Melissa Savenko's Richmond Real Estate Review

Are There Any Rules in Commercial Real Estate?

I'm going to give you a hypothetical to play with.  We lawyers L-O-V-E our hypotheticals.  Here are the facts:

Multi-family, income-producing property is listed in Commercial Information Exchange ("CIE"), the commercial database equivalent to the Multiple Listing Service ("MLS").  The CIE is also maintained and managed by the Richmond Association of Realtors ("RAR").  The property isn't what I consider "big deal" commercial.  It's not some high-rise new construction with complicated financing and a multi-million dollar price tag,  No, it's just an apartment building, with more than six but less than 20 rental units, priced in the neighborhood of $1M.  The property is initially over-priced, in the opinion of most in the market, and doesn't sell.  Property listing expires, and property goes "POOF!" in the CIE.  So no more data available, unless you know to pull the expired listings.

Agent has an investor-client that looks at property back when it's overpriced.  Passes.  Investor-client gets the word early in January 2009 that the property has come back on the market at a substantially reduced price.  Since this investor-client is a good gal/guy, (s)he contacts Agent to show her/him the property. 

[NOTE:  This is an important fact because some investors would throw their real estate agent under the bus if it would save them a nickel, no matter how much work that agent has done bringing a deal to them.  Agents get cut out by unscrupulous investors all the time.  This client happens to be someone who believes in loyalty, believes a good real estate agent is value-added to the deal, and wants to treat the agents (s)he works with fairly.  YEA!  This is mentioned only because it becomes an important fact in the fact pattern.]

[NOTE:  Let me also note that there are plenty of good guy investors, and equally bad real estate agents.  In fact, I'm having a depressing month, and I'm convinced there are more unscrupulous real estate agents out there than there are honest ones.  People are doing ANYTHING for a commission. It's pretty gross.].

Agent looks in CIE, the commercial database.  Nothing.  Agent looks in the "Multifamily" section of the MLS.  Nothing.  Agent searches Loopnet, a proprietary database that only shows certain commercial listings for free, and "locks" other listings unless you pay them beaucoup dinero.  Nothing in the free listings.  Agent calls the former listing agent several times, and send several e-mails.  Finally, Agent gives up and calls client, saying "If you've got the information on how I find out about this property and contact the listing agent, please just send it to me.  I'm going crazy trying to find it."

Moments later an e-mail appears in Agent's inbox, and the answer becomes clear.  Commercial brokerage, listing the same package of properties that didn't sell the previous year, all at substantially reduced prices.  Okey-dokey, now there is something to work with.

Agent calls the brokerage, gets the very nice assistant, and attempts to schedule a showing for client.  Agent is told client must sign a Confidentiality Agreement before (s)he can see the property or get any financial information on the property.  Okey-dokey again, no biggie.  There are any number of  legitimate reasons a seller would want to restrict access to financial records, cash flow information, rent rolls, etc.  So Agent has the commercial brokerage send the Confidentiality Agreement over for the investor-client to execute.

Agent, being conscientious, reviews the Confidentiality Agreement and finds a curious sentence:

"Neither [Broker] nor [Owner] shall be responsible for paying any fees to agents representing Interested Purchaser."

E-R-R-R-R-C-H-H-H....full stop.  Agent thinks:  "What the heck does that have to do with confidentiality?"  Short answer: A whole lot of nothing.  The language has to do with what would be called "cooperation and compensation" in the residential real estate world.  In the residential MLS, as a condition of being able to include the property in the MLS database, the listing brokerage is required to offer "cooperation and compensation" to any other brokerage that brings the buyer.  That's the 3% a buyer's agent would typically get for representing an purchaser in the purchase of a home, and that 3% is half of the total proceeds, the 6%, the seller has agreed to pay listing brokerage pursuant to a contract, the Listing Agreement.

So the language in the Confidentiality Agreement essentially says:  "Listing Broker and Seller will not pay Buyer's Agent for bringing the Buyer.  If Buyer wants independent representation, Buyer needs to pay his or her Buyer's Agent SEPARATELY and out of his or her own pocket."

