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From The Wall Street Journal Online
Investors might discover in the weeks ahead that calling a bottom in the housing downturn is a mug's game.
Until last week, it had been looking to some like a bottom might be at hand. Then Tuesday, Lennar Corp. said it expected to show a large loss on the back of land write-downs of $400 million to $500 million. The home builder said it has yet to see "tangible evidence of a market recovery." Thursday, the National Association of Realtors said its index of pending home sales, which is based on how many sales contracts have been signed in a given month, slipped in November. The Dow Jones index of home-building shares fell 4.3% last week.
This is a slow time of year for the housing market. Little wiggles in actual activity can look bigger after statisticians make their seasonal adjustments. A warm January can distort the view even more. Home builders say they won't know for sure if the downturn is over until the spring, when seasonal activity picks up.
Here is one reason to be careful about calling a bottom now. A large number of homes for sale are unoccupied.
In the third quarter, there were 5.7 million vacant housing units for sale or rent, accounting for a record 4.6% of all U.S. homes. The average in the 1990s was about 3.5%.
To get this ratio back to normal, 1.3 million vacant homes would need to be occupied. For comparison sake, economists polled by Blue Chip Economic Indicators expect construction to begin on about 1.6 million homes this year. With so many empty homes out there, one wonders why builders would bother breaking ground on new ones.
High vacancy rates have other effects, points out Credit Suisse analyst Ivy Zelman. When an occupied home gets sold, the seller has to buy or rent another house.
That sets off a chain reaction that ripples through the housing market. When a vacant home gets sold, the seller doesn't have to do anything.
The owners of those unrented, unsold homes bear costs. They have got insurance, the lawn guy, taxes and, often, a mortgage to pay. Seeing those costs pile up can motivate an owner to sell or rent at much lower prices. When a house sells at a lower price, other would-be buyers expect lower prices as well. When it rents for less, it becomes a more-attractive alternative to buying.
The good news (yes, there is good news) is that trouble in housing hasn't spelled trouble for the rest of the economy. Friday's jobs report showed that. Even though there was a decline in the number of construction jobs in December, a big pickup in service-sector jobs more than offset the drop. Wages rose, too. Meanwhile, low interest rates give households more buying power.
But the longer the housing funk lasts, the more likely its impact will spread. Here is hoping that in the spring there will be growth. Until then, be careful.
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From MarketWatch
It's no secret that the housing market finally, after a long while, belongs to the buyer. Home sales and prices sagged in 2006, and 2007 is not expected to be too different. According to David Lereah, chief economist for the National Association of Realtors, buyers have a "window of opportunity" in 2007 to take advantage of lower mortgage interest rates and seller flexibility.
Colby Sambrotto, COO of ForSaleByOwner.com, a no-commission real estate marketplace, offers these rules for shopping for a new home in a buyer's market:
• Don't limit yourself. While you should look for homes that are listed with real estate agents, don't discount properties that are for sale by owner. They make up about 25% of the market, and you may be able to find a good deal with one of them thanks to a lack of agent commission and fees.
• Hold onto a property for a while. Now is not the time to buy a condo or home to flip quickly for a profit. Make sure you buy a property at a good value -- you're more likely to have a good sale in the future.
• Take your time. There's no need to rush in this market, so don't worry about putting in the highest bid or writing a check the minute you like a place. Research the neighborhood to find out if the asking price is consistent with other homes in the area.
• Ask for incentives. To sell their homes, owners may be willing to throw in extras such as appliances, work sheds, drapes or even patio furniture for the asking price. Try negotiating some extras.
• Shop around for a mortgage. To get the best deal available, ask for as many quotes as you can. If you get a pre-approved mortgage, you'll have even more leverage at the negotiation table.
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From The Wall Street Journal Online
So you think there's still a buck to be made in real estate? You're right. There's plenty of money to be made because everyone still has to live somewhere. And everyone has to work somewhere. And everyone has to shop somewhere. And someone has to provide the space.
That's where the real-estate investor comes in -- making money by providing one of life's necessities. And just about anyone can be a real-estate investor. The capital requirements are quite minimal, and there are comparatively few legal restrictions on how you operate.
Keep that in mind as we look at how to raise money and learn the real-estate business. So let's start at the beginning, with the first thing any investor ever asks.
'Where Will I Get the Money?'
