Melissa Savenko's Richmond Real Estate Review

Richmond's Commercial Real Estate Market - A Meltdown in Slow Motion?

Front page news in today's paper indicates that the commercial real estate market in Richmond, Virginia is slowly deteriorating, with more properties in danger of default on existing debt.  According to Real Capital Analytics, a New York commercial real estate research firm, there are 25 distressed properties here in the Greater Richmond Metro area, with a total debt balance of $371M.

Trepp, another New York firm that evaluates and tracks commerical mortgage information, has 66 Richmond properties on a watch list, including two big shopping centers owned by Taubman Centers Inc., Stony Point Fashion Park and Regency Square Mall.  These properties are considered distressed because of increased debt-to-income ratios caused by decreasing rents.  Less income = higher debt-to-income ratio = possible violation of debt service coverage ratios and covenants in commercial mortgages.

The Taubman Center mall properties are great examples of the difference between distressed properties vs. distressed sellers.  These properties are not distressed, in the way we tyically think of distressed properties.  They have good tenants, the owner is spending money on tenant upfit, new tenants are signing leases.  Distressed sellers own performing assets, but have gotten themselves into trouble by over-leveraging, or can't access capital, or are just victims of the market downturn and decreased rents and property values.

Silver lining in this news:  For commercial investors with access to capital, you should be able to pick up some great deals for well-below actual values.  But everyone realize, it's going to get worse before it gets better.  How much worse is the question no one is able to answer.

Analysis of the Central Virginia Housing Market by George Mason University - 2009 Annual and 4th Quarter 2009 AND A Thought for Real Estate Investors

Here it is.  Mixed news. I'm staying "glass is half full," although I gotta tell you I'm concerned about the impact on the market when the first time and replacement home buyer tax credit incentives expire on April 30, 2010.

Couple this with the news about area foreclosures - better than the national average, but rising sharply on a percentage basis - and new home sales- down 7.6% nationally in December - and it's a decidedly mixed picture.

Keep your fingers crossed for a slow and steady climb OUT of the housing slump and not a steep fall back come May 1, 2010.

But investors, be ready.  I think there are going to be great deals to be had throughout 2010, with distressed SELLERS, not distressed PROPERTIES.  But you're going to have to have cash and lots of it, as renovation money becomes tougher to find.  Start lining up your ducks - and your dollars - now, to be ready to move when the right deal comes along.  1031, anyone?

BizSense Publishes a Weekly List of Properties in the Foreclosure Process

Great stuff.  In my opinion, more information is always a good thing.  However, I still strongly believe most buyers, and especially first-time buyers, should R-U-N, RUN!, not walk, away from bank-owned property (post-foreclosure sale) and PARTICULARLY from property in the pre-foreclosure process, up to and until the actual sale on the court house steps.

Happy to share the reasons for my opinion, if anyone is curious as to why.  But for now, my blogging time is coming to a close and I need to go sell some houses.  Hasta la vista, baby....

The Commercial Real Estate Crash Is Coming - Re-Blogging a Re-Blog

Here is an Atlantic article about the impending commercial real estate crisis that I first read in Richmond BizSense.  [Richmond BizSense is an online business news publication and news aggregator.  Sign up for daily e-mails at www.richmondbizsense.com].

Short version:  A commercial real estate market meltdown is coming, with $250 billion - yes, that is "billion" with a "B" - in commercial loans coming due each year over the next several years.   BUT, the silver lining in that cloud is the impact of the commercial market crisis on the broader economy should be less severe than the residential real estate crash of 2008-2009.  Why?

...[T]he commercial market is considerably smaller than the residential market. The existing FDIC system can handle the decline, which will likely hit smaller banks harder than those in the “too big to fail” bracket. Moreover, fraud was probably much more prevalent in the residential than the commercial market, where even the newbie investors tend to be financial professionals or established businesspeople, not hustlers looking for a quick flip. 

So, if it was professionals and experts making or vetting all these commercial real estate deals, how'd we end up here?  Investors and lenders got overconfident and overvalued assets.  And, as the article's author says so aptly, "[C]heap money makes us all stupid."  Ain't that the truth.

An Article on the "Move Up Buyer" Tax Credit - Gotta Move Fast for Your Free $6,500!

Here it is.  Short version:  If you want to buy a "move up" house at a lower price and lower interest rate than has ever been possible, but you need to sell your house first to be able to buy, you better list     N-O-W in order to meet the April 30, 2010 deadline for the new home purchase contract, plus the June 30, 2010 closing deadline.

Feel free to call or e-mail me, 804-986-3993 or melissasavenko@gmail.com.  I can help you on the buy and sell side.  Realtors gotta eat too.  [:)]

First Time Buyers, You're Gonna Need More Money to Buy - The Official Press Release on Changes to FHA Policy

Here is the official Federal Housing Administration ("FHA") press release announcing proposed policy changes to FHA lending.  The FHA wants to:

• Increase the mortgage insurance premium (MIP);
• Update the combination of FICO scores and down payments for new borrowers;
• Reduce seller concessions to three percent, from six percent; and
• Implement a series of significant measures aimed at increasing lender enforcement.

