owned by shell corporations and trusts, and almost 80 percent of the units do not claim the residential exemption.’”

From WBUR News. “Opponents of Boston’s luxury housing boom are warning of another prospective danger beyond raising rents and forcing out longtime residents — tax evasion and money laundering under the cover of the multimillion-dollar condos sprouting through the sky. The reports co-author, Boston-based Chuck Collins, says the shell game could be providing cover to crimes like tax evasion — and warns the city should be vigilant.”

“‘When you see a Delaware LLC buying a $6 million condo with cash and you can’t trace the owner, then you have to ask: ‘Why is this property being purchased? Is it money laundering?’ Collins said.”

“‘We spot-checked some of those buildings and found there were large numbers of cash purchases by shell corporations, which is sort of a red flag for possible use of illicit funds,’ Collins said. ‘They have very high percentage of non-resident ownership, they have a very high percentage of shell corporations. … If we were in Miami or New York those are the buildings that the Treasury Department crime division would be investigating.’”

“The study points out that Boston is not among the cities monitored for illicit real estate dealings by the Financial Crimes Enforcement Network, or FinCEN, a Treasury Department program designed to combat money laundering.”

“For City Councilor Lydia Edwards, however, more needs to be done for middle-class and low-income housing, especially in light of the new report. ‘Boston is being consumed by people who are not here,’ Edwards said. ‘That’s I think where there’s a disconnect, where we are building really more pieces of stock then we are actually housing.’”

“Sam Tyler, president of the Boston Metropolitan Research Bureau, says Boston depends heavily on the tax revenue that comes from new development. And the luxury housing market, with many of the developments cited in the report permitted under Mayor Tom Menino, is not something the city is in a position to change.”

“The city ‘is not necessarily encouraging luxury condominiums and the construction of those, it’s just that that’s the kind of housing that can be built downtown,’ said Tyler.”

From WGBH News. “WGBH All Things Considered anchor Barbara Howard: Boston, as we all know, is undergoing a real housing crisis in terms of the average homeowner looking to buy. These are luxury properties, so how would that impact your average Joe looking for a house?”

“Chuck Collins - lead author of the report: Here’s what I would say: if you look at what’s happening right now, we have a luxury real estate boom, and we have thousands of more luxury units coming. They’ve been approved in the Seaport and in the Fenway and the Back Bay. Ten years from now, we’re going to look back and say the city, the skyline, and the demographics of the city have been fundamentally altered.”

September 11, 2018

A Sign Sellers Have Had To Adjust Price Expectations

A report from the Spokesman Review in Washington. “After climbing steadily for most of the year, homes sale prices in Spokane County appear to be leveling off. The average price for homes with sales closing in August was $260,800 – nearly unchanged from $259,300 in July, and down from a peak of $268,830 in June, according to the Spokane Association of Realtors. But the same conditions that triggered a $40,000 increase of the average sales price in Spokane County since January are expected to linger into 2019, local agents say.”

“When Diana Humphrey and her husband decided to sell their house and buy a bigger one, the Spokane couple also thought strategically about the market. ‘Houses were going so quick,’ Diana Humphrey said. ‘We got the new listings every morning. By the time we got out to look at them in the evening, about half of the inventory had disappeared.’”

“After about two months of searching, they bought a 1921 Craftsman-style house in the Logan neighborhood. They had noticed the house – priced at $196,000 – had been on the market for a while, which allowed them to negotiate a lower price with the owners. The Humphreys owned two homes – their family home and a rental. The couple waited until they had purchased a new home before putting their rental on the market. ‘We weren’t being forced to move,’ Diana Humphrey said. That took some of the pressure out of house-hunting in a competitive market, she said.”

From Common Wealth Magazine on Massachusetts. “A new report from a Washington-based liberal think tank raises concerns about the proliferation of luxury condominiums in Boston and urges policymakers to identify who all the new owners are and impose new taxes on them. The administration of Boston Mayor Marty Walsh has largely welcomed the jobs and investment associated with the luxury construction. Officials say the strong demand for the new luxury housing is easing pressure on existing units elsewhere in the city and helping to stabilize or drive down rents. The officials also note that luxury housing developers are required to subsidize the creation of affordable housing in the city.”

“The new report from the Institute for Policy Studies, entitled ‘Towering Excess: The perils of the luxury real estate boom for Bostonians,’ paints a much darker picture of the luxury housing boom, suggesting the expensive high-rises are driving up land and housing costs and contributing to the city’s affordable housing crisis. The report describes the luxury high-rises as ‘vertical gated communities’ that contribute to income inequality in Boston and are ‘part of a global hidden wealth infrastructure.’”

