Monday, February 22, 2016

Snoqualmie Pass Real Estate - www.snoqualmiepassrealestate.com - The Year Ahead in Commercial Real Estate

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The Year Ahead in the Commercial Real Estate Market

Uncertainty Breeding Opportunity

After several years of increasing domestic economic expansion and an ever-recovering and ever-growing real estate market, 2016 opens with the return of global economic uncertainty as China’s economic growth moderates, energy prices decline significantly, and geopolitical threats such as ISIS, pose a consistent threat to Europe and the rest of the world. While it remains unclear how today’s macroeconomic conditions will impact commercial real estate markets, there are two scenarios. The first is that global market weakness will impact domestic financial markets, the second is that market impacts remain moderate and commercial real estate remains stable and continues to grow due to strengths in core fundamentals. We believe that the second scenario is more probable given the unique opportunities being posed by forces – like demographic shifts – that are proceeding independently of macroeconomic trends.

Manhattan - commercial real estate market

Manhattan, NY

As for the commercial real estate markets themselves, 2015 was an amazing year. Real Capital Analytics reported a total of $533 billion in sales representing a 23% gain over 2014, and the second highest level of investment volume over time behind the peak $573 billion in activity seen in 2007. Further, the Moody’s/RCA CPPI has given an initial estimate of 12% year over year price appreciation in 2015. These trends are more likely than not to persist throughout 2016 for several reasons. First, global pressures will have two effects: One, keeping interest rates low (despite the best intentions of the Federal Reserve) and keeping foreign money flowing to the United States, a decent amount of which will flow to real estate. Second, fundamentals are strong – in fact, many markets in almost all property type segments experienced rising lease rates and falling occupancies for most of 2015 and are forecast to continue such growth. Third, new supply remains balanced with demand growth and thus oversupply seems unlikely. The lack of increasing new supply given the growth of rental rates amidst falling vacancies can largely be attributed to rising construction costs and relatively tight lending standards for new development.

What happens in the broader United States macro economy is far more difficult to predict. First, the decline in oil and energy prices is absolutely going to cause highly localized and specific harm to those sectors and in turn cause some level of harm to the real estate markets dependent on energy production, such as those in Texas and the Midwest. Historically, oil price declines acted like a tax break or stimulus package for consumers and businesses and the overall economy thus prospered; since the United States has significantly increased its production of oil and energy following the pre-recession oil price spikes, the effect is less certain today. High price markets like those found in the Northeast and California and parts of Florida are likely to benefit the most from energy price declines as it lowers transit and utilities costs and could boost employment via the stimulus effect.

Overall, we expect that the United States economy will grow more slowly in 2016 than 2015 while still remaining positive and thus avoiding recession. Therefore, we do not see any major risks to the commercial real estate markets as long as fundamentals remain relatively strong.

Investment Outlook

Chicago, IL

Commercial real estate investors who made acquisitions during the downturn are now reaping the benefits of taking such risks. Despite, or in fact, because of these significant gains, many investors and market participants are now openly opining on the possibility of a new downturn in the real estate asset cycle. We do not find such arguments to be very compelling for several reasons. First, many of the causal conditions present before the 2008 economic turmoil are not present in 2016 and are not likely to appear in the near-term horizon. The most meaningful indicator of a potential bubble or overpricing of commercial real estate is the spread between cap rates and underlying treasury rates. According to RCA, cap rates averaged 6.5% nationwide during 2015, while the 10-year treasury rate averaged in the low 2% range for most of 2015 and early 2016. This implies a spread of over 4% (or 400 basis points). Today’s spreads are significantly higher than those observed pre-crash where they averaged slightly below 200 basis points and even below 100 basis points for class A assets in top markets according to the commercial real estate economics researchers at the Lakemont Group. In summary, the market is not presenting the same risk/return profile observed before the 2007 peak of pricing. Further, debt availability is far more constrained post crisis with total leverage utilization down significantly (in fact, the percentage of all equity transactions in many markets is staggering) and therefore the risk of default is relatively low for most investors and deals. Thus, we believe pricing in commercial real estate markets does not represent a new bubble or other significant source of risk.

This conclusion is further strengthened by our belief that interest rates will not experience significant upward pressure in 2016. The energy sector declines and overall global pressures will likely start impacting GDP and employment statistics by the end of the first quarter of 2016. The likely result will be the Federal Reserve slowing or even pausing further rate increases in 2016. Debt markets should remain open and active in 2016 as they did in 2015. If debt costs do not rise and fundamentals remain stable or growing (even if at slower rates than in 2015), it is not logical to expect price declines. In fact, we expect modest price appreciation for most markets.

