HOUSINGNEWS REPORT HOUSING NEWS REPORT Named the Nation’s Best Newsletter by the NAREE | August 2016 Vol 10 Issue 8 SECTION TITLE
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MY TAKE By Peter Muoio, EVP and Chief Economist at Ten-X P9
Profitable Investing in Neighborhoods Breaking Good P1
STATE SPOTLIGHT Boston Building Lifts Housing P11
BOOK REVIEW Revitalizing Cities: The HRI Vision P19
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SECTION TITLE F A URED ARTICLE
HOUSINGNEWS REPORT
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A NEW BRAND OF NEIGHBORHOODS BREAKING GOOD
BY DAREN BLOMQUIST, EXECUTIVE EDITOR
Several years into a real estate recovery that has produced a plethora of bloated local housing markets, investors in 2016 are on the hunt for increasingly elusive cash flow and home flipping profits — even if that hunt leads them into neighborhoods branded as bad. The bad neighborhood brand is often grounded in data-based metrics such as depressed home values or below-average school scores, but that doesn’t always mean those neighborhoods are a poor investment choice, according to experts.
CEO at OwnAmerica , a Charlotte, North Carolina-based company that provides services to rental property investors. “It doesn’t make it a bad investment, because those factors (schools, crime, home values etc.) are priced in. Rolls Royce v. Hyundai Neighborhoods “Every housing market in the country is a good investment for somebody,” added Rand, whose company works with both large institutional investors as well as with what he described as more creative, entrepreneurial investors willing to operate in a broader spectrum of neighborhoods. “It’s what do you have tolerance for? Do you want to be a Rolls Royce dealer or a Hyundai dealer? There are a lot of Hyundai dealers who are making a lot of money.”
In 19 out of the top 28 U.S. zip codes with the highest share of home flipping in the 12 months ending June 2016, all elementary schools had test scores below the state average, according to a report from ATTOM Data Solutions , the new parent company of RealtyTrac. That included zip codes in the Cleveland, Memphis, St. Louis, Miami, Philadelphia and Los Angeles metro areas. “We’re late in the real estate cycle and that’s the only place people can afford,” said Bruce Bartlett, managing partner at Los Angeles-based real estate investment firm Sequoia Real Estate Partners , of some of the Los Angeles-area zip codes where at least 20 percent of home sales were flips in the past 12 months. There were no elementary schools with test scores above
“There is a lot of profit to be made in going into these neighborhoods,” said Greg Rand,
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done before the cycle is over, go ahead. If you are buying and holding, I wouldn’t want to buy in these markets.”
SINGLE FAMILY RENTAL RETURNS BY COUNTY
Low Values Equals High Rental Returns But the best rental returns for buy-and- hold investors can also be found in some of the lowest-value markets. The top 10 zips with the highest potential gross annual rental yields all had median home sales prices below $20,000, according to the RealtyTrac Q1 2016 Single Family Rental Market Report . “The fact of the matter is when prices go up, the yields go down. There always seem to be a group of investors who are interested in buying in that $50,000 to $100,000 range because the yields are better,” said Dennis Cisterna, chief revenue officer at Investability Real Estate , an online marketplace for investors of single family properties. “And you can buy more properties at the lower end, especially with leverage. … I think you have people starting to aggregate more in these markets, partly because of the availability of financing.” Among the top 22 zip codes where institutional investors (those purchasing at least 10 properties in a calendar year) accounted for at least one in five home purchases so far in 2016, 20 of those zip codes (91 percent) have median sales prices below $150,000, according to data from ATTOM. Markets with the highest share of institutional investor purchases so far in 2016 included zip codes in Hudson County, New Jersey, Birmingham, Alabama, Lakeland, Florida, St. Louis, Memphis and Atlanta (see page3).
Click to view interactive map.
Every housing market in the country is a good investment for somebody.” Greg Rand | CEO at OwnAmerica Charlotte, North Carolina “
Planning for When the Party is Over The strategy of targeting lower-value neighborhoods works as long as flippers get out before the music stops on the upward real estate cycle, according to Bartlett, who said he has been flipping single family and multi-family properties in Southern California since 1996. “In some of these neighborhoods it’s strictly cyclical ... and when the cycle ends the party is over in these bad neighborhoods because there is a flight to quality,” he said. “If you can get the project
the state average in 2015 in three of those five L.A. zip codes.
Median home sales prices were below $150,000 in 20 of the top 28 home flipping zip codes nationwide (71 percent), and the median sales prices in the five Los Angeles-area zip codes on the list were all below the metro-wide median sales price of $560,000 in the second quarter of 2016. The lowest median sales price among the Los Angeles-area zip codes was $279,750 in zip 90044, located between Inglewood and Compton south of downtown.
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Given Census bureau data showing homeownership rates dropping to a 51- year low in the second quarter of 2016 and housing starts that remain below historically normal levels, Cisterna and other experts believe the opportunity for buy-and-hold investors will remain strong for the foreseeable future — particularly for those investors willing to move into lower-value neighborhoods that may be outside of their immediate area. Buying Rentals Beyond Your Backyard “Right now is the peak time for an investor to get in and look at opportunities outside of their own backyard,” said Cisterna, noting that there has been a recent boom in businesses like Denver-based Investability providing information, products and services to improve efficiency in the real estate investing market. “Your best friend in any investment opportunity, whether it’s in a good neighborhood or bad neighborhood, is doing thorough due diligence and surrounding yourself with a team that can execute on your business plan.” HomeUnion is another business that has emerged in recent years to help single family rental investors find, finance, rehab and manage properties — even if those properties are not in the investor’s backyard. In fact, the typical investor using the service is located in a high-priced market but buying in a lower-priced market somewhere else in the country, according to CEO Don Ganguly.
