Monday Morning Quarterback (Happy Memorial Day)

Written by Lloyd Segal Posted On Monday, 30 May 2022 00:00

State: Alabama
SOLD: 2
Old Article Id: 1044970

Monday Morning Quarterback

(Happy Memorial Day)

To many of us, the apocalyptic summers of 2020 and 2021 feel like just yesterday — rolling power outages, orange skies and choking, smoky air. Unfortunately, it may be a preview of what’s to come this summer. After the driest winter on record in California, fire officials are worried. They are bracing for a tough wildfire season. Quick temperature check (sorry for the pun): 2021 was a record-setting fire year when a variety of factors (both natural and unnatural) came together to spark the unusual scale of disastrous fires. Still, last summer was a window into the future of fire if climate change continues at its current pace. According to state officials, unprecedented drought plus the extreme heat and wildfires expected this summer plus supply chain issues (hurting the growth of the solar industry) all adds up to “energy shortfalls” and high potential for power shutoffs this summer. We’re likely to have an energy shortfall that adds up to the peak amount of power needed to keep the lights and air conditioning on for about 1.3 million homes, according to the California Independent System Operator, the agency that manages the state’s energy grid. Drought and fire have always been facts of life in California. But research shows that the climate crisis is making both worse! Droughts are becoming more frequent and more severe — the West in general is currently experiencing its driest period in 1,200 years. Here in California, the last three years have been our worst droughts. And drought is an all-too-familiar bedfellow of fire. The last ten years have brought more destructive wildfires than ever in our state’s recorded history. A big reason for that is us — we build in fire zones. And we’re affecting the natural climate: burning fossil fuels to power our homes and cars traps pollutants in the atmosphere, making temperatures hotter in general. All of that fuels a longer wildfire season and bigger fires. So with wildfires season (and the terrible killings in Uvalde, Texas) on our mind, let’s check the latest real estate news for Southern California…

New Single-Family Home Sales Dropped in April. No doubt about it, the Commerce Department’s report on the housing market is ugly. New home sales fell for the fourth month in a row in April, coming in below even the most pessimistic forecast by any economics group. At a 591,000 annualized rate, the sales pace in April was just 1.5% above the bottom set during the initial days of the COVID-19 pandemic exactly two years ago. The housing market is clearly struggling to find some footing so far in 2022 due to declining affordability. While rapidly rising prices have been an issue in the housing market throughout the COVID-19 pandemic, the recent run-up in borrowing costs has been adding to the burden as the Federal Reserve begins to tighten monetary policy. Assuming a 20% down payment, the rise in mortgage rates and home prices just since December amount to a 42% increase in monthly payments on a new 30-year mortgage for the median new home. No wonder new home sales posted the largest monthly decline in nine years in April. Also keep in mind that new home sales are a very timely barometer of the housing market because they are counted when the contract is signed rather than when the contract is closed, like with existing homes. That said, if the Federal Reserve is hoping to get housing inflation under control through higher interest rates, I would argue the progress has been slow. While median sales price growth has decelerated from a year-over-year a peak of 24.2% in August, prices were still up 19.6% in the twelve months ending in April. The main problem is still that buyers are stuck dealing with very few options when it comes to completed homes. It's true that overall inventories have been rising recently and now sit at the highest level since 2008. This has pushed up the months' supply (how long it would take to sell the current inventory at today's sales pace) to 9.0 from a record low reading of 3.3 in mid-2020. However, almost all of this inventory gain is from homes where construction has either not yet started or is still underway. Doing a similar calculation with only completed homes on the market shows a months' supply of a meager 0.8, near the lowest level on record back to 1999. The good news is that builders are ramping up construction activity to help meet demand, with the total number of single-family homes under construction currently at the highest levels since 2006. Ultimately, that added supply will facilitate more sales while slowing the pace of new home price appreciation. Despite the weak data, I don't expect sales to stay at April's level. Ultimately, the market will be able to weather the headwinds of higher mortgage rates in 2022, with sales of new homes only slightly down versus 2021.