“The report says thousands of high-priced luxury units are in the pipeline in Boston. The institute said 35 percent of the units at the 12 buildings are owned by shell corporations or trusts that conceal the identity of the true owner. The report also said 64 percent of the owners do not claim a residential exemption on their property taxes, suggesting their units may not be their full-time residence.”

“Currently, the report said, it is far too easy to conceal the identify of property owners, raising the possibility that some of the owners may be hiding their wealth, dodging taxes, or possibly laundering money. It identified a number of condo purchases in Boston made with cash by shell corporations. ‘It is harder to get a library card at the Boston Public Library than to create an anonymous shell corporation and purchase a luxury real estate unit,’ the report said.”

From Boston 25 News in Massachusetts. “Boston has some of the highest rent prices in the country, but for the first time in nearly a decade, prices are beginning to plateau and fall in East Boston. Real estate broker James Bowen from the ERA Russell Realty Group believes the end of the rising prices is near. ‘There’s a lot of supply hitting the market right now,’ Bowen said.”

“Bowen said the average time a rental is on the market has gone from 60 days to six months, and he has seen prices drop for the first time since the 2007 real estate crash. ‘This is the first season, the summer season, I have seen it reverse almost 10 percent in three months,’ Bowen said. ‘We are done, in my professional opinion, with the rise in multi-family tenements for rent.’”

“Bowen said new luxury apartment buildings are drawing people from the traditional housing stock with deals and amenities. ‘Inside washer and dryer, it has all the amenities,’ Ayan Choudhury from East Boston said. ‘Two-bed, two-bath, it’s cheaper than what I had in the South End.’”

The Mortgage Reports. “It seems like the red-hot housing market might finally be cooling off. According to a new survey, almost half of all homeowners think home buying has gotten less competitive in the last year. Even more think the ever-pricy California and Colorado markets have slowed down. According to the latest Modern Homebuyer Survey from ValueInsured, many homeowners — ‘who are typically more informed and aware of the latest market conditions in their neighborhood’ — think the housing market has turned a corner.”

“Almost half of all those surveyed — 48 percent — have noticed a less competitive home buying market in their area and lighter open house traffic since spring 2017. In Colorado specifically, 56 percent of homeowners think home buying has slowed. Many California and New York homeowner have noticed the same in their states, with 54 percent and 53 percent reporting a slow-down in the area.”

“The survey’s results fall in line with what many experts are predicting: that the housing market will soon shift from the sellers’ favor to the buyers’ — and maybe quicker than expected. According to CNBC, 14 percent of all home listings saw a price cut in June. In half of the country’s biggest metros, home price growth has finally stalled.”

From Curbed Hamptons in New York. “The stunning newly built home at 20 Hook Pond Lane in East Hampton has reduced its asking price after coming on the market in May for $17.5 million. Four months later, the price of this beauty is $14,995,000.”

From Mansion Global on New York. “Manhattan’s luxury housing market saw the best post-Labor Day week in over a decade, according to the weekly Olshan Report. The most expensive unit to find a buyer was a penthouse at the Sterling Mason building in Tribeca, asking $15 million. Developers of the warehouse lofts have chopped $5 million off the price of the unit since it first hit the market in 2013, a sign that sellers have had to adjust the price expectations amid a cooled luxury market.”

September 9, 2018

People Got Really Comfortable With The Way It Was

A weekend topic on market distortions starting with Washington City Paper. “It seems like there’s nothing real estate developers haven’t figured out a way to glossy-up. The new generation of group houses popping up around D.C. and the DMV, called ‘co-living’ apartments, are like the Everlane of the housing world—a comfortable, tasteful basic that’s inoffensive enough to appeal to a broad range of palates and sensibilities. ”

“One such company, OSLO, has leaned all the way in to the Zeitgeist: ‘You might hit the snooze button a few too many times,’ an orange-and-grey card on its website flashes, before showing, inexplicably, a glossy photograph of a white woman’s legs sticking out of her leopard-print coat. Other missives include ‘you might not be using your liberal arts degree;’ ‘you might cuff your jeans too many times;’ and ‘you might not be saving 10 percent of your paycheck.’ It’s a nod to the fact that young adults tend to have negative savings, and then a wink and a shrug: Life’s hard, it seems to say, so why not pay a premium to live with like-minded people?”

