Commercial Real Estate, Executive Insight Series, Industry News, Twin Cities Real Estate

Executive Insight Series: Mike Ohmes

Discussion Topics

The CRE Cycle – Are we headed over the top?

Working in the new consolidated CRE environment

Mike Ohmes, Cushman & Wakefield

Executive Vice President, Brokerage

Earning an undergraduate Bachelor of Arts degree in economics and speech communications from Macalester College in St. Paul and an MBA from the Carlson School of Business at the University of Minnesota, Mike Ohmes has a wealth of commercial real estate experience from a broker to a manager.

Today as Executive Vice President Mike Ohmes is responsible for leading Cushman & Wakefield’s Transaction and Advisory Services business. This group includes the company’s Brokerage, Capital Markets and Real Estate Advisory.

Since joining the Cushman & Wakefield in 1991 as a broker in the office division, Ohmes consistently was among the top producers. He has received the company’s Offshore Club designation for his performance a total of 7 times (each year from 1993-1999). In 2000, Ohmes earned the company’s President’s Award for his outstanding contributions to the company, and in 2003, he was recognized by The Minneapolis/St. Paul Business Journal as one of their “40 Under Forty.”

The Shenehon Center for Real Estate is proud to present this opportunity to gain insights into the commercial real estate industry. Founded in 2000, the Shenehon Center for Real Estate looks to provide both resources and a public forum for real estate industry professionals and the public.

Executive Insight Series - Shenehon Center for Real Estate

When:

Tuesday, November 28th, 5:30PM

Where:

University of St Thomas, Minneapolis Campus

Shulze Hall, Room 127

Interested?

REGISTER HERE

 

 

Minneapolis / St. Paul Housing, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

UST Housing Index: “It’s Not Your Father’s Housing Market Anymore”

The September Residential Index report from the Shenehon Center for Real Estate came out last week. Mr. Tousley, director of the Shenehon Center, was not surprised by the continuation of the supply glut, but in this latest report, he pointed out that the housing market is now being driven by the Millennial generation and Generation Z. Some key takeaways,

  • Over half of home sales this year have been to people 36 years old or younger
  • Home price appreciation continues to outpace income growth
  • Inventory remains significantly below demand
  • Price and inventory are affecting the “typical” renter

As seen in Minneapolis, many major cities are being pressed by a combination of decreased household sizes, sociocultural trends for “more” space, and an influx of people coming to live in the cities not seen since the 1940’s. The report states, Millenials and Generation Z’ers while interested in buying Continue Reading

Affordable Housing, Development, Housing, Housing Trends, Minneapolis / St. Paul Housing

Affordable Housing (Part 2)

According to Minnesota Compass, 48.4 percent of Minneapolis households are overburdened by housing costs. To explain, these households pay more than 30% of their gross income towards housing. Just for reference, a house in Minneapolis is averaging around $200,000 which for a first time home buyer with 10 percent down payment amounts to a monthly mortgage around $1,400 including an estimates for coverages and taxes.

There are many factors affecting this overburdened number. According to a Minneapolis City Council housing report, the city’s current population [approx. 412,000] has not been this high since the 1970’s which is still lower than the peak seen in 1950 [reported 521,718]. Further exacerbating the issue is the fact that there are about the same amount of units today as in 1950 in conjunction with a decrease in average household size. In 1950, it was roughly 3.3 persons per household compared to today’s 2.3 persons per household.

The most recent residential housing report from the University of St. Thomas and the 2017 Housing Market Comprehensive Analysis by HUD, give evidence that the cost burden is a result of the simple economic principle of supply and demand. The influx of demand for housing within Minneapolis has increased the risk of displacement. Housing prices are up year over year and there remains record low vacancy levels of 4 percent. Talks with a political liaison, Mark Stenglein, and local developer and founder Bob Lux of Atalus, LLC, reinforced the challenges to affordable housing Continue Reading

Minnesota Real Estate Hall of Fame

Minnesota Hall of Fame Inductees Announced!!!

The time has come, the 2017 Hall of Fame inductees have been announced. Congratulations to Ralph Burnet, Jack Rice, and Howard Shenehon!

