Commercial real estate following path of residential real estate - off cliff

Today's Oregonian featured a story about another local developer who is facing foreclosures and behind on back taxes:

John Beardsley, known for renovating historic downtown buildings, is Portland's first major commercial developer to see his properties move toward foreclosure amid growing problems nationwide in commercial real estate.

Since May 1, lenders have filed default notices -- the first step in a foreclosure -- on 10 properties owned by Beardsley's companies. The defaults cover loans and sales contracts originally signed for $58 million and taken out during the real estate bubble between 2003 and 2007, according to Multnomah County property and court records

Beardsley also owes the county $354,000 in back taxes, according to county records.

As opposed to the denials about the state of the residential market, John seems to be very honest about how bad it is, and how bad it's going to get:

"The bottom fell out of the market," Beardsley said. "I'm a reality of it. Tom Moyer's a reality of it. It's a very sobering time. ... This is significantly worse than the 1980s."

That reality, Beardsley said, reflects the economy: Struggling employers have laid off workers, reduced their office space, asked for cheaper rent or closed altogether. The result: Beardsley's average rents have dropped and office vacancies have jumped to 25 percent, more than double the normal rate.

"It's a very difficult market in commercial real estate," said Al Kennedy, Beardsley's lawyer and one of the city's go-to attorneys for financially troubled companies. "It's just beginning to surface."

The Portland Business Journal also recently reported on the state of the commercial market nationally:

Commercial real estate values around the country have dropped 35 percent from their peak in October 2007, according to Moody’s REAL Commercial Property Price Indices.

The decline appears to be accelerating as the index dropped more than 15 percent during April and May. Transactional volume also fell along with value, which is showing signs of effects from distressed sales.

“May marked a new low for both counts,” the report said.

Along the lines of kicking a sector when it’s down, a rise in interest rates caused several deals to unravel, hitting apartment sales the hardest.

To calculate the index, Moody’s used 52 repeat sales, which had a dollar value of $400 million in April 2002.

It sounds like the commercial troubles are only going to get worse, while the residential market problems are starting to slow down nationally.

Portland Prices Down 13.5% in June - RMLS

June sales data was released yesterday according to the Portland Business Journal, and the average sales price for June was down 13.5% from June 2008, about the same as last months drop.

Closed sales were only down 5% from June 2008, which sounds like the rebate might be having and effect as well as reducing inventory.

More analysis later, TGIF! Enjoy the weekend folks!

Prices slashed at the John Ross condos

Condos still aren't moving, so prices are continuing to fall. This price cut is pretty serious. From the Portland Business Journal today:

"Gerding Edlen Development Co. has added the John Ross condominiums at
South Waterfront to list of projects with slashed prices.

The company cut prices by approximately one-third in a bid to find buyers
for 110 unsold units in 18 months....

A sample of units available at John Ross include a 12th floor studio now
available for $199,999, down $100,000. The new price translates to $311 per
square foot.

A 30th floor penthouse unit with three bedrooms and three and a half
bathrooms now is available for $1.5 million, down nearly $1 million. The new
price is equal to $434 per square foot.

Realty Trust notified John Ross homeowners of the decision to cut prices on
July 10."

While those current homeowners must have known that their condos were worth less than they paid earlier, they now have a nice figure to quantify their loss. 33%. Ouch.

I still wouldn't touch a condo in Portland for the next few years, if not ever.

Mississippi Eyesore Reborn

A year ago the building on the corner of N Mississippi and N Skidmore looked like this.

Over the past year I've watched it being restored into something much more appealing, but always didn't know what it was to become until today.

From today's Oregonian:

North Mississippi Avenue, home to several well-known if eccentric carts, will be the scene of a new slice of food-cart culture.

Stephanie Yao Long/The OregonianDeveloper Roger Goldingay (left) and designer and contractor Michael Tunson will open Mississippi Marketplace in this open lot in August. The building will house a brewpub called Prost! adjacent to 10 food carts.

Set to open at the corner of North Mississippi and Skidmore Street in early August, Mississippi Marketplace will be Portland's first curated food cart and market pod in a newly paved 10,000-square-foot lot. The project has been designed with an anchor tenant, a spiffy brewpub called Prost! set in a building transformed from a seedy board-up to a handcrafted Greek Revival beauty.

Ten food carts will be selected by developer Roger Goldingay, along with a cluster of booths devoted to crafts or a farmers market, depending on interest. Each cart will have amenities rarely available to food-cart owners: six to 12 seats per cart; access to a portable toilet; full-service electrical; a recycling plan; and someone to keep the grounds clean and tidy.

