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We Are Witnessing The Crest Right Now

A report from the Express News in Texas. “Terravista Corp. partnerships that own four San Antonio apartment complexes totaling 652 units sought bankruptcy protection this week to stop foreclosure proceedings by a lender. A Terravista official blamed a dispute with the partnerships’ lender for the foreclosure notices and bankruptcy filings. San Antonio-based Terravista was in the process of refinancing the loans on the properties.”

“This isn’t the first time a Terravista partnership has entered bankruptcy. In December, the Terravista partnership that owns the 176-unit Hidden Village Apartments filed Chapter 11 to thwart a foreclosure by another lender. The bankruptcy is unrelated to this week’s filings.”

From RE Business Online. “The Las Vegas Valley’s multifamily market is at an interesting crossroads, according to panelists at InterFace Las Vegas Multifamily. The average price per unit has nearly doubled between 2014 ($73,627 and a 6 percent cap rate) and 2018 ($131,522 and a 5.4 percent cap), Colliers noted.”

“Taylor Sims, director of multifamily investments for Cushman & Wakefield actually appreciates the lower-velocity environment, as he believed the market needed to take a break following a slew of significant sales. ‘We had a huge transaction volume in investment sales in 2017,’ he said. ‘There is such strong rent growth that owners who might have otherwise said they want to sell are now saying, ‘I’ll just sit on it. It’s better served having my money tied up here. I’ll refinance and ride out the Vegas wave.'”

The Spokane Journal in Washington. “After years of historically low vacancy rates in the multifamily housing sector, some observers of the Spokane apartment market claim it’s on the brink of stabilization. ‘We are witnessing the crest right now; this is where we’re going to see that start to turn,’ says Danny Davis, real estate agent with Coldwell Banker Schneidmiller Realty, who estimates the market will slow within the next six to 12 months.”

“Healthy vacancy rates are between 4% and 6%, Davis says; over 6% means the market is oversaturated. Davis notes that the vacancy rates are area dependent—north Spokane has a vacancy rate of 1.3%, central Spokane has a rate of 1.1%, and south Spokane is at 1% vacancy, while west Spokane is sitting at 7.7%.”

“‘A lot of those units are just coming online,’ says Joel White, executive officer of the Spokane Home Builders Association. ‘So, what happened is you had a two-, three-year run-up with a significant amount of inventory … and that’s why you’re starting to see more vacancy.'”

“White adds that he’s seen an increase in the number of duplexes being built as more investors try to take advantage of a strong market. ‘The bigger investors are very wary of overbuilding,’ he says. ‘Whereas individual investors, they’re the ones who don’t understand the market as well … just like we saw with the last home market where you had private parties trying to buy investment homes to flip.'”

The Press Herald in Maine. “Maine appears to be nearing the end of an economic expansion that brought several years of rapid growth in commercial and residential real estate activity, according to industry experts. Analysts at a Maine Real Estate and Development Association, or MEREDA, conference in Portland pointed to an accelerating decline in commercial real estate activity as a sign that the state’s relatively hot economy, particularly in its southern region, is cooling down.”

“The commercial real estate component of the MEREDA Index, a quarterly measure of Maine’s real estate economy, declined 7.4 percent in the first quarter compared with six months earlier. Commercial sale and lease transactions dropped by 13 percent, and total square footage leased and sold fell by 41 percent, it said. The price per square foot of commercial properties sold decreased by 10 percent.”

“‘I think that though we’re late in the (economic) cycle and we see in Charlie Colgan’s latest numbers a downswing in commercial activity that probably indicates the likelihood that there’s fraying in the late-cycle market,’ said MEREDA Index analyst Tim Soley.”

From Billy Penn in Pennsylvania. “At the Community College of Philadelphia, poverty is an open secret. As many as one in five students are experiencing homelessness, and more than half are deemed ‘housing insecure.’ So many were taken aback when the college last year began soliciting for the Hamilton, its new Center City tower built in partnership with a Main Line developer. ‘Luxury’ studio apartments there range from $1,400 to $1,700 a month.”

“Perhaps unsurprisingly, few community college students actually call the place home. Leasing plum land to developers is largely uncharted territory for community colleges, according to Brent Little, a Texas-based real estate pro and national student housing expert. ‘As a rule, student housing developers stay away from community colleges,’ Little said. ‘There’s very few [partnerships] that have happened in the U.S., and even fewer that have been successful.'”

“But based on a review of minutes, the Hamilton plan appeared to receive little scrutiny from the trustees, who are appointed by the mayor — and many of whom have ties to the real estate industry. ‘This project has undeniably overlooked the needs of our current students from the beginning,’ said Junior Brainard, co-president of the Faculty & Staff Federation of Community College of Philadelphia. ‘We want a college that invests in its students, not in luxury real estate that our students cannot afford.'”

