Neighborhood Identification Does Matter in our MLS and Online Distribution Channels

Last Monday I was preparing for a showing for a client, 3 homes on the same block in the Washington Park neighborhood. The three homes, two Bungalows and one English-Norman Cottage are all similar in size. The homes range from $620,000 to $825,000.

Let me disclose the listing brokerage, a firm that markets reduced cost has been notified of the error.

However what was curious was one particular listing 435 S. University Blvd. The home looks spectacular i.e. a renovated bungalow. While the master bedroom is in the basement which is not uncommon for bungalows which have not been popped the master includes a very nice en-suite bathroom and the majority of the basement is finished.

I then looked at the listing history as follows:

  • 5/30/2009: Sold for $390,500
  • 9/08/16: Placed on market asking $675,000
  • 9/26/16: Price Reduction to $595,000
  • 5/30/17: Listing Expired
  • 5/15/19: Placed on market asking $649,000

Thus the home has been on and off the market for over 2.5 years, it happens, yet one issue arose for which I have notified the listing brokerage, the neighborhood/locale for which the house is located is identified as Cory-Merriell. HOWEVER, the house is actually located in the Washington Park neighborhood!

The following is the email I sent to the brokerage when I spotted the error:

Just a courtesy….concerning your 435 S University Blvd listing (which I am showing later this afternoon) the neighborhood is actually Washington Park.

On MLS you have the listing neighborhood as Cory-Merriell. However Cory-Merriell’s northern border is Mississippi Ave i.e. 5 blocks south AND Cory-Merriel western boundary is on the east-side of University Blvd and your listing is on the west-side of University Blvd.
While an oversight may be missing potential buyers looking for Washington Park.
In this day and age of Internet Marketing and distribution channels that exceed triple digits it is of utmost importance that the information presented in the MLS which provides the information to those distribution channels is correct. Granted if searching by address not an issue HOWEVER if searching by neighborhood who knows how many lookers missed 435 S. University due to this seemingly minor error.
The Response: Noted, we appreciate the heads up.

The reality is white geographically the neighborhoods are almost adjacent i.e. 5 blocks concerning their eastern and western borders, the neighborhoods are vastly different from home styles to demand and pricing. Thus a serious error.
Locally the Denver Metro MLS aka www.REColorado.com does offer drop-down menus for neighborhoods and they can be over-ridden. An example, the condo complex Monaco Place is technically in the Hampden neighborhood however with 200+ units and a large multi-square block parcel many brokers will identify the neighborhood as Monaco Place. However to confuse Washington Park and Cory-Merriel may have truly impacted the marketing of the listing.
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Mortgage Rates Drop to Lowest Level Since January 2018

Which should be good news for anyone in the housing market; an assumption that may be incorrect. Historically when interest rates are low housing prices rise as it is an inverse relationship. Yet the years since the Great Recession have defied historical norms concerning economic activity, we may be witnessing the beginning of the longer-term retrenchment in housing values. Of note we have now been in the longest economic expansion in the history of record keeping for such matters.

Let me begin with the basics….with the lowest mortgage rates available in almost 18 months, (on June 5, 2019 the average rate on the 30-year, fixed-rate mortgage  4.10% and average rate for 15-year, fixed-rate home loans is 3.57%) combined with the spring/summer selling season the real estate market should be reacting in a positive manner. However while rates may be dropping the rates are not compensating for the what some perceive (and I agree) as a price inflated housing market.

Total mortgage application volume increased 1.5% last week from the previous week and 12% from a year earlier, according to the Mortgage Bankers Association’s seasonally adjusted index. The gains were driven by refinances. In more detail total refinance volume rose 6% from the previous week and was nearly 33% higher than a year ago, when interest rates were 52(.52%) basis points higher. The refinance share of mortgage activity increased to 42.2% of total applications from 39.7% the previous week.

Yet mortgage applications for home purchasing fell 2% for the week and were barely 0.5% higher than a year ago. Many suggest the high prices in the markets with high demand continue to sideline buyers, especially first-time buyers, who are a growing segment of the market. While many argue prices need to come down the reality is construction costs including labor and materials, raw land and permits fees have all increased since the Great Recession and those costs, you guessed it are passed onto the homebuyer.

An additional issue for millennials who are aging into their prime home-buying years; they are saddled with debts, are likely paying high rents and are facing one of the least-affordable markets in decades.

The real estate market is truly in a conundrum. While low interest rates should spur activity under the same logic that low interest rates should be generating business activity and investment it is simply not happening. While I have written about the luxury housing market showing signs of weakness I am witnessing it even in the entry level marketplace.

