Last Decade Iowa / US comparison

The Gazette reported in the Wednesday 12-30-2009 addition that basically, prices are higher and incomes are lower than they were 10 years ago.  Median income is down $2,000, public debt is double and gas is 30% higher.  At least the Iowa City housing market is stable.  This is good news if you're a real estate broker, or a home owner!  I believe it also shows the stable influence of the U of I on hte market, too.

Let's hope for, no, let's work for a better decade.  Our kids deserve it!

Iowa City area 2009 home sales

It's close enough to the end of the year to have a peek at 2009 home sales for the area. There were 2,331 homes sold for an average $182,708 that sold in an average of 102 days. In 2007 there were 2600 sales and 2300 in 2008. I'd day we're pretty stable!

Tax Credits for home buyers

Two tax credtis for home buyers: $8,000 for first time and $6,500 for existig home owners! This is serious stimulus! Details here: http://www.federalhousingtaxcredit.com/

Commercial Leasing Floor Relief

There is an Iowa program to help flooded commercial properties. The Iowa The Disaster Recovery Business Rental Assistance Program will reimburse 6 months of rent up to $50,000 for properties that have been flooded. Check: http://www.iowacityarea.com/News/Detail/Commercial_Rental_Assistance_Program_applications_available_now.aspx

Iowa City Real Estate Checkup for Fall of 2009 - Q & A

1) The Current Condition of Real Estate in Iowa City?

The residential real estate market, and as a following indicator, the commercial real estate markets are currently guarded, but healthy. Historically, for the last 20 years, or so, homes have increased in value by about 4% per year, have sold in 90-120 days and have sold for about 98% of what they were listed for. This trend continued through the first quarter of 2008, and then stopped the upward growth cycle. The average sales price of $185,462 in 2007 was moderately reduced to $182,868 so far in 2009. This is a reduction of 1.4% over a 1.5 year period, which in this market is pretty good!

The number of sales in 2007 was 2,635 and the number of sales in 2008 was 2,368, just a 267 reduction, or 10% in the number of homes sold. This reduction is significant, but when compared to the news coming from many areas of this country, is not too bad.

Commercial real estate has not fared as well, but is still fundamentally healthy. The number of leases signed for 2007 was about the same as for 2007 and was slightly higher than 2006. The number of sales, however, for 2008 were dramatically less showing a total sales volume of 1/3 the amount of the previous year, 2007. The figures for 2009 seem to on the mend, but with the small data sets we work with, are not conclusive.

2) What impacts has the national economy had on the Real Estate Industry?

Real estate sales are a local phenomena, but are affected by the national economy to a degree. They are governed by consumer need, consumer confidence, consumer’s ability to pay, and available loan programs among a few other minor factors such as revised appraisal guidelines. The need remains relatively high in the Iowa City area for homes driven by the University of Iowa, the University of Iowa Hospital and other government employment. Consumer confidence is eroded by the national economy, and the ability to pay is eroded only by the degree that jobs are cut and salaries are frozen. Iowa City has historically had ample mortgage money available from local banks and the current period is no different. Banks have tightened credit underwriting a bit, but employed people can still buy homes with 0% to 15% cash down.

The Federal Government has offered a first time how buyer benefit of $8,000 which is not subject to recapture. The State Government is also offering a liberal leasing credit up to $50,000 for properties that were subject to the flooding of 2008. Although this flooding credit is not recession connected, the effect of receipt of the credit directly affects recession recovery.

Commercial real estate is affected more by regional and national economic trends that is residential real estate. Home buyers are local, but commercial tenants and buyers may be regional and national. Lease or buy decisions of those companies are made by taking the national or regional health of the company into consideration and not just the local players. I believe this is the main reason for the dramatic reduction in commercial sales activity for 2008. There is ample local funding available for commercial projects, however some projects were scrapped due to forces outside our community.

3) What are the critical factors affecting Real Estate’s ability to grow in this market?

I believe there are four basic critical factors. The first is the most significant with far reaching consequences of State Jobs layoffs.

• Continued buyer confidence and ability to pay.

• Continued low interest rate loans available.

• Continued interest deduction on Schedule A.

