Court Approves Sunset Millennium Project

A Los Angeles Superior Court judge has upheld approvals for a massive Sunset Strip mixed-use project, which will straddle the intersection of Sunset and La Cienega boulevards.
By: ANDY FIXMER: Los Angeles Business Journal Staff
A Los Angeles Superior Court judge has upheld approvals for a massive Sunset Strip mixed-use project.

Superior Court Judge David Yaffe rejected arguments of Save the Sunset Strip Coalition that the City of West Hollywood inappropriately approved the project, which will straddle the intersection of Sunset and La Cienega boulevards.

Sunset Millennium is to contain two hotels with 296 rooms combined that will be branded a W and a J.W. Marriott and a 190-unit condominium building with room for ground floor shops and restaurants.

The developer, Apollo Real Estate Advisors, estimates the project will create about 400 jobs in the hotel, restaurants and shops, that it will generate $2.8 million in fees and taxes for West Hollywood, and result in 400 parking spaces for public use.

“We feel validated by the judge’s ruling and are eager to move forward with our project,” said Apollo principal Richard Ackerman in a statement. “It has been a long, and sometimes difficult, road to reach this stage, but now it’s time to begin work on what we think will be the crown jewel of the Sunset Strip.”

The project was first approved by West Hollywood seven years ago but only the first phase of the project was completed. The city approved the second phase in April and opponents – including the Grafton and Mondrian hotels – filed a lawsuit to block the development.

Yaffe’s decision paves the way for Sunset Millennium developer Apollo Real Estate Advisors to begin construction later this year. Construction is expected to take 26 months to complete.
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FHA Launches Education Initiative to Assist First Time Minority Home Buyers

New campaign focuses on markets in 16 communities nationwide.
RISMedia
The Department of Housing and Urban Development’s Federal Housing Administration (FHA) has launched a public education campaign directed at first-time minority home buyers.

The radio and newspaper-based campaign will run in 16 markets targeting African American and Hispanic American communities. In addition, articles and editorials will be placed to help address barriers that minorities have faced on the road to homeownership.
This bilingual campaign is part of HUD’s continuing effort to meet the President’s challenge to create 5.5 million new minority homeowners by the end of the decade. Since the challenge was initiated in June 2002, 2.6 million minority families have joined the ranks of homeowners.

“We have to be able to price the product differently and structure the product differently in order to adapt the 70-year-old FHA program to today's mortgage market,” said Brian Montgomery, HUD’s Assistant Secretary for Housing and Federal Housing Commissioner. “The next step is to educate the public about how FHA is making it easier to become a homeowner.”

FHA, which has been providing mortgage insurance since 1934, has helped more than 33 million Americans acquire their new homes. The objective of the radio/outreach campaign is to acquaint first time minority homebuyers, of low to moderate income, with the quality and affordability of the FHA brand. The campaign also focuses on the dangers of predatory lending and the protective nature of FHA products.

The radio outreach will be heard on 78 stations in the 16 participating communities with some overlap in cities in California. The print campaign will reach a total of 91 newspapers.

The 16 communities participating in the initiative are: Atlanta, GA; Chicago, IL; Columbus, OH; Dallas/Ft. Worth, TX; Detroit, MI; Houston, TX; Las Vegas, NV; Los Angeles/Long Beach, CA; Miami, FL; Philadelphia, PA; Phoenix/Mesa, AZ; San Bernardino/Riverside, CA; St. Louis, MO; Tampa, FL and Washington, DC/Baltimore, MD.
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Condo-hotels, now taking reservations

Taking reservations
California vacation home investors are riding a new wave. The condo-hotel is catching on.
By: Diane Wedner, Times Staff Writer: LA Times
JUST when investors thought they knew everything about vacation home purchases, along comes a brand-new way to spend lots more money.

Hybrid condo-hotels — luxury hotels whose rooms or suites are sold as condominiums and are available to owners from a week to three months a year — are on their way to California, with 22 projects already announced and more planned.

In the Southland, 5,500 people seeking a youthful, urban scene already are on a list at the new Hard Rock Hotel San Diego to purchase rooms that start at $400,000. Resort enthusiasts who want to watch dolphins frolic outside their ocean-facing rooms are signing up to buy casitas and villas at Terranea Resort in Rancho Palos Verdes, starting at $1.9 million. The Remington Las Montañas Resort Hotel & Spa in Indian Wells soon will be selling units from the low $900,000s. And La Costa Resort and Spa in southern Carlsbad has built 21 of 39 units, called the Villas, with plans for more. The condos run from about $1 million, for 1,780 square feet, to $1.5 million for 2,500 square feet.

Several other projects, not yet confirmed, are being talked about for Santa Monica, West Hollywood and Beverly Hills. The newly renovated Beverly Hilton is considering a number of options for the landmark, including possible condo-hotel units. The 118-year-old Hotel del Coronado in San Diego is developing 28 condo-hotel units on the property, and at least two condo-hotels are slated for Anaheim.

The concept — in which buyers are the sole owners of furnished units they can use and rent out — took hold in Hawaii and South Florida three decades ago but only recently caught on in Las Vegas, Chicago and New York. Nationwide, 228 U.S. condo-hotels are in the pipeline, according to Jan Freidag of Smith Travel Research, a leading lodging-industry research firm.

To attract buyers, developers partner with brand-name chains, such as Four Seasons, Starwood and Mandarin Oriental. By selling individual units, developers get some of the construction money up front, which in turn spurs lenders to finance projects they view as producing a more stable revenue flow than traditional hotels.

And those who invest? "It gives them use in a really glamorous, high-profile place with a clubby, well-known brand," said Rick Davis, a Los Angeles hotel-industry attorney. "And it gives buyers some amount of income to offset ownership costs." Under most condo-hotel plans, rents are split 50-50 with the hotel owners, who often, but not always, manage the rentals.

This is no time-share arrangement, in which participants buy a week's stay in a unit, for example, as part of a pool of as many as 51 other owners.