Investor Interest in Commercial Properties Increased in 2021. Investor interest in the Los Angeles commercial real estate market was high in 2021 with an 83% year-over-year increase to $58 billion in sales volume for the year, according to data from CBRE Group. In fact, it was the leading commercial market in the U.S., followed by New York and Dallas. The $58 billion in investments seen in 2021 was far above pre-pandemic levels. In 2019, only $47 billion of commercial real estate traded hands in L.A. Mike Condon Jr., a vice chairman at Cushman & Wakefield Inc., agreed. “With L.A. being a gateway city and one of the most desirable and stable markets in the world, we’re seeing continued investor interest in the market, even during Covid." Last year the commercial asset type that saw the most sales volume was industrial. Roughly $20.7 billion of industrial properties traded hands, compared with $18.5 billion of apartment buildings, $8.6 billion of office properties and $6.3 billion of retail properties, according to CBRE data. It’s no surprise industrial and multifamily are the darlings of the ball. Everyone wants to own them. In contrast, office sales last year were below pre-pandemic levels. “L.A. is one of the five national logistics hubs,” said Kevin Shannon, co-head of U.S. capital markets at Newmark Group Inc. “We’ve got the busiest ports in the country, the port of L.A. and the port of Long Beach. Multi-family remains strong,” We don’t have enough housing for the population and the barriers for getting entitlements remain prohibitive. There has been substantial rent growth in multifamily properties which is causing increased interest. Some retail that is trading now are redevelopment opportunities with investors expecting to tear down existing properties to make room for multifamily or industrial properties. International investors are also interested in L.A. because of the content creation, tech and life sciences jobs in the market. And experts agree that 2022 is poised to be a busy year for sales. The continuation of “content wars” is leading to high demand for studio space in markets like L.A. and he expects that to continue.

L.A. Just Banned Oil Drilling. Now Comes the Hard Part. In a city aiming to be carbon-neutral by 2035, neighborhood oil wells have become an increasingly incongruous element of the Los Angeles landscape. Did you know that over 600,000 Angelenos live within a half-mile of one of 1,000 active wells? And did you know a recent study demonstrated that toxic particulates can travel up to two-and-a-half miles, causing chronic respiratory issues and higher cancer rates? Starting in 2013, the broad coalition of groups known as Stand Together Against Neighborhood Drilling (“STAND L.A.”) began a campaign under the slogan “No drilling where we’re living.” And last month (nearly a decade after the campaign began), L.A. finally passed a motion to officially phase out oil and gas extraction. It’s a first step toward holding oil companies accountable for the damage they have inflicted upon L.A.’s most vulnerable neighborhoods for over a century. “It’s the vision that communities that are overwhelmingly Black and Latino and working class who have borne the brunt should actively have a role in shaping what their future will look like.” But the oil companies won’t quit drilling tomorrow. New drilling permits will stop being issued by the end of 2022, but oil companies may get up to a 20-year period to phase out siphoning fossil fuels out of the ground. That will mean not only properly plugging wells (including cleaning up 3,000 inactive drilling sites and another 1,000 abandoned wells located around the city), but also fully remediating the land. If the city can prove oil well operators have already recouped their initial investment, it may go faster. Culver City recently conducted a similar study for its oil wells and is requiring full remediation by 2026. Since 1892, L.A. has been dotted with oil wells, which lined up along beaches and sprouted out of backyards. But where drilling sites in wealthier neighborhoods have largely shut down over the last 25 years (a few continue to operate, cleverly camouflaged and with improved safety measures in place), many of the sites in lower-income communities have persisted in plain view. There’s still a lot of petroleum infrastructure left in L.A. County, and that means the hardest part comes next. The region is home to multiple refineries that pollute the same neighborhoods affected by oil drilling, and eventually they need to be removed.

14 California Cities Ranked Among Best Places To Live. More than a dozen California cities were named among the nation's 150 Best Places to Live, according to a new report by U.S. News & World Report. The 14 cities landed on the list mainly for their affordability and relatively clean air, which the report focused on more than job markets. The top ranking city in California is San Jose at No. 5, which moved up from No. 36 in last year's ranking. San Francisco was the second top ranking city, claiming No. 10. On the 2022 list, the California cities that made the ranking are:

* No. 5 - San Jose (2021 - No. 36)

* No. 10 - San Francisco (2021 - No. 15)

* No. 107 - San Diego (2021 - No. 97

* No. 122 - Sacramento (2021 - No. 98)

* No. 126 - Santa Barbara (2021 - No. 115)

* No. 128 - Los Angeles (2021 - No. 126)

* No. 132 - Santa Rosa (2021 - No. 121)

* No. 141 - Fresno (2021 - No. 136)

* No. 142 - Vallejo & Fairfield (2021 - No. 135)

* No. 144 - Salinas (2021 - No. 141)