“OSLO is one of several companies cashing in on the fascination some young adults have with living alongside a pack of lovable screw-ups à la New Girl, reinforcing the stereotype that millennials are pretty and misguided, cashless and pathless. All told, OSLO is more like an apartment building where your landlord just happens to pick your roommates for you.”

“Across town, on Richardson Place NW, Common operates an apartment building that has vexed neighbors since the beginning of its development in 2016. A septuagenarian neighbor complained at the time that Common is ‘basically a glorified rooming house’ and ‘too big for the immediate context.’ The fully furnished two-story, six-person apartments will run each tenant between $1,425 and $1,700 per month, a fee that includes weekly cleanings (yes, the housekeeper will wash your dishes), all utilities and furniture, and basic supplies like salt, pepper, olive oil, and garbage bags.”

“In addition to another location in Chinatown, Common also operates buildings in Seattle, Chicago, San Francisco, and New York City. On its website, Common boasts a savings of $500 on average in D.C. for its memberships compared to a traditional studio rental. A closer look at the company’s savings breakdown shows that this ad is predicated on the assumption that someone living in a D.C. studio apartment will pay $1,795 for the apartment, plus $240 a month for a housekeeper and $110 for utilities, among other costs (none of which are even close to true for this reporter, even during the summer’s sweatiest months when the air conditioning is on full-blast). The same is true for its calculation of what it costs to share a Craigslist apartment with friends, which it estimates will run a tenant $1,610 per month in D.C.”

From The Takeout. “It’s an apartment so small, you wouldn’t be blamed if you thought it was in the heart of Manhattan. But this 200-square-foot residence actually exists in a pricey area of St. Louis, and is so compact that the kitchen has to bunk up with the bathroom: The toilet, bathtub, oven, and sink are all in one room.”

“This tiny splendor was advertised at $525 a month, and is now rented. The AP reports that Harold Karabell of S.F. Shannon Real Estate Management says the new tenant loves it: ‘Toilet/kitchen combo aside, Karabell says the apartment has a lot to like, including refinished hardwood floors and new windows.’ Spoken like a true real estate agent.”

The Jacksonville Daily Record. “The Indianapolis-based developer with three luxury apartment communities in Jacksonville this week purchased property to construct another multifamily neighborhood. Becovic Management Group purchased 16.75 acres of undeveloped land on Gate Parkway for $2.7 million. Becovic President Muhamed Becovic said the company plans to build about 230 ‘high-end’ units in four- or five-story buildings.”

“Amenities include a saltwater pool, dog park, walking trails and a 24-hour fitness center. The community hasn’t been named, but Becovic said they are considering something with the words ‘banyan wood.’ He said that other metropolitan cities in Florida, such as Orlando and Miami, are oversaturated, but that Jacksonville still has room for growth.”

The The E’ville Eye. “Zumper published their latest monthly rental report for the Bay Area that covers 30 cities in our region. Emeryville dropped from fifth to the sixth highest rents in our region. The price of one bedroom units also fell, dropping 3.7% to a median of $2,890. Two bedrooms dropped 4.2% to a median of $3,670.”

The Yorkshire Post. “There was nothing luxurious about student accommodation but over the last decade the scene has shifted and for many students, the days of sharing a bathroom with four others are long gone. With fees over a three-year degree course approaching £30,000, it appears that students are no longer prepared to accept poor quality accommodation. According to property agent GVA, the latest generation of student accommodation typically includes fast broadband and wi-fi, shared study areas, plus flexible communal facilities in a secure environment.”

“However, there is also a growing appetite for the top of the market with buildings featuring fitness suites, gaming pods and even private cinema rooms. Most new student accommodation is now provided by the private sector as universities focus on funding the core areas of educating and research. Figures by JLL show that the number of student beds in Yorkshire has risen by 48 per cent, from 45,000 to almost 67,000 in the last five years, despite the number of full-time students only rising by one per cent during the same period.”

“‘We consider the market to be balanced with little scope for further new schemes unless exceptionally well located,’ said GVA directors Roger Lown and Dai Powell. Meanwhile, in Sheffield, which is home to two universities, there is a significant pipeline of accommodation in the city. There are approximately 21,000 existing student beds with a pipeline of a further 9,000 beds, according to GVA.”

“Mr Lown and Mr Powell added: ‘If all of these are built there is a significant risk of an oversupply. However it is by no means certain that all of the schemes with planning permission will be built.’ So is the student housing bubble about to burst?”

From Newshub. “A massive haul of nail guns, drop saws and other power tools went up for auction in Christchurch on Thursday as part of the liquidation of Maven Interiors. It’s just the latest building company to go under in the city as earthquake work dries up, leaving tradies without work. All that’s left of Maven Interiors is its tools, lined up at the auction house at a bargain price for those still gainfully employed.”

