$8,000 Tax Credit for Homebuyers Extended

It looks as though the $8,000 tax credit for first-time home buyers, which was scheduled to expire November 30, will be extended.

The tax-credit will also be expanded to those buyers who have lived in their residence for more than 5 years and are purchasing a new residence.

Additional details of the plan:

• Income limits have been increased. The credit is now available to individuals earning $125,000 and couples earning $250,000 (from previous limits of $75,000 for individuals and $150,000 for couples)
• To be eligible, properties must be in contract by April 30, 2010 with closing to take place by June 30, 2010
• For "move up" buyers who previously own a home, the tax credit will be limited to $6,500

Although widely anticipated, this extension should give continued "legs" to the housing recovery. To date, 1.2 million homebuyers have taken advantage of the tax credit and $8.5 billion of $13.6 billion stimulus monies allocated for this purpose have been spent. [Bloomberg]

Updated 11-20-09

Here is the CAR (California Association of Realtors) full explanation on the tax credit:

H.R. 3548 provides both for the extension of the first-time homebuyer tax credit and expansion of it to qualified non-first-time buyers as well. A few of the provisions of this new law include the following:

(1) Both the $8,000 first-time homebuyer tax credit and the $6,500 tax credit for “move-up” buyers (see 4 below) would sunset on April 30, 2010. However, purchasers who have binding contracts as of April 30, 2010 (before May 1, 2010), would still qualify for the credit as long as they complete the transaction within 60 days (or June 30, 2010).

(2) The amendment establishes income limits of $125,000 for an individual or $225,000 for a couple for both credits.

(3) The cost of the home being purchased cannot exceed $800,000 for both categories in order to be eligible for the credit.

(4) “Move up” buyers (an individual or his/her spouse, if married) are qualified if he/she “has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence.”

For purchases made in 2010, taxpayers would be able to claim the credit on their 2009 income tax return. Homebuyers would not have to repay the credit, provided the home remains their principal residence for 36 months after the purchase date. However, this recapture provision would not apply in the case of a member of the Armed Forces, military intelligence or Foreign Service who is on qualified official extended duty. In addition, members of the military who have been deployed overseas for 90 days or more in 2008 or 2009 would have until April 30, 2011, to claim the homebuyer tax credit.

The amendment also includes anti-fraud language that gives the IRS the authority to do greater oversight during the processing of the return rather than waiting for an audit situation. The amendment requires the taxpayer claiming the credit to be 18 or older and requires a HUD-1 settlement statement to be attached when claiming the credit.

11 Chic Condos @ 140 S. Oakhurst Drive Beverly Hills

Tucked just south of Wilshire in the center of Beverly Hills is a new 11-unit condo development, 140 S Oakhurst Drive. Located on a quiet residential block, the project includes one studio (reserved), two one-bedroom units (one reserved), seven two-bedroom units, and one grand three bedroom penthouse.

One bedroom units are $925,000, two bedroom units range from $1,045,000 to $1,425,000, and the penthouse is priced at $2,595,000. HOA are surprisingly low, ranging from $518 - $793/month.

We like what we see. Construction is top-rate. The floors are an attractive light-color wood. Living rooms are large. All units (save the studio) have a half-bath conveniently located next to the public areas.

The kitchens are done in a country French style and include a Wolf range, Sub-Zero refrigerator and Miele dishwasher.

Bedrooms are large and have a sizable walk-in closet adjacent to them.

Bathrooms include precision tile work and plenty of stone.

This first floor model unit (1 br, 1.5 ba, 1,678 sq ft) also includes a 300 sq ft patio area.

The 3,314 sq ft penthouse boasts one of the largest living spaces in a new building in Beverly Hills.

The mega-kitchen is a chef's or entertainer's dream.

The penthouse also has lots of outdoor patio space from which you can enjoy views of the tree-lined street.

Units are priced at $550 - $650/sq ft, offering excellent value for buyers seeking to live in this desirable Beverly Hills neighborhood. Bring your toothbrush, move right in -- these units are "done done done" and ready for your personal touches.

