Tag Archives: Seattle

Luxury Rental Turned Into College Dorm

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photo by Ann Larie Valentine (no changes made) https://creativecommons.org/licenses/by-sa/2.0/

Realtor.com quoted me in ‘Help! My Luxury Rental Was Turned Into a College Dorm’. It opens,

Finally! After years of scraping by in cramped apartments in sketchy neighborhoods, you’ve made it—into a luxury rental with a doorman, concierge service, gym, bike room, and other posh amenities. It seems perfect.

Then you meet your neighbors, sunning themselves on the roof deck. Topless.

Sound like the opening to a Skinemax flick? On the contrary, it’s a reality for residents at The Azure, a new high-end apartment building in Brooklyn, NY.

“There were girls sunbathing topless up there,” one tenant with a child told the New York Post. “My wife was, like, ‘WTF?!’ There are a lot of families [here].”

You see, The Azure was facing significant vacancies, so the management company decided to rent out 30% of its units to King’s College, a liberal arts school in lower Manhattan. The result? Families who paid top dollar to live in a building with a business center, cold storage space for grocery deliveries, and other luxe features suddenly found themselves in what felt like a college dorm. A “dormdominium”! And you know what that probably means: late-night parties with eau de weed wafting through the halls and, um, some awkward bump-ins during rooftop barbecues with bikini-clad (or unclad) residents. And noise. Lots of noise.

“We bought into the luxury experience of the nice rooftop,” another tenant lamented. “We didn’t expect it to be packed with 18-year-olds.”

When luxury apartments turn into dorms: Why it happens

This rude awakening for well-heeled renters isn’t as unusual as you might think. It’s just what many luxury developers may find themselves doing now that the high-end rental market is softening, leaving empty apartments that must be filled to make ends meet.

“Building owners stuck with vacant properties will try to rent them to whoever they can within reason,” says Aaron Shmulewitz, a real estate attorney with Belkin Burden Wenig & Goldman in New York City. “When the economy goes bad, building owners have to scramble.”

Part of the problem is that a few years ago, the housing market was going so strong, developers got bullish on building—only to find themselves in a more sluggish market once their structures were complete.

“Opening a residential building is a many, many-year process,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “You have to acquire the site, you have to get financing, perhaps you have to get zoning approvals, you have to get your plans approved … then you have to build it and then you have to market it. You’re talking about years of work.”

Many of these builders were likely banking on the possibility that rental demand would just keep going up and up—but they bet wrong.

“We have a large amount of supply that came into the market within a fairly short period of time,” says Edward Mermelstein, a real estate attorney with One and Only Holdings in New York City. “At the same time, the demand has waned substantially.”

How do college kids afford a luxury rental, anyway?

While luxury rentals in any other city might be hurting right about now, New York is well-positioned to solve this problem, thanks to its high student population and limited dorm space.

“Renting to college students in Manhattan or Brooklyn has always been a trend, as there’s a total of almost 250,000 active students on this small island,” says Michael Jeneralczuk, a real estate agent with REAL New York. “With that said, luxury apartments are usually outside of student budgets.”

While a luxury rental might be outside of any individual student’s budget, a larger group of students can make it work. According to the Post, the King’s College students are paying a combined $6,000 per month for a two-bedroom apartment housing four people, which comes to $1,500 per person. This is more affordable than trying to rent alone; even a studio apartment at The Azure starts at $2,399 per month, according to the building’s website.

Meanwhile, the nonstudent rate for a two-bedroom apartment at The Azure starts at $3,391 per month. So by renting to King’s College students, the building is also making almost twice as much per apartment. So, at least for these two parties, it’s a win-win.

“It’s an opportunity to fill vacant apartments and collect rent,” says Becki Danchik, a real estate agent with Warburg Realty in New York City.

Given that the luxury rental market is slowing down nationwide, does this mean renters across the country might expect college-aged neighbors soon, too?

According to Reiss, it depends on development levels. In Los Angeles, construction has stalled, so apartments are filling up. Seattle, on the other hand, is facing similar issues as New York City.

“Seattle has had a construction boom, which means there are a lot of empty apartments,” says Reiss. “You face a similar situation where landlords are going to look to find some way to rent those out and make their money back.”