You can get good quality loans on buildings with up to four apartments under the same easy-lending terms that you can use to buy any residential property.
A lender will allow you to include the rental income along with your salary when you compute whether you can afford the loan. Try to keep the basic payment -- called "PITI" for principal, interest, taxes, insurance -- to 25% or less of your before-tax income, including the rental income.
You want to limit your risk and you want to buy as much property as you can comfortably afford. You do that by using "leverage" -- paying a fraction of the purchase price yourself and borrowing the rest. It's called using other people's money.
It's a good kind of debt to take on if you have an investment that uses even more of other people's money -- renters -- to make the monthly payments and produce a profit.
The properties may not always be in the neighborhoods you most prefer and they may need more work than you might like. But as long as a building is livable (or can be made so quickly) and a neighborhood is passable, then you can get started building your real-estate empire.
Getting Focused
And the beginning actually starts well before you're ready to buy a property.
You will need to decide early on what kind of properties you want to specialize in. What kind of real-estate empire do you see for yourself in 10 years? Once you determine your focus, you will need to learn as much as you can about that business as it functions in your area. Don't be discouraged, but do give yourself plenty of time; plan on at least one full year from the time you decide to get into real-estate investing and when you close on your first property.
Build a Network
You need to develop a network of real-estate professionals, people who can help you acquire properties, because you are unlikely to find the best places just scanning newspaper or Web listings all alone.
Marc Asselin and his partners (his brother-in-law and his father-in-law) trade in properties in the Boynton Beach, Fla., area. They concentrate on buying vacant lots that they can get for a fraction of their developed value, and hold on to them until a buyer comes along. Mr. Asselin has even developed his own "investor network" that puts potential land buyers in touch with other landowners.
"You'd be surprised how many of the people you know are involved in real estate, if you ask them," says Mr. Asselin, a software engineer, who built his network starting with just the real-estate agent who sold him his home. Then the network expanded to include an attorney and an accountant.
One place you might look for contacts is in real-estate class. While certainly not required of real-estate investors, a real-estate license doesn't hurt. It helps to establish you as a professional, which has distinct tax advantages, and it lets you negotiate as a professional, which can result in sales-commission savings for you.
Real-estate class is also a place where you can find a mentor -- someone like Hal Wilson, a real-estate agent and entrepreneur who has helped to educate two generations of Nashville-area real-estate professionals and investors. He calls his own investing philosophy "driving for dollars" -- searching for derelict, abandoned or otherwise below-average diamonds-in-the-rough houses and buildings in neighborhoods that are showing improvement.
It's a way of doing business that he has taught to hundreds of local landlords and investors through his classes, his personal appearances, his radio show and through the 500-member Real Estate Investors of Nashville network (reintn.net). The group, which meets once a month or so, gives local landlords a place to get to know each other and to swap stories while making contacts with lenders, contractors and other real-estate professionals.
Most cities have similar organizations. Ask around. The Internet is also a good source. Yahoo lists more than 5,000 local, national and international real-estate investing groups.
Don't Fall for Schemers' Lines
Be skeptical. Listen to your inner bull detector. Avoid schemers. Avoid real-estate investing gurus and other blowhards who make money selling investment seminars or "get-rich-quick-and-easy" real-estate books. These guys make their money feeding fantasies.
As the nation's real-estate frenzy reached a full boil in 2005, the real-estate schemers went into hyperdrive at a series of "Real Estate Wealth Expos" in Los Angeles, New York and other big cities. Thousands of would-be Donald Trumps paid up to $250 to hear, well, Donald Trump and other marquee princes of the rich-and-fabulous lifestyles, extol the virtues of real-estate investing to huge pep-rally-type assemblies.
Don't waste your money. You can learn a lot more driving around with someone like Jack Friedman, a philosopher-musician-landlord in Nashville. He'll take you around to his properties in his '99 Ford Escort with all his tools -- wrenches, pliers, hammers, whatever it takes -- in the back seat. And he will tell you what 20 years of investing has taught him, all for the price of the barbeque platter at Corky's.
"I am in most ways an anomaly," he avers. "I borrowed relatively little. I was lucky enough to find a few below-market buys, and I do 95% of my own work. In short, I've never done one of the sexy ways people envision doing real estate."