Sold by Coldwell Banker

8 Bankrupt Projects Shaping Downtown Los Angeles

There's plenty of good news to celebrate in Downtown Los Angeles residential real estate. A few major, recent, high-profile projects are more than 2/3 sold (Ritz Carlton at LA Live, EVO South, Rowan Lofts, Barker Block). Prices are off 20% or (significantly) more from their 2005 - 2006 highs. Downtown LA, ironically, is among the most affordable and most dynamic residential neighborhoods in the city.

However, what was conceived, purchased, and designed in the exuberant mid-2000s is now coming to market in maundering 2009. Developer equity has evaporated, bank loans are underwater, and some of these projects and their owners are facing Chapter 7 and Chapter 11 bankruptcy.

The Los Angeles Downtown News summarized the projects:

1. Concerto – 900 S Figueroa Street – All eyes are on South Park’s mega-project, Concerto. On August 29, a much-promoted auction attracted broad buyer interest and all 77 lofts units “sold” at the event – which was intended to fund construction of the uncompleted 271-unit tower. A few weeks later, developer Astani filed Chapter 11 after its major funder Corus Bank was taken over by the FDIC. The FDIC wants to get out of the auction contracts believing the sale prices were too low. A court ruling today makes it seem that the units may indeed get released to buyers.
   
2. The Roosevelt – 727 W Seventh Street -- The 222-unit Roosevelt, which was designed as a condo building, is now being leased. The website still advertises.”Have It All. Luxury condominium loft residencies from the mid-$500,000s to over $1,000,000. Planned Move-ins First Quarter 2009.”
3. The Flat – 750 S Garland Avenue – a former Holiday Inn was transformed into a 206-unit apartment building that also houses trendy dining spot Blue Velvet. Although the project is 90% occupied, the developer defaulted on its $23 million loan and filed for Chapter 11 protection. Ultimately, a judge allowed the bank to repossess the property.
4. 705 W 9th Street – Developer Meruelo Maddux, Downtown’s largest landlord, declared Chapter 11 in March and is going through reorganization. Despite the project’s woes, they are currently proceeding with leasing.
5. Title Guarantee Building – 411 W Fifth Street. This building opened two years ago as a rental and went into Chapter 11 this February.
6. Brockman Building – 530 W Seventh Street. Many may know this building as the home to Downtown hotspot Bottega Louie. The cost of updating the 80-unit office building rose from $16 million to $35 million early on, portending ill for the project. The developer filed Chapter 7 after defaulting on a $35 million loan.
7. Santee Village – 716 S Los Angeles Street. At the edge of the Fashion District, Santee Village, a hugely ambitious 780,000 sq ft, seven building development failed to achieve its sales goals. In April, the developer declared bankruptcy, exited the project, and its assets were sold off. The project has about 300 condo units and 150 rental units. One of the seven buildings is not occupied, and two are only 30% occupied.
8. Blossom Plaza Project – Broadway & College Street. Blossom Plaza was planned at the site of Little Joe’s restaurant, which had operated for 101 years at this site in Old Chinatown (but closed in 1998 because the owner’s couldn’t afford to retrofit the building). This transit-oriented project which received more than $9 million in public investment, was to include 262 apartments. The developer filed Chapter 11 and the project is now in the hands of original equity partner Morgan Stanley.

Although the failure of these projects has brought great distress to equity partners, banks and developers, the public that will benefit from the BKs through lower condo prices and a softer, more affordable rental market.

What's the Worry about Westside Los Angeles Real Estate?

Last week we took a look at market trends on the corridor between West Hollywood and Downtown Los Angeles. This week we're taking a look at market trends in the chunk of Los Angeles Westside, the highest priced markets in the city between Beverly Hills and the Beach.

The selected neighborhoods included Beverly Hills, Beverly Hills Post Office, Brentwood, Pacific Palisades, Santa Monica, Venice and Westwood - Century City.

There is currently a 3.2 months supply of inventory of homes priced under $1 million, the lowest level in more than two years. Under these conditions, buyers are forced to view properties and write contracts as they compete with other buyers who are also trying to get into these high-barrier-to-entry neighborhoods.

