In the Portland State University Center for Real Estate single family housing report, RMLS student fellow Evan Abramowitz reports that all major US metropolitan markets have seen appreciation in the last year, and foreclosure activity is at the lowest level since before the recession in 2008. Portland remains one of the hottest markets in the United States, with the year on year appreciation at 14.1% using National Association of Realtor data, 12.4% using the Case-Shiller repeat sales index, and 22.0% using Abramowitz’ analysis of RMLS data for the three-county region. Unlike most US markets, prices in Portland market are higher today than prior to the recession. At the same time, this increase in prices hasn’t led to a robust recovery in construction activity. While building permits have risen in the last year, they remain less than half the level in the boom period of 2003-07.
Outside of the three-county Portland area, Abramowitz finds sharp increases in housing prices in all the major markets in the state and region, with the following median levels: Portland area, $334,350; Bend, $280,000; Vancouver suburbs, $279,900; Benton County, $248,000; Eugene-Springfield, $244,300; City of Vancouver, $231,140; Redmond, $180,900; Salem $177,000, Marion County, $170,000, and Linn County, $155,000. Abramowitz discovered that new home prices in Portland in the last quarter only barely exceeded those of existing homes ($334,350 vs. $327,000), suggesting that developers have focused on constructing smaller homes than previously. Historically, new homes have sold for a premium of approximately $50,000 over existing homes.
In the multi-family housing report, Abramowitz reports the Portland-area apartment vacancy rates have remained low at 3.1%, considerably below the national average of 4.3%. Abramowitz finds that multi-family permit activity is rising quickly and cites the work of Portland apartment specialists, Mark and Patrick Barry, who see an accelerating new apartments being proposed, permitted, built, and opened, particularly in close-in East Portland neighborhoods. They anticipate vacancy rates reaching 5.5% by the end of 2015.
In the office market report, Oregon Association of Realtors Student Fellow Geoff Falkenberg finds that the office market has experienced a fourth year of positive net absorption with only a 0.2% increase in the stock of space in the last year. As a result, rents are rising by 5% for CBD class A space and 4.5% for Class B. Vacancy rates for the CBD remain lower (8.7%) than suburban markets like the Sunset Corridor (12.5%) and Kruse Way (15.4%). These patterns may change as the Edith Green redevelopment and the Park Avenue West projects are completed.
In his industrial report, Falkenberg reports that vacancy rates have remained at a low level of 6.7% in the Portland market, the lowest level since 2008, and much lower than rates in Seattle, 15.5%; San Francisco, 9.1%; and Los Angeles 16.7%. While rents haven’t moved much, the tight conditions are leading to new construction. Falkenberg reports the groundbreaking by Capstone Partners of the first speculative industrial warehouse in the Portland market since 2007.
In his retail report, Falkenberg finds that vacancy rates for retail space have remained stubbornly high at 6.15%, However, average rents have remained at the $16.00 per square foot rate for the last two years, well below the $18.00 per square foot level they commanded in 2008-09. This suggests that landlords are keeping their space active by cutting rents. In that environment, little new construction activity is anticipated.
I would also like to announce the Spring, 2013 issue of the PSU Center for Real Estate Quarterly Report, produced with the assistance of the Oregon Association of Realtors. You can find the latest issue at the Center’s website:
From that web page, you can download each individual article or the entire issue. We have also indexed all the articles in The Quarterly Report back to 2007.
Our feature article is a review (PDF) of public private partnerships by Attorney Michael Silvey of Lane Powell. Silvey discusses some of the advantages and pitfalls of a public-private partnership, using his experience with the development of the Rose Garden in Portland and the Seahawks’ Stadium in Seattle.
In our single family housing report, RMLS student fellow Evan Abramowitz reports continued rises in housing prices and sales volume, both in Portland and nationally. At a national level, home prices are up 10.3% over the past 12 months, according to the National Association of Realtors. Using RMLS data, the median housing price in the Portland region reached $291,000 in Q1, 2013, a 26% increase over Q1, 2012. Using a similar time period, the Case-Shiller Repeat Sales Index found a price rise of 8.3%, which suggests increasing sales of higher quality homes in recent months. The revival of prices in the Portland region has been accompanied by a burst of new construction activity and sales activity from one year ago, although about half the level as during the boom period of 2005-07.
Outside of the three-county Portland area, Abramowitz finds sharp increases in housing prices in all the major markets in the state and region, with the following median levels: Portland area, $291,000, Vancouver suburbs, $258,800; Bend, $250,000, Benton County, $250,000; City of Vancouver, $228,000; Eugene-Springfield, $192,000; Redmond, $162,000; and Salem $149,900.