Top Markets for Property Sales in 2015

(Ranked in terms of total dollar volume)

Manhattan – $55.9B
Los Angeles -$27.6B
Chicago – $22.6B
Dallas – $19.5B
Atlanta – $16.9B
Boston – $16.4B
Seattle – $14.9B
San Francisco – $14.3B
San Jose – $12.5B
Phoenix – $12.1B

Source: Real Capital Analytics

The list of top markets for commercial real estate sales in 2015 appears relatively similar to lists for the past 5 years with the new additions of Phoenix and San Jose. These markets attract institutional capital from private equity, REITs, and foreign buyers and have been the most competitive to find deals, especially with attractive yields. Overall, given the increasing level of global macroeconomic uncertainty, we expect these and related top tier markets to gather an increasing share of commercial real estate investment activity in 2016 as money moves to areas of perceived lowest risk.

Top Growth Markets for Property Sales in 2015

(Ranked in terms of YOY percentage increase in sales volume)

DC/Virginia Burbs – 121%
Baltimore – 71%
Orange County – 70%
Northern New Jersey – 69%
Seattle – 68%
Orlando – 68%
Portland – 61%
Central California – 60%
Inland Empire – 58%
Phoenix – 54%

Source: Real Capital Analytics

The above list of markets may present some of the best opportunities for growth and price appreciation given their relative strength. Capital is starting to rotate to these markets and further price increases may potentially follow. There will likely be expansion in cap rate spreads between primary and secondary markets in 2016, especially if foreign capital flows increase as predicted and those funds seek assets predominantly in only the largest markets. Thus, yield-seeking investors will likely find the best opportunities in the non-top tier markets (such as most of those on the list above).

Miami, FL

Beyond market, property sector is equally important in terms of forecasting investment performance. According to RCA, the apartment sector has been the top performer, up 38% from the peak (defined as Q4 ’07), followed by office, up 18% from the peak. Retail and industrial have lagged at -1% from peak and up 3% from peak respectively but performed well in recent years. We find it impractical to give overall guidance for property sectors on a nationwide basis and encourage investors to work with Advisors who are knowledgeable about each sector in their respective market as finding the best performer can be challenging. Industrial properties offer a prime example of such quandaries – industrial real estate in energy markets should face decreased space demand as that sector contracts in 2016. By contrast, industrial distribution facilities in areas of high population growth (like Florida) may over-perform as retailers shift distribution from stores to warehouses as online sales continue to dominate.

Trends to Watch

Perhaps the most discussed trend in commercial real estate in recent years has been the Millennials, the age cohort who are changing work and living arrangements across the nation. A relatively less covered demographic trend of greater size and perhaps importance is the aging population. According to data from the U.S. Census Bureau and analyses by the Lakemont Group, the overall population in the United States is forecast to grow by 11.55% in the next 15 years while the population above the age of 75 is forecast to grow 69.21%. In fact, those over 75 years old will represent almost 10% of the population by 2030 (those above 65 will be over 20% as well). While many real estate market participants correctly use these statistics to justify the need for more senior housing, there are actually many other real estate opportunities to service this growing segment of the population. Market rate apartments with features and locations this demographic wants, can use, and can afford is one such example. Properties to house medical services and activity retail is another. We encourage investors to think long-term when making acquisition, disposition, and asset management decisions. This is one long-term trend that could shape demand for many property types for decades into the future.

Concluding Thoughts

2016 has started with higher levels of volatility in United States equity markets as a result of justifiably significant fears of global economic pressures causing falling demand domestically. While some investors are taking a fearful stance, we see a different outcome. It is probable that global uncertainty will serve to keep interest rates low and allow for growth of fundamentals in the commercial real estate markets and in the broader domestic economy. Furthermore, even in the event of a domestic economic slowdown, the global uncertainty could lead to lower interest rates and even greater inflows of foreign capital, supporting the domestic commercial real estate market (the current risk / reward proposition of U.S. investment is unbeatable).