• Continued First Time Homebuyer tax credit.

It is interesting to watch these items in the future as they unfold and develop. We have little control over them and can only respond to them.

4) What re the attributes of the community that benefit or challenge your industry?

Iowa City and the surrounding towns are collectively a “company town”. As the University of Iowa goes, so goes the real estate market. Residential real estate is directly affected by the annual ebb and flow of residents dictated by the University of Iowa. Area workers receive relatively high salaries which come as transfer payments from the government and not directly from selling a products locally, or from providing a service locally. This type of “basic employment”, money coming from outside the closed local economy, is very healthy for a community and helps insulate the community from economic fluctuations. This recession has begun testing this theory as State Government cuts will directly and adversely affect area employment and the ability to buy a home.

The commercial real estate market is really secondary to the residential market in this effect. There is little industry in the area aside from the University and a handful of area industrial employers. When residential real estate flourishes, and residents have confidence in spending, retail and service sectors thrive and require space to operate. When there is a retraction in residential real estate sales and values, there is necessarily a retraction in goods and services supplied to those residents.

5) Provide any projections of the Real Estate industry over the next few years.

Technically, the recession of 2008-2009 is over. The effects are not, however. I believe that there will be adequate funding for home sales and that home sales will be steady at the 2008 rate of 2,300 home sales per year. I believe that prices will also remain stable at the average $182,000 level, and may even increase at the rate of 1%-2% per year for the next five years. There are currently 1,560 homes on the market which is down from levels of 2,000+ homes on the market in 2008. This indicates to me that home building has slowed and that inventories of homes for sale are being reduced. The Iowa City area normally has 1,500 to 2,000 homes on the market so there should be room for new home building starting in the spring of 2010.

Commercial real estate trends are harder to read as there is a small set of data available. Based both on the available data and on anecdotal and experiential information I will forecast that commercial leasing activity will remain steady for local retail and service businesses. Some local companies are growing, but there is also a segment of businesses that are starting up as employees are laid off or terminated from traditional jobs.

Real estate investments are an area that will see some reductions in value. National expectations as reported by Kiplinger Letter and other experts anticipate a reduction in value of 35% for commercial and investment properties! This area will see a lesser reduction in values, but I forecast that capitalization rates of 6.5% - 7.0% which were perfectly acceptable for University area properties two years ago will rise to 8.0% and higher which have the direct result in lowering values of those properties. Some properties may lose 10% in value in this area, but keep in mind that there is no actual loss unless a property is sold.

6) What technology is emerging that would impact your industry, and is this considered positive or negative to our local Real Estate Market?

Technology is not something that directly affects the real estate market. There are marketing techniques that affect the business of real estate sales, but the market itself will be relatively unaffected by them. The internet and electronic delivery of information has dramatically changed how real estate is presented. The information on local homes is available 24/7 to home lookers worldwide. Buyer’s are more informed and educated than ever before. Upon their arrival in the Iowa City area, they normally still require professional services of a real estate broker, but they know better what they are looking for and actually get better service because of this. Some companies including Microsoft, have made attempts at cornering the real estate sales market, but have not been able to do so due to the fact that the product is profoundly local.

7) Are there legislative / regulatory changes that could present opportunities or threats to the Real Estate Sector?

There are many legislative and regulatory factors that continue to affect the Real Estate Sector.

Real Estate Taxes, rates and county assessment criteria.

First time home buyer tax credit.

Financing reform / regulation.

Appraiser regulation.

Deductibility of home interest.

Capital gains tax rates.

The biggest factor is still supply and demand. If there is a population who want to buy homes and can afford to do so, there will be homes available to purchase.

Composting

Ok, composting is next in my effort to adopt a greener lifestyle at home. I read about composting, and as a child we composted all of our organic kitchen waste, although we never used the compost for anything. We had a serious amount of material when I finally left home and I never really found out what happened to it. My guess is that things really grow well in that spot. The idea is to put all that organic kitchen waste to good use instead of throwing it away. This is all true, but what I am focusing on is that in my home we never did throw it away in the trash, we ground it up and ran it down the sink. God knows where it went, but there was a lot of it going somewhere. Old sandwiches, egg shells, coffee grounds, broccoli, all the stuff after meals would simply go down the sink. We would also use a lot of water to get it there, but nothing I have read really talks about that.