In the multi-family housing report, Abramowitz reports apartment rents have been increasing across the nation by an average of 3.5%. The Portland-area apartment market remains one of the tightest in the United States, with a vacancy rate of 3.6%. At the same time, Abramowitz quotes Portland apartment appraiser, Mark Barry, that the increase in apartment construction is likely to put the local market in balance in 2014 and 2015, moderating the rent increases.
In our commercial market report, OAR Student Fellow George McCleary finds that the improving economic conditions in the last quarter have led to lower vacancies and some rent growth. Unemployment has fallen from a 2009 peak of 11.1% to 8.0% today. Major office leases were signed this quarter by financial firms, technology firms, and business services firms throughout the region.
However, as he reported last quarter, the vacancy rates in the CBD have been rising while those in suburban markets have been tightening. Portland’s CBD vacancy rate of 8.7% remains quite low, but it’s following closely by Airport Way, 10.2%, the Lloyd District, 11.7%, and Sunset Corridor, 12.5%. The rate for the Sunset Corridor is a major decline from 15.9% last quarter, reflecting new activity at Intel, Nike, and related firms. Much higher vacancy rates persist in Kruse Way, 19.6% and the Hwy. 217 Corridor, 17.2%.
I hope you enjoy this latest issue of the Center for Real Estate Quarterly Report. I would like to thank the Oregon Association of Realtors (OAR) for their continued support of the Center and the publication of The Quarterly Report. As usual, we welcome your feedback on the articles as well as your suggestions for future articles.
I have been invited to present to three different groups in the next month. There will be some overlap in the presentations, especially regarding my forecast for the Oregon and US economies over the next year or so. At the same time, there should be enough of a difference makes all three worthwhile.
2013: The Year of the Turbulent Turnaround
Institute of Management Accountants Special CPE Breakfast Event
Wednesday, May 8, 2013, 7:30-9:00 am
Crowne Plaza Portland-Lake Oswego, 14811 Kruse Oaks Blvd, Lake Oswego, OR 97035
How to register:
Visit the IMA Portland Chapter’s website, and write “Breakfast” in the notes
Real Estate Forecast for the Next Year or So
Association of Government Accountants, Portland Chapter Spring Conference
Thursday, May 30, 2013, 8:00 am to 5:00 pm
Lloyd Center Doubletree, Executive Meeting Center, 1000 NE Multnomah, Portland, OR 97232
Other presenters include Gary Blackmer, Director, Secretary of State Audits Division speaking on Oregon’s financial condition; Darrell D. Dorrell, Founding Partner of FinancialForenics on forensic accounting; Nick Beleiciks, State Employment Economist, Oregon Employment Department on Oregon unemployment and the labor market; and Paul Cleary, Executive Director, Oregon Public Employee Retirement System with a PERS Update.
How to register:
Visit the AGA Portland Chapter’s website and download the registration form.
Oregon’s Public Employee Retirement System, or Can an 800 Pound Gorilla be Tamed?
Washington County Public Affairs Forum
Monday, June 3, doors open at 11:00 am, speakers begin at noon
Tanasbourne Old Spaghetti Factory, 18925 NW Tanasbourne Drive, Hillsboro, OR 97124
The other presenter is Marc Abrams, attorney with the Oregon Department of Justice.All programs are video taped and broadcast over Tualatin Valley Television as well as being streamed from the Forum’s website.
How to register:
There is not charge for admission. But, the cost of lunch pays for the room. Please note, however, that only paid up members of the Washington County Public Affairs Forum are allowed to ask questions of the speakers.
The Winter 2013 issue of the Portland State University Center for Real Estate Quarterly Report has just been published online.
Ron Ross, from Compass Commercial Real Estate Services, provides a review and forecast for Central Oregon’s commercial real estate markets (PDF). He says in 2013, the industrial market should expect to see a drop in industrial vacancy rates and a slight rise in rental rates. He forecasts that retail occupancy will rise and rates will be expected to climb a bit. In the Central Oregon office market, Mr. Ross expects a one to two percent drop in vacancy and for lease rates to remain stable.
In the single family housing report (PDF), RMLS student fellow Evan Abramowitz reports that the market recovery continues, with improving home sales, and increasing upward pressure on prices. In the Portland metropolitan area, the median sales price continues to sputter upward to $315,320 for new homes and $287,000 for existing homes. Central Oregon is seeing signs of improvement, but wild swings in sales and prices from quarter-to-quarter provided little confidence in knowing how strong any recovery will be. The Willamette Valley and I-5 corridor continue to be challenged by stagnant or slightly declining prices.