From The Real Deal. “Safe Harbor Equity launched a $100 million distressed commercial real estate debt fund ahead of a potentially looming recession. The Miami-based private equity firm, which specializes in distressed commercial and residential real estate loans, is considering raising the fund up to $200 million, said managing director Ralph Serrano.”

“The Safe Harbor Equity Distressed Debt Fund 3 will focus on acquiring distressed commercial mortgages primarily in South Florida, in addition to markets like New York, Texas, California and other major marks in the U.S., Serrano said.”

“‘While we do see a steady stream of defaults, it’s not required for there to be a recession for there to be defaults,’ he said. But the goal is ‘to be well-positioned for the oncoming economic headwinds that are being forecasted.'”

“The fund is hoping to capitalize on banks looking get non-performing loans off their books. It will acquire distressed corporate loans starting at $500,000 and up to $20 million for properties that include multifamily, industrial, retail and hotels.”

“Other investment companies have launched and closed similar funds ahead of an economic recession. Churchill Real Estate Holdings, aNew York-based firm,  has been trying to raise a a $200 million distressed debt fund focusing on a variety of real estate assets from failed condo projects to struggling retail properties.”

This Post Has 50 Comments
  1. ‘Terravista was in the process of refinancing the loans on the properties’

    Probably for the 5th time! These aren’t run down airboxes either.

    ‘The average price per unit has nearly doubled between 2014 and 2018’

    Nothing to see here.

    ‘It’s better served having my money tied up here. I’ll refinance and ride out the Vegas wave’

    This is one of the things to caught my eye years ago: serial refinancing. As the mania grew, they pretty much bid everything up to where it doesn’t cash flow and they were fine with it: refinance and ride the Vegas wave to ruin you fools!

  2. ‘while west Spokane is sitting at 7.7%’

    One of those areas is at 11% vacant.

    ‘The commercial real estate component of the MEREDA Index, a quarterly measure of Maine’s real estate economy, declined 7.4 percent in the first quarter compared with six months earlier. Commercial sale and lease transactions dropped by 13 percent, and total square footage leased and sold fell by 41 percent, it said. The price per square foot of commercial properties sold decreased by 10 percent’

    Oh dear…

    1. Look at all the “available now”. Jeez, these guys are headed for bankruptcy/foreclosure too.

      1. Not so, Ben, you naysaying, glass-half-empty so-and-so. Our MSM Real Journalists assure me the green shoots of Spring will be bursting forth any day now.

      2. Here’s a few more I worked in before I left that company and moved to a contractor that primarily does commercial and industrial.

        ***** Electric only builds “luxury” rentals, that’s why I left there a year ago, because when the recession hits Denver their business will collapse.

        Anecdotal for any tenants of these buildings, there are hundreds of p*ss bottles behind the drywall you will never see. You could be sleeping and bathing in your “luxury” apartment with a 1-2-3 year old bottle of human urine just inches away behind the wall…

        1. True. Construction guys – that’s their little joke. In my experience, mostly empty beer cans.

        2. True. Construction guys – that’s their little joke, though all I’ve seen them throw behind stuff is empty beer cans.

        3. p*ss bottles behind the drywall

          Better than the co-worker with the wife wanting to start of family in a house with dead/decaying rats in the wall that someone posted about some time ago!

          1. I was supervising a small 120 unit apt project job in Arlington, TX in 1995 and the drywall crews almost walled up a skunk that wandered into the double wall party wall over the weekend. Luckily I stopped them and we opened up enough panels to allow it to wander harmlessly away.

        4. Not that they are desperate
          Now Offering Up to 6 Weeks Free Rent 6 Months Free Parking Up to $1000 in moving costs!

    2. Is it completely empty? On the website I show 90 available units (there may be more that are not listed on the site). But if that is to be believed, that would put occupancy at 68%.

    3. Monthly pet rent!

      “Theo Luxury Residences are situated on the former campus of the University of Colorado Health Sciences Center, where scientist Theodore Puck was a pioneer of genetics.”

      I guess they’re good and well Pucked.

    4. Just like Manhattan. Empty residential towers no matter what direction you’re looking.

      1. It’s mysterious in a way what forces are at work that create these cycles. Like the 60s. There was naive flower power idealism and then…there was Charles Manson.

    5. $1,500 for a 450 square foot studio? Gee, I just can’t imagine why they can’t find tenants….

  3. Did anyone do the math on the Philadelphia story?

    279 units x $1,550 (average of $1,400 and $1,700, since I do not know the exact distribution across the units) x 12 months = $5,189,400

    It looks as though the school is only getting about 11% of this annually.

  4. What Could Go Wrong? The Fed’s Warns On Corporate Debt


    One of the common misconceptions in the market currently, is that the “subprime mortgage” issue was vastly larger than what we are talking about currently.

    Not by a long shot.