Recently I listed a condominium in Monaco Place in SE Denver, a complex that attracts many first-time buyers due to location (walk to neighborhood services and light-rail) and affordability. The unit  2BD/1.75BA w/ in-unit W/D, central air, fully renovated including new stainless steel kitchen appliances, flooring, bathrooms and private patio. HOA dues include heat, A/C, water, sewer, trash and common area maintenance including an indoor pool, clubhouse and workout. The unit was listed at $199,900 (of note comparable units from prior 6 months sold from $180K-$220K based on condition and views, with the median sale being $199,000).

After two weeks on the market and with full disclosure we did receive multiple offers finally selling for $205,000 with a ($2,500) concession AND full payoff of the special assessment of ($6,000). Thus the actual sale price was $196,500.  However 6 month prior the unit would have received multiple above asking offers within the first 48 hours and would have been under contract within 3-5 days, not two weeks.

Was the seller complaining? No he was astute enough to purchase the unit during the Great Recession. The buyers should be thrilled as not only was there purchase price below comparable units from the past six months but even with a 5% down payment, their Principal, Interest, Taxes and Insurance (PITI) and HOA dues combined are still lower than the monthly rent the unit was generating in its pre-renovation condition. The above transaction advises to me we are moving towards a market closer to equilibrium. If there are continued issues concerning worldwide trade and a shock to the equities market we may accelerate into a buyers market very quickly.

 

The Former Mansion of Brad Pitt and Jennifer Aniston on Market will Seller Profit

What is absolutely amazing; the couple divorced in 2005 yet their former mansion/love-nest still makes the headlines.

The owners of the home have placed the mansion on the market for $49,000,000. Yet with all my blogs there is always more to the story. Let’s begin with the $49,000,000 asking announced late last week and splashed across multiple channels.

From what I have scanned no one seems to mention the house actually came on the market almost two months earlier asking $56,000,000.  The listing brokers say this was an estimate as the now officially listed residence has an asking of $49,000,000. Granted a $6M reduction or below $50,000,000 probably opened up options to many more prospective buyers.

Before I get into details, this is truly a mansion with an impressive provenance.

The home’s dates back to the 1930s when architect Wallace Neff, known for developing a signature “California Style,” designed the house for actor Fredric March and his wife, actress Florence Eldridge.

Another owner was Wallis Annenberg (philanthropist and heir to the media tycoon Walter Annenberg) who in turn sold it to entertainment lawyer Ken Ziffren, from whom Pitt and Aniston purchased the property. It sits next to the James Bond-style house that billionaire James Packer purchased which had previously belonged to actors Danny DeVito and Rhea Perlman (Cheers, where everybody knows your name).

Now about the Pitt/Aniston ownership:

When Aniston and Pitt bought the house for $13.5 million in 2001, they were Hollywood’s reigning royal couple. They spent two years and a reported $10 to $15 million renovating the 12,000-sq.-ft. French Normandy-style house including the addition of a tennis court and a guesthouse.

  • 2001 Purchase: $13,500,000 or $19,500,000 in 2019 Dollars
  • Renovation Costs: $12,500,000 or $17,360,000 in 2019 Dollars
  • Total:  $26,000.000 or $36,000,000 in 2019 Dollars

In 2005 the house sold for $22,500,000  ($29,400,000 in 2019 Dollars and if renovation estimates are correct for a loss) to hedge fund manager Jonathan Brooks. If Mr. Books receives close to asking, let’s assume $45,000,000 he will still have made a nice profit even counting for inflation. Assuming closing costs of 7.5% i.e. commissions, title and so forth or $3,375,000 Mr. Brooks will still walk away with a nice profit. I guess his hedge fund acumen extends to real estate as well.

For a peek inside the mansion: https://www.youtube.com/watch?v=jI2VX4yoHIs

 

Is Denver being bypassed by our Next Generation of Most Talented

Are Best and Brightest Bypassing Denver

Historically Denver has attracted the best and brightest, a city that continually ranks in the top 5 for residents educational attainment. Granted our weather is spectacular i.e. average 300 days of sunshine annually, an active city and state, which continually ranks  the lowest rates of obesity and a population oriented towards a healthy lifestyle.

However as mentioned in my May 13th, 2019 blog post there are headwinds specifically the cost of living. Of the top ten most expensive urban locales when taking into account housing costs and average salary, Denver was #2, not a ranking to be proud of. Yes as a city and metro area we continue to attract businesses, most recently VF Corporation coupled with an entrepreneurial spirit. However are our attributes enough to compete?