TOP ZIPS FOR INSTITUTIONAL INVESTORS
Zip
Metro
Institutional Investor Single Family Purchases YTD 2016
Percent of Total Sales
Median Sales Price
35215
Birmingham-Hoover, AL
185
33.1%
$58,000
Lakeland-Winter Haven, FL Miami-Fort Lauder- dale-West Palm Beach, FL New York-Newark-Jersey City, NY-NJ-PA
33896
115
29.9%
$135,000
33140
105
21.3%
$554,000
07087
100
44.2%
$140,000
35235
Birmingham-Hoover, AL
91
33.2%
$77,800
Augusta-Richmond County, GA-SC
30906
89
24.3%
$50,000
63033
St. Louis, MO-IL
84
21.1%
$86,000
31907
Columbus, GA-AL
75
23.1%
$76,000
38118
Memphis, TN-MS-AR
72
22.9%
$45,000
Atlanta-Sandy Springs-Roswell, GA
30038
60
21.7%
$78,500
“
If it’s got a lower (neighborhood) rating it will have a higher yield, but it will have a higher degree of volatility.”
Don Ganguly | CEO at HomeUnion Irvine, CA
Cake-And-Eat-It-Too Neighborhoods Markets with a plethora of C neighborhoods include Cleveland and Indianapolis, while markets flush with B neighborhoods include Charlotte, Raleigh, Houston and San Antonio, according to Ganguly. But local markets with plenty of B inventory producing both good rental yields and good potential appreciation are becoming unicorns thanks to the red-hot real estate recovery, according to Cisterna.
rental, crime, schools, and employment data on 110 million U.S. properties in 200,000 neighborhoods to assign neighborhood grades ranging from A+ to D, according to Ganguly. “If it’s got a lower rating it will have a higher yield, but it will have a higher degree of volatility,” he said, noting that a C neighborhood typically has homes priced under $100,000. “Investors can decide what they want based on their appetite for risk. … The folks looking for (rental) income will do Cs. The folks looking for (home price) growth and income will do Bs.”
“If I’m investing in California right now I’m not banking on yield; I’m banking on
Using data science, the Irvine, California- based company leverages property,
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SINGLE FAMILY RENTAL INVESTING MORE COMPETITIVE & LESS PROFITABLE Number of Non-Owner Occupied Single Family Home Purchases Average Gross Rental Yield*
11.0%
1,400,000
10.9%
10.8%
1,200,000
1,204,793
10.7%
10.5%
1,000,000
997,559
942,001
10.0%
853,793
800,000
10.0%
732,375
600,000
9.5%
9.5%
400,000
9.0%
200,000
0
8.5%
2011
2012
2013
2014
2015
* Average gross rental yield is average of potential gross annual rental in 2016 across 448 counties analyzed by ATTOM.
appreciation. If I’m investing in Cleveland right now I’m not banking on appreciation, but I’m getting good yield,” he said. “There have been those handful of markets where you can have your cake and eat it too previously, but now in those markets yields have been compressed. So now you are looking for one or the other again.” Phoenix was one of the cake-and-eat-it- too markets, something that investor John Keeton spotted early on in the housing recovery. The Houston, Texas-based investor recognized the opportunity to buy up distressed single family homes at a discount and convert to rentals in 2009 — long before Warren Buffett announced that strategy to the world in 2012 — but it took
him some time to identify what markets and neighborhoods he and his partner would target.
properties mostly in Phoenix and some Florida markets. “I drove probably more of that state than most Floridians have.” For Keeton and his partner, the decision to buy in Phoenix and Florida started with a simple litmus test: population growth or decline. “All of these bigger guys, they will tell you they have some model that has 50 different inputs,” he said, referring to some of the hedge funds and private equity firms that also started buying distressed properties as single family rentals. “Our model was, let’s look at the Census and the population growth. … If Phoenix turns into tumbleweeds, we have bigger problems.”
Road Tripping for Rentals Keeton knew he wanted to generally focus on markets that were “beaten up” by the housing crash, but to narrow the list further he and his partner embarked on a nationwide distressed market road trip that included Florida, Las Vegas, Detroit, Chicago and Phoenix. “Before we started buying properties, we did some self-guided field trips,” said Keeton, who in 2010 established Morningside Funding, LLC, which eventually acquired more than 1,000 rental
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While the binary metric of population growth or decline provided a foundation for Keeton’s decision, there was also a qualitative element to the process that involved driving through neighborhoods to get a feel for them — something he recommends all investors do before buying. “See what you are going to buy, don’t just look at it on a spreadsheet,” he said, adding that driving around both Phoenix and Las Vegas, which had similar population trends, helped him eventually decide to go with Phoenix. “I just got a different feeling driving around. I can’t quantify it.” Winning in Blue Collar Neighborhoods The neighborhoods that worked best for Morningside were a specific niche
neighborhood that gave Keeton and his partner a competitive advantage over both the bigger institutional investors as well as local mom-and-pop investors. “We wanted the blue collar neighborhoods because we didn’t want to compete against the big guys,” he said. “In our neighborhoods we were competing against the local mom-and-pop investors who owned five to 10 houses. We thought we could compete against those guys operationally.” Keeton said the prototypical property that Morningside purchased in Phoenix was a 3-bedroom, 2-bathroom 1960s ranch home with 1,200 square feet, sitting on a 9,000-square-foot lot within four miles of
downtown and within the city’s highway 101 loop.
