Week of March 16, 2009
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Headlines At a Glance
  • Urban Areas See Revival in Housing Construction
  • Young Entrepreneur Thriving in Housing Market
  • Home Builders Get Creative to Survive
  • For Builders, Peace of Mind a Small Price to Pay
  • Stunned by Losses, Institutions Ask: What Now?
  • Nearly 50% of Apartment Landlords Lower Rents

    Urban Areas See Revival in Housing Construction

    A new government study suggests that a substantial amount of housing built this decade has shifted from open fields on the edges of suburbia to dense central cities and their nearby suburbs. In more than half of the 50 most populous metropolitan areas in the U.S., communities at the urban core have captured a significantly larger share of their region’s new residential building permits since 2002 than in the first half of the 1990s, according to an analysis by the Environmental Protection Agency. Long-standing patterns remain: A large share of residential construction still takes place on farmland on remote fringes of metro areas. In most regions, new housing in urban core neighborhoods accounts for less than half. Nevertheless, there was a consistent increase in housing in urban centers from 2002 to 2007, and the trend could transform growth patterns in some places for decades to come. The battered economy presents challenges, with downtown housing struggling with vacancies just as exurban subdivisions are, says Joel Kotkin, a presidential fellow at Chapman University in Orange, Calif., who writes about urban history and trends. “You have to have an economy to sustain high-density housing,” he says, and most jobs are created in the suburbs. “Very few mayors focus on job creation.” (www.usatoday.com)
    USA Today (3/10/09); Haya El Nasser

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    Young Entrepreneur Thriving in Housing Market

    By taking the best of the bust and pretending he’s in a boom, Stewart Beal, the 25-year-old Eastern Michigan graduate who owns Beal Properties and Beal Inc., is finding opportunity in the midst of an economic meltdown. “The mistake I’ve seen people make is retrenching in tough times and I’m not that type of guy,” he says. “I’ll go forward…I’ll be more aggressive than the other guy. People will say, ‘You are going to get in trouble if you keep doing that,’ and I’ll say, ‘No, I’m not,’ and I’ll go and show them that I’m not.” With the deeds to 20 Ypsilanti buildings in its possession, Beal Properties rents out 120 apartments and saw its sales nearly triple from 2007 to 2008. Beal Inc. — a multifaceted company providing services from waste hauling to building maintenance to asbestos abatement — saw its sales almost double from $1.4 million in 2007 to $2.5 million in 2008. Beal bought his first property at 19 and watched the price tag of each successive building steadily drop over the past six years. His companies, he said, would be feeling more pressure if they hadn’t earned a good reputation for quality and competence before the real estate industry slid into oblivion. Beal’s companies are not entirely immune to economic conditions, however. Although 95% of his apartments are occupied, rents have stagnated. He has also had problems with Thompson Block, a derelict building he acquired through court proceedings from the city of Ypsilanti. He recognized the site’s potential and pursued it in late 2005 after receiving the loans to do so within five days. But the design process took a year and by that point the real estate market had turned. His $2.5 million loan was pulled out from underneath the project and plans, he said, were dead for about five months. “Bankers wouldn’t return my calls. It’s still too early to say, ‘Hey, we’re going to start construction soon,’ but I’m more confident than I have been.” Once construction does begin, one floor will house a music school and retailer, another a lounge, and 16 lofts will occupy the top two floors, of which eight were leased before the credit crunch killed the construction. (www.ypsilanticourier.com)
    Ypsilanti Courier (3/12/09); Tom Perkins, Heritage Newspapers

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    Home Builders Get Creative to Survive

    Jeremy Skogquist, vice president of NIH Homes in Elk River, Minn., said that business is brisk now after his company hit the skids in 2006. “We’re a family-owned business and we’re a custom builder. Well, there are a lot of them out there. We were looking for a new way to explain how we were different from all the other builders,” he said. The company sought out a sales consultant to find a way out of the slump, and the answer lay in a new marketing strategy that’s taking root with home building — they became what’s known as a “woman-centric” builder. NIH now aims its home design and marketing at women. A lot of the design features of their homes are deliberately aimed at women — a vanity that looks like it’s from a the beauty salon, little lights lining the bedroom ceiling, a spa and lots of storage. Despite these touches, the home is meant to be pleasant for the whole family. Skogquist’s sales approach now caters specifically to women, who tend to be the drivers of home purchases. Women can fill out an online survey to see which of four profiles — Margo, Elise, Claire and Maggie — fit them best and reflect their taste in homes. “When they sign the purchase agreement, I send a set of flowers to her work, saying that ‘Your new home’s going to be beautiful,’” Skogquist said. “So then all her coworkers see that, and ask who it came from.” Even if it’s formulaic, woman-centric building has brought NIH back to its peak home building levels, and Skogquist expects 2009 to be even better. (http://minnesota.publicradio.org)
    Minnesota Public Radio (3/10/09); Annie Baxter

