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HOUSINGNEWS REPORT
Named the Nation’s Best Newsletter by NAREE
November 2016 Vol 10 Issue 11
Pi Pi
Contents
FEATURED ARTICLE
The maturing single family rental industry helps mom-and-pop investors buy beyond their backyards. Many of those real estate investors live in blue states but are investing in red states P1 BLUE STATE BUYERS SWING TO RED STATE RENTALS
P10 TECH PUTS NEW SPIN ON FIX-AND-FLIP FINANCING
By Nav Athwal, founder and chief executive officer, RealtyShare, (Page 10). “Residential real estate investment is going through a period of resurgence,” writes Athwal. “Single family home and condo flips hit a six-year peak in the second quarter of 2016, with 51,434 projects completed.” Athwal sees nothing but blue skies for tech financing.
P1
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Today, Washington, D.C. ranks among the nation’s most thriving and vibrant cities. While the rest of the nation got hammered by the Great Recession of 2008 and struggled to recover, a remarkable inversion occurred in Washington, D.C.: as the rest of the country’s real estate markets receded, the District of Columbia blossomed. P13 AMID GENTRIFICATION, A ‘NEW D.C.’ EMERGES
P24 LEGAL BRIEFS
P25 NEWS BRIEFS
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HOUSINGNEWS REPORT
FEATURED ARTICLE
BLUE STATE BUYERS SWING TO RED STATE RENTALS Maturing single family rental industry helps mom-and-pop investors buy beyond their backyards
BY DAREN BLOMQUIST, EXECUTIVE EDITOR
ATTOM Data Solutions • P1
HOUSINGNEWS REPORT
FEATURED ARTICLE
STATES WITH MOST OUT-OF-STATE SFR OWNERS
Because of the financing, because of the availability of technology and the information, it allows us to connect to local boots on the ground, evaluate them and their performance, and evaluate markets because of the data.”
Florida 365,959
North Carolina 202,431
Tennessee 185,116
Arizona 162,069
Georgia 159,899
Texas 139,358
California 117,139
Michigan 116,137
Pennsylvania 113,070
New Jersey 108,919
Adam Whitmire Director of Acquisitions and CTO, The Whitmire Group
Third generation real estate developer Adam Whitmire realizes this is not his father’s housing market. “Because of the financing, because of the availability of technology and the information, it allows us to connect to local boots on the ground, evaluate them and their performance, and evaluate markets because of the data,” said Whitmire, director of acquisitions and CTO at The Whitmire Group , an Atlanta- based company that aggregates and sells turnkey single family rentals mostly in Alabama to investors from across the country and overseas. Whitmire said the single family rental industry was transformed by institutional investors in the wake of the Great Recession, and the innovations birthed during that transformation are now
or baby boomer homeowners flush with home equity wealth — in high- priced markets are looking beyond their backyards for real estate investing opportunities. And they’re increasingly finding the data, technology and online platforms enabling them to actually buy outside their local markets, according to Gary Beasley, CEO and founder of Roofstock , an online marketplace for single family rentals. Many of the buyers are coming from politically blue states and investing in politically red states. “A lot of demand is people in the Bay Area and New York City looking to buy in the Southeast,” said Beasley, former co-CEO at Starwood Waypoint Homes, which earlier this year merged with
trickling down to individual mom-and- pop investors.
One California Rental for 27 in Alabama “We can sell a package of 10 to 15 homes to an individual investor whose 401(k) didn’t do very well during the recession,” said Whitmire, providing as an example a California woman who sold the one rental property she owned in California and used the proceeds to purchase 27 rental homes in Alabama through Whitmire’s company using a 1031 exchange — which allows an investor to defer taxes on capital gains when trading investment property.
“She’s making a very significant cash flow,” he said.
Passive investors — think young professionals with well-paying day jobs
ATTOM Data Solutions • P2
HOUSINGNEWS REPORT
FEATURED ARTICLE
by Michigan and Pennsylvania, both states moving red politically in 2016.
STATES WHERE RESIDENTS OWN MOST OUT-OF-STATE SFR
Meanwhile states with the most out- of-state investment homes owned by residents are more heavily tilted blue politically, led by California. Two red states — Florida and Texas are Nos. 2 and 3 on the list — but are followed by three blue states — New York, Illinois and Virginia. States where Californians own the most investment properties are Arizona, Nevada, Texas, Florida and Oregon, while New Yorkers own the most investment properties in Florida, Pennsylvania, New Jersey, North Carolina and Georgia. Imitating Institutional Investors Institutional investors led the way in buying single family rentals beyond their backyards. The institutional buying spree started around 2009 and peaked in 2012, triggered by a perfect storm of market conditions that lured large private equity firms and hedge funds into the space. Along with Beasley’s Waypoint Homes, which began aggregating single family rentals at large scale in 2009, two other early institutional investor entrants were Carrington and Oaktree. The two companies formed a partnership to buy single family homes in bulk quantities in 2010, according to Ryan McBride, who worked for Carrington at the time and helped put together the buying partnership.
