Housing-News-Report-September-2018

NAMED THE NATION’S BEST NEWSLETTER BY NAREE

SEPTEMBER 2018 VOL 12 ISSUE 9

MY TAKE CHANGING SEASONS OF OPPORTUNITY BY JEFF TENNYSON • P9

BIG DATA SANDBOX NEIGHBORHOOD MONOPOLY • P20

LOCAL MARKET SPOTLIGHT ORLANDO REAL ESTATE RECOVERS ITS MAGIC • P12

DATA IN ACTION

TOP MARKETS FOR MOVERS IN Q3 2018 • P21

Contents

FEATURED ARTICLE

P1 HOW TO RECESSION-PROOF YOUR REAL ESTATE BUSINESS

A growing chorus of economists predicting the U.S. economy will enter recession territory in the next two years coupled with signs of a cooling housing market may have many in the real estate industry wondering if they should batten down the hatches in preparation for a possible downturn. Housing News Report surveyed industry leaders in six real estate verticals — marketing and lead generation, mortgage, brokers, investors, title and settlement services, and insurance services — to find out what steps they’re taking, if any, to prepare for a possible recession. Lima One Capital CEO Jeff Tennyson shares insight on how the company, which was founded as a fix-and-flip lender, is expanding its product mix to meet the needs of its clients in an evolving real estate market with new opportunities emerging. Tennyson elaborates on some of the most exciting emerging opportunities in the real estate market, including new construction for rental properties, small-balance multifamily financing along with some promising options for real estate investors as a result of the Opportunity Zones created by the new Tax Cuts and Jobs Act law. There is a lot more magic in the Orlando metro area than just a professional basketball team or its world-renowned theme parks. Orlando is experiencing rapid population growth, low unemployment and job growth while still boasting a cost of living that is well below the national average. That all translates into a booming housing market that is good for homebuilders, Realtors, single family rental investors and home flippers. P12 LOCAL MARKET SPOTLIGHT: ORLANDO REAL ESTATE RECOVERS ITS MAGIC P9 CHANGING SEASONS OF OPPORTUNITY

P1

P9

P20 BIG DATA SANDBOX: NEIGHBORHOOD MONOPOLY

Real estate investors know the neighborhood makes a big difference when it comes to potential profits. Even within the same metro area or city, yields and risks can vary wildly from neighborhood to neighborhood — even within the same neighborhood depending on if the investor is buying and holding homes for rent or flipping homes. This infographic provides a Monopoly-themed primer to real estate investing by neighborhood.

P12

P20

P21 DATA IN ACTION: TOP MARKETS FOR MOVERS IN Q3 2018

Homeowners are most likely to be moving in the third quarter of 2018 in Chicago, Washington, D.C., Orlando, Tampa-St. Petersburg and Atlanta, according to the latest ATTOM Data Solutions Pre-Mover Housing Index. See the trends in your local market with our interactive heat map that covers 131 metropolitan statistical areas nationwide.

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HOUSINGNEWS REPORT

SECTION TITLE

LEAD ARTICLE

How to Recession-Proof Your Real Estate Business Industry Experts Share Practical Steps They’re Taking

BY DAREN BLOMQUIST, EXECUTIVE EDITOR

A growing chorus of economists predicting the U.S. economy will enter recession territory in the next two years coupled with signs of a cooling housing market have many in the real estate industry wondering if they should batten down the hatches in preparation for a possible downturn.

As a follow-up to our analysis of how recessions typically impact the housing market last month, Housing News Report surveyed industry leaders in six real estate verticals to find out what steps they’re taking – if any – to prepare for a possible recession. The industry verticals surveyed were marketing and lead generation, mortgage, brokers,

investors, title and settlement services, and insurance services.

Not all experts interviewed agreed a recession is even likely.

“OwnAmerica is operating on the assumption that the market is very

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HOME PRICE APPRECIATION DECELERATING

ANNUAL HOME PRICE APPRECIATION

U.S. SINGLE FAMILY & CONDO MEDIAN SALES PRICE

$260,000

$250,000

10.0%

9.1%

$240,000

8.0%

7.8%

7.7%

7.3%

$230,000

6.3%

$220,000

$210,000

$200,000

Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018

strong and will continue to be,” said Greg Rand, CEO of OwnAmerica, an online marketplace for single family rentals. Rand even posted a challenge on LinkedIn offering to place a $10,000 bet that there will not be a recession in 2020. “Predictions of a coming recession might be wishful thinking from some people. I will leave you to speculate on why anyone would root for a recession.” “Personally, I don’t think it is an if, the real question is when,” said Patrick Stone, executive chairman and founder of the Williston Financial Group, a company that operates several businesses in the title insurance and real estate settlement industry. “WFG assumes we will have a recession commencing somewhere between Q3 2019 and Q4 2020.” But whether they believe a recession is likely in the next few years or not, most of the experts are taking some Others consider a near-term recession nearly inevitable.

“Personally, I don’t think it is an if, the real question is when. WFG assumes we will have a recession commencing somewhere between Q3 2019 and Q4 2020.”

