Just Listed brings you the latest news and information from the Twin Cities-area commercial and residential real estate market and beyond from veteran reporters Jim Buchta and Kristen Leigh Painter.

Posts about Debt

Twin Cities negative equity rate now 60 percent below peak

Posted by: Jim Buchta Updated: December 17, 2014 - 11:16 AM

Here's a little nugget of good news for the Twin Cities housing market: The number of homeowners in the metro who have mortgage that exceeds the value of their house continues to fall, and is below the national average. Zillow says that in the Twin Cities metro, 107,785 homeowners – 15.6 percent of all homeowners with a mortgage – were underwater during the third quarter. That's down from 21.1 percent a year ago and 60.1 percent below the peak. Nationwide, the negative equity rate fell from 16.9 percent from 31.4 percent at the peak.

Here's what Zillow's chief economist, Stan Humphries, had to say about the situation: “Looking at negative equity helps us understand so many of the currently out-of-whack dynamics in the housing market, including low inventory, rapid home value appreciation and weak sales volumes. None of these problems will be solved overnight, in large part because negative equity will likely be a part of the housing market for years, and easily into the next decade in some hard-hit areas. But we’re moving in the right direction, and time will heal all wounds.”

Nationwide, owners of less-expensive homes were more likely to be underwater than owners of more expensive homes. In Detroit, for example, 49.2 percent of homes valued in the bottom price tier were underwater, while just 7.6 percent of the area’s highest-priced homes were upside down. And in Chicago, 41.4 percent of bottom-tier homes were in negative equity, compared to 23.9 percent of middle-tier homes and 10.4 percent of top-tier homes. Nationwide, 27.4 percent of the least-expensive homes were in negative equity in the third quarter, compared with 15.7 percent of middle-tier homes and 9.3 percent of top-tier homes.

Report: commercial real estate moved from hot to "on fire" in third quarter

Posted by: Kristen Leigh Painter Updated: November 25, 2014 - 9:58 AM

The U.S. commercial real estate market moved from hot to “on fire” in the third quarter this year, according to a new Real Estate Research Corp. report that draws several parallels between current market trends and those of pre-recession 2007.

An increase in “undisciplined off-shore” capital is pressuring the commercial real estate prices in the United States to escalate, particularly in secondary and tertiary cities. Additionally, the RERC report – titled “Prices Pressure Values” – juxtaposes the increase in available capital with the loosening of underwriting standards, i.e. a commercial bank’s own rules governing debt and lending.  

While the report’s authors offer up cautionary data, they also soften the information by pointing out several regulatory standards and market conditions that are in sharp contrast to those of 2007.

“As the commercial real estate market shifts from being hot to being on fire, there is increasing concern over the prices investors are pay­ing, as well as the risks that lenders are taking on,” wrote Constantine Korologos, managing director of Situs, the parent company to RERC. “It is normal to be apprehensive, but investors should be careful not to confuse where we were seven years ago with where we are today.”

Korologos appears to be spurring his readers toward continued investment by outlining the differences between the present environment and the mistakes of our recent past that led to the meltdown:

  • “At the beginning of November 2014, commercial mortgage-backed securities (CMBS) issuance year-to-date was approximately $79 bil­lion. That is an increase of 10.6 percent, or $7.6 billion, compared to the same period last year. With nearly 2 months to go yet before the end of the year, the com­bination of deals priced and still in the pipeline makes it increasingly likely that CMBS issuance will reach close to $100 billion in 2014. And while reaching that would be a substantial increase in issuance over 2013, it pales in comparison to the peak of over $230 billion of CMBS issued in 2007.
  • There is an absence of an aggressive mar­ket for collateralized debt obligations (CDOs). The CDO market was a multi-billion dollar market, and for a few years prior to the Great Reces­sion, it was a financing mechanism for the most junior CMBS bonds. Extremely complex CDO structures were created... Real estate CDO issuance peaked in 2006 at $40 billion; it was $3.4 billion in 2013. Sec­ondly, the subprime residential market, which exacerbated the crisis in 2007, is currently very minimal and should have little effect in today’s environment.
  • The financial market has also been systemically altered through the Dodd Frank Act as well as Basel III. These laws increased the mini­mum capital requirements as measured by common equity, which also must take into account risk-weighted assets for large bank hold­ing companies. The bank holding companies must also have capital conservation and counter-cyclical buffers, and requirements have been set up to mitigate risks via minimum liquidity ratios and lever­age ratios.”