California 452,294
Florida 280,736
Texas 250,604
New York 196,763
Illinois 153,743
Virginia 126,304
Pennsylvania 124,375
Georgia 105,615
New Jersey 101,176
Arizona 100,927
A lot of demand is people in the Bay Area and New York City looking
to buy in the Southeast .” Gary Beasley | CEO and founder of Roofstock
Colony American Homes to become the third largest institutional investor in the single family rental market, according to the Single-Family Rental Primer , published by Keefe, Bruyette & Woods in September. Bay Area Buyer Looks Southeast “We have one Google engineer who just bought his sixth house. He said ‘this is fantastic, real estate is so expensive here and I don’t want to be tied just to Bay Area real estate,’” said Beasley, noting the engineer
had purchased investment homes in Florida and Atlanta and was now interested in North Carolina buying opportunities. According to an analysis by ATTOM Data Solutions, Florida has the most investment single family homes owned by out-of-state owners of any state, followed by North Carolina, Tennessee, Arizona, Georgia and Texas — all red states in the 2016 presidential election. The first blue state on the list is California at No. 7, but that is followed
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FEATURED ARTICLE
SINGLE FAMILY RENTAL PURCHASE TRENDS
Pct Non-Owner Occupied Single Famly Homes
Pct Institutional Investor Purchases
35%
9%
7.8% 7.7%
31.0%
8%
29.2%
30%
28.2%
27.1%
6.8%
29.2%
26.9% 25.9%
7%
25.4%
28.1%
6.4%
25.2% 5.8%
5.8%
25%
5.5%
6%
4.9% 5.2%
20%
5%
4%
15%
3%
10%
2.8%
2%
5%
1%
0%
0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2016
In early 2012, McBride left Carrington to co-found Colony American Homes, funded by private equity firm Colony Capital. Over the next few years, Colony acquired 20,000 homes, starting on the west coast, according to McBride. “And then we rapidly moved east. It was a lot of fun and it was very, very busy,” he said. “I think we acquired about 75 percent of those homes on a one-off basis at the trustee (foreclosure) auctions.“ But as the low-hanging fruit of foreclosures dried up and the stabilization of massive portfolios of rentals became a priority over new acquisition for large aggregators like Colony and Starwood Waypoint, both McBride and Beasley found new niches in the maturing single
family rental market. Both started new companies that provide services designed to help mid-sized and mom- and-pop investors take advantage of innovations brought to the market by the large aggregators. Investor Financing For All Folks In 2014, McBride helped launch Colony American Finance to provide financing specifically to residential real estate investors. “We realized that there was no scalable financing solution in the space,” said McBride, who now serves as the company’s COO. “We basically went from 0 to $2 billion in closed loans. We have 1,400 borrowers. So we’ve come a long way in about two years.”
We see a lot more opportunities from the smaller, mid-sized operators, and so that is where we are focusing our efforts: the broad base of the pyramid .”
Ryan Mcbride COO, Colony American Finance
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FEATURED ARTICLE
SINGLE FAMILY RENTAL LEVERAGE
A Sampling of Single Family Rental Loans
Financed: 7,324,326 Free & Clear: 11,070,894
Financed 40%
Here are three loan types offered by one of several newcomers to the real estate investor financing space, Colony American Finance: • Rental portfolio loans - Fixed rate financing for 5 to 10 years on a pool of stabilized rental properties - Loan amounts from $500,000 to hundreds of millions of dollars - Rates typically run between 5 and 6.5 percent - Typically have a prepayment penalty attached • Single asset rental loans (just introduced) - One loan for one rental property - 30-year fixed rate product similar to a conforming loan from Fannie or Feddie - Rates typically run between 6.5 percent up to 8 percent on the high end • Credit lines up to $50 million - To purchase rentals or fix-and-flips
Free & Clear 60%
Source: ATTOM Data Solutions
McBride said he’s noticed a shift in the type of customers Colony is attracting in the past 18 months. “Early on it was the mid-sized investors all the way up to the large institutions (that) had the most urgent need for capital,” he said. “We see a lot more opportunities from the smaller, mid-sized operators, and so that is where we are focusing our efforts: the broad base of the pyramid.” Beasley observed a similar trend in customers coming to Roofstock to acquire single family rentals. He said smaller “retail” buyers make up about 25 percent of demand for homes listed on the website, with the remaining 75 percent split between institutional investors and foreign funds. Retail Buyers Surprise “(The retail buyers) surprised us. We were expecting it to be closer to 10 percent,” he said, adding that surprise finding has caused the company to adjust its strategy to account for those “15 to 16 million homes that are owned by mom-and-pop investors and being a marketplace for
them. … We actually think we can improve liquidity in this space and increase the number of owners.” Roofstock only lists single family rentals that are already leased and performing, and its properties are not listed with a broker on the multiple listing service (MLS), allowing both buyers and sellers to save on transaction costs as well as on the three to four months of lost rent that would result if the properties were vacated before they were sold, according to Beasley. “We promote liquidity by squeezing out some of the costs of transactions,” he said noting that Roofstock’s fee is about 2 to 3 percent of the purchase price. “The seller is saving a lot of costs… And the buyer is buying at a discount to fair market value.” By providing third-party property inspections and incorporating 3-D mapping of the interior of the home, Roofstock’s goal is to allow investors to purchase homes far beyond their backyard, “sight unseen,” said Beasley.
