And you thought Denver was expensive

Yes we have all read the headlines including one of the nation’s hottest markets, record average prices and so forth. While hard to believe Denver is still much cheaper than many coastal cities. Being licensed in New York I too watch the real estate market in Manhattan and am well aware of the $100M sale of an apartment at 157 West 57th Street as well as $50M+ sales along Billionaires Row. Of note not all is rosy in the ultra luxury segment of Manhattan Real Estate: http://www.businessinsider.com/foreclosures-at-one57-new-york-billionaires-row-2017-6. 

On a recent visit to Hong Kong I visited the Engel and Voelkers Hong Kong Shop located in Mid-levels, a mixed use neighborhood of apartments and neighborhood oriented commercial located above Central (the Central Business District) and accessed via one of the world’s longest escalators (which run up the hill most of the day with the exception of the morning rush when they run downhill). While I was flabbergasted to see listings for 400 SF flats with asking prices over $1M USD, what caught my attention were the recent sales in a neighborhood called The Peak.

The Peak aka Victoria Peak is the most prestigious neighborhood in Hong Kong and many would argue in the world. Located above the hustle and bustle of Hong Kong The Peak neighborhood is home to a limited supply of single-family and apartment homes most offering jaw-dropping views of the Hong Kong’s truly iconic skyline and across the water to Kowloon.

The exclusivity and prestige of The Peak seriously cannot be matched even in a city where land is literally reclaimed from the sea. British and other Europeans first settled the Peak in the 19th Century; the elevated location providing a natural respite from the Hong Kong summers. If visiting Hong Kong, a must-visit is The Peak Tram. For a sample of what views you may enjoy: As seen from Victoria Peak.

Now for prices: In June 2016 an under construction home measuring  9,212 SF sold at 15 Gough Hill Road. The closing price HK$2.1Billion or USD $269,180,730.00, yes over $269M or just over $29,000 PSF based on present exchange rates.

Granted, # 1 & 3 Pollack Path considered a more prestigious street did have a sale in January 2016 recorded at HK$2.8 Billion or USD $358,907,640.00 however with 51,000 SF this was considered a bargain at just over $7,000 PSF and consists of 8 units (word on the street, possible conversion into a single family home).

So the next time you feel Denver is becoming over-priced just be glad you are not in Hong Kong searching for a home. If considering a visit to Hong Kong, an easy destination to visit, no visa required and English is widely spoken (from Denver one-stop options via United through San Francisco, Chicago and Tokyo) be sure to visit the Hong Kong Tourism Board and download their excellent apps. Of course if you find yourself considering real estate in Hong Kong, contact me as I can provide a referral to my peers in the local Engel & Voelkers Shop.

Of note when visiting I usually stay at The Renaissance Harbour View in the Wan Chai neighborhood adjacent to the Hong Kong Convention and Exhibition Center. On this most resent visit I stayed at the JW Marriott within Pacific Place, a mixed-use development of luxury hotels including and adjacent to The Upper House (be sure to dine or at minimum have a cocktail at Cafe Gray), Island Shangri-La, Conrad Hong Kong, office and a luxury retail mall (including a beautiful Shanghai-Tang store) all connected to the Admiralty MTR Station.

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What a Hole in the Ground May Indicate About the Health of the Real Estate Market

I have lived in the Cherry Creek North neighborhood long enough to watch our neighbors to the south i.e. Cherry Creek East blossom into a diverse neighborhood from rental and condo high-rises to townhomes, mid-height rentals, an assisted living facility and oh so many townhomes built usually as rows versus the duplexes you see north of 1t Avenue (as most of Cherry Creek East is zoned Planned Unit Development).

On my walk this afternoon I was stopped in my tracks at The Cassidy (basically S. Harrison Street between Cedar and Bayaud Avenues). I had watched over the past weeks as the earthmovers excavated for the foundation with the assumption of full ceiling height basements. The units directly to the south seem to have sold and thus now a larger lot with plans for 37 units and a well-known broker who represents many new developments in the area as listing broker and sales point person.

