Gregg Fous

Southwest Florida is Clearing its Throat

When I was a kid in Harrington Park, New Jersey, I got about one or two nasty colds a year. Here in Florida I get them about once every two years. I have no idea if this is a direct result the tropical location or my compulsion as I got older to constantly wash my hands. But I do know that my colds normally took the same course: Headache, sneezing, congestion, cough, and then the breakup. The breakup was always accompanied by a lot of throat clearing. Once I got through that, I was good to go. In fact I learned to recognize the throat clearing and would think, "Thank goodness THIS cold is almost over."

South West Florida is clearing its throat. I know there are many doomsayers out there that are affected by the global crisis and the way the media is covering it. These problems are real: unemployment, bailouts, tight credit, and depleted savings. But you need to separate our market from the rest of the world.

Some cities like Boston, New York and Charlotte, NC have colds that are still getting worse. These metro areas have not seen the big price declines that we have seen - their drops are still occurring. There are many reasons for the longer stability in those markets or better said the reactionary instability in ours. We are a big second home market. Borrowers are more likely to hold onto their first homes that they have lived in for years up north rather than their recently acquired future retirement home here in Florida. There was not as much speculation and investor buying in those markets and they have a broader economic base. Boston, New York and Charlotte are not dependant on tourism as we are.

But we are clearing our throats, that's for sure. The price declines are about over, and we are starting to feel better. Lee County closed 81 homes just yesterday in our local market, and I suspect December numbers will be huge.

According to today's Wall Street Journal, the nation is at 2004 housing prices. But here in Florida, in many cases, we are below that. Be careful with national data. Remember all real estate is local.

Tatiana and I are going to see 14 homes today in Cape Coral. I asked her to make as many appointments as she good to see homes in Cape Coral with the following criteria: Within one mile radius of an elementary school, a minimum of three bedrooms and two baths, vacant, and priced under $100,000. There were 84 to choose from, and this was just by one school!

(Let me mention as an aside here that Tatiana had a very frustrating time setting up showing appointments. Showing a home to a prospective buyer or his agent is certainly a critical step in selling a home. It should be easy. In general, it was not. Some agents did not return phone calls; some duty desk people did not how to access the home, or some forwarded her to an appointment desk that knew nothing about the home or how to access it. I can tell you this. If I was a seller and my agent did not make it easy to show a home, I would be very upset. In fact, if you ARE a seller, I would test the system that you have hired o sell your home. How easy is the agent to get hold of? How easy is the house to show? Are you being treated like the important client that you are?)

An interesting thing about these homes we are going to see; very few of them have been on the market for a very long time. Keep in mind this is in a market that homes have been languishing for months without offers. But these homes are decidedly different. Apparently they are priced right. Will they sell at their ask price? Probably not. But they will sell to someone that recognizes value and affordability. They will soon be occupied, either by a tenant or a proud owner.

Getting rid of this inventory is our way of clearing our throat.

After my year end summary last week of the opportunities for 2009 (Click here to read it), I received some questions from a few of my European subscribers. In essence, they wanted to know my comments about all the bad news they hear about Florida. They are afraid. After all, their economy is hurting as well. My response was yes, it is a terrible market here - but for the sellers; and a great one for buyers.

They also asked me about hurricanes. I told them that we build for hurricanes like the North builds for cold weather and snow, California builds for earthquakes and mudslides and fires, and the Midwest builds for tornados.

I am also hearing from our competition. I am talking about markets in Majorca, Southern France, and Dubai. Agents in those markets are soft and are losing the ground they gained from Florida as a second home market when our prices were high enough to send buyers to them. Now they are sending us buyers.

Friends, I do not know how long into 2009 we will still be clearing our throat, but I for one am glad that we are; I know the he end of my cold is near.

Gail and I wish you a prosperous and peaceful New Year. Stay safe, healthy, and close to your family.

Gregg

Gregg@ma-realty.com

800.439.1580 Extension 1

2009 - Where will the opportunities be?

