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.

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Case-Shiller: Home price gains in the Twin Cities slowing

Posted by: Jim Buchta Updated: November 25, 2014 - 10:29 AM

House prices in the Twin Cities and beyond are rising, but not as quickly as they did  earlier in the recovery. That's according to the September S&P/Case-Shiller U.S. National Home Price Index, which shows that a 10-city composite gained 4.8 percent year-over-year, down from 5.5 percent in August. The 20-city composite gained 4.9 percent year-over-year, compared to 5.6% in August.

In the Twin Cities metro, prices during September increased 0.1 percent from the previous month and 3.1 percent from last year. That's slightly behind a the 4.8 percent annual gain for the National Home Price Index, which covers all nine U.S. census divisions. 

Though price gains are moderating, the report noted several statistics that bode well for a continued recovery. Housing starts held above one million at annual rates because of gains in single-family homes, sales of existing house are rising, builders’ sentiment has improved and mortgage default rates are at pre-crisis levels. This following chart shows house prices in the Twin Cities house prices through September.

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

Trio of suburban apartment buildings fetch $78 million

Posted by: Jim Buchta Updated: November 21, 2014 - 2:58 PM

Plymouth Square at 37th

A Kirkland, Washington investor has doubled its holdings in the Twin Cities metro. Weidner Investment Services paid a Chicago, IL based real estate venture more than $78 million for three suburban Twin Cities apartment properties with a total of 606 units. Abe Appert, Keith Collins and Laura Hanneman of CBRE’s Multifamily Group Minneapolis office represented the seller.

Weidner has acquired six apartment complexes in the Twin Cities metro during the last 13 months, bringing its total holdings to 1,236 units, with an additional 138 unit project currently under construction. The company already owns more 40,000 apartments in the US and Canada.

The most recent deal includes Greens at Edinburgh in Brooklyn Park, Plymouth Square at 37th in Plymouth, and Town Centre at Lexington in Eagan. Those buildings have packed with amenites, including underground heated parking, swimming pool(s), community rooms and fitness centers.  The deal follows the sale of several just completed apartment buildings in downtown Minneapolis, including the Nic on Fifth and Velo.Town Centre at Lexington in Eagan

Twin Cities apartment sales nearing a record

Posted by: Jim Buchta Updated: November 20, 2014 - 10:40 AM

Trammell Crow execs, Johnny Carlson and Grady Hamilton, at Junction Flats the day after the deal closed.

Trammell Crow execs, Johnny Carlson and Grady Hamilton, at Junction Flats the day after the deal closed.

Twin Cities apartment buildings are trading nearly as fast as developers can build them. Last week we reported that Trammell Crow sold the Junction Flats in the North Loop neighborhood to Greystar, a national development company that recently built the sprawling Elan apartments in the Uptown neighborhood in South Minneapolis.

The big news this week is that the Opus Group sold the barely used 253-unit Nic on Fifth building in downtown Minneapolis for what's rumored to be a record price for a Twin Cities apartment building.

What's next? The 222 Hennepin development in the heart of downtown Minneapolis, including 286 luxury apartments and a 40,000 square-foot Whole Foods store, hit the market this week and is expected to close within the next few months. (Here’s a link to the listing.)

This flurry of deals represents an unusual moment for the Twin Cities apartment market, which is benefitting from steady declines in the homeownership rate and a better-than-average jobs recovery. National investors can't resist. Apartment building sales (based on volume) this year could set a record depending on when the 222 deal closes. Stay tuned for more coverage on this topic.

Twin Cities ranked most affordable for homebuyers

Posted by: Kristen Leigh Painter Updated: November 17, 2014 - 12:50 PM

Minneapolis-St. Paul does not have the cheapest housing stock in the nation, but its higher wages make it the most affordable city for home ownership among the 25 largest U.S. metro areas, according to a new report. 

Interest.com calculated its new rankings based on several criteria. The study found that the median household income in the Twin Cities is a little more than $67,000 -- nearly $15,000 above the national average -- and the median-priced home is nearly $213,000. 

The margin isn't as great as last year, but the median income exceeds the wage requirements for purchasing a home by 23 percent. These figures, when combined with median property taxes and homeowners insurance rates, helped lift Minneapolis-St. Paul from the No. 2 spot in 2013 to No. 1 this year.

“The places that are the most unaffordable are locked in by some geographic constraint. Minneapolis (area) can grow 360 degrees. Most of the time when you talk about this, you talk about sprawl and you think of it in negative terms. But the bottom line is,sprawl keeps your prices down," said Mike Sante, managing editor of Interest.com. 

Atlanta won the crown last year, but swapped rank with the Twin Cities this year. St. Louis, Detroit, Pittsburgh, Baltimore, Phoenix, Washington, Dallas and Houston rounded out the top ten.

Interest.com suggests that median-income workers cannot afford a home in the remaining large metro areas because the wages don't match the real estate costs

San Francisco, not surprisingly, scrapes the bottom with San Diego, New York, Los Angeles and Miami also receiving "F" scorecards. Moving up from the bottom, the other unaffordable cities are Boston, Seattle, Sacramento, Milwaukee, Denver, Portland, San Antonio and Tampa.

“Low mortgage rates are helping home affordability to some extent, but the key ingredient – which has been missing to this point – is substantial income growth,” Sante said in a statement. "Affordability would improve at a faster pace if wage growth would pick up."

For comparison, the median-income earner in Minneapolis-St.Paul may make about $10,000 less than the median-income earner in San Francisco. But, the median-home price in the Twin Cities is $213,000 to San Francisco's $770,000 -- a gap that the wage difference doesn't even come close to making up. 

Sante says Minneapolis-St. Paul has a great housing market with better median-priced inventory than other cities, but says wages have to keep growing.

Year-over-year wages grew by an average of 2 percent across the 25 largest metropolitan areas, but the Twin Cities only grew 1.38 percent this year.

“If that continues, homes in the Twin Cities will be much less affordable in a decade,” Sante said.

Cash-out refinancings have more than doubled in just two years.

Posted by: Jim Buchta Updated: November 13, 2014 - 10:22 AM

Recent - and unexpected - declines in mortgage rates over the past several months have sparked some very low levels of refinance activity. A boomlet? Compared with previous levels of refinancing, no. But during the middle of October, for example, mortgage rates dipped slightly to the lowest they've been since the summer 2013. During the third quarter refi activity nationwide rose to about $8 billion, which is less than one-tenth of the refi activity when the market peaked in mid-2006. Still, an analysis by Freddie Mac shows that reduced mortgage payments will save American homeowners more than $1.5 billion in interest payments over the next 12 months with an average interest rate reduction of about 1.3 percentage points , or a savings of about 24 percent. And with house prices on the rise, the share of those cash-out refinancings is on the rise, increasing from 3 percent during the third quarter 2012 to almost 8 percent by the end of September.

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