Soft Market

Condo developer stops work, citing suddenly softer market
By Henry J. Holcomb
Inquirer Staff Writer

Latest stories on the housing market

A major condominium developer put plans for his 30-story Marina View Towers on hold yesterday, complaining that a softening market has made it hard to hold prices high enough to cover rising construction costs.

"It has suddenly become a buyers' market," said developer Louis A. Cicalese.

Site preparation had started for the $119 million building next to the Benjamin Franklin Bridge overlooking the Delaware River.

The decision is the strongest sign yet that the Center City residential condominium market, red-hot for two years, has cooled.

While two major developers are pressing ahead, others are becoming cautious and complaining that media coverage of whether the condo market is in a boom or a bubble is causing the problem.

The demographic groups - young professionals and empty nesters - who are looking for shorter commutes and an urban lifestyle are destined to be strong for years, brokers and developers say.

"We're not discouraged. We still plan to build it, and we think it is going to be the best building in the city," Cicalese said.

Cicalese is a Philadelphia native who made a lot of money in California real estate before moving to Ottsville, Bucks County. He and his partners own three prime condo sites on the waterfront. He said yesterday that they still planned to build on all three.

Marina View, pictured on billboards along traffic-clogged expressways into the city, had attracted reservations for 60 of its 197 units. All deposits will be refunded, Cicalese said. Prices for the condos ranged from $300,000 for the smallest one-bedroom unit, about 800 square feet, to $2 million for the larger units.

His other sites are Pier 34 in South Philadelphia, where the Marina View sales office is located, and Pier 40, just north of Waterfront Square, a five-building gated community under construction near the foot of Spring Garden Street.

Other developers acknowledged that the market was softening, but said they were pressing ahead.

Hal Wheeler, developer of the 33-story Ten Rittenhouse Square, at 18th and Walnut Streets, said 25 truckloads of steel would arrive at his site Sept. 12. Tom Scannapieco has opened a sales office next to his 31-story ultra-upscale tower at 1701 Rittenhouse Square St., between Locust and Spruce Streets. He said construction would start next spring.

But Tim Mahoney said yesterday he was looking for ways to "take some of the risks out" of a 57-story condo skyscraper that he and partner Brook J. Lenfest have planned at 15th and Chestnut Streets.

Mahoney and Lenfest put the project, which has cleared all government hurdles, up for sale in June, when the market was hot and brokers were predicting it would fetch $60 million.

Yesterday, Mahoney said he was exploring new ways to build the tower himself, adding that it is still on the market, but that "I don't think we're going to get a number that appeals to us."

The DePaul Group of Blue Bell, meanwhile, said in a recent interview it would wait until January to decide when to build a second luxury condominium tower next to its "Residences at Dockside" just south of Penn's Landing at 717 S. Columbus Blvd.

Mahoney grumbled that media coverage pondering whether the boom would soon cool has, at least for now, produced a "self-fulfilling prophecy."

Joanne Davidow, manager of the Rittenhouse Square office of the Prudential Fox & Roach real estate firm, said "the demand is still there" but the market has quickly changed.

"One minute we're amazingly busy, then there were a lot of articles asking, 'Is this a boom or bubble?' I'm not surprised some are taking a step back... to see if prices will go down," Davidow said.

Davidow and others predicted that the pause would be brief. "Nothing else has happened. I don't see interest rates going up significantly. My thought is if you are an older baby boomer and you want to do something, how long are you going to wait?" Davidow said. "There is an awful lot of demand out there."

But for now, Marina View developer Cicalese said, demand has gone down while "concrete and drywall costs are going up dramatically, and copper has gone through the roof." At times like these, he said, "the fact is you need to be careful."

Contact staff writer Henry J. Holcomb at 215-854-2614 or hholcomb@phillynews.com

Rent until Sold

Renting Condos That Don't Sell
Realty Times
August 21, 2006
by Broderick Perkins

Can't sell that condo? List it as a rental.

It's not a slam-dunk proposition, certain conditions are required to make for a good rental property, but the option could be an alternative in today's changing market -- if only temporarily.

Speculators are bailing out of the once super hot condo markets and some potential first and second-home buyers, thwarted by higher energy costs, are opting for the rental market instead.

