We’re In a Bubble, Somewhere By: Nicholas A. Dunlap, CPM
As figures surface showing that home prices continue to reach new lows, the market for multi-family continues to stay hot. With limited quality product and pent up investor demand, select sub-markets across the Southwest are so hot, it is as though there are price bubbles being inflated before our very eyes. As usual, markets with strong fundamentals and improving circumstances are the investor’s primary focus. Population growth, rent growth, job growth and wage growth are all factors typically considered by investors. Yet in times of uncertainty when these markets are few and far between, investor demand can cause markets to overheat and ultimately burst the bubble.
Having recently come close to two acquisitions in the Austin, Texas market which would’ve marked our first play out of California since the 1980’s, we see the writing on the wall. Our first opportunity had us against 18 other buyers, the second opportunity had us against 11. Needless to say, the novelty list prices that generated such activity are far lower than the ultimate sales prices on either of these assets. Will these values remain hot or will they be cooled off by land development?
Recently published data by TREPP shows that small, regional banks across the United States are being tapped out by non-performing, commercial loans. This truly unfortunate scenario marks what some feel could be the proverbial “tip of the iceberg” of the current/looming commercial real estate debt mess. Local financial institutions dot our communities nationwide and often issue these commercial loans as a way of endearing themselves to the local business community. These banks overextended themselves unknowingly in an attempt to enter the commercial mortgage marketplace. Ultimately, this has resulted in the undoing of approximately 13 banks nationwide.
Similarities can be found between the relationship based lending of the sub-prime mortgage meltdown and the willingness to boldly go where “their bank hasn’t gone before”. Focusing on fundamentals as opposed to relationships will likely keep your local institutions’ doors open.
View the data from the study here: http://www.trepp.com/main.cgi
You Know You're In California When... By: Nicholas A. Dunlap, CPM
You're a Real Estate Investor and you own multiple properties. You have built a successful approach to the operation and management of your properties and part of that includes the use of vendors who have a track record of getting the job done. A new bill (AB 350) carried by Jose Solorio would prevent this from happening. With AB 350, you would be required to retain the current service persons, not their companies, for at least 60 days following a change. Your preferred company would actually be forced to make these service persons their employees.
Oddly enough, when service is unsatisfactory and owners or tenants are unhappy it is usually the service persons who are to blame. Sadly, property owners would be forced to compromise quality in order to appease the socialistic, unionized ways of California.
Hopefully the various property right groups statewide will help put a stop to AB 350. And then, we can all make better decisions the next time we choose to elect a "head in the sand" politician.
It’s not often that I use this blog as a means of discussing items irrelevant to commercial real estate investment. That said, I would like to clarify the lack of recent content. This weekend, I will be getting married. In addition to the long hours at the office, I have also been involved in the planning, correspondence and otherwise mind-numbing forethought that goes into putting a wedding together. As a result, I have not updated you all with some of the timely content so important to our cause.
With that, expect more frequent updates soon. This will include a complete summary of my lobbying efforts both in Washington, DC and Sacramento, a look at some of the markets we are interested in and the opportunities we continue to see in the Southern California market.
For great articles, research and highlights from my reading list, follow me on twitter at: http://www.twitter.com/nicholasdunlap or @nicholasdunlap.