Jumbo Loans - Lowest Rates in 5 Years, Lending Requirements Loosened; National New Home Sales Fall to Record Lows

News about the housing market is erratic. First there is favorable news (Los Angeles rated #7 housing market in nation in 2009 -- prices flat!) and then some dispatches of not so good news. But first, a little more good news.

Last week, jumbo loans rates were around 5.79% -- down from above 7% in 2008 -- the lowest rates in 5 years. (In Los Angeles County, jumbo loans are above $729,750.) Some lenders have also reduced downpayment requirements for jumbo loans from 25% to 20%. "Stated income" loans are also reappearing on the market after being almost absent from two years.

How will this affect the Los Angeles market? In a big way. One reason for the decline in home prices in the $1 million + range is the lack of financing available to qualified buyers. Stories abound about high-earning individuals with substantial assets and excellent credit being denied loans which they could easily afford. As panic has subsided, lenders are tiptoeing into the jumbo loan market which should provide much-needed support to the upper housing tier.

Before we start kvelling about a housing recovery, we must also consider what's happening on a national level. New home sales in January 2010 fell to a record low of 309,000 homes annually -- the lowest number since records have been kept (starting in 1963!) Mortgage applications in January 2010 also fell to the lowest level in 13 years.

In spite of continued government stimulus, the housing market is afflicted by consumers' woes: high unemployment, high debt loads and plenty of uncertainty. Although it is our belief that each month the housing market moves towards recovery -- it is still ill, weak and at best going from the ICU to bed rest.

Investor Watch: Tiptoe into Commercial Real Estate

Investor attitudes towards commercial real estate may be changing from toxic to opportunistic.

According to the New York Times, financial advisors are recommending that those who have an appetite for real estate investment look for some distressed, discounted properties, as real estate may present "tremendous opportunities".

Passive investors may want to allocate funds to REITs. Active investors might want to purchase a building or the underlying debt of a property in distress.

We may have crossed the threshold where a market that had been in steep decline is creating an economic upside in its aftermath.

Los Angeles High-End Homes On Chopping Block: Price Cuts Inevitable as Buyers' Ranks and Means Thin

Price reductions were once the province of only low-priced homes that were forced to compete with foreclosures.

Not anymore. The bubble has burst in a big way and now high-end properties are competing with high-end foreclosures, short sales, and properties whose owners are in distress.

Over-leveraged high-end homeowners who had pushed themselves to the limit of affordability are also finding they have to sell in time when a dollar (or a million) has been revalued.

To take a few examples in the Sunset Strip area:
1380 Mockingbird Place - Listed for $29,500,000 in March 2009. Now $21,950,000. 26% reduction.
1235 Sierra Alta Way - Listed for $22,000,000 in October 2007. Now $9,900,000. 55% reduction.
1754 Sunset Plaza Drive - Listed for $19,800,000 in April 2009. Now $13,995,000. 30% reduction.
9066 St Ives Drive - Listed for $8,495,000 in June 2009. Now $6,595,000. 22% reduction.
1162 Sunset Hills Drive - Listed at $8,500,000 in April 2009. Now $5,895,000. 31% reduction.

Although high-end properties are notoriously difficult to price, they become doubly so during the current market because of a lack of sales comps and a dynamic market that seems to be heading in only one direction.

Sellers who don't price aggressively run a serious risk of "chasing the market down" and always remaining above the current market price, even after a price reduction.

Many well capitalized buyers will be able to weather the storm and not sell at distressed levels. Others won't be so lucky.

[See "High End Home Sellers Lower Their Sights", from Saturday's Los Angeles Times.]

West Hollywood's Movietown Plaza Brings 294 Condos, 76 Apartments and Retail to Eastside

Within a few years, Movietown Plaza, a dumpy, old strip mall at 7300-7328 Santa Monica Boulevard will be transformed into a dense, mixed-use complex housing 294 condominium, 76 affordable housing units, and retail fronting Santa Monica Boulevard.

 Updated 10/14/11: Curbed LA reports that the Movietown Plaza development site is up for sale and will not go forward in its current incarnation because of unaligned goals among development partners Casden Properties, AIMCO and Cerebrus LP.  