What is driving this decline in inventory? Record low interests rates, reduced prices, a higher supply of distressed properties, and a sentiment that the market is in the process of bottoming-out.

But the sales in these neighborhoods under $1 million account for only 17% of the market. What's happening in the market for houses selling for more than $1 million?

Current inventory is about 7 months, slightly below what it was two years ago. After a gut-wrenching decline in activity during the worst part of the financial crisis when inventory exploded to two or three years worth, we're now returning to normal levels of selling.

The big picture is that the home market collapsed and is recovering and now looks a lot like it did two years ago. The median selling price in these neighborhoods last month was $1,645,000 -- a scant $3,000 above the median selling price in September 2007.

With so much negative sentiment about residential real estate, the California economy, etc., it's surprising to see that the real estate fundamentals in high-end neighborhoods of Los Angeles remain strong.

Inside Market Lofts - What's For Auction November 14?

Market Lofts, located on 9th Street between Flower and Hope in Downtown Los Angeles, will be auctioning its remaining 55 units on November 14. Updated 11/16/09 -- We attended the auction. See how the day unfolded by clicking here. This hot neighborhood is near the LA Live entertainment district, which as of this week will be home to the new $100 million Regal Cinemas LA Live Stadium 14, one of the most expensive new theater complexes in the country.

We had a chance to tour the units and we like what we see. The Market Lofts complex has many walkways and is not enclosed like an apartment building. It feels like a retreat in the center of the city.

There's also a nice pool, which many units face.

The low prices alone should drive buyers to the auction. This 2nd floor 2 bedroom-2 bath unit with 1,583 sq ft has a starting price of $295,000 ($186/sq ft). Expect bidding to be intense, these prices are 40-50% below comps on a square foot basis.

The units have wood floors, concrete ceilings and a loft-like feel.

The one bedroom units range in size from about 750 - 1,000 sq ft. This unit is 754 sq ft and has a starting price of $140,000 ($186/sq ft). Again, expect the sale prices to be far above the artificially low starting prices.

The bedrooms have an alcove bedroom.

The bathrooms are located near the front of the unit.

Many of the units have balconies, and the views towards the Concerto Complex (sold out, but in reorganization) are excellent.

Market Lofts
645 W 9th Street
Los Angeles, CA 90015

Auction information click here

Los Angeles Real Estate Market Sheds Slack

Nationwide, there was a 9.6% increase in home sales in September, spurred by buyers rushing to make use of the $8,000 federal tax credit, which expires November 30 (and amounts to nearly 5% of the average US home price of $174,900). Prices are down (8.5% since last September), and the country's residential real estate market seems to be regaining its footing after faltering for over two years. [Bloomberg.com]

Of course, real estate markets are hyperlocal, and what's going on in Cleveland has little to do with what's happening in Los Angeles. The results are surprising: despite record layoffs, foreclosures and whittling of 401Ks, the market is tightening in Los Angeles -- and by many measures is a competitive one.

We looked at a central slice of Los Angeles that includes Beverly Center-Miracle Mile, Hancock Park - Wilshire, Hollywood Hills East, Los Feliz, Silver Lake - Echo Park, Sunset Strip - Hollywood Hills West, and West Hollywood, and examined the months supply of inventory over the past two years.

For single family homes over $1 million, there is currently a ten-month supply of inventory. The inventory has been trending down since the beginning of the year and now stands near two-year lows. In this price range, the market is not "hot" but has been consistently improving.

The under $1 million market tells a different story. Inventory has been trending down for two years, and there is now a 3.5 month supply of homes in these neighborhoods. This is a "hot" market characterized by motivated buyers who are pursuing a limited supply of homes. In many cases, there are multiple offers on properties.

Other signs point to the health of the market. Consider the median days on the market for all homes sold in the past three months in the following markets:

• Los Feliz -- 29
• Silver Lake - Echo Park -- 31
• Hancock Park - Wilshire -- 40
• West Hollywood -- 46
  
• Hollywood Hills East -- 56
• Beverly Center - Miracle Mile -- 60
  
• Sunset Strip - Hollywood Hills West -- 76

Even in the case of Sunset Strip - Hollywood Hills West, there is only a 2.5 month sale period.

