August 18, 2009
Vol. 10 No. 8
News for the Orange County Commercial REALTOR®
O.C. Apartment Rents Decline 4%
Apartment tracker Realfacts says that rents at large Orange County apartment complexes fell in the second quarter at a 4.1% annual rate. The countywide average rent was $1,534 a month for the quarter - down $65 in a year Last time lower was 1st quarter of 2007. Empty units equaled 7.6% of the Orange County apartments tracked in the second quarter vs. 5.5% a year ago. “It’s definitely a renter’s market. A renter with good credit, they can call the shots,” says RealFacts’ Sarah Bridge. When asked how long the renter’s market might last, Bridge said: “Certainly through the end of the year. As for 2010, it’s hard to know; depends on what happens to the economy.” Price drops were largely steepest for smaller apartments, as Orange County renters frequently sought larger units to save on housing costs by sharing rents with roommates.
Studio: -5.0% Jr. 1 bedroom: -5.4% 1 bedroom / 1 bath: -4.3% 2 bedroom / 1 bath: -3.5% 2 bedroom / 2 bath: -4.1% 2 bedroom townhome: -3.8% 3 bedroom / 2 bath: -4.5% 3 bedroom townhome: -3.3%
Source: O.C. Register
O.C. Commercial Property Tax Values Off $2 Billion
The taxable value of Orange County’s commercial, industrial and apartment properties fell about $2.1 billion in the 2009 -10 tax year, county Assessor Webster Guillory said. The Assessor’s Office reported that 1,798 non-residential properties in the county either saw their tax assessments lowered or unchanged from last year. Those tax assessments are the basis for determining property taxes for each parcel. Apartment buildings accounted for 908 of those properties avoiding a tax hike. Guillory said the taxable value of those buildings was reduced by about $300 million. In addition, assessments were lowered or remained unchanged for 890 commercial and industrial buildings, he said. The collective reduction in taxable values for those structures was about $1.8 billion. That compares to 179,452 residential properties that either saw taxable values reduced or unchanged.
Source: O.C. Register
Dana Point St. Regis Foreclosed - Citigroup New Owner
Ownership of Dana Point’s St. Regis Monarch Beach Resort has turned over to New York-based lender Citigroup Inc. The forfeiture ends two months of negotiations between Citigroup and the property’s prior co-owners, Newport Beach-based Makar Properties LLC and San Francisco hedge fund investor Farallon Capital Management LLC. The hotel had been set for auction after Citigroup moved in May to foreclose on a $70 million, secondary mezzanine loan. The auction was put off twice before the transfer was announced. White Plains, N.Y.-based Starwood Hotels & Resorts Worldwide Inc. is set to continue operating the hotel under its St. Regis brand. The hotel's daily operations aren't expected to be affected by the ownership transfer. The change in ownership for the 400-room hotel, one of Orange County’s poshest resorts, is the most notable example of a property going back to a lender in a downturn that has battered hotels in the past year. Including the Citigroup loan, the St. Regis has about $300 million of debt tied to it after a 2007 refinancing. Industry watchers say the hotel’s value now is closer to $150 million. The St. Regis hasn't recovered from a dented public image after last fall's controversial meeting there by American International Group Inc., the government-owned insurer. Citigroup started foreclosure proceedings on its loan after Makar Properties and Farallon fell behind on payments. About $230 million in senior debt on the hotel is held by Newark, N.J.-based Prudential Financial Inc. and a unit of Seattle-based Washington Real Estate Holdings LLC. Sources familiar with the hotel's financing say the primary debt holders backed Citigroup's move since the investment bank is likely to stay up to date on payments to them. At the time of Citigroup's foreclosure move, a source told the Business Journal the investment bank sees the hotel as having long-term value as one of the last large coastal resorts to be built in the state.
Source: Orange County Business Journal
Higher Management Costs Coming?