PATRICK STONE EXECUTIVE CHAIRMAN AND FOUNDER WILLISTON FINANCIAL GROUP

practical steps to hedge against a possible housing downturn.

majority of our customer base is in the nonprofit industry. Nonprofits tend to be recession-proof,” said Arup Banerjee, CEO at Windfall Data, a company that helps nonprofits identify, understand engage affluent customers using property equity data paired with other household—level data. Banerjee cited statistics showing that dollar volume of donations to nonprofits has increased every year with three exceptions, all during recessions — 1987, 2008 and 2009. Windfall has helped its customers handle another challenge in recent years — a shrinking share of donations coming from corporations, forcing

“Over the past few years, LendingTree has been diversifying its business, effectively eliminating dependency on any singular industry, market or business environment,” said Tendayi Kapfidze, chief economist at LendingTree, an online lending exchange. Here’s a closer look at how experts in each of the real estate verticals we surveyed are preparing for a possible recession. Marketing & Lead Generation: Cushioning the Impact “The way that we look at is the

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“We can be used to make sure that the impact is felt at a lower or lesser degree, which is important for nonprofits that are trying to identify high net worth individuals who are still giving during a time of financial distress.”

ARUP BANERJEE CEO, WINDFALL DATA

nonprofits to rely more on individual donations. Banerjee believes nonprofits — and his company — can learn from that experience should a recession hit. “We can be used to make sure that the impact is felt at a lower or lesser degree, which is important for nonprofits that are trying to identify high net worth individuals who are still giving during a time of financial distress,” he said. “Similar to how we’ve helped nonprofits weather the storm with (shrinking) donations from corporations, we’ll help them weather (a recession).” Windfall has also adjusted its business model to hedge against a possible recession and the belt-tightening that can occur among nonprofits during an economic downturn. “That’s been a little bit of how we’ve adjusted our business … not just to have an annual subscription but have a longer-term contract with locked- in prices so that their budgets can

accommodate that for the future,” he said. “Ensure that we have their budget in 2020, 2021 so we don’t necessarily have to go back to the finance department (for approval).” Despite taking some steps to cushion the blow of a possible future slowdown, Banerjee noted he’s not seeing any imminent signs of slowing among Windfall’s nonprofit clients. “It’s a little bit hard to prepare for a recession right now while things are continuing to grow at a rapid pace,” he said. “Nothing is indicating that our customers are slowing down … in making investments to acquire those new customers. … We’re more focused on helping our customers grow and expand.” Mortgage: A Recession Silver Lining LendingTree’s Kapfidze argues that a recession could benefit the mortgage industry.

a decline in government stimulus combined with a long expansion, suggesting the economy will need to rebalance,” he said. “It’s important to note that such a recession would not resemble the financial crisis- induced recession at the end of the last decade. It would likely be a milder downturn similar to that in 1990 to 1991 or 2001.” If the predicted 2020 recession follows the patterns of those earlier recession rather than the 2007-to- 2009 recession, Kapfidze argues it would likely result in rebounding refinance originations, which have dropped in the last two quarters as mortgage rates have risen. “During those recessions, the 10-year treasury had peak-to-trough declines of 80 to 120 bps,” Kapfidze explained. “This is where it gets interesting for the mortgage industry. A rate decline would trigger a mini-refi boom that would address many of the challenges the industry currently faces due to the

“Most discussions around a possible recession in 2020 center around

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Real Estate Brokers: Managing Ebbs and Flows Established real estate brokerages such as Long & Foster have plenty of experience in weathering previous recessions, giving them confidence for dealing with future recessions, according to CEO and president Jeff Detwiler. “Having been in business since 1968, we have lived through other downturns, and we have learned to operate our company effectively in the market’s ebbs and flows,” he said. “As we have

decline in refinance volume. “Thus, the net result could actually be an increase in mortgage originations as happened in 2001,” he concluded. But LendingTree is not depending solely on a possible refi boom triggered by the next recession to recession-proof its business. Its recent diversification along with its strong lead generation chops provide additional insulation against cooling mortgage demand, according to Kapfidze. “We’ve added marketplaces for personal loans, credit cards, auto loans, student loans, small business loans, reverse mortgages, deposit products and credit services,” he said. “Additionally, our business model can operate efficiently in a rising rate environment when lenders have difficulty in bringing in organic volume themselves. That’s when they’ll come to LendingTree to fill their pipeline, and we can market into that demand, or pull back if the unit economics don’t make financial sense.” “A rate decline would trigger a mini-refi boom that would address many of the challenges the industry currently faces due to the decline in refinance volume. Thus, the net result could actually be an increase in mortgage originations as happened in 2001.”

always done, we are maintaining our focus on our core business areas — real estate, mortgage, settlement, insurance, property management and vacation rentals.” But Long & Foster is not just taking a defensive posture when it comes to recession-proofing its business, according to Detwiler. The company is also going on the offensive to stay in step with evolving realities in the marketplace.

