Thursday, June 30, 2011

Talking real estate on "L.A. Business Today"

Recently, I appeared again on the television show “L.A. Business Today,” which airs on Channel 35 in Los Angeles. Hosted by veteran reporters Bob and Sharon Jimenez, the show focuses on interviewing business leaders to discuss economic and business trends in what is one of the most dynamic regions in the world.

In this particular segment, Bob Jimenez asked me a variety of questions on foreclosures, mortgage lending, the mortgage interest tax deduction and the state of the housing market.

Although the segment is currently airing regularly on the City of Los Angeles’ Channel 35, it’s also available on demand on the show’s Web site (please note that viewing it requires Windows MediaPlayer).

You can view the entire show by clicking on the following link:

Patrick Duffy Interview on L.A. Business Today

If you want to just watch my segment, it begins at about minute 14:45.

Enjoy the show!

Los Angeles Economic Forecast Conference - Commercial Real Estate

As part of its ongoing association with Beacon Economics, MetroIntelligence authored the commercial real estate section for the Los Angeles Economic Forecast Conference, which took place on June 21st in downtown Los Angeles.

If you'd like to read the section in its entirety, we've made it available for free on our Web site.

Please also register on our Web site to keep updated on future reports and presentations.

Click here to download the report.

Click here if you'd like to register for updates.

Here were some of the major findings from our report:
  • Due to economic uncertainty, businesses will continue to be conservative with capital spending and expansion, delaying such decisions until a rebound is evident (although health care will be an exception).
  • Tremendous opportunities abound for well-capitalized investors with the expertise to invest countercyclically in the best submarkets, particularly investors with cash, given the uncertainty regarding future interest rate hikes.
  • Investors should temper their expectations by selecting only well-leased assets and looking for cash flows of 6% to 7%.
  • Given the low mortgage rates, it’s a good time to lock in long-term leverage at cyclical lows, which will help amplify gains as market fundamentals improve.
  • There will be a continued focus on 24-hour markets and global gateways, especially along the coasts with international airports.
  • Infill projects will be favored over fringe locations, in large part due to the trend of echo boomers and baby boomers trading space for a more urbanized environment.
  • Now is a good time to buy land, but only to hold for the right development opportunity down the road.
  • There will be excellent opportunities for lenders and investors to provide both debt and equity to distressed owners hoping to keep their properties.
  • Patience is key - transaction volumes will slowly increase and more distressed deals will appear.
  • Look for industrial and warehouse space to lead the way, followed by the retail sector and then the office sector.

L.A. County Economic Conference - Residential Real Estate

As part of its ongoing association with Beacon Economics, MetroIntelligence authored the residential real estate section for the Los Angeles Economic Forecast Conference, which took place on June 21st in downtown Los Angeles.

If you'd like to read the section in its entirety, we've made it available for free on our Web site.
Please also register on our Web site to keep updated on future reports and presentations.

Click here to download the report.

Click here if you'd like to register for updates.

Here were some of the major findings from our report:

  • Lower home prices continue to make them exponentially more affordable than they were in the past, with 43% of households able to buy the median-priced home at current interest rates. This compares with the low single digits between the second quarter of 2004 and the third quarter of 2007.
  • Although tax credits did help housing prices rebound temporarily, since their expiration the S&P/Case-Shiller Index in the county has again began to decline, falling by nearly 3.5% since the middle of 2010.
  • New home sales remain in hibernation, down by over two-thirds from their 2006 peak; although new home prices have rebounded slightly from their most recent trough in mid-2009, they’re still off by 20% from their peak in 2007.
  • Since rebounding from their trough at the end of 2007, sales of existing single-family homes rose by over 30% by the first quarter of 2011, but remain low due continued competition from foreclosures; after falling by nearly 50% between mid-2007 and mid-2009, prices did recover by about 12% by the first quarter of 2011 but remain under considerable pressure.
  • Although condo prices did stage a temporary rally in late 2009 and 2010, by the first quarter of 2011 they remained just below their low point of mid-2009; however, the consequence of lower prices has helped boost condo sales by nearly 30% between the first quarters of 2009 and 2011.
  • After witnessing elevated vacancy rates and pressure on asking rents due to a combination of the recession and foreclosed homes being sold to investors, the apartment market is now the strongest sector; vacancies are expected to end 2011 below 6.5%, while rent growth slowly rebounds to 1% per quarter or more.
  • Although the rate of quarterly foreclosures did decline sharply from the peak in the third quarter of 2008 through the end of 2010, they’ve rebounded by about 25% as stronger banks begin to release more REO homes onto the marketplace; fewer defaults, however, could indicate that this rising tide of foreclosures may soon peak.
  • Permits for both single-family and multi-family units in 2010 rose over levels noted for 2009, but remain well below 2008 totals; looking ahead, increases for multi-family units should out-pace those of single-family homes due to the relative strength of the apartment market.