You can see a bit of what the building looks like today in the photo above. I'm looking forward to checking it out when it's all done.

1 out of 5 Portland homes for sale is a foreclosure

I caught this article by Ryan Frank when I was catching up on his blog recently:

"1. 18% of PDX listings foreclosure, short sale: I had someone run the numbers yesterday and they're not pretty. The Portland region in RMLS has 14,328 active listings. Of those, 641 are forecloses that have been taken back by the bank. Another 2,297 are listed as requiring a third party approval. Most of those are short sales. But being conservative, say 2,000 of those are short sales. That leaves 2,641 foreclosures or short sales on the market, or nearly one of every five listings"

I'd love to track this statistic as I belive it's a real window into the health of our market. I know California is in worse shape, but I'd like to know if we're seeing more or fewer foreclosures and short sales these days.

Any disgruntled real estate agents want to share their RMLS data for a little fun with numbers? I don't expect to see this from the RMLS anytime soon.

EDIT - I didn't need to get the raw data, Ron Ares ran the same basic report I was thinking of. You can find it on his site here.

Portland among top 10 most walkable cities

From the Portland Business Journal:

"Portland is among the top 10 walkable cities in the nation, according to a Web site that measures walkability.

Walkscore.com ranked the largest 40 cities in the nation on a scale of zero to 100 based on how easy it is to live a “car-lite” lifestyle. Portland is number 10, with a walk score of 66.

Seven neighborhoods in Portland are Walkers’ Paradises, with walks scores of 90-100. Forty-five percent of Portland residents have a walk score of 70 or above. Eighty-three percent have a walk score of at least 50 — and 17 percent live in car-dependent neighborhoods."

This doesn't surprise me, as we specifically relocated to Portland because we like the walkability. But it's nice to see it acknowledged, and I've been a fan of walkscore.com since stumbling across them last year.

Portland Prices Continue to Slide in April - Case Shiller

The April Case Shiller data was released yesterday and April's median price for an existing home in Portland was down 16% from April 2008. (click on any chart to expand it to readable size)

The monthly change was down 0.6% from March, much less than the 2.1% drop from February to March 2009. Don't take this as a sign that prices are stabilizing, this is just the typical spring "bounce" as flowers bloom and sellers get a little crazy.

The median Portland home price is now down 21.3% from the peak in July 2007, and prices continue to decline.

At this point if I would predict prices will continue to decline through 2009 and well into 2010.


The chart above shows the price index for the past five years. We are still looking at the same prices seen back in June 2005, almost 4 years ago

The above chart shows growth rates for Portland, Seattle, the San Francisco bay area (the other areas I consider as closest to Portland) as well as the 20-city composite index. Portland and Seattle are still tracking each other very closely, however in April Seattle saw a slight uptick in prices, while Portland prices continued to decline. This might reflect Oregon's record unemployment, or just a momentary anomaly. We'll have to wait and see if it turns into a trend.

While the price declines for the overall market appears to have hit bottom, Portland and Seattle price declines continue to set new records. The price declines in the SF Bay Area also seem to have bottomed out and are now slowing. Prices are still declining, just not as fast as in previous months.

February was the first month where the price decline didn't set a new record for the SF Bay Area and for the overall 20 city index. The 20 city index peaked in July 2006, while Portland peaked a year later in July 2007.

This chart shows the price index for the past 8 years. I also added a line in pink that represents an average of 5% growth starting in January 2001. You can see that the current price index is now below the 5% average growth line. An over-correction is to be expected, but we are also probably correcting to a more reasonable 3-4% long term growth rate, or about the rate of inflation. But it's likely that we'll over correct before getting there.

This chart shows the previous bubble in the early 90's, and also shows that Portland prices had never dropped over the past 20 years, until 2008. But as they say, past performance is no guarantee of future performance!


The above chart is a new addition. It shows how Portland is faring compared to other cities. Our maximum price decline is still below average, but as we all know Portland was late to this party, a party most homeowners didn't want an invitation to. I predict we will be worse than average shortly.

{Note, my apologies for the slow posting. Work has continued to keep me busy and I'd much rather be overworked right now than unemployed, but it has cut into my personal time}

ABOUT CASE SHILLER:
The S&P/Case-Shiller Home Price Indices measures the residential housing market, tracking changes in the value of the residential real estate market in 20 metropolitan regions across the United States. These indices use the repeat sales pricing technique to measure housing markets. First developed by Karl Case and Robert Shiller, this methodology collects data on single-family home re-sales, capturing re-sold sale prices to form sale pairs. This index family consists of 20 regional indices and two composite indices as aggregates of the regions.