What stopped me in my tracks was not the glossy marketing sign; it was what someone attached to it. Someone had cut out and highlighted the foreclosure notice on the property dated 9/28/17 from The Denver Post. Yes, the foreclosure notice.

The Cassidy Foreclosure Notice
Someone posted the foreclosure notice as published in The Denver Post (9/28/17) on the marketing sign.

While foreclosures were front and center during the Great Recession of a few years back, lately all we see are cranes on the horizon and continue talk about growth and the desire for Amazon to locate HQ2 to Denver.

Yet maybe it is irrational exuberance rearing its ugly head or our desire not to confront reality. I have been forecasting a downturn documented in this blog for months. Even the Wall Street Journal mentions rent-concessions and other activities, which may suggest not only is the boom loosing steam but also we may be moving into an overbuilt scenario.

Yes record prices were recently paid for the Steele Creek Apartments in Cherry Creek (of note the original developer Eric H. Bush who assembled the land on which Steele Creek was developed recently committed suicide). While I am not suggesting any nexus, I would just be concerned when we have record sale prices and 7 blocks east a foreclosure on massive lot on which 37 for-sale units were proposed.

Just food for thought.

Does the Record Sale of Steele Creek Apartments Cherry Creek Signal a Top

I remember when Steele Creek Apartments were proposed for the Southeast corner of Steele Street and 1st Avenue, at the time occupied by a few Class C buildings and a discount dry cleaner.

With the news hitting that the building set a new record on a per-unit basis for the sale of an apartment building of $570,000 per unit does the valuation make sense even considering future equity appreciation?

Working in both New York and Denver such numbers are not surprising as in NYC such a deal would be a steal especially for a newer construction building minus any rental controls, statutory affordable housing or long-term leases. Yet Denver is not New York.

Granted we have seen other close to blockbuster deals in Central Denver concerning rental properties as excerpted below from my morning daily read BusinessDen including but not limited to:

However are these deals good money-chasing returns, which are far from guaranteed? One could argue Denver at present is in an up cycle with record high rents (even though some buildings are offering rental incentives). Yet I am concerned as follows:

The New Rental buildings are oriented to deluxe and luxury tenants offering studio to 2-bedroom configurations limiting marketability to affluent singles and couples. In New York and San Fracisco the highest prices on bith a per-unit and PSF basis are “family-oriented” apartments considering of usually 2-4 bedrooms and minimum 2 bathrooms where a family can be reside comfortably.

Is there a glut on the horizon in the marketplace? Between Lower Downtown and Cherry Creek along the Speer Boulevard/1st Ave. corridor we are witnessing new buildings sprouting up like weeds with the assumption that demand for luxury rental apartments will continue unabated.

The Millennial Generation Will Age: I am witnessing it in my real estate practice; millennial’s are pairing up, starting families and due to price pressure are looking at homes to purchase in outlying Denver and suburban neighborhoods; not much different how Brooklyn became chic when Manhattan rents became unaffordable (with some help from Michelle Williams and Maggie Gyllenhaal and for us old timers, Patty Duke lived in Brooklyn Heights).

If the Influx Slows Who Will Rent these Apartments? While certain buildings have a reputation for attracting empty nesters (25 Downing Street) and those whose change in lifestyle may necessitate move to an apartment from a home (The Seasons at Cherry Creek), while renting is an option, many opt to purchase. Again anecdotally I know two empty-nest couples who moved from Country Club to condos, one in downtown, one in Cherry Creek.

What is Trendy Today is a Maintenance Headache Tomorrow: We see this in buildings throughout Capitol Hill, the party rooms with the naugahyde chairs on brass wheels and the pool table that has seen better days or the pool which requires constant expensive maintenance and upkeep.

While I understand the attractiveness of the cost on a per unit basis when compared to other in-demand cities including San Francisco, The Northeast Corridor (from Boston to Washington DC), Los Angeles and so forth those cities have physical geographic constraints and draconian rent-control laws which circumvents true market supply and demand laws thus raising rents on the free-market inventory.

