March column for Builder & Developer magazine now online

My column for the March 2014 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "A Bigger, Better Show Filled with Optimism," I covered my week at the 2014 International Builders Show in Las Vegas.  An excerpt:

Back in 2008 when I attended the International Builders' Show in Las Vegas, the mood was somber, the exhibit floor was depressing and education sessions were focusing just as much on avoiding bankruptcy and working with lenders as they were about new products, services and trends. 

Fast-forward to 2014, however, and this year’s show in early February was entirely different. Firstly, it was huge: more than 75,000 attendees filled the convention center for Design & Construction Week, which paired together IBS, the Kitchen and Bath Industry Show and International Window Coverings Expo in more than 650,000 square feet of exhibit space.

For IBS alone, exhibit space grew by 24 percent over last year’s totals, which certainly points to the growing confidence for our industry. Secondly, there was a level of optimism that I’d not seen since the mid-2000s. And thirdly, the decision to shrink education sessions to 60 minutes meant more time to wander the exhibit floors as well as to squeeze in more sessions...

To read the entire column, click here.

To read the entire March 2014 issue in digital format, click here.

2014 IBS: A bigger, better show filled with optimism

Back in 2008 when I attended the International Builders Show in Las Vegas, the mood was somber, the exhibit floor was depressing and education sessions were focusing just as much on avoiding bankruptcy and working with lenders as they were about new products, services and trends.

Fast-forward to 2014, however, and this year’s show in early February was entirely different.  Firstly, it was huge:  more than 75,000 attendees filled the convention center for Design and Construction Week, which paired together IBS, the Kitchen and Bath Industry Show and International Window Coverings Expo in more than 650,000 square feet of exhibit space.  For IBS alone, exhibit space grew by 24 percent over last year’s totals, which certainly points to the growing confidence for our industry.  Secondly, there was a level of optimism that I’d not seen since the mid-2000s.  And thirdly, the decision to shrink education sessions to 60 minutes meant more time to wander the exhibit floors as well as to squeeze in more sessions.

The cheerfulness certainly has legs, with NAHB Chief Economist David Crowe forecasting 822,000 single-family housing starts for 2014 – likely more than 200,000 over 2013 levels.  His relatively aggressive forecast is due to five main reasons:  consumer confidence has returned, pent-up demand is finally converting from theory to actuality, there is a growing need for new construction as the existing housing stock ages, there are much fewer distressed sales, and builders are increasingly taking advantage of these trends.

Not surprisingly the Housing Market Index, which tracks builder optimism, remained above 50 for eight straight months through January before dipping in February due to severe weather. In addition, 58 of the 350 metro markets tracked by the Leading Markets Index have returned to or exceeded their normal levels of economic and housing activity.  As of February, the national housing market is running at 87 percent of its long-term average.  Still, there do remain significant headwinds between today and a full recovery, such as rising prices for building supplies, tight mortgage credit, ongoing challenges with accurate appraisals for new homes, and constrained supply of developed lots and labor.

For the multi-family housing sector, Crowe is forecasting a level of starts by 2015 that’s just above the long-term average of 340,000 as more young adults prefer renting over buying – at least for now.  The strong performance for this sector is due mostly to starts returning to more normal levels, the need to house Echo Boomers born after 1980 and a higher percentage of households renting until the job market is stronger, careers more stable and mortgages easier to obtain.

In terms of product design, there were also some ongoing trends magnified by the recent winners of the Best in American Living Awards during the show’s run.  For example, we’re seeing a return to using the color white to brighten up rooms, focus on clean lines and project a modern feel.  This is made even more important when selecting a historic architectural style such as Craftsman, Prairie, Mid-Century Modern in order to properly take advantage of today’s building methods.  Dual master baths with a shared shower can still provide a spa-like experience while still being practical.

The great outdoors, long incorporated into a new home’s merchandising in the Sun Belt states, is now going nationwide, with more interior courtyards (especially on side yards), moveable glass walls or more foldable French doors, outdoor kitchens for gourmets chefs and grillers, and even courtyard pools that better bridge the gap between outside and in.

Outside the home, we’re seeing a return to bolder colors on the exteriors, made possible through a mix of paint, cladding materials, doors, windows, porches, shutters and trim.  Importantly, this is also another way for builders to better differentiate their product with the existing housing stock.  Luxury amenities are also returning for the discriminating buyer, such as communal kitchens for cooking classes, pools with their own lazy rivers, electric car charging stations and even pools and parks for dogs.