As a result, condo inventories are rising and the sector is turning around faster than the single-family detached home market.

In June, single-family home sales were down 8.2 percent from June 2005 as the median price came in at $231,500, up 1.1 percent from a year ago, according to the National Association of Realtors.

Meanwhile, during the same period, condo and cooperative housing sales fell harder, by 14.6 percent and the median price was down by 2.1 percent to $226,900, the association reported in its latest monthly tally.

In metropolitan areas, where rentals may be more viable, market conditions reversed a pricing anomaly that had the median condo price higher than single-family price for more than two years.

NAR's second quarter "Metropolitan Area Existing-Home Prices and State Existing-Home Sales" revealed a $227,500, median price for single-family homes in 151 metro areas, up from $219,400 a year earlier. Condo prices in 57 markets, on the other hand, were at a median of $225,800, less than the single-family median for the first time since the first quarter of 2004 and down 0.3 percent from a year earlier as 14 markets revealed price declines.

The national condo price had been higher than the median single-family home price, NAR said, because of a high concentration of condos in the most expensive metropolitan areas included in the report. Generally, within a given broader area, the typical single-family home costs more than the median condo price.

The metro core condo concentration has been caused by reduced land availability; the need for more practical, affordable, and high-density housing as well as high-end condos; the anti-sprawl movement; and the cool factor -- young professionals want to be where the action is.

NAR spokesman Walter Molony says price-boosting demand for condos can also be traced to capital gains tax relief beginning in 1998 and empty-nest baby boomers moving down or buying a second home, but seeking appealing amenities. Also, during the last housing boom, condos were selling like hot cakes to speculators and investors.

Some of the same market conditions that are reducing buying demand for condos can be used to turn a failed sale into a condo rental for the long term or shorter term vacation rental.

"Renting out your house by the night or by the week while it's on the market can help cover your expenses until the house/condo sells. It's easy, inexpensive and effective way to market your home," says Christine Karpinski, real estate investor, author and director of Owner Advocacy for HomeAway.com, a network of vacation rental listing websites.

Given the high cost of housing in many regions some potential buyers are turning to rentals and generating a greater demand in the apartment and home rental market, but that's not true of all markets faced with a supply glut.

"New condo owners who are counting on renting their properties to vacationers should be prepared to work harder than might have been necessary even a year ago," said Emily Glossbrenner a partner with Yardley, PA-based FullyBookedRentals.com, a website for resort and vacation rental owners.

"Property owners who used to fill their available weeks by advertising on three or four of the leading vacation-rental sites are finding that they have to expand their advertising programs and pay a lot more attention to their ads in order to stand out from the competition," Glossbrenner said.

Obviously, location is key. If your home is along the railroad tracks it will appeal to only a few hard core renters who like edgy locations. Beach front, hillside, ski resort and lake front homes will appeal to more renters, especially those looking for a vacation getaway. Urban living and rural seclusion will also attract a cross section of renters.

In all cases, safety and security must also be included in the appeal.

"It also needs to be safe -- from man-made or natural disasters. Trying to create an attractive rental from the property you buy that is sitting on an eroding cliff overlooking the ocean just won't fly, no matter how beautiful the view. Ditto if the potential for flooding from high tides or rivers is present," said Amanda Sturges, director of operations at Escape Homes, a San Francisco Bay Area online clearinghouse for vacation rentals, real estate agent specialists in vacation markets and other industry services.

Karpinski, also author of "How to Rent Vacation Properties by Owner: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment" (Kinney Pollack Press, $26), is a proponent of do-it-yourself property management to save on a major carrying cost found in prime rental markets. Property management companies can charge as much as half the rent for services in some markets.

But where property management costs aren't prohibitive and renting is viable or where the potential rental is just too far away and simply too time-intensive to manage yourself, a property manager can be a lot like a stock broker.

In addition to thoroughly screening tenants, property managers have at their beck and call vendors and working relationships with other professionals to help them quickly perform a host of maintenance, repair and upkeep chores.

"You can also use the analogy of stock investing. Many investors use a full service broker because the experts are better at managing the investments than are the investors. And in the long run, the investor makes more money even though the have to pay the fees," said Terry Feinberg, vice president of the Arizona Multihousing Association in Phoenix, AZ.

