California’s economy has made significant strides in recent years with most regions of the state recovering all of the jobs they lost during the Great Recession.
That assessment is included in a new report from the Los Angeles County Economic Development Corp. The agency’s Economic Forecast and Industry Outlook for 2015-2016 will be unveiled today at the Omni Los Angeles Hotel.
The study notes that, with an estimated gross state product of $2.3 trillion in 2014, the Golden State had the eighth largest economy in the world, ranking just behind France and Brazil.
California is expected to add 386,400 jobs next year with the biggest gains coming in administrative and support services, professional, scientific and technical services, and leisure and hospitality.
“We have a high-flying economy at the state level that is being pulled along, in part, by the Silicon Valley and the Bay Area,” said Robert Kleinhenz, the agency’s chief economist. “But it’s much more diverse than that. In Southern California we find biotech, pharmaceuticals and entertainment as well as Silicon Beach. And then we have a significant agricultural sector that feeds not only the state, but is an essential link to the food chain that supplies the nation and the rest of the world.”
All told, California accounts for more than 13 percent of the nation’s gross domestic product — the biggest single contribution of any state. And California firms have attracted venture capital funding that has equaled or surpassed the amount received by companies in all of the other 49 states combined.
But there are challenges.
The unfunded liability of state retiree health care costs remains a concern, critical infrastructure projects continue to be deferred and there is a severe shortage of affordable housing — particularly in metro areas that are seeing the fastest rates of job growth.
“The cost of housing has historically been high in California — roughly double the nation’s median price,” Kleinhenz said. “We’ll be hearing more about inadequate housing, and affordability will fall.”
California’s high housing costs also have made it difficult for local companies to recruit out-of-state workers.
Locally, Los Angeles County has seen significant growth in recent years with nearly 100,000 jobs added last year and more than 100,000 expected this year.
The county’s 2.5 percent average annual increase during the first part of this year consistently outpaced the nation in job growth. That drove the unemployment rate down to 7.1 percent in July, a full percentage point below July 2014 and the lowest since mid-2008, the report said.
More recent figures from the state Employment Development Department show the county’s jobless rate fell to 6.9 percent in August.
The county is expected to add 77,700 jobs next year, led by employment increases in health care and social assistance (13,600 jobs), administrative and support services (11,500), and professional, scientific and technical services (11,200).
Southern California’s grocery industry also will add to the mix with two supermarket chains poised to move into the region.
Grocery Outlet Bargain Market announced earlier this month that it plans to open 14 stores in the greater Los Angeles area beginning in December. And the company plans to expand beyond that.
“Our plan is to open 20 to 30 stores each year in Southern California over the next several years,” said Melissa Porter, the company’s vice president of marketing.
Aldi, a German discount grocer with nearly 1,400 U.S. stores, plans to open 45 locations in Southern California, with the first stores opening in March. And Lidl, another German discount grocer that operates about 11,000 stores in Europe, also plans to enter the U.S. with a barrage of 2,000 stores by 2020.
Los Angeles County’s housing market also has continued to improve with the median sales price hitting $492,000 in July, a 4.7 percent increase from a year earlier. Home sales also rose 9.6 percent through the first seven months of 2015, the report said.
The Inland Empire has also experienced strong employment growth. The two-county region outpaced the state and the rest of the nation in 2014 for the third year in a row.
The region added 50,963 jobs when comparing the first eight months of this year with the first eight months of last year, according to data from the California Economic Development Department.
“The economy here is really doing incredibly well,” said John Husing, chief economist for the Inland Empire Economic Partnership business advocacy group. “This will be the third year in a row that we’ve added over 50,000 jobs. That’s never happened before, so we’ve had three years over 50,000. The economy is taking off.”
The growth has been especially welcome for a region that shouldered the brunt of Southern California’s housing meltdown during the Great Recession.
The Inland Empire is expected to add 44,100 jobs next year with transportation and utilities leading the way with 6,800 new jobs.
“On the positive note in the Inland Empire, the higher-paying jobs that the Inland Empire is creating are in professional and business services and that trend continues from a year ago,” said economist Manfred Keil, a fellow at the Lowe Institute and former chair of the Robert Day School of Economics and Finance at Claremont McKenna College.
The region’s housing market is also looking up.
“Housing construction is on the uptick,” said Jordan Levine, director of economic research for the Los Angeles-based Beacon Economics. “That’s why I’m optimistic. The value of existing homes is growing, which is providing existing homeowners more equity upon which they can trade up to a new, bigger, more expensive home, and builders are constructing new units which will add to supply and hopefully mitigate some of the price growth, keeping prices more affordable.”
San Bernardino County’s median home price has trended upward, reaching $267,000 in July 2015, roughly on a par with home prices in early 2008.
“It’s going in the right direction but it’s been stalling a bit,” said Anthony Bautista, a real estate agent in Rancho Cucamonga. “There have been some problems with inventory, and that’s been keeping prices up.”
Many Inland Empire homeowners are still underwater — meaning that they owe more on their home than the home is currently worth — and others are anxious to see when the Federal Reserve will hike interest rates.
“That could be a huge hit to the housing market,” Bautista said.
Staff writer Neil Nisperos contributed to this article. "
"UCLA Anderson Forecast: Nation and Region Remain Healthy
Additional Reports Look at U.S. and Los Angeles Housing Markets
September 28, 2015 04:00 AM Eastern Daylight Time
LOS ANGELES--(BUSINESS WIRE)--UCLA Anderson Forecast’s third quarterly report in 2015 for the United States considers whether or not the economy can withstand an increase in the prime lending rate. The forecast concludes that the answer is, “Yes.” The forecast for the national economy for the next two years is a healthy one, a slim chance of a recession and a slight chance of a surge in growth. In California, the forecast remains largely unchanged since June. Growth in employment in California will continue, albeit it at a slower pace by 2017, as the unemployment rate falls to about 4.8%, similar to that of the nation as a whole.
“California Housing – Will it ever be affordable”
The National Forecast
In his forecast for the national economy, UCLA Anderson Forecast Director Edward Leamer provides historical perspective regarding the current expansion that is now in its twenty-fifth quarter. Leamer points out that the U.S. is in its fourth-longest expansion since 1948. Using history as a guide -- and given that the Fed will ultimately start raising interest rates later this year -- Leamer says that some might think there is an 80% chance of the current expansion ending soon. Not so, says Leamer, because the tepid pace of GDP growth, amounting to a modest, cumulative, increase of 13%, so far is exceeded by only two of the other post-1948 expansions. As a result, the forecast says there is a 20% probability of an imminent recession.
Leamer says the expansion seems destined to continue for at least a couple more years and probably more due to other key factors: jobs, housing and cars. The modest gain in the employment to population ratio (3% more growth is expected to return to pre-recessionary levels) and the critical housing and automobile sectors are not yet in an overbuilt status. Therefore, when short-term interest rates do rise, sectors that are far from being overbuilt won’t likely crash. Though the rate of automobile sales has returned to 17 million units per year, Leamer points out that much of these sales reflect the replacement of older cars with new ones, indicating that the sector is not considered overbuilt.
The forecast for GDP growth is in the 2% to 3% range, better in 2016 than the year after. The forecast anticipates an improving labor market, a declining unemployment rate and a rising employment to population ratio. Yields on bonds will be driven upward with a rise of inflation by about one percentage point.
The California Forecast
In the California forecast report, Senior Economist Jerry Nickelsburg estimates total employment growth at 2.7% in 2015, 2.2% in 2016 and 1.4% in 2017. Real personal income growth is estimated to be 4.6% in 2015 and forecast to be 4.5% and 4.2% in 2016 and 2017, respectively. At the same time, the unemployment rate should drop below 6.0% through the balance of 2015. Unemployment will fall throughout the next year and will average 5.2% -- unchanged from the June forecast. In 2017, Nickelsburg expects the unemployment rate to be approximately 4.8%, same as in the U.S.
Nickelsburg’s September essay, titled “California Housing – Will it ever be affordable,” takes a look at the state’s housing environment. Nickelsburg says that home prices in California will become increasingly less affordable over the next two years, as the amount of building will not meet new demand.
Housing is Back
In a companion essay to the national and state forecasts, UCLA Anderson Senior Economist David Shulman examines the national real estate picture. Shulman writes that after a long, difficult period, housing starts are poised to approach the long-term average (1959-2014) of just under 1.5 million units in 2016. The housing forecast calls for starts of 1.14 million units this year, 1.42 and 1.44 million units in 2016 and 2017, respectively. Even though this level of forecasted activity represents a level far below the mid-2000s boom level of more than two million units a year, Shulman says there is reason to be optimistic. He cites a continued economic expansion with low probability of a recession in the near-term, healthy employment growth of 200,000 new jobs monthly, rising household formations, relatively low mortgage rates and easing credit standards for mortgages.
Prices and existing home sales will continue to rise, despite higher interest rates in the forecast. Shulman notes that the housing recovery is occurring under the backdrop of an unprecedented decline in homeownership. Homeownership now is where it was in 1989, yet Shulman believes this trend has about run its course and will soon begin reversing. The flip side of declining homeownership rate is a rise in renting which has triggered a boom in multi-family housing starts. Multi-family housing starts, which bottomed in 2009 at 112,000 units will exceed 400,000 this year and average 460,000 units over the next two years. The high rental increases are being sustained by very low rental apartment vacancy rates. In fact, Shulman says, we are seeing a trend of investors purchasing new single-family houses for the rental market.
However, affordability has become a real issue with the 46% of renters, compared to 40% ten years ago, paying more than 30% of their income on rent.
