Thomas P. Cox is the managing partner of Thomas P. Cox: Architects, which has offices in Los Angeles and Irvine. He was a member of a panel at the recent PCBC homebuilding conference in San Francisco that discussed ways to support development firms when there’s no development.
The introduction to their panel stated: “Today there is a near total shutdown in real estate development and most experts agree there won’t be new construction for any product type (including apartments) for at least the next few years, if not longer.”
We asked him how long this slump will last and what that means for businesses in the development game.
Us: How long will the homebuilding slump last in Orange County?
Thomas: Home building has a good three to four years before it turns around since there is still a lot of inventory that needs to be absorbed. The good news is that after 2012, we expect that pent-up expectations will provide new opportunities for the single-family home building companies in Orange County.
The bad news is that OC has suffered a lot of job loss. Our county has always been considered the “home building capital” of the country, so we took very hard hits when the industry collapsed.
Us: You said before speaking at the PCBC homebuilding conference this month that there is a near total shutdown in real estate development. Why?
Thomas: The problem is there’s no money available for development right now.
Thanks to the debacle with the lending institutions, expectations are abnormally high. Lenders used to expect a cap rate of 6.5 percent to 7 percent, now we’re looking at 7.5 to 8 percent. There’s a much higher rate of return expected from investors and lenders.
Not to mention, they also expect developers to provide more of their own money now. Thirty-five percent to 40% equity by the owner is a typical requirement. This is difficult to meet and out of bounds for many developers right now.
I do have confidence that multi-family housing is going to lead us out of the recession, maybe not tomorrow or even a year from now—it is going to take some time.
Us: Why will multi-family revive first?
Thomas: It’s not all gloom and doom. It’s just a matter of timing.
The consensus in this group is that we are probably talking somewhere on the order of 2012 or 2013 as a turn around in the multi-family market. There is a general consensus that when the market does turn, it always happens faster than expected. For at least for the short-term, maybe for two to five years, there will be a very robust market in the multi-family sector.
Among the reasons:
1) Population base is increasing
2) Increasing immigrant base will need apartments and they typically rent for up to ten years
3) Stock market has gotten some legs
4) Rate of unemployment is slowing down dramatically
5) Between 2008-2020, 57 million members of Gen Y will reach the age of 22—the prime rental age
6) Apartments will be one of the first product types to come back due to under supply and increasing demand
7) Investment capital is sitting on the sidelines waiting to jump
8) Rents will increase significantly in 2012-2015
Us: Some say there’s serious underbuilding now in terms of meeting demand from population growth. At what point does expanded homebuilding become possible?
Thomas: There may be underbuilding, but there’s also an oversupply, especially in some areas like Bakersfield, Lancaster, Palmdale, and Riverside, for example. On a national level, Las Vegas, Phoenix and much of Florida has a lot of inventory that needs to be absorbed before there are any dramatic turn-arounds.
Us: How can homebuilding companies survive in this environment?
Thomas: Wait it out, be creative and invest in the future.
One of the key points for us is what we do now during the middle of all of this. Education and innovation is where we come into play. Architects typically are going to start working probably six months to a year before projects get approved, financed, and back into the market. We need to do our plans, designs, yield studies, and permit process quite a bit ahead of the curve. That could be as much as a year and a half.
Shovel-ready means that you need to make that investment now so you can capitalize on opportunities when it does turn around. Otherwise, you’ll end up chasing the cart as opposed to leading it.
Recent Lansner on Real Estate interviews …
- Online information rocking housing world
- O.C. investor sees real estate opportunity
- Red-hot appetite for cheaper S. County homes
- O.C. a hotbed for desert-home buyers
- Auctioneer sees ray of sunshine for housing
- No recovery seen for housing until late 2010
- O.C. rents to stagnate for year or more
- Ailing commercial projects next real estate hot spot?
- Lowest rents found by serious apartment hunting
- How to hire a real estate agent
- Western construction firms harder hit
- Irvine Co. grabs office tenants near record pace
- Is water the new oil?
- Foreclosure wave seen for commercial buildings
- Author watches ‘1,800 mph financial catastrophe’
- Why O.C. housing is so risky, bottoms in 2010
yes, unfortunately the economy keeps getting worse by the day.
More banks keep failing - FDIC takes over 5 banks on Friday
2 of those banks are from SoCal
and the beat goes on….
well stop beating it already
lame
lameo
upurz pinhead
Yes bubble, stop announcing the truth.
Dealeo wants us all to hide the truth and try to mask the current housing problems.
When dealeo starts hitting the sauce he breaks out his drinking name olivas.
I almost feel sorry for this underwater, financial disaster!
