Daily Archives: October 22, 2012

ULI Special Report: Emerging Trends Respondents Optimistic About Recovery

By Suzann D. Silverman, Editorial Director – Commercial Property Executive Magazine

Optimism permeated the Emerging Trends in Real Estate results this year, with respondents finding a marked improvement over last year. Recovery, though, remains slow, noted Jonathan Miller, partner & co-owner of Miller Ryan L.L.C. and the longtime author of the report, a venture between PricewaterhouseCoopers and the Urban Land Institute. Miller and fellow researchers presented the results during a media briefing yesterday during the ULI Fall Meeting.

Jonathan Miller

“Recovery is definitely happening, and we’re profiting from it,” he declared, reflecting the sentiments of the more than 900 real estate investors, fund managers, developers, owners, lenders, brokers, advisors and consultants that participated in this year’s survey. And it is now occurring across the board: While multi-family has been the favored sector for investment for the past three years, he noted, the other sectors are now all attracting attention, as well. That said, in-depth interviews with 300 of the respondents revealed lingering uncertainty beneath the surface.

Among markets, the historical top cities remain in favor, although there was some surprising movement in how they ranked , based on investment, development and homebuilding prospects, according to Chuck DiRocco, director & head of real estate research at PwC, who is a co-author & production manager of the report. The biggest surprise was Washington, D.C.’s drop in favor, with the nation’s capital falling from the top spot down to No. 8 after three years leading the ranking. That shift in favor was revealed in a mid-year evaluation and has lingered into the more formal annual survey.

Last year’s second-place city, Austin, also dropped down, though it retained a respectable fourth-place listing, while formerly third-ranked San Francisco, continuing its return to strength, moved up to lead the ranking. Other top 10 cities included New York City, up to second place from fourth last year; San Jose, making waves with its move from seventh to third place; Houston, up from eighth to fifth; Boston, down only slightly, from fifth place to sixth; Seattle, now seventh (down from sixth last year); with Dallas-Fort Worth and Orange County, Calif., rounding out the list. Last year’s ninth and tenth place cities, Los Angeles and San Diego, dropped down to 16th and 15th place, respectively.

Chuck DiRocco

San Francisco made a particularly triumphant return because it won the “triple crown” of first place in investment, development and homebuilding, DiRocco noted. But performance among major cities across the country was promising, with the average market score at its highest since the early 2000s and an increase in the number of cities getting a green light for “generally good” performance while five fewer markets got a red light for “generally poor” performance than last year. Even the long-suffering Midwest is not as “red” as it once was, he said.

Another surprise was the rise in interest in secondary markets. “The major gateways have gotten too pricey for a lot of people,” Miller observed, as cap rates have continued to plunge. Investors in secondary markets, however, need to link up with a local operator to succeed, he warned, as they are in the best position to make money. “It’s a get-rich-slow (scenario), but you can make money,” he added.

Financiers also remain on the optimistic side, although they are not providing capital to everyone, according to Stephen Blank, senior fellow for finance at ULI and principal researcher & advisor for Emerging Trends. Equity providers across the board will capitalize the “usual suspects,” the well-heeled investors with solid reputations, but with others, “it’s a search for yield,” he said. The most confident investors include opportunity funds, REITs and foreign investors, while pension funds are taking a more cautious stance.

Stephen Blank

On the debt side, too, the most solid investors and properties will be able to obtain what they need, but for less-advantaged properties, financiers have no problem continuing to extend and pretend. They expressed confidence the CMBS market is returning sufficiently to cover the looming debt maturities.

Researchers’ top tips:

  • Concentrate acquisitions in budding infill locations.
  • Construct green office in 24-hour markets.
  • Major hub distribution centers near ports and airports offer opportunity.
  • Apartment development is leveling off.
  • Single-family housing funds are worth pursuing, but with caution and only if they involve local operators.
  • Pursue the big three “re’s”: Repurpose obsolete properties, refinance and renovate. Recapitalize well-leased assets and lock in low interest rates while you can.
  • Hold core properties in 24-hour cities.
  • Buy or hold public REITs and non-performing loans.

Economy Watch: Unemployment Claims Bounce Back Upward; CEOs, JP Morgan Fiscal-Cliff Wary

By Dees Stribling, Contributing Editor – Commercial Property Executive Magazine

Proving itself to be the volatile indicator that it’s frequently asserted to be, the number of initial unemployment claims spiked upward for the week ending October 13 to 388,000, according to the U.S. Department of Labor on Thursday. The previous week’s claims were also revised upward a bit to 342,000. The four-week moving average, which isn’t so volatile, was up only 750 to 365,500.

