Believe it or not, it’s not all ugliness in the market. I always like to mix in the good articles to off set the countless negative articles we see and read. This is a small segment of the national market but could be precurser to the turn of the overall real estate market.

SAN DIEGO (AP) — Home sales surged 22% in April in Southern California as bargain-hunters bought lower-end homes in areas hardest hit by foreclosures, a research firm said Monday.

Sales of new and resale homes and condos reached 15,615 in April, up from 12,808 in March and the highest monthly total since August, according to DataQuick Information Systems.

The monthly increase of 22% in the six-county region is well above the average gain of only 1.2% from March to April since DataQuick began keeping statistics in 1988.

Homes under $500,000 accounted for two-thirds of the monthly gain, DataQuick said. Riverside County, which the firm calls the “epicenter” of foreclosures and price declines in Southern California, posted the region’s only annual sales increase, its first in two years.

“Quite a few more buyers stepped off the sidelines last month to snap up homes at substantial discounts relative to the market’s short-lived peak,” said DataQuick President Marshall Prentice.

Foreclosures drew buyers, according to DataQuick. Nearly 38% of homes resold in April were in foreclosure at some point during the previous 12 months, compared to 36% in March and only 5% in April 2007. In Riverside County, foreclosures accounted for 53% of resale homes sold.

April’s median home price in Southern California was $385,000, down 24% from $505,000 in April 2007.

Despite the sales surge since March, April sales were down 19% from 19,269 in the same period last year, marking the weakest April tally since 1995, DataQuick said.

“We continue to look for evidence of a sales bounce in the mid-priced and higher-end markets along the coast,” Prentice said.

Posted by Carter Brown

As an investor and property owner you need to protect your assets and protect yourself from personal liability. Do this by conducting all your business in a separate legal business entity. The more common business structures are Limited Liability Companies (LLC) and Sub-chapter S-Corporations. Consult with tax and legal professionals to set up the right entity that fits your business and investing goals. There are ways to set these entities up yourself directly with the state, but you’ll want to be careful doing this; you don’t want to shoot yourself in the foot by doing it all wrong and getting in trouble down the road. An option might be to use some companies that specialize in setting entities up like legalzoom.com. They are normally easier to work with than approaching an attorney cold and probably less expensive.

Posted by Carter Brown

Discounts? Yes, but a Fire Sale? No

Commercial Real-Estate Debt Hasn’t Tanked Because So Many Are Seeking Bargains

By Lingling Wei and Jennifer S. Forsyth WALL STREET JOURNAL May 9, 2008
The massive market for debt tied to commercial real estate is beginning to thaw as investors flush with cash are starting to buy up billions of dollars in mortgages and securities that had been stuck on the books of banks. But that doesn’t mean banks are lending — capital-starved real-estate owners and developers have yet to see relief. As a result, the market for office buildings, shopping malls and apartments remains largely shut down. At the same time, investors are buying up mortgages and securities at discounts ranging from 5% to 20%, which is much less than the big discounts that vulture investors got in the wake of the last major real-estate collapse in the early 1990s.

“Banks are not moving their inventory at fire-sale prices,” said Noble Carpenter, head of loan sales at Jones Lang LaSalle, a Chicago real-estate brokerage and management firm. Part of the reason is that default rates on commercial real estate remain low by historical standards. But there is also a glut of capital that was raised to buy distressed debt. As a result, many funds may not be able to achieve the low- to mid-teens returns they’re targeting — especially if they can’t borrow money to magnify their returns, according to market participants. Banks’ commercial-debt problems began last summer when the credit crunch prevented them from packaging and selling some $200 billion in loans on properties such as skyscrapers and shopping malls as commercial-mortgage-backed securities, or CMBSs. Since then, bargain-hunting investors have been willing to buy at fire-sale prices, but banks haven’t been willing to unload at that level.

Now, lenders are increasingly selling that debt, both as whole loans and as CMBSs. Buyers also are coming forward because of growing trading volume of CMBSs in the secondary market, reducing the spread between the securities and U.S. Treasurys. In the past four weeks, banks have gone to market with four CMBS issues, with a total balance of $4.9 billion, according to data provider Commercial Real Estate Direct. That is a dramatic improvement from early this year, when weeks went by without a deal, but it still pales next to the same period last year, when the issuance totaled $78.7 billion. “It’s anticipated that, industrywide, inventory will be way down by the end of the second quarter,” said Steve Kantor, co-head of global securities and of alternative investments at Credit Suisse Group.

