Melissa Savenko's Richmond Real Estate Review

Buyers Beware - Upcoming Changes in Regulations Means Getting a Loan Will Be MORE Complicated!

People outside of the real estate business may or may not know of the significant changes to regulations regarding lending that are coming, effective August 1, 2015.  But we agents have a duty to get the word out to ALL parties to the transaction, but especially the buyers.

I had a closing scheduled for today delayed, and when we asked for guidance on how we could avoid that same situation in the future, and what to expect, we received a very thoughtful and helpful response from the lender.  Here is a portion of that response:

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First of all, forthcoming federal regulations require that a loan application be in process within 10 business days of the application date.  To be in process, it means that the buyers have to have submitted all SIGNED documents applicable to the application and provided as much as possible that has been requested by the lender (like income and asset documents).  If the buyers drag their feet, after 10 business days, the loan has to be withdrawn or denied.  We are then bound to certain dates from that point to keep things moving along.    

It is incumbent on the buyers to get the documentation to lenders as fast as possible.  This means that things like verification of cash to close has to be documented and in the file as soon up front as possible and cannot be lagging behind in the process.  For buyers who don’t have the funds yet or have to “save” it up, they aren’t going to be able to make it  or start application until the cash to close is in place (either in bank accounts or with gift documentation)(emphasis mine).

Lenders are going to have to get more up front at prequalification so that, once the buyers are in application, they already have the majority of what is necessary. 

For [THESE BUYERS], they did EVERYTHING quickly and on time and responded immediately to our requests for items.  Unfortunately, the market is buzzing (which is a good thing!) and underwriting and closing are both terribly backed up.  It has been a while since we have seen this kind of volume and most lenders don’t have the staff to meet it because they don’t want to hire new staff until they see that this is an ongoing issue.  Otherwise, lenders are using their current staff and trying to get as much as they can out of them. 

I would definitely recommend that agents start writing contract closing dates out for 45-60 days.  If a buyer is using a grant program, 60 days is going to be the minimum amount of time to allow because you have to add the grant application and approval process to everything else going on in the deal to get to closing.  If there is a holiday involved, then a few more days need to be added to the closing date.  We are all changing and adapting our process flows from start to finish to tighten up so we can meet the impending regulations. 

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 This response does not even address the new regulations that require the buyer to have the "Document Formerly Known as the HUD-1" in hand at least three (3) days before closing, and requires that three (3) day period to START OVER if there are any changes to the interest rate or the cash being brought to closing.  That means no last minute credits to take care of miscellaneous items that come up late in the process, or during walk through.

Personally, I think this is going to make closings after August 1, 2015 a total nightmare.  Don't even get me started on the ridiculous new names for the documents and processes.  [NOTE: As an aside, whoever thought that "Consummation" was a better name than "Closing" is either an idiot or brilliant, with a sick sense of humor.  I'm hoping #2, but fear it's #1.]

So, buyers, be prepared to be even more frustrated and annoyed by the "consummation" process than you currently are, with even more requests for ever more esoteric documentation.  Absolutely do NOT have a moving truck packed up and ready to unload on the scheduled day of "consummation." And sellers, do not count on an on-time closing, or on having the money in hand on the scheduled "consummation day."  Expect delays.  

More on this topic to come, but I thought the lender's response was helpful and worth circulating. As always, your comments, suggestions, and topic ideas are always welcome.

FSBOs - They're B-A-C-K! Why Real Estate Agents Hate Working with FSBOs

It’s happening again.  The market is super-hot in almost all areas of the City of Richmond, where I do most of my work.  Bellevue, Church Hill, the Fan, the Museum District – all en fuego.  Houses are flying off the market in just a day, sometimes hours.  Bidding wars.  Escalation provisions.  And what happens when the market is super-hot, when people hear how quickly these properties in these desirable neighborhoods are selling?  Yup.  The hated, dreaded Fizz Bo.  The For Sale By Owner (“FSBO”).  I’ve seen several in my neighborhood lately.  I’m going to explain to you why real estate agents can’t stand dealing with FSBOs.

There are a few reasons people decide to sell their house themselves.

• Category One:  They don’t believe that real estate agents add value to the transaction.  Frankly, they often believe real estate agents are unprofessional idiots;
• Category Two:  If they do concede that real estate agents have some value, they believe they are grossly overpaid; or
• Category Three:  They are in some kind of financial straits, and are selling by owner because they can’t afford to pay an agent’s commission.

