Gregg Fous (Engel Voelkers Fort Myers River District) on Dec 31, 2008 05:43AM

Southwest Florida is Clearing its Throat

Southwest Florida is Clearing its Throat

When I was a kid in Harrington Park, New Jersey, I got about one or two nasty colds a year. Here in Florida I get them about once every two years. I have no idea if this is a direct result the tropical location or my compulsion as I got older to constantly wash my hands. But I do know that my colds normally took the same course:  Headache, sneezing, congestion, cough, and then the breakup. The breakup was always accompanied by a lot of throat clearing.  Once I got through that, I was good to go. In fact I learned to recognize the throat clearing and would think, "Thank goodness THIS cold is almost over."

South West Florida is clearing its throat.  I know there are many doomsayers out there that are affected by the global crisis and the way the media is covering it. These problems are real: unemployment, bailouts, tight credit, and depleted savings.  But you need to separate our market from the rest of the world.

Some cities like Boston, New York and Charlotte, NC have colds that are still getting worse.  These metro areas have not seen the big price declines that we have seen - their drops are still occurring. There are many reasons for the longer stability in those markets or better said the reactionary instability in ours. We are a big second home market.  Borrowers are more likely to hold onto their first homes that they have lived in for years up north rather than their recently acquired future retirement home here in Florida. There was not as much speculation and investor buying in those markets and they have a broader economic base.  Boston, New York and Charlotte are not dependant on tourism as we are.

But we are clearing our throats, that's for sure. The price declines are about over, and we are starting to feel better.  Lee County closed 81 homes just yesterday in our local market, and  I suspect December numbers will be huge.

According to today's Wall Street Journal, the nation is at 2004 housing prices. But here in Florida, in many cases, we are below that.  Be careful with national data. Remember all real estate is local.

Tatiana and I are going to see 14 homes today in Cape Coral. I asked her to make as many appointments as she good to see homes in Cape Coral with the following criteria:  Within one mile radius of an elementary school, a minimum of three bedrooms and two baths, vacant, and priced under $100,000. There were 84 to choose from, and this was just by one school!

(Let me mention as an aside here that Tatiana had a very frustrating time setting up showing appointments.  Showing a home to a prospective buyer or his agent is certainly a critical step in selling a home. It should be easy. In general, it was not. Some agents did not return phone calls; some duty desk people did not how to access the home, or some forwarded her to an appointment desk that knew nothing about the home or how to access it. I can tell you this. If I was a seller and my agent did not make it easy to show a home, I would be very upset.  In fact, if you ARE a seller, I would test the system that you have hired o sell your home. How easy is the agent to get hold of?  How easy is the house to show? Are you being treated like the important client that you are?)  

An interesting thing about these homes we are going to see; very few of them have been on the market for a very long time. Keep in mind this is in a market that homes have been languishing for months without offers. But these homes are decidedly different. Apparently they are priced right.  Will they sell at their ask price?  Probably not. But they will sell to someone that recognizes value and affordability. They will soon be occupied, either by a tenant or a proud owner.

Getting rid of this inventory is our way of clearing our throat.

After my year end summary last week of the opportunities for 2009 (Click here to read it), I received some questions from a few of my European subscribers. In essence, they wanted to know my comments about all the bad news they hear about Florida. They are afraid. After all, their economy is hurting as well. My response was yes, it is a terrible market here - but for the sellers; and a great one for buyers.

They also asked me about hurricanes. I told them that we build for hurricanes like the North builds for cold weather and snow, California builds for earthquakes and mudslides and fires, and the Midwest builds for tornados.

I am also hearing from our competition. I am talking about markets in Majorca, Southern France, and Dubai. Agents in those markets are soft and are losing the ground they gained from Florida as a second home market when our prices were high enough to send buyers to them. Now they are sending us buyers.

Friends, I do not know how long into 2009 we will still be clearing our throat, but I for one am glad that we are; I know the he end of my cold is near.

Gail and I wish you a prosperous and peaceful New Year. Stay safe, healthy, and close to your family.

Gregg

Gregg@ma-realty.com

800.439.1580 Extension 1

Gregg Fous (Engel Voelkers Fort Myers River District) on Dec 24, 2008 09:29AM

2009 - Where will the opportunities be?