Among the notable reductions: Lehman Brothers Holdings Inc., which had $36.1 billion in commercial mortgages and CMBSs when its fiscal first quarter ended Feb. 29, sold roughly $5 billion of the debt just in the following two weeks. Credit Suisse sold roughly $5.5 billion of commercial property loans and CMBSs in the first quarter, which helped cut its inventory by 25% as of March 31. Wachovia Corp., another big lender, sold $4.2 billion of debt in the quarter, reducing its exposure — after the effect of offsetting transactions, or hedges — to $3 billion as of March 31, down from $7.6 billion at year end.
Yet the discounts these lenders are offering are anything but generous. During the real-estate collapse of the early 1990s, some commercial debt sold for pennies on the dollar. Back then, though, the default rate was more than 20% and distressed funds didn’t start buying huge blocks of assets, primarily from the government’s Resolution Trust Corp., until more than a year into the crisis. Today there are already at least 55 active or planned commercial real-estate debt funds seeking to raise $33.8 billion, according to Real Estate Alert, a trade publication. And many have begun to do deals.
Guggenheim Partners LLC’s $1.25 billion real-estate debt fund, raised in December, has so far closed on or committed to more than $2 billion of investments. Edward L. Shugrue III, manager of real-estate debt funds for the firm, said the fund recently purchased $100 million of investment-grade CMBSs backed by office buildings formerly owned by Equity Office Properties — at discounts ranging from 10% to 15% — from a liquidating investment vehicle affiliated with a foreign bank. Fund managers believe they will still be able to hit their return objectives because most of the real estate underlying the loans is healthy. (The national default rate on commercial mortgages is a slim 0.4%.) Eventually, they hope, that will drive up the value of the debt. But the risk is that a serious economic downturn could drive up delinquency rates.

“We only take on risk we know how to manage,” said Bradford Wildauer, a partner who heads the debt investing business for Apollo Real Estate Advisors. The debt fund that the firm closed a year ago, with $625 million in equity capital, has so far committed to about $900 million of investments.

Regional Apartment Players Hunt Deals

Sector Holds Up As Housing Crunch Yields More Renters

By Nick Timiraos WALL STREET JOURNAL May 28, 2008

While most commercial-real-estate owners and developers are singing the blues these days,
investors like Bruce Hellman are whistling a brighter tune. Mr. Hellman is president of Cincinnati-based Berkshire Realty Group LLC, an owner and operator of rental-apartment buildings. With 5,500 units in Ohio and Kentucky and a healthy appetite to buy more, Berkshire and regional operators like it have found one of the few sweet spots in the market right now.

While credit is scarce in many sectors, financing is still available for buying apartment buildings
thanks to government-sponsored enterprises Fannie Mae and Freddie Mac. At the same time,
competition facing investors like Berkshire has greatly diminished as the giants that used to rule the multifamily sector, gobbling up all the best deals, have moved to the sidelines. “We think the timing is good for us,” says Mr. Hellman, whose company recently paid an estimated $7 million to $8 million for a 146-unit apartment building in suburban Cincinnati from Apartment
Investment & Management Co. “There’s not as many players who will purchase right now.”

While multifamily-property sales are down from last year because of the credit squeeze, the sector has held up favorably when compared with the broader real-estate landscape. Office and retail sales fell by 80% and 70%, respectively, in the first quarter from a year earlier, compared with a 40% slump in multifamily sales, according to Real Capital Analytics, a New York real-estate research firm. Buoying apartment sales have been Fannie and Freddie, which have a mandate to provide market liquidity for affordable housing and also see multifamily deals as a source of profit in an otherwise bleak market. The demand for rental apartments also remains healthy from people forced out in foreclosures and would-be home buyers unable to get mortgages. Rents posted a solid 1% gain during the first quarter, according to Reis Inc., a New York real-estate research firm.

