USC forecast: Rents expected to climb in SD

Written By Lily Leung

April 4, 2012

Average rents in the San Diego area rose 4.3 percent in 2011 and are expected to rise at a slower rate in the next year, according to a preview of USC's multifamily report on Wednesday. Vacancy rates locally also are expected to go up.

Some of the factors in play that may impact rental rates this year include high gas prices and an overall decline of San Diego home prices, based on a presentation by Tracey Seslen, an assistant professor of clinical finance at USC's school of business. 

"Things are not doing well for SoCal for the first couple of months in employment; we have to keep an eye on that," said Seslen, who presented a sneak peek of the multifamily report from USC's Lusk Center for Real Estate, at the Lodge at Torrey Pines on Wednesday.

The report said vacancies in the San Diego area are expected to rise 0.7 percentage points over the next year and 1.3 percentage points over the next two years.

Last year, San Diego showed a stronger growth in rental demand as unemployment fell. Average rents increased 4.3 percent, the second largest increase in the Southern California markets analyzed in the report. Los Angeles was first, with an increase of 6.2 percent. San Diego had the highest occupancy rate at 96.8 percent.

That was the case in almost all of the 40 submarkets tracked in the report, which shows a vast improvement in rental demand from two years ago, when only 3 out of 40 submarkets showed rental increases, Seslen said. 

It's still unclear if falling home prices will take away from rentership. A key factor is employment.

The full Casden report will be available next week as preliminary numbers are ironed out.

Source: UT San Diego 

Are apartments good investments?

San Diego County market relatively healthy, spurred by returnees from Riverside, wariness to buy

 Written by Roger Showley

Nov. 15, 2011

Ocean Village apartments in Oceanside were one of the largest and most recent multifamily projects to change hands in the third quarter, CoStar Group reported. The sale price on the 33-unit project, including retail space, was $11.75 million. The project was originally built as condos but is expected to be handled as a rental for the time being, said the buyers, MG Property Group. — CoStar Group

San Diego County's apartment market is looking up for investors for next year, analysts say.

They point to rising demand, falling vacancies, higher rents and more projects in the pipeline.

"The apartment market is going to be very strong," said Russ Valone, president of MarketPointe Realty Advisors. "There's a lot of demand out there because people are shy about the for-sale marketplace today."

He said younger renters want to be flexible in case job prospects draw them away. Young families are interested in renting foreclosed houses and townhomes rather than buy as they normally would in their late-20s and early-30s. And former owners are settling into apartments.

Valone said some of the increasing demand derives from people who moved to Riverside and Imperial counties for affordable housing and commuted to work in San Diego. Many are renting back in the county to be closer to work.

"So you've seen a repatriation of a lot of households who had left the county for housing but continued to be employed in the county," he said.

Vacancies have not reached the low 2-3 percent range seen in the mid-2000s, since so many singles doubled up or moved back home with relatives. But the present vacancy rate of 4.5 percent is considered a healthy one, as measured in a survey in September of more than 117,800 units in 803 projects.

Economists generally say a 5 percent vacancy rate represents a desirable balance point between supply and demand.

Looking to supply trends, Valone said the number of apartment projects is likely to increase next year after a three-year slump. Only three projects with 185 units are under construction now but seven with 1,051 units have received their final go-ahead and 26 with 5,091 units have received tentative approval.

"We'll see increased supply in the marketplace," he said.

The Construction Industry Research Board in Burbank reported that through September, the number of multifamily units authorized locally was 2,329, more than double the 1,022 approved for the same period last year. That indicates many more new apartments are likely to be available in coming months.

By contrast, single-family homes were virtually unchanged for the same period, 1,744 in 2010 and 1,742 this year.

For existing owners, refinancing of their rental projects has loosened up with money available from Fannie Mae and Freddie Mac, the two government-sponsored enterprises that stumbled in the secondary for-sale market three years ago.

According to real estate attorney, Gordon Gerson, who advises clients seeking financing, both companies are on tap to complete more than $40 billion in multifamily financing and refinancing. Owners previously relied much more on commercial mortgage-backed securities offered by commercial lenders.

"This is a good thing because it means the capital markets have opened the gates of funding in the area of multifamily housing," Gerson said. 

Refinancing means owners can free up capital with lower rates and look for more investment opportunities. They also will not face the need to raise rates on tenants as much, since their cost of borrowing will be lower -- "all of which is good for the economy," he said.

Alejandro Lombrozo, a broker at Cushman & Wakefield, said institutional-grade deals, involving 100 or more units, have drawn many potential buyers. He cited one recent example, Woodbend Shadowridge, a 240-unit project in Vista, that sold for $44.3 million last month -- $185,000 per unit. 

"That had a lot of interest," Lombrozo said, "over 30 tours at the property and close to 20 offers."

He said 10 such sales are expected to close this year, about the same as last year and about what 2012 will bring. But he said things could slow down if interest rates rise significantly or Freddie Mac and Fannie Mae pull back on lending. 