Like most serious real-estate investors, Mr. Friedman is the classic millionaire next door -- that famously frugal, unassuming, invisible, yet quite well-to-do American who bears none of the vulgar, clichéd trappings of wealth displayed in TV infomercials. You could do worse than learning from someone like that as you try to step into the real-estate business.
Places to Look for Financing
Here are a few money sources you can explore for your real-estate buys:
Banks and mortgage companies: Usually, you can borrow for smaller properties (buildings under five units) through the residential-lending departments. If you also plan to live in the property, you will likely qualify for loans of 90%, or even more, of the purchase price, and interest rates will be lower. Larger buildings and other commercial properties are handled through "commercial lending" departments.
Partners: Fifty percent of something is better than 100% of nothing. Consider enlisting a partner to raise the capital you need to get an attractive property. If both of you put up equal amounts of money and equally participate in managing the property, you will both be entitled to 50% of the income and the appreciation. More likely, however, is a partnership in which you do most of the work and your partner puts up most of the money.
Friends and family: Just some cautionary comments here. You can't choose your family, but, fortunately, you can choose whom you do your business with. An "Uncle Al" interest rate inevitably comes with Uncle Al's interest in your business.
Private or "hard money" lenders: At best, private lenders can make deals happen when no one else can. At worst they are Tony Sopranos. These loans are usually approved within days and are often funded in two weeks or less. But the costs will be quite high. Interest rates in the teens are not uncommon, and the lender may require 5% to 10% in upfront "discount" points.
Sellers: It's quite common to have a seller "take back" 5% or 10% of the purchase price and carry it as a second mortgage for a few years. You can expect fairly low borrowing costs and few hassles, but the seller likely will insist on a higher price if he agrees to lend you money. Investing truism: "His price, your terms; your price, his terms."
Adapted from "The Wall Street Journal Complete Real-Estate Investing Guidebook" by David Crook, ©2006 by Dow Jones & Co. Inc. Published by Three Rivers Press, an imprint of the Crown Publishing Group, a division of Random House, Inc.
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From The Wall Street Journal Online
The real-estate bubble has burst. Get over it. In areas that saw big home-price run-ups in the first half of the decade, prices are stagnant, or worse. New-home inventories are up; new-home builder stocks are down.
A kind of real-estate weariness has set in. Who's the cocktail-party boor? The guy still talking about making a killing on Miami Beach condos.
Smells like a buying opportunity. Probably not right away, because there's still plenty of froth in the markets that saw the biggest price increases. But soon, you'll see the real-estate investors -- property vultures who buy when prices are low and then ride property manias to their crest -- toeing the market again.
Even in today's uncertain climate, novice real-estate investors can make money, especially in smaller properties that are easy to acquire and manage.
Let's explore some options.
In-Law Units
The most basic form of property investment is a so-called in-law unit or guesthouse on the site of your home itself, sometimes attached to the main house, sometimes not. No one has ever gotten rich renting out such properties, but they can significantly reduce the cost of homeownership. Renting out an in-law unit for $400 a month and using that money every month to pay down principal on a $350,000 30-year mortgage will shave 10 years from the mortgage term and reduce total payments by more than $165,000. And you will be able to write off all your costs on your income taxes -- including depreciation on the unit -- up to your actual rental income.
Weekend or Vacation Homes
Just as with an in-law unit, renting out your weekend house is not a way to get rich. Many of the same numbers that applied to in-law units can be applied to your weekend home, although the tax situation is decidedly different.
First, the IRS gives second-home landlords a very nice little present in that it allows two weeks of tax-free rental income a year. Beyond that, however, the accounting can be irksome. The IRS doesn't want people buying second homes and disguising them as rental properties. It has two criteria to determine whether the property is a second home (bad) or a rental (good). It's a second home if you don't rent it out at all or if you personally use it at least two weeks a year or 10% of the number of days the place is available for rental, whichever is longer.
Single-Family Homes
Throughout much of the country, the market for single-family homes is seriously out of whack. As prices fall and inventories rise, that's changing. But, compared with rents, prices are still quite high, outstripping the ability of such properties to cover their mortgage and operating costs.
Avoid this segment of the market unless you have a chance to buy a property at a 30% or 40% discount from its previous price. Don't think this is out of the question. In the late 1980s and early 1990s, when the government liquidated the real-estate loan portfolios of bankrupt savings-and-loans, speculators picked up properties for just dimes on the dollar.