Get ready for another round of workers' compensation insurance premium increases next January. An influential group controlled by the insurance industry has recommended a 22.8 percent rate increase. The Workers' Compensation Insurance Rating Bureau of California, in arguing for the higher rates, said rising medical costs are largely the reason. The findings are advisory but generally set the pattern for the industry. Insurers raised rates nearly 10 percent on average in July after the bureau called for a 23.7 percent increase. Rates generally are set twice a year, in January and July. Workers' comp is a hot-button issue for many employers and real estate owners and is often blamed for the state's reputation as an expensive place to do business. Backlash against sky-high premiums prompted the Legislature to overhaul the system twice, in 2003 and 2004, and rates are about 60 percent lower than in 2003. But as rates have begun to creep back up, economic development officials from states such as Nevada have been pointing to workers' comp costs in their efforts to lure companies from California.
Source: Sacramento Bee
San Clemente Retail & Residential Project - Will It Ever Be Built?
The proposed 247-acre Marblehead Coastal Residential and Outlet Mall project that has been stalled for the last few years may see some progress. The site was graded and had a new canyon bridge built, but all work stopped when SunCal, the developer, ran into financial problems. A New York-based investment firm, D.E. Shaw, has made a $195-million bid to purchase a number of SunCal's California projects, including the oceanfront Marblehead Coastal property. According to the Orange County Business Journal's story in its Aug. 10-16, 2009 issue, D.E. Shaw has connections to Lehman Brothers Holdings Inc., SunCal’s lender who filed for bankruptcy in October 2008. The report says that the Marblehead property has close to $258 million in loans tied to it. Lehman’s latest appraisal says the property is worth $188 million now; but SunCal, which supports the D.E. Shaw bid, values the property at only $74 million. Lehman apparently opposes the D.E. Shaw bid and values the nine properties D.E. Shaw has bid on at closer to $500 million. A hearing on the D.E. Shaw bid was postponed in late July until October. As of a few weeks ago, there were no other known bidders on the projects.
Source: San Clemente Times
New Loan Disclosure Rules May Potentially Affect Close Of Escrow
Starting July 30, 2009, if the APR on an initial Good Faith Estimate is no longer accurate (within a 0.125% range) at close of escrow, a lender must generally provide a residential borrower with a new disclosure and a three-day right to rescind before consummating the loan. REALTORS® are forewarned that, because of this new three-day waiting period, a lender's failure to timely provide corrected disclosures has the potential of delaying funding of the loan and close of escrow. This new requirement is part of the Mortgage Disclosure Improvement Act (MDIA) implementing new loan procedures to protect borrowers and foster greater transparency in mortgage lending. For loan applications submitted on or after July 30, 2009, the new MDIA changes to the Truth In Lending Act are generally as follows: Applicability: The new MDIA rules pertain to federally-related mortgage loans covered under RESPA and secured by a consumer's dwelling. The rules apply to both purchase and refinance loans. Early Disclosures: A lender must provide a borrower with an initial Good Faith Estimate within three business days of receiving the borrower's written loan application as specified. For this provision, a "business day" is generally defined as a day on which the lender's offices are open for business. Upfront Fees Restriction: Neither a lender nor any other person may impose an upfront fee on the borrower (except for credit report) until the borrower has received the early disclosures in person or, if mailed, three business days after the early disclosures are mailed. For this rule, a "business day" is defined as all calendar days except Sundays and legal public holidays as specified. Seven-Day Waiting Period: A lender must wait seven business days after providing the early disclosures before consummating the loan. For purposes of this waiting period, a "business day" is defined as all calendar days except Sundays and federal legal holidays as specified. A borrower may waive the waiting period in writing in case of personal financial emergency, such as an imminent foreclosure sale. Re-disclosure Requirement: If the final Annual Percentage Rate (APR) at loan consummation varies more than 0.125% (or 1/8 of one percent) from the initial APR on the early disclosures of a regular transaction, the lender must provide the borrower with a corrected disclosure at least three business days before the loan is consummated. For purposes of this waiting period, a "business day" is defined as all calendar days except Sundays and federal legal holidays as specified. Three-Day Waiting Period: For corrected disclosures, a lender cannot consummate a loan until three business days after the the borrower receives the corrected disclosure in person. If the corrected disclosure is mailed, the borrower is deemed to have received it three business days after it is placed in the mail. A borrower may waive this waiting period in writing in case of a bona fide personal financial emergency, such as an imminent foreclosure sale.
