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The Price Has Gotten Too High

A report from Go Local Prov in Rhode Island. “For nearly three years, the proposed 46-story Fane Tower has been meandering its way through a complex web of Rhode Island’s overlapping regulatory structures. Across the United States — and including in Providence, Rhode Island — there are indications that the high-end real estate market has peaked and is now showing signs of retraction.”

“In Providence, one of the top residential real estate experts, Sally Lapides, says she worries that the project is too big, too many units. ‘I think it is too many units for the demand whether it is condos or rentals.’ In Providence, there are a plethora of new apartment units coming on the market. The Edge at College Hill has been deemed ‘not viable’ by the project’s former top marketer.”

From Biznow on Georgia. Concerns have arisen that developers have overshot the market in some parts of metro Atlanta. ‘I don’t think it’s a concern. I think it’s a fact,’ TruAmerica Multifamily co-Chief Investment Officer Matt Ferrari said about overbuilding. ‘It’s hard to argue people won’t want to live there, it’s just how much pain is an owner willing to deal with in the mid-term.'”

The Union Tribune in California. “San Diego County had the biggest drop in homebuilding in Southern California in the first six months of 2019. The county constructed 43 percent fewer homes in the six-month period compared to the same time last year, said the Real Estate Research Council of Southern California. Southern California home construction is down 25 percent from the same time last year, led largely by a reduction in apartment building.”

“San Diego County had the biggest drop, but was not alone. Homebuilding was down 40 percent in Santa Barbara County, 29 percent in Los Angeles County, 20 percent in San Bernardino County, 9 percent in Riverside County and 7 percent in Orange County.”

“Borre Winckel, CEO of the local Building Industry Association, said the price has gotten too high for many potential buyers. In the first six months, multifamily permits — which include apartments, townhomes and condos — were down 50.1 percent from 2018.”

The Dallas Morning News in Texas. “The Dallas-Fort Worth area is slipping in a nationwide ranking of top commercial building markets. During the first half of 2019, four of the 10 largest construction markets in Dodge Data’s survey saw declines in commercial and multifamily start volumes, including D-FW. New York, Miami and Houston have also seen building declines so far this year.”

“‘The 7% slide for commercial and multifamily construction starts in the Dallas-Fort Worth metropolitan area during the first half of 2019 was due to a 22% downturn for multifamily housing, which is now pulling back after the substantial 29% hike for the full year 2018,’ Dodge Data said in the report.”

From Bisnow on Texas. “Across the U.S., residents tired of urban development, density, traffic and housing costs have launched an outright war against developers to either reshape, curtail or stop apartments from coming into their communities. Even in the supposedly development-friendly Dallas-Fort Worth area citizens are aggressively fighting certain multifamily projects in the North Dallas suburbs.”

“‘I think more and more in these North Texas cities, residents are getting fed up with [dense development],’ Frisco resident and real estate agent Brandon Burden said. ‘We do need alternative forms of housing, but we don’t need the overbuilding of it. And I think that what we are seeing right now is multifamily is a lot of what we build and the feeling that most citizens have is that we are overbuilding it. We need to cut back on the amount.'”

The Minot Daily News in North Dakota. “Over the objections of local property managers, the Minot City Council advanced a mixed-use project on South Broadway that proposes to provide low- to moderate-income housing with the help of city resilience dollars. Doug Pfau, who has worked in property management, estimated about 1,000 vacant apartments exist in Minot, and of those, 85% to 90% qualify as affordable housing. The same percentage of occupied units also qualify as affordable, given the rapid decline in rents since October 2014, he said.”

“‘The city is overbuilt on apartments, both low income and regular rent apartments,’ added Matt Watne, a property manager. ‘I would suggest that building additional apartments in Minot using taxpayers’ money would just exasperate the problem of having too many apartments in Minot for the number of people to fill them.'”

From Block Club Chicago in Illinois. “When Caitlin Schwind moved into her one-bedroom apartment on Milwaukee Avenue and Leavitt Street two years ago, she thought it was perfect. It was steps from the CTA Blue Line, which she uses to get to her office in the West Loop. It was surrounded by restaurants and bars. It was also brand new. The $2,000 monthly rent, Schwind said, was worth it.”

