Recently, I’ve been privileged to read the Realty Almanac put out by Realty Publications and First Tuesdays. Who is First Tuesdays and why the cryptic name? They are a California real estate trend resource providing news and data analysis since 1979. First Tuesdays is a holdover term referencing the foreclosure dates and times in Texas. You can read about First Tuesdays here.
The Realty Almanac is a data driven analysis of the California real estate market. While the nearly 400 pages of forecasting had on occasion put me to sleep, I ultimately dug through it all. I discovered a surprising trove of invaluable information specific to investors like myself who focus on cash flow and the spread between cap rates and interest rates. This report should be extremely helpful in making decisions about buying and selling in today’s Bay Area real estate market.
Recently I had the opportunity to see my friend Mark Lipsett from Pacific Western Bank speak about the state of the multi family market. This was put on by our trade group East Bay Rental Housing Association, EBRHA which is a fantastic resource for anyone owning income property in Alameda county.
Mark is a banker, so this was delivered through a lending lens, which is to say a relevant one based on data from his institution.
My big take aways from the talk were the following:
- Rates are up 33% since election
- Vacancy rate is up from 4.2% to 4.7%
- Construction permits are down 15% from last year
In a particularly lengthy meeting, Oakland City Council voted to impose a 90-day moratorium on all rent increases not tied to the Consumer Price Index (CPI) and capping the maximum increase at 1%. Council President Lynette Gibson McElhaney brought forth the emergency ordinance- which is based from a draft created by housing activists in March.
To say that changes to housing law in the Bay Area have been contentious would be an understatement. There has been a string of protests recently: the Oakland Business Summit , A City Council Meeting– but this is not a new sentiment. In an opinion piece, McElhaney told the East Bay Express “This proposed rent moratorium is an acknowledgment of the housing crisis, and I am committed to it being the leading edge of a slate of meaningful renter protections that will stabilize the housing of many Oakland families.” (Why she chose the East Bay Express is an interesting detail, especially considering the nature of previous coverage.) Continue reading
Pandora Media Inc. first moved to Center 21 in 2009 and has grown regularly since – and since then, many other companies have followed in the wake. According to the Oakland Chamber of Commerce, the city’s 400+ tech establishments have grown by between 4%-10% per year over the past 5 years. Tech companies also pay some of the highest wages in the city, paying an average wage of nearly $100,000 per year. The following map gives a good idea of the general proximity of the tech base.
Oakland Metropolitan Chamber of Commerce 2015 Continue reading
The price of oil has dropped sharply since the summer of 2014, settling to a 12 year low- and it prompts many questions- Will the price of oil stay low? For how long? How will markets react to stabilize?
Perhaps most telling is the recent failure of oil cartel OPEC (Organization of Petroleum Exporting Countries) to agree on new production ceilings. This means that exporters still aren’t sure how to handle the lower prices. This is due partly to the fact that demand for crude oil has stumbled in China, as it pivots away from energy-intensive industrial growth towards a more consumption-led model of development.
If you are an avid commercial real estate investor, you are probably aware, IRC Section 1031 has been considered for repeal for the past few years. Whenever you sell a business or investment property and you have a gain, you generally have to pay tax on the gain at the time of the sale. IRC section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. “Defer until you die, then let your heirs get the stepped up cost basis“, has been the motto of legions of authoritative investors for generations.
IRC 1031 has played a crucial role in creating a fluid and fast-paced marketplace, as it has given many principals the opportunity to exchange properties, where previously, financial considerations would have prevented it. Sellers working feverishly to postpone the pain of paying tax on years of gains, have been a major contributor to market momentum in our asset class, often small apartment buildings. Exchanging is an engrained part of our eco system and critical to the success of small mom and pop apartment building owners in the San Francisco Bay Area.
Write to your representative and let them know you support retaining 1031! Continue reading
Recently I had the distinct pleasure of attending a couple of events that highlighted the scale and scope of four major development projects taking place in Oakland, California.
One of the most interesting projects is one that I drive by every day along the Oakland estuary directly across from my home town, Alameda. It’s called Brooklyn Basin for obvious reasons, its similarity to Brooklyn. The $1.5 billion housing project sits on 65 acres, has over a mile of waterfront trails and is bounded by the Embarcadero, Oak Street and the estuary. It consists of 200,000 square feet of offices and store fronts, 3,100 housing units and 30 acres of parks and open space all on gorgeous waterfront. Wow, now this is something I can get excited about. Take a look at this spectacular video by Michael Sechman.
Brooklyn Basin Rendering
Former Mayor Jerry Brown was able to see the future and thanks to him we are living it here in Oakland. His 10K Housing Initiative bet heavily on the future viability of our downtown (referred to as Uptown) neighborhood and nobody realized how important it would become until now. Oakland’s Uptown neighborhood was recently named the number one “great neighborhood” in California by the American Planning Association.
Jerry Brown’s initiative considered the needs of the city and public residents. The project revolved around proximity to transportation and has fulfilled its goal to create a pedestrian-friendly neighborhood with a multitude of housing types. When I use to drive down Telegraph examining the vacant swaths to condos and unused open space, I often wondered what and when the pay off would come. It surely has begun to change dramatically from the desolate unused square blocks it was just a few years ago.
The Telegraph Avenue streetscape improvement project from 2005 is getting additional consideration.
Not only would it reduce pollution & traffic, it would promote health by offering a safe alternative to driving. There is a bike lane and improved sidewalk access. In addition, business would benefit due to all the additional foot and bike traffic.
This video shows a May 2014 demo of the protected bike-lane.
And here’s a proposed graphic of the plan.
Data speaks 10 times louder than opinions. I heard this award winning author economist speak in a new way about real estate investing. His completely numbers driven approach to investing went against everything I had learned. It piqued my curiosity and caused me to look more deeply into his proven strategy.
Reproduced with permission from Robert Campbell, author of Timing the Real Estate Market.
Housing Prices Are Still Rising – But at a Rate-of-Climb that Continues to Slow
U.S. home prices rose in April, but the rate of annual gains has continued to fall from previous months. This is shown by the chart to the right, which shows the year-over-year returns from three major home price providers – the National Association of Realtors (N.A.R.), Case-Shiller, and the Federal Housing Finance Administration (FHFA).
While the annual numbers continue to worsen, the month-to-month valuations are still rising in all three home price indexes. This steady downtrend in market momentum suggests that this years’ high demand spring-to-summer selling season (that started in April) may turn out to be decidedly underwhelming, even though home prices should continue to rise in the summer months.
The Case-Shiller 20-City Index – which is represented by the darkest (and smoothest looking) line on the chart – rose 10.8% in April compared with 12 months earlier and continues to show the highest year-over-year gains of any of the home price indexes. With an annual gain of 12.4% in March 2014, the 20-City Index fell to its lowest year-over-year gain in 13 months. Continue reading