“‘A lot of people got really comfortable with the way it was and how busy it was, and how good the money was and that sort of stuff - and now, obviously, it’s changed,’ explained Joe De Leijer from Competitive Painters. Builder Chris Sinclair is one of those who had to downsize to survive, reducing his staff number from 36 to just a dozen. He got by, picking up other work - but others are not so lucky. ‘The worst thing to do is when people start dropping their prices because they’ve not got the work, but those prices aren’t accurate,’ he says.”

From Standard Media. “Stanlib Income-Real Estate Investments Trust might have pinned its hopes too high when it sank the first cash it raised into Greenspan Mall. The allure of shopping malls that has taken hold in the country for a while now is quickly fading, leaving the South African-based financial provider along hundreds of other investors in a discomfiting financial position.”

“‘Rental income has come slightly under pressure due to a temporary increase in vacancies coupled with some tenants bargaining for reduced rentals upon renewal of leases,’ Stanlib said in a statement.”

“Most investors were lured into setting up malls by the gospel of an expanding middle class. Property consultancy Knight Frank in a report extolled the manner in which ‘the retail property sector has been a major focus for development activity within Africa over the last decade, causing the shopping mall concept to take root in increasingly wide range of major African cities.’ It noted that this growth has been driven by, among other factors, the explosion of the continent’s ‘consumer markets.’”

“However, it appears like the middle-class hype was just that, a hype; the mall bubble has finally burst. Kenya’s floating middle class noted AfDB, is at 44.9 per cent and without them, the country’s middle class would be at a low 16.8 per cent. The middle class that investors have tumbled over each other for includes this consumer group that is closer to poverty than riches.”

“Today, of the 10 biggest malls in sub-Saharan Africa, three are in Nairobi. Two Rivers Mall, Garden City Mall and The Hub are ranked second, third and fourth largest malls respectively behind South Africa’s Mall of Africa which is the largest in Africa, straddling 131,000 square feet. Experts have described the shopping mall craze as a ‘ticking bomb.’ Returns on these investments have been on the decline as too many malls scramble for a few moneyed shoppers.”

“British magazine The Economist, in a special report titled ‘Business in Africa,’ declared: ‘This is the Africa of business magazines and bank ads: A continent that is rising at a prodigious pace and creating profitable new markets for multinational firms.’ The magazine noted that there were 1.2 billion opportunities in Africa. Nairobi, specifically, was described as ‘a city of malls and highways’ by the magazine. And Garden City, which had just been opened, was celebrated as ‘the latest temple to consumerism.’”

“Today, Garden City is easily another ghost mall with an embarrassing sight of empty floors and deserted parking lots.”

September 8, 2018

There’s Tons Of Supply Coming Online

A report from the Press Democrat in California. “As summer turns to fall, housing prices appear to be coming down in Sonoma County just in time for harvest. The median price of homes currently listed in Sonoma County is around $655,200. That is down 6% from the last June’s record high of $700,000. According to the Press Democrat’s monthly housing report prepared by Pacific Union International senior vice president Rick Laws, July home sales fell to their lowest level for the month in nine years with only 401 homes sold.”

“The market appears to be opening up a bit more with more homes available at mid-market prices. From brand-new single-family homes to refurbished multi-family estates, we are seeing more listings with more to offer. Properties with pools or remodeled kitchens, are beginning to reappear at prices under $600,000.”

The Sacramento Bee. “Home prices rose in July for most of the Sacramento region’s neighborhoods, but an increasing number of them posted small price gains or declines amid a general stagnation in the housing market. Of the neighborhoods that had 10 or more resale home sales, 50 areas saw increases in the median sales price compared to the same month in 2017. Fourteen saw declines, and seven saw modest increases of less than 4 percent, according to new data from CoreLogic. Two had no change.”

“The median sales price for all homes in Sacramento County in July was $360,000, a 5 percent increase compared to July 2017. But there was was a 1 percent dip from June’s median of $362,000. Sales are flat also. The largest decline in the median sales price for neighborhoods with more than 10 homes sold was in Truckee’s 96161, where prices dropped 24 percent. The median sales price was $912,500, down from $1.2 million in July 2017.”

The Times of San Diego. “Sales of single-family homes and attached properties in San Diego dropped in August compared to both the previous month and August 2017, according to the San Diego Association of Realtors. Realtors sold 1,902 single-family homes in August, an 8.1 percent decrease from the 2,070 sold in July. Sales of condominiums and townhomes dropped from 1,044 to 971 from July to August, a 7 percent decline.”

