31 July 2010

REITs in the Right Cities


Manhattan is on the mend and Washington, D.C. is a growth town. Here's how to get a piece of those real estate markets.

Investors should take comfort in the pullback that has recently hit the REIT group. These companies bounced back from near insolvency with a vengeance, but then the realities of a slow growth recovery set in. It just didn't make sense to bet on companies that were priced ahead of their earnings growth, not to mention the value of their hard assets--values that had become very slippery during the downturn.

What does make sense is investing in businesses that have a proven record of managing in a volatile environment and have shown the courage to seize opportunities. This works in any market, but the key is to avoid overpaying.

Office REITs have been written off by most analysts. Big empty spaces and lackluster leasing prospects are the scene in most urban office markets. Still I continue to like New York office landlord SL Green (SLG, 56). SLG has been making bold moves, buying high-quality buildings in a market and at a time when players managing tens of billions of institutional and private dollars are forced to give back money because they can't put it to work.

There is a glimmer of hope in SLG's New York City market. A report from real estate broker Cushman & Wakefield in July shows that the Manhattan market's leasing slide has reversed course: The volume of new square footage leased in the first six months of this year was double that of the same period in 2009; leasing in the second quarter reached the same level as in the same quarter of 2006. Rents are still sliding, but at a much slower rate than previously. Sales of office buildings are already well ahead of the total for 2009.

In other words, the sparks of a recovery are evident. As financial services firms recover--and they are recovering--Manhattan is likely to be one of very few office markets with a positive story to tell over the next 12 to 18 months.

As SL Green is the city's largest office building owner (with 24 million square feet), it is the REIT to play for a New York City recovery. You're buying growth, not yield (which is a meager 0.7%). Management cut the payout last year in order to keep debt manageable. At $4.7 billion, debt is 51% of enterprise value (defined as debt plus market value of common). REITs are compelled to pass their taxable income through to shareholders, but that sum is depressed by depreciation charges. Thus, REITs that have a lot of noncash depreciation expenses have the option of using cash flow to pay down debt instead of paying dividends. I'm hoping that, as rent rolls improve, SL Green management will be inspired to boost the payout significantly. That should help the stock.

Another office market that will do well is the one around Washington, D.C. Office demand comes not just from the U.S. government but from the contractors, lobbyists, trade associations and law firms that feed off it. To rewrite H.L. Mencken, no one ever went broke overestimating the growth in government.

Corporate Office Properties Trust ( OFC - news - people ) (OFC, 38) is the buy. This REIT derives 58% of its revenue from D.C. and environs; all of its development projects now in the pipeline are for government and related entities. Government or not, all of Corporate Office's properties are net leased to single tenants. Corporate Office has a 4.2% dividend. I think the company will continue to grow through acquisition and development--in one of the very few markets where adding square footage makes sense.

Another buy is Home Properties (HME, 47), which has a concentration of assets in and around the nation's capital and additional buildings in mid-Atlantic and Northeast markets. Home Properties buys and manages medium-quality apartments in crowded, high-demand markets like Washington, Annapolis and Manhattan, where so many aspirants are priced out of the best rentals. This is of particular interest as a vast population of college grads and others get jobs and leave doubled-up households. You'll also see household formation by youngsters who have jobs and are finally convinced they won't be in the next layoff.

These folks are not about to step into top-tier apartments or buy homes or condos. They can rent one of Home Properties' 37,000 apartments. The REIT's debt is $2.2 billion and market value $1.7 billion. The $4 billion enterprise value comes to seven times the apartments' earnings before interest, taxes and depreciation. Home has said it will acquire another $250 million in assets this year. The dividend is 5.4% of the share price and is likely to climb nicely over the next five years.

29 July 2010

Carlos Slim Buys Another Little Piece of New York

Guardian UK

The Duke Semans mansion, located on the corner of 82nd Street and 5th Avenue in New York, will not be a residence for Carlos Slim. Photograph: Daniel Acker/Bloomberg News
Mexican telecoms billionaire Carlos Slim pays £28m for an eight-storey Manhattan townhouse he does not plan to live in

Mexican telecoms billionaire Carlos Slim, reputed to be the world's richest man, has splashed out $44m (£28m) on an eight-storey mansion on Manhattan's Fifth Avenue in one of New York's most expensive ever house purchases.

According to New York City's property records, a company controlled by Slim struck a deal on 16 July to buy the so-called Duke Semans mansion, which boasts 12 bedrooms, 14 bathrooms and 19,500 square feet (1,800 sq metres) of floor space, a vast amount of room by the crowded standards of densely populated Manhattan.

The building, completed in 1901 for a tobacco magnate, Benjamin Duke, is on the corner of 82nd Street on New York's upper east side and is described by estate agency Brown Harris Stevens as "a residence for the ages – a home whose history-filled past is a wonderful prologue for the next era in its remarkable existence".

The purchase is the latest foray into New York by Slim, a cigar-smoking 70-year-old tycoon whose fortune is estimated by Forbes magazine at $53.5bn, ranking him top in the global wealth league, above Bill Gates and Warren Buffett. He recently paid $140m for a New York office building and has a 7% stake in the New York Times, having pumped $250m into the newspaper publisher at the height of the recession last year.

A spokesman told Bloomberg News that the telecoms magnate was buying the Duke Semans mansion as an investment and did not intend to live in it. The house has marble flooring, a gothic-inspired marquee over its main entrance and views of the Metropolitan Museum of Art.

The purchase price is the fourth-highest ever for a townhouse in New York. Slim's company bought the property from another billionaire, Tamir Sapir, who made his money in the Russian oil industry. But the deal is not the most expensive in New York; a number of apartments have changed hands for higher prices, including a three-storey flat in the Plaza hotel, overlooking Central Park, which was sold for $56m in 2007.

Slim's real estate investments follow in the footsteps of his father, a Lebanese immigrant who acquired property in downtown Mexico City after the Mexican revolution. The billionaire's properties in Mexico, held through Grupo Carso SAB, include shopping and office complexes, hospitals and educational campuses.

28 July 2010

Apartment Rentals Surge in U.S. on Home Foreclosures, Job Gains


U.S. apartment landlords are seeing a surge in rentals as mounting foreclosures reduce homeownership and an improving job market for young adults encourages them to find their own places to live.

The number of occupied apartments increased by 215,000 in the 64 largest U.S. markets in the first half of the year, according to MPF Research, almost twice the units added in all of 2009 and the most since the firm began tracking the data in 1992. The vacancy rate declined to 6.6 percent last month from 8.2 percent in December.

“Overall demand is pretty stunningly strong in the first half,” Greg Willett, a vice president at the Carrollton, Texas- based apartment-industry research firm, said in an interview.

Investors are betting the expanding ranks of renters will lead to earnings increases next year of about 5 percent to 10 percent or more for apartment real estate investment trusts such as Equity Residential and AvalonBay Communities Inc. UBS AG this month raised its rating on AvalonBay, Essex Property Trust Inc. and Post Properties Inc. to “neutral” from “sell.”

The change signifies a “less bearish” view on apartments, while acknowledging that “headwinds will remain,” according to the July 7 report by New York-based analysts Dustin Pizzo, Ross T. Nussbaum and Derek Bower.

“The apartment REITs have priced in the most growth within the broader REIT group and as such are most vulnerable if the economy slows and job growth does not begin to come through in a meaningful way,” they wrote.

The Bloomberg REIT Apartment Index gained 24 percent this year through July 23, double the 12 percent advance in the broader Bloomberg REIT Index. The Standard & Poor’s Supercomposite Homebuilding Index fell 5.4 percent.

Job Growth

The economy’s recovery from the worst recession since the 1930s has revived hiring enough to stimulate demand for apartments. The growth hasn’t been enough to prevent more home foreclosures, which lift rental demand, or to lead to a sustained rebound in homebuying.

New jobs are the biggest driver of apartment occupancy. Employers began hiring again in January, adding an average of 147,000 jobs a month through June, according to the Labor Department. Employment for people 20 to 29 years old -- a key group for landlords -- rose in May and June on a year-over-year basis for the first time since the end of 2007.

While payroll growth has been modest compared with pre- recession levels, it may be enough to have persuaded some families sharing housing with relatives to get their own places, according to Mark Zandi, chief economist of Moody’s Analytics Inc. in West Chester, Pennsylvania.

Bunking With Brother

“Given how hard it is for families to live together for very long, they moved out as soon as they got a job or even thought they could find one,” he said in an e-mail.

Mike Odenthal moved to the New York area in January from San Diego in search of a communications job, sleeping on his younger brother’s couch in the Heights neighborhood of Jersey City, New Jersey. He moved out four months later after the condominium went up for sale, eager to live on his own and not wanting the sight of his possessions in the living room to discourage potential buyers.

“I was tired of depending on my family for housing,” said Odenthal, 27, who also stayed with his parents in Jersey City. “I can’t imagine doing that forever, and all retiring to Florida together.”

Odenthal found a roommate and moved July 1 to Manhattan’s Upper East Side, paying $700 a month for his share of the rent. The next morning he got an offer to work at a New York public relations firm.