Thus I do not see how the numbers work based on existing rental rates even when factoring in equity appreciation and nominal inflation. Granted there is always the option of conversion from rental to condo. The process includes upgrading the common areas and interiors of unitsoriented to the for-sale market AND developing a legal condominium, HOA and so forth. Not unheard of in Denver i.e. The Barclay (which when first converted were offered with developer backed below-market financing), Brooks Towers and other buildings have experienced such conversion.

However at present transaction cost per unit, is there really the demand for the $600K one bedroom condominium? We have seen such sales in smaller boutique developments including 250 Columbine (which does have a Starbucks on the retail level), but it is rare and definitely a niche market.

From experience such condos sell to those looking for a pied-a-terre in which their primary residence is NOT Denver or potential investment however for a decent cash-on-cash return the rents do not justify the selling price.

In New York City developers take the opposite approach developing condos and if the plan if sales do not meet the pro-forma then re-branded as a rental with the option to sell individual units when the market strengthens.

At present looking at prices coupled with construction activity I would be “short-selling” the apartment market if such a vehicle existed. Long-term I may be proven wrong, however within the three-five year time horizon and even in the present as leasing entities/developers are offering rent concessions, I would be more concerned versus excited at the blockbuster record prices being recorded.

 

 

 

 

As Real Estate Transactions Slow Take A Seasonal Breather Bring in Some Hygge

With the Fall Season chill in the air a perfect opportunity to add some levity to my blog and discuss the somewhat abstract concept of Hygge. I was actually introduced to the term while visiting Copenhagen during late November. It was quite chilly; the humidity literally penetrated multiple layers of clothing (of note I stopped in H&M for a scarf, hat and gloves set) and mid-day twilight led to early darkness due to the city’s northern latitude.

Yet the hotels, restaurants, shops and private residences (of note, if visiting must experience Dine with the Danes) had a warmth that is described as Hygge. Even the streets had a coziness as the street lamps were secondary (bulb hanging in the middle of the right-of-way) to the illumination emitted by the large candles in the windows of shops and restaurants literally bathing the narrow pedestrian oriented streets in candle light.

Thus as our days here in the northern hemisphere get shorter I wanted to share te following insights as you prepare for the autumn and winter to come (and if planning on placing your residence on the market during the Fall/Winter when inventory is limited, great options below concerning staging beyond the cookies in the oven..

You know that cozy contentment that comes with spending a Sunday morning reading a good book and drinking a cup of hot tea? There’s actually a Danish word for it. Hygge (pronounced hue-guh) is a feeling described as charming, comfortable, familiar and simple. Sound nice? Keep reading to learn how you can incorporate this hug-like feeling into your home.

Bring the Outdoors In — Embracing the calm that comes with nature is one aspect of hygge. You can do this by revamping your color scheme with earth tones, adding various natural elements and textures or simply burning a forest-scented candle. Personally I enjoy the scent of the mountain towns in winter, a mix of wood-burning and pine.

Maximize Your Light — The more natural light you can bring into your home, the better. Pick window treatments that will allow as much light as possible or go with no treatments at all. Instead, add a film to your window to reduce solar heat and maintain privacy. In Colorado we are blessed with 300+ days of sunshine a year coupled with mild winters.

Find Your Center — Even if you don’t have a fireplace i.e. living in a condo or apartment, moving your furniture around a primary focal point, like a coffee table or book shelf, will add a sense of comfort to your space. Arrange your furniture in a semicircle and watch how naturally conversation flows when you have guests over. If you wish to splurge consider building a mantle and a faux fireplace and of those who have a closed up flue, consider a candle arrangement in the fireplace.

Create a Relaxation Station — Designate a specific nook in your home where you can go to decompress and recharge. String up some lights, arrange some candles and have a soft blanket and quality chocolate nearby. Trust me one can park and visit Godiva and make it out within one hour at The Cherry Creek Shopping Center or consider Endstrom on University Blvd in Cherry Creek North.

With this notion of coziness built into their way of life, it’s no wonder the Danish are considered among the happiest people in the world (even though their tax rates is by our standards are quite high). Try implementing a few of these hygge tips to create a sense of well-being and contentment in your home.