“Year-over-year declines in home sales were even higher for both single- family homes and attached properties. The number of single-family listings sold fell from 2,325 to 1,902, an 18.2 percent decrease, and the condo and townhome listings sold fell from 1,174 to 971, a 17.3 percent decline.”

“‘Despite some lackluster numbers in our region’s resale housing, the overall economy is performing well,’ SDAR President Steve Fraioli said. ‘We particularly want potential buyers to know that the supply of homes on the market has grown nearly 20 percent from a year ago.’”

The Union Tribune. “Competition for renters in newly apartment-heavy downtown San Diego is getting fierce with one complex entering new tenants into a contest to win a $10,000 European vacation. Alexan ALX in East Village opened at the start of the year and has some of the most amenities of any new apartment building — such as a saltwater pool on the 18th floor and a hidden speakeasy for residents — but it also is surrounded by a flurry of new apartments.”

“The vacancy rate for Alexan ALX is around 27 percent, high for San Diego but common for a new building. Its average asking rent is around $2,930 a month, said real estate tracker CoStar. That’s not very far off from surrounding buildings.”

“The rental offer is the latest in a trend of more concessions and rent reductions downtown among the surge of new luxury apartments that have opened in the past three years. Offers are especially noticeable in East Village with large complexes — Alexan ALX, Park 12, Pinnacle on the Park and Shift — all within blocks of each other.”

“‘I think they have to offer concessions,’ said CoStar senior market analyst Joshua Ohl. ‘There’s tons of supply coming online. It’s the only way they can compete to get renters.’”

“At the end of the second quarter, 21.3 percent of apartment communities in downtown San Diego were offering concessions, up from 18 percent at the same time in 2016, CoStar said. Nearly 16 percent were offering one month free rent, up from 9 percent at the same time in 2016.

“Alexan ALX leasing manager Gergana Semerdjieva said she thinks the 313-unit Alexan ALX has the best amenities downtown, but that doesn’t change the fact they are in the middle of an apartment boom. Shift, a 368-unit complex known for its orange tower, recently opened up across the street. Just a short walk away is the newly opened Park 12 with 718 units, the most of any apartment complex in San Diego history, and a second Pinnancle on the Park building will bring the complex’s total to 955 apartments.”

“The vacancy rate for apartments in downtown San Diego is around 16 percent, much higher than the 3.8 percent number for the entire county. Rent is also higher, with an average asking rent of $2,452 per month compared to $1,786 for the county. Mark Goldman, finance and real estate lecturer at San Diego State University, said many of the apartment complexes could be overshooting the mark with asking rents because incomes in San Diego have not kept pace with rent increases. Also, the monthly price in many of the luxury units is comparable (or higher) to a monthly mortgage payment so he said some potential renters may just decide to buy.”

“Some promotions have ended at downtown complexes but there are still reductions to be had. The Rey, a 478-unit apartment in Cortez Hill opened at the beginning of 2017 and had a one month free rent deal until recently. While it might have ended the deal, it lowered rent prices two weeks ago. Average asking rent was up to $2,736 a month in 2017 but now is closer to $2,380. Pinnacle on the Park in East Village, 483 units and the tallest residential tower in San Diego, is still offering up to two months free rent on select units nearly three years after opening. The average asking rent is $2,612, down from $2,972 in 2015.”

“Shift recently reduced rental rates and is offering up to two months free rent on some units. Average asking rent is 2,832 is a month, down from $3,133 at its height in 2017. It allows rent terms of six months, offering a shorter term than most year-long leases in the city.”

From News Channel 3. “A realtor’s sign sits at a home in Palm Springs ready to be sold. Homeowner Steve Reeves and his partner are looking for a much smaller space. ‘My partner and I are both in our 70s. We both have medical problems and that’s why were looking to downsize,’ he said.”

“Selling their two bedroom, two bathroom house though has been slow however. Since putting it up on the market in June, Reeves thinks the weather is playing a role. ‘You might be wasting your time, because when it 115 degrees outside, no one’s going to come looking for a house,’ he said.”

“Reeves say four interested buyers have looked at the house, including one from the Bay Area not deterred by the approximately $560,000 price tag. ‘As soon as they say San Francisco, I think money, with the way prices are up in San Francisco,’ he said. Reeves believes once the weather cools down and the tourism season picks up, interest will rise in his home. ‘I know the Canadians have really invested a lot of money down here in the desert, so if they want to look at my house, they’re more than welcome too,’ he said.”

