Posts Tagged ‘real estate market’

Wealthy Chicagoans Return to Purchasing Upscale Houses, Condos

Wednesday, September 29th, 2010

High-end Chicago houses and condo sales are rising.High-end residential sales in Chicago rose – somewhat unexpectedly — during the first eight months of 2010. This is primarily a result of sellers reducing their asking prices and closings at some high-profile condominium developments.  Even with the uptick in sales, there’s still an excess of houses and condos on the market that likely will depress prices even more.

According to an analysis by Midwest Real Estate Data LLC, there were 452 single-family houses and 572 condominiums price at upwards of $1 million on the market as of August 31.  That represents an 18-month supply of houses and 21 months worth of condominiums.  James Kinney, Baird & Warner, Inc.’s vice president of luxury sales, said that a normal market is a six- to eight-month inventory.  “I think we’re in for many months of wading through inventory,” according to Kinney.  “The supply is going to continue to build until we see a turn in the job market.”

High-end single-family home sales rose approximately 24 percent in the first eight months of the year.  That totals 199 sales as opposed to 161 in the same time period of 2009.  Condominiums fared even better with sales rising 85 percent to 253 units, compared with just 137 a year ago.  Kinney said that the uptick can be attributed by the first closings at high-end developments like the Elysian Hotel and Private Residences and Ten East Delaware.

Even Jamie Dimon, CEO of J.P Morgan Chase & Company, has hopped on the bandwagon.  He recently cut the price of his tony Gold Coast mansion to $6.95 million – a 25 percent reduction from the previous $9.5 million.  Janet Owen, a broker at Sudler Sotheby’s International Realty who is the listing agent, said “They realize the market does pertain to their home, not just everyone else’s.  That’s why these properties are selling.”

Mr. Obama’s Neighborhood

Wednesday, November 11th, 2009

You can be President Barack Obama’s Chicago next-door neighbor for just $1.85 million. That’s the listing price for the 17-room 1906-vintage brick house at 5040 South Greenwood Avenue owned by Bill and Jacky Grimshaw since 1973.front2-thumb-580xauto-19524

The house had been on the market for an unspecified sum since September, but a price had to be set since it is being placed on the local multiple listing service.  The house is a relative bargain for upscale Kenwood because it requires substantial renovation.  Large Kenwood houses in good condition can cost between $2.3 million and $2.4 million, according to Matt Garrison, the Grimshaws’ real estate agent.

Garrison says that the premium for buying a house located next to the home of a sitting president is a few hundred thousand dollars.  “It’s probably going to sell to a traditional Chicago buyer,” Garrison said.  “Right now buyers aren’t doing anything fast and the seller wants to sell the property.”

Potential buyers of the Grimshaw house will require security clearances by the Secret Service.

First CMBS Under TALF Is on the Horizon

Monday, November 9th, 2009

first-cmbs-under-talf-is-on-horizonThe markets are keeping a close eye on a transaction that may jump start the commercial property debt market, even though the Federal Reserve has expressed some uneasiness with the deal.  If the transaction is successful, it could pave the way for the initial sale of commercial mortgage-backed securities (CMBS) under the government Term Asset-Backed Securities Loan Facility (TALF).  The credit-hungry commercial real estate industry is hoping that the debt sale by shopping center owner Developers Diversified Realty Corporation will lead to additional CMBS sales.

Developers Diversified has obtained a $400 million loan from Goldman Sachs Group, Inc., which is intended to be converted into a CMBS offering through TALF.  The Fed, keeping the taxpayers’ best interests in mind, has reservations about financing the transaction since it involves a single borrower.  These are considered riskier than deals involving multiple borrowers, where the risk is spread over different borrowers, building type and even location.

“The Fed is being very conservative, very diligent in reviewing collateral and very risk-averse,” said Frank Innaurato, managing director at Realpoint LLC, a credit-ratings firm.  Currently, the Fed is reviewing the transaction, which involves 28 shopping centers with stable cash flows.  If the Fed says “no” to the transaction, Goldman Sachs is said to be considering selling the $400 million loan outside TALF.

TALF was created to revive the CMBS market, as well as jump start securitized debt markets by offering low-cost financing from the Fed so investors can once again purchase these securities.  The program lets investors borrow as much as 95 percent of the bonds’ value by pledging the securities as collateral – meaning the risk is on taxpayers if there is a default.