So, dear readers, I am going to leave y'all to ruminate on this hypothetical fact pattern, and what poor Agent, and poor Agent's client, should do.  Maybe this is just a case of someone misunderstanding the commercial real estate world, which seems to have absolutely NO rules, other than purely Darwinian ones. Offer solutions, make suggestions, point out faulty analysis.  And we will re-visit this issue in greater detail at some future, not-to-distant point.  In fact, I can't quite wait.  I'm hoping I get a raging debate between those that think the language is fine, and those that don't, and all the "whys" as well.  Stay tuned......

Central Virginia Area Housing Market 2008 Report - Synopsis

Attached to this post is a 2-page synopsis of the 2008 Central Virginia Housing Market Report.  The news is generally pretty good, especially compared to hard-hit markets like Northern Virginia.  Here are some key points:

• Especially in the third and fourth quarters, sales were down over 30%, even though prices were down only 3%;
• Prices in the Greater Metro area were down 14%, on average, from 2007 [SELLERS, NOTE THIS, AND PRICE ACCORDINGLY];
• Sales for the Greater Metro Richmond area were down substantially less (21%) than sales in the Tri-Cities (31%) and the entire Central Virginia MLS (33%); and
• Nearly three quarters of sales in 2008 were for homes $300,000 or less.  Only 7% of sales in the CVR MLS sold for $500,000 or more.  [I found this to be the most interesting statistic in the report].

Anyway, take a look and see for yourself.  If there is enough interest for the full report, I'd be happy to post that as well.  Download 2008_Market_Report_Synopsis

Weird Vulcan Mind-Meld - Me and Paul Goldman? On Using Tax Credits to Rehabilitate City Schools

How strange.  When I wrote my post about using Binford Middle School as a model tax credit renovation project, I had no idea Paul Goldman, the former political consigliere to our ex-Mayor Douglas Wilder, was coming out with a Back Page piece in Style Weekly on essentially the same topic. 

[NOTE:  Very frustrating, but I cannot get the Back Page piece to link.  So you need to go to the Style Weekly Home Page and click on the "Opinion" tab on the top, then click on the link to the article titled "The $200M Glitch."  There is a cute picture of a Band-Aided piggy bank wearing a graduation cap.  That's the article.]

Hmmm......what does this mean?  Strange coincidence, that is for sure, especially since I've never met Mr. Goldman.  But I think it's great that other people are thinking about the same thing, a way to save Richmond's amazing old school buildings.  Here are the benefits, to my way of thinking:

• Restore important public architecture;
• Meet the FEDERAL, COURT-MANDATED obligations to bring non-compliant schools into compliance with the Americans with Disabilities Act ("ADA") requirements;
• Give school children the best possible learning environment;
• Be true to the environmental principles of "recycle and reuse" by renovating, rather than building new; and

• Strengthen neighborhoods by investing public dollars in one of the most important neighborhood anchors there can be - the local community schools.

Now, Mr. Goldman made the point that the existing tax credit laws would prevent the use of the rehabilitation tax credit program to renovate a school if the purpose of the property post-renovation remains the same.  The specific provision is IRS Code Section 168(h)(1)(B)(ii).  I haven't researched the legal provision yet, but assuming the analysis to be correct, I agree with Mr. Goldman - the restriction doesn't make any sense.  A private developer could renovate Binford into condominiums or apartments, using the tax credit program incentives, but the City couldn't qualify for those same incentives if it renovated the property to be a state-of-the-art school, while respecting the historic character of the building?  If that's the case, that provision of the law NEEDS to be changed, and ASAP.  Why should federal and state tax dollars be available to private developers for private profit-generating projects, and not to localities and municipalities for projects that advance the PUBLIC benefit?

We need to figure this out, and lobby hard for any changes to the law necessary.  Who's on board?