We started this project by ordering a bottomless compost bin like the one in this picture (above). It was large and looked pretty cool. It assembled easily and I set it up in the back yard. The neighborhood bunnies and squirrels were watching, too, with interest. After we got about 6 inches of material in this bin, the urban woodland creatures would up end it and scatter to contents. I didn't know compost was that fascinating to these mammals, but it was! I rolled up that bin and disposed of it. My next stop was Lowes where I got the largest rubber garbage can I could buy. I got the kind that Iowa City won't let you use because it's too big for street side pick up, but it looked about right for backyard composting. I took a hole saw and cut rows of one inch holes around the sides and on the bottom. This gives enough holes for air circulation, and drainage, but also enough closure so the thing heats up and does unspeakable things to the organic material that was once our dinner.

We began filling it with table scraps, coffee grounds, egg shells, but avoided dairy and chicken bones and things like that. I was surprised at the amount we would accumulate. We keep a bin (without the holes) under the kitchen sink and with a lid and empty it into the compost bin when full. We send it out twice or three times a week! I read that worms were good in a compost bin, too. I took my 4-year old son and went off to Fin and Feather and bought 4 tins of fishing worms, gave them a reprieve and dumped them in the middle of this mess. I have never seen them again, but I move this bin once a week to mow and there are the largest worms I have ever seen living under it. I am surprised at how quickly this mixture turns into mush and how the volume keeps diminishing in the bin. I have been composting now for about two and a half months and the bin is just half full.

I know that you are suppose to turn the contents to mix it up, and to mix soil in with it. I am not doing that. We'll see what happens when it is full, but I expect to find that I should have been following directions from the start. The thing smells pretty bad and there are swarms of flies, fruit flies and loads of maggots thriving in there. I just don't want to stir it up and make trouble if I don't have to. I am hopeful that when this bin is full, I can just dump it out in my flower beds, mix it up with the clay stuff that passes as soil, and grow beautiful rose bushes. I will let you know how this goes in a couple of months. Until then I feel like I am at least being responsible for some of my own waste and am not plugging up the sewage treatment plant with my half eaten tomatoes and carrots. In time I may yet have beautiful rose bushes, too!

Taking Green Home

Ok. So we're going green...for real. What's next. We here's what I think I can do, or at least try.

New lights

Composting

Lower temperature

Shorter showers

Recycling

Pay attention, buy local

What I don't think I can do, so far. After all, the things you buy don't have the same personal impact as the things you do.

Replace windows

More insulation

Solar, or wind energy

Anyway, I'm starting with lighting. Lighting accounts for about 11% of the energy used in a home courtesy of Michel Bluejay's graph. In my case, maybe more. When I renovated my house I added Thirty-Eight 75 watt halogen light cans to the existing lighting.

Here are a couple of problems. First, we're talking about CFL's - compact fluorescent lights. I have tried some and I don't like the light. It's too blue and makes me feel like moon light is streaming in the window. It's cold and forbidding. Also, they flicker on and you can't dim them. But, 13 watts replaces my 75 watt halogen bulbs, an 83% savings in energy use! And, they last 8 to 12 years without replacing.

Committed to this project, I pressed ahead. I found there have been some recent innovations in CFL lighting. First, there is this thing called light temperature. Blue light, or sunlight, has about a 5000 degree light temperature on the Kalvin scale. The CFL's I used before are sort of a standard 3,000 degree Kalvin. The new bulbs are a 2,700 degree Kalvin temperature and they shine sort of light gold, just like the tungsten bulbs in normal incandescent lamp bulbs. So I tried one. I liked it. I liked it a lot! You can buy several different light temperature CFL bulbs to sort of set the mood in your lighting. Also, these new bulbs are called instant on. Well, they almost are which is close enough for me. The third drawback to CFL's is the dimming. That needs more work. I tried one of them, and it was funny. They do dim, but they don't dim well! They sputter higher or lower.