Today's e-letter is a long one. Before I dive into it I would like to thank all of you for your business and your support. 2008 has been a tough year; I am certainly looking forward to 2009. There will be many opportunities in Real Estate in 2009; and 2008 has been a transitional year to say the least.

According to the Chinese Zodiac, 2009 will be the year of the OX - symbolizing prosperity through fortitude and hard work. I am sure you already know what hard work is. I know I do. Fortitude is the strength of mind that enables us to work hard through danger or pain. I am no stranger to all three of these concepts - prosperity (I nearly had it once ), hard work (actually, since I love what I do, so I never really consider it work), and fortitude (although for me there is a slim difference between courage and blind determination!).

What are these opportunities that fortitude and hard work will bring us? Well, in hopes of giving you a summary of where I will be spending my time working for my clients, I will, in no particular order, comment on some of these opportunities - good, bad, or indifferent. I probably will pen one one e-letter this year. Gail and I wish you all the best for the coming year! Gregg

Single Family Homes

Yesterday I had two clients tell me to start buying single family homes - one wants to flip them, the other wants to build a rental inventory. I believe the first quarter of 2009 will see a great deal of the single family home inventory in Cape Coral move to the end user or to a rental pool. Prices have reached, if not bottom, so close to it that the bottom can be negotiated from where the pricing is now. Sellers of single family homes, whether they are the residents or the bank, are getting realistic with their pricing and will move houses. Those sellers that do not get realistic, will not: pretty simple.

In November over 600 homes were sold in Lee County through the MLS, this compared to 365 homes, same month last year. Many of the homes that are for sale below $100,000 happen outside the MLS.

If you are going to buy, purchase a home way below replacement cost. Replacement cost now is $75 to $100 per square foot plus land and soft costs. Buy location first, always buy location first, then look for price. For example don't tell me to look for homes under a certain price, and then pick the location. One reason for this is that the ask prices are often way above the selling price. Pick the location and then look for the best pricing.

I see opportunities in rentals of Single Family Homes - rents in the market are $.50 to $.70 per square foot per month. There are opportunities for cash buyers to buy and repair and hold or buy repair and rent. I see opportunities in buying and selling with lease options to buyers with credit that has been damaged by the recent financial debacle.

High end residential homes are selling - but at reduced prices. We like riverfront single family homes and specialize in their marketing. Buyers at this end have not seen these prices in years. While the waterfront did not drop like the low priced homes, they are still a bargain.

The economy in Europe is suffering a similar fate to ours, but we still have Europeans coming here to buy their vacation homes because of our great prices. Indeed the world is flat today. International marketing is important and any seller that is not marketing globally is missing about 2o% of the buyers.

I often say know what will, happen, I just don't know WHEN it will happen - and timing is everything, isn't it? Inventory of available homes will shrink to the point that the builders will build again. Prices will then come back up to reflect the current building cost. It has to. Stabilization will come to the market, stabilization of price as well as inventory. Buyers now will profit by the low entry price today. Remember, you make your money when you buy, not when you sell.

Underperforming Assets

An underperforming asset is an income property that is vacant or partially so, or has rents that are measurably below prevailing rates. A good example of an underperforming asset is an industrial building that has a 50% vacancy factor. The incoming rents are not paying the outgoing mortgage payments, much less providing any excess cash flow. The current owner can't keep the property because of the negative cash flow and a traditional buyer will not buy it because the income does not justify the prices. Furthermore, a lender will not lend on a building today unless it has a long term lease with a credit worthy tenant.

Is this a big problem or big opportunity?

It depends. For the patient cash investor he can purchase underperforming assets at bargain prices and the opportunities are wonderful. The asset is underperforming for the current owner at current market rates. For the new owner his long term strategy is to hold and fill the building at lower than market rates (because he purchased at such a low price). The new owner can be the low cost supplier in the marketplace. He may even be able to take tenants from other more expensive and newer buildings that need to get higher rents. For this to be an opportunity for our buyer he has to have cash or the financial backing already in hand and he must be able to take the risk that he can fill the building.