In the multi-family housing report (PDF), Abramowitz finds a market that “has everything going for it.” He reports that rents have increased in the U.S. by just under four percent. At 2.1 percent, Portland vacancies are among the lowest in the country. The region continues to attract young migrants who seem hesitant to commit to homeownership. He finds that new construction continues to lag behind demand, but several new projects in the pipeline are expected in the next year.
In the office market report (PDF), OAR Student Fellow George McCleary finds a market that has improved modestly in 2012, with general economic conditions continuing a slow upward climb. Fundamentals have improved, and unemployment has dropped almost a full percent, to 7.8 percent. Vacancy is down and 100,000 square feet of space was delivered to the market, although speculative construction is still nearly nonexistent. He concludes that new space is unlikely to be developed before demand increases, forcing lease rates higher.
McCleary’s retail report (PDF) finds overall retail vacancy rate of 5.7 percent, up three tenths of a percentage from the same period last year. Absorption totaled 141,586 square feet for the year, and rents are up by 0.4 percent to $15.83 per square foot. He predicts that measures are expected to improve in 2013. Mixed-use projects drove much of the retail development in 2012, and that most development was build-to-suit or owner-user oriented. Speculative retail construction remains mostly absent, save for smaller infill projects, or ground floors of apartment buildings.
In the industrial report (PDF), McCleary that fourth quarter of 2012 was the tenth straight quarter of positive absorption in the Portland industrial/flex market. It also, however, saw the lowest number of leasing deals since the third quarter of 2003. Although there is a lack of space in certain classes, lease rates are generally still not supportive of speculative construction, as has been in the case for the past four years. Developers have constructed facilities, but nearly all development has been built-to-suit. This is expected to continue in the months to come, with market fundamentals eventually arriving at levels that support speculative development.
Two stories have recently surfaced of some growing pains in the government’s EB-5 visa program.
With financing scarce and often difficult to obtain, it’s little wonder that real estate developers across the U.S. are looking for new ways to fund their endeavors. Within the past three years, there has been an increasing amount of interest in the EB-5 Investor Visa Program as a potential source of capital as foreign nationals seek to invest in the U.S. According to a number of recent reports, there is a growing class of foreign millionaires looking to invest in businesses and development projects through the EB-5 program. The Portland State University Center for Real Estate Quarterly Report recently published a primer on the ins-and-outs of the EB-5 program (PDF).
A recent story in the Miami Herald has—perhaps unfairly—characterized the EB-5 program as “selling greencards.” More precisely, the program provides green cards to investors who provide at least $1 million dollars (or, in some cases, $500,000) for projects that add at least 10 jobs to the local economy. The story is a sign that the press is now paying attention to the program.
A more interesting development is the Securities and Exchange Commission’s announcement that it had filed civil charges against—and received an emergency order to freeze assets of—the Intercontinental Regional Center Trust of Chicago. The SEC alleges misrepresentations or omissions in the offering documents and in documents filed with U.S. Citizenship and Immigration Services in connection with the applications for conditional permanent residency, specifically:
The offering documents made numerous false claims, including the receipt of all necessary building permits, franchise agreements with several major hotel chains, the availability of a state-sponsored bond facility, the value of the underlying land, the financial potential for the project to provide a return to investors and the refundability of administrative fees if visa approvals were not granted.
The sponsors provided falsified documents to USCIS in an attempt to secure conditional visa approvals for investors, which approvals were a precondition to release of each investor’s $500,000 investment to the issuer.
More than $2.5 million of $11 million in administrative fees were directed to the principal’s personal bank account in Hong Kong and most of the balance spent rather than available for refund.
As pointed out in a blog post, while there have been allegations of fraud around other regional center projects, this is the first EB-5 enforcement action filed by the SEC. Press reports from September 2012 indicate that an internal memorandum prepared by the USCIS noted that Regional Centers “are not even making good-faith attempts to conform their offering documents to basic securities regulations.” Press reports also indicate that the Department of Homeland Security’s Office of Inspector General has launched an investigation into fraud in the EB-5 program. The SEC notes in its press release for this action there was close coordination with USCIS in bringing the case.
This case confirms that both the SEC and USCIS are paying attention to EB-5 applications’ compliance with securities laws, and USCIS is now monitoring for securities law compliance in its review of visa applications.