U.S. HOME MORTGAGE ORIGINATION TRENDS PURCHASE REFINANCE HELOCs

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

TENDAYI KAPFIDZE CHIEF ECONOMIST LENDINGTREE

0

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HOW TO RECESSION-PROOF YOUR REAL ESTATE BUSINESS

“We are identifying strategic investments that align with changing consumer and agent needs,” he said. “Those opportunities range from investing in technology to allow our associates to work with their clients from anywhere, to rationalizing our total retail square footage.” Real Estate Investors: Gaining Market Share Southern California real estate investor, author and trainer Bruce

Norris is making some modest defensive and offensive moves to shore up his business against a recession – which he believes is coming in late 2019 or early 2020. “The biggest change in our business model will be suggesting California investors move some of their equity positions to Florida,” said Norris. “That move will increase their cash flow greatly and improve the quality of the inventory they hold.”

But Norris, who predicted the coming California housing crash in 2006 and largely liquidated his inventory at the time, is not expecting the next recession to trigger another drop in home prices. “We go into this next recession feeling that real estate prices won’t take much of a price hit,” he said.

HOME SALES VOLUME SLOWING

ANNUAL PCT CHANGE

JUNUARY TO JUNE HOME SALES

“The biggest change in our business model will be suggesting California investors move some of their equity positions to Florida. That move will increase their cash flow greatly and improve the quality of the inventory they hold. ... We go into this next recession feeling that real estate prices won’t take much of a price hit.”

2,500,000

19.4%

2,000,000

9.3% 8.6%

7.6%

6.7%

6.6%

1,500,000

1,000,000

-1.1%

-1.3%

-3.7%

-4.8%

-7.0%

500,000

-9.3%

BRUCE NORRIS SOUTHERN CALIFORNIA REAL ESTATE INVESTOR THE NORRIS GROUP

-15.7%

-17.8%

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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RENTS NOT AS DOWN IN RECESSION

OwnAmerica’s Rand said the investor segment his company operates in — single family rentals (SFR) — will benefit even if home prices do take a hit. “Remember that SFR is different than housing overall. When the market is strong, investors and consumers are confident and prices rise. Investors win on appreciation,” he explained. “When the market is weak, homeownership declines and renter demand increases. Investors win on yield. SFR is a two-sided coin because every house has two uses: owner- occupied or tenant-occupied/investor owned. No other commercial asset class gives owners two demand drivers and two exit strategies. “Some people will say I view this through rose-colored glasses,” Rand added. “They are welcome to duck and cover for the impending recession. We intend to put the pedal down and gain market share.” Settlement Services: Recession- Proofing Required The settlement services industry is not well-positioned to weather a recession, according to WFG’s Stone. “The impact on WFG, and the settlement services industry in general will be a shrinking market with fewer available transactions and clients more focused on two basic concerns: cost and the quality of service,” he said, noting that he does agree with Norris and others that the larger real estate market will not be as negatively impacted as it was during the last recession. “However, the recession will accelerate the consolidation

MEDIAN HOME PRICE FOR SINGLE FAMILY HOMES AND CONDOS

AVERAGE HUD FAIR MARKET RENT FOR 3-BEDROOM PROPERTY

$1,200

$300,000

$1,000

$250,000

$800

$200,000

$600

$150,000

$400

$100,000

$200

$50,000

$0

$0

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

SOURCES: HUD, ATOTM DATA SOLUTIONS

“Some people will say I view this through rose-colored glasses. They are welcome to duck and cover for the impending recession. We intend to put the pedal down and gain market share.”

GREG RAND CEO, OWNAMERICA

trend that has already started in the settlement industry.”

Finishing these three initiatives will allow for WFG to consolidate order entry and post-closing functions, maximize production efficiencies and eliminate as much rekeying of data as possible.” But Stone doesn’t see evidence that others in the industry are as aggressively recession-proofing their businesses.

To prepare for that consolidation trend, WFG is actively implementing three specific initiatives to increase efficiency, according to Stone. “WFG has accelerated its efforts to finish migration to a single operating platform, consolidation of its title production capabilities and implementation of its integration platform (WESTVM) with as many lenders as possible,” he said. “

“For the most part, it doesn’t appear that most of the industry has done

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MORE MARKETS WITH INCREASING FORECLOSURE STARTS

“For the most part, it doesn’t appear that most of the industry has done much in preparation for the downturn, as most of the recent focus has been on compliance and keeping abreast of advancements in eClosing and remote notary.”

METROS WITH ANNUAL INCREASE IN FORECLOSURE STARTS

SHARE OF ALL METROS

120

100

80

60

40

PATRICK STONE EXECUTIVE CHAIRMAN AND FOUNDER WILLISTON FINANCIAL GROUP

20

0

much in preparation for the downturn, as most of the recent focus has been on compliance and keeping abreast of advancements in eClosing and remote notary,” he said. Insurance Services: Fixed to Variable Costs A recession could most obviously benefit companies like DIMONT that provide insurance claims services to mortgage servicers to help protect

the property collateral behind mortgages against natural disasters and default. “We would expect defaults to go up in a recession and so we would expect our volumes to go up dramatically,” said Denis Brosnan, DIMONT CEO. “It’s a significantly positive thing for volumes to grow … DIMONT did very well in the early stages of the last recession.”

But in the meantime mortgage foreclosure volumes are hovering at historically low levels except for some regional spikes caused by natural disaster, which means DIMONT needs to continue to focus on what has helped it succeed in both high default and low default environments: providing its clients with outsourced insurance claims services.