“But in the last eight months, the price tag for living in Centrum Bucktown, a luxury apartment building with 94 units, has seemed less than justified for Schwind and her neighbors. In January, the apartment complex’s heater broke, leaving several tenants with ice-cold homes during the record-breaking Polar Vortex. Last week, the HVAC cooling system in at least six apartments, including Schwind’s unit, went kaput.”

“‘When I chose to live in this building, I thought there would be a certain level of service,’ Schwind said. ‘I lived in tons of crappy apartments in my life. When you pay cheap rent, you expect certain level of response. … This is actually my first expensive apartment. It’s just been hard to get even a phone call back.'”

“Last year, the original developers of the building, John McLinden and Arthur Slaven, sold the building to Harlington Realty for $51 million, according to Crain’s. McLinden and Slaven also sold Wicker Park Connection, a 207-unit building near the corner of Division Street and Milwaukee Avenue.”

The Cooperator in New York. “Despite some fits and starts, the process of converting 1,000 rooms at the Waldorf Astoria hotel into 375 condo units is nearly complete – and Chinese developer Anbang announced on June 11th that it will be launching sales at the property this coming fall, according to Curbed. Anbang is currently under the control of the Chinese government after falling heavily in debt, and as recently as August of 2018 had postponed its Waldorf opening until 2021.”

“But despite a market currently loaded with more sellers than buyers, things appear to be ramping back up, with the developer launching a somewhat cryptic new website along with a formal name for the project: The Towers. As The Real Deal notes, in addition to a landscape overrun with luxury condos languishing on the market, Anbang will have to contend with increasingly hostile U.S.-China trade relations.””

The Hartford Business Journal in Connecticut. “A heavily subsidized downtown Hartford apartment project that was part of the city’s ‘six pillars’ economic-development plan has fallen into foreclosure and forced the state to take a nearly $25 million haircut on its original investment, the Hartford Business Journal has learned. The holder of a pair of mortgages secured by downtown Hartford’s The Lofts at Main & Temple apartments and adjacent parcels has been suing to foreclose on the collateral since March, court files show.”

“The two larger notes, the suit says, were issued to construct, and are secured with, a key apartment development in the city’s ambitious six pillars plan, which also led to the construction of the Connecticut Convention Center, Hartford Marriott Downtown and Connecticut Science Center. The properties listed in the lawsuit include 884-908 Main St., former home to the Sage-Allen Department store, now site of the 78-unit Lofts at Main & Temple apartments; and 29 Temple St., where 42 student townhomes were built.”

“It’s not clear why The Lofts at Main & Temple property has experienced such financial difficulties, but developer sources say the property was overleveraged and the townhouses did not prove popular. However, the main apartment units have seen occupancy rates well into the 90-percent range, sources said.”

This Post Has 65 Comments
  1. I think combined with the a$$-pounding the foreigners are taking, we can conclude the commercial real estate bubble has popped.

      1. All at the same time. Well, New York City and Miami have been there for a while. The big double digit drops in construction have spread across all of California now. Wa happened to my shortage Thornberg?

        1. Think I spotted thornberg under a bridge with a needle in his arm. Yeah 50%+ drop in construction permits is definitely CR8! Keep up the momentum REIC

  2. Totally funny.

    Wonder what the other pillars are?

    ““A heavily subsidized downtown Hartford apartment project that was part of the city’s ‘six pillars’ economic-development plan has fallen into foreclosure and forced the state to take a nearly $25 million haircut on its original investment, “

  3. No-deal Brexit on again?

    Brexit
    Boris Johnson to push Jeremy Corbyn to ‘go back to the people’
    PM to urge Labour to support election after Lords agree to pass no-deal Brexit bill
    Jim Pickard in London
    2 hours ago

    Boris Johnson will use a speech on Thursday to challenge opposition Labour leader Jeremy Corbyn to “go back to the people” with a general election to break the Brexit deadlock in the UK parliament.

    The government announced earlier that a bill to stop a no-deal Brexit would complete its passage through the House of Lords by Friday afternoon. The proposed legislation, which compels the prime minister to seek a Brexit delay if he has not secured a deal with Brussels, passed through the House of Commons late on Wednesday evening and is now likely to return to the lower house on Monday.