China Syndrome and Its Impact on Los Angeles’ Economy and Housing Market
In another essay, Economist William Yu looks at the turmoil in China’s economy and the potential implications for Los Angeles’ economy. Yu says that China’s economy was, is, and will be more volatile than suggested by Beijing’s official numbers. According to Yu, China’s economy, housing market, stock market, and currency are all in trouble.
Yu says that even though China has tried to contain its imploding crises, its economy has come to a restructuring crossroads. If it transitions smoothly to a service and consumption based economy, its medium growth rate could reach 5%. If not, its outlook will be more dismal, with 2-3% growth and an economy trapped in the middle income level.
The implication for Los Angeles is that China’s turmoil might reduce the growth of Los Angeles’ exports and tourism, but Chinese investment in Los Angeles real estate will persist due to better and safer expected returns in the U.S. Los Angeles’ housing market, despite becoming more expensive and unaffordable, is not in a bubble. Its housing prices are highly unlikely to bust this year or next.
Housing is Back
All of the economists’ reports will be presented at UCLA Anderson Forecast’s quarterly conference on Monday, September 28, 2015. The conference features a number of panels focused on the housing industry and includes a keynote address from Dr. John C. Williams, President and CEO, Federal Reserve Bank of San Francisco. For more information on attending the conference, please click here.
About UCLA Anderson Forecast
UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state’s rebound since 1993. More recently, the Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast at http://uclaforecast.com.
About UCLA Anderson School of Management
UCLA Anderson School of Management is among the leading business schools in the world, with faculty members globally renowned for their teaching excellence and research in advancing management thinking. Located in Los Angeles, gateway to the growing economies of Latin America and Asia and a city that personifies innovation in a diverse range of endeavors, UCLA Anderson's MBA, Fully-Employed MBA, Executive MBA, Global Executive MBA for Asia Pacific, Global Executive MBA for the Americas, Master of Financial Engineering, doctoral and executive education programs embody the school's Think In The Next ethos. Annually, some 1,800 students are trained to be global leaders seeking the business models and community solutions of tomorrow. Follow UCLA Anderson on Twitter at http://twitter.com/UCLAAnderson or on Facebook at http://www.facebook.com/uclaanderson.
Contacts
UCLA Anderson Office of Media Relations Elise Anderson: (310) 206-7537 Jonathan Daillak: (310) 794-4169 Media.relations@anderson.ucla.edu "
"Allen Matkins/UCLA Anderson California Commercial Real Estate Survey Sees Surge in Developer Optimism
Development Activity Expected to Accelerate in Most Markets
UCLA Anderson School of Management
January 30, 2014 9:00 AM
LOS ANGELES, Jan. 30, 2014 /PRNewswire/ -- The latest Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey signals continued optimism among developers – a slight increase in confidence across commercial real estate submarkets since the survey was last conducted in June 2013. The biannual survey projects a three-year-ahead outlook for the state's commercial real estate industry and forecasts potential opportunities and challenges affecting office, industrial and multi-family sectors.
The November 2013 results show a positive outlook across all markets for the first time since the Survey's inception in 2007. Clear economic improvement is generating new opportunities for profitable investment in office and industrial space across the state. According to surveyed industry leaders, developers in all areas (with the exception of the Bay Area's industrial markets) expect to accelerate development activity, tightening the commercial real estate supply.
The increased optimism in many sectors can be tied to job growth in California, especially along the coast, where jobs are being generated at a rate faster than the national average. The current expansion of employment is expected to continue into 2016.
Video highlights of the report are available here: http://www.youtube.com/watch?v=wMATvFUGahU
Office Development Sentiment Positive With Southern California in Spotlight Sentiment in the office space market remains highest in Southern California, likely due to the increased rate of job growth in the region and a tightening of office space supply. Indeed, 70 percent of those surveyed in Southern California indicated that they would start one or more projects within the next 12 months.
In the Bay Area the survey revealed renewed optimism regarding both office rental and occupancy rates through 2016. Fifty-two percent of The Bay Area Panel indicated they would begin one or more new projects in the coming year. This comes on the heels of many new Bay Area projects already under construction, and is indicative of a return to healthy office construction in the region.
Industrial Sector Experiencing Increased Demand
There is also a strong outlook in the industrial markets for manufacturing and warehousing facilities that support California manufacturing, exports to Asia and Mexico, and consumer goods imported from Asia. With the emergence of the Eurozone and Japan from their recessions and the economic growth in China, there is an increased volume of trade though Southern California ports in particular, which may create an increased demand for warehouse space.
Multi-family Sector Remains Robust
Prospects for returns on multi-family housing investments in San Francisco and Silicon Valley during the coming three years look promising. All surveyed panelists in those markets, where occupancy rates are above 97 percent and rental rates are among the highest in the nation, indicated that they would begin projects within the next 12 months. About 65 percent of those surveyed in Los Angeles, where occupancy and rental rates are similar to those in Northern California, could begin new developments in the coming year. Though construction permits for multi-family units have been rising significantly through November 2013 (the survey date) with an increase of 19.6 percent in Los Angeles, a 18.2 percent rise in San Francisco and an uptick of 44.2 percent in San Jose, there may not be enough multi-family housing in late 2016 to affect the rise in rental and occupancy rates.
About the Survey
For a copy of the latest Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index Research Project, please visit www.allenmatkins.com or www.uclaforecast.com.
The Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index Research Project polled a panel of California real estate professionals in the development and investment markets, on various aspects of the commercial real estate market. The survey is designed to capture incipient activity by commercial real estate developers. To achieve this goal, the panel looks at the markets three years in the future, and building conditions over the three-year period. The survey was initiated by Allen Matkins and the UCLA Anderson Forecast in 2006, furtherance of their interest in improving the quality of current information and forecasts of commercial real estate.
About Allen Matkins
Allen Matkins, founded in 1977, is a California-based law firm with more than 200 attorneys in four major metropolitan areas of California: Los Angeles, San Francisco, Orange County and San Diego. The firm's core specialties include real estate, real estate and commercial finance, bankruptcy and creditors' rights, construction, land use, natural resources, environmental, corporate and securities, intellectual property, joint ventures, taxation, employment and labor law, and dispute resolution and litigation in all these matters. For more than 35 years, Allen Matkins has helped clients turn opportunity and challenge into success by providing practical advice, innovative solutions and valuable business opportunities. When clients' challenges require experienced trial counsel, Allen Matkins has a proven track record of successful litigation before juries, judges and arbitrators. Allen Matkins is located on the Web at www.allenmatkins.com.
About UCLA Anderson Forecast
UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state's rebound since 1993. More recently, the Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast on the Web at http://www.uclaforecast.com.
About UCLA Anderson School of Management
UCLA Anderson School of Management is among the leading business schools in the world, with faculty members globally renowned for their teaching excellence and research in advancing management thinking. Located in Los Angeles, gateway to the growing economies of Latin America and Asia and a city that personifies innovation in a diverse range of endeavors, UCLA Anderson's MBA, Fully-Employed MBA, Executive MBA, Global Executive MBA for Asia Pacific, Global Executive MBA for the Americas, Master of Financial Engineering, doctoral and executive education programs embody the school's Think In The Next ethos. Annually, some 1,800 students are trained to be global leaders seeking the business models and community solutions of tomorrow. "
As land prices soar, savvy developers who bought up properties during economic downturn are in enviable position.
By Lily Leung3 p.m. July 6, 2013
Dane Chapin, left, and Brad Termini own Zephyr Partners on one of their sites in Carlsbad.
First in a three-part series on homebuilding in San Diego County.
When most developers fled the sinking San Diego housing market, Brad Termini and business partner Dane Chapin stuck around to shop for project failures.
They bought land foreclosures for as little as half price during the past five years of uncertainty to carry out $150 million in residential land development.
“We’ve never bought a piece of land that we didn’t have three people we know really well say we’re crazy, we overpaid and don’t know what we’re doing,” said Termini, co-chief executive of Zephyr Partners, a private developer in San Diego.
Once ridiculed, Zephyr now finds itself in a seemingly enviable position in the local real estate market. The heavily discounted supply of land it has acquired since the recession’s start is the kind of stuff its competitors, public and private builders, are struggling to secure — and at a reasonable price.
Rising home prices and a sunnier consumer outlook have sent homebuilders into a frenzy to buy land in San Diego County and resume once-stalled projects. Land analysts say the demand for lots has returned to that of peak times — causing lot prices to soar. It also raises concerns of deteriorating affordability for consumers.
Still, like consumers, homebuilders and developers are hungry for product.
“We’ve talked to industry experts who have been in the business for 20-plus years ... and pretty consistently, they say it’s one of the most heated markets experienced in their careers,” said Termini, of Zephyr Partners.
Construction returning
After a six-year lull, homebuilding in the county is chugging along at a steady pace. Master-planned projects shelved during the downturn make up the bulk of new-home development in San Diego County.
At the height of the market in 2003, San Diego saw nearly 9,500 construction permits for new homes. That number fell nearly 81 percent in 2009, the worst year for U.S. homebuilding since 1959.
Even during the building lull, certain major homebuilders — particularly those with lots of capital — recognized the importance of continuing land shopping in California. Between fall 2009 and 2011, Los Angeles-based KB Homes infused more than $1 billion into land investments, focusing on Texas and California.
Builders have stayed loyal to California because it’s viewed as a highly desirable place to live. Lower-than-normal mortgage rates have added to the list of reasons consumers want to buy real estate here.
“From the Bay Area to Orange County and San Diego, the demand for new homes in these desirable markets was never met in the boom years,” said KB Homes chief executive Jeffrey Mezger, in a September 2011 earnings call transcribed by financial website Seeking Alpha.