Some forces may derail this recovery. Persistent high unemployment could curtail homeowners' ability to pay their mortgages. This may lead to an increased number of foreclosures, short sales and home sales on the market. This negative economic environment could sap buyers' appetite for making purchases.

Changes in the mortgage market where buyers benefit from record low interest rates could also dampen buyer enthusiasm.

On the other hand, nascent signs of economic recovery -- profits in the banking and high-tech sectors, a decrease in job losses, and a rise in the stock market -- could continue, supporting the housing recovery.

What do you think? A decade from now, will homeowners recount how they "bought in 2009" at the bottom of the market?

Market Lofts in Downtown Los Angeles Auctions 55 Units November 14

Paddle-weary buyers who got burned at Concerto's August auction (the project got mired in bankruptcy proceedings shortly after its one-day sale event) have another shot at purchasing a prime piece of the hot South Park neighborhood in Downtown Los Angeles. Updated 11/16/09 -- We attended the auction. Read how the event unfolded here.

Market Lofts at 645 West 9th Street (between Hope and Flower) is having a one-day auction event November 14 when they are selling the building's remaining 55 units. One bedrooms start at $140,000 and two bedrooms start at $200,000.

These units fee like lofts and have polished concrete floors and 9'4" ceilings. They also come fully-equipped. Italian cabinetry, Whirlpool stainless steel appliances, and Caesarstone or granite counters are all part of the standard package.

Building amenities include pool, spa and large, landscaped terrace. All of the 347 Market Lofts units come with 1 parking space (or 2 if the units are over 1,200 sq ft). HOA range from $468 for the smallest one bedroom to $709 for the largest two bedroom.

The building sits atop one level of retail, including a much-heralded Ralphs Fresh Fare. Coffee shops, eateries, and other amenities are right on site, making this one of the best-serviced areas of Downtown.

A joint effort of national builder Lee Homes and Hollywood-based real estate developer-investor CIM Group, Market Lofts have been marketed since late 2007. Sales of this project have dwindled to a trickle in recent month, curtailed by competition in the South Park neighborhood from big, bold (and now bust) Concerto and pristine, polished, and not-much-pricier EVO South.

This auction event has the potential to produce some of the lowest $/sq ft sales in prime Downtown. Stay tuned ...

Auction conducted by Kennedy Wilson Auction Group

Office Market: High Vacancies in SoCal; Lease Rates Down 47% in Universal City; Tenants Have Upperhand in Landlord Negotiations

(chart from Los Angeles Times)

No matter how the news is spun, the fundamentals of the Southern California office market are awful: firms have downsized, profits have all but disappeared, and businesses' motivation to expand or move is almost nil.

The office vacancy in the five-county region has risen from 13% to 17% in the past year -- 51 million sq ft of space is currently unleased. Even the primest markets have not been spared: office vacancies in Santa Monica rose from 10% one year ago to 15.4% last quarter.

The exodus from office buildings that started in late 2007 accelerated during the third quarter as the anemic business climate took its toll on the real estate rental industry, according to the Cushman & Wakefield real estate brokerage.

"These vacancies are a direct reflection on unemployment... Companies continue to reduce their workforce, or they are not hiring."

Troubled business owners facing expiring leases often choose to downsize these days and take less office space, even though rents are falling. [Los Angeles Times]

And rents are dropping. Rents in the Universal tower in Universal City, the tallest building in the San Fernando Valley, had been as high as $4.50/sq ft. After the property was taken over by the lender through foreclosure, new leases are being negotiated in the range of $2.40/sq ft -- a 47% reduction from the original levels.

Jobs are the panacea to the office market -- you need bodies to fill those cubes. Some stimulus-related businesses might pick up some slack (loan servicing companies to deal with foreclosure-short-sales-loan mods?), but hiring prospects for most firms are bleak. Recovery and absorption of the excess inventory could take years.

Commercial Real Estate in Downdraft: Orange County Office Building Down 63% in Two Years

To measure the decline in SoCal office properties we need only look at the sale of 3 Macarthur Place, an 11-story 1991 building in Santa Ana, California.

