Five Trends To Watch

Please follow this link to an article written to encourage realtors that the market is changing.  If you read my blog, you know how I believe that trends will help us to map our way into the future.  This article points to 5 trends:

1. Short-Term Pain
2. Over Development
3. Jobs
4. Lifestyle
5. Responsible Government

Attached is a bar graph showing the average dollars per square foot since 2000, including 2011 through June, and it suggests that we have fallen below 2003 levels.  According to the Short-Term Pain trend, we have overcorrected.  I think that will change moving forward, as 45% of this years sales have been financially distressed properties, and as of this writing, there are only 11 distressed properties available downtown.

The other 4 trends all bode well for Charlotte.  We have not had speculation development, nor have we had broadbased job erosion. 

Jobs in many varied sectors continue to be announced, almost on a weekly basis.  Rumors floating around about Sears looking to relocate their headquarters looks attractive, but it is remote.

The Carolina lifestyle is certainly preferrable to most northern tier cities, and finally, we have a pretty responsive and pro-business government in the city and state that promote growth. 

Follow the trends, and I will meet you in the future.

Changes In The Downtown Streetscape

There are several changes that are taking place at the street level in downtown Charlotte that mark the return of investments in the city, most are restaurants.  But first, a mystery guest is showing up in the Independence Building located on the Square.  This former sale center site for The VUE is currently undergoing an upfitting, the actual tenant has not been named, but it should be a great addition at this location.

Nearing completion on South Tryon is Vapiano is putting some of the final touches to their location across from McCormick and Schmicks.  After some permit delays, the Carolina Ale House is beginning their renovations of the ground floor of the Charlotte Plaza Building across from EpiCentre.

Activity will also be returning at 525 North Tryon Street in the site formerly occupied by Palomino's and then GWFin's.  Delta's has papered the windows, and put up a sign indicating that they have begun their renovations.

Finally, I hear that Rooster's, the popular eatery on Morrison Boulevard across from South Park Mall will be opening a location in Founders Hall, or more correctly, on the College Street level side across from BLT Steakhouse.  The College Street corridor is shaping up nicely.

Fifth & Poplar Set To Rebound

One of the best locations for a residential building in downtown Charlotte has always been Fifth & Poplar.  Originally announced as a condo development, the project initially got sidetracked by the terror attacks on 9/11.  Interest in buying downtown immediately stopped, and the project was changed to a rental building.  Around 2003/2004 the developer announced that they would convert the now successful rental complex back to its original plan, condos.

The market was hot again, the banks were hiring, and bonuses were flowing.  It was a heady time.  The downtown skyline was full of constrcution cranes, and announcements for new projects were popping up all over.  In 2005/2006 there were 218 recorded sales in MLS for Fifth & Poplar with an average price per square foot of $345!

Mortgages were easy to come by, and a popular tool was the 85/15 mortgage, with the 85% being the first mortgage and the 15% being a ballooning second mortgage.  Guess what, they have come due.

Not having anything else to go by, the county set the tax rates in line with the sale prices, so taxes were generally in the $400 - $600 per month range.  All the amenities in the building also insured that the HOA dues would be high, $300 - $400 per month range. 

Then came the crash!  Jobs were lost, some people had to move, investors were having difficulties with finding renters, things had stopped working there.  To further complicate the problem, problems with the building began to surface and fingers were pointed between the developer and everyone else.  The HOA determined that an assessment needed to be levied and they took the form of a monthly assessment.  This raised the HOA by another $100 or so per unit!

Last year there were 18 recorded financially distressed properties sold in Fifth & Poplar at an average price per square foot of $197, a drop of over 40% from the high water mark.

Yikes!

There is a light at the end of the tunnel however.  The current market has only 6 active properties listed for sale, and only 2 of them are financially distressed.  The recent tax re-evaluation has cut the taxes for most units by almost 50%, and there appears to be a settlement with the developer and the monthly assessment should be ending within 6 months.  The repair work is nearing completion, and  a more normal time seems to be looming.  The general economy is showing signs of life as well.

The location and amenities remain as good as anything in the city.  The values in this building have never been better, and the coming years should move the property values to approach their pre-recession levels.

Movement From The VUE's Developer?

The VUE has been moving slowly on trying to close out contracts in place.  Some of the contract owners sought to have prices reduced in order to close due to current economic conditions and were willing to walk from their investment. The VUE contracts indicate the developer can sue for damages over and above the initial down payment, and those issues are being decided in an appeal to the courts.

In the mean time, many of the contract owners are getting the following letter:

Dear X,

We have not heard from you in some time. We hope you are doing well. Initial unit sales at the VUE Charlotte have now passed the $15 million mark and we are writing to provide you with some information that may make it easier for you to close on your unit at the VUE.