2009  - Where will the opportunities be?

Today's e-letter is a long one.  Before I dive into it I would like to thank all of you for your business and your support.  2008 has been a tough year; I am certainly looking forward to 2009. There will be many  opportunities in Real Estate in 2009;  and 2008 has been a transitional year to say the least.

According to the Chinese Zodiac, 2009 will be the year of the OX - symbolizing prosperity through fortitude and hard work. I am sure you already know what hard work is. I know I do. Fortitude is the strength of mind that enables us to work hard through danger or pain.  I am no stranger to all three of these concepts - prosperity (I nearly had it once ), hard work (actually, since I love what I do, so I never really consider it work), and fortitude (although for me there is a slim difference between courage and blind determination!).

What are these opportunities that fortitude and hard work will bring us? Well, in hopes of giving you a summary of where I will be spending my time working for my clients, I will, in no particular order, comment on some of these opportunities - good, bad, or indifferent.  I probably will pen one one e-letter this year. Gail and I wish you all the best for the coming year!  Gregg

Single Family Homes

Yesterday I had two clients tell me to start buying single family homes - one wants to flip them, the other wants to build a rental inventory.  I believe the first quarter of 2009 will see a great deal of the single family home inventory in Cape Coral move to the end user or to a rental pool. Prices have reached, if not bottom, so close to it that the bottom can be negotiated from where the pricing is now.  Sellers of single family homes, whether they are the residents or the bank, are getting realistic with their pricing and will move houses. Those sellers that do not get realistic, will not: pretty simple.

In November over 600 homes were sold in Lee County through the MLS, this compared to 365 homes, same month last year.  Many of the homes that are for sale below $100,000 happen outside the MLS.

If you are going to buy, purchase a home way below replacement cost.  Replacement cost now is $75 to $100 per square foot plus land and soft costs. Buy location first, always buy location first, then look for price. For example don't tell me to look for homes under a certain price, and then pick the location. One reason for this is that the ask prices are often way above the selling price. Pick the location and then look for the best pricing.

I see opportunities in rentals of Single Family Homes - rents in the market are $.50 to $.70 per square foot per month.    There are opportunities for cash buyers to buy and repair and hold or buy repair and rent. I see opportunities in buying and selling with lease options to buyers with credit that has been damaged by the recent financial debacle.

High end residential homes are selling - but at reduced prices. We like riverfront single family homes and specialize in their marketing.  Buyers at this end have not seen these prices in years.  While the waterfront did not drop like the low priced homes, they are still a bargain.

The economy in Europe is suffering a similar fate to ours, but we still have Europeans coming here to buy their vacation homes because of our great prices.  Indeed the world is flat today. International marketing is important and any seller that is not marketing globally is missing about 2o% of the buyers.

I often say know what will, happen, I just don't know WHEN it will happen - and timing is everything, isn't it?  Inventory of available homes will shrink to the point that the builders will build again.  Prices will then come back up to reflect the current building cost. It has to.  Stabilization will come to the market, stabilization of price as well as inventory.   Buyers now will profit by the low entry price today. Remember, you make your money when you buy, not when you sell.

Underperforming Assets

An underperforming asset is an income property that is vacant or partially so, or has rents that are measurably below prevailing rates.  A good example of an underperforming asset is an industrial building that has a 50% vacancy factor. The incoming rents are not paying the outgoing mortgage payments, much less providing any excess cash flow. The current owner can't keep the property because of the negative cash flow and a traditional buyer will not buy it because the income does not justify the prices. Furthermore, a lender will not lend on a building today unless it has a long term lease with a credit worthy tenant.

Is this a big problem or big opportunity?

It depends. For the patient cash investor he can purchase underperforming assets at bargain prices and the opportunities are wonderful. The asset is underperforming for the current owner at current market rates.  For the new owner his long term strategy is to hold and fill the building at lower than market rates (because he purchased at such a low price).  The new owner can be the low cost supplier in the marketplace. He may even be able to take tenants from other more expensive and newer buildings that need to get higher rents.  For this to be an opportunity for our buyer he has to have cash or the financial backing already in hand and he must be able to take the risk that he can fill the building.

