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Another Builder-Survival Tactic

Kelly did a follow-up to the downtown-condo debacle known as ‘Vantage Point’:

 http://www.voiceofsandiego.org/articles/2009/06/24/survival/216vp062309.txt

They are breaking up the 679-unit condo into six pieces, some for sale, and some for rent.

An excerpt:

“Initially, sales efforts will be focused on the homes in the South Tower and the 2-story townhomes.  These homes will be known as CityVibe.  The South-facing S plans, now referred to as Seascape, will also be a part of our initial sales program.  The homes in the Center Tower will be referred to as Horizons and will be available for lease at this time. Depending upon market conditions, we anticipate commencing sales in the entire North Tower at a later date.”

How a Builder Survives

from the WSJ:

By 2006, Lennar decided that the good times were nearing an end for the housing industry. That summer, Lennar began to cut home prices to boost sales and generate cash in preparation for a downturn. Lennar also looked for ways to jettison land.

Lennar was facing a potentially serious cash crunch, in part because it was on the hook to pay back as much as $1.7 billion in debt used to finance joint ventures. Calpers, which manages pensions for California’s state workers and public employees, was in the market for land. Lennar wanted to sell most of its stake in the Newhall Ranch.

In early 2007, Lennar and LNR agreed to sell 68% of the venture, called LandSource, to a Calpers investment vehicle for $970 million. At the same time, LandSource borrowed $1.5 billion, distributing cash to stakeholders. All told, Lennar and LNR each netted $707 million from the deal.

Sixteen months later, with the housing recession raging, LandSource sought bankruptcy protection, which wiped out Calpers’s majority stake, along with the remaining stakes of Lennar and LNR. Calpers has said it never anticipated the housing downturn would be so severe.

In LandSource’s bankruptcy reorganization, Lennar has proposed buying 15% of a new venture that will hold most of LandSource’s assets, including the 15,000 acres near Los Angeles, for $85 million. The rest of the venture would be owned by a group of LandSource’s largest creditors.

The deal would value the land at about 18% of its value when Calpers made its 2007 deal with Lennar and LNR. The new venture would have $100 million in cash and no borrowed money.

“When assets are under stress, it can create some tension with partners,” says Mr. Haddad. “Overall, I feel very good about how our ventures have performed.”

Full transcript:

lennar-article

Are Sales Closing?

Who cares about all the hoopla about listings flying into escrow – ARE THEY CLOSING?

Here’s the graph of weekly sales of detached homes from La Jolla to Carlsbad – the most recent three years are in bold, with three previous years included with thin lines for flavor:

(click on image for slightly better clarity)

 

Sales tend to increase towards the end of every month because of pro-rations (the buyers’ responsiblity for interest and taxes go down as they approach the end of the month).  

With the dip in interest rates back in March, you’d figure that the end-of-May sales this year would have been at least as good as 2008.  But they aren’t.  While sales perked up in June last year, this year the North County Coastal region is looking weak – only 30 closings reported so far for June 16-22, 2009, which would send the red line even lower.

Yes, there will be late reporters, but if we don’t see a surge in closings over the next couple of weeks between La Jolla and Carlsbad, we’ll start wondering if this spring/summer selling season is going to fizzle out.

The biggest concern?  In the first half of June, 2005 there were 34 houses that closed in Rancho Santa Fe and La Jolla.  This year? 13

Currently there are 593 active detached listings in those two zip codes!

 

Never Ever?

From George C.

Existing homes sales rose by 2.4 percent in May, posting the first back-to-back gain in sales since September 2005. That’s the word this morning from the National Association of Realtors. The group says favorable affordability conditions have buyers bidding on reduced-price homes. The $8,000 tax credit being offered to first-time buyers is helping to spur activity. By the way, legislation is pending in Washington to raise the tax credit to $15,000. Existing sales in the West lagged the overall nation. Activity here actually declined 0.9 percent in May but the pace was 11.8 percent higher than a year ago. Prices in the West are down 30.6 percent in the past 12 months.

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Another report out this morning from the National Foundation for Credit Counseling paints an amazingly negative picture of the housing market.

Almost one-third of people surveyed — 72 million people — do not think they will ever be able to afford to buy a home.

And, 42 percent of those who once purchased a home, but no longer own it, do not think they will ever be able to afford to buy another one.

“It appears that whether a person was directly affected or not, Americans’ attitudes toward homeownership have shifted,” said Gail Cunningham of NFCC. The program also found that 74 percent of those who have never purchased a home felt they could benefit from first-time homebuyer education.

Bring ‘Em On!

One of the biggest benefits of more REOs coming on the market would hopefully be to send a message to those sellers who think that they can beat the odds.