If you require lender financing in order to purchase your contract unit, you should be aware of the following:

1. As an accomodation to buyers who close through our preferred lenders, we continue (without an obligation under contract to do so) to give those buyers $2,000 credits against settlement costs at closing.

2. One of our preferred lenders, Guaranteed Rate, is now offering up to 90% financing (at what we believe are very favorable and competitive rates) to qualified borrowers. Such terms aer of course subject to change without notice, and not all loan applicants will qualify. The contact information for Guaranteed Rate is as follows:

Matthew Coogan SRVP, Branch Manager

... matthew.coogan@guaranteedrate.com

http://www.guaranteedrate.com

You should also know that our sales team may have some flexibility to get creative in these tough economic times in order to facilitate unit closings and/or alternative resolutions for existing contract buyers. As always, contract and buyer situations are considered on a case-by-case basis. Nevertheless, and without committing to any action or agreement on our part, one or more of the following may apply in your case:

- We may in some cases consider waiving applicable late closing fees for buyers who close expeditiously

- In the event we have sold or are currently listing aq unit that we feel is comparable to your unit under contract, for a price that is significantly less than your contract price, we may in some cases consider reducing the price of your unit to make your price more in line with current sale prices and asking prices at the VUE Charlotte. You should know, however, that in many instances, units are in fact selling today and being listed today at prices that are higher than the prices in place under longstanding contracts.

We hope that you find the information in the letter helpful and informative. Candidly, we are really looking, during the next 60 days, to close units and to determine which contracts simply cannot close because financing is unavailable. As a result, we may be more willing to work with buyers (outside of the contract terms) now than we will be later.

In closing, and to be clear:

1. THIS LETTER DOES NOT CONSTITUTE AN AMENDMENT TO YOUR CONTRACT OR AN OFFER TO AMEND YOUR CONTRACT. THIS LETTER DOES NOT GIVE RISE TO ANY BUYER RIGHTS UNDER THE CONTRACT, OR RIGHTS TO REVISE THE SAME.

2. THIS LETTER DOES NOT CONSTITUTE A WAIVER OF ANY DECLARED OR UNDECLARED DEFAULT, OR WAIVER OF ANY RIGHTS WE HAVE UNDER THE CONTRACT, OR OTHERWISE AT LAW OR IN EQUITY.

3. CONTRACTS AND BUYERS ARE CONSIDERED ON A CASE BY CASE BASIS, AND WE HAVE NO OBLIGATION, AS A RESULT OF THIS LETTER OR OTHERWISE, TO AGREE TO ANY CONTRACT AMENDMENTS OR TO OTHERWISE CONFER ANY ACCOMODATIONS OR BENEFITS ON ANY BUYER. NO ACCOMODATION EXTENDED TO ANY ONE BUYER WILL IMPLY OR NECESSITATE THAT THE SAME (OR ANY LIKE ACCOMODATION) BE EXTENDED TO ANY OTHER BUYER.

4. YOU SHOULD NOT TAKE ANY ACTION FOR FAIL TO TAKE ANY ACTION IN RELIANCE UPON ANY EXPECTATION YOU MAY HAVE AS A RESULT OF THIS CORRESPONDENCE. THE MATTERS ADDRESSED IN THIS LETTER ARE SUBJECT TO CHANGE WITHOUT NOTICE.

This is an indication that the developer is trying to work with existing contract owners to close out on their units.  As I have indicated previously, it is a great building and will not be duplicated in the near future in Charlotte.  It will be wonderful to see it sport more lights indicating more occupancy.

Future Shock In Rentals?

As the downtown condo market bottoms out, many owners are choosing to rent their property instead of settling for less than they consider fair market value in a sale.  This trend is both local as well as national.  MSNBC features this ARTICLE indicating that rental rates are going up. 

I have indicated in previous articles that the demand for living downtown is greater than it has ever been.  This has been fueled by many things, not the least of which is lifestyle.  Over 600 units should change hands this year, and as that happens, most of those changes will be rentals.

Once again the laws of Supply and Demand take over.  I have been working with several renters who initially wanted to negotiate down the price for a rental.  What has been happening is that the rentals are being snapped up pretty quickly, creating a demand for the property, and pretty much eliminating any pressure on the owner to consider lowering the price.  In each of those instances, my clients have lost out by not committing.