With condo-hotels, the time allowed for owner use varies and is tied to the rules established by the hotel. Time allotments also typically are dictated by the city in which the hotel is located. When owners are not occupying the units, the rooms are rented out. When owners sell the units, they get all the proceeds.

The hotel owns and maintains the common spaces, such as pools, restaurants and spas, to which condo owners have full access. Unit owners pay monthly fees — which vary according to the number and quality of amenities.

As condo-hotels have grown in popularity and conventional lenders have become better educated about this type of housing, banks have stepped up to provide mortgages as they would for any second home, said James Butler, a Los Angeles real estate and hospitality attorney. Buyers pay their own property taxes on the units.

Owners have the same tax assessments and benefits as typical condo owners. If the unit is a second home, it's treated like a rental property, so the owner is taxed on the rental income that remains after the deductions for expenses. The portion of mortgage interest that is related to personal use may be deducted as second-home interest, said Mike Cain, a Woodland Hills accountant.

Sound good? Don't start packing any suitcases yet. Very few Southland condo-hotel rooms are available at present, and most won't be until at least next spring.

That has not deterred Jeff Gregersen, a single, 35-year-old real estate-investment consultant who is on an interest list for a condo at San Diego's Hard Rock Hotel. The resort began taking deposits Thursday. This spring, when units hit the market, Gregersen said he will select a condo in the $600,000-to-$800,000 range.

The businessman chose San Diego for a vacation home because of the city's year-round temperate climate and the night life in the Gaslamp Quarter, which is stuffed with restaurants and clubs. He rejected the idea of buying a single-family home, which he said would be hard to rent out short-term and too far from the downtown action. His move-in-ready, furnished hotel room will generate about $200 a night from conventioneers and leisure travelers.

"I want the Hard Rock cachet and the four-star service it provides," said Gregersen, who lives in Los Gatos, Calif. "I'm buying a good investment and a lifestyle." He projects a 13% annual appreciation on his purchase and expects to break even from rental revenue.

"I view this as a long-term investment," he added. "I think I can't go wrong in San Diego."

The Hard Rock, which is being developed and managed by Tarsadia Hotels, will offer all of its 420 suites for sale, including 320-square-foot rooms and 1,700-square-foot "Rock Star" suites. Owners can occupy them up to 28 days a year.

Oceanfront casitas with sweeping views of Catalina Island attracted Robert Floe to Lowe Destination's Terranea in Rancho Palos Verdes — a planned 400-room hotel on the old Marineland site with 82 condo units for sale.

Already the owner of a penthouse time-share condo in Hawaii, the 50-year-old Pasadena investment advisor wanted an amenity-stocked weekend getaway much closer to home. So he and a business partner purchased a 2,000-square-foot casita on the bluff at Terranea for more than $2 million. The owners can divide the 60 days per year they're entitled to use the casita and draw income from renters they hope will occupy the unit the other 305 days.

"The minute I saw the property, I was very interested," Floe said. "I know how scarce that land is in Los Angeles and wanted a part of it."

The condo-hotel property, on a promontory that provides a marine-mammal show 100 feet offshore, will feature adult and children's swimming pools, a spa overlooking the coast, a beach club, conference rooms and restaurants.

In Indian Wells, Remington Las Montañas is scheduled to begin construction next year on a 265-unit condo-hotel with two-bedroom suites, each occupying 1,442 square feet plus 475 square feet of outdoor space with an outside fireplace. Rooms will sell from about $900,000 to about $1.4 million, depending on the view, said Robert Haiman, senior vice president of Remington Hotel Corp. The desert hotel also will have restaurants, pools, a spa and 60,000 feet of meeting space.

Although the condo-hotel concept is riding a wave of popularity, there are some obstacles. The urban models are successful only if they attract rent-paying guests on weekends as well as weekdays, experts say.

Owners of resort condo units may have to plan their own vacations around the high season to maximize the rents they receive and to cover the low-season months when rents run dry, said Steven Roszell, owner of the online directory CondoHotels.com.

Developers must follow strict rules set out by the Securities and Exchange Commission, which considers a condo offering a security if prospective buyers are told in advance of their purchase about potential revenue and tax benefits, attorney Davis said.

Because most developers want to avoid selling their projects as securities, they typically do not discuss the financial benefits with potential buyers, so some buyers may purchase units without knowing all the facts.

"Unfortunately, some developers look at this concept and jump right on the bandwagon," whether they're experienced enough to run the complicated venture or not, research analyst Freidag said.

There's no denying the appeal, though, buyers say.

"From my home, I can be at an oceanfront property I own, with a spa, bars and golf course, in 50 minutes," Floe said. "You can't beat that."

*

(INFOBOX BELOW)

How condo-hotels measure up

A comparison of condominiums, condo-hotels and time shares.

*What you get

Condominiums

Often two and three bedrooms, and always with a kitchen

Condo-hotel

A hotel room, from standard to suite, often without kitchen facilities

Time share

Ranges from studios to penthouses, usually with kitchenettes

*

* Length of stay

Condominiums

May occupy unit anytime, 365 days a year

Condo-hotel

Generally, the length of stay is limited--typically one week to three months

Time share

Entitled to occupy during the share purchased--one or two weeks, for example

*

* Cost

Condominiums

$275,000 and up, beyond $2 million in many Southern California locations

Condo-hotel

About $350,000 (studio) to $15 million (penthouse)

Time share

$4,500 to $25,000 per week

*

* Ownership of unit

Condominiums

Whole

Condo-hotel

Whole

Time share

Shared

*

* Additional annual fees

Condominiums

$175 to $1,150 (generally excludes utilities)

Condo-hotel

$350 to $2,300 (usually includes utilities)

Time share

$450 to $750

*

* Owner income

Condominiums

Rentals may be restricted by homeowners association CC&Rs

Condo-hotel

Owners usually must make the unit available for rent when not occupying it by joining the developer's sponsored rental program, hiring an independent rental agent or renting the unit themselves

Time share

Varies by management company

*

Price comparisons are estimates and vary by development.

