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How are there over 100,000 vacant homes in the San Francisco metro area?

An estimated 100,025 homes are sitting empty in the San Francisco metro area.

Compared to other cities, San Francisco metro area’s vacancy rate is actually low at 5.6 percent. Of the 1.784 million households counted in the census region, roughly 1.684 million are occupied. LendingTree concludes a region like San Francisco – which includes Oakland, Hayward and surrounding areas is what’s considered a sellers’ market, meaning people selling their homes will easily find buyers, while future homeowners will struggle to buy. Anyone who has tried to buy a home in the city in the last decade knows this to be true.

Read more on SF Gate

Landlord-tenant relationships are changing, thanks to cryptocurrencies, Airbnb, and more

New challenges facing landlords in 2019.

This could be a great time to be a landlord.

The real-estate market still only has enough supply for half the population. We’re still seeing high divorce rates, so people need more places to live. And households are still being created faster than the housing supply. All that combined means higher rents and that trend looks likely to continue for a long time.

In fact, according to the Mortgage Bankers Association, rising rates on 30-year mortgages — now firmly above 5% and on track to reach 5.8% by the end of the year — will help to drive rents higher in the coming year as more people get priced out of home buying by these higher interest rates. According to an analysis by Zillow, rent growth will pick up in 2019 as the Federal Reserve continues to raise rates.

For landlords, this is all very good news. And, given the evolution that the real-estate market has gone through over the last couple of decades — expanding to include short-term rentals, absentee owners, do-it-yourself property managers and more — the future looks bright for all involved.

Read more at MarketWatch 

 

Downtown San Jose, Oakland opportunity zones attract investors, spur development plans amid Google effect

Developers eye projects in downtown San Jose and parts of Oakland, bolstered by tax incentives keyed to opportunity zone.

Developers and a new crop of investors are eyeing projects in downtown San Jose and parts of Oakland, bolstered by opportunity zones enabled by President Donald Trump’s tax-cut initiative.

Potentially the first project in a local opportunity zone would be development of a brand-new office and retail complex on South First Street in downtown San Jose at the site of the old Lido night club, said Erik Hayden, president of Urban Catalyst, a company that as formed an opportunity fund that would provide cash for selected developments in designated areas.

“These opportunity zones are ways to create greater economic activity in lower-income areas,” Hayden said. “They were originally presented to the Obama Administration but didn’t get a lot of traction. Then they became part of President Trump’s tax cuts and jobs act. San Jose Mayor Sam Liccardo very successfully lobbied Gov. Jerry Brown to get downtown San Jose included.”

Investors who plunk down cash for an opportunity fund can “defer or eliminate federal taxes on capital gains,” according to information on the state’s Department of Finance site.

The Lido night club site, currently a two-story building at 26 and 30 S. First St., is now owned by a partnership led by Gary Dillabough, who has emerged as one of downtown San Jose’s most active realty investors and developers. Among the properties Dillabough-headed groups have bought: the nearby Bank of Italy building, a historic office tower at the corner of South First and East Santa Clara streets.

 

 

 

Read more on The Mercury News

 

 

 

Demand for apartment rentals surges unexpectedly as home sales slump

Surging demand and strong occupancy in the nation’s apartment market is “surprising” experts who say the continued strength is “unexpected.”

Just a year ago, as dozens of cranes swarmed over major U.S. cities, there was concern that the rental apartment market was overheated and overbuilt.

Apartment absorption, which is the rate at which new units are rented out, is now at the highest level in three years, according to the U.S. Census. Apartment construction took off in 2012 and reached a 20-year high in 2017. It remained elevated this year, despite warnings that demand would slow as more millennials aged into their homebuying years.

And while buyer demand did surge, sales were thwarted by tight supply that has pushed prices higher in the past few years, weakening affordability. When mortgage rates surged this year, even fewer people were left with the means to buy a home.

“People underestimate how far away from homeownership a lot of renters across the country, even in luxury apartment buildings, are,” said John Pawlowski, residential sector head at Green Street Advisors. “The demand has been better than expected. It’s been a stickier tenant base and pricing power at that tenant base, again in the face of elevated supply, has simply surprised us.”

The third quarter of this year marks the fourth consecutive quarter of positive operating “surprises” for apartments, according to a recent report from Green Street, which noted that the asset values of these apartment properties remain on firmer footing than most core property types. Apartment earnings were also better than expected.