Also on Thursday, the Conference Board reported that its Leading Economic Index for the U.S. increased 0.6 percent in September to 95.9 (2004 = 100). That followed a 0.4 percent decline in August, and a 0.4 percent increase in July, so “bouncing around” might be a fair characterization of the index in mid-2012.

“The U.S. LEI increased in September, more than offsetting the decline in August,” Ataman Ozyildirim, economist at the Conference Board, said in a statement. “The LEI has been signaling an economy that is fluctuating around a slow-growth trend. The six-month growth rate has slowed substantially, but still remains in growth territory due to positive contributions from the housing and financial components.”

CEOs Worry About Fiscal Cliff

No U.S. politician is paying much attention to the fiscal cliff at the moment, considering that the election is dead ahead, so the nation’s moneymen decided to nag the politicos about the situation on Thursday. The Financial Services Forum, which represents the C-suites of the largest banks and other financial service firms in the country, sent an open letter to President Obama and Congress.

The gist of the letter was a warning that the U.S. would see another downgrade to its credit rating if no deal was reached to avert the cliff. Also, it warned of another recession. “The consequences for inaction — for stability in global financial markets — for economic growth, for millions of Americans still without work, and for the financial circumstances of American businesses and households — would be very grave,” the letter stated.

The money panjandrums also asserted that merely avoiding the cliff isn’t enough. They call called for longer-term fixes to the nation’s fiscal problems. Their letter did not, however, articulate any specific positions on exactly what kind of action the government should take, either in the short- or longer term.

JP Morgan Says Watch for That Cliff

JP Morgan, for its part, said in a research note that it’s now estimating that the cliff–if unresolved–will pare 1 percent off GDP growth in 2013. That’s up from a previous estimate of a 0.5 percent haircut for the nation’s GDP. The banking giant is also predicting GDP growth in the first quarter of 2013 at 1 percent, and 1.5 percent during the second quarter.

Wall Street had a down day on Thursday, with the Nasdaq taking more of a beating perhaps because of irregularities in reporting Google’s underwhelming results. The Dow Jones Industrial Average lost 8.06 points, or only 0.06 percent, while the S&P 500 lost 0.24 percent. The Nasdaq, however, was down a full 1.01 percent.

REM Special Report: Leaders Focus on Technology, Training and Trends

By Paul Rosta, Senior Editor – Commercial Property Executive Magazine 

Technology, training, and trends in real estate property categories topped the agenda during the opening session of the Institute of Real Estate Management’s opening general session in New Orleans on Thursday.

Senior executives commented on the trends that will be shaping the major property categories in a panel discussion moderated by Jim Evans, IREM’s 2012 president and president of Bruce G. Pollack & Associates Inc. of Grand Blanc, Mich.

“Industrial is going to be very positive in the next few years,” said Karen Whitt, Colliers International’s president & COO of U.S. real estate management services.

Some 40 percent of the nation’s distribution space is becoming obsolete as retailers require 30-foot and 36-foot clear-space heights. She also cited e-commerce and the Panama Canal expansion as among the forces that are changing client needs.

Whitt also noted that real estate management is affected from a declining footprint of office space, from 300 square feet per user to 200 square feet on average. And as the popularity of Apple stores shows, retail “has become about the experience of shopping, not just buying.”

On the multi-family front, Fred Tuomi, president of property management for Equity Residential, cited the much-discussed demographic and economic factors that are propelling the apartment business: the entry of the Millennial generation into the work force, the postponement of home-buying and marriage. One striking statistic from Equity Residential’s portfolio: 43 percent of the REITs units are rented by a single occupant, and of those residents, 51 percent are women.

Both executives weighed in on the strategic issues that concern owners and managers of all property categories. “Clients want knowledge; what they get is data,” Whitt said. A 50-page report is usually far less valuable to clients than insight into the global, local and national trends that will specifically affect their investment and development decisions, she asserted.

On a related note, Tuomi challenged the effectiveness of the use of technology today. Real estate managers and others have plenty of sophisticated tools at their disposal. “What I’m not seeing our industry doing right now is leveraging that technology to reduce your cost of operations,” he said.

Addressing the anticipated nationwide shortage of property managers, the executives brought up some similar qualities that they look for in recruitment. New professionals can be trained in finance and operations, Whitt observed; however, she added, “You cannot train people to have that energy level, that passion, that enthusiasm.”  For his part, Tuomi said, “I look for the sparkle in their eyes” and the ability to connect with people. “You can hire for attitude, then train for skills. It’s very important to have that welcoming personality.”

Asked about his approach to hiring seasoned managers, as opposed to less experienced recruits, Tuomi explained, “We don’t have that many seasoned professionals—we grow our own.” A pitfall of hiring veterans is that they can be what he called “overly seasoned, meaning that they’re baked and they think they know it all,” he said.