Finally, know your demographics. The home itself should have a certain level of attractive features and amenities and be in the kind of condition that will quickly attract renters.

For example, kid- family- and pet-friendly rentals get contracted sooner if they have swimming pools, spas, hot tubs; roomy, modern kitchens and family rooms and ample outdoor spaces.

Likewise, couples may want a rental with a cozy nook. Universal design elements and special amenities like free cable, computer hookups and cable outlets appeal to a broader cross section of renters.

Published: August 21, 2006

Buyers vs Sellers

Buyers Rebound, Begin Full Court Press
Realty Times
August 17, 2006
by Broderick Perkins

The housing market is playing out a lot like a come back game for the underdogs.

Home sales were down in 26 metropolitan areas during the second quarter this year, compared to only 16 metros losing ground in prices during the first quarter, according to the National Association of Realtors.

The second quarter median condo price, measured in 57 metropolitan markets, was down 0.3 percent from a year earlier as 14 markets revealed price declines. Only five condo markets came in with price declines in the first quarter.

Speculators are rolling up their tents in once super-hot markets, investors are moving money to emerging markets and some potential first-time buyers, thwarted by higher energy costs, are opting for the rental market.

For the first in more than two years, the median condo price in metropolitan statistical areas (MSAs) is less than the median single-family price in metro areas.

That's a quantum shift in previous pricing anomaly that was caused by a concentration of condos in metro areas.

In a growing number of housing markets, selling a home is no longer a slam-dunk proposition. If you want to hear the net go 'swish' on your home sale, you'd better have some new moves.

Otherwise buyers will shut down your game.

"After half a decade of unprecedented growth in the housing market, it looks like home buyers are finally holding the cards as we move into a buyer's market," said Holly Slaughter, consumer experience expert at RealEstate.com.

Slaughter contacted us with a new game plan for sellers and we brought in some real estate agents from around the nation to help her coach.

If sellers want to stay in the game, here's what they'll have to do.

Don't foul out. Price it right. Truly competitive prices that reflect market conditions are game winners. Slaughter suggests getting an appraisal to help set the asking price.
"The most important thing is pricing your property correctly. This can be done by contacting your real estate agent and having them perform a Comparative Market Analysis (CMA) for homes in your area that have sold or those that are on the market that are similar to the home that you are selling. A home that is priced too high for an area will not see a strong flow of interested buyers. Pricing your home too low may make buyers wonder if there are problems with the property," said, Brandon Green, owner and president of 40 Acres Realty Investments in Houston.

Respect your opponent.Treat every consumer and every agent as if they were the person willing to pay the highest price for the property
"Realize that in a declining market, a low offer today is likely to be a high offer in 60 days so give careful consideration to any offer even if less than you expected," said Richard Calhoun, San Jose-based Creekside Realty's broker.


Give up some free throws. Negotiate with concessions and incentives
"From a paint and carpet allowance to a new plasma TV. Creative extras may cost you a little up front, but are a great way to sweeten the deal," said Slaughter.

The market may be slowing, but home prices aren't cheap and buyers are cash-strapped.

"Pricing in New England is running about the same or just under it was a year ago, and settlement is coming in between 2 percent to 5 percent below asking. Sellers are offering to pay the property taxes for a year as an inducement to a buyer. Or giving free gasoline for a year. We have seen one developer offer a new BMW in the garage of any new house sold during a particular period. Some sellers are offering to pay the mortgage for the first year or two," said Dane Hahn, owner of EXIT 11 Real Estate, in Stratham, NH.

Razzle, dazzle them with some new moves. Curb appeal enhances first impressions. Removing clutter sends impressions into overtime. Likewise, staging the game can put points on the board
"Sellers in a changing market should consider the power of having a professional stage their home. If they are wary of being charged for these services, even just having a savvy real estate agent walk through and around the home and give suggestions on how the home could look better to potential buyers is huge," said Marcie Hahn, a real estate agent and Dane Hahn's daughter, at Williams Realty, in Salt Lake City.

"Many times the sellers don't see their home as others do because it's just that ... their home ... fresh eyes can be very powerful," she added.

