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"It's an absolute frenzy to buy finished lots or platted lots, the busiest my company's ever...

"It's an absolute frenzy to buy finished lots or platted lots, the busiest my company's ever been," says the head of a Phoenix land brokerage firm. The homebuilders have obviously had a big year. How might landowners and real estate developers fare in this environment? The St. Joe (JOE), Limoneira (LMNR), Tejon Ranch (TRC), and AMREP (AXR) come to mind. Any others?
Comments (33)
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    We're talking our own book again. Where is the "demand" coming from? What has happened to the thousands of foreclosed and empty homes in Phoenix? They are still empty and rotting away or serving as temporary meth labs.
    16 Dec 2012, 01:48 PM Reply Like
  • whatamess
    , contributor
    Comments (2) | Send Message
     
    Sorry buddy but no one is talking their book without facts.

     

    I am here to confirm the comment from a totally different part of the country. I don't typically comment on anything but this item caught my eye due to the similar experience we are having in Southwest Florida. I am in civil engineering design and can tell you the same is happening in the Naples, Florida area. There is serious demand from homebuilders for platted installed lots. There is so much demand that there has been a significant increase in the need for design services. I don't know how long it is going to last, but it is a seriously appreciated market change.
    16 Dec 2012, 02:25 PM Reply Like
  • anonymous#12
    , contributor
    Comments (552) | Send Message
     
    Same thing happening in California, things are moving faster than anyone could have expected.
    16 Dec 2012, 02:30 PM Reply Like
  • Scootger
    , contributor
    Comments (228) | Send Message
     
    any specific data on JOE? I was long, might buy back...
    16 Dec 2012, 02:51 PM Reply Like
  • RM13
    , contributor
    Comments (712) | Send Message
     
    There is pent up demand up there for housing. Now, how many of these 'buyers' will have enough downpayment for one and stable enough jobs to pay the mortgage, that's a different story.

     

    Especially if we go off the fiscal cliff.
    16 Dec 2012, 03:22 PM Reply Like
  • davidbdc
    , contributor
    Comments (3141) | Send Message
     
    Is there demand? Yes, - a frenzy???? I don't really think so.

     

    Pent up demand is seeping into the market, but its certainly not rushing back into it. And longer terms we've probably added a few percent of folks who have decided that renting is what they will do - even if their financial situation is solid. So while thats not a catastrophy to home builders it does mean that the overall market will be a bit different - more investors will be owning and leasing single family homes - and I don't see them joining any frenzied rush to buy.
    16 Dec 2012, 03:44 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    Let's see, in the last 5 years, personal deleveraging has been a tiny blip in the steady steep rise in indebtedness, wages haven't risen, the cost of living is up 20%+, the savings rate has been low single digits to negative, employment is still weak, and taxes are going up. So where is all the money coming from to lay out for a new lot or house, especially with prices not much lower than the 2006 peak, if at all? This doesn't really make any sense, unless the people buying are people with access to unlimited free money; i.e., funds, banks, etc. Overall economic trends in personal wealth and income simply don't support any big increase in end demand.
    16 Dec 2012, 04:10 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    bear,
    Sounds about right. Where is the demand coming from?
    16 Dec 2012, 06:06 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    If the demand is real, I have to assume it's coming from investors and/or speculators tired of waiting for the enormous REO inventory to come onto the market. Time will tell whether these are a more professional and better-funded version of 2006's flippers or REITs and individuals buying up rental properties. It seems safe either way to assert that most of the buyers won't be living on their new property.
    16 Dec 2012, 06:44 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Cost of living is up 20%? What planet are you on?
    16 Dec 2012, 08:01 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    I work with a 20 something who at a wage of 29K a year just bought a house. Do the math, at ultra low intersest rates and low prices, buying is a no brainer compared to renting. At low interest rates, so much more of the payment goes to principle.
    16 Dec 2012, 08:07 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Don't bet on it.
    16 Dec 2012, 08:08 PM Reply Like
  • davidbdc
    , contributor
    Comments (3141) | Send Message
     
    20 something making 29K buying a house? Unless we are talking about a fixer upper, this is exactly what is wrong with our economy.

     

    He/she will undoubtedly now have very little wiggle room in their financial life. Better to save and invest and accumulate and when your earning 40-50K think about a starter home/fixer upper.
    16 Dec 2012, 08:26 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    "Cost of living is up 20%? What planet are you on?"

     

    Earth, pretty sure. I was being conservative to avoid flames; by my own analysis it's about 37% but any time I say so there are hordes of people with no data beyond what the BLS publishes who excoriate me. Obviously the exact change for a given individual depends a great deal on where and how you live.
    16 Dec 2012, 08:33 PM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    "Do the math, at ultra low intersest rates and low prices, buying is a no brainer compared to renting."