So either you think I am an idiot, or a shyster, or you are completely stressed out over money and the transaction is going to be emotionally difficult for everyone involved.  Lovely.

Now don’t get me wrong.  If you want to sell your own house, that’s your business.  FSBO your little heart out.  Just so long as I don’t have to represent the buyer who wants to buy your house, I’m fine with you doing whatever you want with your time and money.  But I don’t want to be on the other side of the FSBO transaction, representing the buyer.  If a buyer I have been working with wants to see a FSBO, I shudder.

Why, you ask?  Well, first of all, see the above-outlined reasons why people sell their own homes.  Why would I want to work with someone who thinks I am an idiot at worst, or not worth their fee, at best?

Second, I am going to end up doing twice the work.  To be completely blunt, the FSBO seller doesn’t know what they are doing.  They don’t know about required disclosures.  They don’t know what terms are standard in the market.  They have no experience negotiating a contract, then negotiating an inspection provision, and possibly negotiating over an inadequate appraisal.  They don’t know how and when they need to be communicating with the lender.  They have no experience managing a complicated transaction from contract to closing.  So I am going to end up doing my work representing the buyer, and I am also going to end up doing the seller’s work, so he or she doesn’t screw up the deal.

And please, FSBO advocates, don’t say you are going to work through a lawyer, like that’s going to make it okay.  Take it from someone who IS a lawyer, and practiced corporate law at a large downtown law firm:  Lawyers, even real estate lawyers, aren’t experienced at the process of buying and selling homes.  Maybe it is different in other markets.  But here in Richmond, Virginia, in the standard residential real estate transaction, lawyers are not involved in negotiating the initial contract terms, or the inspection addendum terms, or any other provisions which come up frequently.  Lawyers in the deal just make it more complicated, because they typically overlawyer to death everything.  So you, FSBO seller, are going to spend a lot of money on a lawyer who costs more and has less experience negotiating deals to sell a home than any halfway competent real estate agent.  But the FSBO seller who uses a lawyer typically falls into Categories 1 and 2, and thinks agents are idiots and/or overpaid.  Guess paying $300/hour to someone with a law degree just sits better for those folks.

Third, working with a FSBO seller is just plain uncomfortable.  One of the often overlooked roles of the agent is to put a buffer between a buyer and a seller.  The agents communicate with their respective clients, and then with each other.  This is a way to take (some of) the emotion out of the transaction.  Selling a personal residence is not like selling widgets.  As much as we tell them not to, people get emotionally involved.  The space represents them.  It’s home, it’s a safe space they have created, it’s designed and decorated to the seller’s personal taste.  It’s hard to hear someone criticize something in which you feel so personally invested.  And for the prospective buyer and their agent, having to tippy-toe around a seller’s feelings makes a challenging situation even more difficult.  My client should be able to say “what the hell was he THINKING when he painted the kitchen lime green with that pee pee yellow accent wall?”  In a normal transaction, I could tell the listing agent what my client said, and he or she would pass it on to the seller in a more palatable manner.  For example, “Well, the buyer thought the paint choices in the kitchen were a bit bold for her taste.”  But if you are lurking about during the showing, and the inspection, and the appraisal, and any other time we have to get into the house, my client likely isn’t going to feel comfortable speaking freely to me in front of you.  And it makes it harder for me to tell you what you may need to hear, because you will take it personally.

Lastly, FSBOs often pay LESS than the standard 3% buyer agent commission.  Just looked up a neighborhood FSBO, who has paid a flat fee to be in the MLS, and sure enough, he's offering 2.5% in buyer's agent compensation.  Why in the world would I want to sell a house when I am going to do at least double the work, for less money?  The short answer:  I don’t want to.

So, that’s the quick and dirty on why real estate agents don’t like working with FSBOs.  There are some agents who just won’t show FSBOs, period.  I do, but I hate doing it.  It’s just all around uncomfortable and unpleasant.  I hope this insight into why is helpful.  And here’s my favorite FSBO story, saw it in a recent blog, even though it was years ago, I still think it’s hysterical.  Short version:  Founder and CEO of ForSaleBy Owner tried and failed to sell his own home, and then hired an agent who sold it right away for more money.  Classic.

My Return to Blogging and Some VERY General Thoughts on Richmond Real Estate

WHOA.  I knew I hadn't blogged in ages, but I didn't know it was almost a year and a half.  That's crazy. Time flies when you're having fun.  Or when you are busy.