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    For Builders, Peace of Mind a Small Price to Pay

    The nation’s largest home builders continue to tinker with numbers in hopes of jump-starting buyer demand. First it was price reductions. Then a number of additional design options were added at no cost. Then it was gas money to journey to their developments. More recently, a handful of builders began offering mortgage rates at least one percentage point below the prevailing, already attractive rates. There also is the economic stimulus plan’s $8,000 federal tax credit for first-time home buyers. The latest number they’re tossing out there is six — the number of months they’ll let a home owner go without making a mortgage payment if they lose their job. Within the past month, a number of builders — including Ryland Homes, Toll Brothers, Lennar and K. Hovnanian Cos. — all have introduced mortgage protection programs. In addition to rising unemployment, consumers are concerned about buying a house and seeing it start losing value and want to know where the bottom of the market is. “Given the decline in housing prices and the decline in interest rates, housing is much more affordable than a year ago and we still don’t see people rushing in to purchase,” said James Shilling, a real estate professor at DePaul University. “The price declines are affecting more of the mainstream” than potential job losses. Kira McCarron, Toll Brothers’ senior vice president and chief marketing officer, understands that reasoning but hopes buyers look past the market’s depreciation. “That certainly is an unknown but people who bought out of the last recession in ’91, ’92, if they were still in that property, they still would be very happy today with that purchase,” she said. “You have to take the long view. This is not a dress you buy for a season. It’s a home. That’s the core message we’re trying to put across.” (www.chicagotribune.com)
    Chicago Tribune (3/13/09); Mary Ellen Podmolik

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    Stunned by Losses, Institutions Ask: What Now?

    A new study by Greenwich Associates, a Stamford, Conn.-based consultant and research firm, finds that when it comes to future real estate investing, the news is good. Burned by the wild gyrations of publicly traded stocks, most institutional investors are rightfully pulling back from the equity markets. Less than half of institutions surveyed — 40% — say they plan to make significant changes in their allocations, and 20% of that group said they were planning to increase their investment in real estate. Of the 154 public funds making predictions, 25% said they expect to increase their real estate holdings by 2011. Only 3% said they would decrease their real estate allocations. Of the 192 corporate funds making predictions about their future portfolio mix, 17% expect to increase their real estate holdings by 2011 versus 4% planning a decrease. Those survey responses confirm what many advisors already know — real estate will continue to be an integral part of diversified portfolios. (www.nreionline.com)
    National Real Estate Investor (3/9/09); Ben Johnson

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    Nearly 50% of Apartment Landlords Lower Rents

    The deterioration in apartment asking rents reached unprecedented levels in the fourth quarter of last year, with almost half of multifamily properties in the U.S., or 48.6%, reporting declines, according to New York-based research firm Reis. If the rise in concessions were factored in, the percentage of properties decreasing rents would be well over 60%. “You’ve got a high vacancy rate of single-family homes. If the owner still owns it and it hasn’t been foreclosed, they’re renting it out,” says Victor Calanog, director of research for Reis. “You’ve got competitive property types like condos in South Florida. It’s the shadow inventory story. You’ve got an overall weakness in demand, plus the fact that there’s shadow inventory fighting with standard multifamily property now that’s really putting a lot of pressure on landlords.” Out of the 79 markets tracked by Reis, 58 are showing negative rent growth spread fairly evenly across property classes. For the fourth quarter, the top three markets with the largest effective rent declines were New York, at 1.9%; Miami, with a decline of 1.8%; and San Bernardino, Calif., down 1.4%. For the nation as a whole, the fourth-quarter decline in effective rents averaged a modest seeming 0.4%. For 2009, Reis projects a 1.7% decline, a number that it has never seen before. (www.nreionline.com)
    National Real Estate Investor (2/24/09); Sibley Fleming

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    GM $500 Offer Is Back for 2009, Better Than Ever

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