Accomodating the Housing Needs of Generation Y - A Report by the Virginia Housing Development Authority

Here is a pretty cool report, prepared by the Virginia Housing Development Authority, called "Accommodating the Housing Needs of Generation Y."    Generation Y is defined as the children of the Baby Boomers, born after Generation X, between the years 1977-1997.  The report indicates that housing affordability will be a big issue for this generation, as will changing patterns of land use and development.  Generation Y is more about urban infill, walkable communities, mixed-use, and mixed-income development.

Pretty interesting stuff.  Take a look see.  Also, the VHDA does a lot of consumer-friendly programming, such as homeownership classes and other consumer education.  They also have low-interest rate financing for certain moderate income individuals.  So check out their home page, it's worth the time.

Thanks, VHDA.  Send more stuff!

Why, Oh WHY, Won't You Buy? Some Insight on the "Reluctant Buyer"

Record-low interest rates.  Record high inventories.  Current incentives for first-time home buyers. Anticipated incentives for all home buyers.  There should be a feeding frenzy of buying going on right now....but there's not.  Why?

Daggone it.  I wish I wrote this article.  It explains it all and very well.  The title is "Turning Buyers Around" by Gary Keller, the founder of Keller Williams Realty, and it appears in the January 2009 issue of Realtor magazine. 

[NOTE:  I'm actually a little bit confused because the web article is titled "Overcoming Buyer Reluctance" while the hard copy magazine article is the "Turning Buyers Around."  But it appears to be the same article.  So, moving on....]

In any event, the article, and the magazine, are directed at real estate professionals, but there is some GREAT advice and perspective to share with, or use ON, your buyers.  My favorite of all is the advice to take a piece of paper, to start drawing a line representing "the market"  going down the page, and to have your buyers tell you when "the market" has hit bottom.  Of course they won't stop you until you start that line heading back up!  Then, when you ask them to tell you when the market has peaked, they will tell you to stop once you have turned the line back downward.  The moral, according to Mr. Keller:

Buyers cannot perfectly time a market - no one can.  The smartest people know this.  They play in the safe zone.  The safe zone is where smart people plan to buy and sell.  Anyone who buys at the top of a market is just unlucky and anyone who buys at the bottom of a market is just lucky.

Another way of saying this, one of my favorite real estate-isms:  Smart buyers are looking for a deal, not a steal. 

Another very apt point, that to me sums up some of the frustration of being a practitioner in this market, follows:

The great irony of a buyers' market is that even though the opportunity to buy is high, buyer urgency tends to hit an all-time low.  The media becomes the excited purveyor of negative news and uninformed advice, and buyers buy it all. ..,.Their reluctance is ironic since not so long ago buyers were incredibly excited about buying - and it was a sellers' market.  Prices were escalating and it was perhaps one of the most difficult times to buy value and yet people were buying like there was no tomorrow.  Buyers were afraid of losing out by not buying , even though the advantage was all to the seller.

Now a shift has occurred.  Fear is still in the driver's seat but the tables are turned - the fear of paying too much seems to stop most in their tracks and immobilizes them.  When they should have been afraid of paying too much they weren't, and now that they shouldn't be afraid of paying too much they are.

So on-the-fence buyers, read what Mr. Keller has to say.  Don't take my word for it.  This guy knows his stuff.  And feel free to give me a call - I'm happy to find you a DEAL any day of the week.

A Proposal for Binford Middle School - Mayor Jones, Are You There?

I live literally around the corner from Binford Middle School in the City of Richmond.  Binford is located at 1700 Floyd Avenue, in the heart of the Fan, and is a beautiful historic property built in 1914.  It occupies the entire South side of that block of Floyd,and is surrounded by a large blacktop and surface parking.

Once upon a time,when Wilder had his "Cities of the Future" proposal, Binford was on a list of fifteen (15) City schools that were proposed to be sold as surplus property.  The general gist of the proposal, as I recall it, was that the City had more school facilities than it had need for, and the best approach was to close some schools, consolidate them with others, build certain new facilities, and sell other school property as surplus, to add to the City coffers.  Binford was on the list for closure.  Here's a blog post I wrote way back when wondering about the methodology for selecting the schools targeted for closure.