It is no secret that Metro Denver may be experiencing net out-migration i.e. more people moving out versus moving in. While the outflow may have been stanched due to housing prices stabilizing coupled with increases in wages, there is still concern.

What made me consider the content for this blog post was the following headline:

  • Nearly 25% of Wealthfront’s tech clients in the Bay Area plan to leave Silicon Valley for New York; Austin, Texas; and other more affordable cities, a survey of the firm’s investors found.

Ok to start, what is Wealthfront and why should we as Denver residents be concerned? First Wealthfront is an investment management firm that provides robo-advisor services. OK, before the next question, robo-advisor services is to millenials what Charles Schwab and Fidelity is to us Generation X members and what the former EF Hutton (when EF Hutton talks, people listen), Merrill Lynch and other investment advisory firms  are to the Baby Boomers.

Wealthfront’s clients are skewed towards the millennial and tech savvy generation so their client base is not exactly representative of general trends yet does provide insights to a workforce who are generally highly educated, entrepreneurial, and working in white-collar professions with higher salaries.

During the first 5 months of 2019, Wealthfront surveyed 2,700 of its clients who work in the Bay Area at tech companies. The results are interesting (of note a small sample size yet still of interest):

  • Fewer than a quarter of Wealthfront’s tech clients in the Bay Area plan to purchase a home in San Francisco proper. Those who choose to remain in California’s Silicon Valley think they’ll snap up a home in the neighboring cities of Sunnyvale, Mountain View and San Jose.
  • But nearly a quarter of clients think they’ll part ways with the Bay Area altogether, opting for other comparatively cheaper cities.

Those other cities are as follows and of note Denver did NOT make the list:

New York/Newark/Jersey City: While at first blush somewhat surprising as Manhattan is not known for its affordability just across the Hudson River cities including Newark and Jersey City have become hip and desirable with millenials and others due to affordable housing options and an easy commute to New York City via PATH, NJ Transit, Ferry Service and or course car and bus.  Many tech companies have outposts in NYC. The median list price for a home in the New York-Newark-Jersey City metro area is $525,000, according to Zillow. Within that region, Manhattan commands the highest median list price, which is $1.569 million.

Austin: While many would not consider Austin affordable and within Texas one of the most expensive urban areas Austin offers affordable housing — at least compared to San Francisco — and no state income taxes (Colorado is a flat 4.63% regardless of income). The median list price Austin is $400,000, according to Zillow. Austin also hosts plenty of tech companies, including Apple and vacation rental service HomeAway.

Seattle:While not affordable to most of the American population, this city that is home to Amazon and Microsoft and Boeing (manufacturing, HQ is in Chicago) and cheaper than Silicon Valley. The median home value there is $699,950 according to Zillow.

Los Angeles: While in the same state, Los Angeles and the Bay Area could literally be separate countries. From demographics and industry to weather, hard to imagine the two metro areas are within the same state. And while Los Angeles is not a city known as affordable the median home list price is $829,994, Companies located in the so-called Silicon Beach area include Ring, the home security company now owned by Amazon, and matchmaking service Tinder.

Chicago: Historically known as the 2ndCity, the reality is Chicago is affordable, centrally located and is developing a tech sector to complement its dominance in futures/commodities trading, transportation and multiple corporate headquarters. The median list price of a home is $349,900, according to Zillow. Of note Chicago is home to mutual fund research provider Morningstar, and it’s an outpost for Salesforce. The city has also set out to encourage additional tech jobs through a public-private partnership known as World Business Chicago.

 

A Listing in Congress Park May Be a Predictor of the Future of Denver’s Real Estate Market

Reality can be challenging.

As a real estate broker I am also a voyeur. I look at the new listings daily on behalf of clients and also for myself as it is no secret, my wife and I sold our Cherry Creek North residence and are casually looking for a replacement residence.

Concerning the listing; as it is public information and being marketed here is the address: 827 Jackson Street, Denver.

I viewed the listing on the MLS and was intrigued. To be honest I am not the strongest proponent of the eastern streets of the Congress Park neighborhood i.e. Garfield St, Jackson St and Harrison St as they are impacted by Colorado Boulevard coupled with mixed-uses i.e. single-family, rental and condo apartments, parking lots and so forth. Sale prices on those eastern blocks generally lag the more central Congress Park neighborhood streets.