Commercial Real Estate Market - Los Angeles

Los Angeles, CA

If such occurs, it is likely for 2016 to be another strong year for commercial real estate transaction volume, net operating income growth, and even price appreciation; however, expect all to grow at a slower rate in 2016 than in 2015. Investors and property owners should be aware that today’s commercial real estate economy has little in common with previous downturns. As such, we believe that the risk and return profile of commercial real estate is still attractive in 2016 and is likely to remain so for at least the near-term horizon.

Monday, February 15, 2016

Snoqualmie Pass Real Estate - www.snoqualmiepassliving.com - Correct Renovation Strategy

Snoqualmie Pass Real Estate, Snoqualmie Pass Properties, Snoqualmie Pass Homes, Snoqualmie Pass Lots, North Bend Real Estate, Snoqualmie Real Estate, Carnation Real Estate, Suncadia Real Estate, Easton Real Estate, ThomasWolter.com, http://www.snoqualmiepassliving.com

Justin Pierce is a real estate investor and real estate agent who regularly writes about his experiences buying, renovating and selling houses in the Washington area.

Back in May, I was presented with a little house in Alexandria. The house was vacant and, of course, it was in really rough shape. It was also very small with only two bedrooms, one bathroom and a dated layout that would not appeal to the modern buyer.

This little rambler had less than 900 square feet of living space on the main level. It was originally built on a crawl space but someone along the line had dug it out and created a full basement complete with cement block walls and poured concrete slab. However, the only real access to the basement was a steep stair well under a storm door on the outside of the house. There was also a hatch access in the floor in one of the closets but it was cramped and the ladder was steep.

My first thought for this house was to do a pop-top renovation. We’d remove the roof completely, add a second floor, thereby creating a nearly 1,800-square-foot Colonial-style house with a modern layout on all levels and full interior stairs.

[At long last, investor’s pop-top house sells]

In this scenario, my total costs would have been somewhere around $406,000 and the house would be worth around $480,000. I estimated profit would have been about $73,000. However, this project would take a significant amount of time, probably around nine months from purchase to sale, possibly more. And this type of project is always fraught with risk. You can never be sure what hurdles the county building department will put in front of you or structural issues that might arise.

Even more worrisome is the fact that there were no real comparable sales in the area. The neighborhood was full of ramblers. There were very few two-level Colonials and none of them had sold recently. Without those solid comps to fall back on I can never be sure what value an appraiser will put on a house. In cases like that, appraisers will either go out of the area to get comparables and you’re never really sure which area they’ll choose or they’ll use a square foot cost to adjust for the size difference of the comps in the area.

Either of those scenarios leaves a lot to the appraiser’s discretion and a lot of possible outcomes. Many possible outcomes equal uncertainty which is something we don’t like in this business.

My other option was to just do a simple renovation, keeping the home layout as is and just redoing the bathroom and kitchen and new flooring and paint. The house needed new siding, a roof and windows as well. In this scenario, I estimated a total profit of about $13,000 which is dangerously low. There are almost always additional costs in any project and it really left no cushion on the sales price or room for error. If I had to come down on my end sales price at all I would be in trouble. I also felt the house would be tough to market with its current layout. On the bright side, however, the project would be very quick. I could have this one done and be moved on to the next one in just a couple months.

[Landing a great real estate deal can be a humbling experience]

But there was a third option. We could maintain the house’s foot print and keep it as a simple rambler. However, we would modify the interior layout, adding full interior stairs to the basement and a second bathroom. Then we could get a legal bedroom downstairs and then market it as a three-bedroom, two-bath house which is much more appealing to families. I estimated my total costs would be around $310,000 and there were pretty good comparable sales in the area that made me confident I could get about $380,000 for the house — leaving me with a profit of about $47,000.

This seemed to be a good middle ground. The potential profit was there with plenty of cushion to keep me in the black and even though it would require quite a few building permits it would still be relatively quick and easy.

So with that decision we set to work. My contractor had the project completed in about 10 weeks, which was perfect because it was just in time for the fall market.

Typically, I really like the fall market. Right after Labor Day, the buyers seem to come out and the housing market is normally pretty healthy until late October or early November. But this year seemed different. Most of September seemed very slow and I wasn’t seeing the little market pop that I normally expect in September. Other real estate agents confirmed seeing the same thing in most areas around the city.

After several weeks on the market, my house had no offers or real serious interest. I originally priced the house at $385,000, which I had thought was going to be a steal since one very similar house had recently sold for $400,000. My house just sat. The traffic was pretty good but most people said it was too small for them.