Requests They Wouldn’t Have Dared To Offer

A report from the Seattle Times in Washington. “The number of homes for sale across King County surged up 66 percent in the past year — and 86 percent just in the city of Seattle — the biggest rise in more than a decade. During that same period the inventory of Seattle condos skyrocketed 161 percent. Prices are continuing to fall across an unseasonably cool Seattle real estate market, with homes that would have been snapped up in an instant just several months ago now sitting unsold. New monthly data out Friday shows median home prices across King County fell $30,000 in August from the month prior, the third straight month of declines. Countywide the median cost of a single-family house, now $669,000, is down by $57,000 since May, according to the Northwest Multiple Listing Service.”

“The drop runs counter to normal seasonal patterns: During the same three-month period last year, prices actually went up by $16,000. Looking just at the city of Seattle, the change is even more pronounced: The median house last month sold for $760,000, a drop of $45,000 in just one month and $70,000 in three months.”

“The surge in listings is not the result of new homes coming on the market, but rather because houses are sitting unsold for longer. In turn, that has prompted a jump in the number of sellers cutting their list price, which would have been unheard of earlier in the year.”

“The drop in demand is part of a national trend as home prices – combined with higher mortgage rates – hit a point where fewer and fewer people can afford them. The fact that Seattle-area rents have stopped growing this year has put less pressure on buyers, as well. Local population and job growth has also slowed in recent months. And reports indicate buyers from China, who have a strong presence in the Seattle market, have had trouble getting their money out of the country amid growing restrictions there, leading to fewer home bids here.”

“‘Things have certainly changed,’ said John Manning, owner of a RE/MAX brokerage in Ballard. Some buyers are making requests for concessions that they ‘wouldn’t have dared to offer’ just a few months ago.”

“Neighborhood-level data is more volatile, but in the past three months, median prices have dropped $397,000 in Kirkland-Bridle Trails, $125,000 in East Bellevue and $87,000 in Southeast Seattle. And they’re down more than $70,000 in the past three months in Queen Anne/Magnolia, Ballard/Green Lake, and Shoreline/Richmond Beach. Brokers quoted in a release from the listing service noted that in recent months, there have been fewer bidding wars, while buyers are taking more time in deciding what to purchase. Even some new-home construction builders are dropping list prices.”

From Seattle PI. “There have been several recent announcements about new condominium buildings being constructed in Seattle. For the last few years, the only residential developments being built in Seattle were apartments, minus a few outliers like Insignia and Gridiron, but we are starting to see a flood of new condominium projects hitting the scene again.”

“Why the switch from apartments to condos? Well, we think it is due to apartment buildings not being as profitable as they once were. Major investment groups who were once willing to buy apartment buildings at high price/unit price tags are not as bullish right due to the softening of the rental market. That softening is likely due to an oversupply of apartments entering the market, around 6600 rental units are coming just to the South Lake Union neighborhood by 2019.”

“It is now more profitable to build and sell condos. Developers are very market driven so they will make these decisions based on what is happening right now in the apartment and condo markets, but it seems to us that they don’t put onus on the future market conditions that their developments might cause. For instance, if we had built a mix of condos and apartments over the last few years perhaps we wouldn’t have an apartment building glut right now and be starved for condos, we might just have balance. Instead it appears that their decisions are reactionary, if apartments are profitable then they build a ton of apartments, flood the market, the apartment market softens, then they switch to building condos and so forth and so on.”

From Bisnow. “Relentless multifamily construction across the country has finally hit landlords in the pocketbook. Rent growth has slowed nationwide for the fourth straight year ending in July 2018, and the fast-growing cities of the past few years that propped up those numbers have fallen back down to earth, according to a Zillow study as reported by Bloomberg.”

“The drop was most pronounced in Seattle. Seattle’s explosive growth thanks to Amazon and the industries that grew around it launched it closer to the upper echelon of rent prices that cities like New York, San Francisco and Washington, D.C., occupy, but those cities saw rents stop growing in the past two years, a Zillow economist told Bloomberg.”

“Smaller cities like Nashville, Tennessee, and Portland, Oregon, went from healthy year-over-year growth around 3% last July to slightly dropping prices a year later as the same story plays out as it did for those metros listed above. Much of the construction that chased those growing rents has delivered, giving tenants an unprecedented number of choices and pressuring landlords into greater and greater concessions just to keep rent from falling into the basement.”