Wednesday, June 29, 2011

2011 Los Angeles County Economic Conference materials and webcast now online

Even if you missed Beacon Economics' 2011 Economic Forecast Conference for Los Angeles County on June 21st, you can still download the conference book for free and also watch a webcast of the entire event.


As part of our ongoing partnership with Beacon, MetroIntelligence authored the sections on residential and commercial real estate.

Click here to download the entire conference book.

Click here to see a video of the event.

And please be sure to contact us for any consulting studies you need done!

Wednesday, June 22, 2011

Tax credit market study by MetroIntelligence gets funding!

We just found out today that a market study we produced in support of tax credits for an affordable housing project in Thousand Oaks, CA received over $11.4 million in federal tax credits. Not only that, but the application received the highest score in the Central Coast region as well as one of the highest scores in the state.

We've completed a variety of such tax credit studies over the years throughout the state, and our projects usually get funding even as the requirements for these studies have become stricter. For more information on how we can help you and your affordable housing project, contact us a MetroIntelligence.

From the press release:

On June 22, 2011 the California Tax Credit Allocation Committee (CTAC) awarded Many Mansions $11,405,569 in 9% federal tax credits to assist in the financing of Many Mansions' planned 60 unit Hillcrest Apartments affordable housing complex in Thousand Oaks, California. Many Mansions' application received the highest score in the Central Coast geographic region and one of the highest scores in the State of California. The Hillcrest Apartments project is a $26 million new construction project; consisting of five residential buildings, a community building, picnic areas, a community garden, and a playground. The project is designed with the latest 'green' features and will be certified 'Green Communities'.

The complex will be a mixture of 1, 2, and 3 bedroom units-all units are restricted to low-income households, half to extremely low-income households who are also currently homeless.
The recent Ventura County homeless count in 2011 showed an increase in families with children who were homeless. Many of the units are further designated for individuals who have a disability. Along with the award of tax credits, Many Mansions also received funding and support from many other organizations and agencies. The City of Thousand Oaks Redevelopment Agency provided the initial funds for acquisition of the land and most of the pre-development costs.

Other funding and support came from the
State of California-Housing & Community Development Division, the County of Ventura, the County of Ventura Behavioral Health Department, the Ventura County Continuum of Care, the Federal Home Loan Bank, the Mississippi Valley Life Insurance Company, the federal Department of Housing & Urban Development (HUD), the California Housing Finance Agency, and U.S. Bank. The construction loan will be through U.S. Bank. Construction is set to begin in October, 2011 and will take approximately 14 months.

Once operational, Many Mansions will provide a variety of on-site service programs for the residents-an after-school tutoring program (the Homework Tutoring Club), summer camp (Camp Many Mansions), and other programs for the children; case management, job development, and other programs for the formerly homeless adults and families.

Monday, June 20, 2011

The Challenges of Tracking Shadow Inventory

If there is one mysterious unknown hiding in the corner of the building industry, it would definitely be shadow inventory, or that glut of distressed homes held back by banks which could be dumped onto the market at any time. Nationally, these unsold units total as many as 1.8 million homes, which at current sales rates could add another 9.0 months to unsold supply.


Add to that total known REO listings as well as homes bought by investors to either flip or rent out, and you have a fairly significant portion of competition to both homes for sale or rent that often remains hidden from traditional metrics.

For a home builder, this kind of inventory is usually impossible to compete with on price alone, as it typically sells for less than replacement cost, which is why builders are now competing based on better locations, greener construction methods and improving technology.

For an apartment builder or investor, deciding where to build or buy takes on even greater risk if a renter for a typical apartment can find a condominium, townhome or even a single-family home at a competitive price.