 

Finding An Affordable Neighborhood

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Trulia quoted me in How To Find An Affordable Neighborhood. It opens,

There’s more to consider when buying a house than the house itself. The neighborhood can be equally, if not more, important. You might already have must-haves in mind for the type of property you’ll buy — at least two bathrooms to stay sane, for example. Now you need to focus on finding the best neighborhood that fits your budget. Read on for some tips, techniques, and practices to help you find affordable neighborhoods, whether you’re looking at homes for sale in Seattle, WA, or anywhere else across the country.

1. Use the Affordability layer in Trulia Maps

The most important factor when looking for an affordable home is price. No surprise there. But the listing price doesn’t tell you the full story. The seller could have simply picked a number because that’s what they’d like to get, a price that might have nothing to do with reality.

Use the Affordability layer in Trulia Maps to compare listing prices with recent sales prices. Just scroll over your neighborhood of interest to see the median listing price, change your filter, and then scroll over the same area to see the median sales price. There may be a huge price difference between the two, which besides a too-optimistic seller could also reflect a softening market. A once-unaffordable neighborhood, based on listing prices alone, might now be in reach once you see what homes are actually selling for.

Also look at the sales price per square foot, a real eye-opener. You can see exactly how much location affects a home’s price. “If using a price-per-square-foot comparison, the homebuyer must be sure to compare similar-sized properties or allow for the different results based upon the differences in size,” says Greg Stephens, chief appraiser for Metro-West Appraisal Co. in Detroit, MI.

2. Explore other neighborhoods

If you already have a neighborhood in mind, take some time to look at the bordering neighborhoods as well. You might find more affordable options that have the same benefits. “As home prices increase within desirable areas, generally speaking, locations on the periphery become in demand,” suggests Michael Kelczewski, a Pennsylvania and Delaware real estate agent.

Pick your neighborhood of interest and note the listing and sales prices. Then pick a bordering neighborhood that costs less to buy into. Compare amenities in Trulia Maps, and you can see where the restaurants, grocery stores, nightclubs, cafes, stores, arts and entertainment areas, spas, and active-life spaces are located.

Don’t rule out up-and-coming neighborhoods. Yes, you’re taking a risk here. “Up-and-coming,” as a description, might turn out to be a tad too hopeful if the neighborhood is really going nowhere. How do you minimize the risk? Look for warning signs. “Distressed areas generally are identified by low sales volumes, elevated value decreases, and poor access to amenities,” says Kelczewski.

3. Look for fixer-uppers

If your heart is set on a neighborhood that lets you bike to work and raise urban chickens, you might not be able to get a dreamy, move-in-ready abode with all new upgrades. Instead, target fixer-uppers, or remodels, or teardowns. You might wish to consider a house with “good bones,” as they say, meaning there’s potential in there somewhere. If the house doesn’t even have that, a teardown might be in order.

You can often find fixer-uppers in the foreclosure arena. But beware. “Purchasing an REO/short sale or auction property when the asset is sold ‘as is’ necessitates a network of professionals to understand the condition and to project rehab costs,” offers Kelczewski. “Contractors, electricians, plumbers, even structural engineers may be required in order to adequately analyze a property.”

You’ll also need to devote some time, or sweat equity, to save money when you buy a fixer-upper. “It is important to have a sense of how much work would be needed to get the house in the shape you would want it to be. You would need to get estimates for the work — the final cost will probably be higher than the estimates — and try to determine how long it will take to get permits approved and contractors in the door … [and] it will probably take longer than everyone tells you,” says David Reiss, professor of law at Brooklyn Law School in Brooklyn, NY. “But when you are pulling your hair out because you are cooking dinner in a half-finished kitchen, remember all of the money that you saved when you bought.”

Trump and The Housing Market

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photo by Gage Skidmore

President-Elect Trump

TheStreet.com quoted me in 5 Ways the Trump Administration Could Impact the 2017 U.S. Housing Market. It opens,

Yes, President-elect Donald Trump may have chosen Ben Carson to lead the Department of Housing and Urban Development, but as the U.S. housing market revs its engines as 2016 draws to a close, an army of homeowners, real estate professionals and economists are focused on cheering on a potentially rosy market in 2017.

And with good reason.