Well, I've heard some general rrumblings about the City selling surplus property, and I'm concerned about Binford.  Here's one of the reasons I'm concerned.  Over five years ago, the City in its infinite wisdom closed Robert E. Lee Elementary in the heart of the Museum District. At the time the argument was that Robert E. Lee Elementary was severely underutilized.  The property was sold to a developer, who converted the building to high-end apartments, now condominiums.

I mention Robert E. Lee Elementary because I believe the decision to close that school was short-sighted, at best.  Fast-forward 6+ years, and the Museum District could probably use its own elementary school.  Apparently no one on the School Board or in the School system counted on (i) the Fox School District reaching capacity, meaning it could no longer accept the large number of out-of-zone kids from the Museum District who had traditionally attended Fox as their public elementary school of choice; and (ii) the continued influx of young families into the area.  Were these "unpredictable" trends?  I don't believe so.  I just don't think anyone bothered to dig through the data and project forward.

So, here's my proposal for Binford Middle School. As additional support for the idea, I remind you, dear reader, that City is under court order to bring the public schools into Americans with Disabilities Act ("ADA") compliance, as a result of a lawsuit brought by a group of parents of disabled children, challenging the accessibility of many of the City schools.  Also, remember that many of the operating City school facilities were built in the 1910s-1920s, such as Binford (1914), William Fox Elementary (1911), Ginter Park Elementary (1915), and many others too numerous to name here. 

PROPOSAL TO RENOVATE BINFORD MIDDLE SCHOOL:

1. Transfer the property to a public/private entity, which will hold legal title to the school property;
2. Move the existing Binford students to Albert Hill Middle, located at Patterson and Nansemond in the Museum District, for the duration of the renovation;
3. Have the Principals of Hill and Binford, both of whom are doing an outstanding job, by all accounts, co-manage Albert Hill during the transition time;
4. Use state and federal historic tax credits to completely renovate the building.  This will return $.45 on every $1.00 of eligible renovation expense as a bottom-line tax credit;
5. Seek additional state and/or federal funding, if available;
6. Lease the property back to the City of Richmond Schools for the five (5) year time period required for the federal tax credits to fully vest.

At the end of the five (5) year period, the property would revert back to the City of Richmond.  The tax credits could be syndicated, effectively "sold" for $.70 or so on the dollar.  Hopefully, the construction time line, if properly managed, wouldn't require the students to be out of the building for more than one school year.  At the end of the day, students and their families would benefit from a fully-renovated, fully-ADA ccompliant neighborhood school, and the City could preserve some of its significant public architecture.  Local architects, designers, and contractors would be put to work.  If this project was successful, the City could use it as a model for renovating and restoring other schools.

I think it could work.  The neighborhood benefits, the City of Richmond benefits, the local economy benefits, and most importantly, the STUDENTS benefit.  Win-win all around.

I'm interested to hear from others what they think of the proposal.  But Mayor Jones, if you are listening - well, reading, I guess - please, please, please don't sell Binford Middle School.  The teachers, administration, parents, and ESPECIALLY the students deserve the best solution, not just the expedient one.

I'm Back - But Technically Challenged....

I am having blogging withdrawal.  After a VERY relaxing long weekend, compliments of my parents (thanks Dad and Patti!), I am back well-fed, well-rested, rubbed and relaxed.  However, I didn't post a d*mn thing - even though I took loads of material I wanted to comment on.  The sleeping in and hot stone massages were just too distracting.

So, I was ready to blog when I got back, rejuvenated, lots of ideas.  But reality came crashing back when I walked into my house and my wireless network was down.  ARGHHH....

The nice Comcast lady says there is nothing they can do until Wednesdayy, so I am trying to be very Zen about it....oh, who am I kidding!  I immediately drove straight over to my office to get onto the Internet.  I also am a blogging 'ho, so I checked my stats and noticed the significant drop-off since my last post.  So I needed to throw SOMETHING up here.  Something brief, as I am also watching the small person, who is tired of waiting around my office and ready for some Rock Band jam sessions. 