Join in the recognition of the accomplishments Burnet, Rice and Shenehon have done for Minnesota real estate. Members of the Minnesota Real Estate Hall of Fame are chosen for their outstanding business performance, high standards of ethics and community activities. The three new members are:

 

Register Today

Ralph Burnet

Ralph began his real estate career at Bermel Smaby Realtors. After leaving Bermel Smaby Realtors, he started his own realty company, Burnet Gagner Realty and built it to the largest in the Twin Cities. In 1983, Burnet merged his company with Merrill Lynch and for the next 7 years Burnet served as its Eastern Regional President. But when Merrill Lynch Real Estate was sold to Prudential in 1990, Burnet and his partner Dar Reedy bought back the Minnesota-based company. In 1996, Burnet expanded into the Chicago market, merging with Prudential Preferred Properties of Chicago. By 1998, Burnet Realty had grown to the 4th largest residential brokerage in the United States, and expanded though merging with the Coldwell Banker name. Today, Coldwell Banker Burnet is one of Continue Reading

Affordable Housing, Development, Economics, Home Prices, Housing, Minneapolis / St. Paul Housing, Residential Real Estate

Affordable Housing: Misconceptions (Part 1)

Affordable housing is and has been a buzzword in the real estate industry for years. It carries many misconceptions. Let’s clear up these misconceptions before going further.

  • First, affordable housing is not typically affordable to everyone. It is affordable in that rent or sale value is reduced from market rates in order to allow individuals and families below the median income level to not be “overburdened” by rent or mortgage payments.
  • Second, the majority of people assisted HAVE jobs and ARE productive members of their communities in which they reside. The idea that affordable housing induces crime and the lowering of community home values, to name a few, is false.
  • Third, affordable housing is just like any other rental or purchase agreement with the addition of a historical income check. Owners and tenants undergo credit checks and asked of employment. Just in case you weren’t convinced when I stated earlier that a majority of affordable housing owners and tenants are employed.

 

So, why is this topic being brought up? Of almost 116 million households surveyed by the 2013 American Housing Survey, 36 percent are by definition overburdened by housing costs. To be overburdened by Federal government definition, a household must pay more than 30 percent of their yearly income. There are multiple perspectives to even this number, but before “Part 2” of this discussion, we ask the reader to do some research.

Do you think more affordable housing is needed? Is it a policy issue? Is it a supply and demand issue?

 

Our reason to talk about affordable housing is simple. With more than a third of the United States overburdened by housing costs and as a part of the University of St. Thomas, the Shenehon Center for Real Estate serves as a resource to the commercial, industrial, residential and corporate segments of real estate industry and the community to advance the public interest in real estate issues and to advance the common good.

Development, Economics, Home Prices, Housing, Housing Trends, Industry News, Minneapolis / St. Paul Housing, Real Estate Trends, Twin Cities Real Estate

Latest Survey of Twin Cities Home Builders Finds Them Optimistic for 2018, but with Some Concerns

St. Thomas’ fourth semiannual survey of 35 industry leaders measures sentiment and is designed to be a forecasting tool.

 Leaders in the Twin Cities single-family home-construction industry are generally optimistic about market conditions for the coming year although they have concerns about increasing mortgage rates and higher costs of land and building materials. That’s according to a new survey conducted by the University of St. Thomas Shenehon Center for Real Estate in partnership with the Builders Association of the Twin Cities.

The Twin Cities Home Builders Survey is patterned after St. Thomas’ Minnesota Commercial Real Estate Survey that began in 2010. The Home Builders Survey polls the same panel of 35 industry leaders annually in June and again in December about their expectations for the upcoming year in six key areas of the housing market. These experts are asked to assign a number of zero to 100 for each of the six questions. A midpoint score of 50 is neutral; scores higher than 50 indicate a more favorable outlook and scores lower than 50 indicate a more pessimistic outlook.

“The industry leaders we poll every six months are actively engaged in studying both the demand and supply side of the housing market,” said Herb Tousley, director of real estate programs at the university. “Since they are involved in creating new housing units and adjusting supply-to-demand conditions, these individuals are close to the actual changes taking place in the market.” “These results align closely with what we are hearing from the market and our members.” Said David Siegel, Executive Director of the Builders Association of the Twin Cities. “While there is a great need for residential construction in the Twin Cities, there are still several factors holding it back including land prices, the regulatory burden and a shortage of labor.”

Here are the scores for each of the six questions that were asked in August 2017:

Housing Starts: 65

This score increased increased from 61 in December 2016 to 65, it indicates a high expectation that the number of single-family housing starts will show a marked increase in 2018. Last year was one of the best in recent years with about 5,300 permits issued.

Sale Price per S F: 74

This score is even more optimistic than last December’s score of 72. It reinforces the panel’s continued expectations that home prices will continue to increase. The net result is the belief that sale prices will increase at a rate that will more than offset the expected increases in project costs.