Managing a house that pays for itself is what it's all about. You can do it in one of two ways: Renting or "flipping." Renting is a "buy-and-hold" strategy, while flipping calls for quick turnarounds of fixer-uppers that can be spruced up and sold quickly.
But in the current environment renting is probably the more prudent path, although it can be very difficult to make a house pay for itself at today's prices. That's because if your house carries an 80% or 90% loan, the renter will have to pay more per month to rent the house than he would to buy it.
Look at it this way: There's a handsome three-bedroom, two-bath house in Tampa, Fla., for sale at an asking price of $199,900. If you bought it with 10% down and a 90% loan at 6%, your monthly payment will be about $1,550 (that's PITI -- principal, interest, taxes and insurance). As a landlord, at a minimum, you'll want to budget at least $200 a month in additional expenses. That puts your break-even point at almost $1,800 a month. That's far more than you can reasonably expect to earn where comparable properties in the same neighborhood can be rented for less than $1,300.
But it turns out that there's a similar house available less than a mile away. This other house is roughly the same size. The difference is this one's being taken over by its lender, and the house has a mortgage loan of $110,000.
A buyer with cash can drive a hard bargain and make out very well. And the worse the market, the better for the buyer. But don't get carried away. If you simply take over an existing 90% or 95% note, you won't make any money. Let the lender foreclose and take over the place. Then lowball the lender.
Multiple Units
A housing market that saw the price of single-family homes skyrocket was not quite so generous to smaller two-family or multifamily properties. Because the universe of home buyers expanded so much in the past 10 years, the universe of renters contracted, and the market for smaller rental properties contracted with them.
In Memphis, where two-bedroom apartments in better neighborhoods rent from $500 up to $800 a month, good two-family properties can still be bought for far less than a one bedroom condo on either of the coasts. Recent prices for 40-year-old two-family homes near the University of Memphis main campus ranged from $70,000 to $110,000. Monthly payments, including insurance and maintenance, on an $88,000 mortgage (20% down on the $110,000 property) come to only about $750 a month. So renting both units at the low end of the market would result in a positive after-tax cash flow of more than $100 a month. Upgrade the units, and you can charge top-of-the-market rents of $800 a month.
Good deals on smaller buildings can be found throughout the country, even in some of the hottest markets. In trendy Pasadena, Calif., where even modest homes can sell for $400 to $600 a square foot, two-, three- or four-unit rental buildings can be bought in the $250 to $350 range.
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From The Wall Street Journal Online
U.S. home sales will decline less sharply this year than they did last year, while home-price appreciation is expected to gain steam, the National Association of Realtors said.
In its latest forecast, the NAR said sales of existing homes are likely to decline about 1.2% this year to 6.42 million, following a sharp drop last year, while sales of new homes are seen falling about 9.7% to 957,000.
Because the market is starting this year at a relatively low point, even a gradual recovery of sales during the year would mean that annual totals for 2007 are likely to show no substantial improvement, according to NAR Chief Economist David Lereah.
"The good news is that the steady improvement in sales will support price appreciation moving forward," Mr. Lereah says.
The Realtors' group, which is running a $40 million ad campaign designed to encourage consumers to contact their local realtors, expects moderate price increases this year. The group forecasts the median sales price for existing homes to grow 1.5% nationally to $225,300, following last year's estimated 1.1% rise. The national median price for new homes will increase 3% this year to $248,900, according to the NAR, after estimated growth of 0.3% last year.
As builders rein in new projects to support prices, housing starts are expected to drop 16.6% this year to 1.51 million, their lowest level in a decade, the NAR said.
Mortgage Bankers Association chief economist Doug Duncan expects home prices to rise 1% to 2% annually for the next couple of years. But some markets could see price declines of 10% to 20% this year, he says, a shift from the last four to five years, when there were "almost no markets where prices were declining."
Home sales will decline 7% to 8% this year, with most of the decline in the first half, adds Mr. Duncan, who expects the market to bottom out in mid- to late 2007.
Meanwhile, the volume of mortgage applications filed with major U.S. banks rose 16.6% on a seasonally adjusted basis last week, compared with the week before, the MBA reported yesterday.