I am seeing new money coming into the real estate market that left Wall Street. Buying these underperforming assets is a sound strategy for the long term investor. Investing in these assets are a big change for the Wall Street investor, and the biggest change is that there is an underlying value to these investments: they are all backed by real estate. CLICK HERE and CLICK HERE for underperforming assets that are examples.

Land

Buying land now is out of favor with general investors. This is exactly why this spells opportunity for us in 2009. The holders of land were more patient than the bricks and mortar buyers. Most were in it for a longer hold. But the pressure is on them as the calendar marches forward, the loans are up for renewal and banks are not lending or are requiring more cash equity.

These investors have other real estate to cover and need to sell the land to help make their cash shortfalls. These same investors perspective on what was once long term is changing; they perhaps paid way too much for the land to begin with, and they see no short term hope of getting out of the property with any margins. During 2008 they were waiting to see how far the market will go - and I believe they now realize how severe and long the recession will be and they will unload.

What do we buy?; location of course. There are some waterfront and marina properties that will be good in a long term portfolio. Also infill projects close to urban centers. Go to the core basics of sound real estate investing. Look at demographics, traffic patterns, and short term growth areas. Where is the infrastructure already in place?

Look for projects that were entitled and perhaps even have some of the project infrastructure completed. Expect unreasonable asking prices but buy at a discount rate that will allow land load prices that will enable a developer to build profitably in five to seven years.

On the side bar here you will see an infill parcel in Cape Coral; an excellent buy at the offering price. This project was presented to us three years ago at three times the price - but was not entitled yet. Today it is entitled and offered at under $9.00/sf. I believe this low enough to hold for four years .

Apartments

There was a big rush to convert apartment projects to condos four years ago. Many of these offerings are now back in the hands of the banks, or screwed up because some units are sold, some are vacant, some refurbished and some not - and all in the same complex. Rents back then were approaching $1.00 per square foot per month. Now rents are $.85/sf and many of these condo projects are going back to being apartments.

The opportunity exists in 2009 to buy apartment or condo projects at a low enough price that the investor can capitalize on his cost basis in order to compete in the $.85 market. I know of a few projects that recently sold in Tampa at $30,000 and $40,000 per door. The thing you need to know is that the sale prices were sometimes as much as 30% below the ask! This fact bears repeating: Ask prices are not at the bottom but sell prices are.

Many home owners that are losing their homes will become renters and I expect that the rental prices will recover rapidly because of this influx of demand.

But financing is tough to find for apartments and investors must have deep pockets (because of low LTV ratios being considered by the banks that WILL loan). The good news is that many of the institutional owners need to sell their apartment projects to cover other loses. All of this spells opportunity.

Hotels

The hospitality business is taking it on the chin. ( Article here) Average Daily Room rates are down and average revenue per available room (revPAR) is down over 14% over last year, and when gas prices shot up, lenders in the hospitality business started closing their wallets. We have one hotel listed in Banner Elk - a resort hotel, that was being offered at over a 12% Cap rate. (Click here for discussion on CAP rates)

I have already seen activity in this sector heating up - but only over the last few months as offering prices drop and the opportunist arrive with their funds. These real estate opportunity funds are looking for hotels. Let's face it, when everyone is selling there are bargains out there and some of the big hotel guys are getting rid of their underperforming assets. This market will recover, and hotels properly selected in limited competition areas (Like Banner Elk) will recover sooner. There are other hotels in major metropolitan markets that can be repositioned and renovated to improve revPAR.

The hotel business is not for the novice however, CAP rates are more attractive in this sector for a very good reason. I had one client tell me that hotels are not used, they are abused. It is one of the areas of real estate that the depreciation numbers are more than just a paper entry.

Funds

I need to talk a bit about the various funds that are popping up recently. Obviously there is new money coming into real estate. This is perhaps Wall Street money that likes the solid base of real estate as an investment but did not invest in real estate before. They got into cash as the stock market plummeted. They smell blood in the water in Florida. Some like the comfort of professional money managers and area investing in opportunity funds. I am now involved in two funds - one as a consultant and one as one of the management team. We have also performed due diligence on portfolios on a fee basis for some fund buyers and asset managers.