And that's the biggest news in the last 18 months.  The market, at least in the old and historic neighborhoods of the City where I do most of my work, has picked up significantly. In some submarkets, such as the Fan and the Museum District, we're currently in a STRONG seller's market.  This rapid shift has been hard for some buyers to understand.  Many still seem to have the mentality that this is a buyer's market, and they can offer substantial discounts off list price, or ask for concessions like closing costs, and the sellers should be glad to have their offer.  Nope.  Not the case for some submarkets.

And I think that's the most interesting thing about this current Richmond real estate market.  Is this a bubble?  Why are prices rising so rapidly?  Should we be concerned about Real Estate Crash 2.0?

My take:  No.  A crash is not coming.  This is the result of a significant structural and demographic shift in the market.  You are not seeing this white hot market across all of the Greater Richmond Metropolitan area.  You are seeing it in the City.  Almost exclusively.  And some Henrico County submarkets, like Lakeside, that are immediately adjacent to the City.

What's going on?  What is the big change?  Downsizing Baby Boomers are a BIG driver.  I am seeing more and more 50-60-somethings, coming from Short Pump or Midlothian or other points north, south, east and west, who are looking for a lifestyle change.  They don't want the huge suburban house.  They definitely don't want the huge suburban yard.  The kids are grown and in college, so schools are no longer an issue.  And they want to be able to walk to restaurants, museums, shops, art galleries.  This is a group that I don't feel like you saw much of back in 2006 when I started in real estate.  But what was a trickle has become a flood.

I do most of my work in the City, and much of that in the Fan District and the Museum District.  The typical buyers in those areas in the past have been (i) folks affiliated with VCU, as professors, administrators, etc., who wanted to be close to work; (ii) young professionals, who wanted an urban walkable lifestyle; and (iii) young families, who moved to the Fan for William Fox Elementary. 

[NOTE:  Until fairly recently the Museum District was districted for John B. Cary Elementary, which was not perceived to be as good a school as Fox.  That difference used to account, in my opinion, for the price differential between the Fan and the Museum District.  The Museum District is now districted to Fox, so much of that price differential is disappearing.]

You're now adding these downsizers, many of whom are selling a large and expensive house somewhere in one of the counties, and can afford to buy in the upper end of the City property price range.  Often with cash.  And then there are the folks who are relocating to Richmond from somewhere urban - Washington D.C., New York, Boston, just to name a few localities recent clients of mine have come from - and want the same urban lifestyle that they are coming from.

So why the rapid escalation in values and the extraordinarily fast switch from a buyer's, or at least a balanced, market to a clear seller's market?  Limited supply, ever increasing demand.  There is only so much urban core real estate, and more and more people want it.

Certainly, there are other factors coming into play.  Housing values are coming back to the point that people who have been underwater since 2007 are able to consider a move.  Interest rates may rise, and that concern is getting people off the fence.  First time buyers, who have not been as large a part of the market as they have been traditionally, something like 25% vs. the "typical" 33%, are getting off the fence and are finally ready to buy, after living through the 2007-2012 recession.  It's 2015, and they are tired of paying rent.

I think 2015 is going to be a really interesting year.  So far, all signs are pointing to it being a barn burner. [NOTE:  I am knocking on wood as I say that, because I don't want to jinx myself].  I consider myself very lucky that I grew up in Bellevue and Ginter Park, lived at Libbie and Grove during law school, and currently live and work in the Fan, all super-white-hot neighborhoods.  My prediction:  All of those neighborhoods, as well as Battery Park, Byrd Park, Church Hill, and Lakeside, will continue to blow up.

We'll see. Hopefully it won't take me 18 months to follow up on this post.

The New Shockoe Bottom Proposal - Some Questions

Well, the worst kept secret in Richmond was finally announced yesterday, when Mayor Jones unveiled his plan for a baseball stadium and substantial ancillary development in Shockoe Bottom.