The number of applications -- for both purchases and refinancings -- increased 12%, compared with the same period a year earlier. Application volumes, on a seasonally adjusted basis, fell about 14% just before the holidays.
Applications for loans to buy homes stood at the highest level in nearly a year, according to the MBA. Applications to refinance rose about 28% from a year ago.
The average rate for a 30-year fixed-rate loan fell to 6.13% from 6.22% the previous week, which was the highest rate seen in eight weeks. The average rate for a 15-year fixed-rate mortgage dropped to 5.85% from 5.93% the previous week. The rate for a one-year adjustable-rate mortgage, or ARM, averaged 5.79%, down from 5.84% the previous week, the MBA's data showed.
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From The Wall Street Journal Online
Home builder D.R. Horton Inc. on Tuesday posted lower profit for its fiscal fourth quarter amid land-related writedowns of $199.2 million, but the results exceeded Wall Street's expectations.
The Fort Worth, Texas, company reported no signs of a rebound in the troubled housing market and offered no outlook for fiscal 2007. Market conditions remain "challenging" in the home-building industry, Donald Horton, the company's chairman, said in a statement. The company's orders fell 25%, which is better than many of its rivals.
Net income sank to $277.7 million, or 88 cents a share, in the three months ended Sept. 30, from $563.8 million, or $1.77 a share, a year earlier. Revenue fell 3.9% to $4.9 billion from $5.1 billion. The most recent quarter's results included a charge of 39 cents a share, related to writedowns on land, land options and land reacquisition costs. Still, the results exceeded Thomson First Call's estimate of 69 cents a share on revenue of $3.93 billion
The land writedowns were D.R. Horton's first. Other builders have been taking charges related to land for the past couple of quarters as deteriorating housing conditions and values have made certain land parcels no longer financially viable to build homes on.
Banc of America analyst Dan Oppenheim expects D.R. Horton to take more land-related writedowns in future quarters. He said D.R. Horton's results were better than expected because home closings held up relatively well and "represented 26 cents a share of upside." In the quarter, closings fell 7.3% to 17,261.
The higher-than-expected closings appeared to indicate that D.R. Horton was slightly more successful than other builders at stemming the tide of cancellations. This was partly offset by the company's gross profit margins, which came in about seven cents a share lighter than expected, he said.
Mr. Oppenheim said he wasn't surprised that the company didn't offer guidance for fiscal 2007, given the uncertain market conditions. "We expect that they will wait as long as possible before providing it due to the lack of visibility," he said. Mr. Oppenheim doesn't hold shares in D.R. Horton, but his firm has had an investment-banking relationship with the company in the past 12 months.
For all of fiscal 2006, earnings fell 16% to $1.23 billion, or $3.90 a share, from $1.47 billion, or $4.62 a share, for fiscal 2005. Revenue grew 8.6% to $15.1 billion from $13.9 billion.
In early trading, shares of D.R. Horton were up $1.31, or 5.9%, at $23.69 on the New York Stock Exchange.
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From MarketWatch
http://www.realestatejournal.com
Despite low mortgage interest rates, a smaller percentage of first-time home buyers are entering the market, according to an annual profile of buyers and sellers released by the National Association of Realtors on Saturday.
During the year ending in June, 36% of all buyers who purchased a home were first-time buyers, according to the association's annual profile of home buyers and sellers. That's down from 40% a year ago. About 7,500 buyers and sellers were surveyed.
Part of the reason for the declining share of first-time homeowners: Declining affordability for those entering the market after the housing boom of the past couple years bumped up home prices, said David Lereah, the NAR's chief economist, during a news conference held at the Realtors' annual convention here. A greater number of second-home sales also may have contributed to a lower percentage of first-time buyers overall.
"I hope that it's not a trend. I hope that as affordability starts to improve we see more first-time home buyers," he said. "It's critical for the housing sector."
The percentage of single female home buyers, however, inched up in the survey to its highest level on record. Twenty-two percent of all home buyers were female and on their own, up from 21% a year ago and up from 14% in 1995. In comparison, single males accounted for 9% of home buyers, unchanged from last year.
Other statistics helped validate the jobs of the thousands of Realtors at the convention: 80% of home buyers said they used the Internet to search for a home, but 85% relied on a real-estate agent as a source of information about homes for sale. And 36% first learned about the home that they purchased from an agent, versus the 24% who learned about the home that they purchased online. Among those who used the Internet to search for a home, 81% purchased a home using a real-estate agent.
