Archive for September 2010
SPOTLIGHT — Los Angeles County, California
Reported by HUD US Market Housing Conditions 2nd Quarter 2010
Los Angeles County, located on the Pacific coast in southern California, has been the most populous county in the nation for more than 50 years, with a population estimated at more than 10 million as of July 1, 2010. The population of Los Angeles County grew by 68,800, or 0.7 percent, during the 12-month period ending June 2010. Population growth improved to 0.4 percent in 2008 and 0.7 percent in 2009 after declining 0.5 percent in both 2004 and 2005. Net natural change (resident births minus resident deaths) accounted for all of the population increase during the 12 months ending June 2010. Since 2006, net out-migration has averaged 50,700 people annually compared with an average net out-migration exceeding 115,000 people a year during the peak years of 2004 and 2005.
Following employment gains averaging about 48,900 jobs in 2006 and 2007, nonfarm employment in Los Angeles County started to decline in 2008. Since 2008, all sectors, except for the education and health services sector, have lost jobs. During the 12-month period end¬ing May 2010, nonfarm employment declined by 200,500 jobs, or 5 percent, to 45.3 million jobs. The largest job losses occurred in the professional and business services, manufacturing, trade, and construction sectors, which were down by 43,700, 40,700, 37,500, and 26,800 jobs, respectively. These losses represented declines of 7, 10, 6, and 20 percent, respectively. Offsetting some of these losses was a modest gain of 8,300 jobs, or 2 percent, in the education and health services sector, which includes Kaiser, the leading private-sector employer in the county, with 34,400 employees. Other leading employers include Northrop Grumman Corporation and The Boeing Company, with 19,100 and 14,400 employees, respectively. During the 12-month period ending May 2010, the average unemployment rate of 12.2 per¬cent was up from the 9.4-percent rate recorded during the previous 12-month period.
High levels of unemployment and out-migration have kept sales housing market conditions soft since 2008. Declining sales prices, low mortgage interest rates, fore¬closure and short sales, and the federal homebuyer tax credit caused a temporary rise in existing home sales. According to DataQuick, during the 12 months ending March 2010 (the most recent data available), a total of 59,100 existing detached homes were sold, up 9,450, or 19 percent, compared with the number of homes sold during the previous 12-month period. Although home sales levels are improving, current levels are still significantly lower than the peak of 100,200 existing detached homes sold in 2004 and are less than the average annual rate of 64,850 homes sold from 2005 to 2009.
During the 12-month period ending March 2010, the estimated median price for an existing detached home declined by $43,700, or 12 percent, to $322,900 compared with the price recorded during the previous 12 months. Sales of foreclosed homes and short sales are the primary reason for the price declines.
According to Lender Processing Services Mortgage Performance Data, the number of loans that are in foreclosure, 90 days or more delinquent, or in REO (Real Estate Owned) accounted for 10.4 percent of all home loans in June 2010 compared with 9.4 percent in June 2009.
Condominiums represent more than 60 percent of new home sales and 23 percent of existing home sales in Los Angeles County. Except for North Los Angeles County, new homes are generally built on infill land, making condominiums more financially feasible to build than single-family homes. According to Hanley Wood, LLC, new condominium home sales increased by 1,150, or 54 percent, to 3,300 homes during the 12 months end¬ing March 2010, when buyers tried to beat the federal tax credit deadline. For the 12 months ending March 2010, the estimated median price for a new condominium was $437,100, up $2,100, or 0.5 percent, from the previous 12-month period. The unsold inventory of new condominiums declined 19 percent between the first quarter of 2009 and the first quarter of 2010. According to DataQuick, existing condominium sales also increased during the 12-month period ending March 2010, up by 3,850 homes, or 28 percent, to 17,900 homes sold compared with the number sold during the 12 months ending March 2009. The estimated median sales price of existing condominiums was $302,000, a decline of $34,400 compared with the price during the 12 months ending March 2009, due to foreclosure sales.
In contrast with the increased sales of existing detached homes and new and existing condominiums, sales of new detached homes have declined. According to Hanley Wood, LLC, during the 12 months ending March 2010, new detached home sales declined by 360 homes, to 730 homes, a 33-percent decrease compared with the number sold during the previous 12 months. The current total is significantly below the peak of 6,000 new detached homes sold in 2005 and below the average annual rate of 2,850 homes sold between 2005 and 2009. During the 12 months ending March 2010, the estimated median price for a new detached home increased by $18,450, or 5 percent, to $416,400 compared with the price during the previous 12-month period. The price increase was the result of more homes being sold in the San Fernando Valley than in North Los Angeles County.