“Due to high construction costs, virtually all new construction has been in the Class-A sector of the multifamily market, which has a shallower pool of potential tenants to draw from than older, cheaper supply. Philadelphia, for example, has established itself as a value option relative to New York and D.C., but its new construction in the past two years has targeted rents at $3.50/SF, according to JLL Research Director Lauren Gilchrist — not exactly a bargain.”

“‘You can go to tons of places in nice areas that are considerably cheaper than that, so I’m not sure who will be paying those rents besides professionals landing in Philadelphia for the first time or empty nesters coming into the city,’ Gilchrist said at a Philadelphia Bisnow event late last year.”

September 7, 2018

It’s Part Of A National Trend

A report from Bloomberg. “Seattle is known for its hip neighborhoods, soaring home prices, and being home to Amazon. So why is its rental housing market experiencing the most severe slowdown in the U.S.? It’s part of a national trend. Rents in Nashville and Portland, Oregon, have actually started falling. ‘This is something that we first started to see two years ago in New York and D.C.,’ said Aaron Terrazas, a senior economist at Zillow. ‘A year ago, it was San Francisco and most recently, Seattle and Portland. It’s spreading through what once were the fastest growing rental markets.’”

“Tenants are gaining the upper hand in urban centers across the U.S. as new amenity-rich apartment buildings, constructed in response to big rent gains in previous years, are forced to fight for customers. Rents are softening most on the high end and within city limits, Terrazas said.”

“Batik, a new 195-unit Seattle apartment building, has views of the downtown skyline and Mount Rainier, a giant rooftop deck with a garden where tenants can grow fruits and vegetables, a community barbecue and an off-leash pet area. New tenants can receive Visa gift cards worth as much as $6,000, with half paid at signing and the rest a month later.”

“‘There is tremendous competition for tenants,’ said Lori Mason Curran, spokeswoman for landlord Vulcan Real Estate, which launched Batik in March. ‘Over time, we think long-term demand is solid. But there is so much supply tamping down rent growth right now.’”

“In Seattle, another factor contributed to the glut of rentals. While the city is in the midst of a building boom — with more cranes dotting the skyline than any other in the U.S. — much of the residential multifamily construction has been apartments. Developers have shied away from condos because of state laws that allow buyers to more easily sue if there are defects in the construction.”

“U.S. multifamily apartment construction for the past few years have been at levels not seen since the 1980s and rapid rent gains have also encouraged owners of single-family homes and condos to fill them with tenants. Projects opening now were conceived by developers a few years ago when rent gains in the U.S. were peaking at an annual gain of 6.6 percent, according to Zillow data.”

The Sacramento Bee in California. “Local real estate watchers say a recent increase in new apartment construction appears to be moderating Sacramento’s rising rents, bringing them closer to normal range after several superheated years. ‘We’re definitely seeing an easing,’ said Bob Shanahan, a Sacramento-area rental market analyst for Colliers International. ‘It’s kind of a return to normal. The increases in 2016-2017 were unsustainable.’”

The Houston Chronicle. “Urban Oaks Builders, a multifamily construction company affiliated with the Houston real estate firm Hines, has filed for bankruptcy protection amid a lawsuit alleging that both companies failed to disclose construction defects to the buyer of a luxury apartment complex in Florida. Urban Oaks, which operates independently of Hines, said the voluntary Chapter 11 filing was precipitated by the lawsuit and exacerbated by a dispute with the builder’s insurance carriers over covering for the potential cost of the lawsuit’s claims.”

“The bankruptcy filing was made on Aug. 31 in U.S. Bankruptcy Court in Houston. Urban Oaks’ estimated its assets are valued at between $10 million and $50 million and its liabilities are between $50 million and $100 million. The disputes stem from a relatively new apartment complex developed by Hines and constructed by Urban Oaks in Celebration, an upscale master-planned community near Walt Disney World.”

“Hines sold the 306-unit property, then called Aviva at Celebration, to Southstar Capital Group of Palm Beach, Fla. in Sept. 2016. Southstar paid $67 million and renamed the complex Sola at Celebration.”

“Earlier this year, Southstar sued Hines, Urban Oaks and other affiliates, claiming they knowingly failed to disclose building defects when it sold the apartments. Southstar said the defects were not detectable during the inspection process and only became apparent in February 2017 when walls, breezeways, floors and balconies started showing cracks and other signs of damage.”

“On Aug. 14, 2017, the Osceola County Building Department issued notices of evacuation to all of the residents. ‘Hines knowingly sold us a property that was riddled with problems and structural issues that routine inspections could not detect,’ Gina Williams, president and chief financial officer of Southstar Capital Group, said in a recent statement. ‘Their deception and now lack of willingness to remedy these problems is wrong and must be resolved before the property falls further into disrepair. On behalf of our investors, the Town of Celebration and the uprooted residents forced to find a new place to live, we urge Hines to do the right thing.’”