Land prices: 23

At 23 this index has decreased sharply from last December’s score of 31 moving even deeper into the pessimistic range. Indications are that the rate of increased land prices will accelerate in 2018. While there may be enough finished lots available, the higher land prices will squeeze profitability.

Availability of finished lots: 60

This index increased from 51 last December to 60 in June reflecting builders increased optimism that there will be an increase in the availability of finished lots in 2018. An adequate supply of well-located finished lots is crucial to the health of the home building industry.

Cost of building materials: 24

The outlook for the expected increases in the costs of building materials continues to persist. This index moved from 29 in December 2016 to an even more pessimistic score of 24 in June 2016. This score is an indication of increased concern by our panelists that much of the gain from increased sale prices and more building starts will be offset by higher costs. These expected increases in costs could depress profitability and could reduce the number of new homes built.

Mortgage rates: 28

This index remains unchanged at 28. It is an indication that the panel continues to expect mortgage rates to increase in the next 12 months. Although mortgage rates increased during the fourth quarter of 2016, most panelists are expecting an additional increase of ¼% to ½% half a percent within the next year. The affordability issues created by higher rates could put a damper on home-building activity.

More Information

Additional details can be found on the Shenehon Center’s website: http://www.stthomas.edu/business/centers/shenehon/research/default.html

 

Economics, Home Prices, Housing, Housing Trends, Minneapolis / St. Paul Housing, Real Estate Trends, Twin Cities Real Estate

University of St. Thomas Real Estate Analysis for June 2017

Could You, Would You, Buy a House Sight Unseen?

First Half of 2017 – 3 Major Home Price Trends

 The extreme shortage of homes available for sales is resulting in a new phenomenon of buyers who are purchasing homes sight unseen. Twenty years ago, virtual tours and 3D graphics were mainly science fiction in movies like The Fifth Element, and a “sight-unseen” purchase literally meant a buyer had no experience of the property other than static photographs. Buyers were in essence blindfolded. Today, 3D and virtual technologies have become a reality. They are able to bring a property experience to the “sight-unseen” purchase. A number of local real estate brokers have noted this ingress of technology into the real estate industry and how it has given them a new tool to present properties. One Minneapolis based broker who has personally sold 3 properties sight-unseen in the last year, said the Minneapolis market has recently seen buyers more willing to at least offer sight-unseen. All of our conversations with Minneapolis realtors shared the opinion that technology is impacting the industry. They stated that listing price and anticipated time on the market are main factors on whether a virtual tour is created. The description of the Minneapolis “sight-unseen” buyer was someone looking to relocate from out of state or internationally and has experience in home buying (i.e. not a first time home buyer). An interesting point, technology can actually be a drawback for certain listings. We were told technology removes the interactive sales process; buyers experiencing a virtual tour may never visit the property in isolation from the neighborhood experience.

 Twin Cities Home Price Trends Through the First Half of 2017

 Price Appreciation is Outstripping Income Growth 

    • Median sale prices continue to increase at record rates. Between May and June the median sale price increased 3.6%. For the first ½ of 2017 through June median sale prices increased at the red hot pace of 15.1%. The year over year increase for homes sold between June 2016 and June 2017 was 7.0%. These rates of increase are far exceeding wage and income growth and will begin to cause affordability issues for homebuyers if these trends continue
  • Market Still Lacks Adequate Inventory 
    • While the availability of homes for sale has improved slightly the number of homes for sale has been consistently running 15% – 20% less than a year ago and 20% – 25% less than 2 years ago. While the construction of new homes has picked up notably this year we are still not building enough new homes to build our way out of the current short supply situation. It will take many more new listings to get the housing market more balanced in terms of supply and demand.
  • Tight Inventory Also Impacting Rental Markets
    • The lack of homes available to purchase is creating a situation where potential home buyers are unable to find a home to buy causing them to remain in rental housing for a longer period of time. Even though there were over 4,000 new apartment units delivered in 2016 and given that 2017 is expected to be another record year for new units delivered, the market is expected to absorb all of the new construction. Vacancy rates may increase slightly in the short run in some areas as new developments come on line, but overall occupancy will remain high through the end of this year. Minneapolis / St. Paul is one of the tightest rental markets in the country. Rent growth was 4.8% in 2016 and is expected to be at least that much in 2017. That rate of increase is higher than the expected wage and income growth of 2% – 3%. Continuation of this trend over time will continue to create an affordability gap resulting in renters having to pay an increasingly larger percentage of their income for housing.
Economics, Housing, Housing Trends, Minneapolis / St. Paul Housing, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate, Uncategorized