A quick look at YTD rentals of non-traditional rental properties, ie individual owners renting their own property, shows that 174 units have been rented, and the owners received 100% of the asking rental price

More News About The Rental Trend

Earlier this week I wrote of the increasing activity in the rental market in downtown Charlotte.  I have come across some supportive information concerning the national trend of increasing rentals.  Go here to read the entire article.  It outlines the 10 best markets for Real Estate Investors.  There are several interesting points in the article.  Here is a quote that I find is extremely relevent:

"The results of the analyusis mirror two major economic trends: population growth and improving employment.  In the past decade, the South has seen the biggest jump in population, up 14.3% to about 114 million people according to the U.S Census Bureau.  The second most populated region, the West, saw its population jump 13.8% to nearly 72 million."

While this article focuses on investors buying property at bargain prices and turning them into rent producing properties, it ties in with my findings that the rental market is doing very well, and that the desire to move into an urban environment is stronger than it has ever been.

As difficult as the times may seem for us, the trend holds great promise for Charlotte and the entire Southeast.

Is Refinancing The Right Decision For You?

With interest rates still remaining extremely low, the thought of refinancing may make some sense to you.  Determine what your motivation is and move forward from there.  The prospect of reducing your monthly payments in this market may seem attractive, but it is a risk that things will improve in the near future. 

Remember, refinancing will end up adding at least closing costs and probably more interest on the loan to save you some short term out of pocket expenses. 

MSNBC has a good set of questions to ask yourself as you consider refinancing.  Go here to see the article.

New Hotel Coming To EpiCentre Replacing 210 Trade Condo's?

Back in February when Charlotte was named the host city for the Democratic National Convention, I made a number of predictions.  Here is one of them:

"It has already been announced that The Park will begin its reconstruction early this year. The new configuration of The Park will create over 100 hotel rooms in addition to over 80 condos. Its location between the convention center and the arena almost guarantees its success. I would also expect to see the Two Ten Trade site be reconfigured into a major hotel. Situated in the heart of the city and across from the arena, this site is begging to be completed. It will be a shame that the residential market will not be in a position to take it, but a hotel there makes sense."

Well, The Park, now called Skye, is a beehive of activity, and a number of rumors have surfaced that an announcement is forthcoming that the former site of 210 Trade Street will become the site of a major hotel, and that hotel chain appears to be a W brand.  The fact that the foundation is already there to support a 50 story building, an intensified construction campaign could have it built in time for the DNC in late August 2012. 

This bit of news will also cast a lot of attention on the cleaning up of the Transportation Mall, the site of a recent fracas following the closing of Speed Street.  There may even be renewed interest in relocation of the Transportation Mall, though that would be difficult.

Stay Tuned!

The Demand For Downtown Property Is Returning

There has been much talk lately about renting vs owning.  There are accompanying articles that talk more directly as to the nature of rentals, but this article is addressing more the demand side of what is taking place in the downtown Charlotte market.

I tried in vain to produce this information in a graphical format, but when I recognizing the difficulties of trying to size the graph correctly in this eZine, I decided to just include the table itself.  The graphs were all too busy and the data points would be too small to easily see.  The data is YTD 2011 for downtown Charlotte.

The nature of my study was to look at the downtown Charlotte condo market in three slices, Non-distressed, Distressed, and Rentals.  For the rental slice, I have taken out rentals that were in traditional rental buildings like the Tryon House on Tryon.  Also, all the data analyzed here comes from the MLS system.  It should be noted that there are sales and rentals that happen outside of that reporting structure.

All the data in this analysis is year to date.  So here comes my analysis!  The first five months of 2011 has delivered 258 properties either sold, leased, or under contract.  Projecting that out over a full year can be difficult because some months are stronger than others, but just using straight math it calculates to over 600 units in a years time!

Non-Financially Distressed properties are selling.  A large reason for that is that current owners are pricing their properties more in line with current market conditions.  It is difficult to sometimes look at our homes as an asset, but that is what needs to happen.  Proper pricing in a market like this one can, and sometimes does, lead to multiple offers.  I have seen evidence of units being sold for greater than the asking price, a sign of multiple offers.

Financially Distressed properties are selling at a rate of nearly 5 to 1 YTD downtown, and there are currently only 10 available.  The return to a healthier housing market will depend on the foreclosure problem being lessened. 

I will repeat that the rentals indicated here are not traditional Rental Properties, but individual units located in condominiums such as Fifth & Poplar, The Avenue, 400 North Church, ChapelWatch, etc.  They are the result of owners not being able to sell their property in this market, but finding a way to lessen the impact of the financial strain, or perhaps just waiting for a healthier real estate market to emerge before selling.

With respect to the laws of Supply and Demand, the most important considerations in real estate are motivation, motivation, and motivation!  How motivated is a property owner to reduce the financial burden of a property?  How motivated is a buyer to move into an urban market?  It appears clear that there is enough motivation to begin to bring us back to a stable market and a return to increasing property values.