“People have always wanted to live in these areas near jobs, transit, recreation and good schools,” Mezger added.
Irvine-based Standard Pacific also has kept a laser focus on acquiring lots in the Golden State. Knowing the challenges of buying residential parcels in San Diego County on their own, it went straight for a legacy project.
In September, Standard Pacific finalized a deal with a local developer to control 1,700 undeveloped lots at Del Sur, a master-planned community mothballed during the recession. The company spent $246 million in the third quarter to acquire 3,500 home sites in San Diego, which included the Del Sur lots.
KB Homes recently struck similar deals as other companies waffled about re-entering the California market. It closed on two coastal communities in North County, the company said.
The idea was to build lot volume, more easily done with existing projects.
“Our early mover advantage of acquiring land at favorable prices in the right locations, (was) first going after finished lots and then leveraging our strong master plan and development capabilities to pursue raw land,” said Mezger, of KB Homes.
“That has allowed us to stay ahead of the demand curve, avoiding the worst of the hypercompetitive fray that land buyers are experiencing in most of our markets,” Mezger added.
Similar acquisitions have occurred not just in North County but also in areas like Otay Ranch in the South Bay, another large-scale development that has come back to life after a multiyear lull. Builders that have contributed to that development’s revival include Brookfield Homes and KB Homes.
Eventually, smaller to medium-sized developers jumped back into the land market, which has seen meteoric lot-price hikes in the past two quarters.
This has meant an increase in infill activity, such as the one in coastal Carlsbad led by private developer Zephyr Partners. The company began to demolish an existing apartment complex, which it acquired at a discount during the downturn to build $2 million condos in its place.
“In the land market, all the easy pieces are gone, except for large county holdings,” said Borre Winckel, executive director of the Building Industry Association of San Diego, a trade group that represents builders’ interests.
The infill market is not limited to private builders. KB Homes and Shea Homes are among the builders who have closed on smaller deals, as low as eight-unit parcels, said Gunder Creager, vice president of Colliers International in San Diego.
Public builders have even cobbled together four to five smaller deals to build volume and reduce overhead costs.
“That’s what you gotta do with tight inventory,” Creager said.
Land costs soaring
The appetite for land has led to bidding wars among homebuilders and upward pressure on lot prices.
Residential land costs in the county have gone up an average of 20 percent to 30 percent during the past year, but certain areas are seeing more rapid price movement.
In Carlsbad, a finished lot — the most desirable land site for a developer — is about $442,000, a 61 percent increase from a year ago, says analysis from Irvine-based Land Advisors Organization, which brokers residential land deals. That figure is based on a 6,000-square-foot lot.
“Land prices have gone up exponentially,” said David Landes, a broker at Land Advisors’ office in Mira Mesa. “We’re seeing some areas at peak prices of 2005, and in some cases, exceeding those.”
Increased demand and rising home costs have turned the market into a favorable one for land sellers like Jose Escobedo.
Escobedo, who’s preparing for retirement, has watched demand rise for parcels like his. He owns more than four acres of developable property in San Marcos, where the price of a finished lot has increased 55 percent from a year ago to $310,000.
The 65-year-old landscaper bought his two pieces of land about two decades ago for about $125,000 each.
The real estate market is marked by “highs and lows,” said Eric Escobedo, who spoke on behalf of his father, Jose. “A lot of people have regrets about purchasing land mainly due to the fact the price that they bought it at. But he’s not hamstrung by the price. … He won’t regret (selling it) because he didn’t overpay.”
The prospect for selling looks especially rosy for Escobedo because new development has been coming in near his parcels, said his son, Eric. Escobedo’s lots, which are being prepared for market, have already received unsolicited bids, said Landes, whose company is brokering the deal.
While some builders are willing to pay top dollar for finished lots, they’re in limited supply.
U-T Photo by Charlie Neuman
Because of that, builders are moving to the fringes of the county, where it has historically taken builders longer to bring projects to life, Landes said.
Builders also are having to look for properties in any stage of the entitlement process, which requires buyers to prepare them for development.
Ultimately, whether a developer buys a parcel comes down to simple business. Generally, builders don’t pay more than a third of the home’s for-sale price, said Scot Sandstrom, who owns New Pointe Communities, a private builder in San Diego.
“So if you’re building a $1 million home, you try to pay about $300,000 a lot,” he said. “That means we have to look harder to find land that makes sense. The prices of homes have gone up, but you can’t apply it necessarily by doubling your land costs.”
Pipeline refilling slowly
Land deals are up, but new-home construction pipelines may take a while to repopulate.
After home prices peaked in 2005, land transactions in the county dried up in 2007 and remained depressed until 2011.
Not only did that mean less new-home construction, it also meant fewer properties were being readied for development.
Builders and developers filed 1,260 applicants to build subdivision lots from January to May — already surpassing the 965 filed for all of 2012, county assessor’s numbers show. However, it will take time for those lots to be ready for construction.
Parcels come in different stages of building readiness, from finished lots to raw land. With the exception of finished lots, other lot types require work, such as grading and permitting, before they can accommodate construction.
That whole entitlement process, which can be time-consuming and expensive, was largely put on hold during the recession, causing a current shortage in finished lots.
Entitling land can take six to nine months for major cities to several years if you’re dealing with the county, said Landes, the land broker.
Raw land, the most basic stage, takes the longest to get ready for building. Sometimes, the process may not be completed due to environmental regulations, said Creager, the executive at Colliers.
Some builders are concerned about what this backlog will mean for pent-up demand and skyrocketing home prices.
Recognizing increased demand and low supply, homebuilders who have finished units have been able to raise prices as much as 20 percent per phase and controlling how many homes are on the market at once.
The result has been the return of wait lists, car lines and concerns of consumers being priced out of a fast-paced market.
“I think we always need to be cautious of rapid movement in either direction,” said Termini, the developer at Zephyr Partners.
“Markets tend to overreact to positive and negative news, and we’re experiencing a little bit of that now,” he added. “Buyers are starving for new product, and there’s not a lot of it available for people.” "
"In the Inland Empire, an industrial real estate boom
COMMERCIAL REAL ESTATE QUARTERLY REPORT
Demand for warehouse space in Riverside and San Bernardino counties is picking up as firms set up massive distribution centers.
April 12, 2013 | By Roger Vincent, Los Angeles Times
Nestled on the windy plains at the foot of the San Bernardino Mountains, once austere stretches of agricultural land have morphed into the country's most desirable industrial real estate market, and it is growing faster than any other industrial region in the U.S.
Among the many merchants running large-scale operations now are such household names as Amazon.com Inc., Kohl's Corp., Skechers USA Inc., Mattel Inc. and Stater Bros. Markets.
They come for vast warehouses — some are bigger than 30 football fields under one roof — where they can store, process and ship merchandise such as clothes, books and toys to ever more online shoppers and handle the rising flood of goods passing through the ports of Los Angeles and Long Beach.
The clamor for these big buildings is so intense in San Bernardino and Riverside counties that developers are erecting more than 16 million square feet of warehouses on speculation, meaning they are gambling that buyers or renters will rush forward to claim the buildings by the time they are complete.
"The Inland Empire is to industrial real estate what downtown Manhattan is to office real estate," said Craig Meyer, head of industrial property brokerage in the U.S for Chicago firm Jones Lang LaSalle. "L.A. has been the hottest market in the world for 10 years running."
Although the Inland Empire was hard hit by the recession and earned a reputation for mortgage foreclosures, evictions and high unemployment rates during the downturn, the industrial property business has remained a bright spot. And it is now picking up speed.
Southern California, with its enormous population and teeming seaports, has long been a vital hub for major retailers and manufacturers, real estate brokers said. But with Los Angeles and Orange counties essentially full, the Inland Empire with its wide-open spaces is now where the big new buildings are flying up.
Los Angeles County's industrial vacancy is a mere 2.5%, the lowest in the country, said Kurt Strasmann of brokerage CBRE Group Inc., and some of the priciest industrial property in the U.S. is around Los Angeles International Airport. Orange County is the second-tightest market in the U.S., with 3.5% vacancy.
The two counties and the Inland Empire have a combined total of more than 1.65 billion square feet of industrial property,which is twice as big as the next largest market, Chicago.
"We are a big, deep market," Strasmann said.
Key to all this is logistics — the organization and movement of goods to accommodate business. And it's vital if the Inland Empire is to prosper, economist John Husing said. Blue-collar workers in logistics typically earn more than their counterparts employed in restaurants and other service jobs.
"It's a very good match for our need to put primary wage earners in a family on the horizon to the middle class," Husing said.
Setting up manufacturing and distribution operations in Southern California was mandatory for Fleischmann's Vinegar Co., which traces its history to the 1920s, Chief Executive Ken Simril said.
The Cerritos company makes condiments, sauces and dressings for consumers and food flavorings and preservatives used by other food makers.
"For freshness, it's important to be close to where people eat," Simril said. Fleischmann's also ships its products to Southeast Asia, and being close to the ports cuts transportation costs.
"It would have been cost-prohibitive to ship from the Midwest to the Pacific Rim," he said.
Limited transportation costs have always been an attraction of the Los Angeles-area industrial property business. But recent changes in technology have created growing demand for warehouses so cavernous that they would have been too cumbersome to operate efficiently in the past, real estate broker Darla Longo of CBRE Group said.
Once upon a time, a warehouse was where you stored things for weeks or months, such as toys and canned food that retailers would grab to restock their shelves. Sorting, organizing and moving the inventory was a constant challenge.
Tracking goods in the modern age of bar codes, scanners and computers is a comparative breeze. The location of every widget can be identified with pinpoint accuracy and fetched by robots that can lift and carry 3,000-pound loads with ease.