* No. 146 - Modesto (2021 - No. 146)

* No. 147 - Bakersfield (2021 - No. 148)

* No. 148 - Visalia (2021 - No. 149)

* No. 149 - Stockton (2021 - No. 147)

Three LA Real Estate Attorneys Are Taking On Urban Housing Crisis. Speaking of attorney (my favorite people), last month, over dinner at the Old Place (a remote country store-turned-restaurant in the city of Cornel set in The Santa Monica Mountains), Elisa Paster, Dave Rand and Todd Nelson warmed up to the idea of starting their own practice. The trio of attorneys are well-known names in the land-use world of Los Angeles, where a housing crisis is worsening for residents who can't find affordable properties and for developers and investors who are grappling with complex property restrictions and regulations. The three struck an agreement to launch a firm together while listening to live bluegrass and dining on steak and potatoes. Rand Paster & Nelson LLP opened its doors on April 25. The three attorneys had known each other for years, with Rand and Paster having mutual clients and friends, and they say they jelled over having a firm that's focused on solving land-use issues contributing to L.A.'s worsening housing crisis. In 2020, roughly 205 homeless people in Los Angeles County found housing each day, while 225 people fell into homelessness, according to Heidi Marston, the former executive director of the Los Angeles Homeless Services Authority. Another measure of the housing shortage: L.A. County needs to add more than 800,000 housing units by October 2029 to meet the goals of the state-mandated Regional Housing Needs Assessment that requires cities and counties to plan for population growth. Paster, Rand and Nelson readily acknowledge the region's housing problems are wide-ranging and entrenched, and that frustration can be involved. The partners said their firm represents developers and property owners in land-use matters and entitlements for real estate projects, and advises clients on development and permitting. Clients, many of whom came from the attorneys' prior firms, include those planning to build housing, including multifamily and affordable units. The attorneys also help developers and cities plan and develop more housing, which helps tackle the housing shortage. The three have a variety of experiences, but found they share an interest in creating more housing opportunities. Bravo!

The Alex Trebek Homeless Shelter Is Finally Open. He was one of Los Angeles’ most generous homeless advocates, although most people might not know it. None other than god-tier Jeopardy! host Alex Trebek? This week, the Trebek Center, a new bridge shelter partially funded by him and his wife Jean, welcomed its first residents with 107 beds and comprehensive mental-health services. At the entrance to the center, which is managed by homeless-services provider Hope of the Valley, a video wall cleverly made to look like the Jeopardy! game board displays Trebek’s name alongside the names of other donors. A quote from the late host is painted on a mural along the building’s exterior: “Homeless people are not deadbeats or druggies or criminals. They are us. They are our neighbors.” Trebek’s commitment to tackling homelessness in L.A. was his quiet legacy. Just before he died in November 2020, Trebek donated the $500,000 that kick-started the fundraising for the $14 million shelter in Northridge, which is located in a 23,000-square-foot roller-skating rink that had shut down during the pandemic. It’s actually the second Hope of the Valley property to be funded by Trebek; he previously donated $100,000 to a North Hollywood facility where a community room bears his name. (He also gave generously to L.A. in other ways: In 1998, he donated a 62-acre parcel of land in the Hollywood Hills to create the hiking trails and wildlife habitat of the Trebek Open Space.) Shelters aren’t going to solve L.A.’s crisis on their own (the city still needs to focus on building permanent housing and expanding tenant protections), but Trebek’s desire to end homelessness went beyond simply making donations. The game-show host, who lived in Studio City for three decades [see story below], was an outspoken member of a community that wasn’t always so welcoming to the idea of housing homeless residents nearby. In this corner of the Valley in particular, there have been few permanent supportive-housing units built, largely due to opposition from neighbors. He was mortified by the attitudes of those who tried to fight proposed shelters. “I’m not one of those NIMBYs,” Trebek told ABC7 in 2020. “I’m not one of those people who thinks that we can’t deal with the homeless near my house because that’s bad. I wish more people would react in a positive way to reaching out and trying to help their fellow members of the community.” L.A.’s celebrities love to sign checks and tap the right hashtags onto their Instagram Stories, but few rally for transformational changes when they believe it might affect their property values or — gasp — neighborhood character. Trebek defied the caricature of the rich, out-of-touch Angeleno. This city needs more residents like him.