“A lot of the guys in the business felt more comfortable buying the A quality stuff,” he said, describing A quality as stucco homes with tile roofs built in the last 15 years. “When the market turned around those properties were going to turn around faster than the stuff I own.” But appreciation has been strong enough in those established neighborhoods that Morningside has decided to start selling off some of its homes — about five years after it began purchasing. The company stopped acquiring new properties about 18 months ago and has sold about 40 of its homes in the past year, according to Keeton, who noted that the majority of homes are being sold to owner-occupant buyers using conventional financing. That’s an indication those established neighborhoods closer to big city amenities are attractive to owner- occupant buyers, even if crime rates and school quality are not always the best. “Crime is honestly everywhere,” he said, adding that he did not look at crime rates or school scores when purchasing the homes. “We didn’t really look at that because we knew these were good neighborhoods.” Access to Jobs Trumps School Quality Bartlett, the Los Angeles-area flipper, observed a similar trend in some transitioning Los Angeles neighborhoods where the housing market is on the upswing despite lower-quality schools.
LOS ANGELES METRO FLIPPING HOT SPOTS
Click to view interactive map.
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the amenities that these neighborhoods have access to that the suburbs don’t.”
Bartlett emphasized the importance of preserving a home’s authenticity when flipping to this new brand of bright flight buyers. “You have to keep the home authentic,” he said, noting this is a built-in requirement for established neighborhoods like Jefferson Park and West Adams that are in Los Angeles Historic Preservation Overlay Zones . “In this generation you see this want (for) smaller and authentic rather than bigger and plain. The suburbs are bigger and plain.” Rand, the CEO of Charlotte-based OwnAmerica, said the re-emergence of established, urban neighborhoods with younger buyers fits into the sweet spot for more creative, entrepreneurial single family rental investors willing to think outside of the typical neighbor`hood rating paradigm. when it comes to school, crime, but your properties are … good, landlords are going to come in there and get great returns and have low turnover,” said Rand, referring to the strategy of “repositioning,” where single family rentals in poor condition are rehabbed before they are rented. “There are a lot of investors who like a repositioning. You can really get a good return anyway, but once you rehab you have the best house in the neighborhood.” Adjusting the Rating Paradigm “If the neighborhood is not the best
Jefferson Park neighborhood, Los Angeles, CA
In some of the quote-unquote bad neighborhoods, you have access to jobs but lower quality schools.” Bruce Bartlett | Managing partner at Sequoia Real Estate Partners Los Angeles, CA “
“In some of the quote-unquote bad neighborhoods, you have access to jobs but lower quality schools,” he said, providing as examples the Jefferson Park and West Adams neighborhoods along the Interstate 10 corridor, both of which are in zip codes with a high share of flips but where elementary school test scores are below or just slightly above the state average. “You’re having these old Craftsmans being updated there.” Bartlett noted that the recent completion of the Expo light rail line running along the I-10 corridor between downtown Los Angeles and Santa Monica is
attracting more young buyers to those neighborhoods.
“You’re having these millennials (who buy thinking) ‘I can get on the Expo line and I can go to my creative job in Culver City … I can get on the train to go downtown,’” he said. Bright Flight to Authentic Homes “Now it’s bright flight,” Bartlett continued, referring to the trend of young, college- educated buyers returning to more urban neighborhoods — the reverse of the so- called “white flight” trend. “Regardless of your race, are you educated, do you have a job? … These people want to live close to
HomeUnion, the soup-to-nuts service for single family rental investors, employs
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a structured, data-driven approach to evaluating neighborhood and property quality, but it does adjust its model with on-the-ground intelligence, according to CEO Ganguly. “We have our own employees on the ground … so if our data science says this is a D neighborhood … but our employee on the ground says it used to be a D but it’s not any more (we take that into account),” he said, adding that the company also adheres to strict property condition standards — rehabbing if necessary — to ensure a consistent level of quality for tenants
renting a HomeUnion-branded property. Maintaining strict property condition and neighborhood quality standards in turn helps to attract high-quality renters, Ganguly noted. “What is important to the investor is the renter,” he said. “You find better renters in better neighborhoods with better schools.” A ‘Losing Disaster’ That is a lesson Keeton learned the hard way when screening for tenants in the blue collar neighborhoods where Morningside had acquired properties.
Early on, tenant screening was lax, which proved to be a mistake.
“That’s a losing disaster because they are going to end up wrecking the house or you are going to have to evict them or whatever,” he said, adding that the company quickly tightened up its tenant screening practices and has stuck to those even when that results in higher vacancy rates. Keeton also noted that rehabbing before renting worked well for the blue collar neighborhoods where Morningside purchased single family rentals.
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FLIPPING MORE COMPETITIVE & LESS PROFITABLE Number of Flippers Flipping Profit Spread*
120,000
60%
51%
110,008
108,157
100,000
50%
96,318
94,888
80,000
86,958
40%
39%
38%
60,000
30%
31%
31%
40,000
20%
20,000
10%
0
0
2011
2012
2013
2014
2015
* Flipping Profit Spreadis difference between average purchase discount and average sale premium of properties flipped.