Shoot! Because so many consumers browse for housing, post plenty of high-quality photos of your home's interior and exterior online

"Print out a nice report of your home. Add plenty of pictures, a detailed list of the home's amenities, a list of local amenities, third party information on schools, etc. Leave a couple of bottles of water for them to take (from the open house) as well," said Slaughter.

Bring in an assistant coach. Hire an inspector
"A large number of home sales fall apart after the inspection. Hire a professional to inspect your house from roof to basement before you put it on the market, giving you plenty of time to make repairs or price accordingly," said Slaughter.

Know your way around the court. Know your neighborhood
"Part of my listing presentation focuses on current market conditions. I educate them on the importance of competitive price, the average days-on-market in their area, and I make suggestions on the presentation of their home for potential buyers," said Shawneequa Badger, a real estate agent with Century 21-Alpha in San Jose.

Sit on the bench
Most buyers want to feel comfortable when they're considering buying your home. Hanging around during the open house may run off potential buyers.

Bring in some trick plays
"I also suggest holding open house throughout the week instead of just the weekends. There is nothing better that will capture buyer's attention when you are the only open house in the area," said Badger.

Published: August 17, 2006

Vacation Homes

Vacation homes come with tax benefits
08/15/2006

Tax breaks can make owning a vacation home more affordable. If you're looking to claim the most tax breaks possible, you need to carefully track the amount of time you and your family spend at your vacation home. There are three basic scenarios of vacation home use and a different tax treatment applies to each.

Personal versus rental use

The tax treatment of your vacation home depends on the number of days you rent it at fair market value and the number of personal use days. In addition to the days you use the home, you must count as personal use any part of a day that the residence is used for personal purposes by a relative and by any individual who rents the residence for less than fair market rent.

In addition, any day that your vacation home is used by your parents or grandparents, children or grandchildren or siblings is counted as personal use - even if the family members paid fair market rent.

On the other hand, days you spend working on your vacation home are not counted as personal use days if they are primarily spent making repairs or getting the property ready for tenants. Bear in mind that for tax purposes, a second home can be a boat or even recreational vehicle as long as it has permanent sleeping, cooking and toilet facilities.

**Scenario 1: Use often, rent seldom

If you rent your home for less than 15 days during the year, any rental income you collect is tax-free. You don't even have to report the income on your tax return. You can still deduct property taxes and mortgage interest whether or not the property is used to produce income. However, you cannot deduct any rental-related expenses.

**Scenario 2: Use seldom, rent often

If your personal use of your vacation home doesn't exceed 14 days a tax year or 10 percent of the total number of days it is rented out at fair market value, whichever is greater, your vacation home qualifies as a rental property. As the owner of a rental property, you must report the entire rental income you receive. However, you may qualify to deduct expenses related to renting, such as depreciation, utilities, repairs and property management fees.

If you end the year with a net profit from the rental income, you may deduct all your rental expenses.

However, if you had a net loss, your deduction will be limited by the passive activity rules. A passive activity involves the conduct, trade or business in which you are not materially participating. An exception applies if you actively participate in managing rental activities. In such cases, you can deduct up to $25,000 in rental losses against other non-passive income, such as wages.

This deduction begins to phase out when your adjusted gross income (AGI) exceeds $100,000 and disappears completely when your AGI reaches $150,000. The passive activity loss not used can be carried forward to future years.

**Scenario 3: Use some and rent some

If you and your family personally use the place more than 14 days a year or, if greater than 10 percent of the number of days it is rented to others at fair market value, your vacation home is treated as a residence. You must report all rental income on your tax return and you may be able to deduct your rental expenses, but only up to the total amount of rental income.

You cannot use the excess rental expenses to offset income from other sources. You can, however, carry the excess expenses forward to the next year and treat them as rental expenses for the same property up to the amount of rental income for the year.

With proper planning and professional advice, you can maximize tax benefits and your personal enjoyment of your vacation home. A CPA can help you determine the best strategy.

Mary Leigh McDaniel, CPA/PFS is a partner in a local firm specializing in tax, consulting and financial planning. This article was written in conjunction with the Virginia Society of CPAs.

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