Foreclosures Persist

Finances for homeowners didn’t improve fast enough to prevent more than 1.65 million foreclosure filings in the first half, an increase of 8 percent from the same period in 2009, RealtyTrac Inc., a data company in Irvine, California, said July 15. A record 269,962 U.S. homes were seized from delinquent owners in the second quarter as lenders set a pace to claim more than 1 million properties by the end of 2010.

The U.S. homeownership rate fell to 67.1 percent in the first quarter after peaking at 69.2 percent in the fourth quarter of 2004, according to the U.S. Census.

“As homeownership continues to decline, people need to live somewhere,” said Henry Cisneros, who was President Bill Clinton’s housing secretary from 1993 to 1997 and is executive chairman of CityView, a real estate investment firm in Los Angeles that focuses on urban projects including apartments.

Sales Decline

The rate of new-home sales last month was the second-lowest on record, behind May, following the expiration of a government tax credit for homebuyers, the Commerce Department reported yesterday. Sales of previously owned Raleigh homes fell 5.1 percent in June, the National Association of Realtors said last week.

“The rental market will be robust for the next few years,” Cisneros said.

Effective rents, or what tenants pay after concessions or breaks from landlords, increased 1.4 percent in the biggest markets in the first half, according to MPF Research. Rents may rise 4 percent to 6 percent in both 2011 and 2012, compared with a gain of about 2 percent this year, Willett said.

AvalonBay, which took a nine-month hiatus from construction in 2009, said in April it had seven communities under development and would increase rents for tenants renewing in the second quarter. It raised its forecast last month for second- quarter and 2010 earnings based on “improved operating trends.”

The Arlington, Virginia-based company’s funds from operations, a widely used measure of earnings, will rise 8 percent in 2011, according to the medial estimate of 20 analysts surveyed by Bloomberg.

Equity Residential

Equity Residential, based in Chicago, has pushed rents up by “high single digits” in all of its markets since January, Chief Executive Officer David Neithercut said in a June 11 interview. Funds from operations in 2011 also will rise 8 percent, according to a survey of 22 analysts.

Landlords won’t be able to raise rents too aggressively because unemployment remains high at 9.5 percent and declines in home prices have made it no more expensive to buy than rent in about half of larger markets around the nation, Willett said.

Buy Vs. Rent

In Atlanta, the median home price has fallen 37 percent to $110,100 from the peak in the third quarter of 2006, according to the National Association of Realtors. Assuming a 10 percent down payment and a 30-year mortgage at 5 percent, the monthly principal and interest cost is $532. That compares with average monthly rents of $774 in the city, Willett said.

Riverstone Residential Group of Dallas, which manages hundreds of Texas apartments and 175,000 units in 30 markets around the country, reduced average concessions to about a half-month’s rent from about two months a year ago, CEO Walt Smith said. Vacancies have fallen below 5.9 percent in buildings that aren’t newly constructed, from 8.25 percent last year. Smith said he expects significant rent growth by 2012 as supply tightens with so few new units being built.

“Landlords are cautiously testing the strength of the submarket their property is in to see if the market will withstand small rent increases,” Smith said. “In most markets, they’ve been successful.”

26 July 2010

Sun Hung Kai to Sell 50 More Flats Following Demand

Business Week

Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, will put another 50 luxury apartments up for sale in Hong Kong after buyers snapped up all 92 flats in a first batch of flats over the weekend.

The company sold the apartments at its Larvotto project at an average of about HK$40 million ($5.14 million) per unit, bringing in about HK$4 billion in revenue, Sun Hung Kai said in an e-mailed press release late yesterday. The new batch may go on sale in the middle of this week, it said, adding that their average sale prices may be 2 percent higher.

“The price is reasonable for properties of this quality,” Eva Yeung, an agent at Centaline Property Agency Ltd. who bought a HK$47 million-unit on behalf of a Hong Kong-based client, said outside the project’s showroom at the International Financial Center building in the Central business district on July 17.

Yeung said the luxury property market in Hong Kong will be supported by the lack of supply and increased demand from Chinese buyers. That may counter Hong Kong government efforts to curb a 38 percent surge in home prices since the beginning of 2009 amid concerns housing is becoming unaffordable.

About 20 percent of the buyers over the weekend were from mainland China, Sun Hung Kai said.

“Demand has exceeded supply,” Victor Lui, an executive director at Sun Hung Kai’s agency arm, said in the press release. “All of the units were sold within the first few hours after sales began.”

Robust Prices

Sun Hung Kai fell 0.3 percent to HK$111.50 at the 4 p.m. close of trading in Hong Kong. The Hang Seng Property Index that tracks the performance of seven Hong Kong developers dropped 0.4 percent.

Sun Hung Kai and partners Kerry Properties Ltd. and Paliburg Holdings Ltd. last week announced they were putting the apartments in the Ap Lei Chau district project up for sale for between HK$15,811 and HK$$22,500, a record for the district.

The second-hand market for Bel-Air, a luxury project in the nearby Pokfulam district, is selling for “similar prices” to Larvotto, according to Buggle Lau, chief analyst at property agency Midland Holdings Ltd. New developments in the area will probably sell at a minimum of HK$15,000 a square feet, he said.

Luxury residential prices in the Island South district, which includes Repulse Bay and Stanley areas, grew 2.5 percent in the second quarter, after rising by nearly 35 percent in the previous nine months, according to property consultant Knight Frank LLP. Luxury homes are those at least 1,000 square feet (93 square meters) or costing at least HK$10 million.


Apartments at Larvotto will be around 1,500 to 2,500 square feet. Larvotto is the name of the main public beach in Monaco.

Larvotto has 715 units. Hong Kong developers sell units in developments in batches instead of offering them all at once, to gauge demand and take advantage of rising prices.

Hong Kong authorities have introduced rules on new home sales and are investigating canceled sales at a Henderson Land Development Co. luxury apartment project.

Henderson last month canceled 20 transactions at its 39 Conduit Road project in the city’s Mid-Levels district, including the one the company claimed would fetch a record HK$88,000 a square foot, prompting lawmakers to call for an investigation.

The city’s Legislative Council on July 12 held its first special meeting to discuss the collapsed sales, which were worth HK$2.67 billion according to Henderson.

Since last year Hong Kong has raised the requirement for down payments on luxury homes and cracked down on misleading marketing by developers, including the use of show flats, after officials expressed concern that prices were rising too fast.

Hong Kong builders often sell apartments before they are completed, enticing customers by showing walk-through models of the homes.

Innkeepers USA files for Chapter 11

South Florida Biz Journal

Innkeepers USA Trust has filed a prearranged bankruptcy petition in New York that would essentially give one of its largest lenders all of the equity in the reorganized company.

The Palm Beach-based real estate investment trust and owner of upscale extended-stay hotel properties throughout the U.S. owes creditors more than $1 billion, according to the petition, filed Monday.

In filing the bankruptcy petition, the company said it reached various agreements with some of its key constituents involving the company’s financial restructuring through a prearranged plan of reorganization.

The agreements allow Innkeepers to maintain its portfolio of hotel properties. It also would allow Lehman ALI, one of its largest prepetition secured lenders, to convert its secured claims to substantially all of the equity in the reorganized company.

In addition, Marriott International, one of Innkeepers’ significant franchisors, has agreed to maintain its franchise agreements, subject to Innkeepers’ ability to upgrade some of its hotels, according to a news release.

Innkeepers USA Trust is owned by Apollo Investment Corp., which purchased it in April 2007 for $1.5 billion at the height of the real estate boom.

In April, Innkeepers said it stopped making monthly interest payments on $825.4 million in loans covering 73 hotels. The company's Florida hotels include the Best Western West Palm Beach, the Courtyard Fort Lauderdale, the Four Points by Sheraton Destin-Fort Walton Beach, Hampton Inn Naples and Residence Inn by Marriott Altamonte Springs.

Innkeepers obtained commitments for two debtor-in-possession credit facilities totaling about $67 million, which the company will invest in the improvement of its hotel portfolio.

“Our company is entering into this last phase of its ongoing restructuring process in order to return to a position of financial and operational strength,” said Marc Beilinson, the company’s chief restructuring officer, in a news release.“ We are generating positive operational cash flows and, along with our two DIP financing agreements, we have the resources to meet our ongoing financial needs. We and our third-party managers will continue to operate our hotels and serve our guests in the ordinary course.”

The company said that as a result of the agreements it expects to emerge from bankruptcy quickly.

“We are confident we will emerge from this process as a stronger, more competitive business with a rationalized financial structure and clearly enhanced fundamentals,” Beilinson said.

23 July 2010

Home Sales Dip as Tax Credits Expire

The Wall Street Journal
Glut of Properties on Market Hints at Falling Prices Through Rest of Year as Sector Adjusts to End of Buyers' Tax Credit

Sales of existing homes declined in June while the inventory of unsold homes rose, a combination that doesn't bode well for prices in the months ahead.

In its monthly report on home-sale transactions on Thursday, the National Association of Realtors said sales were running at a seasonally adjusted annual pace of 5.37 million last month, down 5.1% from May but up 9.8% from one year ago.

