Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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Housing Forecast INDICATOR 2011 home sales Existing New home sales Housing starts 301,000 611,000 Source: National Association of Realtors 2012F 379,000 769,000 2013F 4.3 million 4.6 million 5.0 million 594,000 1,120,000 for both 2013 and 2014, according to Mark Vitner of Wells Fargo Securities. He adds that the Federal Reserve's recent decision to pump $40 billion a month into mortgage-backed securities should ease fi nancing troubles for both buyers and builders. "T e added liquidity … should also bolster builder and lender confi dence, which should provide a real boost to sales and construction activity during the key 2013 spring selling season…," he says. "T is spring could very well see the pace of the housing recovery ratchet up in a signifi cant way." As residential builders gear up, land brokers have been busy, says "T e two go together like a hand and glove. Without jobs we don't need residents, and without the residents we will not have the job force," she says. "Las Vegas has many small businesses that rely on the local residents to support them. Everything from clothing stores, to pet grooming shops and restaurants are aff ected. As hiring has slowly stepped up so has our commercial real estate market." How Strong Is Residential? Unlike the commercial market, the improving residential market is not restricted to major gateway cities and core markets. In Sep- tember, 99 metros in 33 states saw improving residential conditions, up from 80 metros in August, according to the National Associa- tion of Home Builders, which defi nes improving as six consecutive months of rising housing permits, employment, and home prices. Markets added to the list in September include smaller cities such as Tucson, Ariz.; Jacksonville, Fla.; Springfi eld, Ill.; Greenville, N.C.; and Bend, Ore. "While economic and political head winds remain, it is obvious that the residential market has turned the corner," says George Ratiu, NAR's manager of quantitative and commercial research. "Sales have recorded moderate growth, prices have advanced throughout the year, and the share of distress has been in decline." Many CCIMs note that the number of distressed properties for sale is declining in their markets, tightening supply. While some of that decline is due to foreclosure slowdowns, NAR reports that, nationally, distressed property sales — both foreclosures and short sales — accounted for 24 percent of total sales in September, down from 30 percent in September 2011. But we're not out of the woods yet, Tousley notes. "Historically high levels of foreclosures will still be with us for the next two years, but the percentage of distressed sales has been moderating during 2012 and I expect that to continue through 2013. T e shadow market of properties that are in the foreclosure process is probably not going to overwhelm the market in 2013." Lower inventory and strong demand have builders moving for- ward on projects, giving rise to the thought that housing is ready to reclaim its spot as the recovery's economic engine. Housing starts — up 20 percent this year — should rise an additional 15 percent 24 November | December | 2012 Bill Eshenbaugh, CCIM, ALC, of Eshenbaugh Land Co. in Tampa, Fla., but buyers remain particular about location. National builders have been very active, he says, bidding up the price on the fi nished available lots in class A locations. "But there's a big fall off from A sites," Eshenbaugh adds. "Build- ers are ready to buy entitled but undeveloped land in good locations rather than buy existing lots in inferior locations." He adds that the activity for residential lots has included a lot of bigger players: "We had a lot of private equity and hedge funds buy residential land from builders, failing developers, banks, and CDD bond districts; now these investors are developers and/or sellers." But not everyone is convinced that single-family residential has turned the corner, and local markets may not always refl ect national trends, Tousley says. Although Twin Cities housing prices are up almost 6 percent YOY, "June and July have been the fi rst two months since February 2011 that the median price of a traditional (non- distressed) home sale has been higher than the previous year's levels," he says. "I will be a believer that this housing market recovery is for real if the median price of a traditional home remains above last year's levels for the remainder of the year." Commercial Spillover? Tousley adds that the residential meltdown had a serious eff ect on the Twin Cities commercial markets, but that the improving hous- ing market bodes well for everyone. Aſt er the large drop in home prices, "this 'negative wealth' eff ect changed the way people felt about their fi nancial security," he explains. "Consumer confi dence declined and the retail and offi ce markets were among the fi rst to be impacted. We are just beginning to see signs of recovery. Home prices are a leading indicator, and if they continue to increase, com- mercial real estate will follow the trend." On a business level, some CCIMs have benefi ted from the strong residential market — at least those with ties to residential agents. "We readily share leads and referrals back and forth," Wimberly says of the arrangement between KW Commercial and Keller Williams. "Just this year I have received over 20 referrals from our residential division." T e commercial deals resulting from residential leads run the gamut for Wimberley's company, including industrial and restaurant tenant rep assignments, a medical offi ce purchase, two multifamily listings, and four other buyer rep assignments. Commercial Investment Real Estate