      1. It will take as long as it takes until the People Who Matter get the results that they want. Or a shooting war starts.

    1. Was out walking in LA hills today and saw a house just up for sale and the owner walking out to his car. Nice house. Nice views. Probably listed at 2-2.5 million. Asked him about his plans. Moving to St George UT. More CA exodus. Unfortunately for surrounding states, CA people will bring their politics with them. Saw it happen to NH with a flood of MA people.

      1. That’s my home base. We have tons of CA and NV people moving in every week. Fastest growing county in the US.

        1. ‘We have tons of CA and NV people moving in every week. Fastest growing county in the US’

          I’ve heard that line somewhere before…

  4. Here’s an example of one in SWFL that I watched for almost 2 years before it sold after multiple price reductions. Classic example of a realtor making ridiculous listing price promises to get the listing and then letting the seller sit and suffer for months/years. (look at the price/tax history pulldown)

    I actually contacted the realtor who had it listed previously, she was with Sotheby’s International, and she was a nightmare. I asked her for a couple more pictures of the garage and measurements of the door opening and she said she “wasn’t doing anything without a signed contract”. Wouldn’t even get me a picture unless I signed her to be my “buyers agent”!

    It got worse from there when I contacted the homeowner directly. She proceeded to send me a nasty-gram about how I’m not allowed to speak directly with her client. Ha!! If her agency could see our email communications I think they’d be forced to fire her, it was amazingly unprofessional.

    https://www.zillow.com/homedetails/6203-Island-Park-Ct-Fort-Myers-FL-33908/45439689_zpid/

    1. hey John: that snotty FL realtor = one of my exes that does NOT live in Texas.

      (that’s why I hang my hat in _____________)

    2. If a REALWHORE talked to me like that, my response would be something like this:

      I’m not sure what world you live in, but the world I live in is one where people do work to get paid. If you think I’m going to agree to give you a dime without you so much as lifting a finger for me, you’re sorely mistaken. You get paid out of the proceeds of my house purchase. If you think the seller is paying you, you’re riding the short bus. You can follow the trail of that money right to my financial institution where it originated, and to whom I am paying it all back. Now, kindly run along and measure that garage for me if you want to earn your pay, or I will make your working life a living hell from here on out.

      1. My replie(s) were not apologetic for sure, but I was a bit more reserved than that. I don’t think she liked it when I called her a “used house salesman” though??? Either way, she was exactly the type of “used house salesman” that gives them a bad reputation.

        Since the house was just sitting empty anyway I told her to ask the owner if he’d be interested in renting it out for awhile. She bristled at that idea as well but a few weeks later he went ahead and listed it for rent, lol.

      2. earn your pay

        It would be more painful if you went to another realtor to ask for a showing of her precious listing.

  5. ” …and the townhou$e$ did not prove popular. “.

    Why? What’$ so horrible about a new townhou$e.$helter.$hack to make it “unpopular”? … wrong color paint?

    1. 90% occupied is fairly popular. Over-leveraged means they paid too much.

      Foreclosed means they had no skin in the game.

  6. “San Diego County had the biggest drop in homebuilding in Southern California in the first six months of 2019. The county constructed 43 percent fewer homes in the six-month period compared to the same time last year, said the Real Estate Research Council of Southern California.”

    If the MSM didn’t persistently tell me otherwise, I would almost believe that San Diego was in the early stages of a construction-led recession.

  7. Future Finance
    The Big Short’s Michael Burry Explains Why Index Funds Are Like Subprime CDOs
    By Reed Stevenson | Bloomberg |September 4, 2019

    Liquidity Ri$k

    “The dirty secret of pa$$ive index fund$ — whether open-end, closed-end, or ETF — is the distribution of daily dollar value traded among the securities within the indexes they mimic.