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“I think the big thing we did is get all the big (repairs) done up front,” he said. “The roof and the flooring, all that stuff. Get that done upfront, kind of bite the bullet and it will definitely save you money down the road.” Risk of Break-Ins During Rehab But property rehab can prove challenging in high-crime neighborhoods, noted Cisterna of Investability. Cisterna recounted a personal experience where some investment properties he purchased in Memphis were broken into repeatedly during rehab. “I tried boarding them up,” he said, adding that did not completely prevent the break-ins. “On a couple of properties I just had to dump than … and sold them for next to nothing.” Cisterna noted that while there are examples of down-and-out neighborhoods experiencing a strong turnaround — including some in his hometown of Denver thanks to their proximity to downtown and the high-tech jobs available there — that is not a guaranteed trajectory for every low- value neighborhood. “The neighborhood’s not going to turn a corner because you happen to own an investment property there now,” he said. “If you are banking on appreciation it is just a speculative investment. If it doesn’t happen are you able to weather that storm?” How a $6 Million Sale Impacts Compton Bartlett, the Southern California flipper, differentiated between neighborhoods turning around because of underlying
City of Compton, CA
“
The neighborhood’s not going to turn a corner because you happen to own an investment property there now.”
Dennis Cisterna | Chief revenue officer at Investability Real Estate Denver, CO
structural shifts and those turning around solely on the coattails of an upward real estate cycle. Investing in the latter is more risky, and Bartlett said investors in those neighborhoods should keep a close eye on the high end of the market to help them know when to exit. With the high end of the market starting to cool in Los Angeles thanks in part to a pullback in purchases by wealthy foreign buyers, investors in lower-end markets prone to bigger cyclical shifts should be
looking for an escape hatch sooner rather than later, according to Bartlett.
“Understanding the real estate cycle is not just about understanding the local economy; it’s understanding the global economy,” he said. “It seems strange to say that $9 million properties are now going for $6 million so I
should worry about my property in Compton … but news travels fast.”
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MY TAKE
HOUSINGNEWS REPORT
Peter Muoio EVP and Chief Economist at Ten-X Peter Muoio, Ph.D., is chief economist for Ten-X Research. He is a veteran of the real estate industry and founder of the research and consulting firm Maximus Advisors, which Ten-X acquired in December 2012. Immediately prior to forming Maximus Advisors, Dr. Muoio was a Managing Director and Global Head of Deutsche Bank’s Real Estate Research Group with teams in New York, London, Frankfurt and Sydney. Prior to that, he formed and led the Real Estate Research Group at Bankers Trust Company. Dr. Muoio has also served as an instructor at Hofstra University where he taught Industrial Organization and worked as a Research Associate at the WEFA Group, an economic consulting firm.
STARTER HOME : LOW SUPPLY MEETS LOW DEMAND?
Across the country, the low inventory of homes for sale has dominated housing headlines, limiting stronger sales growth while fueling large price gains; and ultimately feeding into the problem of declining affordability. The National Association of Realtors (NAR) has noted the particularly low number of starter homes for sale as a key factor keeping potential first-time buyers on the sidelines. According to the NAR , the percentage of first-time buyers continues to hover at a low level, accounting for just 33 percent of home sales in July. It’s logical to point to a low inventory of starter homes as a key stress point that would otherwise enable a higher homeownership rate, which is undoubtedly true. Potential first- time buyers are also grappling with unprecedented student debt, surging home prices, and stricter lending standards, all of which inhibit their path to homeownership. However, according to a recent Bank of America report, a weaker underlying demand for starter homes may be a deceptive culprit that is also keeping first- time buyers at bay. The Bank of America Homebuyer Insights Report features survey results from a thousand adults throughout the country who want to buy a home in the future, and some strong preferences emerge from the results. A whopping 75 percent of potential buyers indicated that they would prefer to skip purchasing a starter home and instead go with a home that meets their future needs, with 69 percent saying they would rather save money to purchase a nicer home in the future than move into a starter home right away. When potential buyers were asked why they have not yet purchased a
home, 56 percent responded that they did not think they were able to afford the type of home they would want, which could partially reflect the deteriorating affordability for homebuyers, but also reveals the desire to buy something more than a traditional starter home. Additionally, more than one-third of respondents also said they want to retire in their first home, a swift departure from the concept of purchasing a starter home and eventually trading up.
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Which describes the type of home you’re looking for?
A home that I can grow into and will fit my needs in a few years, even if it doesn’t now 75% A home that fits my needs today, but may not be right for me in a few years 25%
Which would you rather do?
Wait to save more money and move into a nicer home in the future 69%
Move into a starter home now 25%
Source: Bank of America
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These figures all point to softer demand for starter homes. In the aftermath of the housing crisis, people no longer universally see houses as the stable investment they once were; they are more aware of the risks of owning a home that does not always increase in value. This includes homeowners who were directly hit by the crisis a decade ago, as well as many millennials who witnessed the damage. The prospect of being underwater or trapped in a starter home following another downturn is a real concern. As a result, it appears that many prefer the security of only buying a house if they are prepared to live there for many years, alternatively choosing the flexibility of renting in the short term to avoid this risk or staying at home with their parents to save money for a better home, contributing to the elevated number of renter households and young adults living at home. This perspective and new housing liquidity preference puts a damper on demand for traditional entry- level homes. This dovetails with a recent Trulia report that suggests demand for starter homes is declining in a number of U.S. metros. Trulia divides housing stock into three different segments: starter homes, trade-up homes, and premium homes. In the report, they note that in 20 of the 74 metros where starter home inventory has fallen, prices have also fallen. This is counterintuitive to the national narrative on low housing inventory, where tight inventory levels are sparking substantial price gains as competition intensifies among buyers, and instead suggests that significantly lower demand for starter homes is cutting prices in certain metros despite falling inventory for the segment. In the same report, Trulia also provides insight on a national level by evaluating the 100 largest metros in the country. In the second quarter of 2016, the median list price for U.S. starter homes rose 6.4 percent year-over-year after facing the pressure of a 12.3 percent annual decline in inventory. Over the same time, premium homes saw a larger 7.9 percent price increase, but inventory levels were nearly flat. While the inventory reduction for starter homes is still spurring price gains, this discrepancy suggests comparatively weaker demand for the segment than for premium homes, again aligning with the Bank of America results that point to buyers’ preference toward skipping starter homes.