2011 Projects To Be A Banner Year

Further analysis of the downtown condominium market shows that there has been a rapid increase in rentals from 27 in 2005 to 328 in 2010.  Couple this rental activity with sales activity and this year, 2011, projects to deliver 618 units in the downtown market, exceeding even 2007 the previous peak year.

The ratio of rentals vs sales changed in 2009 to be over 60% rentals.  There are several reasons for this.  The first reason was mentioned in the previous article, owners cannot sell their property for the value they perceive it to be, and renting is a way of pushing an eventual sale into what many believe will be a stronger sale market.  Secondly, many of the units in buildings that entered the market at its peak, Courtside,  Court 6, Fifth & Poplar, The Avenue, TradeMark and 230 South Tryon, were purchased by investors with the intent to use the property for rental.

This dynamic has cause concern among most of the Homeowners Associations downtown.  Renters generally do not share the same concerns that owners have for the general upkeep of the common areas.  A further issue is that many lenders view the percentage of renters in a building as a potential red flag once a mortgage application gets to underwriting.  In today’s credit market, lending has become much more restrictive than it was 5 years ago.  It is not uncommon to see a MLS listing from Fifth & Poplar with the caveat that indicates that only cash deals will be considered.

If you are wondering why an optimistic person like me is bringing some of this seemingly scary information forward, the reason is simple.  The demand to live downtown has never been higher.  Gas is taking an increasing amount of disposable income from people.  The auto industry is building its rebirth around smaller, more fuel efficient cars.  An urban life style of walking to work, entertainment, dining, and shopping, remains attractive.

The trend is clear.  I expect that rentals will cool off somewhat and sales will once again become the predominant path to living downtown, and a return of property values.

Nothing New At The VUE

Just a quick update.on The VUE.  I have heard no news at all from the developer, a blog that focuses on The VUE, or the courts that are considering an appeal that the developer has filed to support his request to sue for damages for people who decide to not close.  The case is not over yet.

Looking through the recorded tax records in Mecklenburg County show that 14 units through May 31, 2011 have actually closed.  The developer claims an additional 200 contracts are subject to close based on the court cases.

It remains a beautiful building, one that will not be duplicated again for at least 10 years.  The views are spectacular, and the amenities are luxurious.  There will surely be more to come about this property.

Bits Of Positive News From Various Sources

Listed below are a variety of news bits that address the state of the real estate market and the prospects for its improvement.  There was an article in the May 31st edition of the Charlotte Observer indicating that housing prices in Charlotte have declined an additional 6.8%.It is a shame that that a scare tactic like that is forcing buyers to be more demanding.  Consider that this is a buyers market and the number of financially distressed properties that have sold have caused sellers to reconsider their options.  Other articles in this issue address the fact that financially sound sellers are choosing to rent as opposed to sell below the true value of the property. • A report from the Housing Opportunity Index indicated that almost 75% of all new and existing homes sold in the first quarter of 2011 were affordable to families earning the national median income of $64,400. • “With interest rates remaining at historically low levels, today’s report indicates that homeownership is within reach of more households than it has been for more than two decades,” says Bob Nielsen, chairman of the National Association of Home Builders (NAHB) “While this is good news for consumers, home buyers and builders continue to confront extremely tight credit conditions, and this remains a significant obstacle to many potential home sales.” • Price declines will end and average U.S. home prices will stabilize by Labor Day. Prices in even the hardest-hit markets will level out by the end of 2012. That’s the latest prediction from the authoritative Moody’s Analytics and Fiserv, Inc, after an analysis of home price trends in 375 markets tracked by the Fiserv Case-Schiller Indexes. • Fiserv also reports that home prices are at pre-bubble levels, creating affordable housing relative to income which, coupled with a slowly improving economy, will finally end price declines. • However, while Fiserv and Moody’s project the national U.S. home price average will stabilize in the third quarter of 2011, a 3 percent decline is expected in the first half of this year. “The first step toward restoring confidence in housing markets is an improvement in consumer sentiment, which we expect will increase slowly through 2011 due to stronger job gains and a falling unemployment rate,” says David Stiff, chief economist, Fiserv. “As confidence rises, the decline in home sales that started in 2006 will, finally, come to an end.” • News released early last week that housing starts and permits were down. New homes are finding it hard to compete with all the great prices of existing listings out there. How could this be good news?  When new home construction slows it certainly hurts overall economic growth. However, construction of fewer new homes makes room to get rid of excess inventory caused by foreclosures. In other words, fewer new homes built represents good news as long as existing home sales continue to increase in strength. • The trend is up for existing home sales which have unevenly increased in six out of the last nine months. Americans continue to see a buyer’s market in housing, according to an April 2011 Gallup poll. Sixty-nine percent of respondents say now is a good time to buy a house.