[When a flipping deal works out right]

By this time a couple of Colonials had come on the market and sold and another investor around the corner had just started a pop-top renovation. I started thinking I should have gone with option one and added a second level to the house.

Getting top dollar for your house is all about appealing to the buyers who are out at the time and the buyers who were out when I listed this house seemed to be interested in more square footage. So I probably didn’t make the optimal choice in hindsight.

I’m not in the business of holding houses so I did a significant price drop to $365,000 and immediately got a contract on the house at asking price.

The fall market pop did eventually come this year but it seemed to have come late. After I got the house under contract I had several people call on it with a lot of interest. It’s always hard to judge or time the market and most times you just follow your gut and or play the odds. Luckily, real estate isn’t like Vegas. You don’t either win big or lose big. If you know what you’re doing you’ll either win big or you’ll just win. In this case I just won.

In the end, I netted about $20,000 of profit on this deal and my investor who provided most of the funds made more than $25,000 — well over an 18 percent annualized return on her money. So even though profit was not as high as it probably could have been it was still a good little deal and we gave the home buyer a very good value, which is also a win.

Tuesday, February 9, 2016

Snoqualmie Pass Real Estate - www.snoqualmiepassrealestate.com - Top 10 Most Shocking Numbers for 2015

Snoqualmie Pass Real Estate, Snoqualmie Pass Properties, Snoqualmie Pass Homes, Snoqualmie Pass Lots, North Bend Real Estate, Snoqualmie Real Estate, Carnation Real Estate, Suncadia Real Estate, Easton Real Estate, ThomasWolter.com, http://www.snoqualmiepassliving.com

The 10 Most Shocking Numbers in NWMLS's 2015 Summary

Wednesday, January 27, 2016, by Sean Keeley

Image: SounderBruce

NWMLS recently sent out their annual summary of the year that was in Western Washington real estate. We probably don't need to tell you that most of those numbers are up, up, up. Especially if you've been trying to buy a house all year long. We perused the report, which was chocked full of numbers, and picked out some of the most shocking, revealing and fascinating numbers within.

1. 2015 saw 88,331 closed sales amongst NWMLS members in 2015, up 14.3 percent from 77,276 in 2014.

2. The value of every NWMLS member single-family home & condo sale was over $34 billion, up almost 23 percent from 2014.

3. Both of those numbers are higher than the previous highs of 2007 when the housing market peaked (don't ask what happened after that...).

Image: AAG

4. Average area-wide supply was 2.4 month, down from the 3.5 months number of 2014. King County was the lowest of all, averaging only 1.3 months of supply. 4-to-6 month supply is considered a balanced housing market.

5. 2,676 single family homes sold at $1 million or more, which was up over 29 percent from 2014. Add 237 condos priced at $1 million and up in as well.

6. The median price for a 3-BR home was $283,250, about 7.9 percent higher than 2014. Highest median price for 3-BRs came courtesy of San Juan County with $452,500.

7. Six of every 10 condo sales (61.9 percent) were located in King County.

8. As well as older sales did, new construction sales did even better. 8,548 newly-built single family homes sold for a median price of $425,000 while 1,018 new condos sold for a median price of $449,950.

9. The highest-priced single family home sold in 2015 by a NWMLS member?This $13.8 million Mercer Island estate. Topping the chart of high-priced condos was an Escala 3-BR that went for just over $3.1M.

10. There was a tie atop the list of cities with the most $5M+ home sales. Mercer Island and Bellevue both saw seven, while Clyde Hill (5), Medina (4) and Seattle (4) were close behind.

Friday, February 5, 2016

Snoqualmie Pass Real Estate - www.snoqualmiepassliving.com - The Rental Market Goes Gray!

Snoqualmie Pass Real Estate, Snoqualmie Pass Properties, Snoqualmie Pass Homes, Snoqualmie Pass Lots, North Bend Real Estate, Snoqualmie Real Estate, Carnation Real Estate, Suncadia Real Estate, Easton Real Estate, ThomasWolter.com, http://www.snoqualmiepassliving.com

Renters are looking a little older these days.

Rental applicants tend to conjure up images of recent college grads looking to start their life in the real world. But Millennials are facing increased competition from people who have already spent decades in adulthood, and may have better credit and higher income.

Since 2005, there has been an uptick in renters, with people in their 50s and 60s making up the largest chunk of the increase, according to a recent report from the Harvard Joint Center for Housing Studies.