Sources: Greenberg Traurig, Conde Nast Traveler, CondoHotels.com
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Pricing as Much Art as Science

With resale homes, the first weapon to use in the battle to sell the home is to price it correctly.
By: M. Anthony Carr: Realty Times
When shopping for a new home, I've heard many a buyer say, shaking their heads, "What were these people thinking?" Unless the agent has previewed the house and eliminated the "dogs," a buyer can spend a whole day looking at such a wide range of homes that it becomes impossible to see all the inventory in their price range.

Pricing property can be more art than science in today's market. New home builders probably have the easiest time of it - at least without shocking the buyers - because everything is new. There are no bare areas in the carpet, fingerprints on the appliances, nicotine stained ceiling tiles in the rec room - and definitely no cat and dog odors that are promised to be dealt with by installing new carpet after the buyer moves in.

With resale homes, the first weapon to use in the battle to sell the home is to price it correctly. The challenge for sellers is that they want as much as the last sale, however, in today's market that's not as guaranteed as it was a year ago. The seller can still walk away with hundreds of thousands of dollars in gain, but maybe not the absolute highest amount of gain ever in the community.

Thus, pricing is the key. There are only a few ways to price a home for sale and sellers who don't want to putts around on the sale of their home need to adapt to the accepted modes of pricing and get over the fact that their house may not be worth as much as it was 12 months ago.

The first model is probably the most popular - the comparable. By pulling up only the sales of your particular model, the Realtor can determine a trend price for your home. The challenge in a slowing market is that your particular model may only have three sales in the last year. Such a low number of houses selling does not really create a trend line, especially if the last sale was 6 months previous. Thus, you turn to the second pricing model.

Your home is then dissected to create comparables across a few neighborhoods or even a whole zip code that match your local community. Several aspects of your home will be plugged into the comparable model: style of home (split level, colonial, etc.); number of levels; number of bedrooms and baths; extra rooms; year built; square footage; and more. Then the averages on these parameters are tabulated and you'll have a target price. Keep in mind to remove the highs and lows.

Finally, another way to price your home is to come up with a tax assessment model. This one takes a little bit more homework and data mining. It's tedious, but it can present one of the most accurate pictures of home values in your community. The first step is to pull up all the sales in the community in the last 6 to 12 months. Tabulate the sales price total (let's say it comes up to $10 million) and then tabulate the tax assessment total (our model will use $8 million). Divide the tax assessment into the sales price and you come up with a tax assessment-sales price ratio. In this case, the community ratio is 1.25. Multiply your tax assessment by the ratio figure, and it will determine your target asking price. For example, if your tax assessment is $250,000, multiply it by 1.25 and you'll arrive at $312,500 as a target asking price. Again, be careful to pull out the anomalies that represent overbuilt properties. The largest, biggest house in the community could affect your price, as well as the pre-foreclosure sale.

You're looking for average prices with average situations for average results.

If you're having to use all three models to arrive at a price, then your real estate professional should weigh in with all three models to determine the price.

The biggest challenge in pricing the home is a seller's greed level. Sorry to be so blunt, but sellers always want more than the last sale, regardless of the market condition. My blunt advice is to "get over it." Waiting around for the "right" buyer is just plain foolishness in the world of real estate. If you're putting your home on the market, don't putts around and waste your time, the buyers' time and the agents' time with an unrealistic asking price.

If your Realtor provides feedback from colleagues that your house is overpriced, move on it. Move from denial into acceptance and price the house right. Remember, the goal here is not to price the property as high as possible, but to sell the house. Good luck.
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Condos for Those Who Live to Shop?

Westfield plans to add 260 luxury units at its Century City mall by razing an officer tower.
By: Roger Vincent, Times Staff Writer: LA Times
It seems like some people live at the mall. Now, they can.

Shopping center owner Westfield Group announced plans Tuesday to add 260 luxury condominiums at its Century City mall by razing two office buildings to create more space for the condos and new stores.

The $500-million project reflects a trend in which malls are being transformed into self-contained villages. From California to Massachusetts, the largest mall operators are looking for ways to stack housing within their shopping centers.

In Southern California, where housing sites are more scarce than a bargain home, the trend is taking off. Projects have been built in or are planned for Pasadena, Glendale and Playa Vista.

Public officials and planners often support such dense development because it creates urban communities with shopping, housing and entertainment that are alternatives to conventional suburban neighborhoods. Many nearby homeowners fear that the bigger malls would cause traffic congestion and diminish their quality of life.

But Peter Lowy, head of U.S. operations for Westfield, argued Tuesday that by eliminating office space, the Sydney, Australia-based company would reduce the number of car trips people take in and out of workplaces in Century City. Trips created by the housing and shopping would be less likely to take place at peak commuting hours, he said.

Westfield, the largest shopping center owner in California, bought the 42-year-old Century City property in 2002 when it was "a dated outdoor mall," by Lowy's reckoning. The company has completed much of a $150-million makeover that includes new theaters, a new restaurant area and additional stores.

The latest proposal calls for dismantling Gateway West, a 14-story tower completed in 1963 that was one of the first office buildings in Century City. The tower is at the southwest corner of Avenue of the Stars and Santa Monica Boulevard.

It would be replaced with three stories of shops and a 42-story tower that would include three floors of office space and 260 condominiums. Prices for the units wouldn't be set until their projected completion in 2010 or 2011. Current prices for some condos in Century City top $2 million. It will take Westfield at least a year to get the development approved by the city.

A new three-level collection of stores would be created south along Santa Monica Boulevard and elsewhere in the mall, adding 360,000 square feet of shops and increasing the retail space by more than one-third.

Westfield plans to knock down the five-story office building at the northeast corner of Century Park West and Constellation Boulevard built in 1966 and replace it with a five-story parking structure. The project would add a combined 1,760 parking spaces.