Home Equity Loan Delinquencies Spiral as Values Contract

Wednesday, October 14th, 2009

Residences as ATMs Home equity loan delinquencies reached a record high of 3.52 percent during the first quarter of 2009, according to the American Bankers Association.  That contrasts with the 3.03 percent reported during the fourth quarter of 2008.  Late payments on loans climbed to a record 1.89 percent.

Home equity loans also are partly to blame for the current credit crisis.  Cheap credit set off a housing boom in the early 2000s.  Fast-rising house prices spurred homeowners to take out home equity loans – in effect, using their residences as ATMs – to pay for improvements, new cars and a list of discretionary purchases.

The U.S. residential real estate market lost $2.4 trillion in value last year, according to First American CoreLogic.  The Mortgage Bankers Association notes that seasonally adjusted numbers of mortgage delinquencies increased by 7.88 percent in the fourth quarter of 2008, the highest recorded numbers since 1972.

Downtown Chicago Rental Apartments Thriving

Monday, August 31st, 2009

Downtown Chicago apartment buildings – especially Class A properties – are seeing a resurgence in occupancy and rental rates as residents apprehensive about the condominium market choose to rent rather than buy.  The average effective rent of downtown apartment buildings climbed to $2.17 PSF in the second quarter, a 2.4 percent increase over the first quarter, according to a report by Appraisal Research Counselors, a real estate consulting firm.  During the same time frame, average Class A occupancy rose to 93.4 percent, as compared with 90.9 percent in the first quarter and 91.6 percent a year ago.chicagoskyline1

The statistics would be even better if there weren’t so many new downtown apartment buildings.  More than 2,098 new units have been built downtown since 2008.  Add to that the shadow rental market – condominium owners who rent their units when they cannot sell.  Many potential buyers are renting for the time being because they are concerned about falling property values and the possibility that they will be unable to obtain a mortgage in a tight credit market.

These numbers show the inherent strength of Chicago’s CBD rental apartment market — proof that downtowns continue to thrive because of the number of highly educated knowledge workers who want to live in the city.  As a result, places like River North and the Loop remain highly sought after locations for businesses looking to recruit talent.

Home Sales, Values on the Rise; Consumer Confidence Down

Monday, August 10th, 2009

Sales of new and existing homes rose in June for the third straight month, due primarily to low prices and attractive mortgage rates.  Home sales also rose 11 percent over the previous month. The federal tax credit for first-time homebuyers helped to drive the uptick.  Additionally, home prices rose for the first time in three years in May, a sign that the market might be stabilizing.

nhsaprilAccording to the Standard & Poor’s/Case-Shiller index, home prices have fallen more than 32 percent from their 2006 peaks.  The pace of the decline slowed in May for the fourth consecutive month.  “This could be an indication that home price declines are finally stabilizing” after plunging to levels last seen six years ago in 2003, noted David M. Blitzer, chairman of the S&P index committee.

On the downside, the weakening job market battered consumer confidence in July, possibly delaying a quick economic recovery.  The U.S. Conference Board’s consumer confidence index fell to 46.6 in July from 49.3 in June.  A recent Reuters survey had forecast that the June reading would be 49.  This erosion in confidence is in tune with the rising percentage of Americans who say jobs are hard to find.  Unemployment has hit a 26-year high, with several states reporting double-digit numbers.

“People are getting a bit discouraged.  Jobs are not coming as quickly as expected,” according to John Silvia, chief economist with Wells Fargo.  “This won’t be a V-shaped recovery for either the economy or the jobs market.”

Commercial Real Estate Still Troubled

Monday, July 6th, 2009

Don’t look for the country’s commercial real estate market to improve any time soon.  In fact, expect it to continue to get worse for the next year or so.  That was the conclusion from a panel at the National Association of Real Estate Editors journalism conference in Washington, D.C., that addressed the question:  “Commercial Real Estate in the Obama Era:  Next Domino to Fall?”