I'm actually sick of this discussion.  It's been written about ad nauseum, including last week's cover story for Style Weekly.  The public is tired, having fought this plan two time - three times? - before.  And I think that is exactly what the Mayor and the Richmond business community pushing this plan are counting on.  They have won the war of attrittion by wearing the public down and being better financed.  Well, and all the back-door dealing certainly helped.  Kudos for the Machiavellian decision to announce the new plan on November 11, 2o013, and have the first City Council meeting discussion of the proposal on Monday, November 25, 2013, the week of Thanksgiving.  Shades of Redskins Training Center and Treegate.  Also kudos for getting City Council teed up to approve the first ordinance with no detailed information about the financing.  Here's my favorite quote: 

"The precise financing details have not yet been made clear, but city officials have made assurances that the new tax revenue from the development would cover the costs incurred by the city."

Kinda makes me think of Obama's promise that I could keep my health plan.  But I digress.

The plan centers around a new minor league ball park in Shockoe Bottom to replace the Diamond on Boulevard.  Included in the plan are a Hyatt hotel with a 65,000 Kroger on the ground floor, apartments, an as-yet-unfunded "Slavery Heritage site," and structured parking.  The usual suspects in the real estate development world are involved:  Charles McFarlane for the hotel, Louis Salomonsky for the apartments, and Highwood Properties for the to-be-developed future commercial component.  Venture Richmond - the front for all the major corporate interests in town - is cheer-leading, as are the Richmond Squirrels' management.  Mayor Jones' cronies have fallen in line, including Delores McQuinn, the Head of the Slave Trail Commission, who apparently believes this plan, with an unfunded slave heritage site and assurances of signage for the Slave Trail, is the best we can do on commemorating the history of the area.  None of that is surprising.  However, Charlie Diradour, the leader of the previous "Baseball on the Boulevard" movement, expressing openness to the proposal - now that IS a surprise.

I'm not going to go on about why I think this is a terrible idea.  You can go back to 2009 and my multiple blog posts on the subject if you want read more detailed analysis.  My opinions haven't changed.  But I am going to raise a few questions that I think deserve answers.  Now mind you, I think these questions deserve answers.  I really don't think we, the public, are going to get honest - or even dishonest - answers.  But I might as well ask the questions, right?  So here it goes:

1.   Where is the almost $80M the City of Richmond is going to contribute coming from?

2.  Why is there no public funding in this proposal for the slavery heritage site that is proposed?  This seems to suggest the slavery heritage project is an after-thought, to address the criticism of people who object to a baseball stadium on a site of such historical importance.  Is this true?

3.  Why is the tax increment financing ("TIF") for this project adequate in 2013, when it was determined to be completely inadequate for the similar 2009 proposal?  Put another way, how is the proposed financing different in 2013 from the failed proposal in 2009?

4.  In light of the significance of the area to the history of the slave trade in America, don't you think it is tawdry, tacky, and disrespectful to put a baseball stadium smack in the middle of it?

5.  Why couldn't you remove the stadium from the plan, and instead substitute a museum to emphasize the history of the area?  Why couldn't the additional, economic development components of the plan - hotel, apartments, retail - be centered around such a museum, rather than a ball park?  If you contend a history-centered project would not work, can you explain why?

6.  For the Squirrels, how do you as an organization intend to address the poll results that showed that 67% of fans did not favor baseball in the Bottom, and only 22% did?

7.  Again, for the Squirrels, do you believe you will have sufficient new fans/attendees coming from the areas immediately around the Shockoe Bottom baseball stadium to make up for the residents of Henrico County, Chesterfield County, and Hanover County who have said they will not patronize a downtown ball park?  If you do believe there will be additional new fan base, what studies or documentation do you have to support this position?

8.  How do you address the perceptions that Shockoe Bottom is not safe or family-friendly, especially in light of quotes like the following:

"I told my son who lives downtown to stay away from Shockoe Bottom for his own safety," Venture Richmond Executive Director Jack Berry said. "That's pretty bad when the guy who's promoting downtown feels that way."

"Shockoe Bottom Firms Urge Action to Stop Violence," May 14, 2010. 

That's enough.  I don't have the time or the energy to devote to anything longer than this 15 minute, stream-of-consciousness post.  And I don't think anything I or members of the public say are going to change this plan one iota.  The only thing that might - and I say might - derail this plan is if the public outrage over the desecration of such a significant and largely intact historic slave heritage site got so big, and so significant, that the administration and the real estate development and business community had to back down.  And I mean national level outrage, not just local level outrage. 

