Sunday, May 31, 2009

Condo market fights to recover as prices remain down


Paul Herstein is in a good spot. The Seattle oncologist has shopped condominiums in eight cities — including San Diego, Miami and Chicago— for the past year. He wants a top floor on a building with a water view. He can pay cash. And he's in no rush to buy.

"Time is probably on my side," he says. "Sellers will have to become more realistic over the next year or so."

The most recent housing figures indicate Herstein may be right, at least in some markets and in some price ranges.

While evidence mounts that the single-family-home market is stabilizing, the condominium market remains "substantially weaker," says Lawrence Yun, chief economist for the National Association of Realtors.

In April, resale condo and co-op sales nationwide were down 9.4% from a year ago vs. a 2.8% drop for single-family homes, the association said Wednesday. Median prices fared worse, too, with condo prices down 18.5% year-over-year vs. 15% for single-family homes.

More distress is likely for the condo market, says Bradley Hunter, chief economist for market researcher Metrostudy. He says some markets could see condo prices drop 60% from their peak in 2005 or 2006. While some single-family-home markets will hit bottom next year, Hunter doesn't see that for the condo market until 2011. That's because it typically takes years to construct condo projects so new units have continued to come on line despite the real estate downturn.

"It is absolutely a buyer's market," says Paul Berg, 73, a forensic psychologist who, with his wife, recently paid $1.4 million for a new, 2,000-square-foot condo in downtown San Diego. A year ago, the price was twice as high, Berg says.

For those on the selling side of the market, the downturn has been intense.

•Prices for condos in South Florida have plunged 40% to 50%, or more in some buildings, from original prices in 2004, 2005 and 2006, Metrostudy says. Recovery is far off. In Miami-Dade County, which includes downtown Miami, condo inventories are at a 41.5-month supply at the current sales rate, Hunter says. "That's a mammoth number."

•In Minneapolis-St. Paul, the average sales price per square foot for a condo is about 16% less than it was three years ago, says the Minneapolis Area Association of Realtors. Recent sales activity "has come to a grinding halt," says downtown condo expert Kristen DuLac of Edina Realty.

•In Austin, buyers at a recent auction got condos for 15% to 20% less than similar units that sold in late 2008, says Rhett Winchell, president of California-based Kennedy Wilson Auction Group. His company has done almost three dozen condo auctions for builders in the last two years.

Additional challenges

The same factors dogging single-family-home sales have hurt the condo market, including rising unemployment, stock portfolio losses and tightening credit. The condo market faces additional challenges. For one, single-family-home prices in some markets have dropped so much they're attracting what would have been condo buyers, Winchell says. Condo loans are also tougher to get now than single-family-home loans.

"Lenders have greatly tightened restrictions because they see condo properties as a little more risky," Yun says, in part because occupancy rates in buildings can vary a lot.

To woo buyers, condo developers have been "aggressive with incentives," says Wendy Leung, condo expert at John L. Scott Real Estate in Seattle. A new condo development there, Gallery, is offering buyers incentives such as a credit of 3% of the purchase price toward closing costs, or no homeowner dues until 2011.

Developers are also relying more on rentals. In Las Vegas, the number of rentals in some luxury high-rise condo buildings on or near the Strip has doubled in recent years, says Bruce Hiatt, owner of Luxury Realty Group. "Owners or developers are buying time," he says.

In San Diego, Mark Mills, Realtor and condo expert for Re/Max Real Estate Consultants, estimates that 50% of the units in his San Diego condo building are owner occupied, down from 75% in 2004.

Despite the prospect of more distress ahead for the condo market, some markets show signs of improvement, Realtors say.

In April, Seattle had 13% fewer condos for sale than the same month a year earlier. Pending sales were up 1% year over year, Leung says.

Las Vegas' Hiatt says prices have dropped so much that multiple offers are now common. He says he's lost seven deals in recent weeks to multiple offers. "People didn't expect this to happen until next year," he says. "We are firming in price as well as demand."

In San Diego County, resale condo prices in April were down 55% from their peak three years earlier, says market researcher MDA DataQuick.

That big plunge — and recent rise in sales activity — is encouraging, says San Diego condo developer Nat Bosa of Bosa Development. In July, it'll reopen sales of the Bayside at Embarcadero condo project after a year of inactivity. "There are many more buyers out there now," Bosa says.

Some buyers aren't waiting for anyone to call an official bottom. Marianne Rose and her husband bought a Seattle condo in April. They paid $213,500 for a 568-square-foot unit near downtown. A year ago, similar units were selling for at least $240,000, says Rose, a therapist.

The condo gives the family, which includes four daughters ages 11, 15, 18 and 21, an alternative to commuting from their home on nearby Vashon Island. Rose's husband, who works in network communications, works a block from the condo and one daughter attends a nearby high school. The couple expect to own the condo for decades.

"We're probably crazy, taking a risk in this economy," she says. "But you only know where the bottom is when you look back."