But he said other lenders, particularly life insurance companies, are showing greater interest in San Diego apartments. 

For tenants, the current market has meant rising rents.

Valone said his latest survey showed that the average monthly rent surpassed the previous record, set in September 2008, to reach $1,364 in this past September survey. That represents a 1.3 percent increase since the March survey and 2.2 percent year-over-year. 

The highest rent was $1,719 in downtown San Diego, ahead of the submarket leader in the North County Coastal market, where the average was $1,697.

Gerson said rents are rising partly in reaction to the relatively better economy San Diego than in other markets. 

"As employment increases, you have an increase in rents," he said. But he said they are not rising as fast as in the San Francisco Bay area.

"Not only the Silicon Valley but in other suburbs of San Francisco are doing very well," he said.

Source: SignOnSanDiego

Apartment on Iowa in North Park sold

November 9, 2011

The five residential units in North Park at 4342 Iowa St., San Diego 92104, have been sold for $561,000.

The buyer was Draper LLC, 7011 Draper Ave., La Jolla 92037. The members of Draper are Anthony John Henry Pauker and Kristee Anne Beres Pauker.

The acquisition was financed by a $350,000 loan secured by La Jolla Capital Group through Mission Federal Credit Union.

The sellers of the property (assessor's parcel) were David and Nicola Fiedler.

James V. Carter, senior managing director/principal of Apartment Realty Group (ARG) negotiated the transaction.

The rental units total 3,374 square feet and were constructed in 1956 on a 7,000-square-foot lot.

The rentals consist of three single-level detached units, and two units located in the rear building above four garages.

The unit mix consists of one two-bedroom/one-bathroom unit and four one-bedroom units, all with the original hardwood floors.

In November 2001, the property was sold for $450,000, with financing of $315,000.

Source: San Diego Source The Daily Transcript

5 things to know about commercial real estate

Written by Lily Leung

Oct. 27, 2011

Civita, a new project in Mission Valley will feature a mix of condos and apartments. — John Gastaldo / Union-Tribune staff

I spent Wednesday at the Urban Land Institute fall meeting, a gathering of nearly 6,000 people in the real estate market, representing sectors that include land development, lending and planning.

Here are five must-know takeaway points from the convention, which covers housing but has a prominent commercial market slant. The weeklong function is being held at the Los Angeles Convention Center.

1) There's an air of uncertainty about the commercial market. Stephen Blank, senior fellow at the Urban Land Institute, used the word: "tenuous" or lacking in clarity. Part of that is due to erratic domestic policies, where U.S. government officials went from the "too big to fail" period of fall 2007 to current Dodd-Frank legislation that's "too big to read," Blank said.

2) Those in the commercial field feel over-regulated, impeding progress and growth, they say. Some suggested a more middle-of-the-road approach in financial rules. Mark Gibson, executive managing director of Dallas-based commercial real estate capital company Holliday Fenoglio Fowler, suggested the industry identify municipalities that are in the best spot to "enhance job growth."

3)Which takes us to the next point: employment. Blank, the ULI leader, said the key out of the country's real estate slump is job growth. Locally, certain sectors are showing stronger hiring potential than others. Among the in-demand jobs include nurses, internet developers and retail, show recent numbers from the state Employment Development Department. 

4) The overall commercial sector has been stagnant, but apartments are a bright spot. Rents are rising while vacancies are dropping, a scenario seen locally. Hessam Nadji, a veteran real estate analyst who's widely quoted, called retail the "dark horse" of the pack, with office and industrial at their bottoms.

5) Demographics will be very important in the coming years. The Social Security Administration says almost 80 million baby boomers will file for retirement benefits within the next two decades. Nadji says it will be important for industry people to pay attention to this group's needs and wants, as many plan to downsize and relocate. Another important demographic is what he calls the "echo boomers," also known as Generation Y. Both groups will represent great spending power.