In fact, the majority of all renters are currently 40 or older.

There are many reasons that the renter population includes a growing number of Gen-Xers and Baby Boomers.

The 2008 housing collapse that led to a wave of foreclosures has turned some people off to homeownership, according to Jon Spader, senior research associate at the Joint Center for Housing Studies. He added that the tight credit market can also hinder renters from securing a home loan.

Plus, not everyone wants to be a homeowner in their golden years, and the decision to trade a mortgage for a lease is about a new lifestyle, especially for empty-nesters.

"They are leaving their homes and renting in a much more urban-type settings from the suburbs to be part of the activities and be mixed in with people of all ages," said Tiffany Curry, a real estate agent in Houston. "It gives them something to do if the kids are gone, or their spouses."

The amenities that come in new rental buildings and their units are appealing to older renters. "They have everything they need in their building," she said.

Renting also gets rid of the responsibilities that comes with home ownership, which can become burdensome as owners age.

"It's about portability. They want to travel and don't want to be burdened by house payments and expenses and upkeep," said Cara Ameer, a real estate agent based in northeast Florida who in the past few years has seen a roughly 15% increase in boomer-aged clients looking to sell their home to become renters.

Some older homeowners are also cashing in on the recent rise in home prices.

"They want to take advantage of getting equity out of their home now, and not wait until they actually retire to move into the city and get a cool apartment," said Curry.

But it's expensive to be a renter right now. Rents have been on a tear recently as inventory remains tight and demand grows.

That reality that has hit home for Sharon Curry, 68, who sold her home in 2013 and started to rent. She accepted an unsolicited offer on her home near Orange County, California, thinking the $200,000 profit she walked away with would beef up her nest egg. Instead, rising rent is eating up her budget.

The rent for her one-bedroom apartment started at $1,670 in 2013. She's now paying $1,962, and she's worried it's going to continue to go up.

While she is currently working, she knows she can't count on having that income forever.

"I don't know how much longer I am going to be working, it's a conundrum."

Monday, February 1, 2016

Snoqualmie Pass Real Estate - New Home Sales Soar in December!

Americans rushed to buy new homes in December at the strongest pace in 10 months, with 2015 marking the strongest year for this segment of the housing market since 2007.

The Commerce Department said Wednesday that new-home sales surged 10.8 percent last month to a seasonally adjusted annual rate of 544,000. It was the third consecutive monthly gain since sales collapsed in September. The increase nearly pulled the sales rate even with the level of 545,000 in February 2015 and points to continued momentum for real estate and construction in the opening months of this year.

"This is a promising sign for the housing market as we move into 2016," said Tian Liu, chief economist at Genworth Mortgage Insurance. "We expect the strong increase in new home sales to continue as the fundamentals in the housing market remain strong and newer vintage homes are in short supply."

Sales of new homes accelerated sharply in 2015, rising 14.5 percent on the entire year to 501,000. Steady job growth that cut the unemployment rate to a healthy 5 percent has given many homebuyers increased confidence, while relatively low mortgage rates improved affordability. Yet sales of new homes continue to run below the 52-year historic average of 655,200, a sign of the severe hit absorbed by the market after the housing bubble burst.

Builders responded to the demand by increasing construction. Over the course of 2015, ground breakings rose 10.8 percent to 1.1 million. Yet supplies main relatively low with only 5.2 months' inventory of new homes available, down from 5.6 months in November. The industry generally considers six months' supply to be healthy.

New-home sales climbed strongly in the Northeast, Midwest and West in December. They were nearly flat in the South — the country's largest housing market.

The median new-home sales price fell 4.3 percent from a year ago to $288,900. But Ralph McLaughlin, chief economist at the real estate firm Trulia, cautioned that this doesn't necessarily mean that affordability has improved for first-time buyers.

Only 19 percent of new-home sales were below $200,000 in 2015, a decrease from 23 percent in 2014.

"This is likely due to a combination of low inventory of new starter homes and fewer first-time homebuyers," McLaughlin said.

Still, lower borrowing costs have helped reduce cost pressures and encourage sales, a trend likely to run through this year.

Mortgage buyer Freddie Mac says the average rate on a 30-year fixed-rate mortgage declined to 3.81 percent last week from 3.92 percent a week earlier. Rates have historically averaged 6 percent, meaning that interest expenses are relatively low for homebuyers.