Home sales surged in the spring as buyers rushed to take advantage of tax credits worth as much as $8,000. To qualify, buyers had to sign purchase contracts by April 30.

Sales fell in most parts of the country in June except in the Northeast, where they rose 7.9% from May. Existing-home sales were down by 9.3% in the West, the largest regional drop.

The Realtors' data for June reflect completions of sales, most of which were based on contracts signed in April and May.

Newly signed contracts plunged by 30% in May from the previous month, when the tax credit expired.

"Given that, you are going to see a huge drop in closed sales in July, and it's going to continue at a minimum until August," said Thomas Lawler, an independent housing economist in Leesburg, Va.

Inventories of unsold homes rose by 2.5% in June to 3.99 million. That is 8.9 months' supply at the current sales pace, up from 8.3 months in May and the highest level since August 2009.

The increase in the inventory of unsold homes was particularly disappointing because the tax credits had been designed to help clear through the glut of unsold homes.

"We've been adding more inventory than we've been selling... That's a worrisome sign in a month when we were paying people to buy homes," said Stan Humphries, chief economist at Zillow.com, a real-estate website.

A national survey of real-estate agents showed that traffic at homes for sale was lower in July than at any time since Credit Suisse began its survey in 2005, following big declines in May and June.

Now, "rising inventory is going to make everything much worse," said John Burns, a housing consultant based in Irvine, Calif.

Inventories are expected to grow in the coming months as banks process more foreclosures, which have been held off the market as banks work to complete government-mandated loan modifications.

Higher levels of unsold homes renew the prospect that home prices will fall during the second half of the year.

"Excess inventories are the mortal enemies of prices. Inventories go up and prices have got to go down," said Gary Shilling, president of A. Gary Shilling & Co., an economic-consulting and financial-advisory firm.

Unsold homes are also growing as signs of home-price stabilization in some markets have encouraged homeowners to test the market. Karen Wiese moved into her current home in Fair Oaks, Calif., five years ago after she and her husband, a homebuilder, decided to live in it rather than sell for less than the $1.1 million asking price.

On Wednesday, she listed the six-bedroom home for $639,000.

"We don't even know if we'll get a looker," she said. Ms. Wiese, 59, is building a smaller home on an adjacent lot and said she wants to downsize because her husband died last year.

One bright spot: falling mortgage rates, which continue to serve as one strong tailwind for the market.

The average rate on a 30-year fixed-rate mortgage on Raleigh homes was quoted at 4.56% this week, according to a weekly survey released by Freddie Mac on Thursday. The 15-year fixed-rate mortgage averaged 4.03%. Both are the lowest since Freddie began its survey in 1971.

Nonetheless, the prospect of weak demand has prompted housing economists to taking a dimmer outlook of the housing market, according to a monthly survey released on Thursday.

Some 60% of the 109 economists and other analysts surveyed by MacroMarkets LLC expect home prices to decline this year, up from 40% in May.

Separately, the Federal Housing Finance Agency said its monthly house-price index in May was up 0.5% on a seasonally adjusted basis from April. The index is up 1.6% over the last three months, but down 1.2% from a year earlier.

22 July 2010

In the Twin Cities, Apartment Buildings Leading the Pack

Star Tribune

In a commercial real estate market that's still downright scary for most types of properties, including office and industrial, there is emerging one clear winner: apartment buildings.

In a commercial real estate market that's still downright scary for most types of properties, including office and industrial, there is emerging one clear winner: apartment buildings.

Lots of capital and potential buyers are chasing after the best buildings and pumping up their values, say industry analysts. And while the number of multifamily sales in the mostly homegrown Twin Cities apartment market has always been low -- a fact even more apparent since the recession began two years ago -- the pace has picked up a bit this year, according to recent data.

One big transaction sticks out among a smattering of smaller deals. The Stadium View Apartments (formerly known as District on Delaware and Melrose Student Suites), a 277-unit student housing apartment complex near the University of Minnesota, changed hands in May for $42 million, putting it among the biggest multifamily transactions in the country for the first quarter.

It compares, for instance, to a $48 million deal for the 159-unit Gardens of Wilshire mixed-use apartment complex in Los Angeles, which attracted 30 suitors, according to PricewaterhouseCoopers' first quarter Korpacz Real Estate Investor Survey.

The apartment complex is big -- it has 956 beds arrayed in four nine-story towers -- with amenities such as a 24-hour movie theater and free tanning beds. The buyer was listed as Blue Vista Capital Partners, a Chicago-based boutique investment firm. Blue Vista's managing principal, Robert Byron, didn't return a call for comment.

The seller's address was that of Los Angeles-based real estate firm Lowe Enterprises.

The sale shows that when it comes to stable, niche-market assets like student housing, at least, there are takers out there, said Josh Floring, a senior associate with the Ackerberg Group and an expert in the U of M-area real estate scene.

21 July 2010

40% of Participants Depart Federal Mortgage Aid Program

USA Today

The number of homeowners dropped from the Obama administration's signature program to modify mortgages for cash-strapped homeowners is larger than the number of those receiving permanently lower monthly payments under the program.

The program puts homeowners into five-year programs with lower monthly payments on their mortgages, but first they must provide proof of income and get through a three-month trial period making all payments on time. About 530,000 homeowners, or about 40% of 1.3 million borrowers enrolled, have had their lower mortgage payments canceled, the Treasury Department reported Tuesday.

An additional 398,000 homeowners, or 30% of borrowers, have received the longer-term lower payments on their mortgages.

To qualify, homeowners must be paying about a third or more of their monthly gross income toward their mortgage. They must have a property value less than about $729,000, and they must have incurred some sort of hardship.

For qualifying homeowners, banks will extend repayment periods, drop interest rates to as low as 2% and, in some cases, reduce the outstanding loan value. Homeowners in the longer-term modifications are guaranteed lower payments for five years, then fixed terms at today's low rates for the life of the loan. The typical homeowner is receiving a reduction in the monthly payment of 36%, or more than $500 a month.

Some economists say few are benefiting from the program. "(It) is not helping a lot of people, but for those that have gotten it, it seems to be working reasonably well," says Mark Zandi at Moody's Analytics. "The problem is not a lot of people are getting it."

Others see progress. The total number of homeowners getting longer-term mortgage modifications increased nearly 15% in June. "The housing market and economy are starting to resolve the issues, thought it's going to take years," says Joel Naroff at Naroff Economic Advisors.

For the first time, the government also detailed how many borrowers with modifications are defaulting for a second time. For homeowners with permanent loan modifications for six months, fewer than 6% are 60 or more days delinquent. Fewer than 3% of such homeowners have defaulted at the nine-month mark.

Home Loan Demand Jumps; Purchase Demand Up‏


U.S. mortgage applications jumped last week as demand for loans to purchase homes rose for the first time in five weeks, the Mortgage Bankers Association said on Wednesday.

In addition, demand for home refinancing loans hit the highest level in 14 months as interest rates reached their lowest in at least 20 years, the industry group said.

The data provided a glimmer of hope for a housing market that has been struggling since the expiration of popular homebuyer tax credits.

The Mortgage Bankers Associations said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 7.6 percent for the week ended July 16.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 4.9 percent.

The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.59 percent, down 0.10 percentage point from the previous week, and the lowest level ever recorded in the survey, which has been conducted weekly since 1990.

Interest rates were also below their year-ago level of 5.31 percent.

"The strength in purchase applications comes from government loans, likely indicating that prospective buyers are drawn by the lower downpayment requirements," Michael Fratantoni, the MBA's vice president of research and economics, said in a statement.

The seasonally adjusted purchase index, a tentative early indicator of home sales, increased 3.4 percent after hitting a 13-year low the previous week.

Demand, however, is down about 42 percent since the homebuyer tax credits expired.

Dean Maki, chief U.S. economist at Barclays Capital in New York, said the housing market is trying to find a bottom after the April 30 expiration of the tax credits.

"The tax credits made things a lot more choppy," he said. "We will continue to see a payback from the tax credits through the next few months and then we will return to a gradual upward trend.

"We are expecting a continued gradual improvement in the labor market and that will also lend support to the housing market going forward," he said.

The MBA's seasonally adjusted index of refinancing applications increased 8.6 percent, reaching the highest level since the week ended May 15, 2009.

"Refinance borrowers, aiming for the lowest possible rate, are getting conventional loans," Fratantoni said in his statement.

The MBA said fixed 15-year mortgage rates averaged 4.05 percent, down from 4.12 percent the previous week, a record low.

Rates on one-year adjustable-rate mortgage, or ARMs, decreased to 7.17 percent from 7.20 percent. The Commerce Department on Tuesday said U.S. housing starts in June hit their lowest level in eight months.

More insight into the state of the housing market will emerge on Thursday when the National Association of Realtors releases data on existing home sales in June.

20 July 2010

In California, Construction Resumes on Several Developments

My Desert

The sun had just poked over the mountains and construction workers were already swarming over a line of new KB homes in Kingston Court in Palm Desert.

Scott Smith of R&S Concrete, a California concrete contractor, was on standby to pour the foundation in a newly dug trench for a block wall that will divide the 1,239-square-foot to 1,991-square-foot homes.