In the end, Korologos says rising liquidity and competition are positive signs, but reminds investors to keep their eyes open and remember market basics: supply and demand, and vacancy, rental, yield, interest and cap rates

U.S. rental vacancies rise for the first time in nearly five years

Posted by: Jim Buchta Updated: October 2, 2014 - 9:11 AM

U.S. rental vacancies rise for the first time in nearly five years, according to a preliminary apartment sector trends report from Reis. The report says the apartment vacancy rate in the Twin Cities was 3.2 percent, virtually unchanged from the previous quarter despite the addition of hundreds of new apartments. Other highlights from the report:

  • The national vacancy increased by 10 basis points to 4.2 percent, the first time since the fourth quarter of 2009 that the vacancy rate increased.
  • Asking and effective rent growth was up from the second quarter, with both increasing by 1.0 percent.
  • On a year-over-year basis asking and effective rents grew by 3.2 percent and 3.4 percent, respectively, in line with the results from last quarter.
  • New construction continues to rise, with 46,055 units hitting the market during the quarter. That was the second-highest quarterly amount since the fourth quarter of 2002. So far this year, 113,024 new units have come online compared with 85,438 units delivered through the first three quarters of 2013.

Opus to build speculative 121,000 square-foot warehouse in Shakopee

Posted by: Jim Buchta Updated: September 25, 2014 - 2:45 PM

The market for industrial space continues to improve. The Opus Group said Tuesday that it signed an agreement with Capp Industries Inc. to design and build a 121,000-square-foot speculative warehouse and distribution facility at 4551 12th Avenue in Shakopee.

The building will be adjacent to the first phase of project, which Opus built for Capp in 1996. The new building will have 32-foot height ceilings and 50-foot deep structural bays. Capp is a Bloomington-based commercial and industrial real estate developer that’s been in business more than 50 years.

With the economy on the mend and the commercial sector heating up, a growing number of companies are trying to anticipate future growth by building more commercial and warehouse space in the Twin Citeis metro. My colleague, Janet Moore, explored that trend in a story earlier this year. The vacancy rate for industrial buildings in the metro is just 10.8 percent, according to a Compass report from Cushman & Wakefield/NorthMarq.

This is not the first collaborative effort for the two companies. “We’re looking forward to again working with Capp Industries to bring another top-of-the-line facility to the Twin Cities industrial market,” said Leith Dumas, director, Opus Design Build, L.L.C. “This project will build on the success of our previous work for Capp Industries and provide a flexible, well-located facility to fill the demand for industrial space in the area.”

Construction is expected to begin this fall and be ready for completion in January 2015. Capp will own and lease the project.

Average monthly rent in the Twin Cities breaks $1,000

Posted by: Jim Buchta Updated: May 16, 2014 - 10:39 AM

More than 1,000 new apartments hit the market in the in the Twin Cities during the first quarter, but the average vacancy rate increased only slightly to 2.7 percent, according to a new Twin Cities Metro Area TRENDS report from Marquette Advisors. Here's a snapshot of what's happening around the region during the first quarter:

  • With the supply of units across the metro still below what's considered healthy levels, rents are on the rise.
  • The average rent across the metro rose 3.5 percent to $1,000.A total of 1,011 new units were added, including 757 units in Minneapolis and another 254 units in St. Paul. Absorption totaled 636 units for the quarter, in spite of a somewhat sluggish job market, as metro employment increased by only 900 jobs through March 2014, according to data from the MN Department of Employment and Economic Development (MN‐DEED).
  • The Downtown Minneapolis submarket saw its vacancy rate increase to 5.0 percent, up from 2.2 percent a year ago and 4.0 percent last quarter. This submarket has been the most active in the region in terms of new construction and leasing activity with 1,246 new units coming online in 2013 and another 389 through the first quarter of 2014. Rents downtown increased 9.1 percent, mostly a reflection of higher-priced luxury units hitting the market.
  • Vacancy rates are expected to increase is over the next several months as another 1,30-plus units are expected to open during the year.

The complete list of best and worst U.S. markets for rental housing returns

Posted by: Jim Buchta Updated: April 1, 2014 - 12:40 PM

In many parts of the country house prices are rising faster than rents, making it difficult to find investment opportunities that will cash flow. A new analysis by RealtyTrac takes a closer look at where median home prices and average rental rates make for good — and not so good — returns on rental properties. That rental return, by the way, for each county is the gross rental yield, calculated by taking the 2014 fair market rent for a three-bedroom home multiplied by 12 (months) and then dividing that 12-month total by the median sales price of residential properties in the county. Here's what they found:

ADVERTISEMENT

Connect with twitterConnect with facebookConnect with Google+Connect with PinterestConnect with PinterestConnect with RssfeedConnect with email newsletters

ADVERTISEMENT

ADVERTISEMENT