Here's the saddest thing, to me, about this whole thing.  I don't think it's going to work.  I think the baseball stadium piece is going to be a gigantic flop.  If 67% of your surveyed patrons are saying they ain't coming, I think that's something you should listen to.  I just don't see you replacing 4,000 fans with an equivalent number of Ledbury-shirt-and Shockoe-Denim-wearing downtown hipsters.  I mean, they might come once, to check it out.  Hell, I'll come once, to check it out, and I am the laziest person in the world about venturing out of my own neighborhood.  But if you think enough of the "Creative Class" are going to attend ball games to replace the urban and suburban families that currently are the main patrons of Squirrels baseball, I think you are delusional.  I mean, the hipsters might come once to watch a pig towed around the infield and six dudes dressed up in wigs and maid uniforms dancing to "Footloose," but I don't see them buying season tickets.

Maybe I will be completely and utterly proved wrong.  If this plan moves forward, I sincerely hope I am stratospherically wrong. I am a born-and-raised Richmonder, and I love this City, despite all its dysfunction.  I want any City development, especially something as massive as this, to be a success.  But I don't believe a Downtown ball park will be successful.  And more importantly, once we've destroyed and built over historically significant sites, there is no going back.

I believe Downtown development should be what's best, not what is expedient and not what makes the private sector the most amount of money right now.  I think Downtown development should be focused on what is unique about Downtown Richmond. That is the history, and the river.  Not baseball.

 

Turning Over a New Leaf, a/k/a Removing My Head from My Rear

Well, it's been over six months since I published a post, although there are two half-written posts from November 2012 and December 2012, respectively. 

[ASIDE:  Interestingly, the November 2012 post I never finished is about the School Board punting on the recommended elementary school closure of John B. Cary Elementary, and what a failure of leadership that was.  The topic is big in the news today, as the Richmond School Board voted 5-4 to close several schools, although Clark Springs Elementary got the axe, not John B. Cary.  That's a topic I may revisit myself.]

I've been navel-gazing for a lot of different reasons that I won't bore you with, but I've finally shaken off the funk and decided I want to write, I miss writing, and gosh darnit, I'm going to do it.  I have decided to be kinder to myself and lower my expectations.  So expect to see shorter posts, on more timely topics, and more focused on real estate.  I'll still talk about things going on in the realestate development community, such as the Redskins Training Facility, but I'm going to try to focus generally on local real estate issues and trends that affect the average buyer or seller.

So, next up:  My overview of the insane market that is the Historic Fan District right now.  Or perhaps something on the prevalence of pocket listings and the ethical issues they raise.  Or what to do in a rapidly appreciating market, for both buyers and sellers.  I don't really know.  I'm going to write about whatever tickles my fancy.  Although I am always open to suggestions.

Best,

Melissa

 

The Washington Redskins, Westhampton School, Now the Arthur Ashe Center - What's REALLY Going On in the RVA?

Well, the Redskins are coming to town.  For a few weeks each summer, that is, for training camp, and the City of Richmond is building them a brand new training facility on a swath of land behind the Science Museum.

Now, don't misunderstand me.  I'm glad the Redskins are coming to town.  And I personally believe the selected site is much preferable to the City Stadiumsite, apparently the runner up location.  But, there is all kinds of wheeling and dealing between the City administration and others that looks curiouser and curiouser.  And frankly, the City's deal with Bon Secours is just flat out a bad deal.

Why do I think it's a bad deal?  Bon Secours is ponying up $6.4M for the new training facility, and in return it is getting naming rights and the ability to use the facility for its own programming.  Okay, maybe that is fair and reasonable;  Buy naming rights for recognition plus the opportunity to use the facility to provide your own services the vast majority of the time.  $6.4M seems like a fair price.   IF the deal stopped there. 

But Bon Secours also got the Westhampton School campus at Libbie and Patterson for a ridiculously below market long-term lease of $5,000 per year for 60 years, a whopping grand total of $300,000.  No word on whether or not there is at least a rent escalator in the lease.  [NOTE:  Real estate professionals estimate the property is worth between $20M-$30M dollars.]

THEN, apparently the City is also kicking in some additional land near Richmond Community Hospital for Bon Secours to develop for additional medical services.

Wow.  Who knew nuns could be so Machiavellian?  Or that the City was such a terrible negotiator.

Can I just say my objective evaluation of the deal is the City got screwed.  I mean yes, the City ends up with the Redskins training facility here in town beginning in 2013, for at least eight (8) years, but by giving away the proverbial farm.  And if they had enough money in Economic Development Authority bonds to fund the thing to start with, why not just go that route, take Bon Secours' $6.4M in naming rights/anchor tenant money, and raise the other $3.6M through other sponsorship opportunities, or leases for use of the facility?