Spanish music filled the air. A worker in a hardhat fanned dust off a tile roof with a Dry-Vac.

Framed in a matter of weeks, the “Built to Order” homes of Kingston Court will be finished in time for their July 17 debut.

“It's quality construction, and it went up quick,'' KB site superintendent Zack Pate said. “The other day, we had 100 guys on the job. This week promises more of the same.”

New models to check out in the KB Home development north of Frank Sinatra Drive may be a sign the economy is loosening a bit.

Having a font of skilled workers at beck-and-call, though, means times remain tough in the construction industry.

“They're happy to be working,” Pate said. “Since we started construction, I'd say I've seen 10 guys a day dropping off their cards.”

Smith drove in from Temecula to do the job. “It's a long drive, but that's OK. I've made it through the hard times.”

Steve French of Murrieta said his masonry company has seen a pickup in work.

“It's tentative — still,'' he said. “It's fits and starts, but KB's getting different projects started in different tracts, so that's a good sign. They're mostly model complexes, though.”

These days, French said no one's building “spec” homes.

James Brownyard, a spokesman for Desert Valley Builders Association, said any new construction is a hopeful sign of movement in the marketplace.

“Any time you're putting people to work, it's good for the community and, not to mention, the service industry,'' he said. “It means someone can support their mortgage, or get a mortgage themselves.”

The KB Home tract isn't the only action in town.

Lennar is completing sales in the Escena at Palm Springs development it built before the housing market crash.

D.R. Horton has had its trademark flags flying outside its model homes in Renaissance at The Gallery in Palm Desert.

The weekend of June 26 had Horton celebrating a model grand opening event for the new Sonora Wells at Shadow Hills in Indio.

Other developments with new homes include: Stonefield Estates at Santa Rosa, Whittier Ranch, and the Ponderosa Home development of Villas at Paradiso, all of Indio; Capistrano at La Quinta, the RJT Homes development of Cordorniz and Rancho Santana, all of La Quinta; and Aviara at Mission Shores of Rancho Mirage.

Horton's condominium project, Alegria at Spanish Walk, Palm Desert, has proven popular through the recession.

Prices in the complex near Interstate 10 and Cook are in the $100,000s.

And Falling Waters reemerged months ago at Monterey Ridge of Palm Desert to create a splash in the townhouse market.

19 July 2010

Toll Brothers Forms Distressed Real Estate Business


Toll Brothers Inc., the largest U.S. luxury-home builder, formed a unit to invest in distressed real estate as demand for new houses slumps.

Toll created Gibraltar Capital & Asset Management LLC to “pursue a broad range of real estate acquisition and investment opportunities,” the Horsham, Pennsylvania-based company said in a statement today. Those may include buying loan and property portfolios, developing sites for other builders and assisting in the workout of troubled real estate, the company said.

Toll, led by new Chief Executive Officer Douglas Yearley Jr., joins Lennar Corp. in seeking to make money from distressed real estate and move beyond its traditional homebuilding business. Sales of new U.S. homes slid 33 percent in May to a record low annual rate after the end of a federal tax credit, according to a Commerce Department report last month.

“This announcement is consistent with our thesis that Toll needs to gain exposure to other revenue streams within the sector as the housing industry remains weak for potentially another two to three years,” Jack Micenko, an analyst with Susquehanna Financial Group in New York, said in a note to investors today. “We view the move as incrementally positive.”

Micenko has a “neutral” rating on Toll shares.

Falling Confidence

Builders in the U.S. turned more pessimistic in July. An index of homebuilder confidence fell more than economists forecast to the lowest level since April 2009, the National Association of Home Builders said today from Washington.

Toll fell 1.7 percent to $16.15 at 11:42 a.m. in New York Stock Exchange composite trading after the NAHB report. Goldman Sachs Group Inc. cut U.S. homebuilders to “neutral” from “attractive” last week on prospects for sluggish sales.

Toll last year began increasing its land position for the first time since 2006, including purchases of distressed lots. The company spent $143 million in the fiscal second quarter on buying or optioning land.

“I’d say half of our deals are distressed,” Yearley said at a June 24 conference sponsored by Deutsche Bank AG. He took over as CEO last month and replaced co-founder Robert Toll, who remains chairman.

The Financial Times reported last week that Toll partnered with Oaktree Capital Management to buy a portfolio of distressed loans with a face value of $1.7 billion from the Federal Deposit Insurance Corp. Kira McCarron, a Toll spokeswoman, declined to comment on the report, as did John Frank, a spokesman for Los Angeles-based Oaktree.

In February, Miami-based Lennar bought part of a $3.05 billion loan portfolio acquired by the FDIC from failed banks.

Toll also faces competition from buyout firms in distressed investing. Private-equity real estate funds have a record $104 billion of equity available for U.S. deals, London-based research firm Preqin Ltd. reported in June.

15 July 2010

Homes lost to Foreclosure on Course to hit 1M in 2010

Associated Press

More than 1 million American households are likely to lose their homes to foreclosure this year, as lenders work their way through a huge backlog of borrowers who have fallen behind on their loans.

Nearly 528,000 homes were taken over by lenders in the first six months of the year, a rate that is on track to eclipse the more than 900,000 homes repossessed in 2009, according to data released Thursday by RealtyTrac Inc., a foreclosure listing service.

"That would be unprecedented," said Rick Sharga, a senior vice president at RealtyTrac.

By comparison, lenders have historically taken over about 100,000 homes a year, Sharga said.

The surge in home repossessions reflects the dynamic of a foreclosure crisis that has shown signs of leveling off in recent months, but remains a crippling drag on the housing market.

The pace at which new homes falling behind in payments and entering the foreclosure process has slowed as banks continue to let delinquent borrowers stay longer in their homes rather than adding to the glut of foreclosed properties on the market. At the same time, lenders have stepped up repossessions in an effort to clear out the backlog of distressed inventory on their books.

The number of households facing foreclosure in the first half of the year climbed 8 percent versus the same period last year, but dropped 5 percent from the last six months of 2009, according to RealtyTrac, which tracks notices for defaults, scheduled home auctions and home repossessions.

In all, about 1.7 million homeowners received a foreclosure-related warning between January and June. That translates to one in 78 U.S. homes.

Foreclosure notices posted monthly declines in April, May and June, but Sharga said one shouldn't read too much into that.

"The banks are really sort of controlling or managing the dial on how fast these things get processed so they can ultimately manage the inventory of distressed assets on the market," he said.

On average, it takes about 15 months for a home loan to go from being 30 days late to the property being foreclosed and sold, according to Lender Processing Services Inc., which tracks mortgages.

Assuming the U.S. economy doesn't worsen, aggravating the foreclosure crisis, Sharga projects it will take lenders through 2013 to resolve the backlog of distressed properties that have on their books right now.

And a new wave of foreclosures could be coming in the second half of the year, especially if the unemployment rate remains high, mortgage-assistance programs fail, and the economy doesn't improve fast enough to lift home sales.

The prospect of lenders taking over more than a million homes this year is likely to push housing values down, experts say.

Foreclosed homes are typically sold at steep discounts, lowering the value of surrounding properties.

"The downward pressure from foreclosures will persist and prices will be very weak well into 2012," said Celia Chen, senior director of Moody's Economy.com.

She projects home prices will fall as much as 6 percent over the next 12 months from where they were in the first-quarter.

Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. Now, homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.

There are more than 7.3 million home loans in some stage of delinquency, according to Lender Processing Services.

Lenders are offering to help some homeowners modify their loans. But many borrowers can't qualify or they are falling back into default. The Obama administration's $75 billion foreclosure prevention effort has made only a small dent in the problem.

More than a third of the 1.2 million borrowers who have enrolled in the mortgage modification program have dropped out. That compares with about 27 percent who have received permanent loan modifications and are making payments on time.

Among states, Nevada posted the highest foreclosure rate in the first half of the year. One in every 17 households there received a foreclosure notice. However, foreclosures there are down 6 percent from a year earlier.

Arizona, Florida, California and Utah were next among states with the highest foreclosure rates. Rounding out the top 10 were Georgia, Michigan, Idaho, Illinois and Colorado with experts keeping an eye on Raleigh homes of North Carolina.

14 July 2010

Lighthouses for Sale

The Detroit Free Press

For sale: historic waterfront property with unusual winding staircase and a great view of Lake Michigan or Lake Huron. May need work.

The public may get a chance to buy a Michigan lighthouse if no government or nonprofit organization steps forward to preserve three that the U.S. Coast Guard no longer needs:

The Frankfort North Breakwater Lighthouse; the Middle Island Lighthouse, across Thunder Bay from Alpena, and the South Haven South Pierhead Lighthouse.

Eight others are for sale across the country.

The first crack at owning one will go to communities, museums or nonprofit groups with a commitment -- and the means -- to maintain them.

But if no suitable local group is found, the lighthouse will go up for auction, possibly by spring. What could it be sold for? The Granite Island Lighthouse in Lake Superior sold for $86,000 in 1999.