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HOW TO RECESSION-PROOF YOUR REAL ESTATE BUSINESS

real estate is well-positioned to withstand a recession in the next two years, even those like WFG’s Stone who believe a recession is likely. “Unlike the last downturn, real estate won’t be the cause or take the blame, and the impact on real estate will be much less severe,” he said. ”Most markets will not see a downturn in prices, but will witness a noticeable drop in volume.” Several experts suggested that a recession could even benefit the housing market. “An economic slowdown, as predicted by many industry analysts, could bring a more balanced market and ease housing demand,” said Detwiler of Long & Foster. LendingTree’s Kapfidze argued that this easing demand could provide a silver lining for homebuyers. “In the housing market, a recession would temper demand somewhat, but the housing sector would likely experience a milder version of the recession than the rest of the economy,” he said. “The key characteristic of the current housing market is a lack of inventory, thus the housing sector lacks a catalyst for correction, and it is possible it will not be in recession along with the rest of the economy. Finally, a slowdown in momentum in the economy could dampen the rate of house price increases, which would improve affordability for many potential home buyers.”

“Maybe those are tactics and toolsets that prime lenders didn’t think were necessary given their lower delinquency rates. Now is the time to consider those tools because in a recessionary environment the costs you could save with these is tremendous, in the millions of dollars.””

DENIS BROSNAN CEO, DIMONT

“Today we’re still the largest of our kind, and our clients are really outsourcing a very niche type of process,” said Brosnan, referring to the insurance claims process. “Employees are hard to find, they’re expensive … outsourcing works because they are converting fixed costs to variable. … A lot of our clients are rushing to that sort of solution.” DIMONT is also encouraging its mortgage servicing clients to look ahead to the next recession, whenever that may be, and to put into place efficiencies that will quickly multiply into mammoth savings should default

volumes spike. One practical example, according to Brosnan, is to implement efficiencies learned by lenders during the last recession. “Maybe those are tactics and toolsets that prime lenders didn’t think were necessary given their lower delinquency rates,” Brosnan noted. “Now is the time to consider those tools because in a recessionary environment the costs you could save with these is tremendous, in the millions of dollars.”

Cause, Blame, Impact Most industry experts argued that

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MY TAKE

Changing Seasons of Opportunity

BY JEFF TENNYSON CEO, LIMA ONE CAPITAL

that continues to be a significant part of our national lending platform. However, we continue to see avenues to expand our product mix as our nationwide real estate clients take advantage of new opportunities within their local markets. We’re seeing exciting new opportunities in new construction for rental properties and in small-balance multifamily financing. We see both types of investment properties emerging in this new season of real estate investing. We believe the innovative financing

options now emerging create a terrific compliment to the fix-and-flip market, which continues to show steady growth and good returns. In addition, the new Opportunity Zones section of the recent Tax Cuts and Jobs Act legislation creates additional promising options for real estate investors. The purpose of this new investment vehicle is to help direct resources to low-income

In the Carolinas, fall is always one of my favorite seasons. We’re recharged from vacations and school breaks and feel some relief from the heat and humidity. The fall promises a change of climate, a change of colors from fall foliage and an optimistic outlook for opportunities ahead. At Lima One Capital we’re seeing exciting new opportunities for real estate investors. We were originally founded as a fix-and-flip lender, and

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CHANGING SEASONS OF OPPORTUNITY

Q1 2018 SINGLE FAMILY RENTAL GROWTH BY INVESTOR SEGMENT ANNUAL PCT CHANGE IN NUMBER OF SINGLE FAMILY RENTAL PROPERTIES

21%

20%

19%

13%

12%

9%

100+

11 TO 100

6 TO 10

3 TO 5

1 TO 2

ALL SFR

for greater return on their real estate investment portfolios. Real estate investors are building secure, cash-flowing rental portfolios as complimentary alternatives to more traditional wealth building options. In addition, we are seeing true value- add projects within neighborhoods and communities. Our clients are buying properties needing meaningful structural improvement, making those improvements, allowing for a nice return to the investor and a renovated home for the ultimate renter or homeowner to enjoy. In addition, for the first time, multifamily and SFR investors can compare return profiles on a true apples-to-apples basis. Now there are attractive and competitive private lending options for SFR portfolios and small balance multifamily properties. Investors can maximize the efficiency of both operations and capital by comparing the return -on-equity between an SFR portfolio and a multifamily project with equivalent financing packages.

“Opportunity is rising in both the single family rental construction and small-balance multifamily space for innovative real estate investors and lenders willing to adapt to the rising trends.”

communities, known as Qualified Opportunity Zones, using tax incentives — a much-welcomed market-driven approach to economic development. These Opportunity Zone investments enjoy compelling capital gains tax benefits that are particularly attractive to multifamily and single family rental investors. Opportunity is rising in both the single family rental construction and small- balance multifamily space for innovative real estate investors and lenders willing to adapt to the rising trends. The Rental Market The single family rental market continues to be promising for small and mid-tier investors. A recent ATTOM Data analysis of public record data detailed the growth in market share for these segments in Q1 of 2018.