Buyers, what does that mean in plain English?  Higher credit scores required and mo' money, mo' money, mo' money needed to be able to buy.  Increased MIP means more cash required to close.  Updated FICO scores and down payments sounds like risk-based pricing to me - the lower your credit score, the higher the deposit required.  And reduced seller concessions means buyers have to pay more closing costs, and can no longer ask the sellers to kick in that additional cash required to close.

From a public policy standpoint, I agree with ALL of these decisions.  It's almost a tacit acknowledgment from FHA that they've been making risky loans to borrowers of questionable credit worthiness - ironic, since that's what got us into this mess in the first place.  As a real estate agent, however, I am worried about what this will do to the fragile housing recovery, which has been driven largely by the first time buyer, the poster child for FHA loans.

My predictions:  Sales figures will drop, as these changes are implemented.  Fewer first time buyers will be able to buy, mainly because buying will require more cash to close (a bigger down payment, more closing costs).  The effect on the broader economy - I'm really not sure.  But I think these changes would have to have an effect, as fewer people use contractors, buy furniture, do home improvement projects for the new digs.

Fasten your seat belts, y'all.  It's gonna be a bumpy ride.

Property Values Decline 6% in Chesterfield County - How Exactly Is It Such a Great Place to Live?

Ouch.  A whopping 93% of homes in Chesterfield County lost value.  Here's the article from Richmond BizSense. 

Now, considering the property value decline, the school system budget turmoil, the fact that you have to pay private companies for basic services like trash collection (I mean, SERIOUSLY?!?), and those d*mn tolls if you need to get into the City for any reason, Lord hopes not for work, can someone please explain to me how exactly Chesterfield County is such a great "value" again?

Preparing for some hits here.  Asbestos suit on.

First Time Home Buyer Education - Or Nobody Likes Me, Everybody Hates Me, Guess I'll Go Eat Some Worms

I really thought the idea of a free seminar on the home buying process was a good one, especially in light of the number of first time home buyers out there.  I expected I'd get some positive feedback and interest from at least a couple people.  After all, the proposed training doesn't have to be 25+ people sitting in a classroom, taking notes and watching Power Point slides, with an instructor droning on.  It could be 2-3 people sitting around a table at Starbucks going over the basics and asking questions. 

But I heard N-A-D-A.  Nothing.  Silence.  Not even crickets.  I'm honestly surprised that there was NO feedback.  Shoot, I even expected negative feedback ("SURE there is no obligation, I know you are going to bug me to use you as an agent, this is a transparent plot to drum up business, you lame, self-serving real estate agent, you!").

Here's why I think an information session on the nuts and bolts of buying a home would be a good idea.  My reasons are in no particular order of importance, just stream-of-consciousness, as they come to me:

• Purchasing a home is the largest investment most people will ever make.
• Real estate transactions are OPAQUE.  Most people don't understand them.  I'm not at all suggesting people who don't understand the transaction are unintelligent.  It's just that....
• Not only do you have to find a home you like and can afford (the easy part), but you typically have to arrange financing to purchase the home.
• Most people will only purchase 3-4 homes in their lifetimes.  That's not much experience with what is a very complicated commercial transaction.
• Many real estate agents may do 3-4 sales transactions a month.  That's a lot of great experience with all kinds of issues that can arise in a typical - and even a not-so-typical - transaction.
• Buyers, particularly, incur no out-of-pocket expense when they have separate professional representation.  Except in certain unusual circumstances, it is the SELLER that pays the commission to the Buyer's Agent.  So why not have an independent agent representing your interests?
• Yes, there is a TON of information available for free on the Internet, but if you can't filter that information by relevance and importance, you just got a whole bunch of data, and can't reach material conclusions with it.  [Witness my rants about sites like Zillow, and how relevant and accurate THEIR data is...]

Enough already.  I think the reality is most people characterize real estate agents as salespeople, not as advisers and counselors.  And you know who I think is to blame for that perception?  The real estate agents and industry THEMSELVES.  The agents who act like pushy salespeople.  The agents who behave unprofessionally.  The ignorant or uninformed agents.  And the worst of the worst, the truly unethical agents.

Sigh.  It's sometimes disappointing and disheartening to be part of a profession that many rank somewhere between used car salesmen and insurance salesmen for professionalism and honorable-ness. [Is that even a word?].  And even more disheartening because it's our own d*mn fault.