Source: SignOnSanDiego

Home Lending Revamp Planned

New Rules Aim to Speed Refinancing

By Nick Timiraos
October 24, 2011

Federal regulators on Monday unveiled a major overhaul of an underused mortgage-refinance program designed to help millions of Americans whose home values have tumbled.
The plan is the latest White House effort to deal with one of the most critical impediments to economic recovery—a stagnant housing market caused in part by a surfeit of homeowners who are unable to refinance.
The overhaul will, among other things, let borrowers refinance regardless of how far their homes have fallen in value, eliminating previous limits. That could open up refinancing to legions of borrowers in Nevada, Arizona, Florida, California and elsewhere who are paying high interest rates and are deeply "underwater," owing more than their houses are worth. President Barack Obama is expected to tout the program in Las Vegas on Monday.
The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments, according to administration officials and an official at the Federal Housing Finance Agency. Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.
The revamp is aimed at homeowners like Christine and Hector Penunuri of Gilbert, Ariz., who have never missed a mortgage payment and who both have jobs and good credit. Yet their application to refinance their five-bedroom home, which has fallen in value, was denied earlier this year because their tax returns showed a $1,000 loss in start-up costs from Mr. Penunuri's business, which isn't even his day job.
It's "absurd," says their mortgage broker, Steve Walsh of Scottsdale, because the loan is already guaranteed by government-backed mortgage company Freddie Mac.
The Penunuris could save $350 a month by refinancing to a 4% rate from their current 5.75%. They would use that money to put their two sons into junior sports, take a family vacation and pay off other debts, says Ms. Penunuri, 41 years old. "It's a win-win situation."
Freddie Mac declined to comment on the rejection of the Penunuris' earlier refinancing. Freddie Mac and sister company Fannie Mae together guarantee roughly half of the nation's $10.4 trillion in home loans outstanding.
Regulators are revamping a program rolled out two years ago, the Home Affordable Refinance Program, or HARP, which lets borrowers with less than 20% in equity refinance if their loans are backed by Fannie Mae or Freddie Mac. President Obama announced HARP roughly one month into his presidency. So far, only 894,000 borrowers have used it, of which just 70,000 are significantly underwater.
"It hasn't worked," said James Parrott, a White House economic adviser, in a speech last month.

