Monday, December 22, 2008

Sacramento Regional Real Estate Trends for December 20, 2008

I know the stats commentary has been rather light lately; frankly, I think they've become less interesting now that politics has come to dominate the market. I think making predictions is extremely hazardous under normal conditions, but these days you're better off playing roulette than trying to use stats to predict market moves. That, combined with the end-of-year slowdown makes this a pretty dull dataset. I'll try and keep it lively through year-end with some California State gossip as it filters in. Right now, the topic de jour at the state agencies I'm aware of is the proposed staff cutbacks (no surprise.) Some management types are unhappy that their pay increases are being held up, so apparently the workers they supervise now make more than they. :)

Let the bickering, bitching, back stabbing, and brown nosing begin!












20 comments :

Anonymous said...

With timely assistance from the Bee on firefighter overtime.

Sippn

Anonymous said...

What say DJ about Davis average rents up over 4% again, averaging $1225 for a 2 bedroom apartment? Ouch!

Sippn

Max said...

Looks like vacancy rates are rising along with the rents:

UC Davis apartment survey shows rise in vacancy, rental rates

Plus, there might be just a tiny bit of bias in the survey:

“The continuing low vacancy rate confirms that the university’s plan to build more housing for students is a good strategy,” Emily Galindo, student housing director, said in a news release. The university is proceeding with two student housing projects, including one that is scheduled to add 600 beds by fall 2010.

Nothing like a little spin to keep the Davis village elders at bay.

Deflationary Jane said...

LOLOLOLOLOL

You mean the large apt complexes with the 12% and worse vacancy rates? They might charge that much but they sure haven't been getting it lately and people are bailing on their leases.

The last lease I signed in Oct was for a duplex, 2/2 with a big backyard (took pets and all) for $1025.00. It's much nicer then the 2/1 crap-o-duplex we had before for 1150.00. I'm seeing 2/1 apts for as little $975.

I have no clue where they got those numbers but they are way old. It used to be that every LL wanted 500 to 550 per bedroom. I'm now seeing bigger homes for $400 per bedroom.

But thanks for the laugh, really! That was damn funny.

Deflationary Jane said...

Max is right. I know I keep saying the vacancy rates are going up but something broke in Sept/Oct here. Nice places, SFRs, have had for rent signs in front of them for months. We used to be surprised if the sign stayed in place longer then 2 weeks.

Deflationary Jane said...

Oh and if you want spooky - spend a little time in SF. I haven't seen that many for rent signs in that town since Fall of 2000.

Anonymous said...

You mean the large apt complexes with the 12% and worse vacancy rates? They might charge that much but they sure haven't been getting it lately and people are bailing on their leases.

Why use official stats when you can just make up your own.

Anonymous said...

I'll give DJ credit for on the ground research over just published, but likely old stats (comparing 2008 v 2007)

But like her, when you look at homes and see all the published BS, you really need to see them and walk them yourself. "on the street research"

You'all think the magic bank owned property, perfect in every way will drop in your lap. $20K is the smallest bill I've seen to fix the best one, mostly more.

Sippn

Max said...

But like her, when you look at homes and see all the published BS, you really need to see them and walk them yourself. "on the street research"

Also (one of many) there are published rates and real rates. Apartments have normal turnover in their leases, and they like to keep the tenants paying at least as much as their past contract rate. Imagine if your lease was up next month and your complex started advertising rates $100/month less than your current rate.

People with cash rule in this economy.

RV6Flyer said...

"You mean the large apt complexes with the 12% and worse vacancy rates?"

I have to call BS on that. I have been refinancing many apartment complexes in Sac and Davis and few are showing those vacancies. The only ones with numbers that high are newly built ones still in the lease up stage on a mini-perm.

I've closed three apartment deals this quarter, Davis, Midtown Sac, and Cameron Park. Each one has had a 5% or less vacancy rate for the past three years.

Sold in '05 said...

"I have been refinancing many apartment complexes in Sac and Davis and few are showing those vacancies."

So they are not "showing" vacancies to the person doing their refi huh? That makes sense...

"I've closed three apartment deals this quarter, Davis, Midtown Sac, and Cameron Park. Each one has had a 5% or less vacancy rate for the past three years."

On rolling average? Did you actually check their facts on the ground or did you let them provide their own documentation? How do you know which real estate investors are honest/trustworthy and which are doing whatever creative book-keeping it takes to keep their own personal Ponzi/Madof scheme going?

