New Jersey Real Estate

N.J. housing gap hurts residents

By CARL GOLDBERG
For the Courier-Post
July 28, 2006

It seems New Jersey is perpetually debating the appropriate balance between home building and open space preservation -- with both sides claiming the moral high ground on just what quality of life means.

Home builders rightly want to provide enough quality homes for residents of all incomes. Environmentalists rightly want to protect the quality of New Jersey's natural resources.

Unfortunately, both goals have suffered under a complex regulatory structure.

A recent study by The Brookings Institution found that the state is losing its economic competitive edge and the threat is coming from "multiple forces, including rising housing costs, persistent race, class and place disparities and unbalanced development patterns." In fact, New Jersey has the fifth least affordable housing in the United States, according to the Brookings report.

Unaffordable

Simply put, New Jersey has a housing gap which makes it more difficult to live here. And, as housing grows ever more expensive, it squeezes those who can least afford quality housing and also has a harmful impact on the middle class. Without quality housing to continue to attract residential buyers and renters, communities suffer tax base loss that diminishes our ability to deliver quality education and other important government services.

This is no longer a hypothetical situation. Numerous studies have cited a slowing of New Jersey's economy, a flattening of wages and the loss of quality jobs.

Regulation

Wedged between New York and Philadelphia, New Jersey is always going to be an expensive location to live. However, too much regulation is what has escalated the cost of housing here to its dubious national ranking.

Indeed, according to the Brookings study, New Jersey is the only state in the country where the regulatory requirements for building are rated as "very high" statewide -- making housing here expensive. This restrictive environment drives the cost of housing to unaffordable levels for many potential residents or those who are looking to move up in the housing market -- in other words, there's a housing gap.

The unfortunate result of these regulations is the right type of housing is usually not built in the right places, and the state's economy suffers as a result.

In real estate, we've all heard the experts say the most important factor is location. But it is also price. Companies are not going to come to New Jersey if a diverse workforce is unable to find quality, affordable housing.

This leaves the housing and environmental advocates fighting while the state suffers.

Diverse housing options are the lifeblood of a successful economy and the inability to provide these residential opportunities puts New Jersey at a serious competitive disadvantage with other states.

New Jersey must consider a total evaluation of its planning policies. Many states throughout the nation have developed programs to correct their housing gaps, according to the Brookings study.

It's time for New Jersey to call a summit of home builders, environmentalists and planners to resolve the state's housing gap and help New Jersey rebuild a strong, diverse economy.

The writer is a principal with Roseland Property Company in Short Hills, Essex County.

Buyer's Market

Officially a ‘Buyers Market’?

NAR reports existing-home sales flattening, prices cooling and sellers need to be more competitive

RISMEDIA, July 26, 2006—Existing-home sales were down modestly in June, and home prices were up slightly from a year ago, according to the National Association of Realtors®.

Total existing-home sales including single-family, townhomes, condominiums and co-ops – declined 1.3 percent to a seasonally adjusted annual rate1 of 6.62 million units in June from an upwardly revised level of 6.71 million May. Last month’s sales were 8.9 percent below the 7.27 million-unit pace in June 2005.

David Lereah, NAR’s chief economist, said the housing market is flattening-out. “Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing,” he said. “At the same time, sellers have recognized that they need to be more competitive in their pricing given the rise in housing inventories. Home prices are only a little higher than a year ago.”

The national median existing-home price2 for all housing types was $231,000 in June, up 0.9 percent from June 2005 when the median was $229,000. The median is a typical market price where half of the homes sold for more and half sold for less.

“The change in price performance is directly tied to housing inventories – a year ago we had a lean supply of homes and a sellers’ market, with monthly home sales at an all-time record high,” Lereah said.

Total housing inventory levels rose 3.8 percent at the end of June to 3.73 million existing homes available for sale, which represents a 6.8-month supply at the current sales pace. By contrast, in June 2005, there was a tight 4.4-month supply on the market.

NAR President Thomas M. Stevens from Vienna, Va., said opportunities have opened for home buyers. “People who were discouraged by the bidding wars that were so common over the last few years are finding more choices now,” said Stevens, senior vice president of NRT Inc. “Relative to the five-year housing boom, this year is a buyer’s market in much of the country with plentiful supply, along with interest rates which remain historically favorable, so it’s a good time to buy a home.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.68 percent in June, up from 6.60 percent in May; the rate was 5.58 percent in June 2005.

Single-family home sales eased 0.9 percent to a seasonally adjusted annual rate of 5.81 million in June from an upwardly revised 5.86 million in May, and were 8.2 percent below the 6.33 million-unit pace in June 2005. The median existing single-family home price was $231,500 in June, up 1.1 percent from a year ago.

Existing condominium and cooperative housing sales fell 5.5 percent to a seasonally adjusted annual rate of 805,000 units in June from a pace of 852,000 in May, and were 14.6 percent below the 943,000-unit level in June 2005. The median existing condo price3 was $226,900 in June, down 2.1 percent from a year earlier.

Regionally, existing-home sales in the Midwest were unchanged in June, holding at a level of 1.52 million, and were 6.2 percent lower than a year ago. The median price in the Midwest was $175,000, which is 1.7 percent below June 2005.

Existing-home sales in the West also were unchanged, at an annual pace of 1.41 million in June, and were 17.1 percent lower than June 2005. The median price in the West was $342,000, the same as a year ago.

Existing-home sales in the South eased 2.3 percent to a pace of 2.57 million in June, and were 5.5 percent below June 2005. The median existing-home price in the South was $191,000, down 0.5 percent from a year earlier.

Existing-home sales in the Northeast declined 3.5 percent to an annual sales rate of 1.11 million units in June, and were 9.8 percent below a year ago.

The median price in the Northeast was $298,000, up 7.2 percent from June 2005.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

Second Homes

HouseValues Survey Reveals Interesting Trends Among Second Home Buyers
Realty Times
by Blanche Evans


It's great news for the airlines. A large percentage of second home buyers would as soon fly as drive to reach their vacation homes, says a new survey by HomePages.com, a division of HouseValues that allows consumers to see aerial views and neighborhood-centric information of homes.

While most second home buyers would like their second home to be an hour's drive or less (43 percent), 29 percent said they didn't mind catching a flight.

With plenty of disposable income to spare, 21 percent of 1,300 consumers surveyed said they are considering purchasing a second home within a year, while another 42 percent say they're considering buying within the next two to six years.

It appears the economy and housing are hardly going down the tubes.

In fact, "vacation and investment homes remain a strong and prominent part of the real estate market, both as a means of providing an escape and providing supplemental short-term and long-term income," says Ian Morris, chief executive officer of HouseValues.

A quarter of respondents said they are considering a second home for investment purposes, while 22 percent said they wanted one for "enjoyment," such as weekend getaways, vacations and family use.

Forty percent of respondents said features such as water or mountains would not be a factor because they intended to buy for investment purposes. Among those who do consider geography an important factor in where they buy, 36 percent listed proximity to water as key, followed by mountains (17 percent), golf courses (5 percent) and the desert (2 percent).

Yet, even disposable income runs out when it hits hurdles. Asked what factor would most likely cause them not to buy a second home, 32 percent of respondents listed rising home prices, followed by rising mortgage rates (18 percent) and job insecurity (12 percent). Thirty-eight percent listed a variety of other factors.

Sixty-five percent of respondents were women, 35 percent were men.

According to the preface of the 2006 National Association of Realtors Profile of Second-Home Owners, second-home owners are defined as those who "own one or more residential properties, in addition to a primary residence, and who use these properties either for vacation or investment purposes. Although both types of properties share several attributes, vacation homes are properties owned primarily for recreational use by the owner or their family, while investment properties are owned primarily to rent to others."

Ownership of more than one home is increasingly common, notes NAR, due to peak earnings of the baby boomer segment of the population, less-than-stellar returns in other financial assets other than real estate, and popular tax incentives (including capital gains exclusions) and loan programs that favor buying property over other investment instruments. For example, between 2000 and 2005, the value of homes nationwide rose over 50 percent, while the Standard & Poor's 500 Index returned just over 2 percent for the same period, says NAR.

Older baby boomers dominate the second-home market as vacation-home owners (age 59) and investors (age 55) and most own multiple properties. About six in ten survey respondents own two or more homes in addition to their primary residence.

Published: July 18, 2006

Investment Advice

Make Your Real Estate Investment More Successful
Realty Times
by Clifford A. Hockley


For years we have been hearing the real estate mantra of "location, location, location," but is that really what drives the success of an investment?

I agree with the pundits that you can charge more rent at a better location and potentially have more return. Perhaps your vacancies will turn faster because you have that better location. But those areas or opportunities are not the norm.

So what is it in addition to location that makes a real estate investment successful?

In my opinion there are many variables.

Personality

This means it pays to keep it modern and cutting edge. Update your sconces, install flags, redo your landscaping. Give the property personality and color, something other than battleship grey with white trim. Ask a decorator and a landscape architect to help you. That $2,000 investment will be a payoff when you receive higher rents and longer term tenants. Consider investing in one major project a year. Hallway carpeting, an updated conference room, phased exterior painting projects. The options are endless and so is the payoff.

Emotions

Tenants (both residential and commercial) are emotionally driven in their decision making. Commercial tenants want their businesses to be placed in central locations, because retailers want visibility. Residential tenants want to be located close to friends, family or work. And all tenants want to be proud of their surroundings. They want their friends and business associates to visit them and be impressed.

The owner of the property has a responsibility to help fill that emotional need by keeping a property in first class condition: Wash the windows, clean the common area lights, paint the hallways, stripe the parking lot and remove the weeds in the landscaping.

Customer Service

In addition to the physical attributes of a property, make it easy to solve problems. Customer service is a huge added value. Think of it this way, the better a tenant feels about a property the happier they are going to be. Have a yearly holiday party. Give the tenants an opportunity to feel like they belong to the community. Of course not everyone wants to belong, so do not be pushy, just create options. Bring in pizza once a year to all tenants so they know they are appreciated.

Property Condition

As you make the property look great, do not forget the fundamentals. Don't let the roof leak, don't let lights burn out, don't allow potholes in the parking lot and make sure the common area restrooms are clean, in great condition and nicely decorated. In addition, you want to insure there are enough parking spaces. I will pass on buying a property if there are not enough parking spaces. (There might be an exception to the rule in a downtown environment where tenants use public transportation to get to work or around.)

Tenant Mix

Another component to the happiness of landlords and tenants is considering your tenant mix. Many years ago I had the opportunity to prepare a 10-year lease for a friend of mine in a business park. He owns a telephone distribution company (with a ratio of 70 percent office and 30 percent warehouse), and had over 80 employees. We found a cost-efficient location for him, and the space next door was vacant which we considered as possible room for him to expand into. About a year after he moved in, a new tenant moved in next door. They were a metal bending company. Their machines went "bang, kaching, kapow," all day long! And the floor now vibrated. All of the employees along the shared wall (over 100 feet long) had to move. They could not work and use the telephone while the neighbor was working bending steel.

The same is true in a retail environment where putting a church next to a tattoo parlor does not work very well.

In a residential environments, we prescreen all of the tenants. We screen on affordability, and they must pass credit and criminal checks, because we want a good tenant mix.

Understanding the finances

Part of planning your successful investment is understanding your income and expenses.

Compare your income to that of properties that are similar in your general area. Do the same with expenses. BOMA (Building Owners and Managers Association) and IREM (Institute for Real Estate Management) publish annual books that summarize income and expenses in all categories of investment -- from warehouses to office buildings, apartments and condominium associations -- in all areas of the United States. Use these resources and your own natural curiosity to compare/contrast and keep your property in the front row of available properties.

It is all about motivating a tenant to choose your property. The fewer vacant days you have, the more income your property will generate. The happier your tenants are, the longer they will stay. When the economy turns down, they will be motivated to stay -- even as other building owners attempt come to woo them away.

A Successful Property

A final example might help you understand. We took over a 50 unit apartment property from another management company. The property was in an excellent location, but was losing money. We convinced the owner to invest $75,000 (he had to borrow on a 2nd on his home) and proceeded to paint the property, redo the landscape, train the onsite manager and make the property look appealing. We then increased the rents by $100 per unit. Today we are making payments on the first and the second. The owner gets a nice monthly check (which he had not been receiving with the other company) and we have a waiting list of tenants wanting to move in.

Final Thought

A successful property will provide higher rents and a higher net operating income and therefore a higher sales price. That is why you need to take the steps that will make and keep your property successful.

Published: July 18, 2006

Housing Market

Coping With Real Estate Market Change
Realty Times
by Broderick Perkins

Like calling a nuclear-tipped missile the Peacemaker, real estate market buzz words "stabilizing market," "returning to normal" and "market softening" may send the wrong signal to consumers.

The housing market isn't likely to implode in a mushroom cloud, but words like "normal," "stable" and "soft" are more likely to produce complacent acquiescence when it's time for a more proactive approach to changes in the market.

Experts who have lived and worked through past market shifts take a decidedly more robust "cover your assets" approach to today's real estate market rather than trying to pigeon hole it as typical.

One of those experts is Lisa A. Vander, real estate investment advisor and founder of Pacific Blue Investments in Solana Beach, CA.

Also author of "The Real Guide to Making Millions Through Real Estate" (Entrepreneur Press, $24.95) Vander is doing for real estate what Suze Orman did for the stock market and personal investments -- leveling the playing field for the first-time and small investor.

It's not easy.

Real estate investors, including home buyers, are just as unrealistic about and unfamiliar with the real estate market as novice stock market investors were about the technology sector during the dot com era of sudden wealth and sudden losses.

"They are unfamiliar with the real estate market, especially when it decreases in value and does not appreciate at the tremendous rates that have been seen recently in some parts of the country. It can not be emphasized enough how this is not standard and is not how long-term investors should be calculating their numbers," Vander says.

The fundamentals apply -- realistic, conservative and well-diversified investments over the long haul virtually always yield greater returns than jumping on the wagons just as they are about to circle.

"Real estate gains will be experienced for a period of time and then immediately followed by times of losses up to 20 to 30 percent. These gains have historically outperformed the losses, but investors who keep and sustain their properties during these cycles are those who win in the long run," she says.

Vander offers additional pieces of advice designed to help investors hold on when the ride gets bumpy.

"There are several key action steps investors can make to help sustain their investment real estate during all real estate market adjustments and conditions," she says.


Squirrel away equity. An equity line on your primary residence helps augment mortgage payments should you have to decrease rental income in declining markets. Get the equity line when the market is healthy and lenders can verify your employment and good credit. Don't wait until you lose your job or interest rates skyrocket.

Don't squirrel away too much. Retain, unencumbered, at least 20 percent to 25 percent of your property equity should you have to sell to get access to cash. Over leverage property in a declining market and you could be holding the bag with an upside down mortgage -- where the balance is larger than the property's value. That could make a needed sale difficult, if not impossible.

Know your mortgage. Examine the terms of your mortgage. Know the maximum the loan can adjust during each adjustment period and how that will affect your payment.

Build loan bridges. Refinance with loans designed to get you through the market tightening. Loans tied to stable indexes that don't adjust too frequently are best.Property in high-value markets are better able to handle the risk of interest-only loans that don't pay down the principle or even add to the principle. Such loans keep payments reasonable while rents and values decrease during down times. Again, be careful when using such loans not to over leverage your property.

Reduce rents slowly. Right now, rents in many regions are rising in your favor in response to the demand of a growing number of consumers who can't afford home prices. Nevertheless, check with your property manager or others in the area to learn historical trends for the past 10 years. Follow the market and follow suit if local rents drop. Be prepared to sustain your properties with a rental rate decrease as large as 10 to 15 percent. Do it slowly so you don't over shoot the need to squeeze. Work hard to please and keep your current tenants so you don't have to lower rates to attract new tenants. Offer improvements, amenities and other incentives to keep your current renter renting from you.
Published: July 17, 2006

Win, Win Win Situation

Casinos win again
Gaming halls bounce back after costly state shutdown
By DONALD WITTKOWSKI Staff Writer, (609) 272-7258
Press of Atlantic City
Published: Monday, July 17, 2006
Updated: Monday, July 17, 2006

ATLANTIC CITY — Despite millions of dollars in lost revenue and tons of negative publicity caused by their unprecedented shutdown, the casinos showed once again that, ultimately, the house usually wins.

Casinos rebounded quickly after the three-day closing ended July 8, and Wall Street laughed off predictions of a meltdown in Atlantic City's sizzling gambling market. The gaming industry also benefited from the expiration of a tax on casino net profits in the new state budget.

“Much ado about nothing,” Jane Pedreira, gaming analyst for Lehman Brothers, scoffed of the shutdown. “I find it hard to believe that anything that happens over three days, midweek, will be crippling. I think people were dramatizing it because they were eager to get open again. They wanted to put pressure on the politicians.”

Casinos already are capitalizing on public disgust with the state Legislature by pushing a bill that would shield them from future government shutdowns. Gambling was brought to a halt because New Jersey's budget crisis forced state gaming inspectors off the job. New legislation making the rounds at the Statehouse would allow gaming inspectors to continue to work during any other budget-induced shutdowns.

“Clearly, the law needs to be changed. That's the first thing,” said John Payne, regional president of Atlantic City operations for Harrah's Entertainment Inc., owner of four New Jersey casinos. “From the governor to the Assembly to the Senate to the casino industry, we must get this out of the way. A shutdown can never happen again.”

Although the shutdown began July 5, the impending crisis overshadowed the Fourth of July weekend, one of the most lucrative holidays for the casinos. Gaming executives argue that future budget battles can never, ever threaten the holiday again.

“Absent this (new) legislation, every future budget session, which of course leads up to our critical Fourth of July weekend, may cause our customers to think twice about making plans to visit our casinos, given the uncertainty created by this year's closure,” said Joseph A. Corbo Jr., president of the Casino Association of New Jersey, a trade group representing the city's 12 gaming halls.

While gaming officials say it is premature to predict any long-term effects of the shutdown, the immediate damage is clear. The casinos lost an estimated $54 million in revenue and the state forfeited $1.3 million a day in casino taxes.

“It is lost forever. I can't think of any way to reclaim this money,” Atlantic City gaming attorney Nicholas Casiello Jr. said.

Casiello thought of the possibility of legal action against state government to help the casinos recover their lost revenue, but soon realized the litigation would fail. States have been protected for many years from lawsuits by “sovereign immunity,” so it would have been pointless to sue New Jersey for gaming losses, he noted.

Pedreira, however, argued that the casinos shouldn't worry about the loss of $54 million in revenue, a relatively minuscule amount for the $5 billion-per-year gaming industry.

“There's nobody there that is at death's door. No one has liquidity problems that will push them over the brink,” she said of the deep-pocketed casinos.

Pedreira also downplayed any negative impacts in the investment world. Wall Street simply will dismiss the shutdown as an aberration and will continue to pour money into Atlantic City, she maintained

“There are a lot of other states that are worse,” she said. “I think Atlantic City still has a pretty stable operating environment.”

Unlike Pedreira, Casiello isn't so sure that the shutdown didn't harm Atlantic City in the investment community. He said underwriters are likely to view the city as a riskier investment, making it more expensive for casinos and other developers to borrow money to finance their projects.

“No one in the investment community was expecting the casinos to be shut down for three days,” Casiello said. “Now, it will make them a little bit leery about investing in Atlantic City. They will wonder what will happen next year.”

Billions of dollars are at stake. Harrah's, Borgata Hotel Casino & Spa and Trump Taj Mahal Casino Resort are already building new hotel towers and other amenities costing $1.1 billion. Caesars, Bally's and Showboat Casino Hotel are expected to announce major expansion projects in coming months. In addition, two separate investment groups are planning to build new casinos at the northern and southern tips of the Boardwalk.

Corbo said casinos are attracted to states that have a stable tax base, political environment and regulatory structure. New Jersey was considered a model of political and financial stability until the budget crisis shook the gaming industry and caused investors to look at Atlantic City more cautiously, he said.

“Obviously ... the casino shutdown was an episode of significant instability that will be factored into future investment considerations,” Corbo said.

Three years ago, New Jersey's investment climate was also called into question when then-Gov. James E. McGreevey unsuccessfully tried to raise the state tax rate on casino gross revenue from 8 percent to 10 percent. In a compromise with the casinos, the 8 percent rate was left untouched, but a series of other fees and taxes were imposed on the industry for a three-year period.

One of those taxes, a 7.5 percent levy on adjusted annual net income, has cost the casinos millions of dollars since 2003. But in a move little noticed by the public, the tax on net income expired in the new state budget. Legislation was considered to extend the tax, but it died, giving the casinos another win.