Real Estate Information

As competition intensifies among apartment developers, Minneapolis-based Schafer Richardson has financing in place and is ready to start construction in May on Third North, a 204-unit apartment project in downtown Minneapolis.

The $38 million market-rate project calls for new construction on a site at 800 N. Third St., where the developer would raze an existing industrial building.

Maureen Michalski, a project manager with Schafer Richardson, said that the developer has put together financing including a mortgage insured by the U.S. Department of Housing and Urban Development (HUD). Michalski said that lenders and investors are still bullish for multifamily projects.

“We have all of our private equity lined up for the deal as well,” Michalski said. “People seem to be more interested in putting their money in the market.”

Michalski said that financing is being arranged by CBRE HMF Inc., part of Los Angeles-based CBRE Group Inc. Michalski said that Schafer Richardson expects to start construction on the project in May, with completion set for September 2013.

The North Loop area of downtown Minneapolis, home to the Target Field baseball stadium, has been a draw for apartment developers.

At one closely watched project, the former Jaguar car dealership at 222 Hennepin Ave., developers say that they’re getting close to starting. Ryan Companies US Inc. and the Excelsior Group, both based in Minneapolis, have a joint venture to redevelop the site with 287 apartments anchored by a grocery store.

“We’re getting real close,” Mark Schoening, a senior vice president with Ryan Companies, said of the project.

Developers began construction in November on a 100-unit project at 701 Second St. N. The project is a joint venture between Eden Prairie based-TE Miller Development and developer Curt Gunsbury. A formal name for the project has not yet been announced.

“We should be open in August,” said Robb Miller, vice president of TE Miller Development. “I think there’s a lot of depth to the market. The North Loop in particular is an area that I think can absorb a lot of units.”

Miller said that rents in the building would be above $2 per square foot, like many of the newer apartment buildings. He said that rents would start at $1,100 per month for studios and would be more than $2,000 per month for two-bedroom units. Michalski said that rents at Third North would also be about $2 per square foot.

Finance & Commerce has been tracking the local apartment development pipeline. Currently, Finance & Commerce has tallied about 10,000 new apartment units under construction or proposed across the Twin Cities.

Observers have started to question how many new projects the Twin Cities can support, particularly at the steep rental rates demanded by the costs of new construction. There’s general agreement that not every proposed project will be built.

“I think there’s still some uncertainly about some of the proposed developments,” Michalski said.

“I think that the first few projects that go up are going to do well. I think there’s definitely a need for some of that product downtown,” said Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas. “I know that they’ve done studies and they’ve demonstrated that there’s demand downtown.”

Minneapolis-based Marquette Advisors reported apartment vacancy across the Twin Cities at 2.3 percent at the end of September. But in downtown Minneapolis, Marquette Advisors reported a vacancy rate of just 1 percent. Marquette Advisors reported the average rent for a local apartment at $925 per month at the end of the third quarter, but reported an average rent of $1,230 per month for downtown Minneapolis.

While financing deals today requires more equity from developers than it did in the past, deals are getting done. Daniel Trebil, a senior director with Bloomington-based NorthMarq Capital, said that he’s seeing lenders provide loans in the range of 65 percent to 80 percent of the total project costs today. He noted that lenders are particularly focused on doing deals with experienced teams and project developers.

“There’s a heavy reliance by the banks on the sponsorship,” Trebil said. “Underwriting a sponsor is every bit as important as underwriting the deal itself.”

Trebil noted that part of the current development climate is being driven by the relative lack of new apartment construction in the recent past.

“We haven’t had a lot of supply come online here over the last decade,” Trebil said. “Clearly there’s some room to add units.”

Michalski said that new apartment projects in the area are varied enough to attract a range of residents. Schafer Richardson also has plans for a smaller, 44-unit apartment project – a conversion of the historic Cameron Building at 756 N. 4^th St. in the North Loop area of Minneapolis.

“There’s some competition…there’s plenty of room still in the market,” Michalski said.

Source: Burl Gilyard, Finance and Commerce, January 26, 2012

Foreclosure starts moved up 20 percent in August over July, posting their highest monthly levels of the year. But there are signs of improvement: Foreclosure starts were down more than 12 percent compared to August of last year, according to Lender Processing Services in its latest report.  

What’s more, “first-time” delinquencies -- loans that have never been delinquent before -- made up only a quarter of all new delinquencies, which LPS says is a sign of an “improving trend for new problem loans.” 

Overall, about 4 million loans are 90 days or more delinquent or in foreclosure, shrinking to 2008 levels. 