Source: CAR Realegal
Inland Industrial Property Vacancies Hit 12.3%
Commercial real estate showed few signs of a rebound in the second quarter, but if there was a bright spot anywhere in Riverside and San Bernardino counties, it was one location in Temecula. Property broker Grubb & Ellis reported that the industrial vacancy rate in Inland Southern California climbed to 12.3 percent in the second three months of the year, up from 11.8 percent in the first quarter. A year ago there was a 7.9 percent vacancy rate. Also, Grubb & Ellis reports 53.2 million square feet of vacant industrial space in the two Inland counties. That is up from 50.5 million square feet in the first quarter and 32.6 million in the second quarter of 2008. In the second quarter, 1.6 million square feet was under construction, down 80 percent from a year ago, which is continued bad news for construction companies and related operations.
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More than one third of that space was the 602,000 square feet being built for Professional Hospital Supply Inc. in Temecula, said Dane Fedora, client services manager for Grubb & Ellis' Ontario office. But the area is not expected to keep up the growth, he said. "Temecula has always been sort of an entity unto itself because it's a gateway to San Diego," Fedora said. "But in this quarter, I would expect it would likely be more in line with the rest of the Inland area." Developers have put a virtual moratorium on breaking ground for speculative industrial properties, Grubb & Ellis spokeswoman Julia McCartney said in a statement. That means work is unlikely to be started if no tenant has been lined up. Generally the activity is weaker in the eastern portions of the Inland Empire, a trend that started more than a year ago when gasoline cost more than $4 a gallon. Shippers realized that the extra 25 miles bringing goods to Perris or Redlands made a difference, so the Interstate 15 corridor started seeing more activity than the east valleys.
Source: Riverside Press Enterprise
Apartment Values Falling
After a dozen years of rate hikes, landlords in Southern California are cutting rents and offering an array of move-in specials - from discounted rent and security deposits to free rent to flat screen TVs. "If you have a good job and can afford the rent, it is the best time to be a renter. There's lots of competition. Everyone is offering the moon right now," said Velma Isaac, a leasing consultant at Countrywood, a 161apartment complex in Redlands. But landlords are struggling to fill apartments because high unemployment has driven apartment vacancies up. Renters who have lost jobs or had their wages cut are sharing units or moving to smaller, less fancy apartments or back home with parents. Frank Allen, vice president of Allen Properties in Lake Forest, which operates apartments throughout Southern California, said those who anticipated the explosion of home foreclosures would fill apartments with displaced families were mistaken. As ousted homeowners are moving into apartments, existing renters are moving out to buy bargain-priced foreclosed houses or to lease houses that investors have bought from lenders and converted to rentals. As rents fall 3-6% and higher in some areas, the market values of these buildings also fall. In addition, as investors become aware of future inflation due to the recent huge government spending and the resultant higher interest rates, they are demanding higher CAP rates, further reducing prices. We're seeing this all across the Southland - the Inland Empire, Los Angeles, San Diego and Orange County. The real estate agent who lists a property with a 3% CAP rate will most likely see nothing happen. Investors will not buy property with little economic benefit. Why take the risk of investing in real property with very little near-term upside? The prediction is that apartment building values must drop enough to afford at least a current 5-8% CAP rate. Someone should probably explain this to the sellers of these buildings and their agents - they are not seeing reality.
Source: multiple sources
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