A report from Honolulu Civil Beat. “When the Peninsula at Hawaii Kai condo community got news of its insurance bill for 2024, the condo owners were in for an unpleasant surprise. The association’s premium was going up almost tenfold, to $3.3 million from less than $400,000, said Kris Hanselman, an owner in the community. That would mean an increase of thousands of dollars per year, or hundreds a month, for owners, depending on the square footage of their homes, Hanselman said. It’s an unexpected cost-of-living increase that could prove too much for some families, she said. ‘That amount of money will be very hard to manage for some people,’ she said. Unfortunately for the approximately 400,000 people living in condominiums in Hawaii, the Peninsula’s experience is hardly alone.”
The Des Moines Register in Iowa. “After years of waiting, Vadim Shapiro finally got his new roof. He got a large bill, too. Shapiro, 57, said he asked his insurer for a replacement three years ago, after a hailstorm swept through his Clive neighborhood. He said a contractor believed the storm damaged his home enough to justify a new roof. A year later, in April 2022, he filed a second claim after a thunderstorm struck the neighborhood. He said wind stripped some shingles off the roof. Pekin agreed to pay. But due to a provision in Shapiro’s policy, the company would pay him only what Pekin believed his previous, 21-year-old roof was worth: $9,600. The cost for a new roof, according to Shapiro? $25,000. For two years, he said, he saved money until he could afford the $15,000 gap between Pekin’s payment and the roof’s cost. ‘Something’s better than nothing,’ he said.”
“In February, Fannie Mae and Freddie Mac representatives issued bulletins stating they require insurance policies to cover homes at ‘replacement cost value.’ In other words, policies that don’t pay the full cost for new roofs don’t comply with Fannie and Freddie’s regulations. Clifford Rossi, a University of Maryland business professor and former Freddie Mac risk management director, predicted property insurance problems like slimmed-down roof coverage will upend the home-lending market for the next decade. Banks and Wall Street investors, who buy Fannie Mae and Freddie Mac’s mortgage-backed securities and keep the country’s home-lending system flowing, say they need to know properties will be intact if homeowners default, said he worries the recent announcement will upset investors. If insurers don’t cover the full replacement costs of roofs and customers can’t pay for new ones, those investments would deteriorate. ‘Both (Fannie and Freddie) are scared to death about the fact that there isn’t a viable solution in the marketplace for homeowners insurance,’ Rossi said.”
Business Insider. “More than a year after the downfall of Silicon Valley Bank, higher interest rates are still putting pressure on the US banking system. According to the Federal Deposit Insurance Corporation’s first quarter report, the US banking system is sitting on a collective $517 billion in unrealized losses and has 63 ‘problem banks.’ Those losses have been sparked primarily by a surge in interest rates over the past two years, which have driven down the price of fixed-income securities held by banks. ‘Higher unrealized losses on residential mortgage-backed securities, resulting from higher mortgage rates in the first quarter, drove the overall increase,’ the FDIC said. ‘This is the ninth straight quarter of unusually high unrealized losses since the Federal Reserve began to raise interest rates in the first quarter 2022.’”
The New York Post on California. “Jim Carrey has hacked the price of his long-time Los Angeles estate once again. The actor, 62, initially listed his sprawling 10,954-square-foot Brentwood mansion for a hefty $28.9 million in February 2023. But the lavish pad has failed to find a buyer, prompting Carrey to repeatedly slash the price. The first cut came two months later, dropping to $27 million. By October 2023, he’d trimmed it down again to $24 million. Now, Carrey has dropped the asking price even further, settling at $21.9 million — a staggering $7 million reduction. The relentless price cuts highlight the brutal reality facing California’s luxury real estate market ever since the controversial Los Angeles mansion tax kicked in. Nearby cities haven’t been immune but are faring better. Beverly Hills saw a 24% dip in single-family sales, Santa Monica dropped 29% and Malibu declined 28%.”
“Now, Carrey finds himself the latest victim of this mansion tax mess. ‘In California, the real estate market is experiencing a dry spell. These multi-million dollar properties, if initially priced too high, can linger on the market for an extended period,’ a Los Angeles-based broker previously told The Post.”
The Mercury News in California. “A huge Sunnyvale tech campus has been bought for roughly $100 million in a deal that shows interest in Silicon Valley real estate — yet also underscores the Bay Area office market’s feeble state. The seven-building tech complex in Sunnyvale was bought for $100.8 million by an affiliate linked to Tidewater Capital. The purchase also is a reminder that the Bay Area office market totters at the edge of an economic abyss of plunging values, faltering rents, rising foreclosures, sky-high interest rates, and tough financing markets. In 2019, the seven-building campus was bought for $188 million. At the time, the property’s price was seen as evidence of the bustling state of Silicon Valley’s office market.”
“Goldman Sachs and Hines originally attempted to sell the property for $143 million, 24% below the 2019 price. The final price of $100.8 million was a jaw-dropping 46% below the property’s purchase value just five years ago. This example of weak values for office properties and other commercial real estate is hardly unique in the Bay Area. In San Francisco, some big office buildings are selling at steep discounts of as much as 90% compared with their prior values. Foreclosures haunt other office buildings. Some hotels, including one on famed Nob Hill, have been returned to their lenders.”