Tishman Speyer bought the property in 2007 at the peak of the real estate market for $83 million. The building was just sold to Highridge Partners, a Los Angeles real estate investor, for $31 million, an astonishing 63% drop in 2 years. The building is 78% leased. [Los Angeles Times]

We are bearish on the Los Angeles office market at present for the following reasons:

• There is already a glut of office properties in such key sub-markets as Santa Monica, Beverly Hills and Downtown Los Angeles. It will take years to absorb the vacant space.
• Existing businesses are downsizing. There have been the greatest round of layoffs in a generation.
  
• Demand for offices is waning. Increasingly, employees will telecommute and work mobilely. Lighting, heating/cooling, and cleaning spaces that will be occupied by employees for only a few hours a week is inefficient.
• Downsizing of personal space. Sergey Brin and Larry Page at Google share a modest office. Businesses of the future will be mean, lean and leave the egos behind. Offices turn into cubes, cubes turn into common work spaces. Days of the four-walled office are numbered.

What are the hopes for offices? A good prospect would be mixed-use projects -- buildings that are converted partially into condominiums. If you're working 24-7, skip the freeway and take the elevator home. And if you forget your briefcase, have the doorman get it.

Los Feliz Market: July - September 2009 - Robust Sales

The malaise in the high-end real estate market avoided Los Feliz during July - Setember 2009. Sales activity in this a neighborhood remained robust during this time. Forty-one homes sold with a median sale price of $864,000. One sale was for over $3 million, seven sales were in the $2 – 3 million range, and seven sales were in the $1 – 2 million range.

As a sign of the neighborhood’s real estate health, we can look to the sevens sales between $1 and 2 million. Currently, there are only twelve houses in this price range on the market – a scant five-month supply of inventory.

Four sales were short pays and one was a bank-owned property. All of the distressed sales were for $675,000 or less.
The highest priced sale, 2301 Chiselhurst Drive, gives us an idea of how the $3 million segment of the Los Feliz market fared through this decade. This 1937 traditional estate with 5 bedrooms, 5.5 baths, 5,300 sq ft of living area on a 19,650 sq ft lot, sold for $3,050,000 in July 2009, only 13% above its Sept 2001 sale price of $2.7 million.
Buyers’ fervor to purchase architecturally pedigreed homes in Los Feliz has not abated. 4520 Dundee Drive, a 1966 Edward Fickett Post + Beam home (also a registered cultural monument) sold in three days at $2,445,000, just off its $2.5 million asking price. The house has 3 bedrooms, 2 baths, 2,926 sq ft of living area on a 13,500 sq ft lot.
Fixers – even major projects – are still finding avid buyers. 2421 N Catalina Street, a 1923 Mediterranean estate with a colossal 5,112 sq ft of living area on a 20,040 sq ft lot sold for its $2,050,000 asking price after eighteen days on the market.
But all properties are not alike, and some “chased the market down”. 4838 Los Feliz Boulevard, 1987 construction on a busy thoroughfare, was originally listed for $2,599,000 in September 2008. The house has 3,471 sq ft of living area on a 11,466 sq ft lot and pool. It eventually sold in August 2009 for $1,501,000.


One sale illustrates how the Los Feliz market has held up remarkably well in the $1 million price range. 3205 Lowry Road a 3 bedroom, 2.5 bath house on a 7,405 sq ft lot sold for $1,069,000 in February 2008. It was resold for $985,000 in September 2009. Over the past eighteen months, as the meltdown in the financial markets brought the world to its feet, the price of this little piece of Los Feliz fell only 8%.

90% of Multifamily Investors to Increase Acquisition in 2010

The multifamily sector may be seeing a brighter future in 2010, according to Jones Lang LaSalle's 2010 Multifamily Forecast Survey:

90 percent of the 200 owners and operators surveyed plan to boost their activity in the sector next year, compared to the 68 percent of respondents who had such plans last year.