You should hide, I hear you’re so ugly you got to hang a pork chop round your neck just to get the dog to play with you
I am no oracle just a realist and I am here to tell you if you want to see what RE here and all over except in some super exclusive spots is going to do look at the last bubble. Nope no the RE spike of the 1990’s but the .com bubble in early 2000 and the NASDAQ. What you see there is probably an exact model of what you will see in RE, It is still alive and it is still profitable but not barely like it was 1998-2001. That is pretty much what I see in RE an almost mirror of the NASDAQ, and it still is hanging at 2k 8 years after the crash.
And whatever you do…..DO NOT and I repeat DO NOT listen to anyone remotely affiliated to the RE industry they are all tools.
Nasdaq is a good comparison:
http://www.ritholtz.com/blog/wp-content/uploads/2009/06/equity0625091_big.gif
http://static.scribd.com/profiles/images/1dd5tw0zz36zk-full.gif
2010 - 2020 is the lost decade for real estate, hopefully not the entire economy
Mav-when you jumped in your time machine to find in 2020 that RE was the lost decade, I belive you set the coordinates wrong and ended up in Uranus. But thanks for the objective report, only us readers don’t care what happens on that planet. Here in the most attractive RE priced time of our lives, people that don’t buy are missing out in a once in a lifetime deal.
you’re not? You pushing some kind of snake oil I just haven’t figured out what yet
The only thing the realists on this blog try to push is the truth to try and circumvent the BS the RE types spew on the radio in BS infomercials and the NAR and the CAR who are still quoted as if truthful in the news. These people financially ruin lives…we try and stop that and show the truth, and their abysmal track record where they are wrong every year and bottom call.
What exactly is your agenda? My guess is you want to keep the RA job alive, it is on life support and you need to just let it go it and vacuum tubes are going to be in the same chapter eventually.
you’re deluded by your own sense of importance
What you’re really PO’d about is that I won’t recognise your supposed genius. When I post contrairan information from reliable sources you bums pull out the stops. You guys start the Sh#t calling me a drunk and alluding that I’m in some kind of financial trouble. Well if it’s a street fight you want you got it Bozo, but you can’t handle it so you cry to Aunty Jon that I’m too rough on you. Get over yourself, you don’t attack me and I won’t mop the floor with you.
Investing/speculating in a house is a thing of the past. Only the big money players will squeeze a modest profit in real estate. Buy a house you can easily afford, and you will be much happier. After your home is payed off, invest/speculate on whatever. Life is about living, not a huge monthly mortgage payment for the rest of your life.
For the last 30 years everybody was brainwash with the “Free-Enterprise” theory from the Reagan’s 80’s, and than with Clinton’s “Illussions-of-Pizza and Chanpagne” Than came the biggest Abomination of them all= Bush “make-everybody-Feel-Rich” “The ownership-Society”
Folks I went true 6 recesions Since 1974 until now, and I can see that this is worst than a depresion of the 30’s
The economic model of the past, It won’t return, the easy credit, live on Leverage is gone.
And Finally…for those whom got used to live of the “Borrowing”… Fellows I have no words than Sorrow. and good luck
You’re full of crap
No, he is not. All this wealth was an illusion it really was debt.
you’re 10lbs of crap in a 5lbs bag
When you can’t win an argument you really write some stupid crap. Are all of you agents as brainless as yourself.
I got the idea from you
Really Jon….your vulgarity or innapropriate filter blows donky balls. You tag me then it never gets posted when I ask ShockG what is his point in posting….yet this gutter slags comments are not even stopped or approved….wtf ever dude nice work being an admin or getting decent software. In other words Jon FAIL….so dumb and you need to make this place run smoothly or just give it up many will just throw their proverbial arms up and jump ship if we are censored while thie POS keep slinging personal attacks adding nothing.
Self-serving bs.
Your responses are the typical-loosers in denial.
you all find out when your nose will be rub against your own crap.
then you will run crying like girls, with the tail between your legs
to your parents for help.
worthless traitors
Girls have tails?
JC, Go back to your bomb shelter until the great depression II is over in 10 years.
Wow did I put my finger in your “Blisters” girls..?
It’s Ok the truth always hurts
Shut up or I’ll pull up my skirt and pea on you
great post today except for shockg and Olivas Salone formerly known as dealio and dealtracker and who knows what else. Good job HONEST people!
That is funny…good job everyone who thinks a certain way, or believes a certain way, or is opinionated in a particular way. Essentially, you are either with us, or you are with the terrorists. Now, where have I heard that before???
Mulli,
Do you know you’re standing up for a person whose drunk?
You’re reputation sinks to lower and lower levels when you try to back up his grade school potty talk.
He says “Shut up or I’ll pull up my skirt and pea on you” and you’re sticking up for him?