    “In the Russell 2000 Index, for instance, the vast majority of stocks are lower volume, lower value-traded stocks. Today I counted 1,049 stocks that traded less than $5 million in value during the day. That is over half, and almost half of those — 456 stocks — traded less than $1 million during the day. Yet through indexation and passive investing, hundreds of billions are linked to stocks like this. The S&P 500 is no different — the index contains the world’s largest stocks, but still, 266 stocks — over half — traded under $150 million today. That sounds like a lot, but trillions of dollars in assets globally are indexed to these stocks. The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.”

    It Won’t End Well
    “This structured asset play is the same story again and again — so easy to sell, such a self-fulfilling prophecy as the technical machinery kicks in. All those money managers market lower fees for indexed, passive products, but they are not fools — they make up for it in scale.”

    “Potentially making it worse will be the impossibility of unwinding the derivatives and naked buy/sell strategies used to help so many of these funds pseudo-match flows and prices each and every day. This fundamental concept is the same one that resulted in the market meltdowns in 2008. However, I just don’t know what the timeline will be. Like most bubbles, the longer it goes on, the worse the crash will be.”

  8. You knew this was coming:

    Sacramento Bee
    CA homes more expensive because of Trump China
    tariffs
    President Donald Trump’s tariffs have created the “perfect storm” at the wrong moment for the housing industry, California builders say. The California Building …

    Stamp yer little feet shack builders! With construction sinking like a turd in a well, you got plenty of curvy 2 by 4s laying around and unemployed Guatemalans.

    1. It is the weather and Trump. BTW, Trump is responsible for the weather too. It cannot be that eight years of zero percentage interest rates pulled demand forward and caused too much speculative building.

  9. Here’s some CRE Yellen bucks going to money heaven:

    WeWork Weighs Slashing Valuation by More Than Half Amid IPO Skepticism

    ‘WeWork’s parent company is weighing a dramatic reduction in its valuation as it aims to go public while facing widespread skepticism over its business model and corporate governance, according to people familiar with the matter. We Co. is considering putting a price tag on its IPO that would value it somewhere in the $20 billion range, potentially at the low end, these people said, less than half of the $47 billion mark where it last raised private capital.’

    ‘Adam Neumann, We’s co-founder and chief executive, flew to Tokyo last week to meet one of the company’s biggest investors, SoftBank Group Chief Executive Masayoshi Son, and members of his team, the people said. There, they discussed the possibility of an additional infusion of capital, multiple people briefed on the meeting said.’

    ‘Among the possibilities they discussed was SoftBank serving as an anchor investor in the IPO by buying a significant portion of the roughly $3 billion to $4 billion the company is expected to raise. They also discussed whether SoftBank might invest a chunk of money that would allow We to delay its IPO until 2020, people familiar with the conversations said.’

    https://www.wsj.com/articles/wework-parent-weighs-slashing-its-valuation-roughly-in-half-11567689174

    Is “chunk” an accounting term? Softbank – getting softer every day!

    1. The Google Syndrome

      The company should become a generic term for today’s acute political mania.

      ‘It may be time to take the big G out of Google. The company called Google has turned itself into a generic metaphor for our politicized times. In addition to being the name of a U.S. technology company, “google” should become a lowercase word for a psychological syndrome—such as attention-deficit disorder, paranoia or dissociative identity disorder. A person with google disorder would be diagnosed as being in the grip of an uncontrollable political mania.’

      ‘During the company’s early years, in keeping with what it called its culture of “openness” and the notion that employees should “bring their whole selves to work,” Google allowed thousands of internal message boards to proliferate. This must have seemed like a good idea at the time since Google employees are supersmart and presumably full of interesting, innovative thoughts.’

      ‘Over time, the conversations on these text-based message boards turned toxic—as they do on message boards everywhere—with participants carving each other up in paroxysms of resentment and retribution. As the Journal reported last year, Google basically turned into a political nut house.’

      ‘Google employees quickly sorted themselves into subsets with names such as Googlers for Animals, Black Googler Network, Activists at Google, Militia at Google, and Sex Positive at Google.’

      ‘Google’s originating motto was “Don’t be evil.” Now it is “Don’t troll.” Something went wrong. Rather than “innovative” discourse, Googlers instead used their extraordinary workplace freedom to launch personal assaults and group mobbings. People—what we’ll call normal people—ask all the time how it happened that so much in our politics and culture went off the rails so quickly. Historians may conclude the answer was the google syndrome—a generalized descent into obsessional thinking.’