So, something will be coming soon, I promise.  MORE on dual agency (I'm getting totally sick of the topic myself, but confusion still seems to reign), dealing with short sales, foreclosure frustrations...stay tuned.

Payments for Purchasers or Refinancing - Rates Are AZY-Cray!

Well, this just came across my e-mail and I thought it was valuable enough to post ASAP.   Download Refinance_Savings_Chart

It's a pretty chart showing payments if an individual refinanced their existing mortgage.  A few notes:

• The chart shows only principal + interest ("P+I"), so to figure out your TOTAL payment you need to add your homeowners' insurance payment and your real estate taxes, to get your "PITI" (principal, interest, taxes, insurance) payment;
• Real estate taxes on a property can be calculated by going to the website of the locality in which the property is located, taking the annual real estate tax amount and dividing it by 12, then adding 1/12th of the total annual tax bill to the monthly P+I payment;
• Homeowner's insurance is also an annual bill, so take that number and divide it by 12, add 1/12th to the P+I+T (real estate tax) payment to get your total PITI, which is your out-of-pocket monthly expense;
• If you do not have any idea what homeowner's insurance will run you, and you don't have time to get a general quote from an insurance agent, I use $1,200 annually, or $100/month, as a pretty good rule of thumb for the typical buyer; and

• The chart works for someone looking to buy a home also, not only refinancing.

Hope it helps!

The Young and the Restless: How Richmond Competes for Talent

Okay, so I just got lazy.  Google "Young and the Restless" and Richmond, Virginia and the report on the creative class popped right up.  Here it is.  Looks like the focus groups were conducted in March 2004.  I'm not sure when the report itself was generated, I just know I went to the kickoff party at Main Street Station. 

Pretty interesting stuff.  And the "El Camino" quote is on Page 17.  Love it.

HYPE Richmond's "If We Ran Richmond" - January 21, 2009 Play King or Queen for a Day?

HYPE ("Helping Young Professionals Engage," or on more than one occasion I've heard it revised tongue-in-cheekily as "Helping Young Professionals GET Engaged") is hosting an event on January 21 from 5:30 p.m. until 7:30 at Toad's Place called "HYPE Vision: If We Ran Richmond."  I'm pretty sure the "We" refers to "Young Professionals."   [ASIDE: I enclose "Young Professionals" in apostrophes merely because I am getting to that point where I'm wondering if my biological age disqualifies me from participation in anything calling on one to be young.  Sigh.  But enough of my mid-life crisis.  Moving on....]

The e-flyer describes the event as follows:

If you ran Richmond, what would you change?  If you ran Richmond, what would you celebrate?  Join us at Toad's Place to help form our collective vision of Richmond.

Admission is $10 and gets you in, one drink, and discounts on drinks for the remainder of the event.  I'm guessing the ultimate objective is to come up with a plan outlining how "Young Professionals" would run Richmond, sort of a la the charrettes that gave us the Downtown Master Plan.

Does anyone else remember a regional "visioning" process several years ago that was managed by the Greater Richmond Chamber, which produced a report called "The Young and The Restless?"  It was modeled on Richard Florida's theories from "Flight of the Creative Class," a super-interesting book on what makes successful cities.  Here's a May 2002 article summarizing his theories.  Short version:  Cities like Boulder, Portland, and Austin are successful because they are retaining their young, hip, highly educated professional class and attracting newcomers as well.

The HYPE event = shades of deja vu for me here.  I wonder what happened to that "Young and the Restless" report?  I thought it was REALLY interesting.  I just remember one person's quoted statement that if Richmond could be a car, it would be an El Camino, because it didn't know what it wanted to be.  That has stuck with me, I thought it was so clever.

If anyone can track down the link for the report, or the report in hard copy, I'd be happy to post it here.  I have to say I think I can identify the sure sign that Richmond is (becoming?) cool and hip and trendy, and retaining the creative class.  Others might view this development as one of the seven signs of the apocalypse.  My theory:  Coolness and success = direct proportion to the proliferation of tattoo parlors.  Just one woman's theory, but I'm stickin' with it.