"You're re-creating, in effect, a town center," said John McIlwain, a senior fellow at the Urban Land Institute, a land-use think tank in Washington. "I think it's a smart thing to do for the community. L.A. needs as much housing as it can find in appropriate places."

Planners are focusing less on living and working at the same site and more on offering services and entertainment to residents after they come home and park their cars, McIlwain said.

"People change their jobs more than they do their houses now," he said.

Los Angeles City Councilman Jack Weiss, whose district includes Century City, said the project would improve the neighborhood's appeal as a Westside destination and add life to the "sterile" office district that mostly empties out after dark.

"When someone wants to invest a half a billion dollars in the neighborhood, it's a rising tide that lifts everyone," Weiss said.

Shopping center developer Rick Caruso said he wished he had included housing when he built the Grove a few miles away in 2002. Instead, an apartment developer across the street cashed in on the Grove's popularity. Caruso says he plans to include residences in his projects whenever he can.

"It's all driven by demand from consumers," including young professionals and adults whose children have left the nest, Caruso said. "The No. 1 request we get from people at the Grove is whether they can live there."

Caruso intends to build luxury housing in his malls in Glendale, Playa Vista and Albany, Calif. He dropped plans for housing at his planned project in Arcadia after opponents including Westfield said the new residents would strain local schools.

Housing with malls probably wouldn't work in a suburban setting, Caruso said, but Century City would be an attractive place to live. "If Westfield builds a good product, I think they will do well," he said.

Nearby homeowner Stacy Antler is apprehensive, however, about the potential effect of development at the shopping center and other sites in Century City. Two other condominium projects including more than 600 units are in planning stages.

"We are heading toward the status of Manhattan, where everything is completely gridlocked and no one can get in and out anywhere," said Antler, a longtime resident of Cheviot Hills. "How is this manageable? Are they going to give everybody a jet pack?"

Westfield's plan is an example of how traditional malls can prosper and stave off the demise predicted for them because of the mini-mall, department store closures and the rise of outdoor centers like the Grove, said Patrice Duker, a spokeswoman for the International Council of Shopping Centers. "It shows the regional mall is not an antiquated model," she said.
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Art sales to benefit LGBT youth

Windermere Art and Charity art exhibition will share profits with Gay and Lesbian Adolescent Social Services (GLASS)
Gay.com
A Windermere Art and Charity art exhibition will benefit Gay and Lesbian Adolescent Social Services (GLASS).

Windermere Properties/Shafer Broadman and Associates presents the exhibition at the group's new office on the Sunset Strip in Los Angeles, March 15 through June 15.

On display will be work from James Shilaimon, plus four Bird Fine Art artists: Ben Murphy, Richard Bay, Colleen Quinn, and Kip Frace.

The Windermere Art and Charity quarterly program combines the agency's commitment to support emerging artists with its broader philanthropic mission. A percentage of each art sale benefits different charities. The group selected GLASS to be the beneficiary of this show.

Windermere Properties/Shafer Broadman and Associates opened the Sunset Strip branch in September 2005; this will be the second exhibition at the new facility.

Stuart Bird, owner of Bird Fine Art, has been in the art business since 1978. Bird has worked in galleries from coast to coast as a consultant and gallery director. He's been an independent dealer/consultant since 1987.

Gay and Lesbian Adolescent Social Services (GLASS)

GLASS is a private, non-profit social service agency that provides a wide range of social and health care services to children and youth who are in foster care, on probation, or homeless.

Through its various programs, GLASS touches over 4,000 lives a year in Los Angeles County and Oakland, CA.
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Real estate values need human interpretation

Part 2: Assessing accurate home values
By: Bernice Ross: Inman News
(This is Part 2 of a two-part series. See Part 1.)
It's probably safe to assume that the early surge in Zillow's traffic resulted in part from real estate agents and brokers who fear what Zillow may do to their business. Are "Zestimates" (Zillow's estimate of what your property is worth) something brokers should fear?

The billion-dollar question for the real estate industry is whether computers can do a better job of accurately pricing property than experienced agents can. Like many other brokers, I decided to put Zillow to the test by evaluating the properties that I have owned in the past.

When it came to selecting comparable sales on my home in Austin, Texas, Zillow did not select a single comparable sale from within the subdivision where I live. While the price was off by about 15 percent, the comparables were so far away that they were useless. Furthermore, every single comparable sale Zillow selected had square footage that was only 50 percent of the size of my home.

After testing Zillow for Texas, I decided to see if there were any more accurate estimates in Southern California. When I priced the properties that I used to own in Beverly Hills, Bel Air and Brentwood, the Zillow algorithms gave them a premium value because the lots were larger than 2 acres. What Zilllow didn't take into account was that each of these properties was not flat - i.e., the large lot size resulted from the property being on a ridge with a downslope. It also didn't differentiate between those properties with views and those that lacked views.

These examples strike at the heart of trying to use an algorithm (mathematical formula) to establish value. The computer has no way to tell whether a house has a view, is on a downslope or flat lot, or is in good or poor condition. It can't tell if a property has airplane noise or strange smells emanating from a landfill. Ultimately, pricing a property is more of an art form rather than a process that can be reduced to pure mathematics.

I was curious to see if any of the other tools did a better job than Zillow. I have been tracking values on my house in Los Angeles and was curious what it would be worth once we expand one bedroom and add another bath. I used Zillow and Moveup.com to determine which approach would give me the most accurate value. The Zillow algorithms allow me to program in a kitchen upgrade, increase the square footage, and add in a new bath. Zillow's Zestimate told me that without the addition, the property was worth $448,000. By adding a single bath and expanding one of the existing bedrooms, the value jumped to $660,000. A 50 percent price increase seemed way out of line given the nature of the improvements. I then went to Moveup.com. Each of the 15 comparable sales was appropriate to the area. Moveup.com provided the sale date, the square footage, the price per square foot, bedroom-bath count, lot size, and whether the property had a pool. Even with this data plus a deep familiarity with the area, I still couldn't nail down what the exact price should be.