      ‘As the memo makes clear, these people aren’t using work hours to talk about how to raise their children. It’s a “raging debate over politics.” The issues roaring across Google’s message board on gender, race, saving the planet, identity or inequality are a mirror image of the tensions inside the Democratic Party between the Biden-Klobuchar-Delaney moderates and the Sanders-Warren-Buttigieg progressives.’

      ‘A constant question is whether the party’s progressives have “gone too far” to be electable in 2020. Put it this way: If Google’s pliable management had to step in to protect the company from being undermined by progressive compulsions, wait until Donald Trump gets a shot at a Democratic candidate who sounds like an escapee from Google’s message boards.’

      https://www.wsj.com/articles/the-google-syndrome-11567636819

  10. Trouble for Trump in the heartland?

    ‘Since 2017, revenue from Chinese agricultural exports dropped by more than half, from $19.5 billion to $9.2 billion in 2018, according to U.S. Department of Agriculture figures. The USDA also found that farm income has dropped 45 percent over the same period. According to the American Farm Bureau, farm bankruptcies have increased 13 percent since 2018.’

    ‘The Trump administration has tried to mitigate some of the damage with a $16 billion direct aid package to farmers, complete with $14.5 billion going to cash payments and $1.4 billion in bulk purchases by the government. …more than half of payments made to U.S. farmers went disproportionately to the largest farms, with the top one percent receiving an average of more than $180,000, while 80 percent of subsidized farms were given less than $5,000.’

    I guess it isn’t socialism when the gov’t handouts go to the right people / corps….

    https://www.newsweek.com/china-trade-war-trump-farmers-tariffs-bailout-subsidies-1457474

    1. gov’t handouts go to the right people

      I doubt it’s a conspiracy to favor the uber rich. The aid is simply based on the acres planted with specific crops.

      If it was socialism, the government would just take all the crops and give the farmer back less than what he needs to live on.

  11. Hardly remarkable that the farms which produce the most would be paid more than ones which produce less. This mirrors the income tax discussions. A ten percent tax cut will give someone making a million dollars a hundred thousand dollars and a person making a hundred thousand dollars ten thousand. Yes, the million dollar earner receives ten times the savings but is it unfair?

  12. ‘The U.S. housing market may be headed for a crash, according to 2013 Nobel Laureate for Economic Sciences Dr. Robert J. Shiller. Shiller, citing the S&P CoreLogic Case-Shiller index, notes that property values in 20 cities decelerated for a 15th month in June, increasing 2.1% from a year earlier. Shiller noted that adjusting for inflation, prices had already flattened.’

    “It would suggest declining home prices in the near future,” Shiller told Bloomberg Television on Thursday. “I wouldn’t be at all surprised if house prices started falling.”

    https://dsnews.com/daily-dose/09-05-2019/nobel-laureate-housing-market-crash-on-the-way

    Bob, you old doom and gloomer, prices have been falling in many metros for over a year.

  13. Sorry, Mr Banker.

    Investment Banking
    Investment banking revenues plunge to 13-year low
    Bleak start to 2019 exacerbates industry’s downward trend since crisis
    Stephen Morris in London and Laura Noonan in New York 19 hours ago

    Revenues at the world’s top investment banks plunged to a 13-year low in the first half of 2019 as geopolitical tensions, slowing growth and low interest rates compounded a structural decline that set in after the financial crisis.

    The 12 biggest US and European investment banks generated $76.8bn in revenue from their trading and advisory operations during the six-month period, down 11 per cent from 2018. It was the slowest first half since 2006, according to the latest data from industry monitor Coalition.

    The banks had individually reported poor second-quarter earnings for their markets and investment banking divisions, including an 18 per cent fall in fixed-income revenues at Morgan Stanley and a 32 per cent decline in equities revenues at Deutsche Bank, which is in the process of shutting its stock trading business.

    Across the group, the most eye-catching fall was in equities, where revenue dropped 17 per cent year on year across all regions because of significant declines in client demand for derivatives and prime brokerage services, the business of lending to and trading for hedge funds.