I am seeing new money coming into the real estate market that left Wall Street.  Buying these underperforming assets is a sound strategy for the long term investor. Investing in these assets are a big change for the Wall Street investor, and the biggest change is that there is an underlying value to these investments: they are all backed by  real estate.   CLICK HERE  and CLICK HERE for underperforming assets that are examples.

Land

Buying land now is out of favor with general investors. This is exactly why this spells opportunity for us in 2009.  The holders of land were more patient than the bricks and mortar buyers. Most were in it for a longer hold. But the pressure is on them as the calendar marches forward, the loans are up for renewal and banks are not lending or are requiring more cash equity.

These investors have other real estate to cover and need to sell the land to help make their cash shortfalls.  These same investors  perspective on what was once long term is changing; they perhaps paid way too much for the land to begin with, and they see no short term hope of getting out of the property with any margins.  During 2008 they were waiting to see how far the market will go - and I believe they now realize how severe and long the recession will be and they will unload.

What do we buy?; location of course. There are some waterfront and marina properties that will be good in a long term portfolio. Also infill projects close to urban centers.  Go to the core basics of sound real estate investing. Look at demographics, traffic patterns, and short term growth areas.  Where is the infrastructure already in place? 

Look for projects that were entitled and perhaps even have some of the project infrastructure completed.  Expect unreasonable asking prices but buy at a discount rate that will allow land load prices that will enable a developer to build profitably in five to seven years.

On the side bar here you will see an infill parcel in Cape Coral; an excellent buy at the offering price. This project was presented to us three years ago at three times the price - but was not entitled yet. Today it is entitled and offered at under $9.00/sf. I believe this low enough to hold for four years .

Apartments

There was a big rush to convert apartment projects to condos four years ago. Many of these offerings are now back in the hands of the banks, or screwed up because some units are sold, some are vacant, some refurbished and some not - and all in the same complex.  Rents back then were approaching $1.00 per square foot per month. Now rents are $.85/sf and many of these condo projects are going back to being apartments.

The opportunity exists in 2009 to buy apartment or condo projects at a low enough price that the investor can capitalize on his cost basis in order to compete in the $.85 market. I know of a few projects that recently sold in Tampa at $30,000 and $40,000 per door. The thing you need to know is that the sale prices were sometimes as much as 30% below the ask!  This fact bears repeating:  Ask prices are not at the bottom but sell prices are.

Many home owners that are losing their homes will become renters and I expect that the rental prices will recover rapidly because of this influx of demand.

But financing is tough to find for apartments and investors must have deep pockets (because of low LTV ratios being considered by the banks that WILL loan). The good news is that many of the institutional owners need to sell their apartment projects to cover other loses. All of this spells opportunity.

Hotels

The hospitality business is taking it on the chin. ( Article here)  Average Daily Room rates are down and average revenue per available room (revPAR) is down over 14% over last year, and when gas prices shot up, lenders in the hospitality business started closing their wallets.  We have one hotel listed in Banner Elk - a resort hotel,  that was being offered at over a 12% Cap rate.  (Click here for discussion on CAP rates)

I have already seen activity in this sector heating up - but only over the last few months as offering prices drop and the opportunist arrive with their funds. These real estate opportunity funds are looking for  hotels.  Let's face it, when everyone is selling there are bargains out there and some of the big hotel guys are getting rid of their underperforming assets.  This market will recover, and hotels properly selected in limited competition areas (Like Banner Elk) will recover sooner. There are other hotels in major metropolitan markets that can be repositioned and renovated to improve revPAR.

The hotel business is not for the novice however, CAP rates are more attractive in this sector for a very good reason. I had one client tell me that hotels are not used, they are abused. It is one of the areas of real estate that the depreciation numbers are more than just a paper entry.

Funds

I need to talk a bit about the various funds that are popping up recently.  Obviously there is new money coming into real estate. This is perhaps Wall Street money that likes the solid base of real estate as an investment but did not invest in real estate before. They got into cash as the stock market plummeted. They smell blood in the water in Florida. Some like the comfort of professional money managers and area investing in opportunity funds. I am now involved in two funds - one as a consultant and one as one of the management team.  We have also performed due diligence on portfolios on a fee basis for some fund buyers and asset managers.