Before the credit crunch, most of the buying of multifamily property was done by major real-estate investment trusts, or REITs, such as Equity Residential and Camden Property Trust, which could pay the highest prices. But many of those companies today are looking to sell assets, partly as a source of cash and partly because they are shifting out of certain markets as they refresh their long-term strategies. “The market is bifurcated between smaller purchases — $20 million-$50 million assets, which are right-size pieces for a lot of regional players — and larger portfolios geared toward the big, institutional investors, who aren’t buying,” says Richard Campo, Camden’s chief executive. That has opened up the playing field for buyers such as Mosaic Residential, a Houston-based start-up that closed last quarter on a 167-unit building in Austin, Texas, from Camden Property Trust. “We’re typically not that competitive. But for core products right now, there isn’t a lot of competition,” says Mosaic President Bob Weber.

The biggest deal of the year so far involved the purchase of 25,000 units by Steven D. Bell & Co., a regional player based in Greensboro, N.C. A venture of that company and DRA Advisors LLC bought the portfolio from UDR Inc. for $1.7 billion. The post-credit-crunch market has enabled “the re-emergence of the regional player,” says David Neithercut, president and chief executive of Equity Residential. Those smaller buyers still “have decent-size footprints in their own markets but have been boxed out of buying over the past several years because large institutional players very aggressively competed,” he says. “Now this group has this market to themselves.”

Equity Residential sold 15 properties for $272 million last quarter, including four in Portland, Maine, to Resource Real Estate, a Philadelphia-based, multifamily-property investor. The Chicago-based REIT also unloaded four North Carolina properties and two each in Atlanta and Dallas, and it is working with a potential buyer for its Austin, Texas, portfolio of some 3,000 units as it seeks to focus on higher-value coastal markets. Equity Residential executives said the average price on the assets it sold last quarter was 4% higher than how the company had valued them in March 2007, and the average age on those properties was 23 years old. Equity aims to sell $1 billion of assets this year, down from $1.9 billion last year, as it shifts its portfolio focus.

Also improving the market for the midsize players: The number of new sale offerings in the first
quarter increased 41% over the previous year’s period. The majority of those offerings are for
regional assets or for stand-alone properties. Peter Donovan, who oversees multifamily-property transactions for CB Richard Ellis, predicts $35 billion to $40 billion in total sales this year, down from more than $90 billion in the past two years but still double the $20 billion in deals from earlier this decade. Buyers are “pickier,” he says, but they are still bidding aggressively when they find what they want. Still, the brokerage is advising clients against bringing big portfolios to the market. “If they’re going to execute, they’re better off with a regional portfolio or a one-off or two-off deal,” says Mr. Donovan.

Is Self-Storage Recession-Proof ?

By Poonkulali Thangavelu National Real Estate Investor May 27, 2008

Self-storage real estate investment trusts (REITs) reported total returns of more than 23% year-to date at the end of April, based on an index maintained by the National Association of Real Estate Investment Trusts. That number made self-storage REITs the best-performing of all REIT sectors, easily outperforming retail REITs, which generated returns of 10% over the same period that multifamily REITs brought in 15%.

By May 23, however, self-storage returns had already declined markedly from 23% to roughly 18%. And while many industry watchers have hailed the sector as recession-resistant, the heady returns of April may well be partially attributed to an overdue correction.

“Part of what is going on may simply be a little bit more of a correction upward because it seems as though their stock prices were beaten down more than they should have been last year,� says Brad Case, NAREIT’s vice president for research and industry information.

Indeed, self-storage REITs started to recover as early as December 2007 from a downturn that began a year earlier. “Their upturn [in self-storage REITs] started earlier than the upturn for the rest of the equity REIT marketplace,� notes Case. As well, the self-storage sectors= was more negatively impacted by the REIT downturn than other sectors, according to NAREIT. It is possible that the housing downturn is to blame.

Some investors have tended to avoid self-storage REITs in the long-term. They perceive self-storage to be a sector with lower barriers to entry, given that it is easier to build a self-storage facility than an office building. Investors tend to seek out property types that are seen as “very difficult and costly to build,� says Case.

However, Case points out, the success of self-storage properties is also based on branding initiatives and management. “You don’t make money in self-storage because nobody else can build self-storage, but because you can manage it better.� Self-storage REITs are also trying to develop very clear branding to target people who move from one city to another.