The outlook for traditional starter homes is clouded. Recent reports suggest that increased costs for building starter homes, resulting in part from rising regulation and associated fees, are squeezing profitability and steering homebuilders away from starter homes. The size of new homes continues to rise across the country , reflecting both the higher standards sought by homebuyers and where homebuilders’ greater profit margins are found.
Median square feet of new single-family houses in the U.S.
Source: Census Bureau, The Wall Street Journal
The growing disincentive for homebuilders to focus on this starter segment will undoubtedly hurt inventory and further deteriorate affordability prospects for potential homeowners. While low inventory is still meeting solid housing demand across the country, including starter homes to some extent, underlying demand for starter homes may be softening, and the size of this market may decline as buyers and builders alike show an increasing disaffection to it. The desire to ultimately own a home may be alive and well, but it seems that a number of first-time buyers may be willing to wait it out for something more than a traditional entry-level home.
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STATE SPOTLIGHT
HOUSINGNEWS REPORT
BOSTON BUILDING BOOM LIFTS HOUSING BY OCTAVIO NUIRY, MANAGING EDITOR
A massive building boom in Boston is underway.
worth about $7 billion — going up in 19 of the city’s 25 neighborhoods, according to The Boston Globe. Simultaneously, new home building permits are also growing rapidly. Since 2011, the number of new home building permits has grown steadily, moving upward from 6,139 permits in 2011 to 15,036 in 2015, according to the Census Bureau. In the first five months of 2016, developers had issued nearly 4,000 new home building permits.
starting at $7 million — and topping out at $37.5 million for a 13,000 square foot penthouse.
“There’s 14 million square feet of construction underway right now,” said Brian P. Golden, director of the Boston Redevelopment Authority . “It’s a remarkable transformation in just a couple of years.” Boston is undergoing one of the biggest development booms in decades, with a new generation of luxury residential towers being built in Greater Boston. It’s a multi- billion dollar transformation that stretches from the heart of downtown outward toward the suburbs. Shiny glass and steel high-rise and mid-rise residential towers are sprouting up across Boston’s once- neglected neighborhoods, as Beantown becomes a more international city, reports The Wall Street Journal . The flurry of new construction includes 83 major projects —
Further south, in Boston’s historic and emerging Seaport district, One Seaport Square , a massive three- acre development with plans for 832 apartments, is under construction and slated to open in 2017. Over in Boston’s Back Bay neighborhood, a 61-story condo- hotel — One Dalton — will be the tallest residential skyscraper in Boston.
And the unfolding transformation is widespread.
The building buzz is luring some big-name corporations to relocate to the Boston area.
Boston Condo Boom At Downtown Crossing, the Millennium Tower , a 60-story condominium building, will open this summer; its 442 luxury condos are already 95 percent sold, according to developer Millennium Partners . Prices range from $1.1 million for a one-bedroom condo to penthouses
GE: Boston, Here We Come In January, General Electric decided to leave its longtime home in Connecticut and chose Boston’s fast-growing waterfront district for its new headquarters. GE is the biggest company ever to relocate to the city and it is expected to be a boost to the
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Zero Net Living, Mission Hill Flats Further west, in the Mission Hill neighborhood, developer Leland DiMeco, co-owner and principal broker at Boston Green Realty, LLC , is planning an environmentally friendly LEED-certified, mixed-use development. DiMeco and his wife, Suzanne, are the developers of Mission Hill Flats, a mixed-use building, with 30 apartments and four commercial units that, when completed, will surpass any LEED/Energy Star green standards. pave the way for more of their kind,” said DiMeco, whose company is a certified EcoBroker, a premiere green designation for real estate professionals. “This is going to be a fun, technology-based building offering residents a system that will learn and adapt to their habits. The system will learn when you leave, when you’re coming, “We want Mission Hill Flats to be the greenest building in Boston and help
local economy, according to the Boston Redevelopment Authority, which oversees all construction projects in the city. The move, which is expected to begin this summer, will relocate 800 people to Boston. For Red Sox fans, Pierce Boston , a 30-story luxury condo and apartment tower near Fenway Park, will open in the summer of 2018, featuring 109 condominiums and 240 rental apartments. On the South End, Troy Boston, which opened in 2015, has a strong millennial vibe. A one-bedroom apartment rents for more than $3,000 a month. In Boston’s historical Bulfinch Triangle neighborhood, One Canal , a new 12-story luxury rental tower, caters to millennials and Baby Boomers, with a rooftop social deck, fitness center and yoga studio. Boston’s housing boom is spilling into other corners of the city, including South Boston, the South End, Fenway and Mission Hill. We want Mission Hill Flats to be the greenest building in Boston and help pave the way for more of their kind.” “
how to turn the heat on, how to turn the cooling on. It will be a place to talk about and have your friends come over to visit.” With a combination of rooftop solar panels, advanced water heaters, smart thermostats, dual-pane windows, LED lighting, electric vehicle (EV) plugins, a “smart car” for tenants, high performance eco-friendly construction materials and other high-efficiency features, Mission Hill Flats is designed with a singular goal: to generate as much energy as the occupants use. It’s a concept known as zero net energy, or ZNE. The DiMecos are teaming up with the local Roxbury Knights of Columbus and donating space in the building for the charity group. The five-story apartment building will be a passive house certified project, a rigorous energy efficiency standard aimed at reducing a building’s carbon footprint.