From Sightline on Oregon. “As rents across the Northwest have soared over the last decade in buildings new and old, the answer to that simple, mysterious question—where exactly does rent money go?—may also be the way to start answering another question: What, if anything, could governments do to make those rent checks smaller?”

“I don’t mean the short-term price dip Portland’s higher-end renters are currently enjoying thanks to the city’s first apartment glut in twelve years. I was interested in what it’d take to get a permanent drop in the market price of newly built homes.”

“Cheaper materials and minimal common spaces: $52/month. Wood countertops. IKEA fridge. No lobby, let alone a gym or shared kitchen. It’s an obvious option. But even the most skinflint developer would struggle to shave more than 6 percent of hard construction costs—it comes to $52 a month from the final rent—by skipping every frill. That’s why so many new buildings go the other direction and splurge on small stuff: amenities that read as ‘luxury’ don’t actually cost much to add. ‘Lipstick is cheap,’ said Noel Johnson, a developer for Cairn Pacific.”

September 5, 2018

We’re Seeing Price Reductions Daily

A report from Hamptons Magazine in New York. “For the final issue of this Hamptons season, we gathered a group of panelists to discuss what trends they’re seeing, and what Hamptons homeowners, buyers and residents will be seeing over the seasons to come. Where is the market based on current performance?”

“Broker Dana Trotter: ‘There is quite a lot of inventory. We’re seeing price reductions daily. There may be a little bit of a correction where sellers are becoming more realistic. The high end is where we’re seeing a lot more inventory, and a lot of my buyers are mostly either downsizing or upsizing, so they’re not in a huge rush.’”

The Washington Post. “Although many homeowners and sellers in the Washington area in recent years have reveled in price appreciation and quick sales, buyers have been less celebratory about the hot housing market. A new analysis by Zillow offers a glimmer of hope for buyers in the D.C. area and in about half of the largest metro areas around the country.”

“The more compelling indicator of a potential shift in the market is that about 14 percent of listings across the country had a price cut in June. Between January and June, the share of listings with a price cut increased 1.2 percentage points, the highest January-to-June increase ever reported, according to Zillow.”

“In the Washington area, 15.4 percent of listings had a price cut in June 2018, down slightly compared to 16 percent in June 2017 but up from 13.9 percent in January. The typical price reduction was 2.5 percent in June 2018.”

“Price cuts are most prevalent in high-cost housing markets and on higher-priced listings. However, the market with the highest share of listings with price cuts was Tampa where 22.2 percent of listings had a price cut, followed by San Diego at 20 percent.”

The Denver Post in Colorado. “Apartment rent increases in metro Denver continued to moderate in August, and the chances are strong that desperate landlords may cut more deals in the months ahead, according to two new rent surveys. The median rent for a one-bedroom unit in Denver listed on apartment search engine Abodo fell 2.1 percent to $1,509 the past month, while the rent for two-bedroom units fell 2.64 percent to $1,880″

“‘Apartment vacancies are creeping up and with the huge amount of new developments and apartment starts in Denver, developers are offering concessions in the local market,’ said Sam Radbil, a spokesman for the company.”

“So many units are hitting the market that more developers and property managers are offering price breaks and free months of rent to fill vacant units, he said. Also, with the peak moving season over, leasing managers know the competition will become more intense for the smaller number of tenants out there.”

“‘This isn’t just a trend seen in Denver. All across the country concessions are being made as vacancy rates rise. We expect to see a continued slide in price into the fall season,’ Radbil said.”

“Apartment rents declined even more month-over-month in Aurora and Lakewood, two of the metro’s more affordable suburbs, as well as in Littleton and Glendale.”

The Real Deal on Florida. “More than two years after her death, Zaha Hadid’s condo at the W South Beach just sold for $5.75 million. The late architect’s three-bedroom, four-bathroom corner unit at 2201 Collins Avenue was placed on the market in May 2016 at $10 million following her death. The asking price on what had been three separate units was reduced to $6.5 million in November 2016.”

From Parade on California. “In her six decades-long career, Cher proved she still has what it takes at 72-years-old. Now, the first serious home she created after her divorce from Sonny Bono, which she designed and built in Beverly Hills on four acres in 1980, is on the market with the newly listed price of $68 million: $17 million below its original ask, according to TopTenRealEstateDeals.”