The opportunity exists as an investor in these funds or as a seller to them.  If you have an interest in learning more about this you need to contact me directly. There are restrictions that are rigid and rules that must be followed for qualified investors.

I do expect to sell notes, REO portfolios, and stressed assets to some of these funds.

Condos

Last week I talked about Downtown Fort Myers being on sale.  (Click here for the article).  Prices are down, and way below replacement cost.  To me this is a strong buy signal. Individual owners that were priced out of the market can now afford to own in Florida.   Furthermore, the patient investors can buy at these depressed prices, use for a few years and then hope to flip, although it may take more than five years for this to be profitable. Becoming a landlord in the condo arena does not work. There is no way market rents will allow you to break even on rentals.

Bulk buyers are picking up distressed projects.  There are opportunities to convert condo projects into apartments, but these are generally large projects that are riddled with complicated problems like multiple liens, successor developer issues, and other challenges that only an experiences developer should undertake.

When looking at buying condos at fire sale prices beware of how many developer owned units there are, how the common fees are being funded, and if banks will even loan on the project.  Local agents may have the inside scoop, but it may be best to do some investigation on your own. If possible, find out what owners are on the board of the condo association and have a chat with a couple of them.   In all cases I suggest using an agent that is not directly involved with the project so you have someone representing your interests.

Stumble Started Projects

I get a call almost every week from some broker or fund manager looking for projects that are partially complete.  In our area I just do not see that many of them.  The banks are not yet prepared to accept the prices that speculators are willing to pay. In most cases the numbers just do not work with the price the banks want.  I expect the banks expectations to change once the TARP money is gone, however, and once the new year is upon us. 

Many of you know that I sold Brixton in August of 2005 and then the Island Pines project failed. This is just one example of a project that languishes on the market, but it is not atypical. There are complicated lawsuits, liens and lenders all to be dealt with. I know of three other projects in Lee County that are in various stages of completion and all have their own sets of problems to iron out.

Where is the opportunity?  For the buyer that is prepared to deal with the liens, settle the lawsuits, and get all parties to the table, good deals can be made.  The good news with most all of these projects is that the individual buyers are not in the picture.

The exit strategy will be to convert to apartments or to sell at greatly reduced prices. I would love to get involved on one of the projects with my team. Hopefully in 2009.

Rescuing the Baby from the Bathwater

Surprisingly enough there are good, solid investment deals on the market - put there by real estate investors that need to sell all their properties or by banks that need to sell all their notes of a certain class.  In a tight lending market some of the good deals get put on the market with the bad - the baby gets put out  with the bath the water, so to speak.

If you were to call me and ask me to find you a solid 7% cap rate NNN investment - I could do it today. This was not possible a few years back.  Here again the "asks" are not the same as the closing prices. So you need to be tenacious in your search.  A 7/11 that was overlooked by the aggressive investors a few years ago because the CAP rates were low is now an attractive buy.

Banks also are selling portfolios of notes to restructure their exposure and have performing notes available for those that know where to look.

I subscribe to a few services that make these notes available. Many are auctioned off in a bid process that requires cash and in depth due diligence, but they are available.  The funds we work with are capitalizing on these opportunities.

In Conclusion

Now more than ever before, cash is king.  There are of course many ways to make money is in today's market. I have not reviewed buying lots, becoming a landlord, buying notes, short sales, foreclosures, and a host of others. My friend Dennis and I once sat down and listed all the ways it was possible to be make money is real estate; I think we ran out of ideas after about a list of about 50.

I know 2008 was a tough year, but it was a transitional year. 2009 will start out rather rocky, but I believe will settle down and afford some profitable opportunities. 

I would like to work with you to help make 2009 a good year.  If I can be of service to you as a broker or representative, you need only call.

Gregg   Gregg.Fous@engelvoelkers.com  8004391580 extension 1

Gregg Fous (Engel Voelkers Fort Myers River District) on Dec 22, 2008 06:39AM

Downtown Fort Myers on Sale?