Saturday, May 30, 2009

Loan defaults, vacancy rates rising for commercial market


While everybody's talking about the battered housing market, there's a rumble growing about the other shoe that's about to fall.

Foreclosure problems that destroyed residential real estate in 2008 are set to hit the commercial real estate market even harder this year, analysts are warning.

Commercial property values have fallen 30 percent to 40 percent from their peak a couple of years ago and the market is fraught with peril. Loan defaults have soared. Financing has dried up. Rising vacancy rates combined with declining rents are weakening cash flow.

"For Lease" signs hang at almost every shopping center and office park. Construction has been delayed or halted on some of the newer developments. Shopping centers that are overpriced and lack an anchor tenant to draw customers are the first to die when times get tough. National retailers are going out of business and smaller operators are chasing cheaper rent at other centers.

Commercial real estate loans will likely be the next big problem for banks, which hold about half of the estimated $3.5 trillion in commercial mortgage-backed securities, or debt backed by commercial property as collateral.

Delinquency rates on commercial loans jumped to 4.4 percent in the first quarter from 1.6 percent in the previous quarter, analysts at Keefe Bruyette & Woods, a New York-based investment bank, reported.

Commercial loans are typically made on a shorter term and are rolled over at the end of the term into a new loan, said Michael Campbell, managing partner of Colliers International, a commercial real estate consulting company, in Las Vegas.

With financial institutions either unwilling or unable to roll those loans over and hesitant to rewrite them at lower rates, we will probably see a wave of commercial foreclosures starting this year. This will put even more commercial space on an already saturated market. Investors remain scarce. Those who are not flush with cash are finding it difficult to get a loan, and those with cash are waiting for the market to hit bottom.

Retail delinquencies are rising at 20 to 30 basis points per month, according to the first-quarter 2009 Commercial Real Estate Outlook from Deutsche Bank. At 1.81 percent, total retail delinquency has surpassed its previous peak of 1.63 percent set in September 2002.

Deutsche Bank estimated that $15 billion in commercial mortgage-backed securities are maturing in 2009 and $30 billion are maturing in 2010. Amounts maturing through 2012 are moderate, but a high concentration of risky five-year, interest-only loans from 2005 to 2007 are on the way.

Prospects for retail are "particularly worrisome" given the historically large declines in consumer spending and increases in retailer bankruptcies, the report said. One thing for sure, is this proves how truly interrelated all the markets are now, from the smallest town to the entire world.

All the deals that were purchased in 2006 and 2007 all had leverage with mezzanine loans, more leverage than we used to have. Commercial value is way down, in some cases to where there's little or no equity, so you can't refinance out of debt, hence bankruptcy.

There's a lot of "vulture money" waiting for property to lose value as soon as the bank files a notice of default.

Malls are getting killed by empty anchors, Mervyns and places like that. The trouble is nobody is offering financing for somebody else to come in, so you've just got vacant places. The other thing is the smaller tenant is being killed because anchors aren't pulling in traffic.

Banks will get stuck with a lot of commercial property and it may take some of them down. Investors won't be able to buy the property unless they have cash.

There aren't very many banks that will make commercial loans during these economic times. If someone forecloses on a shopping center, maybe, but if it's vacant land, I don't think the banks will talk to you.

Friday, May 29, 2009

“Ferris Bueller” Glass Home For Sale — $2.3M


If you’re a fan of the movie “Ferris Bueller’s Day Off,” and you have $2.3 million stashed away, you can now own a piece of cinematic real estate history. The glass-walled tree house made famous in John Hughes’ cult classic is for sale. For those who somehow missed the 80’s and haven’t seen the movie, Matthew Broderick plays Ferris Bueller, a mischievous teenager who coerces his friend, Cameron Fry, and girlfriend into skipping school for the day to party across Chicago. All is well until Fry accidentally sends his father’s vintage red Ferrari through the glass pavilion of his house and into a ravine while trying to wind back kilometers on the vehicle.

The home, located at 370 Beech St, Highland Park, IL 60035, boasts incredible views of the surrounding woods, four bedrooms, the famous pavilion, and is located in the exclusive Highland Park area of Illinois. The 5,300 square feet property is comprised of two buildings made of steel and glass construction, cantilevered over a ravine. They were designed by noted 20th Century architects A. James Speyer and David Haid.

Bueller continued

Thursday, May 28, 2009

Wednesday, May 27, 2009

Tuesday, May 26, 2009

Things are still getting worse, but at a slower rate.


LoL! In one of the least enlightening stories you'll ever see, The Wall Street Journal's normally insightful "Ahead of the Tape" column reports that "A full recovery for housing, and maybe the broader economy, depends on a third step: Prices must stop falling. Lol again!

That's right: In order for the real estate market to be good again, real estate prices have to stop crashing. In a related story, The Washington Nationals will need to start winning baseball games if they are to have a shot at playing in the post-season.