This house on Rawl in Solana Beach typifies the optimism, and whose sales history is a great snapshot of the bubble:

SP: $485,000 12/96

SP: $560,000  8/97

SP: $1,030,000  1/03

SP: $1,760,000  5/08

LP: $1,895,000  3/09

 

It looks like a potential nightmare, but the current owner paid cash for this 1,266sf showplace – who or what is going to convince them to lower the price? 

There are only seven Solana Beach houses scheduled for trustee sale currently, and I know that one of those, and maybe two, that will most likely be cured.

Unless dozens of REOs hit the same neighborhoods at the same time, the coastal regions are going to have a lot of delirious pricing.  Bankers, bring on the REOs, please!

 

Excess Demand?

How hot has the market been lately?  For the well-priced inventory, sales have been tremendous.

But with the multitudes of offerees, and the way the list prices are being overbid, doesn’t there seem to be ample demand to soak up at least a few more foreclosures?  The banks have to be seeing the upsurge in activity and be thinking about unloading more REOs, what if they all get bought up?

Here are some examples of ones we’ve seen this year:

361 Bryan Point, Chula Vista

5 br/5.5 ba, 4,287sf

YB: 2007

SP: $1,301,500  2/07

LP: $585,900 2/09

SP: $630,000 3/09

 

Not surprised that there was a lot of action on this one, and that it sold over list – remember the youtube video tour?  http://www.youtube.com/watch?v=6_F7l3_6KCo

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1559 Villa Cardiff

4br/3 ba, 1,983sf

YB: 1978  6,534sf lot

SP: $1,000,000 12/06

LP: $599,900 12/08

SP: $525,000  5/09

 

$525,000? This is the fixer right across the street from the I-5 freeway, with a spectacular view of it – here’s the youtube tour: http://www.youtube.com/watch?v=wHh2V1qPZFY

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1353 Ahlrich, Encinitas

3 br/2 ba, 1,633sf

YB: 1974  10,500sf lot

LP: $569,000 3/09

SP: $640,000 4/09

 

 

I usually don’t get too negative about the chances of a house selling for crazy money, but as you’ll hear in this video, I thought the LP was ridiculous – the house looked just like it did in 1974.  Yet it still sold 12% OVER list price: http://www.youtube.com/watch?v=1nrW3tqbAmM

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1659 James, Carlsbad

4 br/3 ba, 2,216sf

YB: 1981 12,480sf lot

SP: $490,000 5/03

LP: $499,900 4/09

SP: $597,000 6/09

Sure, these former owners added a pool, but this house was a wreck when they bought it in 2003.  They had refinanced with a loan of $637,500 in June, 2007, so they might have dressed up the interior too, but no photos included.  Must have been decent though, sold for 19% OVER list price. 

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958 Eolus, Leucadia

2 br/2 ba, 1,137 sf

YB: 1948  25,700sf lot

LP: $599,000 3/09

SP: $630,000 4/09

 

This looks like the best buy so far, because they only paid 5% OVER list price.  But the house was run-down, the lot probably wasn’t splittable, and it was on cesspool septic system, though it did have cedar closets. 

Here’s a youtube tour: http://www.youtube.com/watch?v=su2e8nS35mQ

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735 Lynwood, Encinitas Ranch

4 br/4.5 ba, 4,888sf

YB: 2003  9,373sf lot

SP: $1,076,000 4/03 (new)

LP: $1,449,876  11/08

SP: $1,162,500 4/09

 

They listed on range pricing but lowered it consistently, and by the time they found the buyer they were listed at $1,049,000 to $1,199,876, so they probably felt that they did OK. 

But since THREE others on the street have gone pending – all higher priced, including a smaller house on the same side of the street! 

Here’s a youtube tour: http://www.youtube.com/watch?v=ejoDeQ0qUpY

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9745 Tallus Glen, 4S Ranch

3 br/3 ba, 2,181sf

YB: 2004

SP: $444,125  7/2/08

SP: $525,000  7/29/08

SP: $530,000  6/19/09

 

Remember this one from last year?  My client had picked this up at the trustee sale for an attractive price, and when he flipped it the same month, everyone called knife-catcher.  But they didn’t get killed, in spite of a very small backyard and looking at a busy street.

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Just cherry-picking you say?  Those are older closings, what about today? 

Oceanside is a good test case, but is it just the low end that’s hot?  SFRs under $200,000 are understandably hot when rents are higher than payments.  But will it rise up the price ladder?

We listed these two on Friday:

4773 Sequoia, Oceanside

3 br/2 ba 1,006sf

YB: 1985

4,025sf lot

SP: $434,000 3/06

LP: $179,800 6/09

 

Offers started rolling in right away, and we’re up to 14 bids so far, with the highest OVER $220,000 net.  While this price point is still attractive to investors (three all-cash offers), the owner-occupiers are willing to go much higher.