On Friday Ron called me and asked me to walk over to  Highpoint Place with him. He had seen an advertisement offering close out prices on developer owned homes.   I had not seen the ad nor had I seen an email announcing the prices.  (Turns out they never did an Email blast - they were afraid they would get too busy)  Highpoint Place is a majestic project that beckons travelers to downtown Fort Myers no matter what direction they arrive from. The towers loom over the historic district and it is a rare visitor that is not impressed with the punctuation High Point Place adds to our skyline.  The interior lives up to the promise of the outside appearance. Private elevators,  grand lobbies, and panoramic views; and all close to down town. 

When we arrived we chatted with Cheryl Yano and Nick Camerata.  I have been here many times before on condo tours and with clients. Recently they increased the size of the exercise room and have altered the main conference center.

The big change, however, is price. We looked at a fifth floor home overlooking the Marina being offered at special year end price of $270,000.  This home originally sold for $566,990. This is less that ½ original price, and less than $150.00 a square foot. There is similar savings on the upper floors.

Folks, this is appreciably below replace cost .  Vertical costs today - without land, carrying costs, and all the soft costs is well over $200/foot in our area.  Add the rest of that and you would to be at least $300.  Anytime you can be this far below replacement costs, this is a strong buy signal.  Call me for details or a tour, our office is just down the street.

Speaking of just down the street; when I got back to my office later in the day, I received a notice of 50% price reductions on selected units at Riviera.  Christopher's  girlfriend Rachel Telfour lives in Riviera and I have had dinner there and drinks a few times.. Riviera is further up the river on the other side of downtown from High Point and is one of the three towers built by Homes for America. I am not as impressed with the fit and finish at Riviera, but the prices points have always been lower than Highpoint.  The three bedroom/2baths or two bedroom plus den and 2 baths units range in size from 1,571 sq.ft. to 1,721 sq.ft.,  prices from $189,900. to $289,900. depending on which floor, how much river view and upgrades.  All units - except the lofts - have a semi-private elevator to their condo.  Some of the views are interrupted at Riviera - but the layouts are smart.

Jorge Perez's Oasis a little further up the river is our "East Coast on The West" in downtown Fort Myers.  Think the Hotel Delano - white and chrome and glass and casual chic.  No simple rails on the balconies here - all sleek and modern.  By the way, in Miami railing on a balcony instantly dates a condo building. You simply will not see anything but glass.  Oasis also wins the prize for the amenities on the Fort Myers side of the river. This place is class all the way from the artwork in the lobby to the flowing white curtains on the pool beds waterside.  I find the condos a bit small - but there are bargains here as well right now. Call us for the inside scoop on what's going on here. There are a few surprises here.

Financing today is an issue with condos. You should assume you need at least 75% of the purchase price, and you should further assume you will have to get a portfolio loan (one that will not be sold).  Not all banks have money to lend right now.  I actually had a banker tell me this week, yes, no problem, we can loan 75% LTV to your buyer at Parkside, and it is not a problem for us that the project is still owned 50% by the developer.  But we will not have any money to lend until March!  No worries, I found a few other lenders ready to go - and rates have dropped to below 5%!  Many of these bargain deals like the $270,000 condo at High Point will be picked up for cash - so financing is not a problem.

Two weeks ago I spent a half day with Peter Zalewski of Condo Vultures in Miami. Peter is a pro and I was impressed with his knowledge of the local market. The blood bath in Miami  that the condo developers are in  makes Fort Myers look like a condo developers dream. There are many "dark" buildings and buildings in which that cannot sell any condos - even though they are completed - because the banks have "redlined" them; and who wants to buy a condo in an empty building?  Who is going to pay the common fees?

In some of the condos scammers have actually moved in and set up businesses - in effect squatting in the condos.   This is now changing as Peter and similar companies have  come in, acquired the entire project  and repositioned the pricing, the market, and the strategy to fill the buildings.

 The prices that Miami Condos are FIRE SELLING for are above $400/sf - (See Highpoint at $150.)  Fort Myers is well well below these prices - even without fire sales!  They need a large number of end users to show up to put a dent in the huge inventory they have.  I do not look for a turnaround in Mimai for three years at least.