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Leland DiMeco Co-owner and Principal Broker at Boston Green Realty Boston, MA
3D rendering of Mission Hill Flats Husband-and-wife developers Leland and Suzanne DiMeco are planning to build an environmentally friendly LEED-certified, mixed-use housing development called of Mission Hill Flats. This is an architectural rendering of the 30 apartments and four commercial units planned for the site.
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HOUSINGNEWS REPORT
of narrow streets and small houses jammed together on a peninsula jutting into Boston Harbor and splendidly isolated from downtown by the Fort Point Channel. South Boston is the old stomping grounds of Southie legendary gangster James “Whitey” Bulger, the notorious godfather of the Irish Mob who murdered, conned and terrorized his way through Boston’s underworld in the 1970s and 1980s, until he was sentenced to life in prison in 2013. But today Southie has been gentrified and transformed by a wave of young, white- collar professionals who are drawn by the area’s abundant walk-to-work apartments, yuppie-friendly restaurants, emerging nightlife and easy access to downtown, according real estate developer Adam Burns, broker/owner of Burns Realty & Investments in South Boston. residential buildings in Southie, including a four-story, eight-unit apartment complex at 543 Dorchester Avenue. “In addition to the new developments we’re building, I have $10 million under contract right now. A lot of 30-something young professionals without children are moving into the area. It’s very, very busy right now.” In Southie, Burns said, the waterfront area is growing at a breakneck pace, and demand for both rental units and condos outpace supply. Over all, the Boston Redevelopment Authority has approved 52 new building projects in South Boston and another 36 projects in the South Boston waterfront area. “For the time being, demand is outpacing “South Boston has been wholly gentrified,” said Burns, who is developing seven
543 Dorchester Avenue, Boston, MA South Boston real estate developer and broker Adam Burns of Burns Realty & Investments is building this this 8-unit residential luxury housing complex at 543-549 Dorchester Avenue in Southie. A one bedroom unit next door to the red line T at Andrew Square rents for $2,400 a month.
In addition to the new developments we’re building, I have $10 million under contract right now.” “
Adam Burns | Broker/Owner of Burns Realty & Investments Boston, MA
Zero net energy buildings are gaining popularity in Massachusetts, according to Green Building News . A survey by the Net Zero Energy Coalition — a group representing some 180 builders, product manufacturers and other industries — found that California far outstripped all other states in the number of net zero energy residential units and buildings, with Massachusetts and Connecticut coming in at second and third, respectively. California led all states with 1,538 of the total of 3,339 U.S. net zero buildings there, with Massachusetts second (219) and Connecticut third (212).
The Mission Hill neighborhood is a walkable community near the Longwood Medical Center as well as many colleges and universities, including Northeastern University. South Boston — Southie Chic While downtown and the Back Bay may have all the new trophy towers, the epicenter of the city’s development boom is South Boston, experts claim. South Boston — or Southie, as it’s known locally — was once a largely gritty Irish, Catholic and working-class neighborhood
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HOUSINGNEWS REPORT
supply,” said Burns, noting that bidding wars and rising prices are locking out many middle-level buyers in the $350,000 to $550,000 price range. “People are fighting for a place to live.” The greater Boston rental market is a tight, pricey market. Boston ranked No.3 as a strong multi-family rental market in 2016, up from No. 8 in 2010, according to the real estate data firm Reis Inc . Boston trails only New York City and San Francisco. Citywide, home prices are rising. Greater Boston home prices scaled new heights in June, with shrinking inventory levels fueling price hikes, experts claim. According to the Greater Boston Association of Realtors , sales of single family homes in June 2016 increased 1.4 percent with 1,916 sales, compared with 1,870 homes sold in June 2015. Condominium sales remained flat this June
compared with June 2015, slipping 0.1 percent year-over-year. Home sales have increased for 13 consecutive months. Home Prices Rising The median sales price for a single-family home in Greater Boston was $585,000 in June, up 4.5 percent from $560,000 last year, and $505,000 for condominiums, up 9.8 percent from $460,000 in June 2015, reported GBAR. Meanwhile, inventory plummeted for both single family homes and condominiums. In the single-family market, inventory dropped 18.5 percent from 3,698 homes for sale in June 2015 to 3,015 in June 2016. Likewise, inventory of condos fell 24.6 percent to 1,457 condos in June 2016 from 1,933 condos in June 2015.
