Real Estate... Hong Kong Style

There's a broker in our office that turns over new condos in South Beach. She has so many listings on any given Sunday, that she often calls me to hold open house. I spent the last few weekends at the Beacon. Due to one particular broker (aka rogue agent) and his/her "unethical" practices, the HOA has relegated the resale agents to the HOA office. The developer is also trying to unload units and probably doesn't want any competition from the Realtors and their flipper investor clients.

So here is the scene at the Beacon HOA office on Sundays 2-4pm: You've got 11 real estate agents sitting around. Strewn on the office table are fliers for 19 different resale units. Coming in or out are residents with their dogs (there is a dog run in the opposite building). So many dogs have I seen that I've dubbed the Beacon "Doggy Development". The only thing missing are the buyers, many of whom are scared away as soon as they enter through the glass doors. Let me explain. Most of the units for sale are not selling. Rogue agent mainly farms this building and a high percentage of the units for sale here are in his/her inventory. This means if these units don't sell, this broker doesn't eat. So, rogue agent strategically places non-licensed assistants at the door to hijack buyers and take them only to this broker's listings. These types of practices have pissed off the other agents. So now we all crowd the lobby staring at the door, waiting for buyers. As soon as one arrive, we jump on them. Can you imagine the feeling of being rushed by real estate agents? And we wonder why we rank so low on consumer surveys. So intimidated are buyers when they walk through the door, that some have ducked through a side door to avoid being accosted by all of the agents. And if they do make it to inside the HOA office, they are usually confused by all the fliers. Just looking at the myriad of marketing fliers gives me a headache, I can only imagine what it does to wide-eyed first time homebuyers. I told another broker about the "competitive" atmosphere at the Beacon and he told me this is how real estate is sold in Hong Kong. Real Estate Hong Kong style... only at the Beacon.

To top it off, I learn this past Sunday that the Beacon is being sued by high profile attorney Patrick Catalano for misrepresenting the square footage of the condo units and structural defects. I did a search for this attorney and he made the same allegations against another developer in La Jolla. Square footage is never quite accurate and the Beacon's owner, Mission Place, always stated the sq ft is an approximation. Sounds like an ambulance chaser, but lawsuits always happen in a down market. Call it a symptom of a bubble beginning to burst. Next look for the regulators to step in as people start to lose their life savings .

Building frenzy

When I first moved to the city in the 90's I lived in SOMA, on 3rd and Folsom. Back in the day, I made sure to stay north of Harrison and east of 5th, one of the "undesirable" parts of town. There was one exception of course: clubbing on Saturday night. The area has undergone a dramatic transformation over the last ten years. The redevelopment agency has big plans for a brand new SOMA/South Beach/Mission Bay, including 5,000 new residential units, many of these market rate condos. You can thank Willie's administation for finally figuring out that the best way to make the city affordable is to increase supply. Simple market economics.

A fellow broker has a good blog of the new condo developments, www.sfnewdevelopments.com .


Political Recap
Daly's ballot proposition requiring disclosure of evictions during sale of property passed in June by a few thousand votes.

Mikarimi's bill restricting the landlord's ability to take away "priviledges" (eg parking space, smoking, storage space, etc) passed the Board of Supervisors.

Peskin's ordinance, which would change this Ellis Act by calling for a significant cash payout for all tenants to be evicted from rental units due to an Ellis-ing of the property, was struck down by a Superior Court judge.

Party like its Summer 2005

Well, if your broker hasn't told you yet, the market peaked last summer. But don't tell that to all the bidders on a charming Bernal Heights fixer on Eugenia last month. My client who does fixers was interested so I dropped by the open house. Should have guessed by the 30 people who showed up that this one was going to turn into a bidding war. Listed in the mid-500's the comps came in at 850-900K, fully remodeled. Structurally sound, it needed a full interior finishing (sheet rock for the walls, kitchen, bathroom, refinished floors, etc.). Looked like the owner started to redo the inside and just stopped. The listing agent received 37 offers. The winner was a buyer represented by a Coldwell Banker agent. The winning price: 877K. Not much of a margin there.