- A 12- to 24-month term
- A substitute for hard money loans with a lower rate of between 8 and 10 percent
ATTOM Data Solutions • P5
HOUSINGNEWS REPORT
FEATURED ARTICLE
MARKETS WITH MOST INSTITUTIONAL INVESTORS (Q3 2016)
12.3%
Memphis, TN-MS-AR Birmingham-Hoover, AL Lakeland-Winter Haven, FL York-Hanover, PA Tulsa, OK
9.0%
7.5%
5.9%
5.6% 5.5% 5.4%
Augusta-Richmond County, GA-SC Atlanta-Sandy Springs-Roswell, GA Ocala, FL Winston-Salem, NC New Haven-Milford, CT Charlotte-Concord-Gastonia, NC-SC Dayton, OH Columbia, SC Greensboro-High Point, NC Huntsville, AL
5.3% 5.3%
5.1%
5.0% 4.9% 4.9% 4.8%
* Institutional Investor is defined as any entity that purchases 10 or more properties in a calendar year.
4.7%
Buyers from Boston to Beijing “You can be sitting in Boston or Beijing looking at a home just like anyone else,” he said. “We’re finding there has been this big sort of shadow demand of people wanting to invest in the asset class but haven’t been able to do it until they came across our solution. … People have felt like they have to buy near where they live (and) do a lot of the work themselves.” Beasley said improved financing options such as those offered by Colony and others are helping those same buyers purchase more properties than they originally thought they could. “A surprising number of these people are not aware that they can finance these assets,” he said. “I can buy six or eight
Grass-Roots Growth in SFR The shifting focus of Roofstock and Colony American Finance toward smaller retail investors aligns with the shift in the marketplace evident in the ATTOM Data Solutions Q3 2016 Single Family Rental Market Report , which shows 2.7 percent of all single family homes purchased in the first seven months of 2016 went to institutional investors — entities purchasing 10 or more properties in a calendar year. While that was up from 2.1 percent in the first seven months of 2015, it was down from a peak of 8.4 percent in the first seven months of 2013. Meanwhile, the overall single family rental market is continuing to grow, with 31 percent of all single-family homes purchased in 2015 owned by non-owner
houses instead of two with this financing. It’s great for us because we can sell more houses to these clients.” Crowdfunding is an emerging innovation that allows smaller, passive investors to invest in real estate with limited exposure to risk, according to Whitmire, the Atlanta-based operator buying mostly in Alabama. “We just raised a couple million dollars last month with RealtyShares,” he said, explaining that an individual investor could put $1,000 into that crowdfunding initiative and spread their risk out over the hundreds or even thousands of properties that are part of the opportunity. “It allowed us to buy more properties and to buy them cheaper.”
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HOUSINGNEWS REPORT
FEATURED ARTICLE
COUNTIES WITH MOST OUT-OF-STATE SFR OWNERS
88,947
Maricopa, AZ Clark, NV Lee, FL Cape May, NJ
73,629
33,515
27,007
22,523
Wayne, MI Shelby, TN
20,107 19,640 19,608 19,131 18,821
Harris, TX Sevier, TN Sussex, DE Palm Beach, FL Pima, AZ
17,871 17,834 17,525 17,017
Mohave, AZ Sarasota, FL
Cumberland, TN Mecklenburg, NC
16,719
occupants, up from 28.2 percent in 2014 to the highest level in the last decade, according to an ATTOM Data Solutions analysis. That reflects the reality for Whitmire, one of the mid-sized single family aggregators still plugging away, albeit with a shifting strategy that corresponds to market opportunity. “We do all value-add acquisitions. We do single family and multi-family in secondary and tertiary markets,” he said, noting that the opportunity for buying SFR in primary markets like Atlanta has largely dried up. “We can’t buy cash flow in Atlanta. We can in Alabama. … The opportunity has changed. So we went back to doing what we did before the recession, which is cash flow.
“A lot of your big guys are still buying in your primary and secondary markets,” added Whitmire, who said his company owns about 200 investment homes in Alabama. “A-class assets at a 5 percent cap rate. That’s an OK strategy if you have a lot of capital to deploy and you are OK with lower returns … that’s not OK with us. We need to get a higher return.” While Whitmire has shifted his SFR aggregation strategy by moving into secondary and tertiary markets beyond his backyard, other mid-sized operators are staying in their backyard but adjusting their acquisition and exit strategies. Sticking to Southern California “We’re acquiring (but) it’s slowed down,” said Jeff Pintar, founding partner and
We’re only flipping in LA, Orange County and San Diego counties. In the Inland Empire we’re buying rentals. It’s not really a distressed play like it was four years ago. It’s a value-add play .”
Jeff Pintar CEO, Pintar Investment Company in Southern California
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FEATURED ARTICLE
CEO at Pintar Investment Company , which since 2009 has built up a portfolio of about 350 single family rental homes mostly in Southern California and Las Vegas. “We buy both flips and rentals in our fund. Right now about 65 percent of our capital is toward flips and 35 percent toward rentals. … It’s flip-flopped because prices have increased.” Pintar is sticking with Southern California and not expanding to other markets because he likes the long-term prospects for appreciation in the region, but he’s deploying different strategies within his local market. “We’re only flipping in LA, Orange County and San Diego counties. In the Inland Empire we’re buying rentals,” he said, adding that the average age of properties the company buys is 30 to 40 years old. “It’s not really a distressed play like it was four years ago. It’s a value-add play. … You’ve got a product that is extremely dated in age. Therefore it needs renovations and is a value-add opportunity.“ Shifting to SFR in New York On the opposite side of the country in the tristate region around New York City, investor Gavin Reilly is also sticking to his backyard — where distressed deals are still readily available. “Tri State Fine Homes typically buys properties out of foreclosure, improves them and sells them for great returns. Those properties that have nice cash flow are held in our portfolio for the longer
that the opportunity in front of them is the last one that will come along in their lifetime. They need to realize there will always be a bargain in every market for those prepared to uncover them.” Pintar said smaller investors should consider investing in a fund rather than individual properties.
term,” said Reilly, CEO at Tri State Fine Homes, which he started in 2012. “We try to buy a house every 60 days, and going into 2017 we are going to be trying to buy a house every 30 days.”