"These lighthouses are still an important part of our heritage," said Jennifer Radcliff, president of the Michigan Lighthouse Fund. "These lighthouses will tell us to remember that the lakes are still an important part of our economy."
Owners will need cash, dedication

Lighthouses were once a sailor's only assurance against disaster, their lights guiding many a Great Lakes ship home safely from the strongest storms.

Michigan's most famous wreck, the Edmund Fitzgerald in 1975, may have been helped to its watery grave because the Whitefish Point Lighthouse on Lake Superior was blacked out by a power failure.

With GPS and modern navigation, lighthouses are no longer needed to guide ships. Their value now lies in the role they played shaping maritime history, and in their significance as a historic symbol of their community.

"They draw tourism and economic development to the community, so they have a broader importance than just being historic monuments," said Martha MacFarlane Faes, Michigan Lighthouse project manager with the State Historic Preservation Office.

Eleven lighthouses were just made available to communities or the public through the National Lighthouse Preservation Act of 2000, which allows lighthouses to be transferred from the U.S. Coast Guard to new parties with the means and commitment to maintain them.

Preference is given to public bodies and nonprofit groups and these organizations have to maintain them for educational, park, recreation, cultural or historic preservation uses.

The latest round of excess lighthouses includes 11 around the country, three of them in Michigan: The Frankfort North Breakwater Lighthouse, the Middle Island Lighthouse, across Thunder Bay from Alpena, and the South Haven South Pierhead Lighthouse.

Lighthouses can come in all shapes and sizes, but these three are all more traditional looking towers.

"I knew this day was coming," said Josh Mills, Frankfort's city superintendent. "Obviously, this structure means a lot to this community. It's a signature structure in our community and we'll do whatever is necessary to keep it."

Mills already has talked to the Friends of the Point Betsie Lighthouse, near Frankfort, about taking the breakwater lighthouse under their wings, but hadn't pressed for a commitment. He will now.

Lighthouse ownership is not an inexpensive proposition. The Frankfort lighthouse needs about $1 million in upgrades to make it a top-notch city attraction, Mills estimated, including restoring a catwalk on the breakwater, out to the lighthouse. The Point Betsie Light preservation group has so far raised $1 million for that structure's maintenance.

Grants are available for nonprofit and government-run lighthouses.

In Michigan, profits from special lighthouse license plates go to provide $40,000 grants to these groups for lighthouse preservation, as long as they have $20,000 to match the grant. So far, the state has awarded $1.5 million of these grants since 2000.

Privately owned lighthouses don't fare as well when it comes to grants.

The Granite Island Lighthouse in Lake Superior was the last privately purchased Michigan lighthouse, bought in 1999 for $86,000. The new owners won't say how much they spent to restore the lighthouse, only that it was well into six figures.

They not only had to repair a gaping hole in the roof and plenty of ruined plaster and woodwork, they also had to convince workers to live on the island in tents while the restoration was in process.

12 July 2010

Many Cities Across U.S. Issuing More Housing Permits than during Boom

Reed Construction Data

Des Moines, Charleston, Austin, Columbia and Houston are the strongest large metro housing markets. These are the only cities with a population over 500,000 that issued permits/1000 population at more than three times the national pace over the last year.

Twenty-four smaller cities also had intense housing development at a rate per 1000 population more than three times the national average. This set includes two cities rebuilding from hurricane destruction of homes, several college towns and military base cities, resort and retirement cities in North Carolina and the Rocky Mountains and three market center cities in the Plains states. Several of the resort/retirement cities were part of the 2004-06 housing boom but the rest of the twenty-four cities sat out the boom so they have relatively minor foreclosure and underwater mortgage problems now.

The four large Texas metro areas continue to dominate the list of the largest single family housing markets. Together, they account for nearly 37% of the permits over the last year among the twenty cities issuing the most permits. Las Vegas, Phoenix, Riverside, Tampa, Austin, San Antonio and Orlando are the only housing boom cities still left on the top twenty list. Washington has moved up to third place on the strength of tens of thousands of new federal jobs. Atlanta, the largest housing market for several years has dropped to 7th place due to a weak Georgia economy and a large surplus of unsold homes. Fifteen metro areas, all manufacturing centers without any of today’s high growth industries, have issued less than two permits a month over the last year. Sandusky Ohio has issued no permits and Wheeling West Virginia has issued only one permit.

New York City remains by far the largest multi family permit metro. The recent credit based recession caused much less damage to the New York City economy than expected. Construction activity remains relatively strong partly due to the mild recession and partly because the permitting process is so long and so expensive that developers are always in a catch up mode. Permits are up from a year ago in many college and oil patch towns that escaped both the 2005-06 housing boom and the worst of the ongoing economic recession. San Francisco has returned to the list of top multi family markets due to hiring by its growing technology industries. Other markets that have recently become significant are Salt Lake City (low cost attracts new jobs and residents) and Virginia Beach (a lower cost alternative to South Florida).

Forty-five cities issued more housing permits in the three months ending in March than they did at the peak of the housing boom in late 2005/early 2006. All of these cities are very small markets except for El Paso, Buffalo and Rochester. This should not be interpreted as a list of cities leading the housing market or the economy out of recession. These cities simply missed most of the recession as they did the previous housing boom. Many of them have a locally unique housing demand driver. In El Paso, it is immigration. In Bismarck and Grand Forks, it is a strong farm economy.

Atlanta and Phoenix continue to have the largest declines in homebuilding relative to the peak of the housing boom. The twenty cities on the list are all suffering from the surplus supply created during several years of overbuilding, as with Houston apartments. Excepting, New York City, each of them has an unusually large inventory of homes for sale and a high incidence of foreclosures and underwater mortgages that will keep inventory excessive well into next year and possibly beyond in Florida and the Rocky Mountains.

09 July 2010

Harlem Project gets Tax-Exempt Financing Approval

Crain's New York
The deal could bring a Hyatt hotel and Whole Foods to 125th Street.

A large hotel and retail development project in Harlem passed a major hurdle Tuesday, receiving approval for federal tax-exempt financing and winning the support of labor officials.

The project at 100 W. 125th St. is spearheaded by former Dallas Cowboys and Arizona Cardinals star Emmitt Smith, who is the chief executive and founder of a real estate development firm, ESmith Legacy Harlem LLC. It is the firm's first New York City project and could bring a Whole Foods to Harlem, as well as a Hyatt-branded hotel.

Mr. Smith's firm was approved for $19.7 million in Recovery Zone Facility Bonds, distributed by the New York City Capital Resource Corporation.

At a hearing last Friday, only City Comptroller John Liu opposed the project, while ten others supported it. But last week other elected officials and community leaders expressed concern, questioning whether local residents would be hired for jobs at the hotel and retail shops.

According to people familiar with the project, the turning point was the developer agreeing to a deal with the Hotel and Motel Trades Council to recognize the union if a majority of workers sigh authorization cards.

According to the NYCCRC, the hotel and shops will create 129 construction jobs and 81 permanent jobs.

“The proposed development in Harlem would transform a vacant site into a vibrant mixed-use building that would serve both residents and visitors,” said NYCCRC chairman Seth Pinsky.

The funding is part of the federal Recovery Zone Bond program created last year by Congress and the president to stimulate economic activity in neighborhoods still struggling from the recession.

08 July 2010

Ryland Homes pays $17.8M for Muirkirk Parcel

Maryland Gazette

Joanne S. Lawton Solid plan: Tom Aylward, left, vice president of development for Jackson-Shaw Co., and Chase Galbraith, vice president of regional development, are turning an old brick-making facility into a $500 million residential, office and retail complex between Beltsville and Laurel.
Ryland Homes has bought 45 acres for $17.76 million at Brick Yard Station in Muirkirk, where developer Jackson-Shaw said it will turn its attention from office buildings to the residential component of the 125-acre planned community.

The Calabasas, Calif., homebuilder plans to construct 51 single-family homes and 354 townhomes that will be part of the development's residential offerings. Jackson-Shaw of Dallas apartments will focus on the multifamily phases of the project.

The planned community is between Beltsville and Laurel, on the former site of the Washington Brick Co. manufacturing complex and mine. It is being marketed as a sustainable development, with all buildings planned for certification under the U.S. Green Building Council's Leadership in Energy and Environmental Design program, according to Jackson-Shaw information.

"[Brick Yard Station] is easily accessible to several government agencies with a large number of employees and to other major employment and retail centers, so there are unlimited opportunities for us to attract new home buyers," said Stephen Fritz, president of the Washington, D.C., region for Ryland Homes, in a statement.

"Jackson-Shaw has done a great job with the overall planning and design of this development and, for one for the few times I can remember, we are taking on a project that does not require any changes," Fritz said.

The project also incorporates multiple open spaces, including a seven-acre lot that Jackson-Shaw donated to the Maryland-National Capital Park and Planning Commission, which is planning a 20-acre dinosaur park on the site of a significant fossil deposit on a portion of the land.

In addition to the Ryland Homes construction, Brickyard Station will include 50,000 square feet of commercial space and two phases of multifamily development with 860 units surrounding the Muirkirk MARC station.

"Their commitment to quality construction and pursuit of innovative, sustainable building practices makes them an ideal partner for this development," said Chase Galbraith, vice president of development for Jackson-Shaw, in a statement. "As we turn our attention to the project's multifamily phases, we are confident that this component is in the best hands."