Research reports support the conclusions of the survey regarding growing investor interest in acquisitions. "A tremendous amount of capital waiting for well-priced, quality assets to be offered for sale has been accumulated, and many investors have begun to move off of the sidelines," Marcus & Millichap Real Estate Investment Services reported in its National Apartment Outlook report, released this month. [Multihousing News Online]

One area which is not galvanizing interest is development or redevelopment. Opportunistic or value-add plays are likely to attract the greatest investment. 80% of investors say they're interested in the Southwest while an astonishing 100% of investors say they are not likely to consider investing in the Midwest.

Rowan Lofts @ Spring and 5th Brings 1912 Luxe to Downtown Los Angeles

Rowan Lofts, a 206-unit condo building in the historic core of Downtown Los Angeles is now over 67% sold (updated 3/30/10). This conversion of a classic office building still has many excellent one bedroom units for under $350,000 and studios for as low as $229,000 -- Bosch appliances included.

Sample units for sale (updated 3/30/10):

#1007 - studio - 546 sq ft - $260,000
#302 - 1 br, 1 ba - 844 sq ft - $329,000
#507 - 1 br, 1 ba - 890 sq ft - $400,000
#702 - 1 br, 1 ba - 844 sq ft - $365,000
#816 - 1 br, 1 ba - 841 sq ft - $355,000
#715 - 1 br, 2 ba - 1004 sq ft - $419,000

Located in the The Old Bank District (bounded roughly by Spring and Main, 4th and 5th), Rowan Lofts offers some amazing views of the 1929 Moderne Old Stock Exchange Building and other citadels of high-finance in the early part of last century

Built in 1912, the lobby has polished marble floors and hanging chandeliers and is a throwback to a simpler, more genteel era.

Stroll through the hallways with a martini and a Lucky Strike and feel like you're on a movie set from the classical Hollywood era.

The original brickwork and the Guatemalan mahogany windows have been preserved. Ceilings, which are suspended from the story above to provide maximum sound insulation, are 10' high. Windows are not double-paned.

Units come with Bosch range/oven and microwave. Floors are engineered maple. Cabinets come in brown and light yellow.

Milky white cabinets with metal trim and black pearl granite are featured in this bathroom.

One of the best things about Rowan Lofts is what's to come. In January 2009, the developer sold the lot adjacent to the Rowan (above) to the City of Los Angeles for $5.6 million and within 18 months it will be a 3/4 acre park. Many of the Rowan units look onto what will be beautiful green space. Gramercy Park comes to Los Angeles?

Updated 3/30/10. Across the parking lot (soon to be park!) is the El Dorado Lofts, a converted 1914 hotel with incredible, Craftsman-era touches. 47 of its 65 units will be sold at auction on April 25, 2010.

Because the Rowan Lofts is an adaptive reuse project, buyers are eligible for Mills Act Property Tax abatement of approximately 70%. This amounts to a $240 monthly savings on a $350,000 unit. Parking of $150/month is not included with the purchase -- residents park in a security-protected lot behind the building.

Wells Fargo and Bank of America are in-house lenders, and offer some downpayment options as low as 5%. FHA loans are not allowed, because of the units' live-work status.

Sold by the Rowan Lofts.

8% of FHA Loans Delinquent in June: Is the FHA the Next Bail-Out?

As recently as 2007, anyone who could fog a mirror could get a home loan. Everything changed with the subprime mortgage meltdown, as underwriting guidelines for conventional loans went from extremely loose to extremely stringent, whereby only the most qualified applicants with verifiable income and high FICO scores were able to get home loans.

As conventional loans became less available, FHA loans -- those insured by the Federal Housing Administration -- have provided an important alternative for borrowers with low FICO scores or a small downpayment. Under FHA guidelines, buyers with FICO scores as low as 620 or a downpayment as low as 3.5% of the purchase price (with a seller credit of up to 6% allowable) are all eligible for home loans.

Not surprisingly, the percentage of buyers using FHA loans has risen from 6% in 2007 to 22% in 2009. But as the delinquency rate on FHA loans rises, some question whether FHA loans will lead to the next round of either a bubble or a bust market, as money is made available to buyers with less-than-average credit histories with little skin in the game.