Reilly said he is starting to shift toward buying more single family rentals.
Pick a market and become an expert in that market and learn all of the pitfalls about investing in real estate before
you make your first purchase.” Gavin Reilly | CEO, Tri State Fine Homes in New York
“That type of investor is probably better off putting their money in a fund like ours because we’re delivering a lot more diversity of assets,” he said, arguing that the rise of professional services within the single family rental industry is raising the bar for tenants, which in turn is boosting returns for investors. “We’re at sub-5 percent vacancy, and rental rates are increasing at two times inflation. For us it’s a great place to be.” Buying New Homes as Rentals Alberto Chocron runs the Florida-based Build US Back real estate investment fund that buys homes in Florida and other parts of the Southeast. He said most of the investment comes from wealthy individuals saving for retirement and looking for a better-performing and more stable investment vehicle than they can find elsewhere.
“I’m slowly transitioning over to the rental property area and more so to single family. And actually there is less competition going after the single family homes than the multi-family homes,” he said, providing as an example a home he recently purchased for $32,000 in cash and plans to spend about $28,000 to renovate before renting. “I’m hoping to clear 400 to 500 a month on that, and that should put me at a 10 cap there.” Both Reilly and Pintar expressed reservations about buying rentals outside of a familiar market — particularly for new investors. “Pick a market and become an expert in that market and learn all of the pitfalls about investing in real estate before you make your first purchase,” Reilly said. “Most new investors are overtly anxious and make their first purchase, thinking
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FEATURED ARTICLE
STATES WITH MOST OUT-OF-STATE SFR OWNERS
People look to invest in our kind of single family, because it allows them to have a fixed-income bond- like return , with a significant upside in real estate while being tax-efficient through depreciation .”
Alberto Chocron COO, Transcendent Investment Management in Florida
Click to view interactive visual showing where each state’s owners reside.
“People look to invest in our kind of single family, because it allows them to have a fixed-income bond-like return, with a significant upside in real estate while being tax-efficient through depreciation,” said Chocron, COO and partner at Transcendent Investment Management, the private-equity firm behind Build US Back. Chocron noted that the company’s strategy for acquiring single family rentals has evolved dramatically from buying distressed homes to buying new homes. “The opportunity back in 2010, 2011, even 2012 was more to acquire distressed inventory, fix it and rent it out,” he said. “As the market dried up in terms of that opportunity … we started to partner up with some of the country’s most prominent home builders and we basically acquire bulk new homes from them.”
a relatively short time horizon before selling, according to Chocron.
not be stuck with a loan expiration that may come at a point in time where the financial markets may be crazy and there is no debt available.” With average rents in his company’s portfolio increasing about 7 percent annually and strong price appreciation on top of that, Pintar is bullish on the future of the SFR market — particularly given the efficiencies and innovation brought to bear in the last few years. “This has been a business that has been around for hundreds of years. It’s one of the largest real estate businesses that no one has ever known about ... he said. “The only thing that’s new about it is in the last few years it has started to become institutionalized. I think that is a good thing for the tenants. I think it’s a good thing for investors. It’s a good thing for neighborhoods.”
“We will rent them out, hold on to them for a period of four to five years. And then sell,” he said, noting that the Build US Back operating arm handles everything from acquisition to property management to sale. “That is one of the added benefits to our investors. We have a very streamlined operation that allows them to operate very efficiently while producing maximum returns.” Holding Rental Homes ‘Forever’ Back in Southern California, Pintar said his fund plans to hold on to its portfolio indefinitely. “Our strategy is that we’re going to hold these forever and put long-term debt on them,” he said, noting that the company is now looking to transition from short- term debt to long-term debt. “We’d like to take that expiration date off the table and
Build US Back typically holds homes for
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MY TAKE
TECH PUTS A NEW SPIN ON FIX-AND-FLIP FINANCING BY NAV ATHWAL, FOUNDER & CEO, REALTYSHARES.COM
Residential real estate investment is going through a period of resurgence. Single family home and condo flips hit a six-year peak in the second quarter of 2016, with 51,434 projects completed. That represents a 14 percent increase over the previous quarter. The number of investors flipping homes reached its highest level since Q2 2007. interest rates and a favorable lending environment have allowed developers and operators the opportunity to raise capital affordability, but it has been a rise in new real estate tools and technology that has played a pivotal role in this growing trend. Old School Fix-and-Flip Financing A decade ago, the landscape for financing fix-and-flip projects was relatively barren. There are a lot of factors that have investors making a return to flipping. Low
Investors had a limited number of avenues available for purchasing a rehab property.
Nav Athwal
Coming to the table with the full amount of cash in hand was one option. In 2006, at the peak of the housing bubble, the average home was selling for just over $230,000 . Pulling together that kind of funding may have been challenging for the typical individual investor, even in light of how well the economy was doing prior to the market’s collapse. A conventional mortgage loan would have been an alternative but then, as now, banks are more focused on owner-occupied properties. Even if an investor were to be approved for bank loan, the wheels of conventional financing have a tendency to move slowly, putting them at risk of losing the property to another buyer.