The opportunity exists as an investor in these funds or as a seller to them. If you have an interest in learning more about this you need to contact me directly. There are restrictions that are rigid and rules that must be followed for qualified investors.

I do expect to sell notes, REO portfolios, and stressed assets to some of these funds.

Condos

Last week I talked about Downtown Fort Myers being on sale. (Click here for the article). Prices are down, and way below replacement cost. To me this is a strong buy signal. Individual owners that were priced out of the market can now afford to own in Florida. Furthermore, the patient investors can buy at these depressed prices, use for a few years and then hope to flip, although it may take more than five years for this to be profitable. Becoming a landlord in the condo arena does not work. There is no way market rents will allow you to break even on rentals.

Bulk buyers are picking up distressed projects. There are opportunities to convert condo projects into apartments, but these are generally large projects that are riddled with complicated problems like multiple liens, successor developer issues, and other challenges that only an experiences developer should undertake.

When looking at buying condos at fire sale prices beware of how many developer owned units there are, how the common fees are being funded, and if banks will even loan on the project. Local agents may have the inside scoop, but it may be best to do some investigation on your own. If possible, find out what owners are on the board of the condo association and have a chat with a couple of them. In all cases I suggest using an agent that is not directly involved with the project so you have someone representing your interests.

Stumble Started Projects

I get a call almost every week from some broker or fund manager looking for projects that are partially complete. In our area I just do not see that many of them. The banks are not yet prepared to accept the prices that speculators are willing to pay. In most cases the numbers just do not work with the price the banks want. I expect the banks expectations to change once the TARP money is gone, however, and once the new year is upon us.

Many of you know that I sold Brixton in August of 2005 and then the Island Pines project failed. This is just one example of a project that languishes on the market, but it is not atypical. There are complicated lawsuits, liens and lenders all to be dealt with. I know of three other projects in Lee County that are in various stages of completion and all have their own sets of problems to iron out.

Where is the opportunity? For the buyer that is prepared to deal with the liens, settle the lawsuits, and get all parties to the table, good deals can be made. The good news with most all of these projects is that the individual buyers are not in the picture.

The exit strategy will be to convert to apartments or to sell at greatly reduced prices. I would love to get involved on one of the projects with my team. Hopefully in 2009.

Rescuing the Baby from the Bathwater

Surprisingly enough there are good, solid investment deals on the market - put there by real estate investors that need to sell all their properties or by banks that need to sell all their notes of a certain class. In a tight lending market some of the good deals get put on the market with the bad - the baby gets put out with the bath the water, so to speak.

If you were to call me and ask me to find you a solid 7% cap rate NNN investment - I could do it today. This was not possible a few years back. Here again the "asks" are not the same as the closing prices. So you need to be tenacious in your search. A 7/11 that was overlooked by the aggressive investors a few years ago because the CAP rates were low is now an attractive buy.

Banks also are selling portfolios of notes to restructure their exposure and have performing notes available for those that know where to look.

I subscribe to a few services that make these notes available. Many are auctioned off in a bid process that requires cash and in depth due diligence, but they are available. The funds we work with are capitalizing on these opportunities.

In Conclusion

Now more than ever before, cash is king. There are of course many ways to make money is in today's market. I have not reviewed buying lots, becoming a landlord, buying notes, short sales, foreclosures, and a host of others. My friend Dennis and I once sat down and listed all the ways it was possible to be make money is real estate; I think we ran out of ideas after about a list of about 50.

I know 2008 was a tough year, but it was a transitional year. 2009 will start out rather rocky, but I believe will settle down and afford some profitable opportunities.

I would like to work with you to help make 2009 a good year. If I can be of service to you as a broker or representative, you need only call.

Gregg Gregg.Fous@engelvoelkers.com 8004391580 extension 1

Gregg the Realtor - "What me Worry?"

It's so easy to get preoccupied today. It easier for us to expend our attention on "the housing crisis" than to pay attention to how to sell OUR home. It is actually easier for us to worry about who will next president, or how big the foreclosure numbers will be next month, or whether or not the stock market will plunge, than concern ourselves about our own personal challenges.