"Technology has allowed larger facilities with more sophisticated equipment to be able to deliver products very efficiently," Longo said, enabling businesses to consolidate their logistical operations into bigger warehouses. "And they don't have to hire as many people because robotics can do work for them." "
April 12, 2013 | By Roger Vincent, Los Angeles Times
Fannie Mae: Housing recovery could be 'more robust' than anticipated
Tight inventory, rising prices may hold back existing-home sales this year
By Inman News, Wednesday, April 17, 2013
Inman News®
A continued recovery in housing and rising home prices should provide a cushion to economic growth this year, offsetting the hampering effects of tax increases and government spending cuts, according to a monthly economic outlook released today by economists at Fannie Mae.
A shortage of homes for sale lead to home price appreciation at the national scale in 2012 and continuing into 2013. Fannie Mae anticipates existing home prices will rise 5.1 percent this year, to a median $186,000, and 3.8 percent in 2014, to $193,000. Prices for new homes are expected to increase 4.1 percent in 2013, to a median $254,00, and 3.5 percent in 2014, to $263,000.
But higher-than-expected price jumps and continued tight inventory will likely restrain existing-home sales this year and next year, leading Fannie Mae economists to downwardly revise their sales expectations this month.
They project that existing-home sales, which were up 9.4 percent last year, will grow by an additional 6.9 percent this year, to 4.98 million homes, compared to last month's projection of a 10.5 percent jump this year, to 5.15 million homes. They estimated existing-home sales will rise 5.5 percent in 2014, to 5.26 million homes, compared to last month's prediction of a 6.2 percent rise.
Nonetheless, sales of new single-family homes are expected to post stronger growth than previously predicted in 2013, 18 percent, though slightly lower growth than anticipated in 2014, 35.8 percent.
By Maureen Farrell @CNNMoneyInvest February 4, 2013: 6:52 AM ET
The latest sign of a housing boom: investors are clamoring to buy up homebuilding stocks, homes, and undeveloped land.
NEW YORK (CNNMoney)
Investors are betting big on the housing recovery.
Hedge funds and private equity firms have been rushing in to buy up companies and assets in every part of the housing supply chain, including undeveloped land, homebuilders, foreclosed homes, and building parts manufacturers.
One of the most notable moves is coming from hedge fund manager John Paulson, best known for his big (and lucrative) bets against subprime mortgages in 2006 and 2007.
Now, he's turned his attention to snapping up undeveloped land in areas hardest hit by the housing crisis. "Land is the accordion in the home building equation," said Michael Barr, who runs Paulson's real estate investments. "It falls the most in a downturn, but also rises the most in an upturn."
Over the past two years, Paulson & Co has bought up enough land in California, Arizona and Nevada to build up to 25,000 homes and is aggressively scouting for more, according to Barr.
Private equity firms are also getting in on the game.
Blackstone Group (BX) spent $2.7 billion last year to buy 17,000 single family homes, post-foreclosure, around the United States and plans to continue ramping up those efforts in 2013.
Pine River Capital Management took real estate investment trust Silver Bay Realty Trust (SBY) public in December. Silver Bay, which acquires, renovates, leases and manages single family homes, has already purchased more than 2,500 homes in areas hard hit by the housing crisis. In a recent SEC filing, Silver Bay said that it plans to purchase 3,100 more homes.
And in a sign of investors' growing appetite for a piece of the housing market, shares of publicly traded homebuilders have been soaring. PulteGroup (PHM), KB Home (KBH), and Lennar (LEN) are all trading near 52-week highs. Pulte's shares have more than doubled over the past year, while the KB Home and Lennar's shares have nearly doubled.
And for the first time since 2004, homebuilders are testing the IPO waters.
Tri Pointe Homes (TPH), which builds single family homes in California and Colorado raised $232 million through an IPO last week. Shares of the company, owned by Starwood Capital, rallied 20% on their first day of trading.
Others are lining up.
Scottsdale, Ariz., homebuilder Taylor Morison has filed to go public and is expected to kick off its investor roadshow in the next few weeks. And building supply company Boise Cascade, jointly owned by PE firm Madison Dearborn and OfficeMax (OMX, Fortune 500), plans to make its public debut next week.
Investment bankers and IPO investors say they expect more homebuilders to go public this year. "As the sector rotates back into favor again, it makes sense for housing companies to monetize," said Brad Miller, co-head of global equity syndicates at Deutsche Bank.
Brad Geisen, CEO of Foreclosure.com, which keeps a database of foreclosures around the nation, said he's been seeing a lot of interest from investors looking to buy up large numbers of foreclosed properties over the past three months.
"A lot of investors see a short window of opportunity where there's good inventory on the market at bottom market prices," said Geisen. "No one knows how long it will last, so these investors are trying to buy as much as they can right now." To top of page
As new-home starts accelerate, builders’ land options are becoming more limited.
By John Caulfield
Builders, start your backhoes and bobcats. The number of finished lots available in markets that buyers desire is dwindling fast, and developing raw land—which became a lost art for many builders during the recession—could soon be a necessity for growth-minded companies.
There are approximately 600,000 vacant developed lots in the U.S., which equals a 60-month supply based on the current rate of home building. However, the number of lots in A locations is less than a 17 months' supply, compared to a “normal” level of between 24 and 36 months. “This is a severe shortage,” exclaimed Brad Hunter, chief economist for the research and consulting firm Metrostudy, who presented these data during a seminar at the International Builders' Show on Wednesday entitled “Where’s the land?”
In contrast, there are 34 months of B lots, 92 months of C lots, and 1,670 months of D, E, and F lots.
Joining Hunter on that panel was Jeff Meyers, president of Meyers Research LLC; and Bill Sanderson, vice president of joint ventures for Forest City Land Group.
Hunter pointed out that single-family detached finished lots, “which drive [home] sales,” have been falling since the second quarter of 2007, and are now down to about 75,000, or 0.75 months’ worth of supply when the “equilibrium point” should be around 2 months. Houston’s supply of these lots, at 1.9 months, is at a seven-year low, he said.
This dilemma is exacerbated by the fact that housing starts in many parts of the country are accelerating. Inevitably, supply and demand are colliding in places like Boynton/Delray Beach, Fla., where there’s a 15.1-month supply of A lots and only a 1.7-month supply of finished vacant homes.
Consequently, “projects that were running really hot have had to slow down,” said Hunter. And the rush to acquire or control A location lots is causing prices to escalate. For example, in Atlanta, where only around 10% of its 140,000 finished lots are where home buyers actually want to live, lot prices rose 35% last year. Highly desired lots in Dallas are fetching $1,700 per front foot, between $1,200 and $1,600 in Denver, and as high as $3,400 in Boca Raton, Fla.
Hunter observes that, short of developing their own land, which can take years and many regulatory headaches to get ready for construction, builders facing a lot-shortage quandary are rationalizing their land positions and accepting lesser-quality lots. “C has become the new B," Hunter quipped, in places like Phoenix, California’s Inland Empire, and some areas of Florida. Builders are also looking for A lots in C locations in places like Atlanta; or are turning their attention to building in emerging markets such as York County, S.C., and Fort Bend County, Texas.
Meyers said he expects large public builders to also start pursuing more mergers and acquisitions to bolster their lot pipelines in certain markets.
Meyers noted that land is most constrained in markets where job growth is strongest, such as San Jose, Calif., or Washington, D.C. Phoenix added 40,000 jobs last year, so it hasn’t been surprising that land investors have been flocking to Phoenix, where Meyers estimated there are 37,000 builder-ready lots (43% of them in Pinal County), and projected that 25,000 residential permits would be issued in 2013.
Land transactions in Arizona rose by 26% in 2012. But this is a market where 72% of the available lots are controlled by home builders. In small and midsize markets, that kind of concentration can be onerous for private builders trying to compete for land with national and large regional builders, said Sanderson.
“And in these markets, people are not going to drive long distances for good schools,” he added.
In small to midsize markets, Sanderson said builders are facing lot prices that have reset to 2000-2004 levels; “zero” availability to borrow from banks for acquisition and development; an uncertain regulatory climate; and environmental opposition to development in general.
So he offered advice to these builders about where they might obtain land. There’s still some bank-owned property out there, but its quality and location are variable, he said. Sanderson also noted that banks “want out” of lending for land development, so builders’ best bet for financing might be private equity for a while longer.
Sanderson also suggested that builders consider adaptive reuse of retail and light commercial space; infill and teardown opportunities; taking over failed subdivisions; picking up land in tax sales and auctions; and relying more on Realtors and brokers. “They call them ‘broke-rs’ for a reason,” he laughed.
John Caulfield is senior editor for Builder magazine.”
Southern California homebuilding speaks to recovering housing market
By Kevin Smith, Staff Writer
Posted: 01/12/2013 04:25:32 PM PST
Construction workers build new homes in the Rosedale housing project in Azusa.
(Staff photo by Leo Jarzomb)
SOUTHLAND REAL-ESTATE RECOVERY
Time to buy Southern California real estate -- if you can: By Muhammed El-Hasan, Kevin Smith and Gregory J. Wilcox, Staff Writers
Real-estate price spike in 2013? Maverick investor Bruce Norris thinks so: By Gregory J. Wilcox, Staff Writer
Southern California homebuilding speaks to recovering housing market: By Kevin Smith, Staff Writer
The starts and stops of building at Rosedale, a master-planned community in Azusa, is a microcosm of last decade's roller-coaster ride for Southern California's new-home construction industry.
When Azusa Land Partners launched the development back in 2005, the region's housing market was roaring. Work on the 518- acre development began the following year with the construction of 120 homes.