Nav Athwal is the Founder and Chief Executive Officer of RealtyShares. Nav has over a decade of experience in real estate as an attorney, broker, and investor. Nav lectures at UC Berkeley Law School and the Haas School of Business. He is a frequent contributor to Forbes, and is often featured on CNBC, Bloomberg and Fox Business.
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MY TAKE
fix-and-flip projects. The impact is most noticeable with regard to two specific aspects: speed and convenience. Rehabbing is a sector of the real estate investment market that requires a certain degree of agility. Investors need to be able to move quickly on deals. There’s simply no time to sit around wondering whether you’re going to be able to secure the financing you need. Technology has eliminated the waiting game. Automation and online collaboration are significant contributors, giving online lenders the ability to deliver funding in less time so that investors aren’t at risk of missing out on an opportunity. While technology has accelerated the fix-and-flip financing process, it hasn’t forced lenders to compromise their underwriting standards. If anything, tech is making it easier for lenders to evaluate and approve borrowers to ensure that deals are credible. At RealtyShares , for instance, we have an expert team in place that carefully vets each opportunity presented to our platform. We require a thorough background and credit check to verify that a sponsor has the means to repay the loan. Our sponsors appreciate that attention to detail, as well as the time frame in which we’re able to close deals. We’re able to get funds to borrowers in as little as five to seven days, allowing them
Tech’s capabilities are changing the old school rules of borrowing on a broad scale, with investors reaping the benefits.”
Hard money lenders represented a third alternative. Investors could buy properties and complete flips using short-term loans, without having to worry that another investor would swoop in and close the deal first. Compared to bank financing, the advantage of hard money lending for fix-and-flip deals was, and continues to be, the fact that it’s largely asset-based. There’s less emphasis on an investor’s credit and a more concentrated focus on the property’s anticipated profitability. The tradeoff, however, is typically a much higher interest rate than what a bank would charge. If you fast forward to where we are now with fix-and-flip financing, an entirely new path is being forged. Tech’s capabilities are changing the old school rules
of borrowing on a broad scale, with investors reaping the benefits.
Tech Provides What Fix-and-Flip Investors Value Most Over the past several years, technology has been on a mission to reinvent the real estate industry. Venture capital firms funneled an estimated $1.5 billion into real estate tech startups in 2015 alone, according to research from CB Insights. They see a massive industry that is still conducting business with pen and paper in some cases, and salivate at the chance to back the innovative startups that could redefine the space. So far, the disruption of real estate by technology has strongly influenced the way investors connect with financing for
to move forward with flip projects without fear of being sidelined by their competitors.
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MY TAKE
Using tech, we can look at the market conditions of a major metropolitan area and pinpoint submarkets that may be successful , even if the general outlook of the market is distressed.”
Get all the Facts Before You Buy
Location No Longer Holds Investors Back
borrow more towards their flip projects. With private hard money lenders, the loan-to-value ratios are often conservative, meaning investors may only be able to borrow a small fraction of the property’s value. With online lenders such as RealtyShares, borrowers may be able to obtain a loan for up to 80 percent of the value of an improved commercial or residential property or up to 100 percent of renovation costs. Every property is different, but compared to the terms a bank or a hard money lender may offer, online lenders have a distinct edge. Tech’s Impact Is Here to Stay It’s indisputable that technology has made a definite impression on the real estate industry. Online marketplaces are utilizing tech to streamline financing for fix-and-flip deals in ways that haven’t been done before. Looking ahead, I foresee tech continuing to mold the lending space for flippers. In terms of the bigger picture, the push toward innovation can only have a positive impact on real estate as a whole.
Another aspect of tech that makes it a boon for investors is its ability to transcend geographic limitations. With hard money loans, the lender may prefer to focus on a specific region or property type. They may want to concentrate on funding deals locally, for instance, or lend exclusively to certain types of borrowers. Those barriers are reduced and in some cases, eliminated altogether for investors who are interested in expanding past the reaches of their local market. With online lenders, it’s possible to fund flips in different cities within a particular region or delve into markets that may have previously been inaccessible because of their location. Platforms are identifying and analyzing submarkets in larger cities where opportunities for investors may be going undiscovered. Using tech, we can look at the market conditions of a major metropolitan area and pinpoint submarkets that may be successful, even if the general outlook of the market is distressed.
Criminal & Sex Offenders Former Local Drug Labs Nearby Hazardous Sites Quality of Schools Property / Loan Information
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Aside from eliminating geographic obstacles, tech is enabling investors to
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STATE SPOTLIGHT
AMID GENTRIFICATION, A ‘NEW D.C.’ EMERGES
BY OCTAVIO NUIRY, MANAGING EDITOR
Today, Washington, D.C. ranks among the nation’s most thriving and vibrant cities.
highest-income counties in the United States are located in suburban D.C., and six of the 10 wealthiest counties are in the D.C. metro area, according to the U.S. Census Bureau . Indeed, life is splendid in the Washington region. Falls Church, Virginia, led the nation with a median household income at $121,250 a year. In Loudoun County, Virginia, the median income is $118,934. And in Northwest Washington, where much of the city’s elites live, the median household income is $109,909. By comparison, the national median household income was $56,516 in 2015 — half of what the median District worker earns annually, the Census reports .
