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Monday Morning Quarterback
(Monday, September 12, 2022)
What do you do when the bank mistakenly sends you too much money? You buy real estate of course! Cryptocurrency exchange Crypto.com (the new name of the Staples Center) mistakenly deposited $10.5 million directly into an Australian woman’s bank account when the platform only intended to give her a $100 refund. According to 7News in Australia, a Melbourne woman received the giant payment back in May 2021. The woman, Thevamanogari Manivel, used $1.35 million of the funds to purchase a five-bedroom home for her sister Thilagavathy Gangadory in Craigieburn, Australia. Several months later, Crypto.com discovered the horror of its mistake. Crypto.com has since taken legal action against both sisters to get their money back. “Extraordinarily, the Plaintiffs allegedly did not realize this significant error until seven months later, in late December 2021,” Victorian Supreme Court judge James Elliott wrote in a court ruling. The only problem: some of it has already been spent and of course, the house is in the name of the sister. Oh come on Crypto, you can afford it. Legal proceedings are scheduled to resume in October. We’ll keep you posted. In the meantime, in an exceptionally slow week for economy data, let’s explore some related real estate news…
L.A. Is The Land Of The Single-Family Home. Individual inventiveness, along with architectural talent, have been devoted for decades to the single-family home in Los Angeles. After all, that’s what enticed the multitudes here in the first place. You move to New York despite the prospect of living in 400 square feet of a human sandwich. You move to Los Angeles in part because you expect to reign over your own kingdom — a house, a patio, a backyard, a chicken adobada in every pot, and an orange tree in every garden. Merry Ovnick’s insightful book “Los Angeles: The End of the Rainbow,” about the domestic architectural expressions of civic culture, reproduces a 1943 advertisement quoting a letter from a “Sgt. Houston” serving in a foxhole in New Guinea, and dreaming of a “sweet little cottage” he’ll build in Southern California. “It won’t be big but it’ll have every convenience I can cram into it,” and he’ll “stay there the rest of my natural life.” The great Southern California sales pitch? Live better horizontally. Next to your neighbor, but not too close, and certainly not above or below. Apartment living could be a temporary circumstance, a career girl or bachelor’s temporary transition to a matrimonial cottage, but certainly not permanent. In the 1920s, one-third of Angelenos owned their own homes; in 1920, 87.3% of New Yorkers were renters. Today, that dispersity is even greater. Harry Culver, who created Culver City, told his salesmen that they were benefactors of mankind. “Whenever you can take a family out of an apartment… and place that family in a fresh, pure, health-giving home of their own … you are not only starting that family out to success, but you are rendering a service to the community and a service to humanity.” As Robert M. Fogelson wrote in “The Fragmented Metropolis,” Angelenos’ idea of a “good community” was one “embodied in single-family houses, located on large lots, surrounded by landscaped lawns, and isolated from business activities.” It’s the houses that surprise visitors and gratify us, even if they can only be glimpsed from a street or a sidewalk. There are the glorious ones by Pierre Koening, Richard Neutra, John Lautner, and Rudolph, the startling ones by Frank Gehry, the playful, Gaudi-inspired O’Neill house in Beverly Hills, and at least a half-dozen Frank Lloyd Wright houses. Paul Revere Williams, the standout Black architect, designed more than 2,000 homes (too many of them since leveled), some of them for movie stars. South Pasadena was and is a bungalow heaven. To the north, Pasadena has a historic district actually called Bungalow Heaven. Pomona was “the city of fine homes.” The California bungalow was already a local trope in the late 1920s, when a Mack Sennett comedy, “For Sale: A Bungalow,” featured a couple of real estate schemers conning a young woman into buying an overpriced bungalow — where she quickly strikes oil.