Full disclosure I lived on the east-side of the 200 block Harrison St abutting Colorado Boulevard thus I am well aware of the impacts on real estate values.

Back to the listing. While offering in my humble opinion limited curb appeal I will be honest the interior images presented on the MLS caught my eye, well worth a visit.  I scheduled a preview and visited the listing within the first week on the market.

A unique design with a front room incorporating design elements of a loft i.e. vaulted ceilings, exposed electrical conduit, support beams and so forth. The kitchen while small is efficient and well-designed. The two bedrooms are quite small and the one bathroom on the at-grade level is ¾ i.e. lacking a bathtub and would be challenging for two persons to use at the same time. Also due to location of the bathroom, access is via one of the bedrooms or through the kitchen, no direct access from public/entertainment areas of the home.

The basement is attractive, finished and rarely found, walk-out to the back yard via stairs. There is also a full bathroom in the basement including a tub. However it is a basement and thus some prospective buyers may be challenged by the below grade orientation.

Overall impression, a darling house, perfect for a first-time buyer but definitely not for us for reasons that are personal.

Now concerning the listing, the pricing and the marketing.

First, a history of the residence:

  • April 2008: Listed at $284,900
  • May 2008: Reduced to $277,500
  • July 2008: Sold $280,000

 

  • Nov 2009: Listed at $329,000
  • Dec 2009: Sold $301,900
    • Gross Profit: $21,900 before commissions and closing costs.
  • Aug 2015: Listed at $400,000
  • Oct 2015: Sold $380,000
    • Gross Profit: $78,100 before commissions and closing costs.

Now this is where the listing becomes interesting. It seems the buyer in October 2015 embarked on a renovation of the interior with the updated loft-style design orientation as mentioned prior.

  • June 2018: Listed for $585,000
  • June 2018: Sold for $620,000
    • Gross Profit: $240,000 before renovation costs, commissions and closing costs.

One must assume multiple bids and sold for $35,000 above the original list price. The Listing Broker and the Selling/Buyer Broker are both affiliated with Liv Sothebys one of the dominant and well respected real estate brokerages in Metro Denver.

Yet less than one year after the sale where the buyer paid $35,000 over the asking price, the residence is back on the market:

  • April 2019: Listed for $650,000
  • May 2019: Reduced to $635,000

The residence is now being listed by Redfin AKA Real Estate Redefined, a full-service real estate brokerage which promotes savings on both listings and purchases. The seller has signed with Redfin and I presume agreed to a commission of between 1% and 1.5% (as noted on their web site) so I assume for this blog entry 1.25% or $7,937 based on the reduced $635,000 asking price. Of note while not a fixed rate based on discussion with peer brokers affiliated with traditional full-service firms, the listing brokers I work with are in the 2.9%-3.3% range concerning a listing commission.

Per the listing on the MLS the co-op commission i.e. the commission paid to the broker representing the buyer which is paid for by the seller is listed at 2.8%. Thus if sold for $635,000 the co-op commission would be $17,780. Add the Redfin listing fee of $7,937, the seller is paying in excess of $25,000 in commissions to sell the property.

However the home is listed at $635,000 down from $650,000. Thus even if sold for the asking of $635,000, deduct $25,000 for commissions and even before closing costs and title insurance we are now at $610,000 or $10,000 below what the seller paid one year ago in what I assume was a multiple bid situation.

The reality is even with the use of a lower-cost brokerage option i.e. Redfin, the seller will still be losing money from their original purchase. This happens and it is becoming more frequent as the pinnacle of the market seems to be behind us and head-winds seem to be ahead of us. Buyers who acquired between 2016 and 2018 seem to be taking the losses especially those on the upper tier of the market.

When the seller purchased for $620,000 or $35,000 over the asking they probably assumed a continued upward trajectory concerning value and thus bid over asking. I do not know the circumstances for the sale and subsequent loss. I assume a loss of value was not considered when the multiple prospective buyers were submitting their highest and best offers a year ago.

 

 

Denver is Number 2 on the List of…..

Most expensive cities to live in; not exactly the top of the list a city wishes to be on.

The list is based on a cost of living index having taken into account a city’s median income and having compared it to what it costs for homeowners and renters to live comfortably in the city. These numbers were derived from Go Banking Rates, which was able to ascertain the ideal incomes in major U.S. cities using the 50/20/30 rule.

The 50/20/30 rule suggests you take 50% of your income for necessities (housing, food, healthcare, transportation), 20% for savings and 30% for personal items you don’t need but want.