I’ve always known you for a 2 bit shill, but maybe this will enlighten the rest of them out there!
Oh did I offend your gentile sensibilities poor baby
Bill,
Do you really think this is an isolated incident? No matter the topic, and my position was macro, not micro complete with pee and skirt, if one has a differing opinion than the bear fraternity here, they are ridiculed. I am not defending Olivas’ vocabulary or behavior. I simply acknowledged that, without fail, if anyone has a different POV regarding RE from yours, juvenile vernacular follows suit. I am still trying to figure that out about many bears here…my only conclusion is “you are either with us, or you are with the terrorists.”
Oh, and my reputation, on a blog, with a handle, why would I be worried about what you think of “Mulliganville?” Are you worried about what I think of “Bill?”
Didn’t think so…carry on.
mike you don’t know crap either. You’re probaly just a back up blogbot these other jerks IM to help out when they can’t handle the heat
Whats the matter drunko?
Did you just look at your credit score?
Or maybe foreclose again?
Look on the bright side, you’re in a much better situation than you will be by next year !
hey jerk, don’t you listen? I don’t own or sell Real Estate, but I guess after getting your azz kicked this is all you got left
“I don’t own or sell Real Estate”
Yes I agree,
After your foreclosure, you don’t own.
An unemployed realtor doesn’t “sell Real Estate” either.
Your lies are catching up to you.
You don’t own, yet you’ve been trying to downgrade everyone that didn’t buy a bubble home?
You’re insane in the membrane!
what a pindick
I take it back Mike you and JC are actually the paranoid numnut Jake who used to claim anyone who disagreed with him was a Troll posting under several different names.
“There’s still a very heavy level of foreclosure activity out there,” said Bill Wheat, chief financial officer at residential building giant D.R. Horton Inc
“Our expectation is that this will continue for the remainder of 2009 and we believe well into 2010,”
“There is simply still too much uncertainty and too many headwinds out there in the general economy with rising unemployment that that will naturally create additional foreclosures.”
“We’ve had recent moratoriums on foreclosures that have ended and I think there’s still some backlog of foreclosures that will come through as well as the impact of some of the ARM resets that will still be occurring this year and next,” Wheat said.
“So, our expectation is that there will still be significant headwinds from foreclosures.”
In particular, about 1 million option adjustable-rate mortgages are estimated to reset higher in the next four years, Bloomberg recently reported.
Richard Dugas, chief executive at Pulte Homes Inc said buyer cancellation rates remain elevated.
Wall Street analysts are worried that new-home sales, which are seen as a leading indicator, have remained sluggish in 2009.
“Moreover, this performance is against a backdrop of massive government stimulus of the housing market, including artificially low mortgage rates, tax credits and some release of pent-up demand from the fourth quarter of 2008,” wrote Deutsche Bank analyst Nishu Sood in a research note this week.
“With the effects of this stimulus fading into summer, we think housing demand could fade as well.”
Bill You got that right
How they will come out of this one…? it beats me
These guys are nothing more than common thieves.
they were all “Borrowing” for “false-Pretences” mostly a product of Ignorance, and Arrogance.
Now they are into “Desperation-Time”
Home builder play a vital role in society. This financial debacle, which was simply overzealous lending practices, affects us all. Not just those in the RE market, but many other industries are being affected as well. Lenders were greedy, loaned money to anyone that could fog a mirror, and here you go. This is not some giant ponzi scheme like many want to make it out to be. It is simple…the gates to the cash were not guarded, not they are too closely guarded, and the overzealous lending practices of the past have been replaced with irrational fear. We will be stuck in the quagmire until banks loosen up. If they want to make money, they will have to loan it. Period.
banks will loan money to individuals and corporations based on assets, current debt, and cash flow probabilities…. Period….. in fact they are doing it now and it won’t change….. sorry if you do not like this…… lending isn’t tight right now, it’s back to normal
When 760 FICO’s are having difficulty getting an auto loan, I would say that is too tight. But that is my opinion. Sorry if you do not like it.
Normal is 30% down for investment properties…many are commanding 45% these days…again, irrational and not a normal LTV range.
If you are stating that banks are back to manually underwriting credit apps, I am all for that…but that is not the case. 1 out of 10 will manually underwrite a mortgage, which takes FICO’s out of the equation. All a FICO illustrates is that you are able to carry debt? If you were well off, paid cash for everything, and did not utilize credit, you would have problems in the current lending environment were you seeking credit.