Officials at the Federal Housing Finance Agency, which regulates Fannie and Freddie, estimate that between 800,000 and one million more borrowers should be able to refinance. "It's in our interest to have these borrowers refinance into lower rates and continue to pay," said an FHFA official.
Monday's refinance announcement is separate from a recent push by state attorneys general to extract concessions from banks to refinance underwater mortgages. That effort, part of the months-long negotiations to settle alleged foreclosure-processing abuses, would apply only to loans held on the books of five of the nation's largest banks, a much smaller subset of loans.
In past downturns, lower interest rates engineered by the Federal Reserve were a powerful antidote for a sluggish economy. Falling mortgage rates triggered a refinancing wave that lowered homeowners' mortgage payments, freeing up cash for other things. That, in turn, helped to stimulate spending that boosted economic growth.
This time around, falling mortgage rates—now averaging just 4.11% for a 30-year fixed-rate mortgage, according to a Freddie Mac survey—haven't packed the usual oomph. The reason: Many homeowners haven't been able to refinance.
CoreLogic, a company that tracks 85% of all mortgages, estimates that 20 million borrowers with equity in their homes could cut the interest rates on their loans by more than one percentage point if they could refinance. That's about a quarter of all the homeowners in the country.
Because a refinanced mortgage is treated like a brand new loan, refinancing is nearly impossible for another eight million borrowers whose homes are worth less than their mortgages, unless they qualify for HARP.
But what about those who still have equity in their homes? Some have blemishes on their credit and employment histories or don't have enough income to qualify under today's tougher lending standards. Some find refinancing isn't worthwhile after factoring in new fees imposed by Fannie and Freddie or other closing costs. Still others can't get a refinancing application through a clogged mortgage-processing system.
That's a big obstacle to a stronger economy. Goldman Sachs economists estimate that if current borrowers with a 30-year fixed-rate loan backed by Fannie or Freddie were to refinance, they would save $24 billion annually. Researchers at Columbia Business School estimate that the benefits would accrue primarily to working- and middle-class borrowers with mortgages below $200,000.
The changes should help borrowers like Carol Gesior, who has two underwater mortgages, backed by Freddie Mac, on suburban Chicago properties she bought for siblings. She says she tried to refinance but her bank, Citigroup Inc., told her she couldn't without equity. She was unaware of HARP. If she could refinance both properties, she says she would replace her 1995 Ford Crown Victoria.
"I made a commitment. I signed an agreement to pay. But I didn't do anything to cause the values of these homes to decrease," says Ms. Gesior, 52, an office manager at an investment management firm. "Any logical person would have walked away already."
A Citi spokesman says the company is "happy to work with this client to explore refinancing options that may be available to her."
One problem is that bankers or other mortgage originators shy away from refinancing all but the safest borrowers because Fannie and Freddie can force a lender to buy back a loan if underwriting flaws emerge. In response, lenders are asking for extra documentation of incomes and scrutinizing appraisals, steps that raise costs and lead to more denials.
Another obstacle is new fees that Fannie and Freddie charge borrowers with less-than-perfect credit, even if the borrower's existing mortgage is guaranteed by Fannie or Freddie.
The changes being prepared by federal officials should boost refinancing because they will let banks avoid the risk of any "buy-back" on a HARP mortgage as long as borrowers have made their last six mortgage payments and they prove that they have a job or another source of passive income. They are also set to reduce loan fees that Fannie and Freddie charge. The fees will be waived on borrowers that refinance into loans with shorter terms, such as a 15-year mortgage.
Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as Dec. 1, according to federal officials. Loans that exceed the current limit of 125% of the property's value won't be able to participate until early next year. The program's expiration date, originally next June, will be extended through 2013. HARP is only open to loans that Fannie and Freddie guaranteed as of June 2009.
Mr. Walsh, the Scottsdale broker, says such changes could lead him to hire "a ton" of new loan officers. "I have a line out the door of people who want to refinance under that program and can't," he says.
Refinancing can't fix the biggest problems eating at the housing market. Tight lending standards and high volumes of foreclosed-property sales are putting pressure on home prices at a time when demand is weak, potentially creating more underwater borrowers.
But refinancing could help those borrowers repair their balance sheets and guard against future defaults. If lenders and regulators successfully execute the changes, they could be "amazingly powerful," said mortgage-market pioneer Lewis Ranieri. "It'll start to create the confidence which is largely what's keeping the system from going forward."
The changes could spur an additional 1.6 million refinanced loans by the end of 2013, assuming interest rates don't rise sharply, according to Mark Zandi, chief economist at Moody's Analytics.
For the very safest homeowners, falling mortgage rates have been a bonanza. Some have become serial refinancers. Jim Wozniak locked in a 3.88% rate for 30-year fixed-rate mortgages for his primary residence in Brookfield, Wis., and his lakefront home in nearby Hartland late last month. Replacing 4.25% loans, he will save $2,700 annually.
"This is probably my third time in three years," says Mr. Wozniak, a 54-year-old investment adviser who says he has an excellent credit score and lots of equity in both properties.
For others, the hurdles are insurmountable. Appraisals are a big one. When an appraisal shows that a property has too little equity, lenders sometimes order a second appraisal. "You get into these appraisal wars, often at the borrowers' expense," says Marietta Rodriguez, the national director for home-ownership and lending at NeighborWorks America, a nonprofit housing group.
Steven Eisner, a 59-year-old attorney in Haddonfield, N.J., says he expected to sail through the process when he tried to refinance last month because he has good credit and strong income. Instead, he was startled to find that the appraisal on his vacation condo in Bonita Springs, Fla., came in so low he would have needed to ante up $52,000.
He put 25% down when he bought it four years ago. But, because of sagging home prices, his equity has declined to just 10% of the property's value. Refinancing "is simply not worth the trouble," says Mr. Eisner, whose mortgage is guaranteed by Fannie.
Not everyone benefits from encouraging more refinancing, of course. Banks and investors in mortgage-backed securities—including Fannie and Freddie and the Federal Reserve—stand to lose billions if performing loans pay off, leaving investors with cash to reinvest at today's lower rates.
"Somebody's going to get hit. This isn't a free good," says Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va.
That doesn't faze Mr. Eisner. "We've certainly done enough to prop the banks up," he says. "These are loans that everyone knew could prepay."
The success of any refinance push rests not only on whether policy makers can untangle a Gordian knot of technical hurdles, but also on whether they can get buy-in from private-sector players. One major obstacle to refinancing is that the mortgage industry has shrunk. Four big banks now control more than 60% of the mortgage market. Many originators, including the biggest banks, have cut staff or shifted loan underwriters into units working through piles of delinquent mortgages.
New rules designed to prevent independent mortgage brokers—who originate loans on behalf of a bank or other lender—from fleecing consumers have made it harder for them to compete with bigger lenders that aren't subject to the same rules. For example, new compensation rules make it less attractive for brokers to originate smaller or more complicated loans.
The reduced competition has led to longer processing times and higher prices for consumers. When their borrowing costs fall, banks aren't necessarily reducing the rates they charge borrowers by the same amount. Banks with big market share "know they can get away with it," says Thomas Lawler, an independent housing economist in Leesburg, Va. "The market's just not as competitive as it once was."
Industry executives dispute the notion that the market isn't competitive but concede that the industry wasn't ready to handle a surge in applications after rates dropped two months ago.
"Capacity constraints" will be temporary because lenders are hiring more staff, but "in the short run, there's no question that's a challenge," says David Stevens, the chief executive of the Mortgage Bankers Association. Lenders are going "through a lot more checks and balances simply to get a loan approved safely and soundly."
Some spurned borrowers aren't giving up. Barb Skaer, 70, of Appleton, Wis., and her husband wanted to refinance a $402,000 mortgage on a second home that appraised at $547,000 two years ago. She says they have strong credit scores and own part of a manufacturing business that makes bobby pins and hair clips.
Ms. Skaer says their bank, J.P. Morgan Chase & Co., quoted a 4% rate. But she says her loan officer told her she and her husband wouldn't qualify for a new loan because their income from their factory business declined the past two years. A J.P. Morgan spokesman declined to comment.
Ms. Skaer says they are appealing the decision at their bank and may go elsewhere if that doesn't work.
"Our theory is that if we can afford [the current payment of] $2,189 per month, we should be able to afford $200 less by refinancing," says Ms. Skaer. "This makes absolutely no sense to us, and we are not taking 'no' for an answer." 