A 21 percent increase for owners of 6 to 10 properties, and a 20 percent increase for owners of 11 to 100 properties. These investors continue to innovate and venture toward the higher yield markets that have arisen throughout the country. Counties where rent has not been outpaced by rising home prices, like the relatively overlooked “second-tier markets”, those not in the top 20 metropolitan MSAs, remain a prime target for portfolio owners with very innovative mortgage financing available. Median rent has continued on an upward trajectory for the past decade- plus. Even when the housing crisis caused median home values to fall, fair market rents continued to steadily gain (see chart on page 6). This steady return has attracted investors of all levels of experience who are looking

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CHANGING SEASONS OF OPPORTUNITY

The Multifamily Market There is a similar story happening in the small-balance multifamily sector. Rent growth continued in Q2 2018, focused in the aforementioned secondary U.S. markets that can often be overlooked but have rode the economic growth of the previous years. These areas, just like our home market of Greenville, South Carolina, have attracted jobs from numerous domestic and international corporations. This job growth spurs rapid development of both single family and multifamily development to accommodate the influx of new residents. This combination of job growth, dropping unemployment, and rents continuing to rise nationally provide an opportunity for the stabilization of smaller multifamily developments. The late ‘70s and early ‘80s saw the biggest boom for small balance multifamily new construction. In the last 20 years, small balance multifamily construction has decreased drastically while single family and large 50- plus unit building construction have increased. The timing of this new construction is important. There is a large segment of available small

The Season of Opportunities There has never been a better time to be a real estate investor. The expanding credit available for all levels of investors beyond the traditional community banks is allowing for amazing growth and return opportunities. Multiple lenders now offer investor-minded programs for single family rental portfolios, construction to rental, and small- balance multifamily. This access to capital has allowed investors to branch out to promising markets throughout the country. They are no longer solely reliant on documentation and guideline restrictions of local banks or large institutional lenders, as private lenders now are actively providing competitive programs that are more convenient to close. As the leaves turn and the temperature moderates, we’re excited about the growing opportunities for real estate investors and see great promise for the seasons ahead. We’re in a great season of opportunity for our industry, and at Lima One Capital we’re looking forward to partnering with real estate investors to take full advantage of the many terrific opportunities.

balance inventory in need of value- add renovation. Investors are finding outdated properties, taking out bridge financing, completing meaningful updates, and getting the property fully leased. At that point, the Freddie/Fannie small-balance takeout comes into play. Roughly 85 percent, or $23.8 million, of the current small-balance multifamily stock (2 to 49 units) was constructed before 1990. Small and medium multifamily housing between 2 and 49 units account for 21 percent of the national housing stock. Small and medium multifamily housing between 2 and 49 units account for 54 percent of all rental units. That’s more than large The focus on small-balance is not coincidental. We have seen success from our borrowers who have targeted existing 5- to 50-unit multifamily developments. Still-favorable acquisition costs paired with attractive cap-rates and consistent demand are a homerun for the savvy real estate investor. We view this as a prime growth space in the rental investor industry. multifamily (50-plus units), SFR (1 unit) and mobile home rentals units combined.

2.6%

SINGLE FAMILY RENTAL OWNERS BY PROPERTIES OWNED

6.5%

JEFF TENNYSON

4.0%

Jeff Tennyson is CEO of Lima One Capital based in Greenville, South Carolina. Lima One is an institutionally backed lender that is able to lend to large-scale and small-scale investors, including first-time investors. Lima One originates first-mortgage loans to real estate investors on non owner-occupied investment properties and small balance multifamily properties nationwide.

100+ 11 TO 100 6 TO 10

8.5%

3 TO 5

1 TO 2

78.3%

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SPOTLIGHT

Orlando Real Estate Recovers its Magic

BY JOEL CONE, STAFF WRITER

There is a lot more magic in the Orlando metro area than just a professional basketball team or its world-renowned theme parks. In its current promotional campaign titled “Orlando, you don’t know the half of it,” the Orlando Economic Partnership directly addresses the long-time public perception that the area is mainly a place for short-term stays, conventions and tourism.

“It’s an exciting time to be in Orlando. It’s one of the up-and-coming cities in America we believe. We have so much going on.” LAUREEN MARTINEZ SENIOR DIRECTOR OF MARKETING AND COMMUNICATIONS ORLANDO ECONOMIC PARTNERSHIP

is in other industries,” said Laureen Martinez, senior director of marketing and communications for the Orlando Economic Partnership. “It’s an exciting time to be in Orlando. It’s one of the up-and-coming cities in America we believe. We have so much going on.”

Orlando is experiencing population growth, low unemployment and job growth due to businesses like Amazon and KPMG recently establishing themselves in the area, investment in transportation and infrastructure,

“Only 20 percent of the workforce is in hospitality and leisure. Eighty percent

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ORLANDO REAL ESTATE RECOVERS ITS MAGIC

TOP 12 FLORIDA COUNTIES FOR NET MIGRATION IN 2017

a number of educational opportunities and cost of living that is below the national average. Projections as to how fast the Orlando metro area’s population will grow vary from an average of 1.9 percent per year over the next 30 years, according to the Institute for Economic Competiveness at the University of Central Florida (UCF), to the 3.2 percent growth in 2018 alone according to Cushman & Wakefield. Indeed, with an estimated 1,000 people moving there every week, in addition to the 72 million visitors that come and go every year, Martinez noted that Orlando has found the means to deal with everything that is going on, evolving in the process and staying ahead of the growth and issues like transporting people to where they need to go. Flourishing Fundamentals Orlando’s economic numbers have recovered well since the Great Recession, especially in the area of employment where the metro was hit hard.