Officials with Jackson-Shaw and Ryland Homes could not be reached for comment Thursday.

The move to residential construction follows the successful start of the Brick Yard Business Park, where Jackson-Shaw plans 704,000 square feet of light industrial, office, flex and warehouse space on 60 acres.

Despite breaking ground after financial markets collapsed and the recession started in 2008, the firm has achieved a 70-percent occupancy rate, including Party Rental, Ltd. leasing 82,000 square feet and Limbach Facility Services leasing 40,000 square feet. Jackson-Shaw has poured more than $75 million into the project and has sold three buildings to FLOORMAX, Freestate Electrical and American Mechanical Services totaling 105,318 square feet. A fourth building is under contract to an undisclosed buyer, leaving one more completed building with 100,000 square feet available for sale or lease, said Tom Aylward, Jackson Shaw's vice president for development, who is based in the firm's Lanham office.

The firm has completed building 425,000 square feet in the business park and has permits in hand to build "three or four more buildings, depending on the market," he said.

Jackson-Shaw is now looking for another home builder to begin construction on the multifamily housing component "as quickly as possible," Aylward said.

The regional chapter of the National Association of Industrial and Office Properties last month designated the Brick Yard as the winner of its 2010 Award of Excellence in the "Best Industrial/Flex Project" category.

Home Properties buys apartment complex in Annapolis

Home Properties of Rochester, N.Y., announced that it acquired a 282-unit apartment complex in Annapolis for $32.5 million from Annapolis Roads Apartments Co.

The company, which has managed for waterfront Annapolis Roads Apartments since 2000, said it assumed an existing $20.1 million loan, paid $7.5 million in cash and traded $4.9 million in operating partnership units in Home Properties LP. The total purchase price for the property equals about $115,000 per unit.

Home Properties has been making major investments in Maryland in recent years. In February, it opened 1200 East West, a 247-unit Class A apartment building on the grounds of a former car repair shop. The latest deal follows the acquisition of two other properties totaling 318 units in Westminster for $23.9 million in April.

The Annapolis Roads property is just east of Bay Ridge Road next to the Annapolis Golf Course. The complex is 96.1 percent occupied at monthly rents averaging $1,255. The 11-building complex was built in three phases from 1974 to 1979.

The company plans to invest an additional $2.9 million during the next three years to correct deferred maintenance and building deficiencies, improve curb appeal, landscaping, roofs and mechanical systems and upgrade all apartments with new kitchens and baths, appliances, flooring, lighting, interior doors and trim.

PS Business Parks buys business complex for $23.4M

PS Business Parks of Glendale, Calif., has acquired Parklawn Business Park, a 232,000-square-foot office and industrial complex in Rockville for $23.4 million in cash.

The park, which is 70.6 percent leased to 59 tenants, will accommodate multiple tenants in a variety of sizes in its three office buildings and an industrial building. With the acquisition of Parklawn Business Park, PS Business Parks' portfolio in Maryland totals about 2.4 million square feet of multitenant office and flex space.

The seller, Washington Real Estate Investment Trust of Rockville, said it achieved a net book gain of $7.9 million on the sale of the properties. The Lexington Building, the Saratoga Building and Charleston Business Center were built from 1970 to 1977 and purchased by WRIT in 1993 as a portfolio. Parklawn Plaza was built in 1986 and purchased in 1999.

Former Circuit City sells for $2.1 million

Beauty 4 U, an affiliate of Beauty.com and Drugstore.com, bought the shuttered Circuit City building in Temple Hills for $2.1 million, according to Marcus & Millichap Real Estate Investment Services, which brokered the deal.

The 32,065 square-foot property was developed for Circuit City and has sat empty since the electronics chain declared bankruptcy in January 2009.

The site will now serve as a retail store and office headquarters for Beauty 4 U, a regional beauty supply chain. Circuit City properties join Linens n' Things, Comp USA and a number of big boxes that have been left vacant by either bankruptcy filings or efforts by retailers to cut non-performing stores and consolidate locations.

"Re-tenanting vacated mid and big box spaces is one of the biggest challenges facing shopping center owners," said Peter Snell of Marcus & Millichap in a statement.

"Because of the lack of demand for second-generation 20,000-plus-square-foot space, and the [net operating income] deterioration caused by missing rental income and expense reimbursements, landlords have been eager to subdivide space or sign leases with tenants that pay a fraction of the previous rent," Snell said. "This rent is often at or below debt service making a sale to an end user an attractive option."

Nordstrom Rack coming to Annapolis

Nordstrom announced it plans to open a Nordstrom Rack discount clothing store in Annapolis Harbour Center in spring 2011.

The 32,230-square-foot store will be near the existing full-price Nordstrom in Annapolis Mall. It will be next to the Office Depot at Annapolis Harbour Center, which is owned by Lerner Enterprises of Rockville.

Brandywine building bought for $11 million

The building leased to hhgregg in Brandywine that real estate company Cushman & Wakefield had on the market has been sold to Exeter Property Group.

The 393,440-square-foot industrial building at 14301 Mattawoman Drive sold for $11 million, or $27.96 per square foot, according to information from Cushman & Wakefield's Baltimore office, which represented the seller, Capital Development Co. of Lacey, Wash.

07 July 2010

U.S. Commercial Property Sales Trail Average as Supply Limited

Bloomberg Business Week

U.S. commercial real estate sales in the first half totaled about a quarter of the average of the previous six years as owners kept properties off the market, impeding investors with record funds for purchases.

Buyers and sellers completed $34.2 billion of deals through June, or 26 percent of the average first-half dollar volume since 2004, according to preliminary figures from Real Capital Analytics. The total was about 12 percent of the 2007 peak, when $277.7 billion of properties changed hands in the same period, data from the New York-based real estate research firm show.

Sales climbed 58 percent from last year’s first half, when purchases dried up after the U.S. credit crisis and recession sent values tumbling. A dearth of available properties has sparked demand for the few deals being offered, according to Alan Kava, co-head of Goldman Sachs Group Inc.’s Real Estate Principal Investment Area in New York.

“People are frustrated that not a lot has been trading,” Kava said. “When something does come to market, that lack of supply is causing almost a feeding frenzy. People have real estate funds that are not on an infinite time line -- they need to put capital to work.”

Private equity real estate funds have a record $104 billion of equity available for U.S. deals, research firm Preqin Ltd. reported last month. Blackstone Real Estate Advisors has the most to invest, with Goldman Sachs second, according to Preqin.

Goldman Sachs, Blackstone

More than half of the $8.4 billion available for Goldman Sachs’s property funds is reserved for overseas investments, Kava said. Blackstone has about $12 billion for real estate purchases, said Peter Rose, a spokesman for the New York-based private-equity firm.

In top markets such as New York and Washington, owners who owe more than their properties are worth are finding new sources of equity and lenders are willing to restructure their loans, said Sam Chandan, Real Capital’s chief economist.

In less attractive markets, banks have been extending loans, waiting for higher prices so they don’t record losses, according to Chandan. That has kept troubled assets off the market, he said.

There also is little incentive for owners who bought as the market climbed to sell now. Values in April were down 41 percent from their October 2007 peak, according to the Moody’s/REAL Commercial Property Price Index.

“The problem is more on the supply side than the demand side,” said Dan Fasulo, a Real Capital managing director. “Our investors are regularly complaining there’s not enough quality listings available for purchase.”

Four Markets

Demand for properties is strongest in New York, Boston, Washington and San Francisco, “where domestic and foreign investors alike have sought to acquire high-quality assets,” said Chandan.

Those four markets accounted for 20 percent of first-half sales, compared with about 15 percent last year, according to Real Capital. For office buildings, the largest category, the cities made up almost 35 percent of the volume, up from almost 32 percent in 2009.

Manhattan totaled $2.92 billion of completed sales in the first half, up 70 percent from a year earlier. About $1.42 billion were office deals, up 62 percent.

SL Green Deals

SL Green Realty Corp., New York’s largest office landlord, was both a buyer and seller. The company agreed in May to sell a 45 percent stake in Manhattan’s McGraw-Hill Building at 1221 Avenue of the Americas to Canada Pension Plan Investment Board for $576 million, a deal that values the building at about $500 a square foot, according to Real Capital.

It also purchased 600 Lexington Ave. for $636 a square foot, and agreed to buy 125 Park Ave., a tower across 42nd Street from Grand Central Terminal. That deal was valued at about $507 a square foot, based on data in a company statement.

Those prices reflect a rebound off market lows reached last year, when similar midtown Manhattan properties sold for about $350 a square foot, said Chandan. In 2006 and 2007, readily available loans that were packaged and sold as commercial mortgage-backed securities helped drive prices for top Midtown skyscrapers beyond $1,000 a square foot.

“We basically went around the world talking to capital sources, in Asia, Europe, Middle East, Canada, and domestically, and hearing the same thing,” said Andrew Mathias, SL Green’s president and chief investment officer. “People’s confidence in Manhattan was not at all shaken, because of the extraordinary supply/demand metric that exists here, where you have very, very limited new supply, and the interest rate environment.”