Source: The Wall Street Journal

The lone bright spot in the commercial market

A longtime real estate expert gives his take during an industry event

Written by Lily Leung

Oct. 26, 2011

The commercial real estate market is going through a period of stagnation, with the apartment sector standing as the lone bright spot, said a veteran real estate analyst Wednesday at an industry gathering in Los Angeles.

"I think we're stuck," summarized Marcus & Millichap Real Estate Investment Services executive Hessam Nadji, who kicked off a market update session at the Urban Land Institute fall meeting.

The annual event brings together the who's who of the real estate industry, from researchers to mortgage bankers and multifamily investors.

The market pause is a result of good and bad conditions, said Nadji, who's often cited by several publications including The Wall Street Journal and Bloomberg/Businessweek.

The bad first: Home prices continue to slide across the country, the European economy is in turmoil and distressed homes sales continue to account for about 20-30 percent of all transactions.

The good, which often gets overlooked: Retails sales have rebounded, as well as corporate profits, which is important because they are the underpinning of investment and hiring. Still, even profitable companies are reserved about any "aggressive expansion," given market conditions, Nadji said.

Slice by slice, apartments have recovered quickly, while the office and retails sectors have reached their bottom, Nadji said.

Nadji predicts "a very gradual recovery" but says we won't see meaningful progress until after the presidential election. He added that the chances of the country falling into another recession within the next 12 months is 20-25 percent.

What could help the recovery along?

Some panelists at Wednesday's market update talk mentioned easing regulation that affects those in the real estate industry. They said we were once too lax and now are too strict.

Source: SignOnSanDiego

New auction date set for "The Razor" house

Opening bid for bankruptcy estate falls from to $13.9M from $16M

Written by Lily Leung

Oct. 31, 2011

A new auction date has been set for "The Razor" house, constructed out of white polished concrete and designed by noted architect Wallace E. Cunningham. — K.C. Alfred / Union-Tribune staff

The auction date for "The Razor" house, a bankruptcy estate in La Jolla once featured in TV commercials, has been rescheduled for Nov. 10, according to the listing agent and recent court records.

The starting bid for the 11,000-square-foot home with private access to Black's Beach also has changed, falling to $13.9 million from the $16 million set in September, documents show. The never-occupied home, at 9826 La Jolla Farms Road, is the bankruptcy estate of Jimmy Donald Cooksey Jr., according to the documents.

The original Sept. 27 auction was not held because "unfortunately, no bidders qualified for the auction," the attorneys representing trustee Leslie T. Gladstone wrote. Listing agent Bob Hurwitz, who is based in Beverly Hills, said the real estate company came close with an overseas buyer but the funding could not be ironed out in time.

The terms for the newly set auction also have changed. Previous terms required bidders to wire in $500,000 to the trustee one week before the auction date. Now, interested buyers can demonstrate ability to close two days before the auction and bring a cashier's check to the trustee in the amount of $500,000. The winning bidder would endorse the check over to the trustee.

The Nov. 10 auction will begin at 11 a.m. at 3580 Carmel Mountain Road, Suite 300 -- the law offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., which is representing trustee Leslie T. Gladstone.

Court documents say the property, which was never finished by the former owner, will be sold free and clear of liens.

The home is the work of San Diego-based architectural designer Wallace E. Cunningham, named one of Architectural Digest's Top 100 Designers.

About $34 million was spent building the estate, which was once featured in commercials for Calvin Klein and Visa. The original asking price was $45 million. 

Source: SignOnSanDiego

The Debt Deal Viewed Through Real Estate’s Prism

By Erika Morphy

August 3, 2011

 

Capitol Hill

 

WASHINGTON, DC-So it happened. Within hours of an apparent default, Congress came together and delivered a bill that would raise the debt ceiling and work towards reducing spending.

The impact to commercial real estate is still a work in progress: more cuts to government spending will be identified under the deal, as will additional sources of revenue. So yes, carried interest is most likely back, yet again, on the table. Still, with the deal closed, the industry has been able to come to a few conclusions about the next two years will bring. Some thoughts as expressed to GlobeSt.com.

We always knew there would be a debt deal...

"I don’t think a default was ever viewed as credible," Kevin Finkel, executive vice president, director of acquisitions at Resource Real Estate, a New York-based real estate asset manager, tells GlobeSt.com. "That is why the markets never fluctuated that dramatically even when talks seemed to break down."

…But we didn’t know how brutal it would be.

That said, the way the political drama played out with the extreme brinkmanship, took a lot of people by surprise. "Especially with the new crop of Congress people from the Tea Party that didn’t want to compromise,” Finkel says. “To me as a businessperson, that was scary and I think it scares investors too."

Does this mean that every issue that comes up in Congress will result in a bloodletting sprawl, Finkel wonders. "I am afraid so and that is no way to run a country," he remarks.

The US will still be a safe haven for investors…

There are 17 countries in the world that sport the AAA rating, Eric Michael Anton, executive managing director and principal of Eastern Consolidated in New York, points out, a list that includes such tiny locales as Isle of Man. “Foreign capital is still coming here,” he tells GlobeSt.com. Even in the run up to the midnight hour agreement, so to speak, the bond returns showed that investors continued to seek out US debt, he says.