What I did was replace all the 75 watt halogen bulbs that don't dim. That was about 10 of them. Then, I replaced all the 60 watt and 100 watt bulbs in my house including outside lights, lamp lights and ceiling lights in fixtures. I used the 2,700 degree Kalvin warm feeling CFL's and like the effect. I replaced about about 40 of them. All together I replaced bulbs burning just shy of 4,000 watts of power with CFL's burning about 700 watts of power. That's quite a savings and I like the light.

I justify the option of not replacing the dimming halogens yet with the idea that I can dim them and save some power that way. I think I'm kidding my self with that, but I feel better about it. I'm on the way! I feel like I really started something and I'm doing more than just talking about saving energy. It may only be a start, but it is a good one.

Next we'll look into composting.

Jeff's Gone GREEN!

GREEN. There is a lot of talk about GREEN these days. Green building, green living, green speech, green cars...so much I started to wonder what it really means to be GREEN, or to go GREEN.

I got an email about a Realtor class offering a green designation. Well, I needed the CEU's so I signed up thinking that I might actually learn something, but I would have the fail safe of earning 18 CEUs just in case. I took the class and I actually did learned something! I really did. I sort of got excited about the whole GREEN deal and in addition to earning 18 hours of continuing ed, and earning a new Realtor "green" designation to languish behind my name, I have gone green. (http://www.jeffsgonegreen.com/).

I am a rebel, or maybe just arrogant, but I need to define my terms to you know what I mean by going green.

Green is a lifestyle resulting in sustainability of this planet as a place for humans to live.

Green is using less energy and emitting fewer "greenhouse" gasses into the atmosphere.

Green is saving money by using less.

Green is living just a little simpler and as the result of that, being a little less dependent upon, technology, and as the result of that, being a little happier!

Green is using my share.

Being a Realtor, I thought I would start on my house and tell you about it. This is my conversion to being GREEN.

Virtual Tours: A new tool for commercial real estate

Virtual tours are not really new, but the technology has improved to the point where they can be really useful. They're a time saver for anyone looking at property listings online. Virtual tours have been used in residential listings for a few years, but I have not seen many for commercial listings. The property descriptions can be interesting, photos very helpful, but a virtual tour well done puts you in the scene. You can pan and tilt, zoom in and zoom out on a room or a scene and you have the feeling that you are in the room.

This ability lets you rule in, or out, properties in your search. You can cover a lot more ground from your desk before you spend time driving around to several locations looking for a property that will help you. It doesn't replace a visit, of course, but can be a real time saver.

I am adding virtual tours to all my listings. They're not all done, but I'm working on it one-at-a time and find that my clients appreciate the effort. Here is a link to one I just posted for the sale of the Iowa City Press Citizen building. Click here for virtual tour I will post a commercial tour soon to give you an idea of the power and effect they have.

Stay tuned.

Recession...Iowa City Style

Yes, we are in a recession and boy am I sick of hearing that. Believe me, I know there are real problems with this economy, but the self fulfilling prophecy aspect of talking about it is another problem altogether.

Let's see what a recession actually means in Iowa City. I have tracked home sales prices in Johnson County since 1981. My method is to track the average home sales price, the marketing time, the change from last year and the list price to sale price ratio. Over time this seems to tell us about the health of the local market.

In 2007, a non-recession year, the average sales price of a home was $185,418. They sold for 97.7% of what people were asking for them and sold in about 112 days. This was up 3.2% from 2006.

In 2008, a recession year, the average sales price of a home was $183,850. Yes, that's lower than 2007, but only by 0.8%! In 2007 we sold 2,631 homes and in the depth of a recession in 2008 we still sold 2,363 homes.

We can see there is a negative effect going on in the market, but it is thankfully mild. We wish it were this good nationwide, but if we can't have that, let's just be thankful we live in Iowa City!

Real Estate Terminology 101

I talk daily with people interested in leasing property and have discovered that the way brokers price property for lease is not very helpful to the public. The small business owner, or start-up company, just wants to know what the rent is for a particular suite, but we in the industry price it by the foot per year on a triple net basis. Now, unless you have done this before, what I just said may sound a little familiar, but is not really very helpful.