Alex Trebek’s Studio City Mansion Sells for $6.45 Million. Speaking of Alex Trebek, his Studio City estate (which the late “Jeopardy!” host owned for three decades until his death in 2020) has changed hands for $6.45 million. That’s exactly triple the price Trebek paid in 1991 when he bought it for $2.15 million, records show. His widow, Jean, listed the home for $7 million in January. The $6.45-million deal ranks as Studio City’s second-priciest home sale so far this year, and it comes as no surprise. The 99-year-old home spans 10,000 square feet and sits on 1.5 acres in Fryman Estates, one of the neighborhood’s priciest pockets. Inside are five bedrooms, nine bathrooms and a handful of lavish living spaces. There’s a two-story entry with dual staircases, a lounge under a dramatic rotunda and a gold-and-white wet bar. Another highlight comes in the media room, which features a library with a stone fireplace at one end and a movie theater with crimson-colored carpet and drapes at the other. Out back, the park-like grounds include patios that lead to a guesthouse, fountain and swimming pool with a slide. Beyond that is Wilacre Park, a 128-acre nature preserve. The compound is about a 30-minute drive from Sony Pictures Studios in Culver City, where “Jeopardy!” is filmed. A native of Canada, Trebek hosted “Jeopardy!” for 37 seasons from 1984 to 2020. During that stretch, he won eight Emmys for outstanding game show host and also received stars on the Hollywood Walk of Fame and Canada’s Walk of Fame. Keeping it in the family, his daughter, Emily Trebek of Compass, handled the sale.

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Basic Training Boot Camp. On Saturday, June 18, 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. The best news of all is that this Boot Camp will be LIVE and In-Person! No Zoom! 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 June 11 ($1 million after June 11). Gold Members (and former Boot Campers) can attend for FREE. You can register at LARealEstateInvestors.com.

Women Making Moves (& Money) in Real Estate. Join us on Thursday night, June 9, 2022, when we have a very special panel on women investors. Our moderator will be Deborah Razo, President of the Women’s Real Estate Network (“WREN”). Deborah is an all-star investor, including fixing and flipping houses, residential construction, and multi-residential properties in the U.S. and Puerto Rico. The panel will feature Cindy Coleman discussing note investing, Angela Sillman discussing short-term rentals, and Jen Maldonado discussing raising capital for your projects. The women will be discussing how they started investing and challenges they confronted along the way. If you’re a woman investor, DO NOT miss this presentation. (If you’re a man, you can attend but only at your own risk!) Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034 (Culver City adjacent). FREE Admission. FREE parking on the Iman parking lot and metered street parking. (But don’t come “fashionably late” or you’ll end up having to park in Long Beach and taking an Uber!) RSVP at www.LARealEstateInvestors.com.

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Vendors Expo Returns! Our carbon-neutral, bio-degradable, gluten-free, super-duper "Vendors Expo" returns on Thursday night, June 9, 2022. The Vendor Expo will be open starting at 6:30 pm. We'll have 40+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Our Vendor Expo will be held at our new home, the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034 (Culver City adjacent). FREE Admission. FREE parking on the Iman parking lot and metered street parking. Please RSVP at www.LARealEstateInvestors.com.

Weekly “Rubbing Elbows” Podcast. LAC-REIA hosts the weekly podcast, “Rubbing Elbows” staring our Director of Acquisitions, Chuck Dorfman, and his co-host, Lior Yehuda. Every Thursday live at 8:00 pm (and streaming anytime thereafter), Chuck and Lior interview real estate professionals sharing their insights and advice. Its real estate uncensored and unfiltered. These guys may be wild, but they know what they’re talking about. You can enjoy “Rubbing Elbows” wherever you view podcasts (i.e. YouTube, Facebook, Google, and www.LARealEstateInvestors.com/RubbingElbows.

This Week. Looking ahead, investors will continue to closely follow news on Ukraine and Covid case counts in China. They will also look for additional Fed guidance on the pace of future rate hikes and bond portfolio reduction. Beyond that, the key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. The ISM national manufacturing index will come out on Wednesday and the ISM national service sector index on Friday. Mortgage markets will be closed on Monday in observance of Memorial Day.

Weekly Changes:

10-year Treasuries: Fell 010 bps

Dow Jones Average: Rose 1,500 points

NASDAQ: Rose 600 points

Calendar:

Wednesday (6/01): ISM Manufacturing Index

Friday (6/03): Employment

Friday (6/03): ISM Services Index

For further information, comments, and questions

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC