Monthly Archives

October 2013

Economics, Industry News, Real Estate Trends, Residential Real Estate, Residential Real Estate Index, Twin Cities Real Estate

St. Thomas Residential Real Estate Analysis for September

 mortgagesSt. Thomas real estate analysis for September: the market is

taking its seasonal dip …  but running ahead of 2012 numbers

Here’s one dip that is actually good news: the number of foreclosures and short sales is down considerably from last year. Also, this month’s analysis takes a look at what’s happening to the price-to-income ratio.

Home prices in the Twin Cities real estate market took an expected, seasonal dip in August, but in many respects the market is doing better than this time a year ago, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

 This year compared to last

In his analysis for the month of September, Herb Tousley, director of real estate programs at the university, said that “from August to September all of the market indicators for the Twin Cities housing market are showing the normal seasonality that we expect to see every fall.  “September’s median sale prices, and the number of closed sales, new listings and pending sales are all down from the August 2012 levels. What is important is that compared to a year ago most of these indicators continue to show a healthy increase,” he said. The median price of a traditional home in September 2013 was $217,000. That’s down $11,000 or 4.8 percent from the previous month, but is up $10,125 or 4.4 percent from September 2012.  “As we have reported previously, the annual rate of increase in the sale price of traditional homes (not foreclosures or short sales) is expected to moderate and remain in the 3 percent to 5 percent range for the remainder of the year,” Tousley predicted. 

MSP Traditional Home

 

 Low number of homes to buy helps boost prices

 A factor that continues to put upward pressure on home prices is the historically low number of them for sale. In September there were 16,184 homes for sale in the 13-county area, which is 5.9 percent lower than the 17,197 homes available in September 2012. “Historically the number of homes for sale peaks in mid-summer then declines through the fall, bottoming out in December,” Tousley said. “It appears that this year is following the same pattern, and the inventory of homes for sale will remain near all-time low levels.  “As long as interest rates remain steady, look for the number of closed sales to continue to exceed last year’s levels. These conditions indicate that the market will continue to be tight through fall and winter into early spring,” he said.

 Affordability and the price-to-income index

 In this month’s report, the Shenehon Center for Real Estate looked at affordability and the price of homes compared to the income of homebuyers.  Tousley said the combination of low inventories of homes for sale, historically low interest rates and the perception of a slowly improving economy have been fueling the recent recovery in home prices. In many markets the increase in home prices has been outpacing growth in household income. The price-to-income ratio is a measure of affordability that compares the median price of homes to median household income.  “The price-to-income ratio has risen above its historical average in the Twin Cities and many other markets,” Tousley said.

 “In the Twin Cities, historically the median price of a home has been 2.6 times the median household income. As year-over-year home prices have been increasing at a double-digit rate for a good share of the last two years, the ratio has now increased to 3.0. That puts our market in the middle of the pack compared to other major U.S. markets.” He added that the price-to-income ratio is a good indicator of home ownership affordability and can be a predictor of a future housing bubble.

 Home builders are busy

 In September the number of construction permits for single-family homes continued to track about 30 percent ahead of last year. September saw about 3,800 permits issued for new single-family homes in the metro area. The dollar volume for those permits is running about 35 percent ahead of last year. “This indicates that there are not only more homes being built but on average the homes being built this year are more expensive than they were last year,” Tousley said.

 The St. Thomas indexes

 The St. Thomas Traditional Sale Composite Index, the one that tracks nine data elements, came in at 1,070 for September. That’s 20 points lower than August’s 1,090 (the highest recorded level since August 2005) but like most of the real estate measures, it is running well ahead of September 2012 when it was 1,012.

Composite indexes for the distressed sales also are improving over last year. The foreclosure index for September 2013 of 775 is up 10.2 percent from September 2012. The short sale index for September 2013 of 885 is up 12.2 percent from September 2012.

 More information online

 The Shenehon Center’s complete report for September (found at http://www.stthomas.edu/business/centers/shenehon/research/default.html) includes charts showing the median sale price of homes, the ratio of sales compared to the number of homes for sale, and the price-t0-income ratios for the Twin Cities and 20 other major U.S. markets.

 Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu.

Architecture & Design, Development

Small Architect-Developers Find Niche in San Diego Urban Core

In San Diego, a group of small developers are building a track record of successful, creative, mixed-use urban infill projects. Their projects tend to be modest in size and often incorporate renovations of historic buildings. The architecture is innovate and targeted towards 20-40 year old urban renters. But the main distinguishing feature of these small developers is that they are all architects that work for themselves and develop their own projects.