But things quickly soured as the nation began sliding into recession. The resulting collapse of the U.S. housing market ultimately brought Rosedale to a standstill.
Today the project is revitalized. Construction has resumed under a new partnership that formed in 2010, and 355 new homes have been built. Nearly all of them are already occupied.
"It's coming back slowly, but it's been a lot quicker than I thought it would be," said David Guthery, a superintendent for the new group, Rosedale Land Partners. "Everybody loves the fact that it's moving. They're saying, 'Wow -- there's some production going on."'
A similar tale is repeating throughout the Los Angeles region, where hundreds of homes are once again under construction.
And this time around, the demand is for bigger houses, with more bedrooms and square footage, as consumers tap into record-low interest rates to get more bang for their buck.
"The market is absolutely coming back," said Steve Johnson, director of the Southern California region for Metrostudy, a real estate information and consulting firm. "It's not going back to where it was overnight, but you're going to see a 15 (percent) to 20 percent increase in home starts this year over 2012."
Steve Ruffner, president of the Southern California region for KB Home, said he's feeling good about Southern California's housing market.
"Demand is good and buyers are coming out," he said. "We've seen a lot people who are disenfranchised by the lack of inventory, but it's kind of an exciting time."
Construction workers build new homes in the Rosedale housing project in Azusa. (Staff photo by Leo Jarzomb)
Ruffner's enthusiasm is echoed in the National Association of Home Builders/Wells Fargo builder sentiment index, which was released last month.
The report showed that confidence among U.S. homebuilders inched up in December to the highest level in more than 6 1/2 years.
Ruffner noted that many buyers are now looking for bigger homes.
"People are realizing that interest rates are at record lows, so that allows them to get more house for their money and still have a mortgage that is very affordable," he said.
KB Home's average home, he said, has increased in square footage by nearly 13 percent since the third quarter of 2010, jumping from 1,875 square feet to 2,063 square feet.
In north Los Angeles County the increase has been even bigger, going from an average of 1,913 square feet in 2010 to 2,397 square feet in 2011. That represents a 25 percent increase -- or 484 additional square feet.
Johnson said buyers could be leaning toward bigger homes for a number of reasons.
"The price of money is so cheap that some people are just opting for bigger square footage," he said. "It gives them the rationale to go for a fancier kitchen with more elbow room or maybe a bigger garage."
Others, he said, may need a bigger home because they have elderly parents living with them or adult children who have moved back home because of the tough economy.
"Lennar has seen great success with their home- within-a-home product," he said. "It's designed for parents to live with you, but it still offers them a degree of privacy with a separate entrance and a kitchenette -- almost like a little apartment."
Andres Rios, who moved into his 2,000-square-foot home in Rosedale's Greenbriar neighborhood six months ago, is happy to see construction occurring.
"I'm happy because it means more people," he said. "It's a good sign for the economy."
Activity is also picking up in the Inland Empire.
Brookfield Homes is building Edenglen, a master-planned community in Ontario that will include more than 580 new homes. They'll be priced starting in the low $300,000s, with models ranging from 1,710 square feet to 2,054 square
Construction workers build new homes in the Rosedale housing project in Azusa.
(Staff photo by Leo Jarzomb)
feet. More than 20 of the homes are under construction and the project is expected to be completed by 2016.
Further south, Standard Pacific Homes is active in the South Bay. The company's gated Harbor Highlands development in San Pedro will feature 133 new single-family homes at full buildout. The homes range from $512,900 for 1,790 square feet, to $596,631 for 1,936 square feet.
KB Home also has a variety of projects under way in Santa Clarita, including Charleston at River Village, Echo Pointe at Plum Canyon, Echo Ridge at Plum Canyon and Ridgeview at Echo Ridge, the latter which was opened in December.
Those homes range from 2,875 to 4,511 square feet. Both Echo Pointe at Plum Canyon and Echo Ridge at Plum Canyon are in close- out with just a few houses left, according to company spokesman Craig LeMessurier.
KB is also working on another 84-lot planned development in Lancaster called Dorado Skies, scheduled to open in winter 2013.
Lennar has three Chino projects under way, including the Madison at College Park (77 homes), Edgewood at College Park (95 homes) and Charleston at College Park (78 homes). The Madison and Edgewood communities opened three weeks ago and the Charleston is in its final development phase, a Lennar associate said. They are priced from the mid $300,000 range to more than $500,000.
Lennar is also building three communities in San Bernardino -- Sage at Rosena Ranch (70 homes), Chaparral at Rosena Ranch (101 homes) and Aster at Rosena Ranch (87 homes).
In Santa Clarita, Lennar has developments ranging from town homes priced in the middle $200,000s to single-family homes listed at $600,000 and more.
One development that still faces a challenge is Newhall Ranch, the Southland's biggest planned community. Developers have yet to break ground on one home, even though the environmental impact report was approved in 1996.
The project, along State Route 126 west of Santa Clarita, is designed to include 20,000 homes as well as business parks, corporate centers, mixed-use elements and 8,500 acres of open space. It's also expected to create 60,000 permanent, full-time jobs, according to Marlee Lauffer, vice president of marketing for Newhall Land Development Inc.
"It's fully approved and we have tentative tract maps for two of the villages," Lauffer said. "But we're in litigation on the tract maps and the environmental permits."
Lauffer said Newhall Land hopes to see the project under way within two years.
All of this activity speaks to a housing market that's regaining its footing. But there's more ground to be covered before the market resembles anything close to pre-recession levels, according to Jeff Lee, president and co-owner of LA Urban Homes. Lee's company is currently building 127 homes in the Rosedale project. But things are not nearly as busy now as they were before the housing market crashed.
"We're also building the Parkside project in Hawthorne with 28 homes and another tract in West L.A. called Highpoint that will have 11 homes," he said. "But during the peak of activity? We had 600 to 700 units under contract."
U.S. Housing Lays Foundation for Recovery as Buyers Coaxed Back to Market
By John Gittelsohn, Steve Matthews and Chris Christoff - Mar 1, 2012 9:01 PM PT
Sam Hodgson/Bloomberg
Construction spending in the U.S. unexpectedly fell in January as commercial and government projects slowed, a sign the building industry will take time to rebound.
Dan Kowalyshyn figures he owes about $200,000 more than what his four-bedroom house is worth today. It faces a cul-de-sac where three of the six homes have been lost to foreclosure since his $570,000 purchase in 2006.
The software developer has decided to keep up on his mortgage payments because he sees signs of improvement outside his window. Trucks drive by to deliver lumber for houses being constructed by PulteGroup Inc. (PHM), KB Home and Meritage Homes Corp. (MTH)
Housing Lays Foundation for Rebound as Buyers Coaxed Back
Sam Hodgson/Bloomberg
The Civita housing development construction site in San Diego on Feb. 28, 2012.
The Civita housing development construction site in San Diego on Feb. 28, 2012. Photographer: Sam Hodgson/Bloomberg
U.S. Housing Lays Foundation for Recovery
Sam Hodgson/Bloomber
Speculation that new home sales will rebound has boosted shares of homebuilders.
Speculation that new home sales will rebound has boosted shares of homebuilders.
Photographer: Sam Hodgson/Bloomberg
Berkshire Hathaway Inc. Chairman Warren Buffett
Tomohiro Ohsumi/Bloomberg.
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., said “housing will come back, you can be sure of that.”
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., said “housing will come back, you can be sure of that.” Photographer: Tomohiro Ohsumi/Bloomberg.
“Either those builders are insane or they’re getting some traction selling new homes,” Kowalyshyn, 40, said in a telephone interview from his house in Eastvale, California, 45 miles (72 kilometers) east of Los Angeles. “I think we’re seeing the beginning of a recovery.”
After several false starts, housing is flashing the strongest signals yet of a sustainable rebound. While foreclosures continue to depress prices, buyers are wading back into the market, lured by rising employment and record-low mortgage rates. Six years into the biggest real estate collapse since the Great Depression, housing may become a net contributor to the U.S. economy for the first time since 2005.
“There are definitely green shoots in the housing market, no argument about that,” said Peter de Bruin, an economist at ABN Amro Group Economics in Amsterdam. He is the most accurate forecaster of new-home sales, along with his colleague Maritza Cabezas, in the two years ended Feb. 1, according to data compiled by Bloomberg. “Housing will contribute modestly to recovery this year and we will see a sustained recovery in 2013” that probably will continue through 2015, he said.
‘Improved Somewhat’
The Federal Reserve, in its regional Beige Book business survey issued Feb. 29, said the housing market has “improved somewhat in most districts” with “several reports of increased home sales and some reports of increased construction.” Among the Fed’s 12 district banks, “Boston, Cleveland, Richmond, Atlanta, Kansas City and Dallas reported growth in home sales,” and “Philadelphia reported strong residential real estate activity.”
Speculation that new home sales will rebound has boosted shares of homebuilders, with the 11-member Standard & Poor (SPY)’s 1500 Homebuilding index up 17 percent this year, compared with a 9.3 percent gain for the Standard & Poor’s 500 Index.
Early signs of a recovery haven’t revived prices, which have continued to fall as distressed real estate sales depress values. The S&P/Case-Shiller index of 20 U.S. cities fell 3.9 percent last year to a post-crash low, sinking prices on repeat sales to 34 percent below their July 2006 peak, according to a Feb. 28 report. Short sales, when owners sell for less than the amount owed, and foreclosures accounted for 35 percent of January transactions, according to the National Association of Realtors.