Builders reduced single-family home construction activity because of competition from foreclosures and the continued loss of jobs in the county. Single-family construction activity, as measured by the number of building permits issued, peaked in 2005, when more than 12,200 single-family permits were issued. Preliminary data indicate that, during the 12 months ending May 2010, about 2,250 single-family homes were permitted, a decline of 5 percent compared with the number permitted during the previous 12 months.
The Los Angeles County rental market has been balanced since the fourth quarter of 2008 because it has benefited from increased demand and a lower rate of multifamily construction. Based on data from Reis, Inc., between the first quarter of 2009 and the first quarter of 2010, the rental vacancy rate increased slightly, from 5.3 to 5.5 per¬cent. According to Reis, Inc., in the first quarter of 2010, average effective rents declined $50 to $1,350 compared with rents during the first quarter of 2009.
Multifamily construction activity, as measured by the number of units permitted, declined during the 12 months ending May 2010 compared with the number permitted during the previous 12-month period, based on preliminary data. The number of multifamily units permitted was 3,500, down 1,900 units, or 35 percent, compared with the number permitted during the previous 12 months and was significantly lower than the average annual rate of 10,200 units permitted between 2005 and 2009. Currently, 84 percent of the multifamily units permitted are for rental units, up from 52 percent in 2006. The 375-unit 1600 Vine Apartments in Hollywood opened in November 2009, with move-in special rents ranging from $1,794 for a studio to $11,125 for a three-bedroom townhome.
For professional expertise with Los Angeles, San Diego, Orange County, Riverside, and San Bernardino — commercial real estate, apartments for sale, investment property, commercial REO’s, commercial BOV’s, commercial broker price opinion BPO’s, or asset management, please contact Michael Duhs, Managing Director of East West Commercial at Michael.Duhs@EastWestCommercial.com or (949) 939-8352. Visit us at http://www.EastWestCommercial.com.
As Reported by Trepp
Defaults on commercial real estate loans are beginning to play a larger role in the failure of FDIC-insured institutions than construction loans, according to Trepp LLC.
Six banks closed by the government on Friday – three of which were in Georgia — had $152 million of nonperforming loans, 44% of which were CRE mortgages. Roughly 37% of the NPLs were construction loans.
“We have seen a shift over the last several quarters with commercial mortgages contributing to a larger portion of the distress” said Matt Anderson of Foresight Analytics and a resident CRE expert at Trepp.
The failure of the six banks brings the total for this year up to 125. Last year the Federal Deposit Insurance Corp. closed 140 bank institutions.
As of June 30, banks and thrifts held $1.01 trillion of CRE loans (not including multifamily loans) on their books with 4.28% considered seriously delinquent, up from 2.89% a year ago, according to FDIC figures.
Banks also held $383 billion of construction and development loans with 16.9 % considered seriously delinquent (90-days or more past due), compared to 13.5% a year ago.
Meanwhile, FDIC has 829 banks with $403 billion in assets on its “problem” list.
For professional expertise with Los Angeles, San Diego, Orange County, Riverside, and San Bernardino — commercial real estate, investment property, commercial REO’s, commercial BOV’s, commercial broker price opinion BPO’s, or asset management, please contact Michael Duhs, Managing Director of East West Commercial at Michael.Duhs@EastWestCommercial.com or (949) 939-8352. Visit us at http://www.EastWestCommercial.com.
If you are wondering to buy a property but short of finance is the hang-up for you, then don’t get upset because there is a plausible solution for it. That is: Commercial Real Estate Loans. Through such type of loan assistance, you can effortlessly procure property for a business purpose that too at a competitive interest rate.
Chiefly, commercial real estate loans are used for business purpose but it can be also utilized for the agricultural use, shopping centers, apartments, motels, hotels, automobile dealerships, office buildings and for many other commercial purposes.
No doubt, through commercial real estate loans, one can obtain considerable amount of money and buy the properties that they would like to but in order to obtain them, you are required to keep your one of your property as Collateral to be on the safer side of the real estate lender who will be providing you with such a large sum of money.
The main reasons behind opting for Commercial Real Estate Loans are its wealth of benefits that it provides. Besides rendering stability & high return on investment, it provides investment security. These are the two weighty points that draw an individual to get the hold of owner occupied commercial real estate loans. Longer duration period for repayment is the added advantage of acquiring commercial real estate loans.
