Wednesday, January 30, 2008

New Year Brings New Opportunities

Happy New Year. I hope you had a great holiday season and are ready for a profitable and successful 2008. As we move past 2007, it is helpful to take note of all the changes and growth that the real estate industry has witnessed. It is also helpful to begin 2008 on a positive beat…to look to the opportunities that present themselves…to find the areas of silver lining to focus on in this up coming year. So, without further ado, I will take you on a brief recap of 2007 and end with some good areas of investment.

First and foremost, 2007 made it clear to everyone involved in real estate that change is inevitable. In the U.S., Real estate had been a hands-off, safe investment for the past 5-10 years, but 2007 brought with it a tumultuous real estate market. The amazing growth and appreciation we experienced leveled off, and in some locals even declined, new construction began to decline, and one of the biggest stories of the year, in and out of real estate circles, is the mortgage industry.

The mortgage industry began a period of tremendous change in 2007. The entire landscape of the mortgage industry is changing, and we have not reached the end of this change yet. Residential mortgages and foreclosures are in a bad place, and we are beginning to see impacts in the commercial arena. Global markets are predicted to find some similar tough times. In addition, it is a daily struggle to keep up with the analysts calling for recession, inflation, and questions around the Fed’s policies and rate actions. (I have written about these changes on a few occasions; so rather than discussing the changes again, I will point out that if you are interested in learning more about the tumultuous times for the mortgage industry and real estate market during 2007, please refer to my blog at http://propertyvestorsblog.blogspot.com/.)

So now it is 2008. What can we expect? What can we do? Where should we invest? Well, change is going to continue to happen. Just as if we encounter a detour on a drive to our favorite restaurant we would change our path; it is time for real estate investors to examine the detour and change our path. For some, it will mean stopping for a time…and that is okay; just be sure that where you are invested today can hold out for the market to turn around…as it will. For others, it will be finding an even better and faster path. This is exciting because you are able to leverage the silver lining in the gray clouds – to make the lemonade out of the lemons if you will. Now, to where we can find this path.

At PropertyVestors, we continually evaluate our strategy and path. Today we see the best investments to come in a few categories

REOs and Non-Performing Notes

Private Lending

Preconstruction Syndicate

Emerging Markets

REOs and Non-Performing Notes

One of the largest trends that we are working with is the emerging opportunity that REO’s and non-performing notes (loans) bring to the real estate market as a result of the dismay that the sub-prime mortgage industry and large-scale foreclosures are creating. This is a great trend to take notice of, and one that can be very profitable. This opportunity does require more investment than others, and can be either active or passive depending on your exit strategy. (I have touched on this in great detail in previous articles, so please reference my blog at http://propertyvestorsblog.blogspot.com/ for more information.)

Private Lending

As working with Banks becomes increasingly difficult and labor intensive, buyers and investors look to private lending to continue to work in this profitable market. In exchange for less red tape and quicker turn around, investors will pay private lenders higher returns with great security. This has always been an investment strategy for PropertyVestors. In today’s lending environment, it is even stronger! In February’s Newsletter we will spotlight one of our favorite Private Lending Partners and opportunities at hand. (I have touched on this in great detail in previous articles, so please reference my blog at http://propertyvestorsblog.blogspot.com/ for more information.)

Preconstruction Syndicate

To refresh your memory, our Preconstruction Syndicate Strategy allows for investment into luxury developments with preferential contractual addendums to promote return and minimize risk . Our investments aid the Developer in funding. Just as residential market looks to private lending, developers look to the syndicate model as a way to alleviate institutional headaches and are willing to give more away in the form of increased return and more risk mitigation. On February 7th, our Partner will be holding an educational and project overview webinar that you shouldn’t miss. We will report on the event in our February Newsletter.

Emerging Markets

While the Real Estate industry as a whole across the US has flattened, specific locals have dropped while others have actually shown growth. These growth markets are considered Emerging Markets. They are places where population is increasing, where the number of new jobs is rising , where there are environmental and governmental incentives. These Emerging Markets see appreciation in the wake of the other mess. In addition, the mortgage industry issues and tightening of bank regulations continue to create hurdles for people to buy, so the rental market is growing as well. Appreciation, growing rental market…sounds like a good place to invest!

I want to take this opportunity to point out two markets that prove that there are still strong real estate markets in the U.S., and within these markets there are opportunities being created by the changing investment climate. In an effort to avoid repetitive information, I will keep my explanation of these markets brief, and in place of my detailed explanation I will offer links to various articles and reports that discuss these emerging markets. I want to demonstrate that although the bulk of the media is reporting negative news around real estate these days, there are quality sources of information that can be found if time and effort is put into researching opportunities. In addition, I do not want you to take my word for it; I want you to see additional credible sources discussing the positive opportunities that are still available in real estate.

Charlotte, NC

The first market I will focus on is Charlotte, NC. At first thought, Charlotte may seem like a sleepy southern city to some of you, but this could not be further from reality. Charlotte is a market that is gaining a tremendous amount of attention, and for good reason. First of all, Charlotte is the second largest city for banking in the U.S.; second only to New York City! Both Bank of America and Wachovia tout Charlotte as their headquarters and home city. In addition to such a strong business base, Charlotte is in a key location. It is in the middle of North Carolina, major state/interstate highways pass through Charlotte, it has a very comfortable southern climate, the gorgeous North Carolina mountains are a couple hours to the West, and great North and South Carolina beaches a few hours to the East. The city itself is full of old southern charm, quaint historical homes, and an abundance of tree-lined streets, and flowering bushes and trees that bloom from March through October.

From a real estate perspective, Charlotte avoided the large price increases of the real estate boom that were seen across the country. Charlotte has maintained steady growth for years on end, but it has not seen any large jumps…until now. Over the past couple years, Charlotte has garnered increased national attention, and with that increased attention has come an influx of motivated buyers and investors. Charlotte is now poised for great growth, especially compared to the stagnate or declining markets around the country. The strongest aspect of this continued and impending growth is the fact that the appreciation and growth that Charlotte’s real estate market, and the city as a whole, is experiencing is based on solid job/population growth trends. One of the most, if not the most, important factor to consider about emerging real estate markets is the job/population growth that is taking place in that market. Real estate is subject to supply and demand; so as the demand rises, supply falls, and prices in turn rise. When job growth is strong in any real estate market people and businesses will be attracted to that market and as a result demand and prices will rise. The City of Charlotte is taking the right steps to welcome businesses and develop the city to attract business and the inevitable influx of people that come with those businesses. One example of the quality planning and growth that the city is executing is the new Light Rail system that was opened for the first time in November 2007. Charlotte is one of the strongest real estate markets in the country, but please do not take my word for it. Below are a number of links that support my opinions and offer great information about the Charlotte market.

  • 12/26/2007 – Charlotte Observer - “Charlotte is One of Three Places Where Home Values are Up” - http://www.charlotte.com/109/story/420456.html
  • 5/14/2007 – Investment News – “Local Hot Spots Boost Real Estate Market” - http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20070514/FREE/70514012/1015/TOC&ht=local%20hot%20spots%20boos%20real%20estate%20market%20local%20hot%20spots%20boos%20real%20estate%20market%20local%20hot%20spots%20boos%20real%20estate%20market%20charles%20paikert
  • 5/9/2007 – Wall Street Journal – “Where Home Prices are Hot Now” - http://www.owncharlottehomes.com/wp-content/wsjarticle.html
  • Charlotte Chamber of Commerce - http://www.charlottechamber.com/

Manhattan, KS

The second market I would like to focus on is one that is off the radar for most investors and national media sources. Unlike Charlotte, which is gaining tremendous national attention, Manhattan, Kansas (“The Little Apple”) is in the beginning stages of its growth and has not warranted large scale attention…yet. There is great growth potential in Manhattan, and locating a strong emerging market before national attention is being paid to it offers great opportunity for a solid, long-term real estate investment. Manhattan may not have all of the amenities and Southern charm that Charlotte offers, but it does offer the most important factor, job/population growth. Manhattan is expected to double its population over the next four years! – from 49,000 to just under 100,000. Fort Riley military base is located in Manhattan, and from now through 1012 the base is experiencing a large expansion. This expansion creates military family housing demand well into 2012, and major economic and job growth over the next four years and beyond. The US Army expects 40,000+ troops/personnel/dependents to arrive in Manhattan from now through 2012.

In addition to this large and expanding military base, Manhattan is a classic college town where Kansas State University is located. The University brings with it a population of 23,000 students from all 50 states, many of which require rental housing. The growth for this market is tremendous, and best of all, the population explosion is well planned by the US government and therefore much more dependable then most emerging markets. Please find related links below.

  • Manhattan Chamber of Commerce - http://www.manhattan.org/
  • Manhattan Homepage - http://www.ci.manhattan.ks.us/
  • CNNMoney.com – “Best Places to Retire Young” - http://money.cnn.com/galleries/2007/moneymag/0703/gallery.bp_retireyoung_new.moneymag/9.html
  • Strategic Action Plan and Growth Impact Assessment - http://www.manhattaned.org/DocumentView.asp?DID=291
  • Downtown Redevelopment Project - http://www.fs-bd.com/files/Downtown.pdf
  • The August edition of the Fort Riley Community Update - http://www.ci.manhattan.ks.us/archives/68/August%2007%20newsletter.pdf - states that 3000 troops will be deployed from the base in the coming month, but that large numbers of troops will return to Fort Riley next summer.

    The report goes on to say: 'But our astute observers report - our local schools are still filling up, and all the housing under $140K is being bought up very quickly. What's going on? Well, the truth is that a good portion of Families will remain on Fort Riley even after the soldiers deploy. The last time we checked, about 70% of our Families choose to remain on Fort Riley when their Soldier deploys.

    When community and Fort Riley support is perceived being strong, more Families choose to stay right here. Our leaders certainly want that, because we can take better care of Families when they are here.' In his address to Congress on Friday, President Bush announced that reductions in US troop levels in Iraq would start seven months sooner than scheduled, with 5700 forces to be home by Christmas instead of in the spring.

    Earlier in the week it was announced that four brigades (at least 21,500 troops) will return by July 2008. These facts support the prediction of a significant increase in the demand for housing in the Fort Riley area next summer.
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