Declines Leveling Off
The rate of price declines is reaching the leveling off point this year, even as the the flow of foreclosed homes to market will probably accelerate following a Feb. 9 settlement between the five largest mortgage servicers and state attorneys general over their methods for repossessing homes, said Paul Dales, an economist with Capital Economics Ltd. in London.
“The bottom is behind us,” said Dales, top ranked for his home-price estimates by Bloomberg. “I don’t think we will return to anything like the exceptional booming market we had five years ago. We will have a very steady, slow recovery but a recovery nonetheless.”
After falling two years ago to the lowest level since records were kept in 1947, household formations may hit 1.2 million this year, de Bruin said. New households will help absorb the so-called shadow inventory of homes that are vacant or facing foreclosure, and fuel demand for construction of new apartments and houses in areas with growing populations.
Existing Sales Rise
Existing home sales reached their fastest pace in 20 months in January and more Americans than forecast signed contractsto buy, according to the National Association of Realtors.
In a sign that demand may be catching up with supply, the inventory of homes listed for sale fell to 6.1 months, down from a peak of 12.1 months in July 2010 and the lowest level since April 2006, when the real estate bubble was nearing its crest, the Chicago-based Realtors group said.
Banks loosened standards on both prime and nontraditional loans such as adjustable-rate mortgages in the third quarter of 2011 for the first time since at least 2007, the Federal Reserve reported Nov. 7 in its survey of senior loan officers. An increased number of banks reported stronger demand in the fourth quarter, when lending standards didn’t change, the Fed reported Jan. 30.
Banks Come Back
“We are seeing early signs of the banks being willing to come back on a very selective and limited basis,” said Barry Rutenberg, a Gainesville, Florida, builder who is chairman of the National Association of Home Builders. “We are starting to see it loosen up just a little bit. This is the very beginning of this. Let’s not get carried away with euphoria. It is generally loosening up.”
New single-family home sales beat analysts’ expectations in January and sales for December and November were revised upward, the Commerce Department reported Feb. 24. Last year, new home sales declined to a record low of 304,000, according to department records dating to 1963.
Housing starts, including apartments, rose 1.5 percent in January to an annual pace of 699,000, the Commerce Department reported. About 750,000 total new housing units -- 480,000 single-family and 270,000 multifamily -- will be started this year, up 23 percent from last year, and below the 2 million pace in 2004 and 2005, Dales said.
Homebuilder Confidence Improves
Homebuilder confidence improved in February to the highest level since May 2007, according to the National Association of Home Builders/Wells Fargo sentiment gauge. Ninety-eight metropolitan markets had improving conditions for homebuilders, according to the group’s index, including Detroit, Miami and Minneapolis.
“The trend is up, not down,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. and a former Federal Reserve researcher. “That is a big change from where we’ve been over the last several years. So I don’t think we’re going to get to a point over the next year or two where homebuilders and others think these are really good times in the housing market. We’re a long way from that. But what we are seeing is some improved trajectory.”
While existing home sales are mostly “a transfer of assets from one household to another,” new home construction is a direct contributor to economic growth, said Karl E. Case, co- creator of the S&P/Case-Shiller property-value indexes. Each increase of 100,000 housing starts adds about $25 billion to the economy, estimates Case, professor emeritus at Wellesley College in Wellesley, Massachusetts.
New Tax Revenue
Each new house creates about three yearlong jobs and more than $89,000 in new tax revenue, according to the National Association of Home Builders.
KB Home (KBH), the seventh-largest U.S. builder by revenue, has begun to raise prices and reduce incentives at some of its 39 communities in Southern California, even as prices on existing homes continue to drop, said Steve Reffner, president of the Southern California region for the Los Angeles-based builder.
The new homes compete with lower-priced existing houses by offering construction warranties and energy-efficient features such as solar-energy panels and insulation that come with tax credits and cut monthly utility bills by as much as 80 percent, Reffner said.
‘At the Bottom’
“Buyers are motivated now because they feel we’re at the bottom,” he said in a telephone interview.
The improvement in construction has led to a run-up in homebuilder-stock prices that led analyst Wilkes Graham of Compass Point Research & Trading to downgrade KB Home, PulteGroup and D.R. Horton Inc. (DHI) KB Home’s shares are up 68 percent this year, the most of any U.S. homebuilder.
“While our updated 2012 and 2013 estimates assume a continued recovery in the market for new homes, we believe the equities have more than priced the growth that we expect to come in the next two years,” Graham wrote in a Feb. 28 note to investors.
Owners of about 5 million homes have lost their properties to foreclosure since the housing crisis began in mid-2006, according to RealtyTrac Inc. (HOMFCLOS) A rout in real estate prices has stripped $7 trillion from home values, according to the Federal Reserve. As a result, more than 11 million owners have mortgages that are bigger than their property values, a figure that increased by about 400,000 in the fourth quarter, CoreLogic Inc. reported yesterday.
More Foreclosures Coming
About 8 million more homes will be lost to foreclosure or sold through distressed transactions in the next five years, according to a Feb. 16 report by analysts at Morgan Stanley. About half will be purchased by investors and converted to rentals, wrote Oliver Chang, Vishwanath Tirupattur, James Egan and Jose Cambronero.
A decline in prices from discounted foreclosure sales along with 30-year mortgage rates of less than 4 percent boosted U.S. housing affordability to a record in the fourth quarter.
“Affordability has increased dramatically as a result of the decline in house prices and historically low interest rates,” Federal Reserve Chairman Ben S. Bernanke said in Feb. 29 testimony to the House Financial Services Committee. Many buyers, however, are “reluctant to buy a house now because of concerns about their income, employment prospects and the future path of home prices,” he said.
Increases in Detroit
Detroit (SPCSDET), where prices have fallen to 1995 levels, was the only metro area in the 20-city Case-Shiller index with year- over-year increases in 2011, rising almost 0.5 percent through December as U.S. prices fell almost 4 percent. Prices in the Warren-Troy-Farmington Hills area north of Detroit rose 3.5 percent last year, the most of the 25 largest U.S. metro areas, according to the Federal Housing Finance Agency’s home-price index.
Andy Hargreaves of Coldwell Banker Preferred Realtors in Plymouth, Michigan, said 60 percent of his listings in Detroit’s western suburbs have been getting multiple offers since December, driving up prices. Auto workers are using bonuses of as much as $7,000 for down payments on homes, as the Michigan- based industry rebounds, he said.
One home had 20 offers, Hargreaves said, and his inventory is half the size it was three years ago.
“I can’t keep a good home on the market very long,” he said.
Urgent Bid
In September, Jason and Rebecca Prone paid $383,000 for a new 3,100-square-foot (290-square-meter) home in Northville, a Detroit suburb, because they couldn’t find an existing house in the area chosen for its quality schools.
“If we didn’t put in a bid by the time we were outside looking at it, we missed it,” said Jason Prone, 34, a transplant from Washington, D.C., who works from home for the U.S. Patent Office.
Demand also has grown for New York City-area condos and for homes in the Boston-to-Washington corridor, said Doug Yearley, chief executive officer of Toll Brothers Inc. (TOL), which reported that orders for the quarter ended Jan. 31 rose 19 percent and average prices climbed 22 percent to $682,000.
“We’re optimistic,” Yearley, whose Horsham, Pennsylvania- based company is the largest U.S. luxury-home builder, said in a Feb. 22 interview on Bloomberg Television. “We have orders that are up significantly. We’re seeing deposits up. We’re seeing traffic up.”
‘Pockets of Success’
More people are building new high-end homes around Boston and spending has increased on home improvement, said John Ted Mahoney III, president of Windjammer Construction Corp., a closely held home-construction and remodeling business in Bridgewater, Massachusetts.
“There are pockets of success for the first time in a long time,” said Mahoney, who’s also president of the Builders Association of Greater Boston.
In Phoenix, prices rose 2.7 percent last year, including a 7 percent increase in the fourth quarter alone, according to the Federal Housing Finance Agency index, which measures resale prices of homes with Fannie Mae (FNMA) and Freddie Mac (FMCC) mortgages. The turnaround in the Arizona state capital -- where almost 53 percent of homes had negative equity in the fourth quarter, according to CoreLogic -- is carrying over to the new-home market.
‘It’s on Fire’
Meritage Homes raised Phoenix-area prices this year by as much as $1,500, said Larry Seay, chief financial officer for the Scottsdale, Arizona-based builder. In January, developer DMB Associates Inc. selected the name Eastmark for a 3,200-acre (1,300-hectare) project that’s the first new large master- planned community in the Phoenix area since 2005, said James “Nate” Nathan, president of Nathan & Associates Inc., a land broker in Scottsdale, Arizona.
“It’s on fire here,” Nathan said in a telephone interview. “We’re adding jobs, the lot inventory is dwindling and population growth has resumed.”
Even in Florida -- which has the highest percentage of homes in the foreclosure pipeline, according to Lender Processing Services Inc. (LPS) -- demand for new houses has revived in pockets, said Jody Kahn, vice president of John Burns Real Estate Consulting Inc. Prospective buyers began lining up Jan. 27, the night before closely held G.L. Homes Ltd. opened a new community in Naples where homes start at $379,000, she said.
“Florida builders began raising prices in December,” Kahn said in a telephone interview from Portsmouth, New Hampshire. “It’s kind of mind-blowing because so many people consider Florida ground zero for foreclosures.”
Inventory Falls
In Denver (SPCSDEN), prices hadn’t rebounded even as the inventory of existing homes listed for sale fell to 8,800 in January, down 37 percent from a year earlier, according to the Colorado Association of Realtors. That may change as agents have started to receive multiple offers on mid-range properties in recent weeks, said Scott Matthias, the group’s president.