I'm betting on HUGE numbers of these high flying investors playing catch me if you can until the bitter end.

CD

RV6Flyer said...

"On rolling average? Did you actually check their facts on the ground or did you let them provide their own documentation? How do you know which real estate investors are honest/trustworthy and which are doing whatever creative book-keeping it takes to keep their own personal Ponzi/Madof scheme going?"

No based upon current signed leases. I do random inspections to verify also. Same goes on an ongoing basis while the loan is held in my portfolio. Additionaly we look at 3 year averages based on tax returns filed with the IRS. Most people don't like to pay taxes and do not inflate these numbers. We also require audited financials from a CPA we know and trust, not a one man shop in upstate NY. Beyone that I do a full background check. We get to now our borrowers pretty well.
Loaning $20,000,000 is not like getting a no-doc loan against a stucco box in Roseville.

RV6Flyer said...

"So they are not "showing" vacancies to the person doing their refi huh? That makes sense..."

Sold in '05
I take this as a huge insult as a senior credit officer and lender.

Sold in '05 said...

"I take this as a huge insult as a senior credit officer and lender."

I hope this is sarcasm...

CD

Sold in '05 said...

"We get to now our borrowers pretty well. Loaning $20,000,000 is not like getting a no-doc loan against a stucco box in Roseville."

It is good to know that at least some folks on the ground are doing quality work and not just pump and dump stuff. With the cracking of the Madof outfit, it has to put a bit of a scare into even you high value lenders though. It looks like many supposedly very sophisticated investors were completely blindsided.

RV6Flyer said...
This comment has been removed by the author.
Wadin' In said...

History usually repeats itself. You can not deny Davis is coming under more stress than in past years. Simply the fact RV6Flyer used a 5% vacancy rate in reference to Davis is proof enough.

In the late 1980's investors were buying apartments at "insanely" low cap rates of 9% (financing was 10%, but slowly dropping). The investors all were going to manage the properties at 3% vacancies, trim expenses, create better management, etc., etc., etc.

What happened? By the mid 1990's multiple apartment projects went back to the lenders? Why?

1) Vacancy jumped to 7-8%. The housing bust created just what DJ referred to above: 4 students could rent a 4 bedroom for 75% of the cost of two 2-bedroom apartments.
2) Cost started rising significantly (labor, management, utilities, etc.)
3) Revenue is decreasing. Listen to the people on the ground, like D.J. Several years ago, they all complained about rising prices, rising rents, and no vacancy. No they extol on the opposite side. Hyperbole aside, there is truth in their statements.

Apartments were being run on a very thin margin (and still are). When you have 80% LTV financing, a drop of occupancy and a rise in costs quickly gets the owner into negative cash flow. Wait until interest rates rise in accordance wtih market demand (as opposed to government bail-out rates).

Investors bought many apartments in Davis at 5% capitalization rates. That means the RV6Flyer $20 million project produces $1 million a year of net income to pay debt and return some cash flow.

When interest rates go to 7% (almost there now), the cap rate must follow. Thus the $1 million of income at a 7% cap rate means the project value is $14,285,000 or 71% of the prior value.

Let us hope RV6Flyer did not approve a loan in excess of 71% LTV. Otherwise, he may be owning an apartment complex in 2011.

Deflationary Jane said...

I think the problem is everyone is depending on models developed during the good years (the mark to myth years) and can't see how the models don't account for actual market stresses.

Like I said, something broke in Sept/Oct and it broke bad, even in "it can never happen here" Davis.

ps. you can find 2/1s in davis for 975 to 1025 easy in the smaller, older apt buildings.

Deflationary Jane said...

well we just broke the $900 price barrier:
http://sacramento.craigslist.org/apa/970121247.html

$893 / 2br - The Alhambra Apartments - Now Leasing (Davis)

Date: 2008-12-26, 10:01AM PST
Spacious apartment includes gas stove, dishwasher, garbage disposal, central heating and air conditioning, walkin closets, private patio and washer dryer hookups. Our ammenities inlcude clubhouse, sparkling swimming pool, business center, fitness center and on-site laundry facility. We are located close to bus lines, park, schools, shopping and easy freeway access.

4500 Alhambra Dr at Mace Blvd cats are OK - purrr
dogs are OK - wooof
Location: Davis

Just one of the first listings I saw on CL. I wonder what walking the area would get me.

Deflationary Jane said...

or even better:
$1190 / 3br - $1,190/mo Covell Condo is available now (Davis)

Rates like that will leave a mark on investment portfolios