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Zombie Property Count Inches Up Again In Third Quarter. Who says you can’t find distressed properties in this market? ATTOM released its third-quarter 2022 “Vacant Property and Zombie Foreclosure Report” showing that 1.3 million residential properties in the United States sit vacant. That figure represents 1.3 percent (or one in 78 homes), across the nation. The report analyzes publicly recorded real estate data (including foreclosure status, equity and owner-occupancy status), matched against monthly updated vacancy data. The report also reveals that 270,470 residential properties in the U.S. are in the process of foreclosure in the third quarter of this year, up 4.4 percent from the second quarter of 2022 and up 25.5 percent from the third quarter of 2021. The latest increase marks the fourth straight quarter that the count of pre-foreclosure properties has increased since a nationwide moratorium on lenders pursuing delinquent homeowners, imposed after the Coronavirus pandemic hit in 2020, was lifted at the end of July 2021. Among those pre-foreclosure properties, 7,707 are zombie-foreclosures (pre-foreclosure properties that sit vacant) in the third quarter of 2022, up 2.2 percent from a year ago. In fact, the level of all homes sitting empty as zombie properties has grown for the second quarter in a row and now is up 3.6 percent from one in 13,424 in the first quarter of this year. The biggest increases from the second quarter of 2022 to the third quarter of 2022 in states with at least 50 zombie foreclosures are in Oklahoma (zombie properties up 22 percent, from 97 to 118), Missouri (up 16 percent, from 55 to 64), California (up 15 percent, from 221 to 254), Massachusetts (up 9 percent, from 54 to 59) and Florida (up 8 percent, from 922 to 998). Among metropolitan statistical areas in the U.S. with at least 100,000 residential properties and at least 100 properties facing foreclosure in the third quarter of 2022, the highest zombie rates are in Wichita, KS (11.9 percent of properties in the foreclosure process are vacant); Peoria, IL (10.5 percent); Cleveland, OH (8.9 percent); Syracuse, NY (8.7 percent) and South Bend, IN (8.2 percent).
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SoCal’s Coastal Communities Losing Cliffs As Sea Levels Rise. It’s not just beaches and sand that are disappearing as global warming causes oceans to push inland. Sea level rise is also eating away at California’s coastal cliffs. The question is by how much, as Californians have heavily developed and continue to build along the edge of the Pacific. Scientists are now one step closer to projecting how these bluffs will fare this century — and the outlook is sobering. In Southern California, cliffs could recede more than 130 feet by the year 2100 if the sea keeps rising, according to a new study led by the U.S. Geological Survey. ”It’s a pretty big number,” said Pat Limber, a coastal geomorphologist and lead author of the study.“ The consequences of this erosion could be severe on major roads along the Palos Verdes Peninsula. In Malibu and other coastal cities, blocks of homes, parks and public facilities could be lost to the sea under such projections. But these forecasts could help provide a roadmap for the daunting decisions that coastal communities must confront sooner rather than later. From San Diego County to Santa Cruz, local disputes have intensified over how many more seawalls to build to fend off rising waters — and who will pay to maintain them each year. Others have debated whether to let go, move farther inland and allow Mother Ocean to have her way. The study uses a sophisticated model that synthesizes existing data and conclusions on how sea level rise could impact these defining features of California’s coast. Its findings establish a more concrete time frame for communities in the southern part of the state as they grapple with what to prioritize. The USGS study, published this month in the Journal of Geophysical Research: Earth Surface, examined cliffs from San Diego to Point Conception. Using sea level rise scenarios ranging from 0.5 to 2 meters (1.6 to 6.6 feet), researchers stitched together five previous models — incorporating their varying uncertainties and assumptions, as well as historical erosion rates — and ultimately reached a consensus that the cliffs will erode on average between 19 to 41 meters (62 to 135 feet) by the end of this century.