     

    I do that math every year, thanks. Obviously it depends a great deal on one's individual circumstances, but for me the economics of home-debting have never even been in the same ballpark as renting. It's a no-brainer: rent, and split the Prop 13 difference with a long-term landlord who pays nothing, or go deeply into debt to take on a bigger monthly payment with a big old side of risk. Interest rates don't actually make much difference; I couldn't afford to own a house even if rates were zero. Even living very frugally and saving and investing effectively, it will be at least 10 years before I could hope to afford a modest house at today's prices. Of course in 10 years I am sure prices will have doubled. There are no low prices anywhere there are jobs; nominal prices are generally well above 2006 levels now and never really were much below that level even in 2009.

     

    As for your colleague, I sincerely hope he lives and works somewhere within 100 miles of Lake Superior, because that's the only part of the US where one can find decent housing that's affordable on a $29k annual salary. But the only part of that area with a functioning labour market is Marquette, and the low end there is around $80-100k, which is out of reach. So it sounds more like he either got very very lucky or is hopelessly overextended and headed for default.
    16 Dec 2012, 08:54 PM Reply Like
  • mustbepatient
    , contributor
    Comments (84) | Send Message
     
    I assume you think BX doesn't now what they are doing then? Don't fight the last war, as they say!
    17 Dec 2012, 01:45 AM Reply Like
  • mustbepatient
    , contributor
    Comments (84) | Send Message
     
    bearfund, where I am at I am finding the long-term returns of owning RE to be too compelling to ignore, and so does BX. I am really wondering what you are seeing that we don't.
    17 Dec 2012, 01:50 AM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    Must,

     

    I think what I am seeing comes down to two specific sets of factors that obviously don't apply universally:

     

    1. The specific attributes of my local market. Prices are extremely high, the law is brutally hostile to landlords, and for an individual owner Prop 13 creates severe distortions.

     

    2. The specific economics of going into debt as an individual. The risks associated with doing so are so great that the opportunity must be overwhelmingly compelling for me to even consider it.

     

    Now, if you are BX, you don't have either of these problems. You have the scale to operate in the markets of your choosing, the ones in which prices have fallen considerably and the law is not abusive to landlords. You needn't have any persistent presence there yourself, as you can hire professional management companies in each city to oversee your properties. You have the funding scale to form individual funds, SIVs, and other corporate entities for different sets of opportunities, and each of those entities will still have the ability to borrow extremely cheaply. If one fails, it fails; you as BX may get a black eye but you're not out any money and the rest of your operations keep right on going. Under those circumstances, it makes a great deal of sense to opportunistically pick up real estate.

     

    I own 4 REITs to tap into some of those same advantages. But when I consider owning property myself, whether as a landlord or to occupy, the economics never come close to working out. The local market is not priced sanely for owner-occupiers, and is so abusive to landlords that I actually feel sorry for mine. But being an absentee landlord in some other city carries extra risks and costs that require scale to offset, and even if I could find suitable property it would still present extreme concentration risk in a 6-figure portfolio that's already returning 4%. Just what kind of cap rate am I hoping for anyway, to justify going into (costly -- you don't get those advertised 3% rates on investment property) debt equal to say 50% of my assets, then putting myself on the hook for the myriad risks and costs associated with that business? 7%? When all's said and done the money itself, the "other costs" including a local manager, vacancy, and upkeep will cost at least that much. And just in case you were wondering just how hostile local law might be, it turns out not to matter, because most properties have cap rates even lower than that -- 5-6% is typical. A San Francisco landlord is in the business of slowly losing money until the opportunity comes along to sell a vacant property to a wealthy incoming resident for a huge capital gain. No joke, that's the business model.

     

    There are definitely opportunities for REITs and large-scale entities like BX funds to go out there any buy up RE globally. For a retired individual living in the South or a midwestern college town, there may be some good opportunities as well. But for an individual living and working in San Francisco, no way. Too much risk, too much cost, too little reward. It all depends on your circumstances and the advantages you have. I'm happy to own REITs that capture the better opportunities, and limit my loss to the amount invested. But barring a dramatic change in circumstances, I won't be looking to buy property myself.
    17 Dec 2012, 09:33 AM Reply Like
  • caprate1
    , contributor
    Comments (3) | Send Message
     
