Timely Real Estate News……………………15 February 2015
2015 starts off with solid results…sales lag, but prices up
One month hardly makes a trend, and a safe answer to “how is the market?” will be as my real estate coach, Tom Ferry says, “…that depends, are you a buyer or a seller?.” January sales activity was about even, down a scant 4% from the January of last year — sales were $186 million for the month compared to $195 million a year ago. But the median sales prices certainly looked encouraging.
For example, median sales prices in four of the five communities I report on each month were up substantially compared to a year ago, only Beverly Hills was down by 28% compared to January 2014. But I seldom worry about Beverly Hills prices because they continually show their strength year after year. Beverly Hills Post Office median sales prices were up 37% to $2,950,000….Bel-Air was up 25% to $2,950,000 also. Westwood/Century City’s median sales prices were at $1,843,000 and Brentwood was at $2,701,000. What this reflects is a very strong showing of home prices in these communities. Beverly Hills has always experienced wild fluctuations at various times because of the larger sales that “come and go” throughout the year, and its relatively lower median sales price was caused by the fact that six of the 11 properties sold in BH in January were under $4,000,000, with the lowest at $1,344,000. But BH also had five properties over $8,000,000, with the highest at $13,000,000….so as the song goes…. ‘don’t cry for Beverly Hills”….they’re doing just fine.
As these results are for the first month of the calendar year, comparing January 2015 to December 2014, Beverly Hills was down 30%, Beverly Hills Post Office was down 8%, Bel-Air was up a sizable 68% in median sale price compared to December; Westwood/Century City was up 12% and Brentwood was up 28% vs December 2014.
I know some times these numbers become a blur but that’s OK — the important thing to remember is that I pass along all of the data I can get my hands on each month from my most reliable source, the Multiple Listing Service, which is not — as I have also stated many times — the most accurate source. Remember, many sales of larger properties are confidential and are not reported by the MLS, and also remember, that a reported sale is always made after escrow closes. So the homes sold were actually “sold” in November and December to make the January report — some even before that.
In looking at the comparison between the “original listing price and the selling price”, Beverly Hills held on for 91.49%; BHPO for 85.43%, Bel-Air for 80.60%, Westwood/Century City for 87.36%, and Brentwood topped out at 102.71%. Only Brentwood managed to get more than the original asking price.
Yes, we’re seeing a strong market as we are halfway through our second month of 2015. I’m very encouraged by the open house activity and the multiple offers we are seeing. Stay tuned.
Going Cog Wild in Bend, Oregon
Over the next several issues of the SchifferLine, I want to share with you my daughter, Melanie Fisher’s journey toward building one of the nation’s top bike touring companies located in Bend, Oregon, called Cog Wild. For me, it’s a tribute to a highly motivated, immensely insightful young businesswoman and bike enthusiast, with her equally motivated and talented partner, Lev Stryker, who have carved out an exciting business where passion reigns every day, on and off the bike.
Today, Cog Wild conducts more than bike tours with more than 2,000 people annually in the
beautiful eastern Cascade Mountains, where there are literally hundreds of miles of exciting mountain trails for any mountain biker level — from expert to beginner.
Here’s her story — a Q&A with Melanie Fisher (first of four parts):
What motivated you to start a bike tour business?
Getting into the bike touring business wasn’t really planned. I had bike toured in Asia and in New Zealand and Australia before returning to the US. I ended up working at a few wineries in the wine industry in Sonoma but quit my last job at a startup winery after working with some horrible people. Being that I love riding my bike, I looked into becoming a guide for a local tour company that did Sip & Cycle tours to local wineries.
It was probably two weeks before I was working in the office and only a month until I was managing the place. It was a mess when I started and it was super fun to organize. Who would have known I would rather run the company than guide? I was there two years, learned a ton and realized I really liked being able to work in the bike industry.
When we moved to Bend, I tried to convince the then current owner of Cog Wild to hire me, but he didn’t have a job for me. So a friend and I bought the business eight months later. It was only recently I found out how thankful the first owner was, he was completely in over his head..
How long have you been in this business? And why Bend Oregon?
We are going on our tenth season, which is crazy! Time flies when you are having fun. My husband and I originally moved to Bend to open a hostel designed around Backpackers in New Zealand and Australia. We chose Bend because it did not yet have a hostel, was an outdoor town full of like-minded people like ourselves and offered a ton of outdoor activities that we love, especially mountain biking. This was in 2005, and the market went through the roof so quickly we were priced out of being able to purchase a building and cover the cost of running a hostel. Looking back, we are both very grateful this happened: Why own a business that is open 24 hours a day if you don’t have to?