economy, we’ve seen buyer motivation and consumer confidence continue to trend upwards and that is reflected by these high sales totals,” said GBAR president Andrew Sarno, broker associate with RE/ MAX Andrew Realty Services in Medford. “Consumers are taking advantage of the increased equity from the rising home values and low mortgages rates as well, so despite higher median sales prices; the market has remained very active.” A shrinking supply of homes for sale has intensified competition from buyers and forced up prices, local experts claim. Demand has been further fueled by a healthy job market and historically low mortgage rates, which have made people more comfortable about paying higher home prices. The rise in home prices coincides with a vibrant and strengthening Boston economy — fueled by the city’s flourishing medical, CONTINUED ON NEXT PAGE
“The desirability for homeownership in Greater Boston is extremely high, and with a thriving local job market and
BOSTON NEW HOME BUILDING PERMITS BY YEAR
17,442
15,423
15,036
13,916
12,021 12,024
11,248
8,851
7,634
6,672 6,139
5,476
2004 2005
2006
2007
2008
2009 2010 2011 2012
2013
2014
2015
Source: U.S. Census Bureau
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HOUSINGNEWS REPORT
educational and financial services fields. Rapid growth in the city’s pharmaceutical industry — with Swiss drug maker Novartis and German drug manufacturers Merck and Pfizer expanding their footprint in Boston in recent years — and its fast- growing technology sector — Amazon, Google, IBM, Nokia and Microsoft have large operations in the city. Greater Boston is the ninth-biggest metro in the country and its economy is growing at a rate of 2.6 percent thanks to its many colleges, universities and biotechnology sector, according to the Bureau of Economic Analysis . And job growth is fueling the sizzling Boston real estate market. Biopharma Boom in Cambridge Across the Charles River, in Cambridge, where the biotechnology industry is clustered near Harvard University and the Massachusetts Institute of Technology, the blazing hot local real estate market is one of the most expensive neighborhoods in the state, according John F. Barmon, an agent with Coldwell Banker Residential Brokerage in Cambridge, Massachusetts. “Normally we see a seasonal slowdown in the winter months,” said Barmon. “But inventory is so low that demand is high — and prices keep going up.” Barmon said that in Cambridge and Somerville every property that is listed gets 12 to 15 offers. He said empty nester baby boomers are downsizing in the suburbs and buying smaller condos in Cambridge. “Most of the buyers are very savvy and educated,” said Barmon, who played the role of Spaulding Smails in the 1980 classic
comedy “Caddyshack,” starring Rodney Dangerfield, Bill Murray, Chevy Chase and Ted Knight. “These buyers see each other repeatedly at open houses. They know each other from previous multiple bidding wars. They’re more educated than some of the brokers.”
Barmon. “They’re looking for walkable neighborhoods near transportation hubs like Inman Square, Central Square and Kendall Square.” Barmon said buyers are also looking to purchase near Boston’s subway system, known locally as the T, one of the nation’s oldest transportation systems. He said buyers also want to be near research universities like M.I.T. and Harvard, which
Triple Decker Conversions Barmon said investors are converting multi-family properties into condo
“
Normally we see a seasonal slowdown in the winter months. But inventory is so low that demand is high — and prices keep going up.” John F. Barmon | Agent at Coldwell Banker Residential Brokerage Cambridge, MA
conversions and either renting them out for $5,000 to $6,000 a month for each unit or flipping them for a quick profit. Triple-decker homes, which proliferated a century ago in Boston and throughout New England, are becoming a popular target for investors looking for multiple revenue streams, said Barmon. Triple-decker prices have surged in recent years, he said. Four years ago, triple- deckers sold for $400,000. Now they sell for $870,000, with some fetching more than $1 million. “Folks in their 50s or 60s are selling their suburban single-family homes and buying or renting condos in Cambridge,” said
have transformed Cambridge into a major research hub, attracting thousands of students from around the world. “We’re definitely a condo market,” said Barmon, referring to the thriving Ivy League college town.“Boston has the right combination of universities, hospitals, technology industry and financial services industry,” said Leland DiMeco, the EcoBroker whose company manages over 125 rental units. “It’s an absolute great time to invest in Boston. I see no sign of things slowing down. It’s a great place to live.”
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BIG DATA SANDBOX
HOUSINGNEWS REPORT
ON THE REBOUND ROUGH HOODS TOP 5
RealtyTrac (an ATTOM Data Solutions Company) analyzed 3,561 zip codes nationwide with a combined population of more than 124 million people and sufficient data on construction loans, home flips, school scores, share of underwater homes (all from the ATTOM Data Warehouse), and the millennial share of population from the U.S. Census bureau. To make the final cut of Top 35 Best Down-and-Out Neighborhoods to Buy a Home, zip codes had to have a population of at least 2,500, an increase in the number of construction loans over the past 12 months, an average home flipping gross return of at least 60 percent, with millennials (born between 1984 and 2000) representing at least 25 percent of the total population and increasing in share of population from 2013 to 2014. Additionally, the zip code’s highest scoring elementary school needed to be below the state average, and the share of underwater homes in the zip code needed to be at least 15 percent — above the national average.
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NEWS BRIEFS
HOUSINGNEWS REPORT
Homeowner Rate At Record Low The number of Americans who own a home hit the lowest level in 51 years, evidence that incomes are stagnant and falling and that Americans are feeling the sting of rising home prices, according to the Census Bureau. According to the government, only 62.9 percent of households owned a home in the second quarter of 2016, a decrease from 63.4 percent 12 months ago. That was the lowest figure since 1965. The homeownership rate, the proportion of households that are owner-occupied, peaked in the second quarter of 2004, when 69.2 percent of Americans owned a home.