The challenge was with the comparable sales that were available. Normally, I would do a price-per-square-foot calculation. The rule of thumb is that you should only use properties that are within 10 percent of the same size for both the improvements and the lot size. In California, where the improvements are worth little and the lot is worth a great deal, you can skew the results by using properties that have square footage that doesn't fall into the appropriate categories. Even with 15 comparable sales, none of them fell into the 10 percent rule that I would normally use. The price per square foot ranged from $243 per foot on the low side to $626 on the high side. The high prices per square foot were for very small homes with the high lot values. (Smaller houses in areas where the land is valuable always sell for a higher price per square foot -- larger houses always sell for less.) The low price per square foot was for homes that were twice the square footage of the smaller homes. Since our home would be in the middle of this range, the best comparable sales put the property value at $450 to $518 per square foot. On a 1,300-square-foot property, that's the difference between $585,000 and $673,000. In truth, the only way to resolve where the property should be valued would be to personally visit the comparable sales or to hire an agent who works the area and knows property values.

The challenge with relying on computers to establish value is the difference between stagnant data that exists in a database and knowledge that relies on human experience and complex thought processes. In the book "Social Life of Information," John Seely Brown and Paul Duguid make exactly this point. A computer relies on information. When it comes to real estate, this means the property's features, including bedroom-bath count, lot size and floor plan. Even when two properties have identical floor plans, one may sell for more because of the beautiful landscaping, the privacy, or some other factor the computer cannot access. The value of these features is often more intuitive rather than quantitative. As such, computers may estimate values, but the estimates will continue to be flawed because there is no scientific way to value these other factors.

While Zillow has made a big splash, accuracy is still the name of the game when it comes to comparable sales. In those areas where the market is flattening or declining, overpricing can cost the seller thousands of dollars. Rather than bemoaning the fact that comparable sales are now available on the Web, agents and brokers must be proactive in helping sellers to understand that sites such as Zillow and Moveup.com are a starting place in determining what their properties are worth. They must also be prepared to educate sellers about the challenges of relying strictly on information rather than a human being's wisdom of experience.

Bernice Ross, co-owner of Realestatecoach.com, has written a new book, "Waging War on Real Estate's Discounters," available online. She can be reached at bernice@realestatecoach.com.
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Is There Still Profit to Be Made From Buying Fixer-Upper Homes?

June Fletcher on the direction of the housing market and how declining house sales and prices may affect investors who purchase and rehab homes in need of repair.
By: June Fletcher: The Wall Street Journal Online
Question: Why is it that your articles act like the end of the housing market is near? It may shake out all or most of the noncontractor "flippers," but so what? The price of houses is irrationally elevated, but there are still a lot of homes that will be moved by the honest "fixer-upper" people, and we will still make money. I have been doing this for a long time, in good times and bad, and a decent home at a decent price will always sell.

- Phillip Wills, Albany, N.Y.

Phillip: I chose your question because it embodies so many of the contradictory thoughts and feelings expressed by people involved in the real-estate industry these days. On the one hand, you seem to doubt articles that assert that the housing boom is waning; on the other, you imply that it will end soon after all. (Or else how will all those noncontractor flippers be shaken out?)

I understand: No one who makes a living in real estate really wants to see the end of this immensely profitable boom. For that matter, neither do most homeowners, who have been treating their homes like ATM machines and relying on price boosts to fund everything from retirement to vacations in Aruba.

But please don't shoot the messenger. My job is to report facts and expert opinions, even if the news is unwelcome. And every forecast I've heard from economists and other experts has projected a cooling of the U.S. housing market this year (though how quickly and by how much remain matters of debate), fueled by such factors as rising interest rates and lack of affordability.

Even real-estate trade associations are predicting the boom's demise. For instance, the National Association of Realtors projects overall median existing-home prices in the U.S. to rise 5.8% in 2006 (less than half of 2005's levels), while existing-home sales are expected to fall 5.7%, to 6.67 million, from last year's record levels. The National Association of Home Builders says new single-family-home sales are likely to fall off last year's record levels, too, declining 9% to 1.18 million, and total housing starts to fall 7.8%, to 1.9 million.

Across the country, real-estate agents tell me, the number of days houses sit on the market is creeping up, and inventory levels are on the rise. Both are early warning signs that prices are poised to fall. And according to the latest statistics from Foreclosure.com, which offers a database of U.S. foreclosure, preforeclosure, government-owned, and bankruptcy properties available to private individuals and tracks the number of these properties,new foreclosures were up 9% in February over the year before. If this trend holds, the company says, new foreclosures will reach higher levels this year than they have in previous years, especially in places like California and Nevada, where speculators are currently pulling out of overheated markets.

It will take some time - perhaps a few months - for homeowners to come to grips with the fact that their vinyl-clad nest eggs aren't expanding anymore, or, in some overheated markets, may even be shrinking. But once they do, they'll be more likely to guard them, and less likely to tap into them for everyday expenses. According to Freddie Mac, the nation's second-biggest buyer of mortgages, the amount of cash home buyers took out of their homes, which reached an estimated $243 billion last year, will fall by more than half in 2006, to about $117 billion.

So where does a declining market leave rehabbers like you? Perhaps a bit worse off when it comes to finding buyers, since folks who already own properties are more likely to stay put when home-price growth stalls and mortgage interest rates rise. But you'll probably find it easier to find bargain properties to fix up, since people tend to let maintenance and repairs slide when they feel less wealthy - plus there will be more foreclosures to choose from.

I don't doubt you at all when you say that a decent house at a decent price will always sell. The problem, of course, is how to know what that price is when your market is in transition. Your success in good markets and bad teaches us a valuable lesson in how to weather the changes ahead: Do your homework, and don't get greedy.

- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Fridays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

Email your comments to rjeditor@dowjones.com.
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The Weekend Guide! March 16 - March 19, 2006

The Weekend Guide for March 16 - March 19, 2006.
Full Article:
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Commercial Real Estate Fundamentals Solid

By: NAR: REALTOR® Magazine Online
Rising demand for space is improving commercial real estate markets across the country, according to the latest Commercial Real Estate Outlook, published by the NATIONAL ASSOCIATION OF REALTORS®.

David Lereah, NAR’s chief economist, says the fundamentals are solid. “Vacancy rates are declining in all of the major commercial sectors, and rents are rising at healthy rates,” he says. “Job growth and international trade are fueling demand for space and facilities.”

NAR President Thomas M. Stevens from Vienna, Va., says the flow of funds into commercial real estate is extraordinary. “Investment grade real estate has been changing hands at unprecedented rates, which demonstrates that the value of portfolio diversification into commercial real estate is being embraced strongly in the investment marketplace,” says Stevens, senior vice president of NRT Inc.

Investment in commercial real estate rose 44 percent in 2005 to a record $268 billion of investment grade real estate, not counting transactions valued at less than $5 million.

Many NAR members underscore this wisdom in their own investments: 13 percent hold an ownership interest in at least one commercial structure, and 39 percent own residential properties for investment in addition to their primary residence or vacation home, Stevens says.
The NAR forecast, expanded to five major commercial sectors, includes analysis of year-end data for various tracked metro areas. The sectors include the office, industrial, retail, multifamily and hospitality markets. Metro data were provided by Torto Wheaton Research and Real Capital Analytics.

Office Market

By the end of this year, office vacancy rates are projected to drop to an average of 11.0 percent from 13.6 percent in the fourth quarter of 2005. Office rents are expected to rise 5.0 percent in 2006.

Office vacancies are at the lowest level since 2001. Markets with a wide pool of skilled workers will experience the strongest demand for space in 2006, as will areas with a rapid in-migration of population.

Areas with the lowest office vacancies currently include Ventura County, Calif.; Orange County, Calif.; Riverside, Calif.; New York City; and Miami, all with vacancy rates of 8.5 percent or less.

Net absorption of office space in 56 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is forecast at 93.4 million square feet in 2006, up from 89.1 million last year.

Nearly $100 billion of investment grade office buildings traded hands in 2005. The top suburban office markets for investment are Los Angeles; Northern Virginia; Orange County, Calif.; Dallas; and Northern New Jersey.

Industrial Market

Trade with China continues to stimulate the industrial sector with burgeoning traffic at ports, both traditional and inland. This traffic is causing increased demand for warehouse and distribution facilities, especially for markets near major ports of entry or distribution hubs. Congestion is being reported at major West Coast ports, with some traffic being diverted through the Panama Canal to Florida.

New industrial construction should rise 20 percent this year to accommodate specific distribution requirements and to replace structures that are now obsolete.

Industrial vacancy rates are likely to fall to an average of 8.0 percent in the fourth quarter of 2006 from 9.6 percent in the last quarter of 2005. Industrial rents are expected to grow 3.8 percent this year.

The areas with the lowest industrial vacancies are West Palm Beach, Fla.; Los Angeles; Las Vegas; Riverside, Calif.; and Orange County, Calif., all with vacancy rates of 5.7 percent or less.

Net absorption of industrial space in 54 markets tracked is projected at 270.1 million square feet in 2006, compared with 279.1 million in 2005.

Investment transaction volume increased 65 percent in the industrial sector to $34.5 billion in 2005. The top industrial investment markets are Chicago, Los Angeles, Atlanta, Dallas and Seattle.

Retail Market

The retail sector has undergone significant changes recently with megamergers that will continue to impact markets across the country. This includes mergers of Sears and K-Mart, and May Department Stores with Federated Department stores. In some areas, new space is being built without sufficient demand, but retail space absorption will slightly outpace the amount of new space brought to market this year.

Retail vacancy rates are forecast to decline to an average of 7.8 percent by the end of the year from 8.0 percent in the fourth quarter of 2005, and average rent should rise 4.0 percent in 2006.

Retail markets expected to have the lowest vacancies this year include San Francisco, Las Vegas, San Diego, Seattle and West Palm Beach, which are seen to have year-end vacancies of 3.4 percent or less.

Net absorption of retail space in 54 tracked markets is likely to be 31.4 million square feet in 2006, down from 43.8 million last year.

Investment in retail space increased 16 percent to $46.4 billion in 2005, with strip centers accounting for two-thirds of the total. The top markets for strip center investment include Los Angeles, Phoenix, Houston, Chicago and Atlanta.

Multifamily Market

The apartment rental market – multifamily housing – is tightening, and vacancy rates are forecast to drop to an average of 4.5 percent this year from 5.2 percent in 2005. Average rent is projected to increase 5.3 percent in 2006.

Conversion of apartments into condos accounted for 34 percent of the multifamily properties that traded hands in 2005. NAR expects condo conversion to slow this year, coinciding with an increased demand for rental housing.

Total investment in multifamily property rose 72 percent in 2005 to $86.9 billion, with $29.4 billion spent by condo converters who took 191,400 units out of the active rental market. The top markets for garden apartment investment are Phoenix, Tampa, Orlando, Los Angeles and Atlanta.

Not surprisingly, areas with the lowest apartment vacancies happen to be markets with a lot of conversion activity. These include Fort Lauderdale, West Palm Beach, Miami, San Jose, Calif., and Northern New Jersey, all with vacancy rates of 2.5 percent or less. These areas also are experiencing rapid in-migration, which is increasing housing demand.

Multifamily net absorption is forecast at 289,100 units in 59 tracked metro areas in 2006, compared with 319,400 absorbed last year.

Hospitality Market

The tourism and hospitality sector slumped severely after September 11, 2001, but began to turn around in 2004. With increased occupancies and higher revenues, new hotel construction is now economically feasible.