So, let’s get some common language. And, understand that we’re not totally deranged, nor are we out of touch with the public. There are really good reasons to quote leasing prices the way we do, you just need a yellow pad and a calculator to answer the original question of “How much is that space for lease?”

Commercial leases can be gross, net, triple net, absolute triple net or full service leases, or combinations of these types. Let’s look at them and define some terms. There are several costs associated with leasing commercial property. There is the amount of money the owner wants to lease the space. There is the amount of real estate taxes applicable to the building, or suite within a building. There is also the premium amount of building insurance for the building. These are the leasing costs and the last three are collectively called net charges, or triple (because there are three of them) nets, or pass through fees, or simply CAMS. There are also operational costs that can come into play such as janitorial expense or utility costs. They all mean different things and all are important information for the prospective lessee to have.
Let me just line these terms out so we can look at them:

Triple net lease:............................................... The lessee (you) pays an amount per month to the building owner, and in addition to that, pays a pro-rata share of the building taxes, the building insurance and a pro-rata share of the common area maintenance, or CAM. This is quoted as a price per foot per year not including the additional prorated costs. We do this to make it easy to compare one space to another in terms of the net rent cost.

Absolute triple net lease:................................. The lessee pays all of the costs of a triple net lease, but also pays for the cost of maintaining the building including roof, structure, heating and cooling plants and other features of the building. This is typically used with a long term single tenant building and is the closest thing to owning a building and still be leasing!

Gross Lease:.................................................... The lessee pays a monthly amount to the building owner including the building taxes, insurance and CAM in one payment. This may be quoted as a monthly rate (helpful), or as an annual price per foot (accurate, but not helpful). This one is the most like the type of rent quoted for an apartment, or rental house.

Full service lease:............................................. This one is also a hybrid type of lease. The Lessee pays one fee and it includes all the items in a gross lease, but also includes much of the cost of operating your business such as utilities and janitorial costs. This would be used when it is impractical to separate the associated costs of owning and operating a commercial suite such as an executive suite complex, or if you are renting a single office in the back of a larger company, like a law office or something like that.

The next logical question is what does all this stuff cost? Our answer, in keeping with our tradition, is not too helpful. We say “that all depends on where you are and what building you are referring to.” But, let me go way out on a limb and make an attempt at actually being helpful. You will understand that as soon as I quote some prices, or facts and figures, they will be wrong in some situation!

Here goes. In the Iowa City – Coralville area, Net rent ranges from $12.00 to $14.00 per foot per year for new, first generation space on a busy street. If you are near the Coral Ridge Mall, or other attractive feature, it can go as high as double these rates. Real Estate taxes run about $3.00 to $5.00 per foot per year, building insurance runs around $0.25 to $0.50 per foot per year, and CAM, or common area maintenance runs from $0.75 to $1.50 per foot per year depending on how much it snowed. There can also be “mall charges” if you’re in a shopping center, but let’s leave that for later. The operations type costs can run around $1.00 per foot per year for janitorial expense and $1.50 to $2.50 per foot per year for utilities. These utility numbers went out the window when gas was north of $4.00 per foot, but have come back since oil prices have moderated.

So much for the monthly pricing part of a lease. There’s more. There are base terms, renewal terms, CPI increases, expense stops, non-compete covenants, signage issues, interior improvements, first generation, second generation space, class A, B, C and D space, early termination clauses, guarantees, net leasable, net usable, load factors, and yes, there can be more. These terms are more about the crafting of the lease over time and not about pricing, so let’s leave them for later.

What does this mean? It means commercial leasing is not a mystery and should be put to the test of comparison. When you make the call to find out how much, expect us to tell you in great detail, how much the space costs. Take notes and don’t get frustrated or feel overwhelmed. When you have the information you can not only determine how much the payment would be for a particular office or commercial suite, you are also armed to compare this suite with others on the market so you know what kind of deal you are getting. You will also sound savvy when you talk to your banker if you rip off some real estate leasing terms.

I hope this essay clarifies the issue somewhat instead of spreading confusion. I think being specific and accurate makes us all better and actually will help your business to succeed!