HILLSBOROUGH (TAMPA) POLK (LAKELAND) PALM BEACH (MIAMI) LEE (CAPE CORAL) ORANGE (ORLANDO) PASCO (TAMPA) BREVARD (PALM BAY) BROWARD (MIAMI) PINELLAS (TAMPA) OSCEOLA (ORLANDO) VOLUSIA (DELTONA) LAKE (ORLANDO)

20,603

18,397

17,590

17,174

16,813

15,975

13,126

12,427 12,321

12,036

11,498 11,414

Its most recent peak in unemployment was in January 2010 when it reached a rate of 11.6 percent, a stark contrast to its July 2018 rate of 3.6 percent as reported by the Bureau of Labor Statistics.

The area’s economic growth ranked seventh in the nation among the 381 metropolitan areas studied in 2017 for growth in jobs, wages and high- tech positions by the Milken Institute. It was also named by Forbes as the fourth fastest-growing city in the country for 2018. The metro area has ranked among the best in many other categories as well. While Amazon is working on its new 855,000 square foot fulfillment center expected to hire as many as 1,500 people, the accounting firm of KPMG

“Orlando currently has one of the lowest, if not the lowest,

unemployment rate in the state,” said David Harrison, professor and Howard Phillips Eminent Scholar Chair in Real Estate at the Dr. P. Phillips School of Real Estate at the University of Central Florida. “We’re fortunate to have steady job growth.”

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ORLANDO REAL ESTATE RECOVERS ITS MAGIC

ORLANDO-KISSIMMEE-SANFORD, FL UNEMPLOYMENT RATE

Between UCF, the nation’s second largest university in terms of student population (66,000 students), plus other local institutions of higher learning, all totaling 500,000 students within a 100-mile radius around Orlando, along with people relocating to the area, the growing and diverse business sector has a large talent pool to draw from. Recovered Real Estate Similar to unemployment, the real estate market in the Orlando metro area has made a significant comeback since the Great Recession. Plus, the influx of new businesses to the metro area is having an impact on the real estate market. According to ATTOM Data Solutions, the market crash sent the Orlando metro area into a spiral. There were a total of 72,141 properties with foreclosure filings in 2009, giving Orlando the ninth highest foreclosure rate in the nation — 8.17 percent of all housing units with a foreclosure filing. The metro also ranked in the top 10 for foreclosure rates from 2012 through 2015. But in 2017 the foreclosure rate in the Orlando metro area — 0.63 percent of housing units with a foreclosure filing — ranked No. 61 out of the 219 metro areas ranked in ATTOM’s 2017 year- end foreclosure report. ATTOM reported a recent surge in Orlando foreclosure starts, with three consecutive months of year-over-year increases from May to July. These increases may represent a bounce back from foreclosure moratoriums

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

is opening a high-tech $430 million, 55-acre training facility. Both complexes are located in the Lake Nona area of Orlando. Other firms are also investing in the metro area, including the United States Tennis Association, which is opening a training facility with 100 tennis courts, and Wyndham Destinations with its new global headquarters. While a number of other companies are moving facilities and jobs into the area, some companies are expanding their operations. Besides corporate headquarters and regional offices, the Orlando economy is also being bolstered by advanced manufacturing, healthcare and life sciences — such as the new Medical City located at Lake Nona — aviation, aerospace and defense. Advanced technology is at the forefront at Neocity in Osceola County, anchored by BRIDG laboratories,

where nanotechnology research and development, smart sensors and photonics will be the concentration. A $15 million investment has also been made in a STEM-focused high school to be located on five acres of land donated by the county. “We have a very high concentration of modeling and creating the simulation technology that goes into many different areas,” Martinez explained. “When you think of theme parks like Harry Potter, its one big simulator you’re riding. The medical community uses it. The Marines, the Army and Air Force all have simulation modeling facilities here.” “We just had a ribbon cutting for Easy Foods. It’s a 100,000 square foot manufacturing plant in Kissimmee,” said Osceola County Commissioner Cheryl Grieb who represents the county’s District 4. The new plant manufactures corn and flour tortillas.

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SEP 2018 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

ORLANDO REAL ESTATE RECOVERS ITS MAGIC

ORLANDO HOME PRICES AND APPRECIATION

ANNUAL HOME PRICE APPRECIATION

ORLANDO-KISSIMMEE-SANFORD, FL MEDIAN HOME PRICE

$300,000

50%

40%

$250,000

30%

20%

$200,000

10%

$150,000

0%

-10%

$100,000

-20%

-30%

$50,000

-40%

$0

-50%

over-year increase in the first quarter to the slowest annual appreciation since Q3 2015. For July, the Orlando Regional Realtor Association (ORRA) reported a 2.2-month supply of existing housing with listed homes lasting for 45 days on the market. Sales of existing homes were down 3.4 percent for the entire metro area, which includes Lake, Orange, Osceola and Seminole counties. From May through July the ORRA reported that appreciation of the median home price stabilized on a year-over-year basis to single digits, a deceleration which “will help maintain a healthy housing market and protect Orlando’s affordability.” Addressing the current market trends, ORRA President Lou Nimkoff explained that days on the market “are at a historic low for us and will continue to drop. Our affordability

“Orlando was hit hard by the housing and financial crisis a decade ago. While prices have recovered to pre-crash levels, a lack of inventory continues to put upward pressure on prices.”