For $6.7M investment, Bon Secours gets:

• Naming rights for the facility;
• Position as the "anchor tenant" at the facility, including the development of its own sports medicine and rehabilitation facility, which will presumably generate profits for Bon Secours;
• 60 year lease of Westhampton School  [NOTE:  Propererty value estimated to be $20M-$30M on the open market]; and
• Additional land from the City of Richmond to expand services at Richmond Community Hospital.

Looks to me like getting the Westhampton School property alone would have been a super deal for Bon Secours, without all the rest of the sweeteners.  Bon Secours has been eyeing that site since the School Board moved Richmond Community High School.  So have all kinds of developers who recognized what a prime piece of real estate the City was sitting on.  But whoever ended up with the property was going to have to go 10+ rounds with the neighborhood associations for the very affluent surrounding neighborhoods, who all had varying opinions on what should or shouldn't be done with the property. 

Bon Secours managed to get the dirt absurdly cheap, and present the entire deal as a fait accompli, effectively eviscerating any community opposition to the project.  Done deal, presented all wrapped up with a bow.  Nuns 1, neighborhood 0.

Of course the folks involved in negotiating this deal are pushing it as "good for the whole City."  See this opinion piece by Michael Frazier, the Chair of the committee that was responsible for site selection, and presumably somewhat involved in the Bon Secours/City of Richmond negotiations.

Others have commented on the rush to lionize this deal, such as Terry Rea on his SlantBlog.  This Richmond Times-Dispatch article details many of the objections and many of the objectors, including Bruce Tyler, Marty Jewell, Manoli Loupassi, Paul Goldman, and others.  The scary reality:  City Council is set to vote on the deal tonight, and I suspect it will get rubber stamped, no matter how cr*ppy a deal it really is. 

At the same time, the lame duck City of Richmond School Board is set to vote tonight to "surplus" several parcels of property, including the Arthur Ashe Center on Boulevard and the Arlington Road warehouse site, both very proximate to the site of the Redskins training facility.  Chris Dovi writes a great blog post for Richmond Magazine about why such a step is, at the least, concerning.  Taking the step of declaring the properties surplus means the City of Richmond administration then gets to manage the sale of the properties, with the proceeds going back to the City of Richmond School Board, not to the City of Richmond coffers.  In light of the cr*ppy deal the City cut with Bon Secours, I can't help being very concerned about the implications of this move, especially when seven (7) of the nine (9) School Board members are immune from any type of political fallout, since they won't be returning to the Board.

What if the City decides to enter into a long-term below-market rate lease with some developer for the Arthur Ashe  property, rather than selling it on the open market for fair market value?  What if the City decided to pursue its own economic development agenda, using these "surplus" properties as bargaining chips with the private sector development world in behind-closed-doors meetings?  What if big deal economic development decisions that will impact the City for generations to come were negotiated in secret, then packaged and presented as "done deals," with no opportunity for public input?  Could never happen, right?  

Oh, yeah, right.  It just did. 

On The Eve of the Election, What Is Happening with Richmond Real Estate?

It's 5:30 P.M. on the Monday before the Presidential election.  I, for one, am just going to be happy when it is all over and done with.  Tomorrow, I'm going to vote, work, and avoid TV and radio.  I just want to wake up on Wednesday morning and find out who was elected from the newspaper.  And then maybe life can get back to normal.

But on the eve of the election, I thought it might be interesting to share a little bit of insight into what is going on in the world of Richmond real estate, right now.  I don't know that it is all - or even somewhat - attributable to the election.  But I've had several people who have been in the business a long time say this happens every four (4) year cycle.

First, in the plain vanilla residential real estate market, it got really, really quiet all of a sudden.  Traffic slowed or came to a stop on my listings.   My RE/MAX colleagues have been telling me the same thing.  Are people waiting to buy until the election is over, and this much heralded "certainty" shows up?  I don't know.  But it does seem that owner-occupant buyers have put their home searches on hold.

Which leads to a second observation:  The investors are back in force, and there seem to be a goodly number of them.  Why is that?  I really don't know.  But it seems like there is a much bigger portion of the population than we have seen in the last five (5) years that has the money to invest in income-producing real estate.