Fortunately, there are tools available today to track different markets and submarkets in order to decide where to allocate capital and other resources. Recently, we were asked by an apartment investor to track various regions of Southern California to not only review the health of the multi-family rental market, but to also track potential competition in the form of rental shadow supply. The results were quite interesting.

For example, in just Los Angeles County alone, over one-quarter of all home sales during the first quarter of 2011 were REO units previously owned by banks, which sold at discounts of 24% (single-family homes) to 27% (condominiums) versus the entire existing home market. For new home sales, however, although the difference in pricing according to Hanley Wood Market Intelligence was about the same for single-family homes, for attached homes it was over 52%!

Even for the one-fifth of non-owner-occupied homes bought by investors that weren’t necessarily foreclosures, the units they bought were a bit smaller than those purchased by owner-occupants, and thus could be flipped or rented out for a lower – and more competitive – price. Compared to owner-occupied homes, these potential rental units sold for a discount ranging from 20% (condominiums) to 25% (single-family homes).

So just what does this mean for builders of new homes or apartments? In the case of home builders, it means continued competition for buyers shopping on price alone, so demonstrating the value proposition of a new home is more important than ever.

For apartment builders and owners, today’s low interest rates means that potential tenants can often find a nicer and larger home for close to what they would otherwise be paying to live in a typical apartment. In some cases -- such as when putting 20% down and borrowing the rest at 4.5% or so for 30 years -- the monthly payment for both attached and detached homes plus taxes and HOA fees could still be up to 25% less than what a tenant would pay for that traditional apartment.

Fortunately for builders of both homes for sale or for rent, this current environment will not last forever. As prices eventually stabilize and rebound, buyers will likely tire of buying fixer-uppers with higher power bills in challenging locations. And, as mortgage interest rates rise and the better deals disappear, investors in individual homes will have a tougher time competing against the rental rates charged by owners of larger apartment projects.

For now, however, it remains a game of patience.

Thursday, June 16, 2011

June column for Builder & Developer now online

My column for the June 2011 issue of Builder & Developer magazine is now online.

For this issue, entitled "New Tools to Prevent Another Boom-Bust Scenario," I wanted to review the reasons for the housing boom & bust and what we can do to prevent if from occurring again. This subject will also be the focus of two separate panels at this year's Pacific Coast Builders Conference in San Francisco.

From the column:

The building industry largely missed the signs of the housing bubble, ignored its profound consequences, and adjusted too late. What went wrong? How can it be fixed? And, going forward, how can we develop a more objective and comprehensive framework of market-based due diligence?...

To read the entire column, click here.

To read the entire June 2011 issue in digital format, click here.

Join me at PCBC for two panels

If you're going to be in San Francisco next week for the 2001 Pacific Coast Builders Conference, please join me and other panelists on Wednesday and Thursday to discuss reforming how the industry conducts market research.


On Wednesday from 1:30-2:30pm -- and as part of the Consumer Insights Forum -- we'll be discussing what worked and what didn't and how to get past the lingering crisis. It will present the outlook on home prices and foreclosures and then turn to a sharp focus on consumers and their housing needs, the various sub-segments of demographic groups like the "Millenials," "the aging baby boomers," and "Generation X". In the process, the panelists will offer a glimpse at new tools, methodologies and ways that builders can work with and benefit from these approaches. While housing markets are still struggling, it is a good time to start afresh and think about new and sophisticated approaches to the market.

On Thursday from 1:30-2:30pm -- and as part of the Innovation Strategy Forum --we will learn how online consumer focus groups can discern the housing tastes of consumer segments. Explore integrated strategies to create "buzz" about a masterplan through social media, community events, and, most importantly, active listening to consumers. Then, delve into the demand microcosm of a housing project, watch the latest trends in scanning prices at the very local level, and follow how local job and commuting trends can shed light on project or masterplan absorption. These and other tools will show how innovative research approaches can benefit builders and developers.

Participants for both of these days include the following:

Moderator: Gerd-Ulf Krueger, Principal Economist, HousingEcon.com
Patrick Duffy, Principal, Metrointelligence
Rita Lamkin, President, Preface Inc.
Rick Sharga, Senior Vice President, RealtyTrac, Inc.
Belinda Sward, Executive Managing Director, Strategic Solutions Alliance
Alexander Villacorta, Director, Research & Analytics, Clear Capital

If you've not yet registered to attend PCBC, you can do so by clicking here.

Hope to see you there!