According to the S&P CoreLogic Case-Shiller Indices released on November 29, U.S. housing prices rose, on average, by 5.5% from September, 2015 to September, 2016. Some U.S. regions showed double-digit growth for the time period – Seattle, saw an 11.0% year-over-year price increase, followed by Portland, Ore. with 10.9% and Denver with an 8.7% increase, according to the index.

The data point to further growth next year, experts say.

“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance,” notes David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices. “While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms — Miami, Tampa, Phoenix and Las Vegas — remain well below their all-time highs. Other housing indicators are also giving positive signals: sales of existing and new homes are rising and housing starts at an annual rate of 1.3 million units are at a post-recession peak.”

But there are question marks heading into the new year for the housing market. The surprise election of Donald Trump as president has industry professionals openly wondering how a new Washington regime will impact the real estate sector, one way or another.

For instance, Dave Norris, chief revenue officer of loanDepot, a retail mortgage lender located in Orange County, Calif., says dismantling the Consumer Financial Protection Bureau, encouraging higher interest rates, and broadening consumer credit are potential scenario shifters for the housing market in the early stages of a Trump presidency.

Other experts contacted by TheStreet agree with Norris and say change is coming to the housing market, and it may be more radical than expected. To illustrate that point, here are five key takeaways from market experts on how a Trump presidency will shape the 2017 U.S. real estate sector.

Expect higher interest rates – The new administration will likely lead to higher interest rates, which will compress home and investment property values, says Allen Shayanfekr, chief executive officer of Sharestates, an online crowd-funding platform for real estate financing. “Specifically, loans are calculated through debt service coverage ratios and a borrower’s ability to make their payments,” Shayanfekr says. “Higher interest rates mean larger monthly payments and in turn, lower loan amount qualifications. If lenders tighten up, it will restrict the buyer market, causing either a plateau in market values or possibility a decrease depending on the margin of increased rates.”

Housing reform will also impact home purchase costs – Trump’s effect on interest rates will likely depress housing prices in some ways, says David Reiss, professor of law at Brooklyn Law School. “That’s because the higher the monthly cost of a mortgage, the lower the price that the seller can get,” he notes. Reiss cites housing reform as a good example. “Housing finance reform will increase interest rates,” he says. “Republicans have made it very clear that they want to reduce the role of the federal government in the housing market in order to reduce the likelihood that taxpayers will be on the hook for another bailout. If they succeed, this will likely raise interest rates because the federal government’s involvement in the mortgage market tends to push interest rates down.”

Advancing Equitable Transit-Oriented Development

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photo by David Wilson

MZ Strategies has posted a white paper funded by the Ford Foundation, Advancing Equitable Transit-Oriented Development through Community Partnerships and Public Sector Leadership. It opens,

Communities across the country are investing in better transit to connect people of all income levels to regional economic and social opportunity. Transit can be a catalyst for development, and the demand for housing and mixed-use, walkable neighborhoods located near quality transit continues to grow. In some places like Denver, Seattle, and Los Angeles (to name just a few) land prices and rents near transit have increased substantially creating concerns with the displacement of small businesses and affordable housing.

In response, multi-sector coalitions are forming in a number of regions to advance Equitable Transit-Oriented Development (eTOD), which aims to create and support communities of opportunity where residents of all incomes, ages, races and ethnicities participate in and benefit from living in connected, healthy, vibrant places connected by transit. These transit-oriented communities of opportunity include a mixture of housing, office, retail and other amenities as part of a walkable neighborhood generally located within a half-mile of quality public transportation. This white paper pulls together emerging eTOD best practices from four regions, and highlights opportunities to use federal finance and development programs administered by US Department of Transportation to create and preserve inclusive communities near transit. It offers lessons learned for other communities and a set of recommendations for the Federal Transit Administration to better support local efforts by transit agencies to advance eTOD.

Achieving eTOD involves an inclusive planning process during the transit planning and community development phases. This entails long-term and active engagement of a diverse set of community partners ranging from local residents, small business owners, community development players, and neighborhood-serving organizations located along the proposed or existing transit corridor, to regional anchor institutions and major employers including universities and health care providers, to philanthropy, local and regional agencies and state government partners.