The most valuable quality a veteran manager can bring to the job is a never-ending thirst for knowledge, Tuomi commented. “What I look for is not, ‘I can bring to you my world of expertise,’ but “I can bring to you my curiosity.”

Economy Watch: Existing Home Sales Edge Down

By Dees Stribling, Contributing Editor – MultiHousingNews.com

Existing home sales dropped 1.7 percent in September to an annualized rate of 4.75 million units, including both single-family and multifamily, according to the National Association on Friday, with August’s rate revised upward to 4.83 million. The September 2012 rate was 11 percent higher than during September 2011, however.

The Realtors also noted that total housing inventory at the end September fell 3.3 percent to 2.32 million existing homes available for sale, which represents a 5.9-month supply at the current sales pace. That’s down from a six-month supply in August. Listed inventory is 20 percent below a year ago.

The national median existing-home price for all housing types was $183,900 in September, up 11.3 percent from a year ago, the NAR said. Distressed homes accounted for 24 percent of September sales (with 13 percent foreclosures and 11 percent short sales), up from 22 percent in August. Distressed inventory accounted for 30 percent of housing sales in September 2011.

Most states see unemployment drop

Unemployment dropped in September compared with August in 41 states and the District of Columbia, while six states posted rate increases, and three had no change, the U.S. Bureau of Labor Statistics reported on Friday. Compared with September 2011, 44 states and D.C. saw unemployment rate decreases from a year earlier, while six experienced increases.

Nevada retains its unwanted and long-standing title as the state with the highest unemployment rate, at 11.8 percent in September 2012. Double-digit unemployment rates are still vexing only three states, namely Nevada, Rhode Island, and California (10.5 percent and 10.2 percent, respectively, for the latter two). As recently as early 2010, 18 states and D.C. suffered from double-digit unemployment rates.

North Dakota still enjoys the nation’s lowest jobless rate, 3 percent. All together, the BLS reports that 21 states have jobless rates significantly lower than the U.S. figure of 7.8 percent, while 14 states had measurably higher rates, and 15 states and DC had rates not much different from that of the nation.

Driving on U.S. roads modestly up

The U.S. Department of Transportation reported on Sunday that travel on all U.S. roads and streets was up by 1.2 percent (3 billion vehicle miles) for August 2012 compared with the same month in 2011. Total travel for the month is estimated to be 262.4 billion vehicle miles. That’s an indicator of a moderate expansion in economic activity, and came despite the fact that gas averaged about $3.78 per gallon during the month, compared with about $3.70 in August 2011.

Wall Street took a dive on Friday, with the Dow Jones Industrial Average dropping 205.43 points, or 1.52 percent. The S&P 500 lost 1.66 percent and the Nasdaq was down 2.19 percent. Friday happened to be the 25th anniversary of Black Monday in 1987 (the Dow Jones was down 22.6 percent that day), but it was probably coincidence that on the same day in 2012, a string of poor reports, especially in the tech sector, helped drive markets down in the worst single-day performance in about four months.

Neighbors wait, worry as banks take longer to sell foreclosed homes

By Mary Shanklin, Orlando Sentinel – Florida Trend Magazine

A neighborhood’s chances of recovering quickly from the hung-over U.S. housing market depend not only on how many foreclosed homes it has but also, it seems, on which banks own the properties.

Bank of America, for instance, takes almost two months longer on average to sell a foreclosed property than EverBank Financial does, according to new, nationwide data from the research company RealtyTrac Inc. And BofA, the lending giant that inherited many of its troubled mortgages when it bought Countrywide Financial in 2008, has been taking longer this year to sell its foreclosure properties than it took last year.

A lot of things can happen when long-abandoned houses sit on the market for additional months. By slowly releasing their foreclosed properties, for instance, some lenders have benefited from rising home prices this year; in the core Orlando market, prices are up 16 percent since the start of 2012.

But those long-held properties also rack up more unpaid association fees, overdue property taxes, repair costs, neighborhood complaints and even code-enforcement fines as the months wear on.

At Cranes Roost Villas in Altamonte Springs, the first thing residents and visitors see as they enter the gated community is a leaky corner unit draped in blue tarp so long that the plastic sheeting has started to disintegrate.

Today’s Business: Check out the latest pictures from the financial world

“Bank of America put a bright-blue tarp on top of roof rather than repair it,” said longtime resident Richard Campanaro. “Half of it has blown off. It would make a wonderful haunted house if you wanted to do something for Halloween. It’s terrible — I wouldn’t even want to enter the property.”