…But the bifurcation of trophy and second-tier markets will step up.

Lately there have been signs that investors are interested in Middle America again--particularly multifamily investors that are finding prices too rich on either coast. Foreign investors, albeit more slowly, have been following suit. However, if the US does suffer a credit downgrade the distinction between the gateway global cities and the rest of the country will surely sharpen, Anton also says. “Top cities such as New York, Washington, San Francisco, Boston and Los Angeles will continue to pull in tremendous debt and equity.” Foreign capital, however, stayed away from the Rust Belt, and other secondary cities, and if the US does get downgraded, this will be an additional reason for them to stay away, he said.

We got a commitment to slow spending…

This had to be done, Finkel says. "The country had to deleverage and perhaps just as importantly, it had to tell the world that our debt would not grow anymore."

…But at what cost?

The price of this deal was substantial cuts in government spending, Dennis Russo, co-chair of the commercial real estate department at Manhattan-based law firm Herrick, Feinstein LLP, tells GlobeSt.com. That will lead to slower growth, given the sluggishness of the private sector.

“Economic sluggishness plus austerity tends to equal a less-than-fertile environment for vitality and growth in commercial real estate," says Russo. “The health of most sectors of the commercial real estate economy--office leasing, for example, and sales-investment--depends on growth and the vitality of the gross domestic product, and for the time being, I just don’t see where that growth will be coming from.”

The impact of Washington’s austerity is already being felt outside of the debt ceiling negotiations. The Centers for Medicare and Medicaid Services just announced an 11.1% cut in Medicare rates set, according to the Wall Street Journal - an announcement that promptly sent health care REIT prices tumbling. 

Property valuations could be affected in the near term as well, Michael A. Torres, CEO of Adelante Capital Management LLC, a REIT investment manager in Oakland, CA, tells GlobeSt.com. The rest of the cuts and their subsequent effects will remain in doubt until the “Super” Congress decides on cuts, or they don’t.
 
Source: GlobeSt.com

June foreclosure numbers for San Diego

Lily Leung

July 19, 2011

June 24, 2011 | The Associated Press

The number of San Diegans filing for foreclosure and defaulting on their mortgages continued to fall in June, reported real estate tracker DataQuick on Tuesday.

The county recorded 1,353 notices of default in June, the same amount as May but down 21.8 percent from a year ago. A notice of default is the first step in the foreclosure process. June's drop marks the 19th consecutive year-over-year decrease for San Diego.

Foreclosures, numbering 949 in June, are down 12.3 percent from a year ago -- marking the 13th consecutive year-over-decrease. They were up 9.3 percent from May.

June numbers for San Diego align with the state's. Foreclosures in California fell to a four-year low during the second quarter, from March to June, the monthly DataQuick report said.

"A lot of theories are being floated as to why the numbers are down," said DataQuick President John Walsh, in a statement. "Bank policy changes. Legal challenges. Politics. Holding back temporarily so as not to flood the market."

Walsh added: "The fact of the matter is that no one really knows, outside of lending and servicing industry insiders. One thing is certain: Homeowner distress spreads fastest when home price declines are steepest. And it now appears likely that, barring some new economic shock, the worst of the price declines are behind us,"

Comparing 2011's second quarter to last year's second quarter, both notices of default and foreclosures are down. That's a trend seen throughout Southern California, including Los Angeles, Orange, Riverside, San Bernardino, Ventura and Imperial counties.

Southern California recorded 30,384 notices of defaults this second quarter, down 19.5 percent from 2010's second quarter. There were 21,247 foreclosures in the region this quarter, down 13.9 percent from last year's second quarter. 

Notice of default, Q2

County	Q2 2010	Q2 2011	Yr/Yr pct chg
Los Angeles	13,045	11,250	-13.80%
Orange	4,313	3,705	-14.10%
San Diego	5,458	4,158	-23.80%
Riverside	7,266	5,534	-23.80%
San Bernardino	5,945	4,334	-27.10%
Ventura	1,346	1,133	-15.80%
Imperial	375	270	-28.00%
Southern California	37,748	30,384	-19.50%

Source: DataQuick

Foreclosures, Q2

County	Q2 2010	Q2 2011	Yr./Yr. Pct Chg
Los Angeles	7,300	6,733	-7.8%
Orange	2,223	1,887	-15.1%
San Diego	3,315	2,763	-16.7%
Riverside	6,086	4,810	-21.0%
San Bernardino	4,698	4,083	-13.1%
Ventura	745	697	-6.4%
Imperial	319	274	-14.1%
Southern California	24,686	21,247	-13.9%

Source: DataQuick

Source: SignOnSanDiego

New Luxury Apartment Development in San Marcos Started While San Diego City Redevelopment Projects Take a Hit