#10 San Jose, CA

  • Average Ideal Income: $170,586
  • Median Income: $96,662
  • Cost of Living Index: 1.76

#9 Honolulu, HI

  • Average Ideal Income: $157,765
  • Median Income: $80,078
  • Cost of Living Index: 1.97

#8 Boston, MA

  • Average Ideal Income: $124,901
  • Median Income: $62,021
  • Cost of Living Index: 2.01

#7 San Francisco, CA

  • Average Ideal Income: $197,250
  • Median Income: $96,265
  • Cost of Living Index: 2.05

#6 Oakland, CA

  • Average Ideal Income: $136,778
  • Median Income: $63,251
  • Cost of Living Index: 2.16

#5 Long Beach, CA

  • Average Ideal Income: $131,702
  • Median Income: $58,314
  • Cost of Living Index: 2.26

#4 New York, NY

  • Average Ideal Income: $138,500
  • Median Income: $57,782
  • Cost of Living Index: 2.40

#3 Los Angeles, CA

  • Average Ideal Income: $143,300
  • Median Income: $54,501
  • Cost of Living Index: 2.63

#2 Denver, CO

  • Average Ideal Income: $106,128
  • Median Income: $38,991
  • Cost of Living Index: 2.72

#1 Miami, FL

  • Average Ideal Income: $107,245
  • Median Income: $33,999
  • Cost of Living Index: 3.15

Now that you have gotten through the list let me add the following for thought:

As a trained urban and regional planner one significant geographical feature of the cities listed comes to the forefront; 9 of the 10 cities on the list are coastal. Thus their ability to physically expand horizontally is hindered by water. The one exception is Denver which while in a basin can easily expand in all four directions with the major constraint in the future being potable water supply.

Another interesting observation concerns Denver and Miami and the Cost of Living Index. Miami, while having a diverse economy is also challenged income-wise by its higher than average population of retired residents; thus living on fixed or limited incomes. Thus the disparity between housing cost and income can be somewhat justified coupled with a real estate market that is buoyed by out of the region demand from snowbirds of the north to capital sheltering from Latin and South America.

Denver is truly the outlier on the list. Our economy is more diverse than Honolulu but not by much.  In addition Denver is the only city/region on the list without a major seaport concerning trade and commerce.

Denver has been attracting the best and brightest for many years due to our pleasant climate and until recently an affordable cost of living. Yet is our cost of living and lifestyle sustainable longer-term if incomes do not catch up?

While Denver may be attractive concerning companies looking to relocate i.e. VF and others the reality is cost of living and lifestyle can be a determinate concerning corporate relocations. My concern if Denver continues on this trajectory concerning a disparity between income and cost-of-living coupled with competition for our brightest and best from cities such as Salt Lake, Austin, Dallas, Minneapolis, Atlanta and others; should be we concerned?

Yes! Denver historically has been a boom and bust city and while we may be fortunate to ride this wave of in-migration and housing price inflation increasing our wealth effect the same scenario happened in the late 1960’s before the inflation of the 1970’s. Also happened during the oil boom of the 1980’s until jobs fled en masse to Houston and Calgary in the late 1980’s into the early 1990’s.

This time may be different…yet even The Wall Street Journal advises:

For 2019 Graduates: The New Cities for New Grads: Salt Lake City, Pittsburgh and Baltimore. These emerging locales offer hot jobs for young workers—plus reasonable rents.

Next week a home listed in Congress Park that may be an example of Irrational Exuberance catching up with the reality of a charing real estate market.

 

 

 

 

Yes the Sky Does Have a Limit

For those old enough to remember The Concorde, the supersonic passenger airplane passengers traveling at 60,000’ were treated to an astonishing site of the blue sky below turning ink black above and viewing the curvature of the earth. So what does this have to do with real estate?

I have always believed the deluxe and luxury real estate market was and is an indicator concerning the future of the overall housing market. I have noticed anecdotally when markets are climbing out of recession the deluxe and luxury real estate shows early activity as it seems astute buyers understand the opportunities these properties offer in an up-cycle market.  I also find the same concerning markets that have crossed the pinnacle and are now on the downside of the curve. In Denver during the past 18 months we have witnessed a slow-down concerning the upper-end of the market including longer days on market and price adjustments: below is an example:

461 Race St:

  • 9/17: Placed on Market $4.85M
  • 6/18 Reduced to $4.65M
  • 8/18: Reduced to $4.1M
  • 4/19: Relisted $3.85M

My concern is a recent statistic concerning Billionaire’s Row in New York City. (Full disclosure I used to reside in a building adjacent to 220 Central Park South one of the buildings included in Billionaire’s Row).  While not actually a row the moniker concerns a section of Midtown West Manhattan bounded by 55thStreet on the south to Central Park South on the north, 5thAvenue on the east and 8ThAvenue on the west. Of note 432 Park is included in Billionaire’s Row as though east of 5thAvenue it does back onto 57thStreet and was also one of the first condo buildings to sell units for over $50M USD.