Hotel occupancies should reach 68.7 percent by the end of 2006, up from 64.5 percent in the last quarter of 2005, and revenue per available room (RevPAR) is likely to grow to $76.01 this year – an increase of 6.3 percent. An additional 31,500 hotel rooms are projected to be added to the inventory in 52 markets tracked this year, up from less than 3,900 in 2005.

Markets with the highest forecast for RevPAR include West Palm Beach, Honolulu, New York City, Miami, Phoenix and Fort Lauderdale, which can see RevPAR in excess of $100.00, far above the national average of $74.39 expected for the first quarter. Areas with the biggest gains in RevPAR, which indicate hot markets for growth, include Honolulu, Houston and Chicago.

Hospitality markets with the highest occupancy levels include West Palm Beach, Honolulu, Fort Lauderdale, Phoenix and Miami, all with occupancy rates of 82.2 percent or higher. For the United States as a whole, occupancy should be 66.1 percent in the first quarter.

The Commercial Real Estate Outlook is published by the NAR's Research Division for the REALTORS® Commercial Alliance (RCA).

The RCA, formed by NAR in 1999, serves the needs of the commercial market and the commercial constituency within NAR, including commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and NAR affiliate organizations.
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New tactics are in order with spring's cooler market forecast

As inventories rise and sales get sluggish, sellers should avoid pricing too high, but buyers shouldn't expect a steal.
By: Kenneth R. Harney, Washington Post Writers Group: LA Times
The spring real estate season is about to get underway, and anybody who expects to take part needs to start putting together a strategy.

But what a confusing time it is. The real estate market is sending very mixed messages. On the one hand, inventories of unsold listings are up and sales are sagging in most areas. In Massachusetts, for years one of the hottest states in the country for home value appreciation, sales were down 21% in January. Unsold inventories are billowing in Florida, California, Arizona, New York, Washington, D.C., and other large markets as well.

Nationwide, according to the National Assn. of Realtors, the inventory of unsold houses on the market is at its highest level in seven years — more than a five-month supply. The number of unsold houses listed for sale has swollen to 2.8 million, up 580,000 in the last 12 months.

Looks like a tough time to be a seller. But here's where things get confusing. The latest federal and private-sector statistical reports suggest that price inflation in dozens of metropolitan areas is still chugging along at a double-digit clip.

The Office of Federal Housing Enterprise Oversight found average home values rose by nearly 13% from the fourth quarter of 2004 through the same period of 2005. The National Assn. of Realtors found that a record 72 metropolitan areas saw double-digit annual increases in median resale home prices in the final quarter of 2005.

Some of the price gains measured by federal researchers were stunningly high. Arizona had an average house price inflation rate of 35% from the end of 2004 through December 2005. California's average home price appreciated 21%.

Yet all these markets are simultaneously experiencing rising inventories, slower sales and reports of asking-price reductions. How can all of this be going on at the same time? If markets are cooling — and just about everybody agrees that's the case — then why isn't that being reflected in prices, nationally and locally?

Here are a couple of thoughts that might help you with your spring strategy:

The recent statistical measures of prices may be misleading for would-be sellers and buyers. Even David Lereah, the chief economist of the National Assn. of Realtors, hinted that fourth-quarter national and local median price changes may have reflected tighter inventories coming off the summer months "that … still favored sellers." But "the good news," he says, "is that the supply of homes on the market has been trending up" — opening the door to more "balanced" bargaining strategies for buyers.

Lawrence Yun, the association's senior forecast economist, puts it even more bluntly: Looking ahead in 2006, he says, "double-digit price appreciation mostly is history. Home sellers will have to adjust their expectations and sell at more competitive prices."

Put another way: The breathless fourth-quarter 2005 price appreciation numbers aren't necessarily a smart guide to pricing your real estate this spring. If you're selling in one of the 72 markets that saw median prices jump by double digits, don't expect to lard on a double-digit increase over what you might have commanded last spring.

"Rather than putting a home on the market at a 15% higher price than last year," advises Yun, try "for 5%" more this spring.

On the flip side, buyers shouldn't expect to negotiate prices that are far below 2005 levels, unless the property they want to buy is located in an area that has been affected by heavy employment layoffs or excessive supply in a niche segment such as investor condos.

Equally important: Keep your eye on interest rates. As long as 30-year mortgages hover near the 6% range — cheap money by any historical measure — home prices are not going to budge much.
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SoCal real estate sales fall again

Prices continue to escalate as market cools.
Inman News
Home prices in Southern California edged up to a new record in February, as sales fell to their lowest level in five years, a real estate information service reported.

Los Angeles home sales fell 9.2 percent in February to 6,405, while the median home price jumped 15.6 percent to $490,000.

The median price paid for a home in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties was $480,000 last month. That was up 2.3 percent from $469,000 in January and up 12.9 percent from $425,000 for February a year ago, according to DataQuick Information Systems.

The previous record of $479,000 was set in November (and December). Last month's year-over-year price increase of 12.9 percent was the lowest since March 2002 when prices rose 12.7 percent to $257,000 from $228,000 a year earlier.

"It's numbers like these that both bubble-theorists and market cheerleaders can pounce on to make their points," said Marshall Prentice, DataQuick president. "Reality is more mundane. The frenzy is behind us, we're in a new phase of the real estate cycle and what remains to be seen is how this cycle's end game will play out. We'll know much more when next month's figures are in."

A total of 19,905 new and resale Southland homes were sold last month. That was down 0.9 percent from 20,085 in January, and down 7 percent from 21,394 for February last year.

A decline from January to February is normal for the season, DataQuick reported. Last month's sales count was the lowest for any February since 2001 when 18,040 homes were sold. The strongest February in DataQuick's statistics was in 2004 when 23,004 homes were sold; the weakest was in 1991 when 10,025 homes were sold.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,251 last month, up from $2,162 for the previous month, and up from $1,905 for February a year ago. Adjusted for inflation, current payments are about 2.7 percent above typical payments in the spring of 1989, the peak of the prior real estate cycle.