Last year, it took Bank of America an average of 5.3 months to sell a foreclosure, according to RealtyTrac. So far this year, it has averaged 6.7 months. Deutsche Bank, Wells Fargo & Co., Ocwen Financial andCitigroup have also fallen further behind in selling their foreclosed properties. Through September, all of them were taking at least 20 percent longer than they took in 2011, based on RealtyTrac’s nationwide data.

Smaller banks appear to be more nimble when dealing with foreclosures, perhaps because they aren’t faced with nearly the same volume of properties, said Daren Blomquist, RealtyTrac vice president. And mortgage servicers with portfolios of higher-end properties are better able to sell those homes than are companies saddled with less-desirable houses.

But the longer a bank-owned house sits idle during the foreclosure process, the deeper it falls into disrepair.

“Banks are not typically too willing to repair these homes, particularly if there are property flippers ready, willing and able to buy the more scratch-and-dent variety of homes and fix them up,” Blomquist said. According to RealtyTrac, the number of flippers is up 25 percent nationally and 34 percent in the Orlando area compared with a year ago.

Two nonprofit housing organizations recently filed complaints with the U.S. Department of Housing and Urban Development, accusing Bank of America of failing to maintain foreclosed houses in 10 cities’ minority communities, including Orlando’s. The groups included photos of houses with unlocked doors, mold, interior walls spray-painted with graffiti, and piles of trash heaped outside.

The Charlotte, N.C.-based lending giant denied any wrongdoing and said it stands behind its property-maintenance-and-marketing practices. “Bank of America is committed to stabilizing and revitalizing communities that have been impacted by the economic downturn, foreclosures and property abandonment,” spokeswoman Jumana Bauwens said.

Orlando Code Enforcement Officer Mike Rhodes said he sees repeated problems in low-income areas and elsewhere with houses owned by various lenders. A review of code violations within the city found that Wells Fargo had the greatest number of code infractions among the nation’s top five lenders.

A year ago, for instance, Orlando cited Wells Fargo for failing to secure a swimming pool at a foreclosed house in downtown Orlando. At the same house last month, Orlando cited Wells Fargo for overgrown landscaping and debris in the backyard. And just two weeks ago, Wells Fargo got a notice for broken front windows and black water in the pool.

Repeated safety violations at the same bank-owned houses have become such a recurrent theme for local governments that some of them, such as the city of Tampa, have considered establishing foreclosure registries, which require lenders pay $125 to register a property within 10 days of filing a foreclosure notice.

In registering a property, banks have to provide contact information for a property manager in case the house falls into disrepair and the local government — or the neighborhood’s community association — wants some action taken.

Rhodes said there has been some discussion about creating a registry in Orlando, but getting the properties “signed up” does not ensure the houses will be maintained. He said his staff already knows whom to call at most of the mortgage companies with foreclosures in the city, so he questions whether such a registration is necessary.

“You call a company in Texas that manages the assets of Wells Fargo, and they contact someone here,” Rhodes said. Calls, though, don’t always resolve the problems.

“We’ve got a situation in Parramore, the property is owned by Wells Fargo,” Rhodes said. “There are squatters, drugs being dealt and you name it.”

A spokeswoman for Wells Fargo said the company inspects foreclosures monthly, registers foreclosures as required, maintains abandoned houses and secures them.

“We occasionally receive code violations or concerns regarding the condition and maintenance of homes in our servicing portfolio that are not foreclosed,” the bank said in a written statement. “If the property in our servicing portfolio is delinquent and vacant, but has not yet gone to foreclosure sale, we will maintain and secure it.”

The time JP Morgan Chase takes to sell its foreclosed properties has held steady from last year to this year. Lisa Shepherd, vice president of Chase’s REO and Preservation unit, said the company has not changed its sales strategies in the past year but has been able to move more properties as it winnows its inventory.

“When there is less distress inventory in the market, we find there are more interested buyers,” Shepherd said. She added that Chase works with local real-estate agents and makes necessary repairs, taking into consideration the neighborhood overall.

Prospects for banks generally to work through their foreclosure inventory in Florida do not look promising. RealtyTrac projects that foreclosure filings in the state will continue to increase for the next six to 12 months, and that will likely increase the average time to sell for many of these lenders during the next year.

“However, because buyers and investors finally appear to be flocking to the market, pulled by low prices and interest rates, I don’t expect the influx in bank-owned inventory to cause a major dip in average prices,” said Blomquist, the RealtyTrac vice president.

Back in Altamonte Springs, Campanaro said it’s sad that he has grown accustomed to the shredded blue tarp that creates an eyesore at the entrance to his neighborhood.

What’s even sadder, he said, is what that does to the property values for residents trying to rebuild some equity in their homes.

mshanklin@tribune.com for 407-420-5538

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