    The planet or more specifically the country where the real economic numbers are "fudged" ... How much more does a gallon of milk cost you than 3 years ago ? Bread ? Eggs... And how much more is fuel still costing the consumer & why was it removed from the CPI calculations. Please OPEN your eyes ,turn off the Main Stream Media & look at the real world facts.... We are a bankrupt nation with real GDP to Debt of +/- 450 % do the math !
    17 Dec 2012, 09:44 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Kid is a saver. He has money stashed. He's too smart to get caught up in a money pit. House passed the inspections. House is in Kentucky - low taxes.
    17 Dec 2012, 09:46 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Southern Ohio - pretty good job market here. Housing has always been pretty affordable. Kid has been saving - chemistry major - no dummy.
    17 Dec 2012, 09:47 AM Reply Like
  • mustbepatient
    , contributor
    Comments (84) | Send Message
     
    bearfund, I agree with everything you said. It comes down to us being in two very different markets (Phoenix vs. San Fransisco) - here in AZ the laws are pretty landlord-friendly (or at least not hostile like CA or WA), cap rates are much higher than you are quoting, and cash flow is substantially positive with a 75% LTV.
    It sounds like we both need to be careful about generalizing our local markets to the country as a whole.
    17 Dec 2012, 11:33 AM Reply Like
  • anonymous#12
    , contributor
    Comments (552) | Send Message
     
    "hordes of people with no data beyond what the BLS publishes "....

     

    Hahaha....the irony....

     

    What data do you have to say that the cost of living up went 37%?Taking numbers out of your as$ doesn't count....

     

    Doomers, always have conspiracy theories. The stock market is up, oh no is Ben Bernanke buying all shares. Corporate earnings up, oh no is a massive fraud which all companies of the world are inventing numbers. Obama is a alien lizard the son of Satan bent on destroying the world.

     

    We know what happens when anti-social doomers get crazy, look what happened last Friday....
    18 Dec 2012, 10:25 AM Reply Like
  • bearfund
    , contributor
    Comments (1534) | Send Message
     
    There is no conspiracy. Conspiracies are secret. The BLS's methodology is well known and well documented. And deeply misrepresentative of the way people actually live and spend money.

     

    The data I have is my own, about 8 years worth of detailed information on the prices of products I have purchased.

     

    The rest of your post is unworthy of being read, much less responded to.
    18 Dec 2012, 10:37 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Once again, where you live. Ohio state taxes have gone down since I moved here, also the price for natural gas. I also live in an area where there is great competition in the groceries - except for temporary blips, no real inflation. When I am in different areas and happen to grocery shop, I do see higher prices than what I pay for.
    18 Dec 2012, 02:17 PM Reply Like
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    Investors wiped out by the Tech Bubble are what fueled the real estate bubble the first time. The thinking being it is real hard collateral with no downside. Does this sound familiar to anyone? Demographics say this is a false positive.
    16 Dec 2012, 07:42 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    The payment for a $40K mortgage at 30 years is $225 a month. Can't find rent that cheap. Taxes are low, utilities are cheap here.
    17 Dec 2012, 05:51 PM Reply Like
  • RM13
    , contributor
    Comments (712) | Send Message
     
    If you have money down and are committed to being in certain area - buying now is cheaper than renting. For 250K loan, you are paying 2K a month on 15 year, much less on 30 year - it's a really good deal - especially if you can piggy back other deductions on top of interest rate deductions.
    18 Dec 2012, 08:50 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Location, location, location - per the remarks made above. Some areas, such as mine, housing can be bought at a reasonable price.
    18 Dec 2012, 08:57 AM Reply Like
  • AAbsolute
    , contributor
    Comments (169) | Send Message
     
    My partners and I have one vacant beachfront lot on the Emerald Coast. Last year it would only fetch offers in the $200's. In the last 9 months every single lot like it was sold and there are only (3) left on the miracle mile of 30A. $895, $1.9, $2.9

     

    Short term vacation rentals broke all time records in the past 12 months. Restaurant revenues broke all time records in the past 12 months. Real Estate inventory is severely reduced. The pendulum has quietly and aggressively swung.

     

    Here's the area I'm talking about http://bit.ly/T6Oyih

     

    I put the specific facts out there. If you disagree with these facts you're going to need to give me specific facts in rebuttal. You can touch the facts I'm talking about.
    19 Dec 2012, 06:42 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Like I said - location.
    19 Dec 2012, 06:55 AM Reply Like
  • OptionManiac
    , contributor
    Comments (3304) | Send Message
     
    Looks like a nice place.
    19 Dec 2012, 06:56 AM Reply Like
  • AAbsolute
    , contributor
    Comments (169) | Send Message
     
    Darn. I was hoping we could go a few rounds :)

     

    Maybe somebody else who knows more than us can come up with a reason why we're incorrect.
    19 Dec 2012, 07:04 AM Reply Like
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