 

 

Read more on CNBC

 

 

Trump is getting involved in Opportunity Zones, and experts think that’s a good thing

Opportunity zones have become the darling of real estate investors since their adoption last year, but the still-under-the-radar program is poised to receive a lot more attention, and possibly scrutiny after it was promoted in the Oval Office last week.

President Donald Trump’s signing of an executive order to push more federal resources into the Opportunity Zone program is a step in the right direction and could bolster the little-known tax incentive program and the distressed communities that benefit from investments, experts said.

“I think investors in the marketplace are going to be excited that there are going to be a number of new federal benefits aligned to these zones,” Develop founder Steve Glickman said.

Glickman is a former Obama administration official and one of the original architects of the Opportunity Zone program, which was enacted as part of the Tax Cuts and Jobs Act of 2017.

“Frankly, these zones need a lot more than private capital,” Glickman said. “They need infrastructure investment, they need to deal with crime, workforce training, and other strategies and dollars. Opportunity zones were always meant to stimulate that kind of holistic activity not just on a federal level, but on a state and local level.”

Erik Marks, a Seattle-based commercial real estate attorney and founder of Opportunity-Funds.com, a website that tracks opportunity zone funds and designated areas, said the executive order still does not address the current shortcomings and problems that are present from people trying to do opportunity zone deals now.

“I think the regulation may be useful, but this is not a problem-solving regulation,” Marks said. “I don’t know what his strategy is, but I think when there are opportunity zone successes, he has a clear opportunity to put himself and his Cabinet at the locations for the photo opportunity. I don’t mean to say that in a derogatory sense … This is to make sure [everyone knows] he’s still part of it.”

For the past year, the at-first unheralded Opportunity Zone program, passed last year as part of Trump’s $1.5 trillion Tax Cuts and Jobs Act, has flown under the mainstream radar.

The program’s goal is to generate economic development in the form of the redevelopment or the development of market-rate housing, affordable housing, new offices, retail buildings and businesses in these communities.

 

 

Read more on Bisnow

 

 

Report: U.S. Commercial Real Estate Pricing Growth Cools in Late 2018

Growth in U.S. commercial property prices decelerated in October to the slowest annual pace in 2018 so far, according to a new report by Real Capital Analytics.

The company’s U.S. National All-Property Index was up 6.4% from a year ago. The pace of annual price growth has been gradually slowing since a 2018 high of 8.4% in February, but in fact, price growth as measured by annual gains has been slowing down for about three years, RCA reports.

Year-over-year gains in 2014 and early 2015 were well over 10% each month for all assets, which represented a strong comeback from the recession, when property prices during much of 2009 contracted by over 20% compared with a year earlier. Since mid-2015, annual gains have slowed considerably.

According to the report, easing growth in major U.S. metros placed the largest drag on national prices, presumably as investors perceive that prices in some major markets have bubble-like aspects. For the purpose of the report, major metros include Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C.

Prices in U.S. major metros were growing an average 8.8% year over year at the beginning of 2018, but as of October, that growth was down to 3.1%.

Growth in the non-major metros has also slowed since a high in the summer, though the change is more modest than in the major metros, RCA reports. Prices rose 7.8% year over year in non-major metros in October, down from 8.4% in May.

Apartments are still leading the way in price growth, up 9.6% year over year, but even that property type has seen a slowdown. In April, the annual gain for apartments was 12.4%.

 

Read more on Bisnow

 

 

 

US homebuilding rose in October on a rebound in multifamily housing projects

U.S. homebuilding rose in October amid a rebound in multifamily housing projects, but construction of single-family homes fell for a second straight month, suggesting the housing market remained mired in weakness as mortgage rates march higher.

Other details of the report published by the Commerce Department on Tuesday were also soft. Building permits declined last month and homebuilding completions were the fewest in a year. Housing starts increased 1.5 percent to a seasonally adjusted annual rate of 1.228 million units last month.

Data for September was revised to show starts dropping to a rate of 1.210 million units instead of the previously reported pace of 1.201 million units.

Building permits slipped 0.6 percent to a rate of 1.263 million units in October. Economists polled by Reuters had forecast housing starts rising to a pace of 1.225 million units last month.

The housing market is being hobbled by rising borrowing costs as well as land and labor shortages, which have led to tight inventories and higher house prices. This is making home buying unaffordable for many workers as wage growth has lagged.