Pity that this project creates a retail "black hole" in an otherwise bustling part of the city.

This week the West Hollywood city council dissented with the city planning's recommendation to reject the project and approved Casden Properties plan that includes a nine- and ten-story tower. Concerns included the impact on traffic, congestion and parking in an area which is seeing a burst in development.

Don't expect to zip from Beverly Hills to Hollywood on Santa Monica Boulevard -- the cumulative effect of these developments will cause major increases in traffic. But the eastside of West Hollywood is in need of revitalization, and this kind of major project will anchor residential and commercial activity in this central, Hollywood-adjacent area.

Major changes are afoot in WeHo, and it is rapidly being transformed from a horizontal city with lots of sky to a vertical, dense city -- like every other major metropolitan area in the world.

Beverly Hills Development Watch: Developers of 9900 Wilshire Surrender 8-Acre, $500 Million Site to Bank

We hear so much about foreclosures, short sales and "cash for keys" that it almost seems common course that banks repo real estate for which owners are in default. But we forget that sometimes these distressed properties have some very big price tags.

Like $500 million, for example.

Today, the posh British development team Candy & Candy and Iceland’s Kaupthing Bank will hand back ownership of 9900 Wilshire Blvd in Beverly Hills to a bank controlled by Mexican billionaire Carlos Slim. The developers had defaulted on their $365.5 million loan, which had been one of the largest transactions in Los Angeles County.

This 8-acre site, formerly home to the Robinsons-May Department store, was to be home to 235 super-luxury condominums designed by Richard Meier. Candy & Candy had successfully promoted similar developments, such as One Hyde Park in Central London.

But times change, and the project never got past the drawing board. We believe even more money could have been lost if the project saw the light of day and its multi-million dollar condos were languishing on the market. And whoever the new owner is will have a lower cost-basis and the ability to set prices at realistic levels.

There were signs that the $500 million price tag was perhaps a tad inflated: the property sold for $33.5 million only three years earlier.

[Beverly Hills Gets Waldorf Astoria, Luxury Condos, and Bump in Traffic]

Los Angeles County Loses 154,000 Jobs in 2009 but Region Sees "Green Shoots" of Recovery: Jack Kyser of the Los Angeles Economic Development Corp.

In advance of the Los Angeles Economic Development Corp. 2010-2011 Economic Forecast & Industry Outlook, Chief Economist Jack Keyser gave a snapshot of the region:

• Los Angeles County lost 154,000 jobs in 2009
• LAEDC expects “measured recovery” where certain sectors come back but others lag
• The local economy has hit bottom and there are "green shoots" of recovery that include an increase in international trade, a rise in film, TV, and commercial production thanks to a state film incentive, and major infrastructure projects that include the renovation of the Tom Bradley Terminal at LAX, the widening the 405, and the development of the Expo line
  
• The city has a $212 million deficit, retail sales are way down, tourism is down, and property tax has plummeted due to decline-in-value reassessments
• Budget problems are expected to linger for several years
• Downtown, a lot of residential projects are in financial difficulty, but the opening of the Convention Center hotel should bring more people to Downtown LA
• Demand for more office space Downtown is “problematic”

Although this is far from a rosy assessment of the local economy, at least there are "green shoots" and not 'dying seeds'. If the economy is at the bottom (or somewhere near the bottom) the expectation is that month by month, the local economy is improving and the jobs will follow. [Los Angeles Downtown News]

Hancock Park - Wilshire Median Home Price Declines 27% to $880,000 in 2009; But Ahmanson Estate Sells for $10,000,000

The Hancock Park - Wilshire neighborhood is bounded by La Brea - Western - Melrose and Pico (entire colored area.) It includes Hancock Park (turquoise, which is a City of Los Angeles Historical Preservation Overlay Zone), Windsor Square (purple) and other diverse neighborhoods (yell0w.)

It's hard to imagine that this land was once dotted with oil fields.