“The (other) shoe has dropped,” NAREIT president Steve Wechsler said of commercial real estate.  While the public commercial real estate market of publicly traded REITs likely hit bottom in March, the remaining 90 percent of the market that is private won’t bottom out until next year.6a00e551d321cb883401157034b517970c-800wi

The $6 trillion property market is split evenly between debt and equity, thanks to the explosion of securitization that occurred in the 10 years prior to the current credit crisis, said Chip Rodgers, Jr., a senior vice president of the Real Estate Roundtable.  At the end of 2008, the commercial real estate industry had $3.5 trillion of outstanding debt.  Ten years ago, the industry’s outstanding debt was $1.3 trillion.

Washington-based Real Estate Roundtable has a plan to help end the crisis that’s paralyzed practically all speculative development on the commercial side.

First, Rodgers said, the Term Asset-Backed Loan Facility (TALF) program needs to be expanded to include commercial mortgage based securities.  Rodgers expects this to restart the securitization market.

Second, the United States needs to repeal or change tax laws that have curtailed foreign investment.  Changing the laws will attract new capital to the market.

Also, accounting rules and regulations need to be amended to ensure they do not create “a pro-cyclical impact on credit capacity,” Rodgers said.  And, banks that have existing cash flow need to be encouraged to extend loans.

The panel’s third member, Jamie Woodwell, a commercial real estate researcher at the Mortgage Bankers Association, said the current real estate recession differs from the 2001 recession.  In 2001, the dot-com bust results in large amounts of office vacancies while the retail market remained relatively stable.  Vacancy rates in office were closely tied to the country’s unemployment numbers.

“This time around,” Woodwell said, retail is more closely following unemployment numbers and being hit harder than the office market.  “More firms still have (office) leases in place,” he said.

But things will change, Woodwell said.  “Real estate is a very cyclical business, especially now.”

Our guest blogger is Tony Wilbert.  He is owner of Wilbert News Strategies, a public relations firm specializing in real estate.  Prior to moving into PR, Wilbert covered real estate at several newspapers and served as editor of National Real Estate Investor.

Office Rental Rates Falling as Demand Slides: Part 1

Wednesday, January 14th, 2009

It should be no surprise that rental rates for office space have weakened as demand declines.  Nationally, rents for office space fell 1.2 percent during the fourth quarter of 2007, even though owners offered concessions such as free rent for a limited time frame to lure users.  According to Reis, Inc., a New York-based real estate research firm, rents declined in 65 out of the 79 national markets it tracks.

jump_off_cliffDuring 2008, office tenants walked away from 42,000,000 SF of space, which brought the U.S. vacancy rate up to 14.4 percent, compared with the 12.6 percent reported just one year ago.  Vacancy rates are expected to continue to rise through 2010, which will put even more downward pressure on rental rates.  Given the overall volatility of the real estate market, just how low rental rates will go is anyone’s guess.

The one bright spot is the deflationary economy, which has lowered energy prices and other commodities.  This may provide relief to owners faced with lower rental income at a time when covering their debt obligations may be a struggle.

Want Affordable Housing? Here’s Where to Find It

Tuesday, July 8th, 2008

Despite all the doom-and-gloom reports on the residential real estate market, there are some bright spots.  In several markets, housing has become surprisingly affordable to families earning a median household income of $61,500.  And there’s more good news.  Mortgage rates are again nearing the record lows of a few years ago; and family incomes jumped an average of a $2,500 between 2007 and 2008.

What are some of the markets most strongly impacted by this trend?

Indianapolis, IN – The largest affordable cities – Indianapolis, for example — tend to be in the Midwest.  More than 90 percent of all Indianapolis households have sufficient incomes to buy a median-priced $125,000 home.  During the first quarter of 2008, Indy ranked as the most affordable major U.S. housing market for the 11th consecutive quarter.

Stockton, CA: — The average single-family home price fell 35 percent to $230,800 in the first quarter of 2008, compared with $357,800 just two years previously.

Kokomo, IN: — Among smaller metro markets, Kokomo ranked well in terms of housing affordability during 2008’s first quarter.  A median-priced home in Kokomo is about $147,000.

Grand Rapids, MI: — Approximately 88.7 percent of homes sold were affordable, a 4.2 percent change from 2007.  A median-priced house in Grand Rapids is currently $132,100.

Youngstown, OH: — In this small city with a population of 82,000, the median sales price dropped 13.5 percent to $67,700 in just one year.