Monsanto Purchase

The company paid $523 million for its two acquisitions, combining both closed and contracted deals. Its sales of partial property interest totaled $663 million.

The biggest completed deal of the year so far was Monsanto Co.’s purchase of Chesterfield Village Research Center, a research and development complex in Chesterfield, Missouri, from Pfizer Inc., according to Real Capital. Monsanto paid $435 million, said Kelli Powers, a spokeswoman for the St. Louis- based company.

Distressed building sales probably will remain scarce, Chandan said. There are $184.6 billion of troubled properties facing foreclosure or bankruptcy, out of a total $239 billion since the credit crisis started in 2008, according to a June 1 Real Capital report.

“There’s tons of liquidity out there,” said Barden Gale, chief executive officer of JER Partners, a McLean, Virginia- based company with about $500 million available for investment. “The trouble is it’s having a problem finding a place to reside.”

Dallas City Councel gets Earful on Planned Apartments for Homeless

The Dallas News

Foes of a plan to move chronically homeless people to an Oak Cliff  apartment building went on the offensive Wednesday, telling the Dallas City Council their neighborhoods are no place for such a project.

Four speakers continued the public outcry against the Dallas Housing Authority's proposal, which includes renting 100 units at its Cliff Manor high-rise to tenants who in many cases have battled addictions and mental illness.

"If this was such a good idea, why wasn't it discussed openly with the 12 surrounding neighborhoods?" asked Daniel Duke, who lives near the building on Fort Worth Avenue.

"We do not want to be the testing ground for the Metro Dallas Homeless Alliance's experiment with supportive housing," he said. "We do not appreciate being the dumping ground for the city of Dallas' homeless problem. Find another direction."

Marty Martin said she is "not averse to services to less fortunate Dallas residents. However, the area near Cliff Manor has more than its share of subsidized housing."

Other speakers wondered about tenants coming and going "after hours," people "hanging around" the apartments, and the impact on nearby schools, property values and the area's redevelopment.

Questions were raised about safety, who would oversee the tenants' medication and where they might go if they "relapse."

"What you're hearing is the beginning of a tidal wave of distress coming from Oak Cliff because the neighborhood was ambushed and left out of the public discourse to determine its future," said council member Dave Neumann, who represents the Cliff Manor area.

MaryAnn Russ, the housing authority's president, could not be reached Wednesday. But in a previous interview, she said the agency will target women and older residents in setting aside more than half of the high-rise's 180 units for "vulnerable" people who have been stabilized.

"We're going to try to do this in a way that doesn't have a negative impact on the neighborhood," she said, noting that "we are an agency that's supposed to do this sort of work. ... The solution to homelessness is housing."

Re-establishing lives

Mike Faenza, president of the homeless alliance, told the council Wednesday that Cliff Manor would be a place for re-establishing lives.

"It's not a shelter. It's not psychiatric care," he said. "It's for people who have a right to live and be our neighbors and have some support services to enable them to be successful."

And there's no evidence, Faenza said, that residents in permanent supportive housing have a negative impact on neighborhoods.

Neumann said the Cliff Manor plan was on "hold" and would be the subject of a public meeting June 21 at Methodist Dallas Medical Center in Oak Cliff.

"It will be packed," he said.

Faenza later said "we'll regroup after that meeting." There is "no firm date from DHA when the move-in will take place," he said.

Russ has said the building has the required zoning and her agency doesn't need permission to proceed. She said staffing would be increased and a variety of support services provided.

But Fort Worth Avenue business leaders argue that the property needs a specific-use permit from the city to offer the proposed services. A decision has not been made.

Other council members weighed in Wednesday, with some calling for better communication, the need for public involvement in homeless-housing decisions and a better overall plan for deciding where permanent supporting housing units should be located.

Occasionally, comments drew challenging outbursts from some of the speakers who had addressed the council.

Council member Delia Jasso, who also represents Oak Cliff, joined the call for better communication and inclusion of neighborhoods in decisions. She said some providers of housing services are failing to provide appropriate services.

"That's why you have people roaming Jefferson Boulevard with $5 in their pocket," she said.

Jerry Allen, who represents northeast Dallas, said the work of housing the homeless "may need a different approach on the front end."

But the challenge is not insurmountable, he said.

The numbers

"We've only got 5,500-plus homeless in the city of Dallas," Allen said. "That sounds like a lot," but given the area's total population "that's not very many homeless."

"We ought to be able to come together and take 5,500 people, find them a proper apartment in Dallas, give them the support they need and move forward with this."

In conclusion, Faenza told the council that his group is trying develop a strategy for providing homes for the formerly homeless without using local tax dollars or tax credits.

"In a partnership with the DHA, I think we've found that solution," he said.

Faenza then asked two residents of The Bridge, the city's homeless assistance center, to stand up. The two women have been selected to move into Cliff Manor Dallas apartment, he said later.

Neumann and some of the project's opponents loudly lashed out, criticizing Faenza for an "ambush.".

06 July 2010

A Real Estate Marketing Revolution

NY Times

2 Sutton Place South in 1989, left, and in 2010. Pamela Nichols, a real estate broker, sold the one-bedroom penthouse after publishing a single four-line advertisement with no photographs. 

When Michele Kleier wanted to sell a nine-room apartment at 1125 Park Avenue in 1977, her brokerage firm paid for a one-and-a-half-line classified newspaper advertisement that offered the rough location (“Park Ave. — Low 90s”) and succinctly read “Superb condition. Sun filled. Excel. maint.” With that ad, she found a buyer willing to pay $145,000, today’s inflationary equivalent of $522,000.

This spring, when Ms. Kleier wanted to sell her 45th apartment in the same building, she invited 75 brokers to the eight-room apartment for an open house and seafood lunch catered by the Atlantic Grill restaurant. She featured the apartment on the HGTV television program “Selling New York” and paid to have the listing prominently displayed on several influential real estate Web sites.

“Now everybody wants to see the pictures,” Ms. Kleier said. “They want to know all about the building. They want to see everything. Believe me, life was a lot simpler then.” A lot cheaper, too: On Thursday, she closed on the apartment for $4 million.

Although New Yorkers have obsessed, haggled and boasted about the city’s real estate since its controversial and possibly apocryphal exchange for a handful of beads four centuries ago, it is fair to say that the promotion of Manhattan apartments has exploded over the past few decades.

Yes, there are more apartments to sell since the conversion of thousands of rental apartments to co-ops and the creation of the condominium market. Still, many brokers remember when apartments were bought and sold without a retinue of real estate stagers, photographers and writers fussing over these homes before their appearances on Web sites and television.

“That big marketing and presentation of properties was not done,” said Hall F. Willkie, president of Brown Harris Stevens. “Back in the mid-’80s, in the residential real estate world, people didn’t know how to spell ‘marketing.’ ”

That is partly because residential real estate used to be a far smaller industry. Barbara Corcoran said that when she started her brokerage firm in 1973, she tracked the city’s apartments on 4-by-5-inch handwritten index cards that her brokers kept next to the coffee cart. They organized these cards by color: studios were yellow, one-bedrooms were pink, two-bedrooms were blue, and three-bedroom or larger apartments were orange.

She added that there were far fewer apartments available through her agency, most of them rentals. As a comparison, 262 apartment sales closed in Manhattan in the past three months.

In those days, sales were designed so that brokers had far less incentive to advertise and promote properties. Sellers gave their apartments to multiple brokerage firms because only the broker who delivered the buyer received a commission.

“When you didn’t have an exclusive, you didn’t want to commit resources to it,” said Kirk Henckels, the director of Stribling Private Brokerage. “There’s no certainty you’re going to make money.”

Of course, Manhattan apartments did not carry the profits they carry today.

When Elise Ward, a broker now with the firm Core, started selling TriBeCa lofts to artists in 1981, so few buildings had been renovated or had soundproofing that she used words like “fireproof” and “steel and concrete structure” to mean quiet. Now, selling these apartments to the present-day TriBeCa clientele, she said, requires “several cocktail parties” and “brochures, you name it.”

Even in the late 1980s, when brokers started accepting co-brokerage agreements and investing in advertising, their efforts were far more modest.

In 1989, Pamela Nichols, a broker who now works for Prudential Douglas Elliman, received an exclusive listing to sell a one-bedroom penthouse at 2 Sutton Place South for $725,000 (the equivalent of $1.275 million today). On Oct. 8, 1989, she published a single four-line advertisement and did not provide prospective buyers with photographs before they visited.

“You literally described the apartment to them on the phone,” she said. “Until you met them at the building, they didn’t see anything.”

Now she is reselling the apartment for $1.65 million. After Ms. Nichols put it on the market in April, she drafted a 10-line advertisement, hired a professional photographer, designed a full-color handout and promoted the apartment in luxury publications like a Hamptons magazine.

Ms. Nichols added that in many ways, selling apartments has not changed.

In 2001, when she renovated her Westhampton beach house, she discovered that a past owner had left her a real estate time capsule beneath the porch: perfectly preserved real estate pages from a Nov. 1, 1925, issue of The New York Herald Tribune. Even then, the newspaper included advertisements for buildings like 31 East 79th Street and 1020 Fifth Avenue that emphasized that the apartments offered “every convenience and service luxury.”