Hancock Park was developed in the 1920s, by the Hancock family, with profits earned from oil drilling in the former Rancho La Brea (much of which is now the Miracle Mile district). Hancock Park owes its name to developer-philanthropist G. Allan Hancock, who subdivided the property in the 1920s. Hancock, born and raised in a home at what is now the La Brea tar pits, inherited 4,400 acres (18 km²), which his father, Major Henry Hancock had acquired from the Rancho La Brea property owned by the family of Jose Jorge Rocha.

Some 71 oil wells were operating at capacity on the land from 1905 to 1910. Nine years later Hancock subdivided the property into residential lots. He leased 105 acres (0.42 km²) to the Wilshire Country Club with an option to buy. The Hancock Park development was started on Rossmore Avenue and moved west to Highland Avenue in 1921. [Wikipedia]

The median sale price of a home in the Hancock Park - Wilshire neighborhood rose from $1,150,000 in 2006 to a peak of $1,209,000 in 2008. In 2009, the median sale price dropped 27% to $880,000. This decline in median price following the burst of the real estate bubble is parallel to those found in other neighborhoods.
The highest priced sale in 2009 was $10,000,000 for the Ahmanson estate at 401 S Hudson Avenue. This 1.5 acre property includes a house with 8 bedrooms, 12 baths and 14,071 sq ft of living area. It had been on the market 340 days and sold at a 20% discount to its $12,500,000 asking price.

Other 2009 sales include 68 Fremont Place, a remodeled Paul Williams manse, that sold for its $5,995,000 asking price. The property includes an 8,544 sq ft house with 7 bedrooms and 8 baths on a 21,475 sq ft lot.
210 S Windsor Boulevard in the Windsor Square neighborhood sold for $3,700,000. This 1924 construction includes 4 bedrooms, 5 baths and 7,242 sq ft of living area on a 12,340 sq ft lot.

515 Lorraine Boulevard sold for $3,260,000. It has 6 bedrooms, 5.5 baths, 6,843 sq ft of living area on a 16,200 sq ft lot.

Not every property in this area is a polished estate. Many foreclosures, short sales and distressed properties changed hands, resulting in the significant decline in median sale price. This bank-owned property with 2 bedrooms, 1 bath, 1,518 sq ft of living area on a 7,000 sq ft located at 600 N Lucerne Boulevard sold for a mere $305,000.

2010 Apartment Report: "Sales Velocity Gaining Momentum as Cap Rates Tick Higher; Worst over for Operations", Marcus & Millichap

Marcus & Millichap's "2010 National Apartment Report" shows improvements in the Los Angeles multifamily market. In 2009, collapsing rents, plunging values, and unavailable credit shocked the system sending transaction levels to all-time lows. In 2010, the apartment market looks towards recovery.

1. Los Angeles employment is forecast to improve in 2010: "Following a loss of 115,000 jobs in 2009, payrolls are forecast to expand by 0.3 percent this year, with the addition of 13,000 positions."
2. New Los Angeles rental inventory remains slim: "Rental completions will slow to 1,550 units in 2010, a 0.2 percent addition to inventory."
3. Los Angeles rents are down: "Asking rents are expected to fall to $1,335 per month in 2010, [a] decline of 2.8 percent."
4. National ranking: Los Angeles rises two positions to rank #13 of 41 national markets, "due to forecasts for continued low vacancy and slight job gains."
   
5. Westside rental market: "Space demand will stay relatively steady in the Westside Cities, although owners will likely have to trim rents further to retain tenants."
6. Purchases increase: "Investment activity in Los Angeles County gained momentum during the fourth quarter of last year as buyers sought to acquire institutional grade assets that rarely change hands."
7. Local cap rates: "Cap rates range between 6 percent and as high as 7.5 percent for older Class C assets or properties in less desirable locations."
8. Los Angeles -- upside potential: "Assets in the area could present attractive long-term upside potential as metro-leading population growth over the next five years ultimately will support renter demand and revenue gains."
9. Financing favors multifamily: "Apartments will maintain a financing advantage over other property types in 2010 due to the availability of debt from Fannie Mae and Freddie Mac."
10. "Bright" apartment fundamentals: "The extended forecast for apartments remains bright, supported by a pullback in construction and permitting, burn-off of excess housing inventory, receding homeownership rates, and favorable demographics.
    