Although real-estate agents were leery of the Internet 10 years ago, fearing it would take away business, 80% of firms now have their own Web sites, Lereah said.
"What the Internet has done for consumers, potential buyers, is provide them with information, give them a comfort level," he said. "But it all comes down to you're making the biggest financial transaction you're ever going to make for 99% of these people -- and they need guidance, they need someone they can trust and who has been through this before."
From the seller's side
Reflecting the beginning of a softening market, sellers had their homes on the market for a median of 6 weeks, according to the report, an increase from the 4-week median reported a year ago. "It makes some sense: We had a boom in 2005, and in this time period, we're coming to a close and beginning to stall," Lereah said.
The typical home sold for 98% of the listing price in this year's report; it sold for 99% of its listing price a year ago. But even in this year's figures, 12% of homes sold for more than its listing price.
Nineteen percent of sellers said that the primary reason for selling their home was because it was too small, while 13% said the neighborhood was less desirable and 10% decided to move so they could be closer to their job. The typical home seller owned their home six years.
Twelve percent of sellers said they sold their home without a real-estate agent, down from 13% a year ago and 20% -- the report's recorded high -- in 1987. Of those who sold their home on their own in this year's survey, 40% said they sold the property to someone they already knew.
Of those who did use an agent, 73% used a full-service agent, 8% used a discount broker and 7% used a minimum-service agent who may have done as little as list the home on the Multiple Listing Service, the survey found.
"Limited and minimal brokerage services cater largely to owners who would prefer to sell on their own but recognize they need some level of professional help," Thomas M. Stevens, president of the National Association of Realtors, said in a news release. "These services generally are a good match for certain consumers, and help to explain a decline in owners selling purely on their own."
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From The Wall Street Journal Online
With its bold move to buy Equity Office Properties Trust in the largest real-estate deal in history, Blackstone Group is betting that commercial real-estate prices haven't gotten out of hand, despite a big run-up in recent years.
Blackstone's move to convert the publicly traded real-estate investment trust into a privately owned business rippled through the REIT industry, lifting shares of such companies across the board by 3.2% in anticipation of more buyouts and mergers.
Analysts said the Equity Office deal underscores a recent trend in the REIT industry: Publicly traded real-estate companies are fetching much more from private firms than they do from the public stock markets, despite a 29% increase in REIT shares so far this year. It also dispels the theory that some real-estate investment trusts are too big to buy out, said Keven Lindemann, real-estate group director at SNL Financial, a research outfit in Charlottesville, Va. A day after the private-equity firm announced it would buy Chicago-based Equity Office for $20 billion plus $16 billion in debt assumption, Equity Office's largest shareholder, Cohen & Steers, questioned whether the company was worth more. Jim Corl, Cohen & Steers's chief investment officer, said the cost of buying all the properties in the company's portfolio would value it "in the $60 range."
The $48.50 price was 8.5% more than the REIT's closing share price on Friday. The stock jumped 7.7% yesterday to $48.14.
Sam Zell, Equity Office's chairman, said in an interview yesterday that Blackstone's bid was unsolicited. He added that the stock market had "underpriced the value of this company" and that no effort was made to find other bidders. "We got what we considered to be a significant offer at a price that we considered to be very attractive, and responded accordingly," he said.
Matthew Ostrower, an analyst with Morgan Stanley, said the price is high compared with Blackstone's recent acquisitions of Trizec Properties Inc. and CarrAmerica Realty Corp., two other office REITs. Blackstone expects to make net operating income totaling 5.5% of its purchase price for Equity Office in the first year -- the so-called capitalization rate. Trizec had a cap rate of 5.8%, and Carr-America's was 6.7%, meaning those companies came much cheaper.
Despite investors hopes for more bidders, the number of players that could buy a company as large as Equity Office is limited. "We can write a large check that other people can't write," said Frank Cohen, a Blackstone managing director of real estate, at a recent industry conference.
Blackstone is betting that corporate tenants will clamor for more space as the economy continues to expand. That, combined with construction and land costs that remain high, should keep office fundamentals strong. At the end of the third quarter, the nationwide vacancy rate was at its lowest in six years and rental rates had surged this year.