You Are Here, a mixed-use development by Foundation for Form in San Diego

The architect-developer model provides several benefits, such as creative freedom and the flexibility to pursue innovate projects. Mike Burnett of architect-developer firm Foundation for Form noted that in their recently completed You Are Here project, every apartment unit is different, which is not something that would be found in a larger project by a traditional developer.

San Diego architect Lloyd Russell likes the model because “when you act as architect and developer, the intention is to get around the layers of bureaucracy within the construction industry that get in the way of what you want to build.” When working for traditional developer clients, architects are often unable to break away from industry standards due to the fear of litigation should their innovations create problems down the line. But when developing their own properties and maintaing ownership, architect-developers can take risks with innovative designs and simply fix any problems that arise.

Citron Court development by Foundation for Form

By nature, architect-developers tend to specialize in smaller projects, and are sometimes referred to as “boutique” or “craft” developers. This is in part because the inherent nature of the model limits the possible scale of projects; larger projects necessitate a team and division of roles and responsibilities, rather than one or two architects managing the entire process. In San Diego, these modest enterprises are also finding opportunity in the small & oddly shaped parcels in already-developed areas, which are often overlooked by larger developers. Mr. Russell noted that its not efficient for big builders to do 10 unit projects; they simply have too much overhead to make smaller projects pencil out. Yet because of that, many urban areas have a gap between single-family housing and large multifamily developments, which architect-developers can help fill.

One strategy used by boutique developers to stay efficient is to avoid lengthy and uncertain zoning review process by building as much as they can as of right with existing zoning. They can use their intimate understanding of zoning and building codes to nimbly move through the design and entitlement process where others might spend weeks battling at the planning commission or having to go back to the drawing board.

Commercial Real Estate, Economics, Industry News, Investment Real Estate, Real Estate Trends, Twin Cities Real Estate

CCIM Institute: Deal Flow On The Rise Across the Country

Wells FargoReposted from the REJ Blog

http://rejblog.com/2013/10/08/ccim-institute-deal-flow-on-the-rise-across-the-country/

by Dan Rafter

There’s been plenty of good news when it comes to commercial real estate. Markets such as Minneapolis, Indianapolis, Omaha and Nashville are seeing plenty of new deals and construction in all sectors.

A recent report from the CCIM Institute  http://www.ccim.com/  provides yet more evidence that the commercial real estate recovery is a solid one.

The institute recently reported that deal flow among its members jumped 57 percent in August when compared to the same month one year earlier.

The report, which relies on data collected from CCIM members across the country, shows property sale prices were higher or about the same as one year prior. More than 65 percent of CCIM members said they received more serious inquiries from buyers than during the same period last year.

“The current pace of moderate gains in employment and consumer spending should provide enough lift for absorption in the office, industrial and retail sectors to keep vacancy rates on a downward trend,” said George Ratiu, director of quantitative and commercial research for the National Association of Realtors, which conducted the survey with the CCIM Institute. “Demand for rental housing will remain solid for the rest of the year, although competition from residential rental stock and new construction is likely to add pressure on rent growth.”

Commercial Real Estate, Development, Economics, Real Estate Trends, Retail Real Estate, Twin Cities Real Estate, Urban Planning

Wal-Mart, Target Roll Out Smaller Urban Store Formats to Do Battle with Dollar, Drug Store Rivals

“Big Box” Discount Retailers Downsize Stores In Bid to Seize Market Share

Here is a recent article by Randyl Drummer posted by the CoStar Group. It shows how Target along with Walmart is adapting to opening smaller locations in urban areas

The latest growth strategy at Wal-Mart stores is to get bigger by getting smaller. After building the world’s largest retail platform by opening superstores in every major U.S. market, Wal-Mart is doubling down on a strategy of opening new stores that are a fraction of the chain’s traditional size, targeting densly populated urban areas where demographics increasingly show more people prefer to work and live.

The Bentonville, AR-based retailer is aggressively expanding its Neighborhood Market stores, which average 38,000 to 40,000 square feet — a fraction the size of Wal-Mart’s traditional 180,000-square-foot “Supercenters.”

Bill Simons, president and CEO of Wal-Mart, said the company plans to open more than 200 more Neighborhood Market stores in the U.S. over the next 18 months, bringing the total to more than 500.

“We continue to roll out this format aggressively throughout the country, opening more sites in the second quarter than in any other quarter in our history,” Simon said. “In fact, we opened 12 stores in just one day this (past) quarter.”

Moreover, the retailer has signaled it may green light an even smaller format called Walmart Express, with stores that range in size from 10,000 square feet to 12,000 square feet. Wal-Mart has built 20 Express stores in a pilot phase that has “performed very, very well for us,” Simon said, adding that the retailers plans to share more details about its plans for the smaller format at its Oct. 15 meeting for the investment community.