Indicators of market distress are still largely absent, DataQuick reported, and foreclosure activity is edging up from its bottom, but is still low. Financing with adjustable-rate mortgages has dropped significantly during the last three months. Down payment sizes are stable, as are flipping rates and non-owner-occupied buying activity, DataQuick reported.

DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

All Homes          #Sold     #Sold       Pct      Median    Median     Pct
                           Feb-05   Feb-06    Chng.   Feb-05    Feb-06    Chng.

Los Angeles        7,056    6,405    -9.2%    $424K     $490K    15.6%

Orange County    2,890    2,672    -7.5%    $555K     $617K    11.2%

San Diego          3,442    2,865   -16.8%    $472K     $502K     6.4%

Riverside           4,084    4,282      4.8%    $372K     $410K    10.2%

San Bernardino   3,040    2,877     -5.4%    $292K     $373K    27.7%

Ventura                882      804     -8.8%    $521K     $618K    18.6%

So. California    21,394   19,905    -7.0%    $425K     $480K    12.9%

Source: DataQuick Information Systems, DQNews.com
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Housing Market Readjusting to Normal Balance

By: NAR: REALTOR® Magazine Online
A lower level of home sales expected this year will create a more level playing field for buyers and sellers on the heels of a five-year sellers’ market, according to the NATIONAL ASSOCIATION OF REALTORS®.

David Lereah, NAR’s chief economist, said the number of homes on the market has been improving nicely. “The cooling from overheated sales conditions in recent months is helping to bring inventory levels up to the point where buyers have more choices than they’ve seen in the last five years,” Lereah said. “Annual price appreciation is still running at double-digit rates, but the cause of those sharp increases is going away. As the market readjusts, price appreciation should return to more normal rates of growth this year.”

The national median existing-home price for all housing types is projected to rise 5.8 percent in 2006 to $220,300. The median new-home price should increase 5.4 percent this year to $250,200.

Existing-home sales are expected to fall 5.7 percent to 6.67 million in 2006 from the record 7.08 million last year. At the same time, new-home sales are forecast to decline 7.7 percent to 1.18 million from a record 1.28 million in 2005 – each sector would be at the third highest year following the tallies for 2005 and 2004. Housing starts are likely to total 1.98 million this year, down 4.3 percent from 2.06 million in 2005.

NAR President Thomas M. Stevens from Vienna, Va., said some home buyers and sellers have unrealistic expectations. “Some sellers in markets that have had rapid appreciation are listing the price of their home too high, but those homes are just languishing on the market,” said Stevens, senior vice president of NRT Inc. “At the same time, some buyers who have believed hype about a housing bubble are hoping prices will drop, but that’s not happening either.

“Consumers need professional assistance to understand and negotiate the current market realities. Sellers should listen to their agent’s advice to competitively price and show the home, and buyers may want to choose a buyer’s agent to represent their interests and help them negotiate favorable terms. Today’s market has changed a lot from the conditions we’ve seen during the last five years.”

The 30-year fixed-rate mortgage should increase gradually to 6.9 percent in the fourth quarter.

Inflation as measured by the Consumer Price Index is projected at 3.3 percent this year. Inflation-adjusted disposable personal income is expected to grow 3.7 percent in 2006.
Growth in the U.S. gross domestic product is forecast at 3.5 percent in 2006, while the unemployment rate is seen to average 4.8 percent this year.
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Making Millions through Real Estate

Columnist Phoebe Chongchua reviews tips on what investors need in today's market.
By: Phoebe Chongchua: Realty Times
Many of the richest people in the world have earned their wealth through real estate. That's why real estate investing is touted as the avenue to riches, but while it is estimated that 80 percent of the world's wealth is held in real estate it is owned by a very small percentage of the population - less than 20 percent, according to a new book on real estate.

Lisa Vander is founder of Pacific Blue Investments, a real estate investment advising company, and author of The Real Guide to Making Millions through Real Estate: Start Your Own Portfolio With as Little as $3000.

Her nearly 300-page book details how to begin the investing process. Filled with tangible information, worksheets, and hot tips - you have a wealth of knowledge in one resource book.

Here are some tips from the book on what investors need.

Have an understanding of the timing of the market.

"You've got to understand how the market cycles so that you're not disappointed or having unmet expectations when the market is going to do what it is naturally going to do, which is go up and down," says Vander.

Have an understanding of how to analyze real estate numbers.

There are four parts of understanding the numbers of real estate: appreciation, cash flow, loan reduction and tax benefits and how they work together to produce a rate of return on equity that you have in a property.

"You're shifting your mentality from an 'Oh, the property is gaining in value' which is appreciation to how hard is the money, that I have in the property, working for me," explains Vander.

Have an understanding of the economic environment where you hold real estate.

"How diverse is the economy that I am putting my money/capital into and what's the likelihood of my investment being there today, tomorrow and into the future," says Vander. She says there are six economic indicators to consider that help to determine the health and viability of a market where you plan to invest in real estate. They are: mortgage interest rates; affordability indices; supply and demand; demographic information; commercial real estate; and health of the job market.

Vander also points out that, savvy investors take time to research both macro and micro economics when purchasing real estate.

"Macro economics is the study of how large economic forces impact the health and stability of an economy," writes Vander. She says things such as: recessions/depressions; nationally based loan interest rates; wartime; and demographics of the nation are areas that investors should research.

Micro economics is a look at individual sectors of the economy, concentrating on local and regional areas. Vander names the following as factors that will affect real estate: local and regional recessions/depressions; local or regional disasters; age; seniors; youth; diversification of the job market; unemployment rates; affordability indices; supply and demand; new housing starts; existing housing for sale; permits being pulled; commercial real estate; types of vacancies.

Making millions through real estate is possible and with the help of Vander's new book - how to do it is no longer knowledge just for the wealthy.
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