Not only are household incomes high in the nation’s capital, but the D.C. metro housing market is thriving too, fueled by high prices, expanding transit options, new developments and an influx of upwardly mobile millennials, both inside and outside the Beltway, experts claim. While home prices in the District of Columbia haven’t hit Manhattan and San Francisco levels, it is among the nation’s most expensive, outpacing cities in California like Los Angeles and San Diego. Silvana Dias, a broker at Long & Foster in Spring Valley, in Northwest Washington, D.C., said D.C.’s prosperity and growth
While the rest of the nation got hammered by the Great Recession of 2008 and struggled to recover eight years later, a remarkable inversion occurred in Washington, D.C.: as the rest of the country’s real estate markets receded, the District of Columbia blossomed. Flush with trillions of taxpayer dollars, largely the result of two foreign wars and a massive government stimulus, the D.C. economy flourished. By some measure, the nation’s capital has become the richest region in the country. Three of the
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HOUSINGNEWS REPORT
STATE SPOTLIGHT
WASHINGTON D.C. METRO MEDIAN SALES PRICE
600,000
$520,000
500,000
$499,000
$480,000
$450,000
400,000
$412,965
$399,000 $398,000
$390,000
$377,500
$370,000
$365,000 $364,500
300,000
200,000
100,000
0
Jan - July 2005
Jan - July 2006
Jan - July 2007
Jan - July 2008
Jan - July 2009
Jan - July 2010
Jan - July 2011
Jan - July 2012
Jan - July 2013
Jan - July 2014
Jan - July 2015
Jan - July 2016
to a study by Governing magazine, 52 percent of census tracts that were poor in 2000 have since gentrified — more than any other city bar Portland, Oregon. Young, mostly white well-educated millennials, have crowed into a district once built largely for families. Meanwhile, housing has become vastly more expensive in gentrified District neighborhoods. As The Washington Post reported in April, the hottest zip code for D.C. real estate is the mostly black Trinidad neighborhood in the once- shunned northeast quadrant. Homes in zip code 20002 in Washington, D.C., were worth $570,531 on average in 2015, about 91 percent more than in 2004, reports The Post . Young millennial gentrifiers love the 19th century Victorian
The market is hot. I have tons of buyers, but there’s no inventory. Properties fly off the market, with multiple offers.”
Silvana Dias | Broker at Long & Foster, Spring Valley
are best seen inside the Beltway, where some of the trendiest neighborhoods are blossoming, including the District’s new “it” communities like U Street, H Street, Shaw, Bloomingdale, Trinidad and Ledroite Park. Dias said young professionals, often childless, are a sizable part of the buyer base. She also sees a steady influx of older empty- nesters, who are looking to downsize their suburban homes to take advantage of the District’s cultural amenities.
tons of buyers, but there’s no inventory. Properties fly off the market, with multiple offers.” Dias, who closed 58 transactions last year, said proximity to the Metro, Washington’s public subway system, and walkability, are important issues for buyers. She said gentrification in many communities was driving home sales. Gentrification: The ‘Great Inversion’ Gentrification is on steroids in the District of Columbia. In Washington, according
“The market is hot,” said Dias. “I have
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row houses, and real estate investors see abundant opportunities in which to flip them, said Dias. Demographic Transformation Simultaneously, a demographic transformation is taking place in the District. Washington’s black population is shrinking, while the white population is ballooning. Washington, once 71 percent black in 1970, is only 48 percent black as of July 2015, while the white share has grown from 28 percent in 1970 to 44 percent in July 2015, according to Census Bureau data. Latinos and Asians were 10.6 and 4.2 percent respectively. Also, the region has one of the country’s largest black middle classes and has lower rates of unemployment across all racial categories than is seen nationally. “D.C.’s a young city,” said Dias, who works with her husband, Alex. “Buyers want nightlife and walkability. And the Metro is a must for 90 percent of my clients. But walkability is super important to them.” Population Grows For the first time in nearly 50 years, D.C.’s population began growing again in 2010. At 672,228, D.C.’s population added 70,000 residents between 2010 and 2015, according to Census data. And it added nearly 30,000 new residents between 2000 and 2010. Still, the population is down overall from a peak of 802,000 in 1950.
14th street by the U Street, DC
dining, entertainment and sought-after residential area. The historic U Street Corridor extends from 16th Street NW on the west side to Seventh Street NW on the east and from Florida Avenue NW on the north to S Street NW on the south. The U Street area was once the epicenter of the city’s black community, vibrating with music, culture and entertainment. Hailed as the “Black Broadway” during most of the 20th century, great jazz performers like local-born Edward “Duke” Ellington, Billie Holliday, Count Basie, Cab Calloway, Ella Fitzgerald and Shirley Horn performed at local U Street clubs like the Crystal Caverns and at the landmark Lincoln Theater. But after the assassination of Martin Luther King Jr. in 1968, much of U Street homes and businesses were burned by rioters. Black middle class and working class families began leaving the city
for the suburbs. Areas in Columbia Heights and on U Street in Northwest D.C., and along H Street, Northeast, were badly damaged and weren’t rebuilt. For decades, the neighborhoods disintegrated into crime, homelessness, drug use and urban blight. Slowly, things started to change a decade ago. A Metro stop (the Green Line) opened in 1991, and artists and professionals started to move in, lured to the area by old fixer-up three-story brick row houses, new townhouses, condos and low home prices. Now, U Street is new and hip again, Dias said. The construction of the Green Line Metro station and the rise of real estate prices brought renewed interest in the U Street area, and new condominiums and townhouses have sprung up, replacing vacant lots and low-slung buildings.