The construction of 157 West 57thStreet completed in 2014 (a mixed use structure with a Park Hyatt on the lower floors and condominiums above designed by architect Christian de Portzamparc many believe was the catalyst for the moniker and due to savvy marketing reinvigorated a bland congested segment of Midtown Manhattan and turned it into the supposedly most desirable address in the world in a similar league of One Hyde Park, Peak Road, Avenue Foch and other prestige addresses.

Subsequent to 157 West 57thStreet other towers are being constructed. I use towers conservatively as many are taller than the Empire State Building one mile south a defining structure of the Manhattan skyline.  Height sells as many of the buildings promote their unobstructed view of Central Park to the north as a selling point (as the structures tower over the neighboring mostly pre-war apartment and office buildings.

Yet of interest is a report from Miller Samuels a respected appraisal and market guidance firm based in New York. The New York Post nailed it: “Swank apartments are begging for buyers on Manhattan’s “Billionaires’ Row” — with more than 40% sitting unsold in towers that top out at 100 stories.

Concerning 157 West 57thStreet as mentioned prior, only 84 of its 132 pricey condos have been bought — leaving more than a third of them still on the market and none under contract. Six other nearby buildings (as noted above) have as much as 80% of their units available, the figures show, with the total value of all the unsold inventory estimated by one analyst at between $5 billion and $7 billion.

Another building that’s set for completion next year — Central Park Tower, at 217-225 W. 57th St. — will put an additional 179 apartments on the market.

Back to market forecast. As mentioned having been through three market cycles in my real estate career I truly believe the deluxe and luxury market is a forecast for the overall housing market. As one broker in NYC mentioned: “This happened in 1988 to 1992, when there was a glut of condos that didn’t sell. They were smaller and less expensive, but it led to bad times”.

The issue with Billionaire’s row could be timing. Yes a glut of condos all coming on-line with prices starting at $7,000 USD per square foot and some breaking the $10,000 PSF price. The reality is there are only a finite number of prospective buyers in the world at that level of wealth. Coupled with world events i.e. sanctions on Russia, limiting of currency departing China, increasing but below inflation oil prices, South American money heading to Miami, uniform cash thresholds,  reality is the finite market for these units continues to shrink.

Is Billionaire’s Row an anomaly? Of course. The first to the party i.e. Time Warner Center and 432 Park Avenue seem to have done OK. Those joining the party subsequently and potentially in haste should be concerned.  As developers, their success is their sales. However with leveraged capital and banks/financial institutions providing working capital exposure the risk is spread. However at some point mortgages need to be paid, asking prices may have to be slashed and as I have shown in past blogs re-sales have incurred losses.

Am I concerned about the developers and the banks? On a micro level, no. I am concerned about the fallout from massive defaults to empty buildings to job losses as when such real estate does not sell the multiplier effect does impact down the food chain.

During the Internet bust of the early 2000’s Alan Greenspan warned of irrational exuberance.  Prior to The Great Recession that begins in 2008, real estate on all levels was suddenly considered a commodity. Is the lack of sales activity on Billionaire’s Row a harbinger of the overall real estate market? When the deluxe and luxury market sneezes there is a good chance the overall market will eventually catch a cold.

 

 

 

Why I Avoid Love Letters Attached to Offers

I understand the trend of sending a personalized note when placing an offer on a property especially when there may be a multiple offer situation. I as a broker adamantly refuse to open and review such attachments to an offer and I advise my selling clients to avoid yet it is their decision.

As a listing broker I provide a service to my clients. In the event of a multiple offer situation (which may also suggest the residence is priced below market thus the strong interest) I review the offers, present the offers and will opine which I believe may be strongest and the one to proceed with.

Choosing the strongest offer may include a verifiable pre-approval letter. A larger down payment leading to a potentially easier loan process. Other variants may include a check for the earnest money or down payment provided with the offer versus an IOU i.e. to be tendered three days after mutual execution of contract.

Personally I am not a fan of waivers of appraisal and inspections. Yes such waivers may be attractive to a seller however if issues arise and worse one enforces specific performance there is generally ill will at the closing and worse potential litigation in the future.