DAVID HARRISON PROFESSOR & HOWARD PHILLIPS EMINENT SCHOLAR CHAIR IN REAL ESTATE UNIVERSITY OF CENTRAL FLORIDA

lenders implemented in the wake of Hurricane Irma that hit central Florida in September last year. “Orlando was hit hard by the housing and financial crisis a decade ago,” said Harrison. “While prices have recovered to pre-crash levels, a lack of inventory continues to put upward pressure on prices. Given the strength of the local economy, prices should continue to be solid moving forward.” The median sales price for the metro area was $229,000 in the second quarter of 2018, a 6.5 percent increase from the previous quarter

and 9 percent above Q2 2017 — just 5 percent below the pre-recession peak of $242,000 in Q2 2006, according to ATTOM Data Solutions. The second quarter of 2018 was the 28th consecutive quarter with a year- over-year increase in Orlando-area median home prices, dating back to Q3 2011, when prices bottomed out. Since then home prices in Orlando have risen a total of 154 percent. But the ATTOM data also shows a deceleration in home price appreciation in the second quarter — the 9 percent year-over-year increase was down from a 12 percent year-

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HOUSINGNEWS REPORT

ORLANDO REAL ESTATE RECOVERS ITS MAGIC

index is still relatively affordable. It’s a question of inventory.”

According to Metrostudy, the slow pace of new lot development in and around Orlando is limiting the availability of new homes and supporting the uptick in home prices. People are not just relocating from the Midwest. There are foreign buyers coming in from Canada, Brazil and Great Britain, plus thousands of Hurricane Maria refugees from Puerto Rico that may or may not stay for the long term, Nimkoff said. Housing starts were up 2.6 percent in 2017 from the year before, noted Harrison. So far for 2018 starts are up more than 5 percent compared to all of 2017, he said. For the second quarter of the year, Metrostudy reported that new home starts were up 7.1 percent and quarterly closings were up 9.9 percent compared to the same quarter in 2017.

supply of home listings, which are down to near record lows,” said Toby Hoff, Regional Director of Metrostudy’s Central Florida market in a press release. “This is a testament to the region’s strong job market.” Still, there are projects coming out of the ground both in downtown Orlando and outlying areas such as the Tohoqua master-planned community in Osceola County. “There are custom builders in that development,” said Commissioner Grieb. “One of our consortium is imec out of Belguim. When we spoke with the executives there we asked what people were looking for when they relocate. Schools, housing with high-end interiors were important. Very walkable. Sixty to 70 percent of people bike to work in Belgium.” In downtown Orlando, the Creative Village project is underway on the site of the former Amway Arena.

The association’s July report noted an increase in overall affordability to nearly 127 percent (anything above 100 percent means homes are more affordable than normal), an increase from the prior month, and an increase in first-time buyer affordability to over 90 percent, also an increase from June. Despite the increased affordability, the problem in Orlando — like in most parts of the country — remains the housing shortage. “With about 50,000 people a year moving to the metro area, we’re only building single family, condos and townhomes for 25,000,” explained Nimkoff, principal at Brio Real Estate Services LLC. “We’re not building the same number of housing units as we did before the crash in 2008. The builders don’t have the tradespeople to do that.” “With about 50,000 people a year moving to the metro area, we’re only building single family, condos and townhomes for 25,000. We’re not building the same number of housing units as we did before the crash in 2008. The builders don’t have the tradespeople to do that.”

“Absorption levels continue to rise in Central Florida despite the declining

Q2 2018 HOME AFFORDABILITY HEAT MAP Q2 2018 AFFORDABILITY INDEX* (UNDER 100 IS LESS AFFORDABLE THAN HISTORIC AVERAGE) 258 47

LOU NIMKOFF PRESIDENT, ORLANDO REGIONAL REALTOR ASSOCIATION

CLICK HERE TO VIEW INTERACTIVE VISUAL

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SEP 2018 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

ORLANDO REAL ESTATE RECOVERS ITS MAGIC

The project calls for a 68-acre mixed- use infill development which is transit- oriented. A partnership between UCF and Valencia College, the downtown campus will be a prime example of a live, work and play development for the more than 7,000 students estimated

to attend the school and occupy the student housing to be built.

going on. Apartment construction has been growing. New home construction plus $10 million in new infrastructure. The airport is building a new terminal. Even Interstate 4 is getting a massive expansion. “ Commissioner Grieb said the city of Kissimmee has already built its first high rise and is building boutique hotels, townhomes, market rate apartments and retail. In the city of St. Cloud, there is a redevelopment effort going on in the downtown core. Cash is King Orlando took the number one spot on Forbes list of “Best Buy Cities: Where to Invest in Housing in 2018.” The ranking was based on average home price, population growth over a three-year time period, two-year job growth, one-year growth in home prices and projected growth in home prices over the next three years. Between its booming population numbers — including the expected growth in retirees and millennials who are drawn to the metro area’s strong job market, reasonable cost of living, and price appreciation — it comes as no surprise that Orlando came out on top. As the region’s foreclosure rate has dropped, so have the distressed deals available for real estate investors. Distressed sales — bank-owned sales, short sales and third party foreclosure auction sales — accounted for 12.0 percent of all home sales in the second quarter, down from 16.9 percent of all sales in Q2 2017.