The New U Dias said the U Street Corridor in Northwest Washington has become a
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A whole different scene has emerged in the newly re-energized corridor, with white millennials seeking walkable, urban lifestyles close to Metros and downtown D.C., said Dias. “There’s a lot of new construction in the U Street Corridor,” said Dias, pointing to new central city housing. Dias said the fast-changing Trinidad neighborhood is another popular area among buyers. Trinidad is filled with Victorian row houses undergoing renovations, she said. It’s a five-minute walk from the restaurants and bars along Northeast’s H Street corridor, and a 10-minute stroll to Union Market. Along its western edge is Gallaudet University. Designed 200 years ago by French architect and civil engineer Pierre Charles L’Enfant, the Parisian-style city of Washington, D.C. is divided into four quadrants. The north-south axis is formed by North and South Capitol Streets. The east-west axis is formed by
the National Mall in the west and East Capitol Street in the east.
near the Catholic University of America. It is a residential area with modest Victorian, red-brick row houses and bungalows and leafy, tree-lined streets that has reinvented itself as an arts and entertainment destination, he said. “The D.C. real estate market really came back in 2009,” said Fowler. “The last four springs have been very strong, with multiple offers on most properties. But it slowed down a little this summer. The market has normalized a bit. The feeling I’m getting is that with the election coming up buyers were uncertain about the future. I think there could be some pent-up demand because of the election. I saw this four years ago. After the election, the market becomes more stable.” S.W. Waterfront: A Diamond in the Rough In addition to trendy Northwest neighborhoods like Dupont Circle, Shaw, Logan Circle and the U Street
Urban Is In Kent Fowler, an agent with Keller Williams Capital Properties in Dupont Circle, said the District is a collection of neighborhoods that are constantly changing and being reinvented. “When I moved to D.C. in 1993, Dupont Circle was edgy,” said Fowler, referring to the now gentrified yuppie northwest neighborhood near downtown where Fowler lives and works. “In the mid-90s, Logan Circle transitioned into a sought- after community. Then, U Street and Columbia Heights took off. By 2008, Bloomingdale made the gentrification leap. Now, I would say Brookland is starting to pop. You can get good values in Brookland.” Fowler said neighborhoods once off the radar like Brookland are blossoming. The serene Brookland neighborhood in northeast Washington is located
The D.C. real estate market really came back in 2009.”
Kent Fowler Real estate agent at Keller Williams Capital Properties
Rendering of The Wharf
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VIO Condo Washington D.C. Waterfront
corridor, Fowler said some of the hottest communities are now along the shores of the Potomac River in the city’s southwest quadrant and along the Anacostia River near the Navy Yard. Fowler said the arrival of the new Washington Nationals baseball stadium in 2008 on the Anacostia waterfront near the Navy Yard was a transformative moment, spurring the development of new condo towers, apartment buildings, townhouses, hotels and retail along the long-neglected waterfront neighborhoods of Navy Yard, Buzzard Point and the nearby Southwest Waterfront. The $670 million taxpayer- funded ballpark, about two miles southwest of Capital Hill, has fueled a torrent of new development in the waterfront neighborhood within walking distance to the National Mall, the green space between the Capitol and the
Lincoln Memorial. Fowler said before the stadium was built, it was a seedy industrial neighborhood. Now, however, with Nationals Park the anchor for renewal, the Navy Yard area has morphed into a trendy riverfront showpiece for Washingtonians, with new housing, restaurants, hotels and apartment buildings popping up in the rejuvenated area. “There is a lot of new condo developments and a fair amount of retail near Nationals Park,” said Fowler, pointing to new developments along both the Anacostia and Potomac Rivers. A typical new condo tower populating Southwest Washington is 535 Water Street . Completed in October of this year, the five-story structure — housing 107
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WASHINGTON D.C. NEW HOME BUILDING PERMITS BY YEAR
38,024
40,000
36,776
Because there are so many plans in place for Anacostia, I’ve had quite a few clients wanting to look for their home there because so much new development is slated to come .”
35,000
27,958
30,000
24,033 24,804
23,007
22,404
25,000
22,459
19,657
20,000
15,000
13,732
12,329 13,065
10,000
5,000
Melissa Terzis Real estate agent at City Chic Real Estate
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: U.S. Census Bureau
condominium units — sits on the eastern end of a new community known as The Wharf . Condominium units are priced from $349,900 for a studio to $1.4 million for a three-bedroom home. The Wharf: D.C.’s Big Dig Located along the banks of the Washington Channel, The Wharf is a massive $2 billion, 3.2 million-square-foot Wmixed-use project. The mile-long project, developed jointly by Madison Marquette and PN Hoffman , is one of the largest in the nation. Bookended by two Metro lines, the 27 acres of waterfront development features apartments, condos, offices, hotels, a movie theater, restaurants and a 6,000-capacity concert hall.
A second Wharf condominium complex, called VIO , spans 12 stories and houses 112 units. Condo units sell for $400,000 for a 530-square-foot studio to $1.5 million for a 1,540-square-foot, three-bedroom unit. The tower will be completed in 2017. Anacostia: The Next Hot Spot Further east, the Anacostia River divides the District both geographically and socially. While Northwest Washington neighborhoods remain hot, demand is growing in several east-of-the river communities, according to Melissa Terzis, an agent with City Chic Real Estate in Washington, D.C.
said Terzis. “The H Street area, NoMa, (North of Massachusetts), Bloomingdale and Shaw continue to be popular. “The one new thing I’ve noticed this fall is that a lot more buyers are looking to move east of the river, meaning, Anacostia.” The historic Anacostia district in Southeast Washington has witnessed its share of ups and downs through the years, but it is in its early stages of a rebirth, with a number of ambitious projects in the works, including a variety of large-scale condominium, townhouse and commercial real estate projects transforming the landscape, according to Terzis.
“There has not been a lot of change in the popular and trendy neighborhoods,”
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“Prior to this fall, the neighborhoods east of the river had been discussed for years by the powers that be as the place where a lot of development would come,” said Terzis. “It’s been so many years in the making that it seemed like it may never happen. But, a lot of residential and retail projects became more than just promises on paper; people actually started believing that change was coming to these often-overlooked areas of D.C. Because there are so many plans in place for Anacostia, I’ve had quite a few clients wanting to look for their home there because so much new development is slated to come.” Terzis said in the next few years, Anacostia could look quite different as new housing and retail comes to the neighborhood. Prices are rising as an increasing number of people try to get in early on what many see as a coming boom in Anacostia and neighboring Congress Heights. projects has slowly taken place during the last few years, including the Sheridan Station townhouses and condominiums, Henson Ridge townhouses, the forthcoming conversion of the 11th Street Bridge Park into an innovative pedestrian area linking Anacostia with Capitol Hill comparable to Manhattan’s extremely popular High Line , and the six-block Reunion Square project, a new 9.5 acre mixed-use development located on Martin Luther King Jr. Avenue, where 904,000 square feet of office space, 413 A broad range of ambitious redevelopment and gentrification
11th Street Bridge Park planned development
residential units and 179,600 square feet of retail space are being built, according to Four Points Development and Curtis Investment Group. “I actually created this map a couple months back to track the location and type of developments,” said Terzis, highlighting 20 new developments east of the river that she believes could spur transformation in Southeast Washington. “The change would be what I covered above regarding Anacostia. A year ago, I had clients interested in expanding their search east of the Anacostia River, but until the development looked like it was actually going to happen, many people were hesitant to make the move. That all changed in the summer of 2016.”
is the once-sprawling and now vacant St. Elizabeths psychiatric hospital near the Congress Heights Metro station. At one point, the federally operated hospital housed 8,000 patients. Soon, however, it will house Southeast D.C.’s next business and housing boom, a massive 183-acre project developed in several phases. This year, the first phase of the redevelopment of the hospital’s east campus — St. Elizabeths East — will eventually house a $55 million, 5,000-seat Washington Wizards basketball practice facility and arena, as well as 1,300 residential units, 206,000 square feet of retail space and 1.8 million square feet of office space. Two hotels are also planned. The development will also be the new home of the Department of Homeland Security.
Another major Anacostia redevelopment
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“There is most definitely an inventory shortage, but it seems that we may have hit a little softening of the market,” said Terzis. “It’s almost as if all the buyers who were going to buy have done so, and most of the buyers left are not as motivated to purchase. Some may be waiting out the election, but there have been quite a few listings this fall that we would have expected to sell in the first weekend which did not. Some of those went on to sell a week or two later, some lingered on the market and even had a price drop. Sellers aren’t able to price their homes 5 percent over last year and get a fast contract anymore. The market feels like it is stabilizing — which is actually a welcome change.” On the east side of the Anacostia River, the Anacostia neighborhood is a largely poor, black community and home to the
late former mayor Marion S. Barry Jr. It is also home to the Frederick Douglass National Historic Site , maintained by the National Park Service, which preserves the Cedar Hill estate in Anacostia where the fiery abolitionist Frederick Douglass once lived. Anacostia is part of the city’s Ward 8, a hilly community lined with row houses and turn-of-the-century Victorian two-story homes. H Street Corridor Jennifer Myers, a broker with Dwell Residential Brokerage , said the H Street corridor is one of the most popular neighborhoods in D.C. “It’s a great neighborhood where you can get a lot more space for the price than other neighborhoods in Northeast D.C., yet still accessible to easy public transportation and neighborhood
amenities like the new REI flagship, a new Whole Foods, the city’s newest restaurants and bars,” said Myers, referring to H Street NE, a retail corridor that in recent years has revitalization occurred and gentrification taken hold. It’s been 48 years since the assassination of Martin Luther King Jr. in 1968, and few areas were hit harder from the riots that ripped through Washington than the H Street Northeast corridor. The H Street corridor, which is a predominantly a black neighborhood, runs from the iconic Union Station on its western edge on 2nd Street NE to 13th Street NE on the east. Just north of Capital Hill, the arrival of newcomers and new housing to H Street has attracted artists, musicians and those looking for a strong local vibe.
1,000,000
WASHINGTON D.C. POPULATION, 1910-2010
800,000
802,178
763,956 756,510
663,091
638,333
600,000
606,900
601,723
572,059
486,869
437,571
400,000
231,069
200,000
0
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
Source: U.S. Census Bureau
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