Equitable outcomes require smart, intentional strategies to ensure wide community engagement. Successful eTOD requires planning not just for transit, but also for how this type of catalytic investment can help to advance larger community needs including affordable housing, workforce and small business development, community health and environmental clean-up. (1, footnote omitted)

The report presents e-TOD case studies from Minneapolis-St. Paul; Los Angeles; Seattle and Denver.  These case studies highlight the types of tools that state and local governments can use to maximize the value of transit-oriented design for broad swathes of the community.

 

Walkers in the City

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photo by Derrick Coetzee

The Center for Real Estate and Urban Analysis at The George Washington School of Business has released Foot Traffic Ahead: Ranking Walkable Urbanism in America’s Largest Metros for 2016. The Executive Summary opens,

The end of sprawl is in sight. The nation’s largest metropolitan areas are focusing on building walkable urban development.

For perhaps the first time in 60 years, walkable urban places (WalkUPs) in all 30 of the largest metros are gaining market share over their drivable sub-urban competition—and showing substantially higher rental premiums.

This research shows that metros with the highest levels of walkable urbanism are also the most educated and wealthy (as measured by GDP per capita)— and, surprisingly, the most socially equitable. (4)

This strikes me as a somewhat over-optimistic take on sprawl, but I certainly welcome the increase in walkable urban places over a broad swath of metropolitan areas. The report’s specific findings are that

There are 619 regionally significant, walkable urban places—referred to as WalkUPs—in the 30 largest U.S. metropolitan areas. These 30 metros represent 46 percent of the national population (145 million of the 314 million national population) and 54 percent of the national GDP.

The 30 metros are ranked on the current percentage of occupied walkable urban office, retail, and multi-family rental square feet in their WalkUPs, compared to the balance of occupied square footage in the metro area. The six metros with the most walkable urban space in WalkUPs are, in rank order, New York City, Washington, DC, Boston, Chicago, San Francisco, and Seattle.

Economic Performance: There are substantial and growing rental rate premiums for walkable urban office (90 percent), retail (71 percent), and rental multi-family (66 percent) over drivable sub-urban products. Combined, these three product types have a 74 percent rental premium over drivable sub-urban.

Walkable urban market share growth in office and multi-family rental has increased in all 30 of the largest metros between 2010-2015, while drivable sub-urban locations have lost market share. The market share growth for 27 of the 30 metros is two times their market share in 2010. This is of the same or greater magnitude as the market share gains of drivable sub-urban development during its boom years in the 1980s, but in the reverse direction.

Indicators of potential future WalkUP performance show that many of the metros ranked highest for current walkable urbanism are also found at the top of our Development Momentum Ranking—namely, the metros of New York City, Boston, Seattle, and Washington, DC. This indicates that these metros will continue to build on their already high WalkUP market shares and rent premiums.

There are also some surprising metros in this top tier of Development Momentum rankings, including Detroit, Phoenix, and Los Angeles.

The most walkable urban metro areas have a substantially greater educated workforce, as measured by college graduates over 25 years of age, and substantially higher GDP per capita. These relationships are correlations, and determining the causal relationships requires further research to prove.

Walkable urban development describes trends resulting from both revitalization of the central city and urbanization of the suburbs. For nearly all metros, the future urbanization of the suburbs holds the greatest opportunity; metro Washington, DC, serves as a model, splitting its WalkUPs relatively evenly between its central city (53 percent) and its suburbs (47 percent).

Social Equity Performance: The national concern about social equity has been exacerbated by the very rent premiums highlighted above, referred to as gentrification. Counter-intuitively, measurement of moderate-income household (80 percent of AMI) spending on housing and transportation, as well as access to employment, shows that the most walkable urban metros are also the most socially equitable. The reason for this is that low cost transportation costs and better access to employment offset the higher costs of housing. This finding underscores for the need for continued, and aggressive, development of attainable housing solutions. (4, footnote omitted)

There is a lot of import here. Is there more than a correlation between walkability and the educational level of the workforce and, if so, why? Why don’t more housing affordability studies take into account transportation costs when evaluating the affordability of a given community? What is the trend line of this new direction toward urbanism and how far can it go in the face of decades of investment in car-based communities? This annual study will help us answer those questions, over time.