The Austin Monitor in Texas. “A recent audit by the Office of the City Auditor looking at the possibilities for converting vacant office spaces into housing stock has found the practice known as adaptive reuse is likely a poor fit for office buildings mostly constructed in the last 10 to 20 years. Research into the financial and other considerations involved in adaptive reuse found it can be preferable to demolishing an aged project, but the resulting units typically need to fetch luxury market prices to justify the redevelopment costs.”
“‘For Austin, we do not think it is a very good fit,’ said Hannah Rangel, DAA’s vice president of built environment. ‘The downtown core has a very young building stock. Our downtown has doubled in the past decade. When we were talking about some of those vacancies in office buildings, these are big new towers that still have a lot of debt and equity attached to them and business plans and pro formas and also will probably have floor plates that are not really appropriate for conversion.’”
New Jersey Biz. “A panel convened by NJBIZ featuring four industry leaders – all with unique perspectives – explained how businesses can navigate a complex economic time in banking and finance. ‘The market is coming out of a long period of low interest rates, and it needs to adjust to the new reality,’ Ran Eliasaf, founder and managing partner, Northwind Group explained. ‘Initially, the predictions were that we’re going to see a faster reduction in rates. That’s not happening. You can see it in the curve right now. And what that means is that cap rates and valuations have to adjust – and they will. It already started happening on commercial real estate; definitely happened in office where we see now new valuations coming in much lower than they were three-four years ago. It’s going to happen also in multifamily – it has to. There has to be a correction.’”
“‘We are seeing a lot of transactions that need more time to stabilize, and the equity needs to write a check to right-size the loan – and that’s happening,’ said Eliasaf. ‘We’re still seeing a lot of loans that are being extended with current lenders – banks and non-banks alike, mortgage rates, etc. – that are giving more time. Some people like to call it ‘pretend and extend.’ It’s a reality. I think many loans are getting extended now with hopes for a better rate and a better environment in the future.’”
The Vancouver Sun in Canada. “A Vancouver developer has had all four of its residential projects ordered put up for sale so it can repay lenders after running into delays and financial trouble. Align Properties’ projects were being developed as residential condo towers in the West End and the Cambie Street corridor, and its latest, a low-rise, market-rental development, is also on the city’s west side. Align Properties, formerly known as Vivagrand Development Corp., describes itself as being part of the Xiangli Group, a real estate developer in Guangzhou, China. Align was developing two six-storey rental buildings with 120 units on four parcels of land on Baillie Street, near Oakridge Centre.”
“This week, a half-finished townhome project with 17 units on Park Drive in Marpole owned by Centred Developments was placed into receivership. In February, a high-rise condo project in Coquitlam by the same company was ordered for sale after foreclosure proceedings.”
The Toronto Star in Canada. “Anxious observers of Toronto real estate are hoping a possible interest rate cut Wednesday morning can revive the comatose market. While would-be buyers believe something has got to give, it likely won’t be the listing prices, says John Pasalis, president of Realosophy, a Toronto brokerage. Despite a glut of active listings on the market — particularly for condominiums, Pasalis expects prices to remain stable. At the end of May, Greater Toronto had the highest number of condo units for sale for any month in recent history with 8,183 apartment units on the market. The last highest number of active condo listings was 7,600 in October 2020.”
“While it’s clear investors are ‘rushing for the exits,’ Pasalis says they’re being patient. ‘When owners get anxious, they fire sale their unit,’ Pasalis said. ‘But they’re not panicked. It’s not like they’re selling at any cost. Most investors have a lot of equity. It doesn’t look like there’s a lot of distress.’”
From CTV News. “Homeowners riding the wave of low-cost mortgages are set to come crashing into a reality of higher rates as millions of terms come due for renewal over the next few years in Canada. The Canada Mortgage and Housing Corporation (CMHC) reports roughly 2.2 million mortgages will come up for renewal in 2024 and 2025, while a Royal LePage report(opens in a new tab) released in Oct. 2023 indicates 3.4 million Canadians have a mortgage set to renew by March 2025.”
“‘I kind of had a bit of that gut wrenching feeling,’ said Tom McCormick, a homeowner and budding real estate investor in Windsor, upon realizing his interest rate was likely to double. McCormick bought his first home in 2020 and converted the single-family house into a duplex. ‘It was pretty rough,’ said McCormick, recounting the renovations he undertook. McCormick secured a mortgage with an interest rate less than 2 per cent. When he renews this fall, he is likely looking at a much higher rate. And that could add as much as another $1,500 to his monthly payment, by his own calculation. In his situation, that is likely to trickle down to his tenants. ‘I’ll probably only raise about a hundred dollars or so, just to make sure it takes care of all the utilities,’ said McCormick.”
“For mortgage brokers like Sasha Syed of Mortgage Suite in Windsor, those in line for a renewal need to start mortgage shopping six months to a year out from their renewal date to secure the best mortgage product. For those unable to qualify for a traditional mortgage through a bank or credit union, private lenders fill the gap – often at a higher cost tied to higher risk. Syed points to this cohort of mortgage holders as a group in need of careful financial scrutiny. ‘A lot of stuff I’ve seen is people calling in that they need to get out of a private mortgage,’ said Syed.”