Both concepts compete directly against a rising number of grocery stores, drug stores and dollar discount stores that have added groceries to their offerings to reach shoppers looking for value and convenience.

The giant retailer’s smaller formats are part of a multichannel strategy to stock products purchased at its bricks-and-mortar stores as well as quickly deliver products ordered online.

In part to support that rapid product delivery strategy, Wal-Mart this week announced plans to open two new online fulfillment centers, an 800,000-square-foot facility in Fort Worth, TX, and a 1 million-square-foot center scheduled to open in early 2014 in Bethlehem, PA, that will be its largest ever.

“Increasingly, access is becoming more important to customers. And we believe we have an opportunity today through multiple formats to take our brand closer to the customers,” Simon told investors at the recent Goldman Sachs Global Retail Conference.

Express stores sized as high as 15,000 square feet have tested and delivered very well against competing formats, offering shoppers groceries, pharmacy items and fuel at competitive prices against dollar store, drug store and grocery rivals, he said.

While not a new concept – Wal-Mart has been opening typical grocery store sized markets since 1998 – Neighborhood Markets is now one of the fastest-growing formats in retail, with 60% growth and mid-single-digit comparable sales over the last couple of years, Simon said.

Target: Also Testing Smaller Format, But Proceeding Cautiously
Fellow discount retailer Target has been more deliberate in the national rollout of its smaller-format CityTarget stores. Although only two have opened so far in 2013, for a total of seven, the company sees immense promise in the new smaller format.

Read the entire article: http://www.costar.com/News/Article/Wal-Mart-Target-Roll-Out-Smaller-Urban-Store-Formats-to-Do-Battle-with-Dollar-Drug-Store-Rivals/152876?ref=100&iid=357&cid=FC4C5ECBFF14BCA42CFC3FCF0353A739

Business Valuation, Commercial Real Estate, Economics, Industry News, Investment Real Estate, Office Real Estate, Real Estate Trends, Retail Real Estate, Twin Cities Real Estate

Compare Minneapolis’ “Most Expensive Street” To Other Cities

Nicollet Mall demands the highest office rents in Minneapolis, but it’s cheap compared to some streets in bigger cities.

Here is an interesting article that was recently written by Burl Gilyard from Twin Cities Business

 IDS CenterThe IDS Center on Nicollet Mall

October 1, 2013

 Local boosters often tout that the Twin Cities ranks high on many lifestyle surveys.

But the metro area ranks nowhere near the top in a new survey from Chicago-based Jones Lang LaSalle, a commercial real estate services firm, which tallies the “most expensive streets” across the United States based on the cost of leasing office space. Nicollet Mall in downtown Minneapolis ranked as the 25th-most expensive street in America in 2013, according to Jones Lang LaSalle.

The most expensive street in the country is Sand Hill Road in Menlo Park, California. The gross rent per square foot along Sand Hill Road, an area known as the home of many venture capital companies, is $110.76 per square foot. Fifth Avenue in New York City ranks as the second-most expensive with an average rate of $102.02 per square foot.

 Both high-priced avenues are more than three times as expensive as the priciest rents along Nicollet Mall in Minneapolis, which averages a gross rental rate of $30.60 per square foot, according to Jones Lang LaSalle.

The Jones Lang LaSalle survey noted: “Midwestern markets remain the most affordable.”

The numbers are based on asking rents, which might differ from the actual rent received, as of the second quarter of 2013. Gross rent per square foot includes the net rental rate, plus operating costs and taxes.

Abel Balwierz, a senior research analyst with Jones Lang LaSalle, said that Nicollet Mall is home to some high-profile trophy office properties. But another key factor is the corporate headquarters of retailer Target Corporation at the south end of the Nicollet Mall. Balwierz said that Target likes to have vendors located within just a few minutes walking distance from its corporate offices.

“Target vendors are the main type of tenant that’s interested in space along Nicollet Mall,” Balwierz said, noting that other tenants include law firms and financial services groups.

“Target, I think, has a big influence on the downtown market,” said Jim Vos, a principal with Cresa Minneapolis, a tenant representation firm.

The top-tier office space in downtown Minneapolis is performing better than the overall market, which remains a mixed bag.

A mid-year survey from Bloomington-based commercial real estate services firm Cushman & Wakefield/NorthMarq found the Class A office vacancy rate was 10.7 percent in downtown Minneapolis at the end of the second quarter, the lowest office rate for any class of office space across the metro. At the same time, Cushman & Wakefield/NorthMarq reported that the overall office vacancy rate across the Twin Cities remained high at 17.5 percent.