Back to Love Letters, I hate them. Again I understand the psychological comfort associated with composing and sending with an offer. I as a buyer have too been tempted but also know as a Broker the strongest offer is the winning offer. As I advise clients in a multi-offer situation; I do not care what is the highest price offered I want the offer that will close.

As a Listing Broker the Love Letter puts us brokers in jeopardy of potentially violating multiple local, state and federal laws concerning Fair Housing. Many letters come with pictures of the prospective buyers. Such letters usually include detailed information concerning occupation, ethnicity, family structure, disabilities and so forth. Such information, even being exposed momentarily, while you may not be bias may alters one’s subconscious decision-making process.  This is why I advise do not open or review Love Letters when working with sellers.

As a Buyer Broker I understand the desire by clients to enhance their position in a multi-offer situation. I always advise buyer clients to have their paperwork done prior i.e. pre-approval if a loan is procured, have inspectors and others lined up prior to be able to offer an expedited schedule and subsequent close and to not have an emotional attachment to real estate as options are always available.

The following distributed by the Colorado Real Estate Commission and Department of Regulatory Affairs transcends boundaries. I have shared the advisory with peer Brokers in both Colorado and New York: Real Estate Broker Licensee Advisory: Buyer Love Letters

Some readers are familiar with my personal journey concerning our present NYC residence. We had actually looked at another apartment that we truly loved. A spacious duplex (2 levels) in a neighborhood we truly desired. I literally walked by the building multiple times day and night checking out our future apartment. Not to provide details but the deal fell apart. Were we feeling dejected? Yes.

However we continued to look and found the apartment we are in at present. We truly love our apartment including the wood-burning fireplace, our building, the staff, management, private courtyard and our neighbors!

I continue to walk by the other apartment building (on way to my NYC office) and now realize beyond the apartment, the building was not as desirable as where we are now. The monthly Maintenance/HOA dues is much higher, staff and management did not seem overly welcoming and we are in the same neighborhood on what many peers suggest is a nicer street with fewer cars and cross-traffic.

While I challenge myself with the mantra “Things Happen for a Reason and Will Work Out in the End”, it is true. In real estate we sometimes get caught up in the emotion and perception of what will make our lives complete, wholesome and happy. I should know, as a real estate broker I am one of those salesmen. I do believe home ownership is important on many facets from wealth generation to stability to tax benefits. However there are always opportunities when you least expect and why we should all keep open minds when working in real estate and please avoid The Love Letter.

 

Could Greenwich CT be a harbinger of the overall luxury housing market

Greenwich CT. may not be the most familiar community to those of us who live west of the Mississippi. A wealthy commuter suburb for Manhattan, Greenwich has historically been one of the gilded enclaves of wealth and prosperity for multiple generations looking for a beautiful leafy green suburb and attractive state income tax laws. Yet recently Greenwich and other wealthy commuter suburbs of New York City have witnessed challenges to their historical demand for luxury housing.

Over the weekend The Wall Street Journal ran an article titled ” Wealthy Greenwich Home Sellers Give In to Market Realities”. The lead paragraph reads as follows:

After four years on the market, and three price cuts, a stately Colonial-style home on Greenwich, Conn.’s tony Round Hill Road is being sold in a way that was once unthinkable in one of the country’s most affluent communities: It is getting auctioned off. Once asking $3.795 million, the four-bedroom property will be sold May 18 with Paramount Realty USA for a reserve price of just $1.8 million.

Even the wealthy are not immune to price adjustments. According to Realtor.com there were 45 properties in Greenwich priced at more than $5 million that had their price reduced by 10% or more in the 12-month period between April, 2018, and March, 2019. Not to worry Greenwich continues to be one of the wealthiest communities in the United States and its reputation is intact.

However there are winds of change that may be longer-term concerning wealthy suburban enclaves and their demand for the upwardly mobile and those who have attained status of being counted within the wealthiest 1% of earners.

Property Taxes: The revised federal tax code reduced deductions concerning real estate taxes. While many pundits believed the revision was to penalize the New York Tri-State region where many suburban communities have tax bills exceeding $10,000 annually even on a modest home, the reality is here in Metro Denver the $10,000+ real estate tax bill is becoming more common in neighborhoods such as Denver Country Club and in suburbs including Cherry Hills Village and Castle Pines.