“We really think this project will transform downtown’s core,” said Martinez. “You drive around Orlando and there’s definitely a building boom

ORLANDO HOME FLIPPING TRENDS

SINGLE FAMILY HOME AND CONDOS FLIPPED

HOME FLIPPING RATE (PCT OF TOTAL SALES)

2,500

18.0%

16.0%

2,000

14.0%

12.0%

1,500

10.0%

8.0%

1,000

6.0%

4.0%

500

2.0%

0.0%

0

ORLANDO HOME FLIPPING PROFITS

GROSS PROFIT

GROSS ROI

$70,000

70.0%

$60,000

60.0%

$50,000

50.0%

$40,000

40.0%

$30,000

30.0%

$20,000

20.0%

$10,000

10.0%

$0

0.0%

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HOUSINGNEWS REPORT

ORLANDO REAL ESTATE RECOVERS ITS MAGIC

The lack of distressed discounts for investors is translating into lower profits from home flipping in the Orlando area, according to the ATTOM Data Solutions Q2 2018 Home Flipping Report. The average gross flipping profit was $57,000 per flip for homes flipped in the second quarter,

down from an average gross flipping profit of $62,000 in Q2 2017. The average gross flipping profit of $57,000 represented a 39.3 percent gross return on investment per flip, down from 50.4 percent in Q2 2017 to the lowest level since Q2 2011 — a seven-year low.

With shrinking home flipping profits has come a decrease in home flipping activity. A total of 735 single family homes and condos were flipped in the Orlando metro area in Q2 2018, representing 6.0 percent of all sales — down 19 percent from a year ago, according to ATTOM. The 735 home flips in Q2 2018 were less than one- third of the peak 2,354 home flips in Q3 2005. While investors may not be flipping homes as much as in the last housing boom, a high percentage of cash sales in the Orlando area indicates that investors are still quite active. All-cash purchases accounted for 35.0 percent of all sales in Q2 2018, well above the national rate of 27.4 percent and up slightly from 34.7 percent a year ago. Nimkoff said he has seen two types of investors working the Orlando market: the ones that bought properties between 2008 and 2010, rented them out and are still holding them in portfolio; and what he called “direct buyers”, national companies that have

HOME FLIPPING PROFITS BY ZIP Q2 2018 Q2 2018 GROSS HOME FLIPPING RETURN ON INVESTMENT

-50.8%

352.4%

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SEP 2018 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

ORLANDO REAL ESTATE RECOVERS ITS MAGIC

SINGLE FAMILY RENTAL RETURNS BY COUNTY: 2018 2018 ANNUAL GROSS RENTAL YIELD 28.6% 2.3%

CLICK HERE TO VIEW INTERACTIVE VISUAL

targeted certain market like Orlando, performing cosmetic work and then flipping the properties. “You have to be a marketer. The buy- and-hold property deals, or the flips that don’t need a lot of work, when they’re listed on the MLS there are so many people looking for them,” said Robin Daniels, president of the Central Florida Realty Investors Association. “It’s hard to find them. You have to find the deals nobody else knows about. It’s doing the marketing that’s not on the computer. It’s talking to people and sending out direct mail.” With the popularity of all the flipping shows on television these days, Daniels said people are still doing flipping, but even the rehabbers and landlords themselves who find properties are having a difficult time finding good people to do the repair work.

Daniels’ investment portfolio breaks down to 60 percent rental properties that she manages herself, and 40 percent real estate notes. She’s especially fond of seller financing when it comes to note investing. “I feel so bad for anybody who needs to rent a place. I literally get 100 responses in days of advertising a place for rent. We literally rent things so fast because there’s not enough rentals out there and the rents are going up significantly,” she said. Nimkoff noted that rents in Orlando continue to outpace inflation, with the average market rent at around $1,264 for all rental types, an 8 percent increase over the prior year. Potential gross annual rental yields for single family rentals increased or stayed flat in 2018 compared to 2017 in all four counties analyzed in the Orlando metro area, according to the ATTOM Data Solutions Q1 2018 Single Family Rental Market Report.

Daniels, whose real estate investors club boasts 1,400 members, said that she is not seeing the speculation that occurred back in 2005 and 2006. Her focus with the association is to bring to the membership people with skill sets that other investors may not have in order to make sure her members stay as safe as possible in the deals they make. When it comes to investing in the Orlando market, Daniels’ advice is to remain patient. “Do not get discouraged, because there are deals out there. It’s just different ways of finding them. We’ve gone through these cycles before. It’s just harder to do it but they are definitely out there. You need a lot less than 100 homes to be rich. It’s buying them smart and with the right terms,” she noted.

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