Given a choice between Miami and Fort Myers and where to buy a condo?  No contest. Come see me and come to downtown Fort Myers.

Gregg Fous (Engel Voelkers Fort Myers River District) on Dec 21, 2008 06:41AM

Ten Motivational Tips

Some tips on Staying Motivated in this Market

•1.       Act, don't lament.

•2.       Look ahead, not back.

•3.       Associate with winners, not losers.

•4.       Make plans not excuses.

•5.       Keep your eye on the ball, not the game.

•6.       Ignore the static and concentrate on the music.

•7.       Don't think about what if, think what now.

•8.       Motivate someone else

•9.       Give of your time and energy to another.

•10.   Read a motivational and inspiring book.

Gregg Fous (Engel Voelkers Fort Myers River District) on Dec 13, 2008 02:29PM

There is a Sucker Born Every Minute

That does it. I'm starting a private club. 

And you are not invited.

At least not right away.  

I may invite you, but first, you need to really want to get in badly.  You may have to ask one of the other members to sponsor you and see if they can get you a private invitation.  By the time you want to get in, you will want in so badly that you will not ask a lot of questions.  You'll just be happy to be "in" and not "out".  After all; this is a very exclusive club. There are people of great influence and respect in this club.

You see, I spend a great deal of my time making money in real estate mirrorbacks. I buy REO mirrorbacks from banks. I have special insider connections in many of the big banks. I buy these REO mirrorbacks at low prices and I am able to flip them quickly because of the network I have built up over the years. I am able leverage five times the amount I have in cash. If our club has $1,000,000 in member investments, I am able to buy $5,000,000 worth of REO mirrorbacks.  Because of the inside networks of banks and bulk buyers I have built up, I can turn the fund about eight times a year. 

Members in my club have been earning a steady 22% on their money now.  Back in 2003 I turned a $100,000 into a personal fortune of over $10,000,000 in just three years. Now I am working with other people's money. I like the bigger numbers. I like making other peoples portfolios grow like mine did. 

But I don't have a lot of time to explain all this to you.  I am not taking on new members anyway. Only sophisticated investors understand mirrorback REO's and I don't have the time for unsophisticated investors that I have to explain everything to.

Oh, and don't tell anyone about the returns we are getting or how we are working with mirrorbacks.  Secret AND exclusive; that's what we are.

Most of our members have a bigger fear of losing out on the opportunity to make money than they are afraid of losing money.  In fact, it is this fear I am counting on.  If they want proof that the concept is sound, just ask around at the Yacht Club, or over at the Golf Club.   Ask any of the "in " folks.

By the way, the minimum investment is $100,000. Cashiers check would be just fine.

I will see if I can get you in.

Folks, of course there is no club and certainly no such thing as mirrorbacks.  I was just taking a shot at my Bernie Madoff imitation.  If you have never heard of Berni Madoff, consider yourself lucky. He just bilked sophisticated investors out of, by his own estimation, 50 BILLION dollars over the years with a yarn, I imagine, similar to the one above. 

In reading about his exploits it made me think about the real estate investment frenzy a few years ago. Investors who otherwise were sophisticated got involved in real estate investing - with the fear that if that did not, they would risk losing the chance to make big money. They did not do the due diligence. They did not make their own analysis. They followed the social and influential crowd. They ignored the facts in favor of the emotion.  They knew very well that if something looks too good to be true it probably isn't true; but they wanted so much to believe.

They needed to talk about THEIR deals at the next cocktail party, not stand by idly  while other folks made the big bucks and bragged about it.  Heck a little risk was worth the braggin' rights!

Oh don't get me wrong. Some of them is us, so to speak.  The sinking tide lowered all ships. But that is little solace when your cash flow is nil and the bank still wants their mortgage payment.

But that was then and this is now. We must spend more time looking forward than looking back. Experience is a tough teacher, but it is a good one.   Real estate, stocks, or mirror backs. There are no short cuts to riches and no quick paths to fortune; just hard work. And if you are going to join a club, or a fund, do so with wide open eyes, ask all the right questions, and trust, but verify.