By Gabriel Circiog, Associate Editor
RenTV.com reported that Wood Partners has started construction on a new luxury gated apartment community in San Marcos. The four-acre property, located at 815 South Twin Oaks Valley Road, has 12,000 square feet reserved for a future retail development. The residential development is comprised of 42 two-bedroom and 66 one-bedroom units. These will be arranged in four garden style three-story walk-up buildings.
The project will feature granite countertops as well as luxury amenities such as an ultra-modern clubroom with Wifi, electronic gaming systems, a fully-equipped fitness center, a pool and a rooftop terrace. The developer is aiming to offer the highest standard of living in North San Diego County. Construction is scheduled to be completed in October 2012, but the first units will be available in May 2012.
At the same time, 3 Tier Investments LLC will start the construction of its Campus Pointe retail project. The plan comprises two retail building with 12,000 rentable square feet which will include three restaurants and up to seven retail businesses.
In other local news, Signon San Diego informs that the San Diego city redevelopment projects are set to lose $69.8 million in revenues this year and $16.5 million annually henceforth, according to the new state budget plan. Centre City Development Corp. oversees and implements Downtown redevelopment projects and programs.
Frank Alessi, executive vice president of CCDC, told this same source that the organization is facing a $47.6 million payment this year which represents around 38 percent of its tax revenue. The high-profile projects such as the $29.6 million first phase of the North Embarcadero Design and the $8 million expansion of Horton Plaza park will continue as planned if the CCDC board and City Council agree.
Regarding the mega-projects, such as the $550 million expansion of the San Diego Convention center and the $950 million Chargers stadium, Alessi said that the amount of support that the CCDC can offer is problematic.

Source: Multi-Housing New Online

Normal Heights apartment complex sold

By JAMES PALEN, The Daily Transcript

Thursday, July 14, 2011

The lender-owned apartment complex at 4963 35th St. in the Normal Heights neighborhood of San Diego has sold for more than $1 million cash.

Apartment Realty Group represented the seller, 4639 35th Street LLC, which, according to ARG Managing Director James V. Carter, was the San Diego-based private lender that took possession of the property around four years ago. ARG procured more than 10 written offers on the 5,500-square-foot, eight-unit property before closing escrow with the all-cash buyers, Gerald G. Gossman and Rose M. Gossman, for $1,087,500.

Built in 1962, the complex contains six two-bedroom, one-bathroom units and two one-bedroom, one-bathroom units.

Carter spearheaded the sale, while Don Warfield of Donald Warfield & Associates represented the buyer.

Source: San Diego Source The Daily Transcript 

Rents Rise, Vacancies Go Down

By WESLEY LOWERY 

July 7, 2011

Apartment landlords are enjoying rising rents and falling vacancies.

The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.

Rent levels rose fastest in San Jose, Calif., to $1,501 in the second quarter. The average effective rent in San Francisco was $1,806; Wichita, Kan., $495, and New York, $2,826.

Vacancies, meanwhile, fell in 72 of the 82 markets during the second-quarter vacancy rate to 6%, the lowest since 2008 and compared with 7.8% a year earlier, according to Reis. Vacancies declined fastest in Charleston, W.Va., Greensboro/Winston-Salem, N.C., and Richmond, Va.

"Rising rents and falling vacancies are the perfect situation for landlords," said Rich Anderson, an analyst for BMO Capital Markets. "It's like drinking without the hangover."

But there were some cautious signs in the data. Landlords filled a net 33,000 units in the second quarter, a slowdown from the 45,000 units they filled in the first quarter. That was somewhat surprising because typically, the net "absorption" rate falls faster during the summer as college graduates leave campus and descend on cities in search of jobs. Some analysts said the slower absorption rate could be linked to slower job growth, although it is too soon to know for sure. The peak apartment renting season runs from May to September.

"When you're going from big numbers and getting gradually smaller it's tough to determine if things are in fact cooling," says Haendel St. Juste, an analyst at Keefe, Bruyette & Woods.

Meanwhile, supply remains constrained. Roughly 8,700 new apartment units opened during the second quarter, the second-lowest quarterly tally for new completions since Reis began collecting data in 1999.

But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.

But as long as employers keep adding jobs to the economy, analysts say, they expect vacancy rates to keep falling and rents to keep rising. "Barring some unexpected shock from the global economy, we expect the recovery to continue through 2011," Reis wrote in the report. "Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half of the year."

Source: The Wall Street Journal

 

Apartment Market Pushing toward 6 Percent Annual Rent Growth

By Joshua Pringle, Online News Editor

Jun 30, 2011

Dallas–Axiometrics Inc., a multifamily data and analysis providor, released a research report today that shows the national apartment market continuing to heat up in May, with effective rents (rents net of concessions) increasing 0.7 percent from April levels. Axiometrics estimates that effective rents will rise 5.9 percent in 2011, which would be the largest annual increase since a rate of 5.8 percent in 2005.