I've got investor buyers that are ready, willing and able to buy right this minute, with cash.  But there isn't enough - or any - attractive inventory to buy.  We're looking, and we're looking, but it seems like the same group of buyers is chasing a very small pool of  properties.  The "deals" that come on the market are going under contract in just days, often with multiple offers and escalation provisions.  Witness 817 Pepper Avenue this past week, in Area 20.  If you blinked, you missed it.

With these investors, where does the money come from?  Well, it seems to come from one of a few different places:

• Cash on hand savings.  Some people have done very well in the downturn, and have enough cash to finance their own deals.
• Investment portfolios.  I've seen people using their retirement money to purchase income-producing real estate, because the return on the investment is substantially more than they can get in the market.
• Banks.  Typically, the banks that lend speculatively do it only in a few situations.  Usually it is a community or a regional bank, and it's doing "relationship lending," where it is lending to an existing customer with a very deep relationship with the bank, and/or experience doing the kind of rehabilitation project they are trying to get financed.
• Hard money lenders.  These are the guys that charge a substantial interest rate to lend to a riskier borrower. 
• Friends and family money.  Needs no explanation.  Mom or Dad or Grammy or Granddad is willing to underwrite the investment.

It sure seems like all kinds of people are viewing real estate as one of the best places to park investment money right now.  That's not just the guys who are flipping houses again, or professional investors.  It's also Mom and Pop folks who are investing in income-producing real estate for the first time ever.  It's also the guys who are financing the flipping.  If you can get a minimum of 10%+ doing hard money lending, have a first position lien on a tangible asset, and are working with someone with a track record with investment real estate, where else are you going to get that kind of return, with that kind of certainty?

Third observation:  For a ready, willing and able owner-occupant buyer, this could be the best possible time for you to buy a house.  But you need to move fast, and close before 2013.  The reason:  You will have leverage with certain sellers, who want to avoid the increased tax hit that they will take in 2013.  Not all sellers will care - owner-occupants can still shield up to $250,000 as individuals, $500,000 as married couples, of profit from the sale of a primary residence from any income tax.  But people who are selling second homes, or investment properties, or estate sales, are likely going to take a substantial tax hit if they do not close a sale transaction by December 31, 2012.  And time is running out to make that happen.

So my conclusions: 

1.  Owner-occupant sales will, I hope, pick up after tomorrow, when there is more "certainty" and the 2012 Election is over. 

2.  Investors will continue to enter the market in increasing numbers, as real estate continues to perform better than other asset classes and money remains stupid cheap.

3.  Buyers savvy enough to buy between now and the end of the year should see the opportunity for deep discounts, as sellers rush to avoid major tax increases that are anticipated in 2013.  I believe in retrospect, as we get into 2013 and can look back, we'll find this leverage, combined with the historically low interest rates, will make 4Q 2012 one of the best times in recent memory to buy real estate.

So, other real estate professionals, what do you think of these predictions?  Comments are always appreciated.

Baseball in the Bottom - AGAIN! And Was Anyone Else at the Same VCU Real Estate Trends Conference?

Okay, so I haven't blogged in forever.  And I am still digging out from the work pile-up from attending the VCU Real Estate Trends Conference yesterday.  But I am fired up enough about the newspaper coverage and the post-conference scuttlebutt that I am taking 20 minutes out to blog on the topic.

So, one of the three break out sessions was titled "Economic Impact of Sports and Entertainment."  Of course, being weeks away from the national election, none of the three sessions dealt with the potential implications of the national election on the housing and commercial real estate market.  Sports and entertainment is clearly more pressing.  This is a real shocker when you consider the private market forces + Venture Richmond are pushing for a baseball stadium in Shockoe Bottom.  Again.  And of course, don't forget that VCU has its eyes on the former University of Richmond/City Stadium property, a choice urban core 19-acre developable parcel of real estate, for the as-yet-t0-be-announced VCU football program.  Of course the ** positive** impacts of sports and entertainment development are more important than who is President.

But my sarcasm is showing, and I digress. 

Based on the newspaper coverage I read today, the reporters attended a different conference than I did.  Here is the Richmond Times-Dispatch's coverage, "Richmond Urged to Build a Stadium Downtown."  According to the reporter, and consistent with the remarks of both the introducer and the panel moderator, "Downtown" equals Shockoe Bottom.  What the intended conclusion is, I believe, and not-too-subtly advanced one at that - Richmond really needs, four years after the SAME battle over location, a new Double A baseball stadium in Shockoe Bottom.