There’s still a long way to go, however. Of the nearly 46 million loans that were current by the end of August, 23 percent were still at high risk of defaulting, LPS notes. 

“August results showed an all-time high in the number of loans shifting from foreclosure back into delinquent status, suggesting that process reviews and potential loss mitigation activity are continuing,” LPS noted in a public statement. “As a result, foreclosure timelines continue to increase, with the average loan in foreclosure having been delinquent for a record 611 days.” 

According to LPS, the states with the highest percentage of loans in delinquency or foreclosure are:

• Florida
• Mississippi
• Nevada
• New Jersey 
• Illinois

Source: Melissa Dittmann Tracey for REALTOR® Magazine Daily News

Federal Reserve Chairman Ben Bernanke urged lawmakers to form “strong housing policies to help the housing market recovery” and advance the economy. Bernanke made the comments during a Q&A session following a speech in Cleveland on Tuesday about emerging market economies.

His remarks come at a time when more than 6.3 million homes are 30 days or more behind on their mortgage payments or in foreclosure, according to Lender Processing Services. 

The Fed has taken steps that have been keeping mortgage rates hovering at or near record lows in recent weeks, but with unemployment still high, Bernanke said that record-low interest rates don’t seem to be helping the housing crisis.  

During the speech, Bernanke called long-term unemployment a “national crisis.” About 6.2 million Americans, or 45.1 percent of all unemployed, have been jobless for more than six months — a total that is at its highest point since the Great Depression, HousingWire reports in citing government stats. 

"Clearly getting more money into the hands of home owners who spend it could help to fuel GDP growth," Eric Rosengren, president of the Federal Reserve Bank of Boston, said in remarks on Wednesday. "This would reduce one of the impediments to a more significant effect from the monetary policy actions taken to date."

Source: “Bernanke Calls for More Housing Help from Washington,” HousingWire (Sept. 28, 2011)

A new wave of foreclosures hit in August, as banks picked up the pace in taking action against home owners who have fallen behind on their mortgage payments, RealtyTrac Inc. reported Thursday.

The number of U.S. homes that receiving an initial default notice rose 33 percent in August from July. That increase represents the biggest monthly gain in four years, according to RealtyTrac.

"This is really the first time we've seen a significant increase in the number of new foreclosure actions," says Rick Sharga, a senior vice president at RealtyTrac. "It's still possible this is a blip, but I think it's much more likely we're seeing the beginning of a trend here."

The uptick in foreclosure activity follows after months of a slowdown in foreclosures, which started last fall, with banks reviewing foreclosure policies and paperwork after facing lawsuits and criticism over how they processed foreclosures. Some banks even temporarily halted their foreclosures as they more carefully reviewed pending cases. The slowdown was also blamed on court delays in some states.

But some housing experts say the increase in foreclosure activity actually could be good for the housing market. A faster turnaround in foreclosures could help clear the glut of shadow inventory hovering over the market, which many say has caused home values to plummet.

The “bloated foreclosure pipeline now presents the greatest obstacle to a housing market recovery," said Josh Levin, a Citi analyst. About 3.7 million more homes are in some stage of foreclosure than in a normal housing market, Levin said.

Banks are on track to repossess about 800,000 homes this year — down from more than 1 million last year, Sharga said.

Overall, 228,098 U.S. homes — or one in every 570 U.S. households — received a foreclosure-related notice in August, a 7 percent increase from July. However, that represents a 33 percent decline from August 2010.

Source: “Report: Mortgage Default Warnings Spiked in August, Signaling Potential New Foreclosure Wave,” Associated Press (Sept. 15, 2011)

An estimated 1 million foreclosure-related notices for defaults, auctions, and home repossessions that should be filed by lenders this year will be pushed back until next year, according to the latest report by RealtyTrac.

While the delays could give home owners more time to catch up on their payments and try to avoid foreclosure, housing experts warn this means the looming shadow inventory of distressed properties likely will continue to plague the real estate market even longer.

"The best-case scenario is we don't get back to normal levels of foreclosure activity until 2015, which means the housing market recovery gets delayed by at least a year," says Rick Sharga, a senior vice president at RealtyTrac.

Foreclosure Notices Drop, Threat Still Looms

Overall, the number of homes repossessed by lenders in the first half of this year dropped 30 percent compared to the same period in 2010. But foreclosure processing delays — with lenders taking longer to take action against delinquent borrowers — is stalling the housing recovery, experts note.

About 1.2 million homes received a foreclosure-related notice in the first six months of this year — in other words, one in every 111 U.S. households, RealtyTrac reports.