Just as in the boom days, some buyers might be tempted by the "easy money" available through the FHA (some buying with no downpayment -- and a 2.5% credit towards the purchase price, coupled with an $8,000 federal homebuyer's credit). These buyers may simply be unable to meet their loan obligations -- and may be the next round of walk-aways if values do head south.

Some lawmakers, however, worry that the FHA may be doing its job too well -- enabling too many people with shaky finances to get loans, and in effect setting up a potential repeat of the housing bubble fueled in part by no-questions-asked subprime loans.

Recent numbers appear to underscore those concerns. The percentage of FHA loans that are delinquent or in foreclosure climbed to nearly 8% at the end of June, from about 5.5% in early 2006, according to the Mortgage Bankers Assn. And in the weeks ahead, its reserves for loan losses are projected to slip below federally mandated limits. [Los Angeles Times]

The FHA is not giving away freebies, and buyers are "taxed" to get these loans. Mortgage insurance is required (about $46/month for each $100,000 of loan) and a fee of 1.75% of the loan amount is due at closing. And these loans have played a critical role in stabilizing the real estate market. But there is a risk that the FHA loan pool will be the next round of pain in the challenged real estate sector.

"It's not the least bit implausible to be concerned about the ever-deteriorating performance of the FHA portfolio," said UCLA finance professor Stuart Gabriel, director of the university's Ziman Center for Real Estate. "The jury is out as to whether the FHA is going to need a government infusion."

Anemia in the Overnight Business: California Hotel Sector on Sick Leave

It's anyone's guess which real estate sector is delivering the worst performance in 2009: retail, industrial or hotel. (The consensus is that, at least in the Los Angeles area, the multifamily sector is outperforming the other three for the simple reason that population is stable and there is no substitute for a roof over one's head.)

Retail is suffering because of the dismal consumer outlays for purchases of all stripes. Industrial is cratering because of diminished economic output. And hotel is feeling the pain because business travelers and ordinary citizens are shunning overnight stays due to budget tightening at firms and family's 'staycations' and curtailed disposable income.

By many measures, the hotel industry in California is looking particularly anemic and heading for the sick bay.

More California hotels are being pushed into foreclosure as tourists and businesses alike scale back their travel plans and owners are unable to pay their mortgages.

Statewide, more than 300 hotels were in foreclosure or default on their loans as of Sept. 30 -- a nearly fivefold increase since the start of the year...

The list of troubled properties includes the St. Regis Monarch Beach in Dana Point, the downtown Los Angeles Marriott, the Sheraton Universal and the W hotel in San Diego.

Most struggling hotels remain open, but industry experts believe many properties are likely to be closed down in the months ahead, even if they are not in foreclosure, because they are losing so much money. The owners of the renowned Quail Lodge Resort and Golf Club in Carmel, for example, plan to close the hotel Nov. 16.

"I have never seen so many lenders contemplating mothballing properties," said Jim Butler, a hotel lawyer and chairman of the global hospitality group for Jeffer, Mangels, Butler & Marmaro. "It can and it will get worse for the hotel industry."

The problem is not unique to California, but the effect is being felt especially hard here because of tourism's importance to the state. [Los Angeles Times]

These are some chilling statistics that should send a frisson down the spine of any hotel owner, operator, loan servicer or lender. One in five hotels is expected to be in default by 2010.

How did we get into this mess? The origins are similar to those that contributed to the housing market bubble. Hotel asset prices escalated dramatically during the boom and many owners refinanced or took out equity when it seemed values could only go up. But hotel loan maturities are five or ten years, and notes made during the real estate heyday are coming due during the bust. Refinancing prospects for many of these properties look dim.

Buzzwords associated with the residential market -- upside down owners, foreclosures, lenders providing forbearance and loan modifications -- are now the lexicon of the hotel sector. But instead of displaced and distressed families we now have equity-starved national chains, down-in-the-dump REITs, and operators of major hotel establishments returning keys to loan servicers.