The 30-year fixed mortgage rate is hovering at a seven-year high of 4.94 percent, according to data from mortgage finance agency Freddie Mac. Wages rose 3.1 percent in October from a year ago, trailing house price inflation of about 5.5 percent.

Residential investment contracted in the first nine months of the year and housing is likely to remain a drag on economic growth in the fourth quarter. Economists expect housing activity to remain weak through the first half of 2019.

U.S. financial markets were little moved by Tuesday’s housing starts data.

Single-family homebuilding stalls

Single-family homebuilding, which accounts for the largest share of the housing market, dropped 1.8 percent to a rate of 865,000 units in October after declining in September.

Single-family homebuilding has lost momentum since hitting a pace of 948,000 units last November, which was the strongest in more than 10 years.

A survey on Monday showed confidence among single-family homebuilders dropped to a more than two-year low in November, with builders reporting that “customers are taking a pause due to concerns over rising interest rates and home prices.”

Single-family starts in the South, which accounts for the bulk of homebuilding, fell 4.0 percent last month. Single-family homebuilding jumped 14.8 percent in the Northeast and fell 2.0 percent in the West. Groundbreaking activity on single-family homes dropped 1.6 percent in the Midwest.

Permits to build single-family homes fell 0.6 percent in October to a pace of 849,000 units. These permits remain below the level of single-family starts, suggesting limited scope for a strong pickup in homebuilding.

Starts for the volatile multifamily housing segment surged 10.3 percent to a rate of 363,000 units in October. Permits for the construction of multifamily homes fell 0.5 percent to a pace of 414,000 units.

 

Read more on CNBC

 

 

How the stock market’s wild ride could affect CRE investment

Stock market volatility may spur investors to allocate more funds to direct ownership of real estate.

The stock market’s recent rollercoaster, with October’s sharp correction followed by a post-midterm election surge, can put the investment community on edge, including commercial real estate investors.

“People who invest in real estate don’t invest in a vacuum,” says Mark Dotzour, a real estate economist who spent 18 years as chief economist of the Real Estate Center at Texas A&M University before opening a private consultancy three years ago.

It’s impossible to completely separate one’s emotional reactions from financial behavior, says Mike Ervolini, CEO of Cabot Investment Technology, which sells behavioral finance software to professional equity fund managers. Ervolini previously served as a portfolio manager and CIO with AEW Capital Management.

Real estate investors pay close attention to what’s happening in the stock and bond markets and while they may be able to overlook recent volatility, they’ll need to keep an eye on longer-term trends to determine if commercial real estate investment is still the best bet for their financial portfolios, according to Dotzour. For now, it seems the answer is yes.

 

 

Read more on National Real Estate Investor

 

 

Are food halls a magic elixir for retail owners?

The concept of the food hall has taken deep root in U.S. retail properties, with scores up and running and hundreds in the pipeline.

Though a popular addition for struggling retail properties, celebrity chef Todd English said that without the right approach, food halls are not always the solution for owners. English spoke at the recent Second Annual International Council of Shopping Centers-Baruch College Real Estate Conference, as reported by Real Estate Weekly.

He warned that some food halls are merely “glorified food courts with better options.” He further called food halls a WeWork model, a kind of coworking space that “has to be about more than just food.”

Food halls are a draw because of their perceived authenticity, as local eateries, healthier options and craft breweries edge out standard food court fare (fast food, that is).

While not every food hall is going to feature chef-curated or otherwise expensive options, they have to be creative in some way, English said during the ICSC conference. “It’s not just another great turkey sandwich or croissant, or whatever the latest trend is, it’s something that brings people in.”

For retailers, a successful food hall is thus not a matter of simply setting up a food hall. With the increasing number of food halls, they too need to stand out to be competitive.

 

 

Read more on Bisnow

 

Identifying lucrative value-add multifamily opportunities as the cycle lengthens

There are ways to drive returns on value-add multifamily investments without spending a fortune on redevelopment.

The appetite for value-add multifamily investments remains strong—and in light of this increasing competition, many investors are struggling to identify and secure assets that present high-reward opportunities.

While some investors have turned to extreme measures, including taking on projects that require extensive remediation and complete overhauls—or even repurposing entirely different product types for multifamily use—some of the greatest opportunities for growth and stability lie in strategically identifying and refreshing functional, yet under-managed vintage communities.

 

 

Read more on National Real Estate Investor