“I haven’t seen multiple offers in four or five years,” said Matthias, a Realtor with Re/Max Professionals in Denver. (SPCSDEN)
Those offers also may spark more interest in new home starts, which fell to 3,600 last year in the Denver area, down 82 percent from the 2006 peak, said John Covert, director for the Colorado region for Metrostudy, a Houston-based company that tracks home construction.
“We expect the market to grow by 15 percent this year,” Covert said. “That sounds like a big number for housing starts, but it’s still only going to get us another 500.”
Hopes for a housing recovery were dashed in 2010 when tax credits spurred a spike in sales that proved temporary, and last year, when rising unemployment, bickering over the U.S. deficit and falling stock prices spooked consumer confidence.
Buffett ‘Dead Wrong’
“I was dead wrong,” Warren Buffett said in his Feb. 25 letter to Berkshire Hathaway Inc. shareholders about his expectations for a housing recovery last year. He says he’s optimistic again, expecting reinvigorated household formation to spur demand for more residences.
“Housing will come back -- you can be sure of that,” he wrote. “Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while ‘doubling up’ may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.”
After looking for several years for a larger home, Jessica Moehlman, an auto sales manager, said she and her partner expect to complete the purchase by June of a $439,000 three-bedroom house in Grant Township, Minnesota, about 20 miles east of Minneapolis, so his three children can get into a good school district.
No More Waiting
The improving economy and current price levels have “created an urgency for us to purchase a new home now versus waiting a few years,” said Moehlman, 27. “We feel we are still able to utilize our money more effectively by buying a bigger house for less money.”
PulteGroup, the largest U.S. builder by revenue, and D.R. Horton, the biggest by volume, each have one community in Eastvale, the California city where software developer Kowalyshyn sees improvement. Meritage sold about 30 homes in the town last year and this year opened a new community called River Road, with prices starting at $402,990, said CFO Seay.
KB Home has four communities in Eastvale, with prices starting at $272,990, according to its website. The homes are selling at a profit, Reffner said.
“We think Eastvale is a great market,” he said.
Kowalyshyn said he considered alternatives to keeping up payments on his home, including selling at a loss or walking away from his property to let the bank take it back. To buy a house closer to his Los Angeles office -- a 100-mile round-trip commute from Eastvale that costs four gallons of gas a day and about $50 a month in tolls -- he’d pay more money for less space.
“I’m a numbers guy,” he said. “I’ve done a statistical analysis of all my options. I talked to a lawyer. My conclusion is the best choice, at least short term, is to stay and see what happens.”
To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net
Marcus & Millichap’s Nadji Discusses 2011 Real Estate Outlook on Fox Business
INSIDE SELF STORAGE
"Hessam Nadji, managing director of research and advisory services for Marcus & Millichap Real Estate Investment Services, was featured on a Fox Business exclusive on June 15, sharing his outlook for commercial real estate in 2011. A copy of the broadcast can be viewed at
During the segment, Nadji discusssed the lastest issues facing the single-family for-sale market, the divergence between commercial real estate and the single-family housing market, drivers of the apartment market and more. Nadji said sales activity in the commercial market has been positive in the past 12 months, increasing approximately 17 percent. This is due in part to job-growth numbers in the past year, as we’ve added 1.8 million private-sector jobs in the United States. Apartments are performing well ahead of retail, office and industrial properties.
Nadji, with more than 20 years of experience in real estate research, marketing and technology management, joined Marcus & Millichap in 1996. He oversees the company’s research division including economic and real estate information tracking and analysis and the production of the group’s various publications. He also manages the design and application of various research and marketing tools and analysis-related technology, as well as various real estate supply and demand analyses and databases."
Marcus & Millichap
"Industrial Market" "Midyear 2011"
“INTERNATIONAL TRADE AND PRODUCTION POWER
AN INDUSTRIAL-LED RECOVERY; INVESTORS REMAIN CAUTIOUS
The industrial sector clearly transitioned into recovery in the second half of 2010, aided by a rebound in global consumption that stimulated manufacturing, inventory restocking and export volumes. In addition, the tremendous amount of fiscal stimulus directed to the Midwest region after the near collapse of the automobile industry served to stabilize the area. The confluence of these trends along with accommodative monetary policy featured prominently in the successful jump-start of the U.S. economy. Since then, recovery has progressed sporadically, often with mixed economic signals as demand drivers advance then fade from quarter to quarter. On balance, the U.S. economy is well ahead of where it was one year ago. Private sector industries have created 1.7 million new jobs on a year-over-year basis as of May, retail sales have surpassed their pre-recession levels, and credit markets have begun to thaw. The Fed’s expansion of the money supply resulted in a steeper depreciation of the dollar and a surge in commodity prices. Strong global demand further contributed to the run-up in energy and food prices, which stirred inflation concerns in recent months. However, limited pricing power, a weak housing sector and still subdued wage growth will keep short-term inflation concerns at bay.
Industrial properties benefited from surging international trade, as higher levels of air cargo and seaport activity triggered demand for big-box industrial warehouses with proximity to coastal markets and intermodal transit hubs. Markets with exposure to technology, energy, trade and manufacturing began to stabilize earlier in the recovery, while metros posting higher vacancy and construction levels prior to the recession will struggle for another year. Consistent employment growth and greater availability of credit to small and midsized businesses is essential to aid demand for smaller multi-tenant warehouse, fl ex and business park space. A more broad-based recovery in fundamentals will renew investor confidence and stimulate sales. In addition, the sector’s inherent stability and ties to growth-leading industries and higher spreads relative to the cost of debt will spur greater investor interest this year, prompting a decline in cap rates for better quality assets.
Stronger NOI growth is anticipated across most markets this year, broadening investor appeal from the West Coast focus.”
"NEW YORK | Mon Jun 20, 2011 6:58pm EDT
NEW YORK (Reuters) - Economist Mark Zandi says the United States is "nowhere near" a housing market recovery, but he can nonetheless see a light at the end of the tunnel.
Zandi, the chief economist of Moody's Analytics, sees home prices rising at the earliest at the end of 2012, when buyers snapping up cut-rate foreclosures and short sales will have cleared the market to the point that the percentage of distressed sales starts to fall.
"We're still in the housing crash," he said.
Presently, about a third of home sales are of distressed property. That percentage will increase in the near-term as the foreclosure pipeline, temporarily slowed by flawed processing and related lawsuits, starts to flow again.
Additional price declines will be painful, but necessary for the market to bottom and finally rebound.
"I'm expecting the process to reaccelerate as we work through the foreclosure issues, and we work through some of these legal actions," he said.
Meanwhile, the housing market is already starting to show early signs of healing and the economy is slowly getting stronger.
In some markets, home prices are holding firm. The percentage of homeowners who are 30 days late on their mortgages is falling, Zandi pointed out. And the spread between the discount on foreclosed and other properties is narrowing.
What's more, he sees stable, significant job growth. The economy has created about 2 million private sector jobs since early 2010.
Businesses are strong enough to do more and will, when they have more confidence in the future.
The question of confidence, however, is a sticky one, Zandi acknowledges, and represents valid challenges to his relatively optimistic view of the housing market over the next few years.
"The thing that is so worrisome about the current environment is the lack of confidence," he said. "It doesn't take a lot to tip people over the edge. Before, if we'd had $4 gas and the Japanese effect we would have felt it, but in this context, it flipped people's thinking about the world overnight." "
MARCUS & MILLICHAP INVESTMENT OUTLOOK 2011
"May 2011 National Retail Outlook
Although consumption has fully recovered, even surpassing pre-recession levels, purchasing behavior has changed significantly. National chains and discount retailers have benefited most, leaving local businesses in a weakened state. As a result, the recovery has not been enjoyed equally by all retail centers. Top-tier malls and infill shopping centers have fared best while outlying centers that chased rooftops have been slow to fill. Likewise, sales of retail centers have favored the best assets while weaker properties have languished. With construction at record lows and employment growing, albeit more slowly than hoped, retail operations will continue to strengthen through the remainder of the year."
2011 National Single-Tenant Retail Outlook
Recent retail sales, excluding autos and gas, outperformed industry expectations by rising slightly above their prerecession peak, signaling growing consumer confi dence heading into 2011. The correction in consumer spending has largely run its course, and the resumption of private-sector job gains, along with the fi rst-time homebuyer tax credit, boosted year-over-year retail spending, especially for big-ticket items.With the economy strengthening and payrolls forecast to expand in the coming months, consumer confi dence with continue to grow, supporting a more substantial uptick in retail spending through the holiday season.
2011 Investment Outlook: Commercial Real Estate
The Great Recession exacted an expensive toll on the commercial real estate sector. Vacancies approached or exceeded prior cyclical highs as 8.4 million jobs were lost, and sales volume plunged 85 percent from peak. Despite much hype regarding the lackluster recovery, expectations should be more realistic about what it will take to repair the damage of a recession so different from the typical downturn and much more severe than the worst contractions since the 1930s. The economy has come a long way from what seemed like a freefall, with core retail sales, corporate earnings and initial unemployment claims back to pre-recession levels and private-sector job growth totaling 1.2 million.
"Even Better Times Ahead for Apartment Market: Marcus & Millichap
Jan 26, 2011
By Dees Stribling, Contributing Editor -" MULTIHOUSING NEWS
"Investment specialist Marcus & Millichap’s newly released 2011 National Apartment Report asserts that this year is going to be a good one for apartment owners, whether they hold on to their properties—and thus take advantage of rising occupancies and rents—or take their properties to market to fetch a good price from investors. “All 44 markets in the Marcus & Millichap National Apartment Index will post employment growth, vacancy declines and effective rent gains in 2011, confirming a sweeping recovery and expansion in the U.S. apartment sector above expectations,” the report says.