FICOs are BS, and now everyone knows this……. if you have a 700 FICO can meet your minimum payments…. and have debt up to your eye balls…… the banks HATE to lose money…. hate it
if you have income, cash, and no debt….. you can get a loan….. imagine that…. banks are dying for such people to loan money to….. a 760 FICO with unstable income, tons of debt, making minimum payments…. is not going to get a loan….. back to normal…. thankfully
Actually, the cat I was referring to has a stable source of income, 760, but is running into problems due to tighter lending standards. I do not blame the bank for not wanting to lend to one with mega debt and no income…but that was not the case here.
Bottom line, if you are a bank, and you do not make money unless you loan it out. So perhaps, we will just watch the masses of banks go out of business…all hail to the Bank of Obama.
simply not true, banks are dying to lend to people who have stable incomes and cash….. maybe you don’t know your “friend” that well
I do agreed on that one
Actually you can make great money by simple loaning only to sure bets and with huge spreads. With the Fed rate at zero, it effectively costs the bank nothing to borrow and then lend to you at 5.5%. They aren’t lending to morons because the assets against the loan are falling in value.
Well, perhaps some banks are wanting to lend a little more than others.
Mulli - with all due respect - I find it hard to believe that someone with a 760 FICO and a total DTI of less than 40% cannot get a car loan.
If they are telling you they cannot - you had better re-evaluate what you believe and not believe.
I know one person with not-so-great credit (my daughter’s boyfriend) - who just purchased a truck from carmax for $22K - no co-signer.
Mulli - also keep in mind - repo-ing a car is much easier than repo-ing a home - right now - seeing that there’s another moratorium in place.
Also - with the Fed’s intervention - and making it even more expensive if not downright impossible to foreclose on those that decide not to pay their debt - what would you do with your investment money?
The FED’s actions are so far reaching - I am amazed at your myopic view of it
Where do you think 65%+ of all the money for loans made in 2004 thru 2006 came from for OC homes - seeing most loans were not sellable to Fannie or Freddie during that time? You got that right. And those same folks are those that could have saved this debacle - you see, even if the homes did foreclose - they would have found ways to do it fast and cheap. Have you even spoken with these groups? They were given a carrot by the Fed to accept their terms and now they are the low man on the totem pole. Nobody will touch that paper - unless tax payer money is used to give us some great frickin’ terms.
The fed has singlehandedly ingrained into the very fabric of our society that not paying back debt is OK to do.
That money you speak of is mainly tax payer backed funds. That money you speak of are the deposits of hard working US citizens. Borrowers had better be scrutinized if the savings of Americans will be used to bailout those walking away and those who intend to buy while there’s a law in place that lets them walk away with only a hit to the credit score as the deterrent.
Where is the frickin’ backbone of this nation?
You speak of making money off of lending. hate to tell you - with the risk involved in today’s market - a 7% rate wouldn’t suffice for many of those investors that already got burned.
The Fed’s actions focused on the wrong beneficiaries - those that spend - in order to get them spending again. Pretty frickin’ simple. No need to candy coat it.
By the way, the “moratorium” is only for those financial institutions that do not have a loan modification program in place. Really nothing more to it. All the biggies are exempt from the moratorium…and several smaller banks are as well. This “moratorium” is about as effective as convincing hwood to drop the all caps.
“No matter how many times a lie is told, its still a lie”. “A fact is always a fact” “Numbers don’t lie, people do” Can anyone name who said these famous quotes?
Margret Dumont?
Salone, how is the hangover? please be a doll can keep servicing all of your option arms……. the economy is depending on you….. you sir can make a difference…
What, you guys trade notes with eachother cause you share an IQ? Try being original for a change. And learn to string words together coherently to make a sentence.
“And learn to string words together coherently to make a sentence.”
Yeah, Mav, learn how to make a sentence. Like this one:
“Shut up or I’ll pull up my skirt and pea on you”
It’s pretty clear that Olivas has had a breakdown. We should all show our respects for this poor unfortunate soul.
Ok, respects over. What a tool! HAHAHAHAHAHAHAHAHAHAH!
It’s “pay our respects” bozo. What break down? Even if I was wacked on thorozine I’d still have enough on the ball to poke my finger in your eye. and talk about tools, I hear you’re the shortest wrench in the box.
Oh, good one there grandma!
Is it possible to literally be drunk every single waking hour of the day? Seriously, 9am, 11am, 9pm, it doesn’t matter when for you, does it? It’s 5 o’clock somewhere…
A gay, schizophrenic, broke realtor?
Thorazine is used for the treatment of schizophrenia
http://www.healthsquare.com/newrx/tho1441.htm
Stop wondering about everyone’s shlong and go refill your prescription!
I see a great OBJECTIVE discussion brewing here - i sure hope we can keep it that way and have some other people chime in the topic above that Mulli and I will participate on. Not for nothing doomers - let’s please keep this one 100% objective. I know its not a great time to buy - that’s not my point above.
i am curious to see who will discuss these points objectively.