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398 Pismo Bay, Oceanside

3 br/2ba  2,031sf

YB: 1996 

9,205sf lot

SP: $568,000 11/05

LP: $359,000 6/09

The original owner had the builder complete this floor plan as a two-bedroom, with a master retreat and a den – not the most marketable.  It would seem that if there was going to be evidence of some hesitation in the marketplace, we might see it here.  The location is by the back gate, buried amongst a bunch of inferior older tracts, and a long way from town – about 30 minutes to the I-5 freeway in the morning.

But four offers are in, with a couple close to $400,000.

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Both of these were helped by Jon Mann’s production – he has two model matches to Pismo Bay that he listed for $379,900 each.  One of those just closed for $390,000 VA, but it was the more traditional four bedroom set-up.

Mr. Mann is the guy buying 5-10 properties per month at the trustee sales.  According to the MLS, he has 57 properties in escrow currently, with an average market time of 8 days – including the 1,400sf house on Eolus that he listed last week for $649,000, and may have picked up a leftover buyer from the one that just sold for $630,000 (above).

Everywhere you go, properties that are priced right are garnering multiple bidders.  Even if the banks unleash a slew of foreclosures, there seems to be plenty of unsuccessful bidders that wouldn’t mind having more inventory.

How long will it last?  If more REOs were being listed, and you saw them blowing off the market too, would it change anything for you?

 

Wild Stab in the Dark

Everybody is on the forecasting bandwagon these days, here’s BW’s crack at it:

http://finance.yahoo.com/real-estate/article/107219/what-your-home-will-be-worth-in-2012.html?mod=realestate-buy

An excerpt:

By 2012 we may finally get back to blissful boredom. With any luck, three years should be long enough for the U.S. economy to recover and for the nation’s housing inventory to shrink to more normal levels. At that point, housing will return to its old ways, with prices governed not by national mood swings and global credit crises but by local issues ranging from zoning to immigration to job growth.

Prices? While they’re likely to keep falling a while longer under the weight of foreclosures, the market is definitely closer to the bottom than the top. “We expect prices to drop for another year and then stabilize before starting to rise with incomes,” says Standard & Poor’s Chief Economist David Wyss. Moody’s Economy.com predicts the S&P/Case-Shiller U.S. National Home Price Index, maintained by data specialist Fiserv, will fall about 16% this year before regaining ground.

While the year 2012 sounds sexy enough to sell some magazines, all of these forecasts sound safe and vague – if any of them end of being right, it’ll just be luck.   

They also included the list of places where it would be ideal to start over, for those who are looking to leave  – none of their picks were in California:

http://images.businessweek.com/ss/09/06/0611_cities_to_start_over/index.htm

Anchorage, Alaska was #1 on their list!

 

More on Shadow Inventory

shoppingaround left such a great comment that we’ll call it a guest post:

So, the good news (for those looking to buy a “deal”) is that this law shouldn’t stop too many foreclosures if so many banks were given exemptions. The question is how well will the banks move this inventory out to market.

For a long time, I, too, was in the “there must be a huge shadow inventory” camp. I track a few areas (mostly Carlsbad, Encinitas and parts of Fallbrook & Bonsall) using (Jim’s recommended) “fidelityasap” site to see if distressed properties, which I know the homeowner didn’t sell, are scheduled for the courthouse sale. And if they are, I watch for when the bank takes possession. And if they do, I watch for their REO to come onto the market.

First observation…this process, starting with tracking distressed buyers unsuccessfully lowering their price, and ending with the bank finally listing the REO can be an incredibly long time.

Second: Once the clock starts on property A, somewhere you add in Property B, later C, etc. One day you see that “C” shows up in the REO listings before “A”. That gives you the immediate impression that A nd B are being held back as shadow inventory. But maybe bank C is just more aggressive, or efficient. Once you get to “H” or “Q” you are beginning to feel as if it’s a downright conspiracy!

Third: Having been watching potential REO properties since last October, I now believe the banks generally are not holding back property, per se. As of today, I can say that EVERY home I’ve been tracking (except some which were foreclosed mid-construction and may have structural issues) has eventually come onto the market or is still (re)scheduled for the courthouse steps. No, they do not come onto the market swiftly and not often at prices I’d hope for, but they all have appeared eventually (with noted exceptions above).

Fourth, I think the contrast of how the banks are handling mid-tier & up homes has been different; with the low-end, many times they were tossed onto the marketplace “as is,” as we’ve all seen in Jim’s videos. But they generally don’t seem to be doing that with more mid-range+ properties. They seem to be trying harder to get a better value out of these assets.

So, I’m beginning to believe, that as Jim implied in one of his previous posts, it could be just that “that one” we’re waiting for is the exception–maybe it needs too much done to it first, so they are working on it, etc.

Any similar or different experiences?

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