Yet for sheer brilliance, my vote would go for the Push Pull Rotate Door Locks offered by Brinks Home Security, which won top honors at the second annual Best of IBS Awards.  This new locking system opens in three ways:  by turning the knob the traditional way, pushing inward or pulling outward to release the latch.  It won largely because the judges noted that it both solves the problem of how to open a door when your hands are full as well as helping older residents whose hands have lost dexterity.  I certainly know what’s going on my Christmas list!

Live blogging from IBS

Later today I'll be leaving for Las Vegas to attend the International Builders Show.  Although I expect to be pretty busy while there, I'll also try to live blog about any important announcements, ideas or new products that I see.

I've also been asked by Peninsula Publishing, publisher of Builder & Developer magazine, to contribute daily updates from the show floor to BuilderBytes, their email newsletter which is sent three times per week to 130,000 professionals in the building industry.

If you do see me at the Peninsula Publishing booth, at an education session or at a party, please be sure to say hello.  I'd love to hear how you're faring during this stage of the housing rebound.

Attending the Int'l Builders Show in Las Vegas?

The 2009 International Builders Show is just days away (January 20-23 in Las Vegas). The Web site for Builder magazine has some interesting stories for any one planning to attend the show, as summarized below.

I will be attending this year on Tuesday, Wednesday and Thursday to cover the show for Builder & Developer magazine, so if you see me please feel free to introduce yourself and say hello.

• How Green Is the Valley?

  The Southern Nevada Green Building Partnership might be a catalyst for reviving the Las Vegas market.

• Show Home Tour

  Two very different show homes for the 2009 International Builders' Show in Las Vegas.

• Information Age

  IBS '09 offers 250 educational programs during show week. These caught our attention.

• Hot Products

  The exhibit floor is sure to be chock-full of good ideas. Here are a few to look out for.

• First Time?

  The IBS will offer an orientation to first-time attendees and an a la carte fee structure to attract builders to the show.

• Green Day, Take Two

  The NAHB follows up last year's successful launch of green building initiatives will a full slate of activities in 2009.

• Coached Up

  Lou Holtz headlines the show as this year's keynote speaker.

Las Vegas developer blogs back with "Frothing Developer"

Ever since I started Housing Chronicles last November, I've been urging homebuilders to start their own blogs as a way to communicate with their colleagues, suppliers and clients. It seems Las Vegas Developer Alex Edelstein, CEO of Gemstone Development, has taken that a step further in order to counter the constant barrage of bad news from the media.

Entitled "Frothing Developer," the blog seeks to counteract regular media reports about the Vegas market as well as homebuilding in general. From a BuilderOnline.com story:

Alex Edelstein is fed up and he's not going to take it anymore.

As the CEO of Las Vegas-Based Gemstone Development, Edelstein believes the media has it all wrong when it comes to the local economy and real estate market. So he has created a new blog called Frothing Developer to right the media's wrongs.

"If you read and believe all of the negative stories in the traditional media and vulture blogs, it's easy to get a skewed perspective on what's really happening in the economy and the housing markets today--particularly in the local Las Vegas market," said Edelstein in a prepared statement. "We'll go hand-to-hand with anyone who knocks Las Vegas' prospects without an understanding of our market and the real facts. We kept waiting for the media to pick up the positive news here and finally decided we needed to just get the word out ourselves."...

The Frothing Developer blog, which is available on an eponymous web site, has posted roughly 40 stories during its first two weeks ranging from deconstructions of media reports on home prices and inventory to pieces on CNBC's Jim Cramer's relatively bullish outlook on housing.

Gemstone is among the largest condo developers in Las Vegas. Its $230-million Manhattan Condominiums project was the first new mid-rise condominium to be built in Las Vegas since 2002. It sold out its initial 700 units and finished construction on its last building this year. Gemstone's newest development, ManhattanWest, is a mixed-use community with some 600 residences and 200,000 square feet of shops, restaurants, offices, and an all-suite hotel 20 acres in Southwest Las Vegas.

Condo hotels among the worst investments during the boom

During the height of the real estate boom in Las Vegas, we looked at two sites for a developer interested in building condo-hotel projects. But rather than simply look at other similar projects in the area and call it a day -- which was common for many amateurish market studies -- we undertook a much deeper analysis of the lodging market in order to ascertain occupancy rates, future supply, the level of visitors, how many visitors were there for business versus pleasure, how long they stayed and how much they paid for their rooms in order to translate that into a potential carrying costs for a mortgage, HOA, taxes and insurance. Then we also looked at what visitors would pay to rent out condominiums that weren't related to a hotel or its services.

Our conclusion? A very risky proposition unless the property was flagged under an international luxury hotel brand such as the Ritz-Carlton, Mandarin Oriential or Four Seasons due not just due to over-supply, but a complete lack of transparency on pricing and potential income from renting out these units through the hotel. When developers deliberately hide information such as this from appraisers and consultants (which was a fairly common occurrence at Las Vegas high-rise projects and forced us to pretend to be buyers), it's hard to believe they were being honest to buyers regarding actual income from joining the rental pool. After all, how can you provide such estimates to buyers when you've done no such analysis on your own?