  14. San Diego County had the biggest drop, but was not alone. Homebuilding was down 40 percent in Santa Barbara County

    two places people actually want to live

  15. An absolute moonshot by the DOW. And we need a half point rate cut right now? Huh? This is like a sick joke or something.

    1. The market isn’t the economy and vice versa. We will get a quarter point cut. Businesses are hurt due to a too strong dollar caused by other countries’ rate cuts while we were raising our rates. We are not an island but the country is doing very well. However too much movement in other countries currency should not be allowed without the US taking action.

      1. Your comment makes no sense at all. Businesses are “hurt” but “the country is doing very well.” C’mon, man.

        1. You do not wait for businesses to start laying people off to address a too strong currency. There is no question that we are slowing. However when you have record low unemployment, you still have to say the economy is doing well. The cut should ensure that it stays that way despite negative interest rates all over the world.

          1. “The cut should ensure that it stays that way despite negative interest rates all over the world.”

            Absolute, pure, unfettered Keynesian horsesh!t. A rate cut will do far more long-term damage than any short-term good. You hacks seem to think that cheap money is the answer. You’re full of it, buddy.

          2. long-term damage

            There will be a reckoning. Business can appear to be doing well even when it is building useless crap with borrowed money. Unemployment can appear to be low even when 10 million people have given up looking and 10s of millions are working minimum wage instead of what they are qualified for.

      2. The market isn’t the economy and vice versa.

        I agree with you, but Greenspan thinks that the stock market will be a more reliable indicator of recession than the yield curve this time around. I know, I know, it’s Greenspan. But still, he does have some insight. Anyway, he might be right. I was reading a good piece in WSJ this morning about about 50% of the US has stock exposure, mostly through increases in 401k and IRA. So the wealth effect of a flat or declining stock market would be more extreme than it used to be (since only about 30% of the US had stock exposure; more Americans had defined benefit pension plans).

  16. I just saw a troll post complaining that an article on Lagos was irrelevant cuz it’s the worst city in the world. Uh, it was the most expensive residential real estate on the planet until oil crashed. This fool still couldn’t afford a shanty there. Fook you troll!

    1. Assuming what he said is true that it is the worse city in the world, it had a lot of competition, then it is very relevant to show that high prices hit everywhere and those bubbles are receding everywhere.

    2. That “troll” may have been me since I did comment about the market in Lagos, Nigeria not having much relevance to the housing market in the United States. I wasn’t trolling, just making a comment.

      Not sure why you feel it necessary to tell me off like that, and regardless of my ability to afford one, I’m not interested in purchasing RE in Nigeria.

      I appreciate your blog here and visit regularly, no hard feelings-

  17. Despite some fits and starts, the process of converting 1,000 rooms at the Waldorf Astoria hotel into 375 condo units is nearly complete – and Chinese developer Anbang announced on June 11th that it will be launching sales at the property this coming fall, according to Curbed. Anbang is currently under the control of the Chinese government after falling heavily in debt, and as recently as August of 2018 had postponed its Waldorf opening until 2021

    Forbes – Oct 6, 2014:

    While some observers will see echoes of Mitsubishi’s purchase of the Rockefeller Center at the height of New York’s 1980s property boom, Anbang is betting that this time is different.

    Who could’ve seen it coming?

  18. https://www.cnbc.com/2019/09/05/tennis-great-andy-roddick-on-investing-and-saving.html

    “For Roddick, his big opportunity came during the 2008 financial crisis. When a lot of people were trying to liquidate their holdings, he snapped up some real estate — specifically, bank buildings — and locked down 15- and 20-year leases.

    “With real estate, if you wait long enough, you look smarter 10 or 12 years later,” said Roddick, who retired from the game in 2012.

    He now has about 70 properties and isn’t buying as aggressively as he once was.”

    GOT IT. Take time machine back to 2012 and buy up bank properties… I’m sure those bank will survive when everyone moved to banking online LOL

    1. But unless he had insider information it seems to me he got lucky. All that stuff should have gotten wiped out if the Fed hadn’t come to the rescue.

      So to me it’s either survivor bias or insider trading.

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