Real Estate Expo

I spent this past weekend at the Real Estate Expo. Over 61,000 attended, which made getting into seminars difficult. The line for Millionaire Tax Secrets wraped down the hall, from South Hall to North Hall. I never could get into that seminar. People were waiting in line for over an hour.

Got a few good tips on negotiating contracts and investment strategies for my financially challenged clients. Sitting through some of these workshops was like watching an infomercial live on stage. I watched some cheesy presentations from salesman touting their self improvement or get quick rich packages to the masses. They should be paying me to watch this. The highlight was Robert Kiyosaki and Donald Trump, both class acts. The expo will be back this summer for those of you who missed it.

Interest rates up
Fed hiked up interest rates another quarter point and signaled it may not be done yet. Bad for real estate? Of course it is, but one thing both Robert and the Donald said was some of their best deals were in bad markets. Trump said he picked up his property on Wall St for a million bucks during a bad market. Today it's worth much more than a million bucks. All markets are cyclical. Buy when there is blood in the streets...

No Housing Bubble

Last week, St Louis Fed Reserve President William Pool said at the Regional Chamber and Growth Association that, "My hunch... is that housing activity will stablize and remain at a high level this year." He also said, "Indeed, given that bubbles always burst... clear advance evidence of a bubble can never exist. If the evidence was clear, then everyone would know about the bubble and forthcoming burst, but then the buying that created the bubble would never occur in the first place." He then offered these words of comfort to those of us who own potentially overprice real estate, "So if you have an academic interest in house prices, I recommend that you wait a few years. If you have a direct financial interest, I can't help much, you're on your own".

Spoken like a true economist.

He believes that there is no national housing bubble, rather regions that may be overvalued. Real estate is all local. Californians should be a little nervous.

Hedging Price Risk
Want to play the downside in housing prices? The CBOE Futures Exchange announced they are launching futures contracts based upon median prices in the NAR existing-home sales data. This should spawn a new era in derivatives contracts. Just think, you can now write covered calls on your house. I wonder what the delivery on that would be like.

Cost Overrun

When I first inquired about the Royal SF last summer the former office building now converted into condos was due to be completed by November 2005. I called again in January and learned the completion date had been moved to March. To date it's still not finished and Bryan, one of their agents, stated the new completion date is in April. Four month behind schedule is not too bad for a project this size, but I wonder what the numbers will look like. According to the sales agent, it's around 70% sold.

Two new buildings in South Beach/SOMA are getting some attention. The SF Watermark is the latest addition to the South Beach skyline and, according to one realtor, is about 50% sold. The other is the St Regis and rumor has it the Gores have bought a posh new space there. Prices for these new luxury penthouses are as sky high as the development itself.

Nationwide search

Real estate is all local. It's not easy looking for opportunities in other parts of the country. There are the "hot" markets that everyone knows about- Las Vegas, San Diego, Washington DC, Portland, Tuscon, Miami, etc. I liken these markets to the internet stocks of 2000 and you know what happened there. Looking for a good value and numbers to back it up, I've been visiting government sites like the Bureau of Economic Analysis and the Census Bureau. I like to look at the raw numbers myself and check up on some areas others have been hinting about such as the Twin Cities, Boise, and Austin. I talked to an old acquaintance of mine who does real estate in Austin and he says it's hard to find a cap rate there, though you can get 7% in the $3-5 million dollar range. I guess that's better than the bay area. The underlying economic numbers look better in the Twin Cities in Minneapolis. I know where I'll be vacationing this summer.

There was some interesting numbers I came across for California. For 2003-2004, real estate, rental, and leasing made up 41% of the change in real gross sate product. In absolute terms, the real estate industry contributed to 30% of gross state product in 2004. I'm waiting to see what the 2005 numbers will look like. The slowing real estate market is going to have significant ramifications for the state economy as a whole.

A friend of mine emailed a good website for finding out the price of properties. It's www.zillow.com. You can even see sales data for your area.