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With Recession Likely, Property Values Could Drop 20% By 2023. The United States is likely to be in a mild recession by the end of this year or early next, and property values will take a hit as a result, according to Cushman & Wakefield. In the brokerage giant's latest economic forecast, its baseline assumption for the U.S. economy assumes a “mild recession” in the fourth quarter of this year or early 2023 as rates go up and inflation remains high. Of the four economic scenarios laid out, the most likely, which the brokerage puts at a 50% probability, is that war in Ukraine continues, oil prices stay high and inflation persists. In that case, Cushman & Wakefield cautions property values will slip by about 20% over the next two years, dropping between 4% and 23% depending on asset class. By 2026, property values would be 90.8% of 2021's highs, according to their model. The brokerage said a scenario in which inflation comes down and the Federal Reserve eases back on rate hikes sooner than expected is just as likely (5%) as stagflation, which would result in a deep recession in 2024 and property value declines of over 30%. A “soft-landing” outcome (which comes with a 30% probability), has GDP slowing to 2% this year and in 2023, and property values recovering their peak value by 2026. Working under the mild recession scenario, cap rates will increase, and most acutely between 2022 and 2023, and assets in industrial and multifamily will experience the biggest jump. Cap rates would then go down again starting in 2024. In general, property is a long-term investment, most investors don’t buy a property and sell it the next year. So, on average if you bought a property and held onto it for at least five years, you’ll made a healthy leveraged return.
Beavers Could Help Save California from Climate Change. “Leave It to Beaver” has a whole new meaning. As California’s temperatures reach unbearable new heights each year, the state has been scrambling to tackle drought, record heat waves, wildfires, and recently, power grid outrages. While residents of the Golden State struggle to evade urban meltdown, one agency is placing its faith in the paws (and teeth), of the humble beaver to combat climate change, the Los Angeles Times reports. The woodcutting mammals are said to be miniature engineers, with researchers touting their dams’ ability to increase water storage and to act as natural firebreaks. The current state of the state, with blazes tearing through forests and bodies of water seemingly vanishing into thin air, has led experts to the conclusion that, indeed, California might have been a little too hard on the Beav. In fact, DFW is willing to put at least $3 million on the table over the next two years to fund five jobs dedicated to a restoration program for the North American beaver. “Beaver dams improve water quality and control water downstream, repair eroded channels, reconnect streams to their floodplains, and the ponds and flooded areas create habitat for many plants and animals,” DFW wrote in its May proposal. “It might be odd, but beavers are an untapped, creative climate-solving hero that helps prevent the loss of biodiversity facing California.” “The differences in burn severity, air temperature, humidity, and soil moisture between the beaver complex and the adjacent landscape were huge.” “It feels like the fires and drought have really pushed the issue,” she continued. “Now we see that people are willing to look at beavers. Because the state has spent so much funding on wildfire prevention measures and seen little results. Now they’re asking, ‘What haven’t we tried?’”
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Los Angeles One Of The Nation's Rudest Cities. We always knew that San Franciscans are much ruder than Angelenos, but now a new survey proves it. Actually this new survey shows that the world is full of rude people, and Angelenos and San Franciscans are ranked only the ninth and seventh rudest cities in the country, respectively. Online tutoring company Preply asked 1,577 Americans living in the 30 largest cities in the country to rate the average rudeness of their city's residents on a scale from one to 10, with 10 being the rudest. These responses were used to calculate an average rudeness score for each city. There are a seemingly infinite number of ways to be rude. Survey respondents were also asked to rate the most common rude behaviors they observed in their city. Examples include; Being absorbed on the phone in public (most common in NYC); Not letting people merge in traffic (Memphis); Not slowing down around pedestrians (Boston); Being noisy in public (Memphis); Not acknowledging strangers (Boston); Not respecting personal space (Memphis); and Being rude to service staff (Memphis). Here are the country’s ten rudest cities, according to their residents:
1. Philadelphia (Average rudeness score: 6.43)
2. Memphis (6.05)
3. New York City (6.00)
4. Las Vegas (5.98)
5. Boston (5.90)
6. Detroit (5.70)
7. San Francisco (5.69)
8. Washington, D.C. (5.35)
9. Los Angeles (5.35)
10. Houston (5.33)
Billionaire Burkle Chases $29 Million For Bob Hope’s Toluca Lake Estate. In 1937, when Bob Hope was the number one box office star in Hollywood, hosting the Academy Awards, and producing USO shows around the world, he and wife Dolores purchased 5 acres at 10346 Moorpark Street in Toluca Lake for around $10,000. Then, in 1939, they built a luxurious home designed by Robert Finkelhor (approximately $100,000) and updated two decades later by John Elgin Woolf, the Hollywood Regency-style architect who designed bold, opulent houses for other celebrities such as Cary Grant, Errol Flynn and Judy Garland. Hope used the home to entertain high-profile guests such as Bing Crosby and Frank Sinatra, and the estate still features Old Hollywood style today with roughly 15,000 square feet of chic spaces marked by wood, stone and glass. Between the main house, staff house and apartment above the garage, the 5-acre compound has eight bedrooms and 17 bathrooms. Other highlights include six fireplaces, a marble kitchen, bar and billiards room lined with memorabilia. The amenities continue outside, where patios and lawns lead to a tennis court and saltwater swimming pool. An additional structure adds a commercial kitchen, conference room, security office and fireproof safe. In 2018 (after Hope’s death), my favorite flipper Ron Burkle purchased the estate and restored it to its former glory. The extensive renovation saw Burkle modernize the living spaces with high-end fixtures and finishes but preserve the residence’s classic elements (including Hope’s oak library and a one-hole golf course that the late comedian designed himself). Burkle is now shopping the estate for $29 million. If he gets his price, it will be the most expensive sale in the history of Toluca Lake, according to the Multiple Listing Service. The trophy home is one of many that Burkle has flipped over the years. His current real estate portfolio includes Michael Jackson’s Neverland Ranch. Burkle built his fortune buying and selling supermarket chains, and he’s currently the owner of the SoHo House chain and part-owner of “my” Pittsburgh Penguins hockey team. Forbes puts his net worth at $2.2 billion.
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New “LARealEstateInvestors.com” Podcast. We are so very excited to announce our new podcast, "LARealEstateInvestors.com" (named after our domain) hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor forever! No one is more experienced in local Southern California real estate than Bill Gross. Each week, Bill interviews real estate professionals sharing their insights and advice. Every Tuesday at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google.
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3rd Annual Los Angeles Real Estate Grand Expo. Our 3rd Annual Grand Expo returns on Saturday, October 22, 2022, 9:00 am to 6:00 pm. This year we’ve taken over the entire Iman Cultural Center – it’s all ours for the entire day! The north hall, the south hall, and the parking lot in the middle (with tents and food trucks). One entire day celebrating real estate investing. The theme of this year’s Grand Expo is “How to Invest in a Pre-Recessionary Market.” There will be 14 national speakers in breakout sessions, and over 70+ vendors in the North Exhibition Hall. Keynote speaker will be Rich Sharga, the number #1 quoted authority on real estate economics. The Grand Expo is a joint presentation of the Los Angeles County Real Estate Investors Association, Sam’s Real Estate Club, Ventura County Real Estate Investors Association, and Realty 411. Best of all, the Grand Expo is FREE to attend. Street parking is free and metered, and valet parking will also be available. But please RSVP at www.LAGrandExpo.com.
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Basic Training Boot Camp. Saturday, October 29, 2022, 9:00 am to 6:00 pm, will be our semi-annual Real Estate Basic Training Boot Camp. Everything you ever wanted to know about real estate investing but were afraid to ask. Location: Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034 (it’s really Culver City, but don’t tell anyone). The cost of the Boot Camp is $149.00 per person, if paid before October 21. Thereafter, the price jumps to $1 million per person. So don’t wait to register. Gold Members (and former Boot Campers) can attend for FREE. You can register at LARealEstateInvestors.com.
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This Week. Going forward, investors are hoping for more specific Fed guidance on the pace of future rate hikes and bond portfolio reduction. The Consumer Price Index (CPI) will be released on Tuesday by the Bureau of Labor Statistics. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Retail Sales will be released on Thursday by the Census Bureau. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of our economy.
Weekly Change:
10-year Treasuries: Rose 050 bps
Dow Jones Averages: Rose 800 points
NASDAQ: Rose 400 points
Calendar:
Tuesday (9/13): Consumer Price Index
Wednesday (9/14): Producers Price Index
Thursday (9/15): Retail Sales
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For further information, comments, and questions
Lloyd Segal
President
Los Angeles County Real Estate Investors Association, LLC
www.LARealEstateInvestors.com
This email address is being protected from spambots. You need JavaScript enabled to view it.
310-409-8310
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