Year-to-date, effective rents nationally have risen 3.17 percent, as compared to 2.55 percent in 2010. Top performing submarkets for annual effective rent growth in May included San Jose (13.0 percent), San Francisco (9.7 percent), Austin (8.7 percent), Seattle (8.5 percent), Boston (7.4 percent) and Dallas (6.5 percent).

Axiometrics President Ron Johnsey says, “With year-to-date increases in effective rents, and continued strong occupancy levels, renters who are able might be wise to sign longer term leases as property owners in most markets will maintain pricing power at least through the rest of 2011.”

Additionally, the national occupancy rate increased for the 12th time in the past 16 months, rising from 93.3 percent in April to 93.96 percent in May. From January through May 2011, the occupancy rate has increased 86 basis points (bps), which is below the rate of 136 bps for the same period of 2010. Axiometrics says that the slowdown in absorption can be attributed partially to the increase in effective rents year-to-date. But occupancy in May was still above the previous peak of 93.5 percent reached in August 2008.

From May 2010, eight major markets increased occupancy by more than 100 bps and have rates above 95 percent: New York, Minneapolis, Austin, San Jose, Cleveland, Orange County, Chicago and Denver. Some of the most overbuilt markets are recovering rapidly as well. Six major markets that had low occupancy rates in May of 2010 have increased their occupancy levels between 142.5 and 333.4 bps: Charleston, Charlotte, Dallas, Orlando, Phoenix and Houston.

Source: Multi-Housing New Online

Employers Are Occupying More Space, but at a Slower Pace

By Eliot Brown

July 7, 2011

In a sign the economic recovery's recent stumbles may be spilling over into the real-estate market, employers took on less office space during the second quarter than earlier in the year.
In all, the amount of occupied office space rose by 3.7 million square feet from April to June, according to real-estate research firm Reis Inc. While that was the third consecutive quarter in which firms added space, the gains were down from the first quarter, when occupied space rose 5.5 million square feet. Reis tracks the office markets in 79 U.S. metropolitan areas.
Rents, meanwhile, rose an average of 0.2% during the second quarter. The office data come as U.S. job growth—always a prerequisite for improvement in the office sector—has been slower than anticipated. In May, the economy added just 54,000 jobs, according to the Bureau of Labor Statistics, and economists predict the figure for June may not top 100,000.
The measured pace of growth in the office sector has only begun to chip away at the vast quantities of unfilled space across the country. Between January 2008 and September 2010, tenants emptied out of 138 million square feet, pushing the vacancy rate from 12.6% to 17.6%, according to Reis. Since October 2010, the amount of occupied space has grown by just 11.9 million square feet.
The amount of new leasing, "relative to the overall inventory, it's not a large amount," said Ryan Severino, an economist at Reis. "We are generally trending in the right direction, even if it is a slower, more inconsistent recovery than market participants would like to see."
The sector's improvements have been led by resilient markets such as New York and Washington, where job growth has been relatively steady and outpaced that of the nation.
"We had a big first quarter from a leasing perspective, and it still was solid for the second quarter," said Ric Clark, chief executive of Brookfield Office Properties, which owns office buildings in many major U.S. cities. While many firms are keeping to their existing sizes, Mr. Clark said some energy and law firms have been looking to expand. "It's not huge expansion, but it's some," he said.
Late last month, Nomura Holding America Inc. signed a lease for 900,000 square feet of space at Worldwide Plaza in Midtown Manhattan, opting to leave its home in the World Financial Center in lower Manhattan. The move, which is slated for 2013, speaks to the ambitions of expansion in Manhattan for the Japanese investment bank, which currently has 545,000 square feet in New York. Overall, rents in the New York City region were up 0.6% from the first quarter, and 3.6% from a year earlier, according to Reis.
Washington, with the nation's lowest vacancy rate of 9%, has benefitted from government-fueled job growth, which has spurred growth in a variety of related industries. In April, law firm Skadden, Arps, Slate, Meagher & Flom LLP announced it was signing new leases for about 415,000 square feet, expanding its presence by about 50,000 feet.
New office construction—which was all but nonexistent for the better part of three years—has also begun to emerge in the stronger markets. Multiple developers have announced projects in the Washington, D.C., area, including a venture led by office landlord Hines Interests LP, which this spring announced a groundbreaking on a mixed-use development slated to contain 520,000 square feet of office space.
In New York, Boston Properties Inc. in May announced its intention to start construction on a 39-story Skidmore Owings & Merrill-designed office tower on Eighth Avenue, after signing law firm Morrison & Foerster LLP as a tenant.
While major coastal cities have been performing well, some of the cities hardest hit by the recession have yet to see conditions hit bottom. Las Vegas, which has one of the highest vacancy rates in the nation at 24.9%, saw rents paid by tenants fall by 0.3% compared with the prior quarter, according to Reis. Rents in Phoenix, with a vacancy rate of 26.5%, fell 0.1%.

Source: The Wall Street Journal