Sight-Unseen Home Buying: Trend or Consequence

Twenty years ago, virtual tours and 3D graphics were mainly science fiction in movies like The Fifth Element, and a “sight-unseen” purchase literally meant a buyer had no experience of the property other than static photographs. Buyers were in essence blindfolded. Today, 3D and virtual technologies have become a reality. They are able to bring a property experience to the “sight-unseen” purchase. Local Minneapolis real estate broker Aleksa Montpetit of Downtown Resource Group noted this ingress of technology into the real estate industry, and how it has given realtors a new tool to present properties. Montpetit, who has personally sold 3 properties sight-unseen in the last year, said the Minneapolis market has recently seen buyers more willing to at least offer sight-unseen.

An article posted in the Wall Street Journal by Katy McLaughlin cites increases in sight-unseen purchases are nationally becoming more common. The annual Redfin survey showed 33 percent of those surveyed said they had made at least an offer on a house “sight-unseen” in the last year. However, this survey did not include the Minneapolis market.

Both Scott Parkin of Verve realty and Scott Stabeck of Sotheby International agreed with Montpetit that potential buyers are more willing to make offers “sight-unseen,” and they added Continue Reading

Business Valuation, Development, Investment Real Estate

Do you need some leisure time?

Last week the Minnesota Business Journal reported, Lutsen Resort, a staple of Minnesota tourism for over 125 years, went on the market for just under 10 million dollars. However, it is not the first resort in the Great North to go on the market recently. The Star Tribune reports Gunflint Lodge sold for over 6 million dollars and Superior Shores and Resort, just south of Lutsen, in Two Harbors is also currently on the market.

Is this a trend? Why are resorts going on the market? Should consumers be worried about their options for North Shore leisure?

Herb Tousley, of the University of St. Thomas’ Shenehon Center for Real Estate, commented that these resorts often times require a “hands-on”  approach to management of the site. He also noted, “due to this approach, many owners see the opportunity to sell, in what they perceive to be, a high value market in order to exit the business.”

Statistics from the U.S. Travel Association show that domestic leisure travel is up from 2 billion trips in 2007 to 2.28 billion trips reported in 2016. More specifically, the Minnesota average household income has returned to pre-recession levels at $79,893. The private sector employment numbers (FRED) also seem to indicate the economy is in relatively good health. These indicators are great for resorts and the hospitality industry in general. Even with the ominous question of, “are we due for an economic adjustment?” It is not a predictable event. From general market signs, a resort may be an investment for some leisure.

 

Shenehon Center for Real Estate has been enabled Graduate level Business and an Undergraduate Major program in real estate for more than 15 years. The University of St. Thomas is dedicated to creating leaders who are morally responsible, think critically, act wisely, and work skillfully to advance the common good. 

 

 

Home Prices, Housing

4th of July Real Estate Matters

Last evening, I watched the Delano fireworks. The show was excellent and the lightning made it even more interesting. It got me thinking about the past, and how 10 years ago, my family would get there 5 or 6 hours early to get prime sitting/parking real estate to see fireworks up close. Whereas, now, as long as we can see the fireworks it is a good spot. To be honest, the effort to get a good spot doesn’t have the same value as before.

Although, my preferences have changed, finding a spot to park a car or a lawn chair seems like it is even harder to find than 10 years ago. Granted, Delano hosts one of the oldest annual 4th of July festivals in the state, the town has grown substantially, and they don’t seem to ever hold back on the fireworks. A couple years back at the 100th anniversary, the Delano fireworks show had a finale “end-of-show” firework which my friends and I felt from 10 miles away. I digress. Despite my own preferences, people want prime viewing real estate to watch the fireworks up close, but there isn’t enough. As the effort [price] to acquire the sitting space rises, people, like my family, have decided to locate farther away.

To the point, the fireworks show reminded me of the current housing market. Low housing inventories with high demand. From a simple economic standpoint, people should be entering the market as the price rises, but like the fireworks show there is an intangible element to housing. Individually, we all value these intangible attributes of living differently. For example, some people in a median priced house may value geography and education opportunities higher than the house alone, and they may not be able to find a home with similar geography and education. Therefore, they do not enter the market keeping inventory low.

FRED reports the average American family can afford a mortgage. So, why are we not seeing more sales? Can people not afford or not willing to pay current prices? Could it be trends changing social norms (Home ownership)? Whatever the reason, it will be interesting to see at what point housing inventories truly begin to climb.