There is only one panacea to the challenging California hotel environment and that is time. Between now and the period of recovery (which may be several years off), there will be inevitable foreclosures, loan workouts, sales of distressed assets -- and yes, even some hotels scraping by by cutting costs and retooling their branding and business models. (One innovative idea is dropping 'Resort' from the hotel name so that expenses from these establishments can be approved by cost-conscious corporate managers.)

The Golden State, through all its booms and busts, never seems to lose its luster. Whether it concerns hotels by Lake Tahoe, Big Bear or Beverly Hills, travel will resume and hotels will again turn profits. But expect some changes afoot, with luxury hotels falling out of favor. Maybe an "Economy Shack" chain coming soon?

Buyers Willing to Pay 2% Premium for Green Living

There's plenty of brouhaha surrounding everything green and eco-friendly in residential building. Developers of new projects tout their energy-efficiency, non-toxicity, and sustainability just as granite counters and mega-closets were promoted earlier this decade.

Hybrid cars and reusable shopping bags have inspired passion in consumers. But what about green homes? The builders are building them, but will the buyers come?

According to the National Association for Homebuilders, buyers like everything green, but when it comes to signing on the dotted line, they're not willing to pay much of a premium.

"Although we are seeing significant interest in green building, cost effectiveness is clearly a key concern among buyers. Builders said that among buyers who are willing to pay more for green features, more than half—57 percent—are unlikely to pay more than an additional two percent." [Multi-Housing News]

That's not much of a margin. Since consumers won't pay big bucks for green living, the burden may fall on governmental forces in order for sustainable projects to become widespread.

One of the leaders in promoting green building has been West Hollywood, with one the strictest green ordinances in the country. The city requires drought-resistant landscaping, energy-efficient appliances, and low VOC paint in any new buildings or renovations.

Green projects are cropping up all across the city. EVO South in Downtown Los Angeles is the city's first LEED Silver-certified building. The feeling of walking into this pristine, 24-story high-rise with all new surfaces -- that doesn't smell like a glue factory -- is a surprising, and pleasant one.

Venice Market: June - Sept 2009

While there seems to be heavy erosion in the Hollywood Hills home market, what's the drift at the beach?

All things considered, Venice seems to be the paragon of stability. In the past four months there were fifty home sales, including one for over $5 million, four for $2 - 3 million, and seventeen for $1 - 2 million. During the June - September period, the median sale price was $900,000. Currently, there is a scant seven months of inventory.

Venice is a hot market. Walk down the blocks north of Abbott Kinney and see the construction, with some owners rehabbing properties and others building new. The hip, laid-back life west of the 405 freeway never loses its appeal. C'mon, it's the beach!

Here are some sales from June - September 2009:

An eye-popping sale closed at 1311 Abbott Kinney. This 5 bedroom, 5 bath pad on a postage stamp-sized 3,397 sq ft lot sold for $5.6 million. That's well below its January 2008 $9.9 million asking price, but $5.6 million is a princely sum in the Los Angeles real estate market today.
The canals had some high-priced sales. 242 Sherman Canal, 2008 construction with 3 bedrooms, 3.5 baths and 3,580 sq ft of living area, sold for $2.9 million. Two houses on Linnie Canal sold for $2.38 million and $1.89 million.

The pedigreed architectural project -- even with land purchased at 2006 prices -- is still alive and well in Venice. 743 Palms Boulevard, purchased in 2006 for $1.25 million, was formerly the site of a shambling bungalow. The site was redeveloped with a Marmol-Radziner 2,878 sq ft beach shack with 3 bedrooms and 2.5 baths, and for $2.1 million three years later.

2009 is by no means 2006 and we estimate that values for properties priced $1.5 million and under have fallen 10 - 15% since the peak of the market. (And more for higher-priced properties.) 29 29th Avenue, a 3 bedroom house about 50 yards from the beach, sold for $1.67 million in October 2006. It was resold in July 2009 for $1.51 million, a 9.3% reduction in price.

887 Commonwealth Avenue was also sold in 2006 and again in 2009, except in this case the second sale was a foreclosure. This 2 bedroom, 1 bath home sold for $690,000 in November 2006 and was resold for $575,000 two and one-half years later. This is a 16.7% reduction in price, but some of this loss can be attributed to its sale as a distressed property.