What buyers didn't know was that they were gambling as much with buying a condo-hotel in Las Vegas as they were in the casinos, only they knew the rules of the casino. From a Wall Street Journal article:

For many investors, the condo hotel may go down as the Pets.com of the real-estate bubble.

Many buyers purchased the hotel rooms from developers hoping to get paid every time the room was rented. But condo hotels, which account for as much as 10% of all hotel rooms under construction and a much greater percentage in resort markets such as Orlando, Fla., and Las Vegas, are coming back to haunt many of the people who bought the units, the developers that constructed the buildings, and the operators hired to run the hotels.

Some projects also are being brought to the attention of regulators by investors...

"It's been a very bad investment," said Moji Adekunbi, a 47-year-old engineer, who bought a $550,000 condo-hotel unit in the Signature at the MGM Grand in 2005 in Las Vegas, where one of every four hotel rooms being developed is a condo-hotel unit. Mr. Adekunbi counted on the cash flow from renting out his unit more than covering his $3,000-a-month mortgage payment, leaving him with a tidy profit.

He said the developer's sales staff led him to believe that the hotel would have 94% occupancy and $350-a-night rates, Turns out, he said he is netting only between $400 and $1,800 a month before his mortgage payment.

"I am in so much debt. I don't know how long I can sustain this," Mr. Adekunbi said. Making matters worse, many markets for these rooms are weak, meaning owners might lose much of their investment if they sell.

Representatives for the developer and the hotel operator said hotel-rental projections weren't discussed with customers before they bought their units, and some buyers made their own assumptions about rental income. "Some people's assumptions didn't pay off, and they are trying to find someone to blame," said MGM spokesman Alan Feldman.

"...projections weren't discussed with customers before they bought their units..."

Oh, really? Then exactly how were buyers convinced to spend the 25% to 30% premium to buy a hotel-condo unit versus a traditional condo? Financial osmosis? In my experience, sales agents routinely ventured such guesses, so I'd be surprised if MGM was the sole exception.

More from the story:

During the real-estate boom, many Americans scrambled to buy anything they could -- office condos, warehouse condos and high-rise residential condos, which are crowding the skyline of cities such as Miami.

But condo hotels were one of the most dangerous investments of them all. Hotels are risky investments in real estate because occupancy can swing with the weather or the economy. Developers loved condo hotels. "It minimized the upfront risk to the developer, and shifted it to the individual unit owners," said Mark Lunt, a lodging analyst at Ernst & Young. Many developers said they insisted that buyers regard condo hotels as vacation homes that they would use rather than income-producing investments...

At the Trump International Hotel & Tower in Las Vegas a group of condo-hotel owners are clamoring to rent out their own hotel units using their own operator because they said Trump takes too much of the rental revenue. A Trump spokesman said the company's rental agreements are competitive with other condo-hotel rental-management companies in the area.

In other condo-hotel developments, a few buyers are talking to the SEC, alleging possible securities fraud, according to their attorneys. One issue could be whether developers sold these units as investments, which should have been registered with the SEC or other regulators. In some cases, lawyers said, a real-estate offering may be comparable to a security if the offering creates expectations of profits resulting from the efforts of a third party. An SEC spokesman declined to comment.

Historically, the SEC has suggested it wouldn't take enforcement actions against a condo-hotel developer as long as the company didn't provide prospective buyers with projections of income or expected occupancy, among other conditions.

Many developers were careful not to market condo hotels as investments, but "many others find it difficult to restrain themselves from creating expectation of investment returns and cash flow," said Rob Webb, a senior hospitality partner in the Cleveland office of law firm Baker & Hostetler LLP, which has represented condo-hotel developers in cases where buyers have tried to rescind their contracts. "All you have to do is find the developer's newspaper ads, and it could be a devastating blow."...

They were always trying to preach to people that the market is hot. This is a no-brainer. You'd better get in quick," said Mr. Trombley, 40 years old, who spent most of his career with the Minnesota Twins and Baltimore Orioles. In 2005, Mr. Trombley, along with five friends and family members, bought five units in the development for a total of about $2.2 million, according to his attorney, Bruce Barnes, taking out loans to finance the entire purchase price.

Mr. Trombley estimates the four units he holds are worth at best 40% of the original purchase price, he said. Carrying costs, meanwhile, are running about $14,000 a month.

Can you say 'class action lawsuit?' All it takes is finding that single ad or getting corroborating testimony and perhaps those buyers can form a class.