So, you potential buyers and sellers, if anyone wants information, an outline, a sit down, whatever, to get more educated about the home buying process, let me know.  I can recommend some good sources of reliable information and available free materials.  But do yourself a big favor before you buy, and get  educated on the home buying process.  And no, that does not mean READING ZILLOW OR CHECKING OUT WWW.REALTOR.COM is enough.  These sites can provide data and information, but you need to understand the process, the time line, the current market conditions, what reasonable expectations are as a buyer or seller in this market.  Talk to an agent.   Better yet talk to several agents, even if you end up ultimately representing yourself.  [Which I think is foolish, but that's a rant for another day...]

Good luck, and may the force be with you.

Lawyers in Pods and Adaptive Reuse - And MORE About Manchester!

Check out this article about renovated industrial space in Manchester, currently housing Gregory Kaplan PLC, a law firm.  [In the interest of full disclosure, my former husband is a partner in Gregory Kaplan PLC].  The property is right across the Mayo Bridge, a/k/a the 14th Street Bridge to you non-natives, and will be on the right side before you hit ArtWorks. 

I'm really glad Richmond BizSense profiled this project.  The space is way wicked cool, the project used tax credits for the rehabilitation, and the ultimate end product has become an anchor in a revitalizing area.  The owner, designer, and builder should all be commended over and over again, every day, and twice on Sunday, for a successful adaptive reuse project. It just goes to show that the old CAN become the new, when you have smart, creative people and a commitment to getting it done.

Pending Sales in City of Richmond - Some Interesting Stuff - Manchester Leads the Pack!

Well, I just ran the numbers and we currently have 289 single family homes under contract here in the City of Richmond.  The break down is as follows:

• Area 10 ("Urban"City, including Fan, Museum District, Carver, Jackson Ward, Church Hill):  69
• Area 20:  20 (West End of the City)
• Area 30:  60 (Northside of the City)
• Area 50:  80 (South of the River - Manchester)
• Area 60:  60 (South of the River - Westover Hills, Stratford Hills, Woodland Heights)

There are some really interesting fun facts when you dig a bit deeper in all the data.  For example, I think it's pretty interesting that Manchester + the "urban" City accounts for more than half of the pending sales, 149 of 289. 

The Near West End, which is considered one of the most desirable areas in the Greater Richmond Metropolitan area, has the lowest number of pending sales by a large margin - only 20 pending contracts as of this writing.  However, NINE of those 20 are for listings priced over $575,000, with FIVE, or 25% of the total sales for the area, for listings priced at $1,750,000 or more.  So, it looks like Area 20 is bucking the trend of entry-level sales driving the market.

Contrast that with Area 30, where almost half of the sales are for properties listed under $100,000, and only FIVE of 60, or 8%, of the pending sales are for properties listed over $300,000.  The highest pending sale for a property in Area 30 is the sale of 3811 Seminary Avenue, listed at $475,000.

In Area 50, the picture looks much like Area 30.  79 of the 80 pending sales are for $199,900 or less.  There is only ONE pending sale for a house listed above $200,000, 5148 Glenbeigh Drive, listed at $202,990.  Heck, 42 of the pending sales are for properties listed below $100,000.

I went back and did a historical search for closed sales, pended between April 1, 2009-April 30, 2009, to try to track the pending trends.  When you consider that April is one of the strongest sales months in real estate, while December and January are traditionally the SLOWEST months, then we might get an idea of whether or not the sales velocity in 2010 is better than anticipated.  Here are the numbers of closed transactions which went under contract in April 2009:

• Area 10:  58
• Area 20:  38
• Area 30:  42
• Area 50:  31
• Area 60:  43

So, what does all of this mean?  I'm not sure, but I've got some ideas:

• In early 2010, sales in all areas EXCEPT Area 20 are up, and in some instances, like Area 50 (31 sales that pended in April 2009 vs. 80 pending sales as of today), WAY up.
• True urban neighborhoods continue to attract buyers.  [NOTE:  I think this trend is going to continue, as aging Baby Boomers feel comfortable in ever-more-gentrified City neighborhoods and lots of people choose walkability and lifestyle].
• The first time buyer and investors are driving the market.
• Investors are out there in force, buying up distressed properties.  Most people can't get financing for these types of transactions, but if you have cash, WOOOO BOY!  There are some AMAZING deals to be had.
• It remains to be seen what will happen when the First Time Home Buyer Tax Credit expires April 30, 2010.

Keep in mind also that these are only figures for single family homes.  Many first time home buyers are choosing condominiums as their first real estate purchase, either because they cannot afford a single-family home in their location of choice - often the case here in the Fan, where a "fixer upper" home would start around $275,000 MINIMUM - OR they don't want the maintenance and upkeep of a single family home, and prefer the convenience of condo living.

Here's what I know:  I don't know nothing.  The only thing predictable about this market is that it is completely unpredictable.  I can speculate all day long but one little change - like interest rates start to rise - and all bets are off.  But I am choosing to be an optimist.  The news looks good to me.  Here's hoping sales keep improving.