Some analysts questioned whether it was a good time for Blackstone to grab Equity Office, which has total or partial stakes in more than 500 office buildings throughout the country, after already gulping huge bites of two other office companies since July.
"I have tremendous respect for the Blackstone Group," said John Lutzius, president of Green Street Advisors, a Newport Beach, Calif., research and trading company. "But this is yet another large deal, and they have a lot of work ahead of them to rationalize all these properties that they've bought and do what they want to do with them."
Reis Inc., a New York real-estate research firm, also notes that the amount of space companies leased in the third quarter dropped significantly compared with the previous two quarters, while construction of new buildings is increasing nationwide.
If Blackstone follows its pattern after purchasing CarrAmerica, it will likely use many of the properties to borrow money, giving it a higher cash return, and sell off properties in markets where it doesn't intend to concentrate. Publicly traded REITs, which must answer to shareholders, have been reluctant to let their debt levels soar.
Blackstone's office-sector buying spree is in some respects similar to one it went on in the hotel industry from May 2004 to this February. Blackstone bought into that industry's recovery, taking $8 billion of public hotel companies ($15 billion including debt) private and wagering that revenue per available room and occupancy would rise. So far, the investment has paid off. The hotel industry set a record for profitability in 2005 and is expected to do so again each year through 2008, according to projections by PricewaterhouseCoopers.
Morgan Stanley's Mr. Ostrower says despite the trend toward going private, there is still a place for publicly traded REITs, noting that the buyouts have culled some of the weaker performers, including Equity Office.
"One thing that ties all these things together is they've generally involved companies that have very significantly underperformed for multiyear periods," Mr. Ostrower says.
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After several years of double-digit percentage increase, housing prices stopped soaring this year. The 49 economists responding to the WSJ.com forecasting survey expect home prices, measured by the government's Office of Federal Housing Enterprise Oversight index, to rise 2.8% this year and to fall by 0.5% next year. That contrasts with a 13.4% increase in 2005.
"We're nearing the end of the slowdown for most markets," said Ethan S. Harris at Lehman Brothers. Prices still have some ways to fall before they'll stabilize, but there are signs that most drastic parts of the downturn - marked by a sharp pullback in demand and new construction - have run their course.
The economists' predictions for home prices next year vary widely, from an increase of 7%, predicted by Kurt Karl and Arun Raha of Swiss Re, to a 10% decline, expected by Maury Harris of UBS. Mr. Harris, for his part, said he expects a large inventory of vacant newly constructed homes to push prices lower in the first half. Construction companies "built much more than were justified because of investor interest," he said.
While 20 economists predicted home prices would rise next year, 24 forecast a decline. Just eight of the economists forecast gains greater than 2.1%, which is their average forecast for consumer-price inflation through mid-2007. The Ofheo index, which is closely watched by economists, has never posted a year-to-year decline.
Richard DeKaser, an economist at National City Corp., a big mortgage provider, said he thinks the worst is over. "We're starting to see inventories topping out and possible declining," he said. Mr. DeKaser forecast a 4.4% increase in prices this year and a 1.8% decline next.
The housing market, of course, doesn't move uniformly across the country; some regions or individual cities often have price changes decidedly above or below the national average.
Mr. Harris of Lehman expects price declines next year to be confined to "bubble" markets, such as those in Florida, California and cities in Nevada and Arizona, where large numbers of investors have artificially inflated prices. "There's no reason for prices to be falling in areas without a bubble," he said. "People are just slowing down purchase decisions."
Allen Sinai, at Decision Economics Inc., believes the worst of the bust is over, but he feels housing remains a big risk to the economy. The housing sector subtracted 1.1 percentage points from third-quarter gross domestic product, according to preliminary numbers from the U.S. Commerce Department.
The economists trimmed their forecasts for fourth-quarter economic growth: Their average estimate puts gross domestic product growth at a 2.3% rate in the fourth quarter, down from the 2.5% rate they forecast in the October survey. They expect growth to remain at that rate through the first half of 2007 and then to accelerate later in the year. On average, the economists predicted growth of 2.8% during the second half 2007. GDP is the broadest measure of economic output.
The housing slowdown is expected to hit consumer spending, but the "consumer won't cave in and drive us into a recession," said Mr. Sinai. Steady interest rates, controlled inflation, stabilizing energy prices and a solid jobs market will support the economy, he said.