New York real estate on steriods….could it happen here?
A recent article in the New York Times paints a picture of billionaires trying to “out do” each other and grab the most expensive, most luxurious residential units in Manhattan as the City tries to keep up with demand for bigger, better, and more prestigious living palaces. The race to build and satisfy what appears to be an insatiable appetite for “out-of-the-world” residences has architects, builders, designers, and realtors all in a frenzy to meet the demand for apartments that are costing as much as $100 million each. And they just keep on springing up in New York.
What’s causing all the glitzy rush? For most investors, a diversified portfolio means a prudent mix of stocks and bonds. For the global elite, diversification increasingly means splurging on New York apartments that can cost tens of millions of dollars, or more. Across Manhattan, real estate developers are scrambling to meet surging demand from buyers around the world who are prepared to pay record-setting prices for new developments with opulent finishes and extraordinary views. These buyers — some of whom obscure their identities through webs of shell companies— are not all rushing to call the Big Apple home. Instead, many of them are paying record prices with the expectation that their investments will appreciate, even as they sit empty for most of the year.
Last month, the buying frenzy reached new extremes, with one apartment changing hands for more than $100 million. “We’ve become a global piggy bank,” said one realtor involved in marketing these properties. Yet at the upper echelons of the property market, the lines between prudent investing and splashy one-upmanship are inherently blurred.
“When you’re talking about a bank account that big, diversification is a basic rule of economics and investment,”. “It’s a wonderful way to justify investing in your toys. Head-scratching prices aside, New York real estate has proved to be a durable, even lucrative long-term investment. Residential property in Manhattan appreciated 26 percent over the last five years.. “That’s not bad. But compared to stocks, which have rebounded sharply since the financial crisis, it is subpar. The Standard & Poor’s 500-stock index is up more than 75 percent over the same period.
A major factor feeding the sudden buying binge is a flood of new properties that cater to the top tier of global buyers. Half a dozen residential skyscrapers are sprouting in Midtown Manhattan, each promising views, amenities and materials fit for kings and queens.
It’s not that the city lacked inventory. It has the most expensive real estate market in the country, with thousands of multimillion-dollar apartments, townhouses and mansions changing hands regularly.
But as tastes changed, apartments that once appeared palatial now seem pedestrian. Today’s new construction includes floor-to-ceiling windows, full-floor residences, opulent finishes and amenities like room service from Michelin-starred chefs. “For the superwealthy who are used to five- or six-star hotel services around the world, it’s a really great way to not just travel now, but to live”.
Putting a price on such trophy properties is no science. “Art is a closer analogy than stocks or bonds,” said Christopher J. Mayer, a real estate professor at Columbia University. “What matters is the amount of this stuff available and the number of people looking at it.” And to explain why buyers will pay soaring prices, brokers often resort to metaphors, not mathematics. “How else do you explain $10,000 a square foot?”. “It’s the same thing with the price for carats of a pink diamond or square inches of a Warhol.”
At least one buyer appears to believe that his new residence is an actual work of art. William A. Ackman, the hedge fund manager who bought a penthouse at One57 as an investment that he plans to keep emptysave for the occasional event, called his $90 million party pad “the Mona Lisa of apartments.”However, the Mona Lisa is one of the most reproduced artworks in the world. And as more such towers rise around Manhattan, the views and floor plans for which Mr. Ackman and others are paying top dollar may not be unique. For these buyers — oligarchs, international corporate chieftains and foreign royalty — who make up an estimated 30 to 50 percent of high-end buyers, there are various allures to Manhattan property.
“It’s a repository of money, it’s in the dollar currency, and it’s in New York City,” said Gary Barnett, president of Extell Development Company, whose projects include One57. Currency fluctuations, unpredictable world affairs and unstable governments contribute to the desire for a safe haven.” Yet a market reliant on a small cadre of the world’s richest men and women can also be fragile. “A 50 percent drop in the price of oil is a huge risk,” said Mr. Mayer of Columbia. “A significant number of the world’s billionaires rely on oil.”
Believers in the ever-rising tide of property values point to a notable resale at One57. Last May, a Chicago-based investor bought a three-bedroom apartment for $30.6 million. In October, the unit was sold to a hedge fund manager for $34 million. That quick profit — an appreciation of 11 percent in less than half a year — made it one of the better investments of 2014. “The perception is that if you’re getting in on Day 1, you’re almost guaranteed to see price increases.
But the higher the price, the more elusive the potential returns. If an apartment sold for $100 million today were to enjoy the same appreciation as the first resale at One57, it would trade hands for $111 million later this year. “I’m skeptical from here about how much appreciation there can be”.
