Sunday, March 20, 2011

Results Of Irrational Exhuberance

The period between 2005 - 2008 were the height of sales and optimism in the condo developers community in Downtown Charlotte.  It seemed like all you had to do was announce a new project, apply some pricing, and people would line up to buy.

As we all know, the financial crisis has thrown cold water on any new developments, and has slowed down the closings at properties like The VUE.  Financially distressed properties have taken about a third of all sales in the downtown market in the past 12 months.  The developments hit hardest are Fifth and Poplar, The Avenue, 230 South Tryon, Courtside, and Trademark. 

 As this chart indicates, there have been 60 sales in these five complexes over the past trailing 12 months, and of those, 90% have been financially distressed.  Fifth and Poplar has the most loss from the LMS (Last Market Sale) at 53%, while TradeMark has had a stronger retention of value, though the number of unit sales is not the same.

This reaction in the market place highlights the influence of investors buying as the market was turning, not giving them the opportunity to flip their investment to make a profit.  Additionally, mortgages during the initial sales cycle of these developments were easy to get, and the amount of downpayment necessary to secure a loan provided the banks with most of the risk in these transactions.  As we know, many of these mortgages were bundled and sold off.

An ironic twist to this scenario is that a property such as Fifth and Poplar has forced many of the current owners to rent their units as they scale back, and perhaps move in with friends.  Couple this with an ongoing assessment which is pushing the HOA dues in that building higher than most and things become difficult.  When a property does sell, an underwriter will look at not only the percentage of units not owner occupied, but also the percentage of owners past due on their HOA Dues.  This often will lead to an underwriter turning down an otherwise capable buyer due to the inherent risk of the property.

All of these properties remain attractive, and as the sale of distressed properties continues, these five developments will provide the best return for those able to obtain loans.  The attractiveness of the prices available coupled with historically low interest rates makes this the ideal time to buy.

Tuesday, March 15, 2011

Wake Forest University MBA Program Finds A Home

An announcement is coming today (3/15/2011) as to a site selection for the Wake MBA Program landing at the World Trade Center located on the corner of North College and East Fifth Street.  This is great news for creating additional life in that corridor of the city. 

Click on the link to get more details.

Thursday, March 10, 2011

More About PEV's (Plug-in Electric Vehicles)

Nissan was at the Square today, (by the Marriott Center City), and was offering demonstration rides in their Electric Vehicle, The Leaf.  It is not a Hybred, this car is 100% Electric.  It is about the size of a Toyota Prius, and handles pretty much the same.  Being Electric, the gear shift is kind of funny, push down and over as opposed to actually meshing gears. 

The demonstration and test rides were part of a campaign by Duke-Energy and Charlotte Center City Partners to demonstrate the practicality of PEV's.  This particular model gets about 100 miles on a charge, or about the same as 7 round trips from downtown to SouthPark.  Based on gas prices at $3.50 a gallon, and a car getting about 25 miles per gallon, 100 miles would cost your about $14 in fuel with an internal combustion engine.The same trip in an Electronic Vehicle would cost about $3.30, for a savings of $10.70 for every 100 miles you drive.  If you drive 10,000 miles per year, the difference would be $1,070 - Every Year!

To be sure, a charging station in a condominium for your personal use would have an initial cost of around $1,200, but that would be a 1 time cost.  Additionally, there are Federal Tax Credits available, so the costs would be somewhat mitigated. 

The Nissan Leaf I drove has a MSRP of $32,000, so they are not cheap.  But the interior creature comforts are not lacking and the sound system is good.  So, PEV's are coming.  There will be early adaptors and later comers on, but it is enevitable that this is the future we have in store.

Monday, March 7, 2011

As Gas Prices Rise

I have written a few times about the coming move to PEV's (Plug-in Electric Vehicles).  Charging stations are currently available in limited areas, and Duke Energy is looking to expand their installation. 

The news over the past several weeks has been chronicling the increase in the price of a barrel of gas, and the consequences at the gas pump.  Charlotte prices have risen to over $3.50 per gallon.  The magic number seems to be $4.00 per gallon for people to begin to make significant changes in their lifestyle.  Once that threshold is reached, it is thought that more people will consider public transportation as a serious option.

With the unrest in the Middle East, Libya in particular, the price should continue to climb.  When it ends, the price will probably abate some, but there is no real doubt that the long term view has gas prices rising and staying at an elevated level.  Remember, there are only so many barrels, and both China and India are in huge expansion modes.

Charlotte is ahead of the curve as to the conceptual development and execution of a comprehensive transit plan focusing growth in 5 major legs, one having already been built, and another about to begin.  This access to public transportation and a strong core and corridor plan will focus on increasing property values on any area that is convenient to transportation.

Downtown residents should take heart in this.