Outrage

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photo by Dmitry Kalinin

A federal judge has held that a mortgage servicer committed “the tort of outrage when it charged attorney’s fees and costs to plaintiff’s mortgage account and refused to explain the charges upon request.” (1) Lucero v. Cenlar FSB, No. C13-0602RSL (W.D. Wash. Jan. 28, 2016) (Lasnik, J.) The case has an all-too-typical story of servicer misbehavior — the repeated phone calls that went nowhere, the absence of any servicer representative with actual knowledge of why the servicer was acting the way that it was, the unjustified fees that just kept compounding into five-figure nightmares.

The Court found that under Washington law,

The elements of the tort of outrage are “(1) extreme and outrageous conduct, (2) intentional or reckless infliction of emotional distress, and (3) severe emotional distress on the part of plaintiff.” Rice v. Janovich, 109 Wn.2d 48, 61 (1987). Based on the evidence submitted at trial, plaintiff has raised a reasonable inference and the Court finds that Cenlar, annoyed that plaintiff had sued it after obtaining a loan modification and looking for leverage to force her to abandon this litigation, adopted a strained and unprincipled analysis of the to justify the imposition of unpredictable and enormous charges directly onto plaintiff’s mortgage statements as “Amounts Due.” Cenlar, having reviewed plaintiff’s financial situation less than a year before and being fully aware that plaintiff was paying late charges every month, had no reason to believe that she could cope with these charges. Cenlar reasonably should have known (and was likely counting on the fact) that these charges would cause immense emotional distress, which they did. Cenlar compounded the distress by denying plaintiff information about these charges or the justification therefore. The first notice of the charges stated that they were charged “in keeping with Washington law.” This assertion is wholly unsupported: Cenlar’s witness acknowledges that the letter was a form into which the reference to “Washington law” was inserted simply because the loan originated in Washington. No Washington case law, statute, or regulation has been identified that authorize the charges levied against plaintiff’s mortgage account. When plaintiff requested information regarding the charges, she was ignored for months. Eventually various contract provisions were identified, and Cenlar asserted that it was simply keeping track of charges it might eventually seek to recover from plaintiff. Regardless of whether Cenlar was demanding immediate payment or was simply threatening to collect them in the future, the message was clear: continue this litigation and we will take your home. Such conduct is beyond the bounds of decency and is utterly intolerable. (14-15, footnotes omitted)

Decisions like this tend to give us a warm feeling in our stomach — justice has been done! But the truth is that for every case like this, there are thousands of homeowners who were severely mistreated and had to just take it on the chin. Federal regulation of the housing finance system should get to the point where these situations are the rare, rare exception. We have a long way to go.

 

HT Steve Morberg

Tuesday’s Regulatory & Legislative Round-Up

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  • The U.S. Department of Housing and Urban Development (HUD) held a policy conference to commemorate the 50 year anniversary of the Fair Housing Act.  Among the conference materials is a report from the Government Accountability Office (GAO) which states the the Internal Revenue Service’s (IRS) oversight over compliance with the Low Income Housing Tax Credit Program (LIHTC) has been lax and proposes joint IRS/HUD oversight.  The NMTC has been used to create affordable housing through Housing finance Agencies (HFAs).  According to the GAO report the IRS has only conducted seven audits of the 56 HFA since 1986. The GAO report states, “Joint administration with HUD could better align program responsibilities with each agency’s mission and more efficiently address existing oversight challenges.”
  • The U.S. Treasury has awarded awarded $202 million dollars to 195 Community Development Financial Institutions (CDFIs) through the Community Development Financial Institutions Fund (CDFI Fund).  The CDFI Fund was established in 1994 to provide capital and access to credit in underserved communities through CDFIs. CDFIs are mission driven financial institutions which work on the local level to revitalize neighborhoods and create economic change.  The CDFI Program invests in and builds the capacity of community credit unions, banks, loan funds, and other financial institutions serving rural and urban communities.
  • The Seattle Mayor has proposed new legislation to build 6,000 new affordable housing units. The proposal has been dubbed a “grand bargain” between affordable housing advocates and real estate developers. This grand bargain will require all new development in Seattle pay for affordable housing creation.
  • Not to be outdone, the Mayor of Denver has also been mulling over a policy (mentioned in his inaugural address) which would tax new development and also raise the property taxes.  Both Seattle and Denver are reacting to a situation in which lower paid professionals including teachers, restaurant and healthcare workers are increasingly difficult to attract and recruit because they are unable to find housing they can afford.