Could this happen here on LA’s Westside? Carole Schiffer, who specializes in high-end Westside homes and in gated communities stated that “we are seeing home prices reaching nearly $200 million as is the case for the Beverly Hills property now on the market for $195 million. Last year, the largest sale was the $88 million Fleur de Lys estate in Bel Air, and that included furnishings. But the difference between New York and Los Angeles, of course, is that we have land that goes with the living spaces. Those New York units don’t have acres of guest houses, landscaped gardens, swimming pools and tennis
courts like we have here.” It’s a different lifestyle. Obviously New York has a lifestyle, too, that attracts the super rich.
Investing in real estate makes sense — going global is also on the rise
In looking back at last year, we are seeing increased data that show that despite the 2008 collapse, which many investors have not totally forgotten, the case can be made to own properties through real estate investment trusts, called REITs, and exchange-traded funds. Fueled by growth in the United States and abroad, real estate trusts posted stellar returns last year. The benchmark American index had a total return of 27 percent last year, nearly double the total return, which includes dividends, of the Standard & Poor’s 500-stock index in 2014.
Globally, REITs also beat the S& P 500. The global REIT benchmark index rose nearly 15 percent last year. Over all, a composite index of American REITs has outperformed the S&P 500 for every five-year period for 40 years, according to the National Association of Real Estate Investment Trusts, the trade association of the industry. And part of the reason REITs have performed consistently is that under United States law they must pay out at least 90 percent of their earnings to shareholders. That cash comes from rents paid by property owners. Yields on REITs that hold properties and mortgages averaged 4 percent last year, double the S.&P. 500’s dividend yield.
While REITs can certainly be as volatile as stocks, in growing economies they can raise rents, which can offset their sensitivity to rising interest rates. The growing expansion of urban areas will increase demand for developed properties.
According to a new report by Prudential Investment Management, about 60 million to 70 million people will be added to urban areas in the next 30 years. That will spur development of retail, residential, office, health care and industrial projects. And falling oil prices will aid countries dependent on imported petroleum, if that trend continues.
Nevertheless, global economic health is worth watching because Brazil, Japan. Greece and most of Europe are reporting meager growth and China’s growth appears to be slowing. In addition to their income bonus, REITs offer diversification from common stocks and bonds. Although they are traded on stock exchanges, these vehicles, owning mostly commercial real estate, rarely follow stocks closely.
But one of the strongest arguments for holding global real estate trusts in the near future is their resilience in an environment of rising interest rates, which many pundits predict is coming. A study last year by Altegris, an alternative investment firm, said the conventional wisdom that REITs would get burned if interest rates rise, as investors turn to vehicles with higher yields, was only partly true.
“The initial reaction to rising rates and REITs is negative,” said Neena Mishra, director of exchange-traded fund research for Zacks Investment Research, “but long term they can withstand the reaction.”
“REITs definitely have a role in portfolios,” Mr. Stammers added. “They can provide a good inflation hedge and can perform well in the face of rising interest rates. Although performance as an inflation hedge or in the face of rising rates is not absolute, they are both good reasons to include REITs in an investment portfolio.”
The downside of REITs is that they can go south in a widespread downturn in the global economy, as was the case in 2008. The NAREIT Composite Index fell nearly 38 percent that year in total return. That was roughly equivalent to the loss of the benchmark S&P 500-stock index. And investors who choose REITs should keep in mind they will incur some tax obligations if held outside retirement plans.
Lately my real estate world has expanded some which I totally love. I have a client with whom I have worked over the past 25 years, and we have been spending our time looking for a new home for him, primarily in the Hollywood Hills. We have seen some amazing houses and absolutely fabulous city views, and are in the process of narrowing his choices down. In addition, I had a lovely home for lease in Bel Air Crest that we leased in two weeks, and a townhouse in Mountaingate for sale that we are still working on selling.
As a deviation, I am proud to share with you my recent attendance at the Previews Retreat that was just held in Sonoma for the top Coldwell Banker agents on the West Coast. All 330 of us are among the top 2% of the 43,000 Coldwell Banker agents in the country. We all had a great time, learned a lot, had some good wine and I met some of my fellow Coldwell Banker agents to whom I can refer my clients to fulfill their real estate needs. Please let me know how I can assist you with any of your real estate needs, and be sure follow check out my web site, and follow me on Facebook and Linked in.
Giving Back…. Please remember.. I will make a donation in your name to your favorite local charity at the close of every sale transaction. I look forward to us working together to make this happen.