Nevada continues to face the most foreclosures; one in every 21 households in that state received a foreclosure notice in the first half of the year.

The foreclosure process continues to lengthen too. From April and June, homes took 318 days on average to go from the first stage of foreclosure to ultimately where it was repossessed by the lender — that’s up from 298 days in the first three months of the year. (In New York, the foreclosure process took the longest at an average of 966 days or 2.6 years; Texas boasted the shortest at 92 days.)

Source: “Delays in Bank Processing Push Likely U.S. Foreclosures Until 2012, Stalling Recovery,” Associated Press (July 14, 2011)

Republicans on the House Financial Services Committee have drafted a bill to raise the minimum down payment for Federal Housing Administration-backed loans to 5 percent as well as cut FHA loan limits in many markets. FHA-backed loans are a main source of mortgages for first-time home buyers.

Currently, home owners who take out FHA-backed loans are required to have a minimum down payment of 3.5 percent; the GOP bill seeks to raise that to 5 percent. The GOP says it wants to protect home owners against default and improve FHA’s finances.

The bill has not yet been introduced but remains in draft form. However, the draft legislation is expected to be discussed on Wednesday by the subcommittee.

The draft legislation also calls for lowering FHA loan limits in several areas.

As of now, the maximum size of FHA-backed loans in expensive areas of the country is set to drop to $625,500 from $729,750 as of Oct. 1. In less expensive areas, the limit may drop to $271,050. The GOP draft bill wants to drop the limits even more to 125 percent of a county's median home price, Dow Jones reports.

"While we support reforms to strengthen the program, changes should not be made at consumers' expense by drastically impacting the affordability and availability of mortgage capital," Ron Phipps, the National Association of REALTORS®’ president, said in a statement.

Source: “House Republicans Aim to Raise Money Down for FHA Loans,” Dow Jones International News (May 23, 2011)

Read more on NAR's position:
The Basics: FHA

Banks are increasingly telling borrowers that if they want to buy a home, they need to come with a higher down payment. Banks are requiring higher down payments in order to help mitigate the bank's risk as home prices continue to fall. Plus, banks say larger down payments discourage delinquencies.

The Obama administration last week called for gradually increasing down payments to a minimum of 10 percent on conventional loans that can be bought or guaranteed by Fannie Mae and Freddie Mac.

The median down payment in nine major U.S. cities rose to 22 percent in the fourth quarter of 2010 on properties purchased through conventional mortgages--the highest in median down payment since the data started being tracked in 1997, according to a Wall Street Journal and Zillow.com analysis.

In the late 1990s, median down payments once averaged 20 percent in the nine metro cities Zillow analyzed, but in 2001 started inching downward as banks began requiring little or no down payment in some cases during the housing boom.

Now banks want more, believing that the more a buyer has invested, the less likely they are to default.

Borrowers who can’t afford the higher down payments are seeking assistance elsewhere, such as loans for veterans or those backed by the Federal Housing Administration (which require 3.5 percent down payment), or loans by the United States Department of Agriculture for rural areas.

Source: “Banks Push Home Buyers to Put Down More Cash,” The Wall Street Journal (Feb. 16, 2011)

Republicans on the House Financial Services Committee said they will push for a vote next Thursday on bills that would end four government programs that are aimed at helping prevent foreclosures.

Among the programs on the chopping block include the Home Affordable Modification program, which was created to help struggling home owners reduce mortgage payments by offering lower interest rates and longer repayment times. The Treasury Department recently acknowledged that HAMP will fall short of meeting its original goal of preventing 3 to 4 million foreclosures; it’s expected to complete 700,000 to 800,000 loan modifications.

Other smaller programs at risk are aimed at refinancing loans, helping unemployed home owners, and aiding state and local governments in buying foreclosed properties in order to sell or rent them.

Committee chairman Rep. Spencer Bachus, R-Ala., says the foreclosure prevention programs haven’t had much impact and, in some cases, actually are doing more harm than good in helping struggling home owners.

The Obama administration argues that killing the programs will hurt home owners.

"The administration remains committed to reaching eligible home owners to give them every opportunity to avoid foreclosure and will continue working to make our programs as effective as possible," said an Obama administration spokesperson.

Source: “House Committee to Vote on Bills Ending Obama Foreclosure Programs,” Dow Jones (Feb. 24, 2011); “Obama Admin. Says Committed to Helping Homeowners,” Reuters News (Feb. 24, 2011); and “House Committee to Write Bill Ending Embattled Program for Preventing Home Foreclosures,” Associated Press (Feb. 24, 2011)