A report from Market Place. “The housing market is in a weird place. In 2012, demand for homes started rising. The problem was — and continues to be today — that there aren’t enough houses on the market to meet demand. So prices are way up. Susan Wachter, a real estate and finance professor at the University of Pennsylvania’s Wharton School, said prices are so high that demand for homes has been falling lately.”
From Axios. “Data from the Investment Company Institute shows that even though the stock market has risen by nearly 25% this year, investors have been net sellers of stocks, pulling $100 billion out of equity funds. There are still risks, particularly the rising level of debt, which could portend a bubble.”
“‘We don’t have overbuilt houses, we haven’t overdone capital spending. There’s no boom, so hard to get to a bust,’ JPMorgan Asset Management’s chief global strategist David Kelly adds.”
From CNBC on New York. “A new mansion tax, the cap on state and local tax deductions, renewed talk of a pied-a-terre tax and an oversupply of luxury apartments have led to falling prices and sales in Manhattan for two years. Median prices for luxury sales — defined as the top 10% of the market — are down 10% for the year, according to Miller Samuel.”
The Connecticut Insider. “The slumping real-estate market in backcountry Greenwich could use some good news. But the bad news keeps coming, with the announcement that talk show celebrity Regis Philbin has put his estate on North Stanwich Road in Greenwich on the market for $4.595 million. He and his wife, Joy, bought the mansion in 2008 for $7.2 million — which 36 percent above the the current asking price.”
“The signs are everywhere of the weak market — large properties rented out instead of sold as one example. A mansion on Moreland Road — on the market for $26 million in 2013 — was turned into a rental for $22,000 a month before selling last year for $6.5 million. And transactions are down: Home sales in the backcountry hit a total of 103 in 2007, but that number had dwindled to 56 last year. And last year’s top seller, a 6,900-square-foot home at 110 Clapboard Ridge Road, sold for $17.5 million — 50 percent less than its original asking price.”
“To Greenwich real-estate broker and Ken Edwards, the challenges posed in the backcountry are a matter of Economy 101. ‘Like any market, it’s subject to the whims of supply and demand,’ he said. ‘If there’s an overabundance of supply, relative to the number of people looking for estates, it’s going to have an affect on the price.’”
“The news about slumping real estate values in upper Greenwich — ‘the brutal Greenwich market’ in the words of the Wall Street Journal last week — can also have a dampening affect among ‘wealthy people at cocktail parties,’ the real-estate agent noted.”
The Auburn Plainsman. “The blinds in Ray Huff’s office remain permanently drawn up. Outside, a cacophony of nail guns and jackhammers sputter away while an endless line of traffic budges ever so slightly through a shaded West Glenn Avenue. The rate at which these complexes, no smaller than 450 bedrooms, are developing worries local real estate managers who say that the market, which was full to begin with, is becoming dangerously oversaturated.”
“Huff has worked in the student housing vein of real estate for 23 years. He owns Auburn Realty, a local group that manages many smaller apartment buildings throughout the City. ‘There were already vacancies around town, but there are vacancies at a magnitude I’ve never seen with the construction of these large private dorms,’ Huff said.”
“With regard to the unusual vacancy rate of 4%, Huff said that a stinging portion of this quotient consists of one-unit condominiums sitting unoccupied. ‘ lot of the property up and down Magnolia are condominiums, and if you’re a condominium owner renting to students and your one unit doesn’t rent, you’re at zero percent occupancy; we’ve got twenty-something of those.’”
“When vacancies are present at such a high rate in these apartment buildings, the health of the market is harmed as property values decrease. Subsequently, rent rates drop and property managers often struggle financially. Some owners are suspicious of the occupancy rates reported by these large apartment complexes because there is an economic incentive to appear healthier. Banks generally offer better loan rates to developers that have high occupancy rates.”
“The corporations behind the occupancy rates aren’t lying, however. Huff described a way the market is made to appear healthier than it actually is, which takes advantage of two different ways of determining occupancy: physical occupancy and economic occupancy. An apartment reaches full physical occupancy when there is one person in each bedroom unit. When determining economic occupancy, if only one of the four rooms in a four-bedroom unit is filled, the unit can be considered full.”
“The managers who report occupancy rates often rely on banks or corporate bureaucracy who will cooperate only under seemingly profitable conditions, which incentivizes these complexes to report statistics that reflect favorably on the property. Forrest Cotten, the planning director for the City of Auburn, also holds reservations about estimating a market’s health based on occupancy rates.”
“‘Reported occupancy rates have always been a point of contention because you’re basically relying on the honesty of the person reporting the information,’ Cotten said.”
The Digital Journal on Florida. “At a time where class-A apartment buildings are popping up all over the US, Tzadik Management’s Adam Marcus Hendry urges potential investors to stay away. A closer look into the class-A market shows the bleaker side of all the recent development. ‘Recent market studies done in primary markets, including areas like Miami and Fort Lauderdale, are showing a tremendous amount of rental concessions, particularly in the newer buildings,’ said Hendry. ‘It’s almost required now that you give away at minimum two month’s rent in addition to the waiving of most move-in costs.’”
“So why not just lower the rent instead of giving it away? ‘These burgeoning rental concessions are done to keep their market rents and NOI high. These ‘one-time’ concessions are put below the line and seen as one-time instances when there is little evidence to suggest they are’ said Adam Marcus Hendry. ‘The profitability of these apartments is now almost completely on life support, only surviving from the dropping interest rates that reduce debt service at the refinance. With all these new buildings popping up, what is stopping the renter from hopping to the next lease up?’”
“‘Our research is showing some pretty substantial renewal concessions at many class-A sites,’ said Hendry. ‘Renewal concessions aren’t new and are typically necessary depending on the situation, but if the renter was given the same or even double the concession at move-in, your NOI becomes a farce.’”
From KSDK on Missouri. “All of the trash has been picked up from Southwest Crossing Apartments, but a much larger mess still remains. Last week, 5 On Your Side reported that TEH Realty stopped paying its bills or responding to its tenants at several of its St. Louis properties. Now an employee at Southwest Crossing, who asked to remain anonymous, says maintenance requests have been ignored for weeks because the entire maintenance staff was fired a while ago.”
“TEH Realty evidently is in serious financial trouble. Their website is down, staffing has been slashed and the ones that remain haven’t been paid in more than a month. The water service at Southwest Crossing technically should be shut off, but the City of St. Louis has left it on to help out the residents.”
“Southwest Crossing isn’t the only problem property for TEH Realty. Earlier this week, a contractor based out of Kansas City — Eleal Moreno — sued TEH Realty for not being paid for their work at a different St. Louis property, Northwind Estates. 5 On Your Side spoke to that contractor over the phone. He said they haven’t been paid for more than $100,000 worth of work. So far, TEH Realty has not filed for bankruptcy.”