Friday, March 4, 2011

Interesting Housing Market

Many cities are reporting that Depressed Properties are becoming as high as 49% of the transactions. While that is not really hard to understand, as many homeowners who can wait out the market are doing so, it does represent a significant change from the past. Couple that with the fact that slowly rising interest rates are cooling off the number of first time home buyers in favor of investors.

Remember, investors are the ones who seek to profit by purchasing property below the market value, whether the property is move in ready or not, and reselling it for a profit. Nationally, in the past 12 months, the average price for damaged bank owned properties has declined by 16%, while move in ready bank owned properties have declined 20%. In comparison, non financially distressed property has only declined 4%.

Lenders are also becoming more choosy when lending on properties. Underwriters are making more demands, and time to closing is approaching 60 days. While we have not had that severe of a reaction here in Charlotte, we have noticed it.

As an offshoot of this, the number of investors willing to pay cash for a purchase has significantly increased. There are two primary reasons they are doing this; first, to encourage the seller / bank to give further concessions as fewer things go wrong with cash, and second, time to closing is shorter.

All in all, many are predicting an 8% - 10% increase in existing home sales this year.

Two Bits Of Transportation News

Duke Energy has recently announced plans to create a $1.2 m PEV (Plug-in Electric Vehicles) pilot in the Carolinas. There are issues to be addressed as this technology goes forward, such as will transformers need to be upgraded, will peak power need to be upgraded, etc. Ideally, home users will be able to charge overnight, when peak demand is low, but those patterns need to be understood.

At least one downtown Condominium has approached Duke to become part of the pilot, noting that the potential for many users in a relatively small area can be addressed. Also, many of these condo residents tend to be early adapters, and would give Duke a pretty good read.

With the turmoil in the Middle East, and gasoline prices seemingly heading to $4 a gallon, I would expect to see much more interest in PEV's.

The second item is that Columbia, SC city leaders have come to Charlotte to discuss the initial concept of installing a commuter rail corridor running from Columbia to Charlotte. The implications of this are clear, Charlotte will be on the High Speed Rail Corridor between Washington and Atlanta, and the status as a Hub on that line will expand rail services in several directions. This is not something that will be happening in the near term, but now is a great time to begin exploring the possibilities.

Charlotte's Amtrak Terminal will be located in downtown Charlotte on Graham and Trade Streets.

More Signs That The Bottom Is Here

In an article on Sunday, February 27, 2011, the Wall Street Journal gave reasons as to why 2011 might be the end of the Housing Crash. They give reasons to be optimistic, and project that it might make sense to jump into real estate.

Housing is more affordable than it has been for decades. This may actually be the redistribution of wealth that many conservatives were worried about during the last presidential election, though the cause of the redistribution is squarely
 placed on Wall Street.

Nationally, the cost of a house is equivalent to about 19 months of total pay for an average family, the lowest level that has been at for 35 years. This is the first time I have heard of ownership in those terms. Trying to use that number specifically for just the downtown Charlotte market is difficult due to the lack of data indicating the average income for downtown residents.

When the bottom was / will be reached is difficult to pin down, but everyone agrees that the worst is over. Prices are historically low

, and even another 5% drop on a $200,000 home would only result in $10,000 in savings, or about $50 per month.

Another interesting change is that FSBO (For Sale By Owner) are becoming increasingly rare. Owners are realizing that they often will surrender more than the 6% commission when getting involved in the negotiation and process of a normal sale of a property. Something as simple as pricing the property can become an issue if a subsequent appraisal does not support the owners view of the property's worth.

County Wide Property Re-Evaluation

It sure didn't take too long for the switchboard to light up at the county assessors office once the single family home assessments were mailed! I have a friend that has a parcel in downtown Charlotte that has gone from $300,000 to over $700,000 in value according to the county.

Wow! So what is in store for us condo and townhouse owners. Figures will be released this month to cover everyone not covered in the initial roll out. Before you accuse the county of being unsympathetic to the current economic climate we find ourselves in, be aware that the county is required by law to re-assess every 8 years.

I know the attached chart is difficult to read, I am still working with my provider to be better able to provide pictures and charts in my newsletter, but the trend is unmistakable. The numbers I am using are only condos and townhouses, and only in the downtown area. Over the years, there have been individual events that have affected the value of property, such developments such as Fifth and Poplar, TradeMark, The Avenue, they all inflated the average $ per square footage when they came on the market. Many of those sales now are dragging the market down.

I have an 11 year history of $ per square foot prices for all the downtown Charlotte associations, and will be happy to deliver you a spreadsheet enumerating those values. Please eMaill me with your specifics, and I will send you the results for your building.

The information that I use is from MLS. I cannot guarantee you that the county will accept your petition, but at least I can supply you with enough information to make it an even fight.