The "Los Angeles" referred to in this memo is wide and diverse area. Neighboring areas like Los Angeles Westside and the San Fernando Valley will differing prospects (deeply discounted rents and low vacancies on the Westside; moderately lower rents and very high vacancy in the Valley.)

The deep distress in the residential market has not (at least yet) spilled over to the multifamily market as long-term, well-capitalized investors weather the storm.

4th Quarter 2009 Hollywood Multifamily Sales: Foreclosures and Short Sales Dominate Market

Foreclosures and short sales drove the Hollywood income property market during the 4th Quarter of 2009. 10 of 13 sales were distressed properties and 11 of 13 of them sold for $670,000 or less. It is difficult to evaluate this market in terms of traditional investment property metrics since nearly all are value-added opportunities.

The highest sale was 1811 Wilcox Avenue, a vacant 12 unit building (8 singles, 4 two-bedrooms), which closed at $1,475,000. This fixer in central Hollywood shows that investors often see more value in vacant buildings rather than occupied ones saddled with below-market rents.

1807 Grace Avenue, an 8 unit building (4 singles, 4 one bedrooms) sold for $1,115,000. Annual income is $104,643, giving a GRM of 10.7.

4327 Burns Avenue shows the kind of value-added opportunity that investors are seeking. This 8 one-bedroom bungalow complex from the 1920s in East Hollywood has lots of deferred maintenance and sold for $550,000. But with $73,872 in annual income, the Gross Rent Multiplier is 7.5, far below any comparable property.

Beverly Hills Market 2009: $2,870,000 Median Sale Price Down 20% From 2007, But Prized Land in Flats Sells for $13.4 Million Per Acre

Beverly Hills is perhaps the best branded neighborhood in Los Angeles, known far and wide as the oasis of palm trees and luxury living.

Beverly Hills, however, is not immune to the ills of the real estate market, and has been subject to the same boom and bust cycle of the recent years.

The median home sale price in Beverly Hills in 2009 was of $2,870,000, down 20% from the high of $3,600,000 reached in 2007.

This drop in prices is less dramatic than in neighboring areas such as the Hollywood Hills, which saw a decline in median price of 25% since 2007.

The median condo sale price in Beverly Hills last year was $800,000, down 12% from the high achieved in 2006.

The number of home sales in Beverly Hills have been declining steadily since 2004. Last year sales volume was only 45% of what it was during 2004.
What sold in 2009? Most properties that change hands are not rehabbed, gleaming gems, but out-of-date teardowns or fixer-uppers that will be upgraded by their new owners.

And there is plenty of interest in the Flats. 808 N Camden Drive, a 5 bedroom, 4.5 bath, 3,334 sq ft house on a 12,800 sq ft lot (with two guest houses) sold for $3,471,000, $276,000 above its asking price, in 15 days.

A teardown at 825 N Roxbury Drive on a 22,310 sq ft lot, sold for $3,825,000, slightly below its $4 million asking price, in 13 days.

623 N Maple Drive, a 5 bedroom, 6.5 bath, 5,549 sq ft 1925 Spanish estate on a 16,150 sq ft lot sold for its $6,495,000 asking price in 13 days.
Beverly Hills, with its lofty prices and the grand ambitions its landowners, has also experienced pockets of distress. This development opportunity at 631 N Crescent Drive sold for $6,500,000 as a short sale in October 2009. The site is 34,580 sq ft, pricing the land in this neighborhood at $8.2 million per acre. The property previously sold in March 2008 for $7,900,000.

Another teardown on a one acre lot, 424 Robert Lane, just south of Trousdale Estates, sold for $7,350,000, below its $7,900,000 asking price.

Want to live on Rodeo Drive? It's going to cost you. This Colonial teardown on a 31,000 sq ft lot near the Beverly Hills Hotel sold for $9,500,000 -- or $13.35 million an acre.