Changing Lifestyle: While the pinnacle of affluent home ownership used to be a large home with acreage surrounding for croquet and lawn tennis more and more affluent are flocking to the inner-city i.e. Billionaires Row in New York City, One Hyde Park and even here in Denver high-rises such as The Four Seasons in Downtown Denver as well as homes in Cherry Creek North known for their enormous size on lots more akin to a postage-stamp.

Concerning Greenwich the news gets worse: The median price for a home in Greenwich dropped by 16.7% last year to $1.5 million in the fourth quarter of 2018. On the luxury end of the market, characterized by the top 10% of sales, prices dropped by 18.8%. 

In addition, the average time a luxury home sits on the market in Greenwich is 357 days from its most recent price adjustment. The only segment of the market performing well appears to be smaller, entry-level homes close to the train station, which are being snapped up by a new generation of buyers. The lowest priced condos currently on the market in that area start at around $330,000, according to Zillow.

Should we be concerned in Metro Denver? Maybe. The blockbuster sales of 2016 and 2017 have not been replicated in 2018 and 2019.  In prior blog posts I have provided evidence based on public sales records how some sellers are taking real dollar and inflation adjusted dollar losses on their luxury homes in the most in-demand neighborhoods of Central Denver and Cherry Hills Village.

Of note with the stock market continuing to gain value and the economy seemingly running on all 8 cylinders seems to defy logic that luxury real estate should be lagging. While I do not read tea leaves I do review sales data; if I were considering dropping a few million on a home in Metro Denver at present I may want to take a breather.

Foreign Investment in Colorado Real Estate Should we be Concerned

A few weeks ago local Channel 7 news ran a story about foreign investment in Colorado Real Estate titled: Foreign investors continue their real estate spending spree in Colorado. I am glad the producers included the word “continue” in their story as this is not a new phenomenon. Back in the late 1980’s my thesis for undergrad in Political Science was titled Direct Foreign Investment in Downtown Denver an era when Canadians were slowly divesting from commercial real estate downtown and surprisingly Europeans, specifically Germans were purchasing. Of note this was a time when our local economy was on the skids post oil boom in the mid 1980’s.

Also foreign investment in real estate within our mountain resorts is goes back to the development of our modern ski resorts with Vail and Aspen starting the trend and foreign investment can be seen throughout our mountain resorts.

Of note the article seems to focus on Denver and how foreigners are purchasing real estate at above market rates and thus placing additional stress concerning demand and by simple economics pushing prices higher. However the story did not look at the pitfalls of such investments concerning our local economy.

While many will suggest to look at Vancouver as a cautionary tale concerning foreign investment I could not agree more. With a large influx of Mainland Chinese buyers using Vancouver real estate as both an investment and monetary shelter it is not uncommon to see homes and flats vacant for most of the year. Yet due to this purchasing activity Vancouver has become unaffordable to many of the locals. The local government is pursued a speculation tax to address the issue. Other popular attractive destinations around the world including New Zealand seem to be following Vancouver’s lead to try to dissuade foreign buyers.

Yet on the flip side foreign buyers can also have disrupt segments of the market with nothing to do with affordability. In New York City condo towers presently under construction on Billionare’s Row* AKA West 57th Street believed the demand from foreign buyers specifically Russian and Chinese was sustainable; it’s not and losses happen. Related in New York City there is support for a pied-a-terre tax to provide capital for the city’s aged mass-transit system.

Even Mansion Global an influential read for those in the luxury housing market advises in a recent article how to attract foreign buyers in a slowing demand marketplace: Strategies for Sellers as Chinese Buyers Scale Back on Foreign Real Estate Investment.

Granted there are other macro economic forces at play as well including the value of the US Dollar against other currencies i.e. when the US Dollar is weak our real estate looks even more enticing to foreign buyers just as US based buyers flock to Mexican real estate when the Mexican Peso is weak.

Back to Denver; I would be concerned. At present we may have pockets of foreign money purchasing residential rental properties and thus may be adding stress to our already over-heated housing market (based on the divergence between local housing costs and local income levels). My concern is more macro i.e. if the US Dollar continues to strengthen or if there is a world-wide recession; foreign money can take flight as easily as it comes in.

While I do not believe foreign investment in Denver’s residential real estate market is a concern due to the limited capital investments against the full local real estate economy there are places in China now known as Ghost Cities where speculation’s negative extranalities are on full display.

* Full disclosure, I used to reside part-time in a co-op located adjacent to Billionaire’s Row. Our building actually sold our air-rights to the developer of adjacent 220 Central Park South. In the 13 years of ownership, when sold generated a profit of just shy of 500% partially due to timing and mostly due to luck.