Today we are lucky, there are so many huge preoccupations out there that we have less time to focus on our basic day to day challenges. The preoccupations become our main focus and it is difficult to remember what we can control and contribute to.

Like most of you I will never forget the tragedy of 9/11. I remember driving home from the office where I watched the horror unfold. I was going home to be with Gail so we could, well, be together in this crisis. As I drove home along Iona Road, I remember seeing gardeners working on trimming hedges. There were maybe a dozen of them working along one of the gated communities. My initial reaction was, "How could they continue to work when the nation was under attack?" I could not imagine doing the day to day tasks that needed to be done.

I spent the next days not being very productive, glued to the TV news, and worrying about something outside my influence.

Many of us suffer from this malaise today. And today we have a wider choice of things to be preoccupied about: The Financial Crisis, The Election, The War in Afghanistan, Global Warming etc.

I remember my father telling me the story about a husband and wife lying in bed one night. The husband kept tossing and turning and keeping his wife awake. Finally she turned on the light, turned to her husband and said,

"Honey, it's one o'clock in the morning, why cant you sleep?"

"Well, the mortgage payment is due tomorrow and I can't make the payment. We've know Fred at the bank for years. I just don't know what to do."

She turned to the nightstand, picked up the phone and started dialing.

"Fred? This is Susan Stockman. Yes I know its Late, but Jim and I are broke and can't make our payments to you." She hung up.

Jim, in total shock, exclaimed, "What the heck did you do that for?"

"Now it's HIS problem and HE and Martha won't sleep. Go to sleep honey"

Remember the Serenity Prayer that begins with:

God grant me the serenity
to accept the things I cannot change;
courage to change the things I can;
and wisdom to know the difference.

Fort Myers is not Detroit.

Heck we are not even Des Moines. I don't want to give you empty platitudes about this market. I don't like them: "Oh, It will be okay," "You're strong, you will survive".

I can tell you with conviction that I am optimistic about Fort Myers recovery. Earlier this week I spoke at a European Chamber of Commerce luncheon. I was the one of three speakers and the second to speak. The topic was the current status of the local real estate market. A very experienced attorney was first to speak. He made some excellent points, but one thing he said was: he did not know what was going to happen with the local real estate market.

When my turn came to speak, I said, "Indeed I CAN tell you what is going to happen in the real estate market locally." I paused for effect. "It is going to recover. ( another pause) I just cannot tell you when."

"All real estate is local. It is affected by national events like the mortgage crisis, gas prices, Northern unemployment, and hurricanes in Galveston. But reading the headlines in the New York Times about housing sales and believing that they are talking about Lee County is a mistake.

Here are some local facts.

The number of pending sales on the MLS is the highest that is ever been. Ever.

Sales handled through a Realtor here in Lee County are, on average, 9% lower in price than one year ago. Some homes are selling at 50% what they were being offered at the peak of the market (August 2005)

You can buy a three bedroom house for under $100,000. A house on water for under $500,000, and rent office space for under $12/sf.

Banks are eager to loan money at good rates to qualified buyers.

Our market began it's down turn in August of 2005. It is beginning its upturn now.

My local Engel and Voelkers office sold more homes in the last four weeks than we have in the last previous three months. And we are not alone. Realtors are busy again.

Twenty percent of our offices sales are to Europeans.

Lee County population is growing. Detroit's is shrinking.

Bargains exist at every price level. On everything.

At current absorption (sales) rates, Lee County has only nine months of inventory.

Retail is overbuilt. Industrial building sit vacant.

You can now buy a home well below replacement cost.

Worry or Action?

The best thing to do when you are worried is to take action. The action that you take is not as important as the fact that any action at all leaves you less time to worry. Worrying is unproductive and drains you of energy. Action gives you a purpose.

Am I worried? Often. But I am able to pull things together by setting smaller goals, working to achieve them, ignoring the macro news and concentrating on the micro news. Lee County will recover faster than the nation, it always does. We don't have to rebuild an economic base, we just have to stick to our local market and our local advantages.