Huh?

I've heard Tom Murphy, the former Mayor of Pittsburgh, speak multiple times now. He is a dynamic speaker and clearly a visionary thinker.   His relevance to Richmond:  During his tenure as Mayor of Pittsburgh, he spearheaded the development of new professional football and baseball stadiums, and the re-genesis of a downtown area into a "cultural arts district," in a similarly sized town, all at the same time, and with no money.  

Here's what I don't get.  Every time I've heard Mayor Murphy speak, he talks about the mistake that was made with Three Rivers Stadium, because it did not take advantage of Pittsburgh's greatest asset, the rivers.  He talks about the mistake of allowing surface parking to take over prime riverfront real estate.  He describes incorporating the river as the backdrop and creating parks and green space between the facilities and the river, to allow, and indeed encourage, the public to take advantage of the river.  Mayor Murphy speaks passionately about how the sports and arts facility development succeeded in Pittsburgh because the DESIGN was intentional. 

If you listen to Mayor Murphy speak, I have no idea how anyone could conclude that a successful Richmond baseball stadium should be located in....Shockoe Bottom.  If you track the story of Pittsburgh's success, and try to copy the formula as best you can here, the baseball stadium should be....in Manchester.

I know, I know, I've talked about baseball in Manchester before.  But it makes a hell of a lot more sense to me there than Shockoe Bottom.  The former Reynolds Metals South Plant property, anyone?

More tomorrow, when I'm less fired up, about why Shockoe Bottom is a terrible idea, why Manchester could really work, and how I interpret the model of the "urban dumbells" of sports and entertainment development, applied to Richmond's current landscape.  Let's just say in no model that I come up with does a baseball stadium in Shockoe Bottom make sense.  Ever.

 

 

 

 

Historic Preservation Tax Credits Are Endangered by Court Ruling

Here is a succinct article describing a pending court challenge to tax credit programs. The appeal is the result of an IRS tax challenge to the syndication of tax credits, and the IRS' recent victory on the point in the Fourth Circuit in front of a three judge panel.  The analysis is complicated and technical, dry reading that only a lawyer could love.  Short version:  The IRS argued successfully that the distribution of tax credits to the partner-investors in a limited partnership equals a disguised sale and should be taxable as ordinary income.  As the article points out, the historic tax credit program has been an economic boon to Richmond and other older cities throughout the Commonwealth, like Staunton, Roanoke and Lynchburg. 

For the average bear, here are the relevant facts.  Taxing the distribution of the credits as a sale will reduce the value of the credits to the developer.  This could make the rehabilitation of historic buildings non-economic.  Oftentimes the tax credits are the difference between a project being sufficiently profitable and not.  This means fewer historic renovations and adaptive reuse projects - the conversion of old apartment buildings and even hospitals to condominiums (cf. Windsor Court Condominiums, One Monument Place, Locke Lane, Ginter Place), the conversion of industrial and commercial spaces to apartments (cf. Tobacco Row, Carolina Consolidated, Lee Street School), the conversion of industrial spaces into commercial buildings (Glave & Holmes' office, the Edgeworth Building) - will be done.

That means:

• Less additional real estate tax revenue to the City, as buildings remain underutilized;
• Fewer construction jobs;
• Less spending on products related to construction;
• The need for more ground-up building; using more green space for building;
• Having to move further out of the urban core to find that green space, with all the ancillary environmental impacts. 

I don't think any of these are good things.  Hopefully, the full panel will revisit the ruling and consider the long-term policy impacts of these programs. 

 

Changes to the HUD-1 - AGAIN

Looks like the federal government is considering changes to the settlement statement, also known as the HUD-1.  Check out today's Richmond Times-Dispatch article on the topic.  The HUD-1 is the official form document that buyers and sellers receive at a real estate closing that shows who pays what to whom and all the costs and fees that add up to the ultimate cash FROM the buyer and TO the seller.  What is lacking in the current required regime is what every buyer wants to know -  how much cash to I have to bring to the closing table to buy this house?

So, the Consumer Financial Protection Bureau is rolling out the "Know Before You Owe" progam, and asking for public feedback on two proposed forms that would replace the curremt HUD-1.  Check out www.consumerfinance.gov/knowbeforeyouowe to weigh in in the process.

And here is hoping for a kinder, gentler, easier to understand, settlement statement.  And that we don't have to change the financial disclosure process again any time soon.