Ray Wilson, a Los Angeles-based self-storage industry researcher, reports that 250 to 300 new facilities come on line each year nationwide, which represents 1% of the existing industry supply. “Overall, the supply and demand ratio is in balance,� according to Wilson.

The median occupancy in the sector nationwide — including private self-storage companies — was roughly 90% at the end of the first quarter of 2008. Despite healthy occupancy overall, more self-storage facilities are offering concessions to attract tenants.

For instance, for the first quarter of 2008, the number of facilities offering concessions rose about 3% compared with the fourth quarter of 2007. Wilson says this is because landlords pushed asking rents up by 8% in the fourth quarter of last year and thus had to begin offering concessions to maintain their occupancies. Wilson also is watching several markets with the expectation that earnings there will decline this year. Those cities include Orlando, New Orleans, Indianapolis, Miami and Hartford, Conn.

“Going forward self-storage should perform relatively well,� Wilson predicts. “The owners are in a good position to start pushing up asking rents once the economy starts picking up. If the economy continues to decline, then eventually we’ll see more softening in performance.�

Paula Poskon, a senior research analyst with McLean, Va.-based Robert Baird & Co., says that demand for self-storage is more driven by life events than by the business cycle. For instance, a need for self-storage facilities comes up when people get married or divorced, or move for employment purposes.

The economic climate also generates some of the demand and she believes that in this housing downturn demand is being generated from people who are losing their homes and putting their belongings in self-storage. The impact of economic influences is more difficult to pin down, however, according to Poskon.

Poskon expects that self-storage REITs will continue to generate good returns going forward. For one, “the housing crisis is not going to be resolved anytime soon.� And for people who are having life events, “this is a service business and the storage companies offer a solution.� Considering that the need for that sort of solution is not going to change, “demand is going to remain pretty resilient over the course of this business cycle.�

It is not easy to get information and insights regarding foreclosures and short sales directly from banks and lenders. They are obviously a critical party involved as they are the ones doing the foreclosing and who will ultimately be making the decision on your short sale offer. Below are some great insights shared by Jim Satterwhite who is the vice president of price default management at Chase Bank.

Smooth Short Sales: Tips from a Lender

WASHINGTON — Real estate practitioners who’ve worked with clients on a short sale often complain about constant transaction delays, particularly in getting the deal approved from lenders.

On Wednesday at NAR’s Midyear Legislative Meetings in Washington, D.C., a representative from lender JPMorgan Chase & Co. shared some advice on how you can help move a short sale along as smoothly as possible.

“We’ve found a brave lender to stand in front of a room full of agents,â€? short-sales expert Robert Kutschbach, broker-owner of Carleton Realty in Westerville, Ohio, said in his introduction of Jim Satterwhite, vice president of prime default management at Chase.

A short sale occurs when the net proceeds from the sale of a home are not enough to cover the sellers’ mortgage obligations and closing costs, and the seller is unable or unwilling to bring sufficient liquid assets to closing to cover the deficiencies.

Patience Is a Virtue

Satterwhite said that just as practitioners are being hit with a wave of short sales, they must recognize that lenders are too.

“Be patient. The decision process may take several weeks,� Satterwhite said, adding that a big lender may be dealing with a quarter-million delinquent loans at any given time. It can be a challenge to obtain approvals from everyone involved in the short sale, including investors and insurers, he said. He encouraged practitioners to stay in contact with the servicer of the mortgage to keep everything moving.

Another common problem he sees: When short sale offers are submitted days from an impending foreclosure sale, which is not an adequate amount of time for a lender to reach a decision.

Research, Follow-Up Can Avoid Delays

Satterwhite shared these recommendations for practitioners:
• Find out if there are any liens on the property, which can become big problems for lenders and real estate professionals. Secondary lien holders may require money to minimize their losses and can balk at approving the short sale. Frequent objectors include tax lien holders and mechanic’s lien holders.
• Engage both primary and secondary lien holders at the same time because all parties will need to approve the contract.
• When working with the seller, ensure that all paperwork is completed and submitted on time. Also, make clients aware that they may be asked to reduce the lender’s loss by making a payment or by signing a promissory note.
• When working with a buyer, make a reasonable offer on the property. A ridiculously low offer is a waste of everyone’s time, he said. “The servicer’s primary goal is to minimize the investor’s loss on a property with a distressed borrower,â€? Satterwhite said. Therefore, the lender will try to obtain fair market value for the property, so offers way below fair market value just cloud the process, he said.