The reason we are selling so many houses today is that in addition to all the advantages of Florida living that we are so familiar with, those advantages that have sustained us for years, is that now Lee County housing is affordable again.

In many real estate offices I see agents that are so busy that they are talking about needing an assistant. Then I see agents that are moping around complaining; hoping and waiting for the turn around.

The agents that are taking action are making the turnaround happen.

The worriers?

Well; they worry me.

Gregg

Gregg.Fous@engelvoelkers.com

Recently I was asked to comment on the feasibility of an "al a carte" MLS real estate service. This is a service that is made available to sellers of homes to buy (and pay for) just the services that believe they need in a transaction. It is posed as an alternative to sellers who, especially these days, are strapped for money and are perhaps even in a "short sale" position , owing more money to a bank than their home is worth.

I am reminded of the television ad that has a man attempting to do surgery on himself with the doctor on the other end of the phone. Not a good idea; or a Dagwood Bumstead that decides to fix his plumbing leak, only to make it worse, before Blondie call in the plumber. Only to wind up spending a fortune to fix what originally was a small leak.

Direct access real estate services are for sellers who have only the simplest of real estate transactions to handle; and even the simplest transaction can go haywire in a flash.

Today, more than ever before, is the time to have a full service, experienced real estate professional aiding sellers and buyers in real estate transaction.

Folks, when things go well, they go so well you think , hey, this is easy; kind of like you can't tell how good your doctor really is until you get really sick.

I offer the following points that should convince you to use a full service professional.

1. Pricing. A seasoned professional can more accurately, and without emotion, price the home.

2. Marketing. Many brokers have access to dozens of web sites and internet services that the home owner will not have available to him ( We market on over 42 of them, and many international)

3. Showing. It is uncomfortable for many buyers to look at a home with the owner present. They will rush through the home and not give it the due consideration it deserves.

4. Arms- length. Many sellers are emotionally tied to their home. It is imperative that there be an arms-length, more distant representative of the home.

5. Perception . A home that is marketed by owner or one of these for sale by owner services is perceived to be an inflexible seller by brokers and buyers alike. Many brokers will avoid these listings. Right or wrong, it happens.

6. Negotiating. This is probably the toughest area and one that requires experience and finesse. I will tell you that in some full service agencies the broker will often never let the two parties meet face to face - because experience shows that deal will fall apart at this point.

7. Short Sales. There are even experience professionals that bring is short sale experts to facilitate these lengthy and stressful transactions. Only use a broker that has experience here.

8. Financing. The pros do this every day and know the lenders, and the system.

9. The Unforeseen. If I knew what the unforeseen was I wouldn't call in the unforeseen. But the point is that a professional has experience in dealing with surprises from many previous transactions he has handled. A few examples would be the market crash that happened recently, a water leak after executed contract but before closing, or a divorce or spousal dispute.

10. Weasel clauses. Professional know how to use them and how to recognize them.

11. The Cognitive Dissonance Conundrum. The deal is NEVER done. Never. Sellers need to continue to sell.

12. The Nibbler. Professionals know how to deal with the buyer that keeps on asking and asking for more things - kind of like Colombo in the old TV series.

13. The Inspection. A stressful time for the seller and an open window for the buyer - unless handled correctly

14. The Closing. A sit down? A mail away? Who is there? What has to be done? Is there a lawyer involved? How can you save money on title insurance

A seller never knows what service she will need ahead of time. In my humble opinion, saving money on al la carte real estate service is a mistake that may be very costly.

Gregg A. Fous

Managing Director

Broker of Record

ENGEL & VÖLKERS
E and V International Realty, LLC.
Fort Myers River District

1635 Hendry Street
Fort Myers, FL 33901 / USA
Phone

(239) 277-9309

Fax

(239) 220-5039

Mobile

(239) 851-5464

Internet: www.engelvoelkers.com/FortMyersRiverDistrict

Mail to: Gregg.Fous@engelvoelkers.com

Click here to talk to me NOW!

To Search the MLS CLICK HERE