Expanded Money Laundering Program Worried that foreign real estate buyers are laundering money in luxury real estate, the federal government said it would expand a program it put in place earlier this year to crack down on real estate money laundering in the U.S. In January, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) started requiring title insurance companies to reveal the names of overseas owners hiding behind holding companies in two markets. Initially, the Treasury Department focused on sales in Manhattan and Miami-Dade counties where international cash buyers are prevalent. The new program will expand to other markets, including Los Angeles, San Francisco, San Diego and San Antonio. “The information we have obtained from our initial geographical targeting orders (GTOs) suggests that we are on the right track,” said Jamal El-Hindi, the acting director of the Financial Crimes Enforcement Network within the Treasury, in a news release . “By expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”
Source: Census Bureau
Homeownership Rate (1965-2016) 69.2
70%
69%
68%
67%
66%
65%
64%
63%
The new Treasury programs takes effect on Aug. 28, 2016, and are effective for 180 days, said FinCEN.
62.9
62%
61%
60%
Source: Treasury Department
59%
Transforming the Future of Property Data
www.ATTOMdata.com
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LEGAL BRIEFS
HOUSINGNEWS REPORT
Airbnb Sues San Francisco Over Short Term Rental Law San Francisco-based Airbnb sued the city of San Francisco in federal court on June 27, arguing that the San Francisco Board of Supervisors passed new rules regulating short-term rentals that are both illegal and violate federal protections for Internet companies. The lawsuit claims that the board violated the 1996 Communications Decency Act, a federal law that prohibits government from holding websites liable for content posted by users. The short-term rental company sued the city over a new ordinance, which would require Airbnb and similar firms such as vrbo.com and HomeAway to make sure that hosts register with the city or face a fine of $1,000 for every unregistered host who rents property on the website.
CT High Court Upholds New MERS Fees The Connecticut Supreme Court ruled in favor of the state’s imposition of higher realty recording fees on an electronic mortgage registry that preserve a vital revenue stream for state and local municipalities, but also impose higher closing costs for home buyers. In MERSCORP Holding, Inc. v. Malloy , the Connecticut Supreme Court upheld a trial court’s ruling and the validity of higher fees against Mortgage Electronic Registration Systems (MERS), a loan registry system created in the mid-1990s by several hundred mortgage lenders to avoid county land records fees for recording promissory notes. In 2013, the Connecticut state legislature created legislation that structured a two-tiered fee system against MERSCORP Holdings, Inc., requiring MERS to pay higher recording fees because they call MERS a “nominee” for the lender.
Source: MERSCORP Holding, Inc. v. Malloy
The case in U.S. District Court, Northern California is Airbnb Inc. v City and County of San Francisco .
Source: Courthouse News
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BOOK REVIEW
HOUSINGNEWS REPORT
A LOOK AT NEW URBANISM IN NEW ORLEANS BY OCTAVIO NUIRY, MANAGING EDITOR
Where some see blight, developer Pres Kabacoff, envisions opportunity.
sustainable communities infused with new life into old cities.”
In “Revitalizing Cities: The HRI Vision,” (University of Louisiana at Lafayette Press), by Pres Kabacoff, Eddie B. Boettner, Tom Leonhard and James P. Farwell, the authors tell an illuminating story of one of America’s most innovative real estate development companies. Kabacoff, the co-founder of HRI Properties, is New Orleans’ most active and politically connected developers, and his development company, Historic Restoration Inc., is a prominent proponent of New Urbanism, focusing on “inner- city revitalization.” His company has transformed some of the city’s most significant 19th and 20th century buildings into New Urbanism gems. Kabacoff’s development company, a pioneer in developing historic preservation projects and mixed-income housing in New Orleans, has been involved in some of the city’s largest developments, starting in 1984 with the Louisiana World Exposition to demolition and redevelopment of the St. Thomas housing project. Started in 1982 by Edward B. Boettner and Kabacoff, HRI Properties is a new wave of muscular developers who say their work is more than just renovating and preserving old buildings; It is about reshaping viable neighborhoods into “diverse, vibrant,
The book is organized into 17 case studies, featuring the company’s highest profile developments. The majority of developments presented in the book were done in New Orleans, with three case studies located in St. Louis, Dallas and Jackson, Mississippi. Federal Fibre Mills One of the first preservation projects the firm launched was the conversion of the Federal Fibre Mills building in the Warehouse District into apartments, later converted into condominiums in the mid- 1980s. HRI Properties recognized early on the importance of preserving historic buildings in the Warehouse District. In 1982, HRI Properties purchased the Federal Fibre Mills building. During the 1984 Louisiana World Exposition, the building was modified to allow a monorail to carry passengers into a popular German beer garden inside the building. After the exhibition ended, local developer Jerry Decks brought in Merrill Lynch, and the HRI Properties team turned the building into apartments. Built in 1907, the Federal Fibre Mills building was a rope manufacturing plant. The conversion of the Federal Fibre Mills into 132 luxury condominiums in 1985 sparked the transformation of the
Revitalizing Cities: The HRI VIsion By Pres Kabacoff, Eddie B. Boettner, Tom Leonhard and James P. Farwell
About the Author
In 1982, Edward B. Boettner (1933-2000) and Pres Kabacoff, founded Historic Restoration Inc., now known as HRI Properties, dedicated to the pursuit of rebuilding neighborhoods and recreating entire communities. Prior to founding HRI, Kabacoff practiced real estate law and served as assistant to the managing partner of International River Center.
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