Sources that furnishes with the commercial real estate loans are: Bank, Financial Institutions and Large Building Societies. The most unsurpassed way to acquire commercial real estate loans is through internet. To bag a lucrative deal, bit research is required to be necessitated. And so, make sure that you carry out a thorough research and have in-depth knowledge of the lender, as in; if he is reputed and authorized.
Investing in commercial real estate is riskier and more costly than investing in residential property – but ultimately it can be far more profitable. Whereas the stocks of major housing manufacturers have decreased over the last few months, retail and institutional investors have been investing heavily in commercial real estate, through both operating companies and investment trusts.
The profits from commercial real estate are linked to a large degree to the state of the overall economy – today, commercial property is a $4 trillion market, having increased in volume around 20% over the last five years. Most smaller investors are able to profit from commercial real estate.
The potential profits to be made from investing in commercial real estates are affected by several factors. Apart from the overall economy, the local economy and market can have a huge impact, as can the terms and length of any lease, the reliability of tenants and the overheads involved with your property.
Generally speaking, when investing in commercial real estate, to make a profit you should ideally have a long term lease from a major tenant. Finding the right tenant isn’t always easy – most commercial real estate has relatively few potential tenants unlike residential property.
During a recession, commercial foreclosures and vacancies tend to increase significantly more than residential properties. And if commercial properties remain vacant for a long period of time, owners may lose a lot of income and be forced to resell for less than the property is worth.
One method of generating a profit from commercial real estate is to look at REITs (Real Estate Investment Trusts). These are traded securities which allow an investor to take part in large scale commercial projects. REITs were created in 1960 by Congress and can be a practical alternative to bonds.
Most REITs specialize in certain types of property such as office buildings, hospitals or shopping centers. There are several benefits of REITs: they trade in the same way as stocks, so you can buy and sell them. The share price can increase in value as the property appreciates in value and shareholders also get income from rents.
Not surprisingly, REITS have become extremely popular over the last few years. Another big advantage of them is the tax benefits – by law, REITs must distribute 90% of their income as dividends.
There are several ways to invest in commercial real estate without actually having any capital. Subordination is the term for the situation in which the current owner actually takes out a second mortgage on the property to cover the difference of the amount that the purchaser has available in the form of a loan.
Another method is to persuade the owner of the property to release some acreage. That section of land can then be used to borrow money to cover a down payment on the rest of the property. Many property owners don’t even know this option exists and it can be an effective strategy when dealing with raw land.
Another method is to purchase commercial property by means of a partnership. If you are able and willing to do the work, you may be able to find a partnership that is willing to finance your deal – in exchange for a percentage of the profits, of course.
Investing in commercial real estate isn’t for everyone. But the profits can certainly be made for those who are prepared to take a calculated risk, have the expertise – and perhaps a little bit of luck.
Talk has been circulating that the Inland Empire, specifically Corona, Riverside, and Ontario, is beginning to devise plans to create a culture around the new transit systems. Currently, the transit system in Corona and downtown Riverside links the two cities together. City officials are suggesting linking Los Angles to the metro links as well. Is the Inland Empire ready for the Metro lifestyle its city officials say it is?
Everyone who has experienced the frustration of driving the 91 freeway can attest to the benefits a metro system linking Orange County, the Inland Empire, and Los Angeles together would have. However, thought has to be given to the expense this would cost to each city overall. Our country is in a great recession with the Inland Empire being one of the most economically poor counties in California. Expansion of the metro link to surrounding cities would be a huge cost. Currently, the metro link only links the major cities, Riverside to Corona leaving the pedestrian a large walking distance from the metro link to work, retail, and housing.
Expanding the metro link system would require more metro link stations to be built providing easier access to the workplace, home, and retail outlets. In addition, more housing, retail, and restaurants would need to be established by these specific stations. City officials and developers would love to see these changes take place, but without the aid of investors to back up the city’s vision, the project is at a standstill.
This new development of a downtown lifestyle being brought to the forefront of the Inland Empire provides the opportunity for much needed growth and improvement of the area. The initial costs of the project would be steep, but could possibly pay off in the future as the accessibility and charm of a new lifestyle sweeps the Inland Empire. Perhaps, the Inland Empire would be seen as more of a desirable location with the availability, diversity, and opportunity of corner cafes, high rise apartment buildings, and high end shops and restaurants lining the streets. This new exciting lifestyle could be exactly what the Inland Empire needs especially at times like this, a fresh start.