What Price Should I Offer?

One audience member asked Satterwhite why lenders can’t provide some type of guidance on what price they’ll accept so practitioners can avoid having multiple offers rejected. But Satterwhite said that would be too good to be true: Just as you wouldn’t try to sell your car by advertising the lowest price you’ll accept, lenders won’t do that in a short sale.

“We want to do what is reasonable, but we also want to do our best to recover our indebtedness,� he said.

— By Melissa Dittmann Tracey for REALTOR® magazine online

Posted by Carter Brown

Homes are getting more affordable. Families earning the median household income of $61,500 could afford to buy 53.8 percent of all new and existing homes sold nationwide during the first three months of 2008, according to the Housing Opportunity Index released this week by Wells Fargo and the National Association of Home Builders.

That’s up from 44 percent during the first three months of 2007 and the most affordable housing has been since the second quarter of 2004.

This trend is a result of home prices falling off record highs, inventory levels increasing and sellers becoming more and more motivated to sell and willing to discount their prices.
All good news for investors.

Posted by Carter Brown

We frequently hear and read news reports and statistics about what is going on nationally in the real estate market. I don’t really believe there is any such thing as a “national� real estate market. Different parts of the country behave very differently when it comes to real estate and different factors affect areas in vastly different ways. For instance, turmoil in the car industry could have a devastating affect on the housing market in Michigan and surrounding states and no affect at all in the market in Georgia or Arizona.

I thought I would write about this because of a recent report I read that painted a grim outlook on the national market but there were positive signs in certain areas of the country. As you see below in numbers quoted by the National Association of Realtors, there are some bright spots and signs that things are not quite as bad as previously thought.

Regional Sales Volume, Prices

The unusual mix of market conditions around the country continues, but areas showing healthy price gains include Greenville, S.C., and Springfield, Mo., both with solid local economies. “On the other hand, some markets like San Diego, Calif., and Fort Myers, Fla., are experiencing rising sales after sudden double-digit drops in local home prices, so lower prices and low interest rates are starting to generate results,�

• In the West, existing-home sales rose 6.4 percent in April to a level of 1.00 million but are 15.3 percent below a year ago. The median price in the West was $285,700, which is 16.7 percent lower than April 2007.

• In the South, existing-home sales were unchanged from March at an annual rate of 1.92 million in April, but are 18.6 percent below April 2007. The median price in the South was $170,800, down 5.1 percent from a year ago.

• In the Northeast, existing-home sales fell 4.4 percent to an annual pace of 870,000 in April, and are 14.7 percent below a year ago. The median price in the Northeast was $262,000, which is 7.7 percent below April 2007.

• In the Midwest, existing-home sales were at an annual rate of 1.10 million in April, which is 6.0 below March and 19.7 percent lower than April 2007. The median price in the Midwest was $159,100, down 2.9 percent from April 2007.

Posted by Carter Brown

The Real Estate consulting company, Hanley Wood Market Intelligence, sees some positive signs in the housing market. They site their optimism on housing starts posting monthly increases and single family permits posting a positive gain in April. One thing of note is the comment about housing affordability being the highest it has been in years. This is a fancy way of saying homes are cheaper than they’ve been in a long long time, and as investors we like cheap houses.

While March housing data showed that the sales environment for both new and existing home were still quite sluggish, the small increase in housing starts along with a rebound in building permits may suggest that the worst of this housing downturn may be behind us. While it would be premature to declare the bottom reached, April’s permits and starts data are positive signs that the market may have finally started to stabilize. Total housing starts have now posted monthly increases in three of the last four months. April was also the first month in over a year which single-family permits posted a monthly gain. We can see the fundamental changes taking place as affordability for housing is the highest it has been in years. Ideally this will be enough to drag any hesitant buyers off the sidelines.

Hanley Wood Market Intelligence

Posted by Carter Brown