Much rental and occupancy growth in 2009 and especially 2010 was driven by people obliged to leave owner-occupied housing, as well as households being prevented from buying property due to tight lending standards. Those factors will still be in play in 2011, but added to them will be a resurgent economy. In previous decades, economic growth might have meant more home buying, but attitudes have changed, with apartments seen as a more desirable option than before.
Also helping the apartment market is the fact that the development pipeline for new properties is still small. Indeed, apartment completions will total only 53,000 units this year, 46 percent fewer than delivered in 2010, according to the report. New supply will again fall critically short of demand, which is expected to reach 158,000 units. That means that U.S. apartment vacancy will decrease 110 basis points in 2011 to 5.8 percent, matching the decline recorded in 2010.
“With vacancy in 2011 expected to align closely with pre-recession levels, owners will regain pricing power, particularly in tight core markets,” the report notes. “At the national level, asking rents will rise 3.5 percent to $1,067 per month, while effective rates will increase 4.5 percent to $1,002 per month. Last year, asking and effective rents gained 1.5 percent and 2.3 percent, respectively.”
Naturally, some markets will do better than others, even in good times for the overall market. Healthy employment growth expectations and tight vacancies advanced New York City two places to the number one spot on Marcus & Millchap’s National Apartment Index in 2011, bumping Washington, D.C. to number two. California markets also fared well in the index due to persistent supply constraints that will keep vacancies steady and generate some of the strongest effective rent gain. (Markets are ranked on the index based on their cumulative weighted-average scores for various indicators, including forecast employment growth, vacancy, construction, housing affordability and rents).
Investors looking for apartment properties are going to have a harder time finding deals as more players get into the game, especially REITs, and cap rates continue their compression. The report found that average apartment property cap rates will decline in 2011 after slipping 20 basis points in 2010 to 7.2 percent, led by recompression of the most sought-after deals. Since peaking in 2009, cap rates for top-quality properties have fallen by as much as 100 basis points.
“For top-tier assets the bidding wars continue,” Hessam Nadji, managing director, research and advisory services for Marcus & Millichap, tells MHN. “If the asset has low risk, prospects for outsized rent growth, and is in a supply-constrained location, it’s drawing 20 to 30 offers. We’re starting to see some buyers get out of the market for the absolute best of class assets and look for A minus and B assets since prices and cap rates have become so competitive.” "
Several positive indicators point to a favorable outlook for commercial real estate through 2014, according to the PwC Real Estate Barometer in the 1Q11 PwC Real Estate Investor Survey. By analyzing historical and forecast stock data, the barometer measures inventory changes within the office, industrial, retail, and multifamily sectors over time in relation to the four stages of the real estate cycle.
“As investors become more confident about the long-awaited recovery of the industry, they are eager to get deals done. This bodes well for the industry as the volume of capital chasing deals is expected to increase in all sectors as investors work to deploy capital before interest rates rise, overall cap rates increase, and the industry shifts more in favor of sellers,” says Mitch Roschelle, partner and U.S. real estate advisory practice leader for PricewaterhouseCoopers.
With constrained supply and decreasing vacancy, the majority of the office sector will be in recovery by year-end, with 86.2 percent of the sector rising from the market’s bottom by year-end 2012, according to the report. Despite the nationwide rebound, hard-hit markets such as Chicago, Las Vegas, Los Angeles, and Tampa, Fla., will remain depressed through 2012.
Inconsistent consumer spending and inflation concerns will keep about 76.6 percent of the retail market in recession through 2012, with a more widespread recovery expected by year-end 2013. A few isolated markets such as Long Island, N.Y., and Nashville, Tenn., may see recovery by 2012, faring better than the national trend.
Availability rates for the industrial sector are expected to peak in 2011 as tenant demand strengthens due to the improving economy. As a result, the industrial market is expected to rebound in 2011 and 2012. As imports and exports increase, a good share of the industrial market will enter the expansion phase in 2013 and 2014, with the exception of a few lagging markets such as Tampa, Akron, Ohio, Cleveland, and Minneapolis.
The multifamily sector is recovering well ahead of the other sectors. As tighter lending restrictions limit home-buying opportunities, housing demand will push approximately 30.2 percent of the market into expansion through 2014. New Orleans and Syracuse, N.Y., are not expected to experience near-term gains."
"Talonvest Capital Offers Aggressive Loan Programs for Self-Storage"
INSIDE SELF STORAGE
June 30, 2011
"Talonvest Capital Inc., a provider of third-party capital placement, debt and equity for commercial real estate nationwide, is now offering two new loan programs for the self-storage industry. The company is offering high-leverage CMBS (commercial mortgage-backed securities) loans for borrowers who want to take advantage of maximum loan-to-value (LTV) ratios. It is also providing variable-rate bridge loans for properties with positive lease-up absorption.
The non-recourse CMBS loan offers up to 80 percent LTV and comes with five-, seven- or 10-year terms. Interest rates currently range from 5.3 percent to 5.9 percent.
The bridge loan, also non-recourse, offers prepayment flexibility, a breakeven debt-coverage ratio, and interest rates as low as 4.75 percent.
Based in Costa Mesa, Calif., Talonvest engages in principal investment activities in the $10 million and under range including making loans, buying notes and buying assets. The company is operated by principals Jim Davies, Thomas Sherlock and Eric Snyder."
"Commercial Real Estate: Shrinking Fannie Mae and Freddie Mac?
A Shrinking Fannie Mae and Freddie Mac Allows Private Investors to Reclaim Share of the Multifamily Market, According to John B. Levy & Company
Richmond, VA (PRWEB) June 28, 2011
Always awash in politics and not immune to economic conditions, Fannie Mae and Freddie Mac have shrunk considerably over the past couple years, but in no way have they become small players in the real estate market. Today, they still control a portfolio of property valued at well over $300 billion. According to “Commercial Real Estate: Shrinking Fannie Mae and Freddie Mac?,” the latest podcast produced by John B. Levy & Company (available online at http://www.jblevyco.com), Fannie and Freddie currently hold 50 percent of the multifamily market, a significant drop from the 80 percent share it owned at the height of the liquidity market.
“It’s a fact: Fannie Mae and Freddie Mac are shrinking,” says John Levy, founder of John B. Levy & Company. “The result of this is that the third-party, the independent, the private market is reclaiming part of the multifamily section . . . and that’s how it should be. Cutting the housing part of Fannie and Freddie right now isn’t a great idea right now because that market is so weak. But it makes sense politically for these two players to be smaller, even in the housing market. The only exception,” Levy adds, “is the low-income market. It’s very hard to get the private market to effectively price and buy into low-income housing.”
The market for investing in commercial real estate continues to improve, according to Levy. Once limited to five or six core cities such as New York, Boston, and Chicago, robust investment activity hasextended into second- and third-tier markets. Today, commercial real estate investors are finding significant opportunities in markets that did not exist a year ago.
“With the investment market, it’s as if you’re throwing a rock into a pond,” says Levy. “First, there’s the big splash, and those are the five or six markets you could buy into last year – the Bostons and Washingtons and New Yorks. Now, we’re seeing concentric circles just like in the pond, and those represent an additional twenty to twenty-five markets that capital is going into because the big markets are priced too thin for investors to get the yield they need. We’ve had success raising equity and preferred equity in many of these second- and third-tier markets,” says Levy, “even including those in the Rust Belt.”
As the strength of the commercial real estate market continues to broaden, CMBS is running on all cylinders and expects to have a strong year. Generating only $10 billion in 2010, CMBS should fall somewhere in the range of $40 to $50 billion in 2011. Insurance companies and pension funds are literally in a sprint to bring money into the market, and insurance companies, in particular, are pricing their capital in an effort to secure cream-of-the-crop deals.
“Money is definitely on sale right now,” says Levy. “This is one of those times when you ought to back up the truck and take all you can get. Whether you’re looking at ten- or seven-year money, or even fixed-rate money, it’s going at 4.5 to 5 percent. Could it go lower? Who knows? But this isn’t one of those times to wait for 4.5 percent to edge down to 4.375 percent,” says Levy. “We’re in the middle of a screaming buy right now, so take what you can get. In a year or two, you’ll be glad you borrowed as much as you could.”
Firm Background John B. Levy & Company, Inc. is a real estate investment-banking firm headquartered in Richmond, Virginia. The firm has worked with both buyers and sellers of notes to assist each in achieving their goals. The firm has structured over $3.5 billion in financing for developers and owners of commercial and multi-family projects nationwide, often investing its own proprietary funds into transactions with its clients.
Mr. Levy is an expert on commercial real estate financing and the effects of interest rates on commercial real estate markets. He is the originator and author of the Barron’s/John B. Levy & Company National Mortgage Survey, which Barron’s published for 23 years, and co-creator of The Giliberto-Levy Commercial Mortgage Performance Index (sm), the first and pre-eminent index to measure and analyze the performance of investments in the commercial mortgage industry. Additionally, he is a former member of the Board of Directors of Anthracite Capital Inc., a New York Stock Exchange REIT managed by BlackRock, Inc. and a former director of Value Property Trust.
A seasoned speaker, Mr. Levy has presented nationwide to major real estate associations and key industry groups, including the Mortgage Bankers Association and the Urban Land Institute. He has also appeared on Bloomberg and CNBC. Most recently, Mr. Levy appeared as a guest commentator on FoxBusiness.com and FoxNews.com.
For more information about John B. Levy & Company, please visit our website at http://www.jblevyco.com or call Julia Grant at 804-644-2000, extension 258. You can also follow us on Twitter at http://www.twitter.com/jblevyco and become a fan on Facebook."