Indeed, new data released Monday indicated that weakness in the housing sector is being offset by other areas of the economy. The Conference Board, an industry-backed research group based in New York, said its composite index of leading indicators for October rose by 0.2% to 138.3, in line with expectations. September's reading was revised up to a 0.4% advance. The index is designed to predict activity in the three to six months ahead.
"People say all bubbles end in disaster, but this is a small bubble. Home prices are just about 20% too high. We need to take it seriously, but in the history of bubbles, this will go down as one of the smaller ones," said Lehman's Mr. Harris.
Among other findings in the survey:
http://www.realestatejournal.com/
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From The Wall Street Journal Online
The cost of homeowners' claims for damage due to lightning strikes is soaring because of the burgeoning number of high-end electronic items and appliances in the average home, insurers say.
Hartford Financial Services Group Inc. says that the cost of claims the company paid due to lightning strikes rose 77% between Jan. 2001 and July 2006, even as the number of claims fell in the period by nearly half. Some of the nation's largest insurance companies, including State Farm Insurance Cos. and Nationwide Mutual Insurance Co., also say they're experiencing a similar trend.
Insurers partly attribute the higher losses to the growing number of home-theater systems, plasma and high-definition television sets, game consoles and personal computers in the average American home -- which all can be fried by a surge of voltage in a home's electrical wiring that can occur from a lightning strike. Rising rebuilding costs are also a factor because in the worst instances, lightning torches the house either from overloading appliances or from a direct hit.
A State Farm spokesman says the company believes policyholders are filing fewer claims for lightning damage -- and other losses -- because of fear their rates will go up. But the claims they do file are larger.
Janice Dlatt, of Buffalo Grove, Ill. learned about lightning the hard way. She and her family suffered $10,000 in losses when a lightning strike burned out their hard-wired home-alarm system, heating and air-conditioning system, ceiling fans, TVs, VCRs and phones. "I consider ourselves lucky because my house didn't burn down. It was a small strike with a lot of voltage. It actually hit the flue from the furnace on the roof," she says.
Lightning strikes in the U.S. also cause an average of 6,100 residential fires and $144 million in direct property damage, according to the National Fire Protection Association, a nonprofit code- and standard-setting group.
Homeowner's insurance policies cover damage from electrical storms, less the deductible, but insurers say much of it could be avoided with the proper precautions.
A lightning-protection system can help save your gadgets and your house and in some places, may be a requirement under local building codes. The system, which provides a safe path for electricity to follow and discharge, should be installed by a qualified and licensed electrician and in compliance with local building codes and guidelines of the National Fire Protection Association (NFPA standard 780) and Underwriter's Laboratories, the safety organization. The system includes a lightning rod or air terminals at the top of the house that can be disguised to look like a weather vane and wires to carry the current down to grounding rods at the bottom of the house. Installing such a system costs about $1 to $1.50 per square foot for the average U.S. home.
A whole-home surge arrestor installed near the main circuit-breaker panel or the electric meter helps prevent excess voltage from passing through the house's wiring, damaging electrical equipment and possibly starting a fire. A whole-house arrestor system, which averages from $150 to $500, is also a job for a professional electrician.
As for doing it yourself, surge suppressors that you plug into electrical outlets help prevent excess voltage from damaging specific appliances and equipment. True surge suppressors shouldn't be confused with ordinary power strips that don't offer protection. Surge suppressors cost an average of $12 to $30 in hardware and appliance stores. They should have a label that reads UL standard 1449 and have a suppressor voltage rating, or SVR, of 330 volts. The lower the SVR number, the better the suppressor will be at protecting appliances and electronics.
Suppressors deteriorate with age and after a surge. Some have audible signals or flashing lights to indicate when they have worn out and should be replaced.
"If you are going to pay $2,000 for a new TV, spending $20 for a new surge suppressor is a good investment," says Richard Roux, senior electrical engineer at the NFPA.
A simple solution would be to unplug your devices before electrical storms. And to cut your chances of being shocked yourself during a storm, avoid using electrical appliances, corded phones and plumbing during lightning and thunder, safety experts say. It's safest not to shower, do laundry or wash dishes, either. Electrical storms are most likely to occur during the summer and in the South and Southwest, but occur across the U.S. and throughout the year.
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