    Combined, there is about $1.15 trillion in outstanding U.S. leveraged loans — a record that is double the level five years ago — and, as noted, these loans increasingly are being made with less protection for lenders and investors.

    Just to put this into some context, the amount of sub-prime mortgages peaked slightly above $600 billion or about 50% less than the current leveraged loan market.

    1. A closely watched pot never boils over…unless the pot is a pressure cooker that explodes.

  5. ‘We are witnessing the crest right now; this is where we’re going to see that start to turn,’

    Can’t wait to see this cresting wave crash on a bevy of foreign real estate flippers who thought they were gonna take the money and run.

  6. Two things matter to me, the rent to buy ratio and the house price to income ratio. Stories are nice but there are always winners and losers and say for an individual flip, it is difficult to know whether it was the market’s fault of the flippers fault that a deal went south. However, it is clear that the cities which are being mentioned on the blog are overpriced on both income and rent. Here is a good list and I will say that any city where the ratio is more than 20 is in trouble:

    1. There are some that justify home prices solely on rents. But they fail to consider the possibility that rents are also in a bubble.

          1. Good post Blue, thanks for that one. I hadn’t seen the new home sales price to median household income chart before, but it makes sense as an indicator.

        1. do you really believe wages are going to triple or quadruple to meet grossly inflated housing prices?

          Of course not.

          Housing prices will continue falling to dramatically lower and more affordable levels meeting wages.

          Cortez, FL Housing Prices Crater 11% YOY As Double Digit Price Declines Expand Across Florida’s Gulf Coast

    2. That website finds a ratio by dividing median price of house by annual rent. Using their Phoenix example, it looks to me that the median price of a house there is 231 x monthly rent. IIRC an old adage is that house price were generally around 100 x monthly rent.

      1. monthly rent

        And before the bubble monthly rent was about 25% of average take-home pay.

      2. That would imply a rent to buy ratio of 8.3 (annual rent costs / purchase cost).

    1. The fed would snap them up. The flat yield curve doesn’t leave much wiggle room for “an event.”

  7. What happened to the stock market rally? Suddenly it seems like stocks and housing are going down the drain in synch!

    1. Seriously going down the drain? Minor stock correction to reflect that multinational corporations will have their profit margins reduced since they will no longer be able to import Chinese goods so cheaply. It is beneficial to United States based companies and other countries which trade more fairly with the United States. Neither inflation nor the US economy was hurt by the last round of tariffs despite a few bias studies which try to say otherwise, 3.2% growth and low inflation demonstrates that we benefited from the hardline. Of course, we can go back to the Obama average of 1.9% growth and he inherited an economy with a lot of slack. Normally, the sharper the recession the stronger the recovery. Of course, the MSM will never ask just why was the Obama recovery so weak? Perhaps because he allowed China to steal most of the growth?

      1. China to steal most of the growth

        The growth was all based on increasing debt. The problem with that is it’s like pulling on a rubber band. The snap back can be spectacular.

        1. Without the large trade surpluses it ran with the U.S. and the technology it acquired legal and illegally from the U.S., it would not have been able to double its GDP under Obama. All those years I argued for supply side programs for the US which would have made us more competitive. China was allowed to almost completely destroy both our aluminum and steel industries. Since the first round of tariffs they have used money from the tax changes to invest. For years the globalist controlled media said do not worry China was imminently going to implode. It did not happen and I argued all those years it was not going to happen until we had a president stand up to China. Now, we do and it just might happen.

      2. “Minor stock correction”

        -We’re in a bear market. Losses of 50-65% over the completion of the 1/2 cycle would be normal. Next year will be worse. “You ain’t seen nothin’ yet.”

        – The Fed/Central Bank—induced “Everything Bubble” will deflate. Note that they blew massive bubbles up to 2000, 2008, and couldn’t prevent the crashes. Humpty Dumpty.

        1. Interesting prediction, but right now we are only a few percentage points off an all time high. Get back to me when we are more than 10% down which would still be only a normal correction.

          1. Don’t look now, but the Treasury yield curve is inverted from 6 mos out to 10 yrs. Something’s gotta give!

    2. Uber IPO in about an hour. Markets in the red -230 +/- PPT sure to pump it up in the 5-10 mins prior.

  8. I’m being swooned out of my 5 years retirement to return to multifamily construction as a superintendent on a 270 unit, upscale project….65 mile drive one way for me. Mid-cities area of DFW.
    Air conditioned corridors, elevators,etc. Obviously a swanky joint.
    How long can this continue? Who the hell is renting these high dollar apts?
    For a healthy 6 figure paycheck plus bonus, I’ll ride this pony till it drops…. then ease home to my paid-for mobile home on a couple acres, in a small town.

    1. And this a HUD project, I just discovered.
      Just more paperwork, and roll the dice on the HUD inspector….might know his job, but might not know how to build a simple dog house. I’ve seen both.

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