“You’re still using the same words,” she marveled. “It’s just the vehicle.”

05 July 2010

Price Cuts Mount as Condos Linger in Chicago

Chicago Tribune

A trio of condo developments — one small, one medium and one large — announced price cuts recently as the market readjusts in a post-tax credit market and lenders show their nervousness about the summer selling season.

Price cuts in Chicago's condo market are nothing new, particularly downtown. Earlier this year, 565 Quincy, 200 North Dearborn, 222 E. Pearson and Metropolitan Tower all trimmed their advertised prices. Other buildings conducted auctions and then set new prices for the remaining units, based on the auctions.

The size and scope of the decreases, at Parkside of Old Town, The Columbian and Wabansia Row, vary. The constant, though, is lenders' efforts to jump-start stalled sales in new buildings."Every development has a different circumstance, depending on if it has a lender that's coming to reality," said @Properties agent George Schultz. "Every development is financed a different way. But the bottom line is the downward pressure on new construction has come to bear."

Developers and their bankers are hoping that as the economy slowly firms up, buyers will see the one-two combination of reduced prices and historically low mortgage interest rates as proof that it's a better time to own than rent or to move up to a bigger, and now more affordable, home.

"The mentality of the buyer walking through my door now is different than a year ago," said Matt Hollman, sales director at The Columbian. "A year ago they were all talking about how bad the market is. Now a third are talking about the bad market and two-thirds are saying it's the right time to buy at the right price. They're going to take the best deal."

Three sets of recently released data aren't likely to calm the nerves in sales centers. The first, from real estate site Trulia.com, calculated the price-to-rent ratio for major cities by comparing the average list price with the average rent on a two-bedroom apartment, condo and townhome. The Chicago area's price-to-rent ratio was 15, meaning it just eked by as being a city where it's less expensive to own a home than to rent. Had the ratio been 16, it would have been a better city for renters, depending on their situation.

Another piece of data, from a Campbell/Inside Mortgage Finance survey, found that nationally, home shopping activity nosedived in May, following the April 30 expiration of when buyers had to have sales contracts signed to qualify for a tax credit. Meanwhile, the U.S. Census Bureau reported that new home sales in May were down 32.7 percent from April and 18.3 percent lower than in May 2009.

Among the developments with recent price cuts is Parkside of Old Town, where prices were cut by up to 30 percent on 75 condos and up to 40 percent on 27 town homes. The development, on the site of the former Cabrini Green public housing complex, is one of the city's Plan for Transformation communities and offers a mix of market-rate, affordable housing and units set aside for returning Chicago Housing Authority residents. It has been beset by slow sales and financing issues.

In Bucktown, Wabansia Row has dropped the price by up to $100,000 on 11 new town homes. At The Columbian, a 46-story condo tower that overlooks Grant Park and was taken over earlier this year by Fidelity Investments, prices on 20 of the remaining 60 unsold condos have been cut by an average of 25 percent.

Nevertheless, Hollman said it's no fire sale of the project because the goal is to sell 20 units this year. It may not reassess the pricing structure on the other 40 units until next year.

Home shoppers may see more of that strategy, namely slashing prices on just enough units to pacify a project's investors, as the year goes by. The reason behind it is the other reality of Chicago's condo market. Anyone who wants a newly constructed condo next year is going to find them in short supply — and that will likely firm up prices.

Appraisal Research Counselors predicts that it will be at least two years and maybe more than three years before new development deals begin. In fact, the only project scheduled to deliver condos to the market in 2011 is the ultra-high-end Ritz Carlton Residences.

"This is a strategy that developers contemplate," said Gail Lissner, a vice president at Appraisal Research Counselors. "They fully realize that there is going to be no more new product added to the market and next year we'll have fewer units that are in competition."

Adds Schultz of @Properties: "Everyone wants to hold out as long as they can."

02 July 2010

Strategic Default Penalties Threaten Struggling Homeowners

Minnesota Independent

Last week, Fannie Mae, the government-sponsored enterprise that buys up mortgage contracts from loan originators to keep the housing market liquid, announced new penalties for homeowners who strategically default.

“Defaulting borrowers who walk away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure,” the company announced, adding that the policy goes into effect this Thursday, July 1. “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments.”

The new provisions mean that if you strategically default, you likely cannot get a conforming mortgage for seven years. And if you strategically default in some areas, Fannie Mae will come after you in court.

But the Fannie Mae rule — one of several new provisions aimed at penalizing strategic defaulters — raises the possibility that the government and loan servicers might imminently begin targeting an economically vulnerable population, one characterized by housing insecurity and joblessness. It brings up the immediate concern — for both defaulting homeowners and the agencies trying to keep them paying — of how to distinguish “strategic” defaulters from those defaulting because they have no choice. And the data shows that those considering default are by most metrics in financial straits, whether solvent or not.

Consider, for instance, the situation of Charlene Mueller-Holden of Newark, Del. Mueller-Holden is a wife and the mother of two young boys, ages three and six. She lost her $60,000-a-year job as an instructional designer in January 2008. Two and a half years later she has not found a job, despite persistent searching.

“My family is slowly starting to lose the things that everyone takes for granted — a roof over our head and food on the table,” she says. “I was living the American dream. I did everything that everyone tells you to do. I had a great 401k, life insurance and five months’ [worth of] bills sitting in the bank in case of an emergency,” she notes.

The family lives in a modest three-bedroom. After Mueller-Holden exhausted her $1,200-a-month unemployment benefits and the family traded in for a cheaper car, exhausted its savings and tapped its retirement accounts, it has still had trouble keeping up on the mortgage. Her husband brings home around $1,800 a month — the family’s only source of income now. The $1,046.73 monthly mortgage payment started eating up 60 percent of the family’s income. Given food, gas and utilities — plus the cost of keeping the kids clothed and unexpected car repairs — the Mueller-Holdens became hard-up. They refinanced their mortgage under the Home Affordable Modification Plan, seeking to bring the payment down to a sustainable level. Their new payment? $1008.77 — 56 percent of their monthly income. And the balance on the mortgage increased.

“This year my husband’s overtime has been cut out and his hourly salary has been cut and now we are just grateful he has a job,” Mueller-Holden says. “We are beyond struggling. Each month I have to go through our bills to see which one might be able to wait, because we have to buy bread and peanut butter so the kids have something to eat. No more vegetables, no more fresh fruit. No new or used clothes for them this year.”

According to Mueller-Holden, it is not a question of whether the family will default on the mortgage if she does not find work, and fast. It is a question of when and how. The family’s credit score is already seriously tarnished. “I used to have an 820,” Mueller-Holden, says, referring to her FICO score. Imminent default and the six- or twelve-month period before actual foreclosure would provide some relief. No other federal program or bank refinancing initiative will. Indeed, the government itself is on the verge of penalizing strategic defaulters. The FHA Reform Act passed by the House but not yet taken up by the Senate excludes strategic defaulters from receiving Federal Housing Administration-backed loans — a provision included with bipartisan backing, including from most Republicans and Rep. Barney Frank (D-Mass.), the head of the House Financial Services Committee.

The question confronting Mueller-Holdens and the millions of other homeowners facing default is this: How will Fannie Mae and other entities going after defaulters decide what “strategic” default really is? Will they qualify? Will the government or their bank come after them, even when they are on the verge of poverty?

Certainly, over the course of the recession, strategic default has emerged as a phenomenon, with a few particularly famous cases of families pulling the plug on the mortgage and heading to Disney World. The most cited study of strategic default, from credit firm Experian and consulting firm Oliver Wyman, found that as many as 588,000 families strategically defaulted nationwide in 2008 — mostly prime and subprime borrowers in the “sand states” worst hit by declines in home values. Experian and Oliver Wyman deemed people defaulters strategic if they went from having “perfect payment histories” to stopping paying the mortgage entirely, intentionally and suddenly. (All in all, more than three million homeowners received foreclosure filings from banks that year, and banks repossessed 850,000 houses.) But a more recent study by the Federal Reserve showed that four in five strategic defaulters walked away only when deeply underwater, and generally after an “income shock,” such as job loss.

Fannie Mae did not respond to repeated requests for clarification about how hard-up homeowners will need to be before they can default without the new penalties. Thus far, none of the housing experts reached by TWI knew the definition either. The FHA Reform Act that might institute federal penalties for some defaulters instructs the Department of Housing and Urban Development to figure it out. But Mike Konczal of the Roosevelt Institute points to the strictures used by one subprime lender in the 1990s: post-mortgage income of less than $400 a month per family member.

By that standard, Fannie Mae would let homeowners like the Mueller-Holdens off of the hook. They live on just $790 a month after taxes and mortgage payments, but before utilities and all other expenses. (Additionally, they attempted to ameliorate their situation through a HAMP refinancing that ultimately proved useless, as Fannie requests hard-hit borrowers do.) But they exemplify the 5.5 million Americans currently in the foreclosure pipeline. A majority have suffered an “income shock,” like job loss. For many, their mortgage is eating up more than half of their post-tax income.

And now, they have Fannie to worry about.