From the “What Do You Mean I Can’t Do That? Department” …
Two Alabama real estate investors and their company pleaded guilty this month for their roles in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in southern Alabama, the Department of Justice announced.
Robert M. Brannon; his son, Jason R. Brannon; and their Mobile-based company, J & R Properties LLC, pleaded guilty to an indictment originally returned in an Alabama federal court. The indictment charged each of them with one count of bid rigging and one count of conspiracy to commit mail fraud.
According to court documents, the Brannons and their company conspired with others not to bid against one another at public real estate foreclosure auctions in southern Alabama. After a designated bidder bought a property at a public auction, which typically takes place at the county courthouse, the conspirators would generally hold a secret, second auction, at which each participant would bid the amount above the public auction price he or she was willing to pay. The highest bidder at the secret, second auction won the property. The Brannons and their company were also charged with conspiring to commit mail fraud.
The Brannons and their company are charged with participating in the bid-rigging and mail fraud conspiracies from as early as October 2004 until at least August 2007—that was during the housing boom, not after the bust.
To date, eight individuals and two companies have pleaded guilty in federal court in connection with this particular ongoing investigation.
For much of human history, mass transit has had the utilitarian goal of quickly moving people from place to place. Even Portland’s early streetcars were designed with speed in mind.
Advertisements touted how quickly people could get around by streetcar. One ad from 1920 boasted that University Park in North Portland was only 20 minutes from downtown by streetcar. That works out to a speed of more than 15 miles an hour.
Times have changed. Modern streetcars have become the pleasure boats of public transit: flashy, expensive and slow.
Today, Portland’s streetcars quietly glide through the streetscape at a leisurely pace. Portland’s new Central Loop covers 3.3 miles in about an hour and a half. At 2.5 miles an hour, that’s slower than most people walk.
If streetcars don’t improve transit times, then what do streetcars do?
Many ascribe the development of Portland’s heralded Pearl District to the streetcar. In truth the streetcar was more of an afterthought. The Pearl’s success began with a few pioneering developments that took advantage of historic building tax abatements to convert warehouses into condos. The success of these pioneering developments attracted other investments and more developments.
After these successes, an urban renewal area was created and the streetcar came along a few years after the birth of the urban renewal area. Development made the streetcar possible, not the other way around.
It’s impossible to find a clear-cut example of where streetcars are the single factor driving development. It’s impossible because streetcars are always just one part of a complex development package. The packages can include roadway improvements, tax abatements, rezoning and environmental cleanup. There is no way to determine whether a streetcar system is just one of many factors that boost development potential or is a vital linchpin without which development would be impossible.
Supporters argue that streetcars and other rail projects provide a magic key that unlocks zoning and uses of an area. They point to the “condotopia” that grew out of the banks of the Willamette River in Portland’s South Waterfront urban renewal area, now served by a streetcar and an aerial tram.
As early as the mid-1990s, however, private developers had their eyes on Portland’s South Waterfront. Yet, every single effort was shot down or stifled by the city’s planning process. One development didn’t follow a city commissioner’s vision for an ideal street pattern. Another development would have exceeded the city’s maximum allowable building height at the time (35 feet, or about three stories).
Even so, Portland’s planning class continues to argue that the aerial tram and streetcar have magically unlocked the ability to build waterfront skyscrapers.
In reality, there is nothing magical about streetcars and trams. City commissioners held — and still hold — the keys to unlock an area’s development potential. If rail and tram expenditures had been invested in roadway improvements, the South Waterfront would be celebrating its 15th anniversary of redevelopment instead of suffering round after round of fire sale condo auctions.
It remains to be seen whether the streetcar’s Central Loop can breathe life into Portland’s Central Eastside, Convention Center and Lloyd District. Large-scale rezoning to unlock development potential doesn’t need a streetcar. Investments in roadway improvements best serve the way the people actually travel, rather than the way we wish they would travel.
A streetcar by itself does nothing without these other key improvements.
Coming up next on HGTV … “Buying the Box” — Where home buyers shop for the smallest living space possible.
In Portland, folks live in a house the size of dining room and in New York, the mayor is pushing apartments no bigger than a few refrigerator boxes taped together.
OPB’s Think Out Loud radio show interviews the Portland owner of a “house” that is 128 square feet and was built on a 16′ x 8′ trailer. It has a stove that uses alcohol as fuel, a free-standing electric-oil heater, and a simple plumbing set-up. The tenants share wireless internet with the land owners. They don’t have a refrigerator or a shower.
New York mayor, Michael Bloomberg, apparently likes the idea. The week he announced a competition for architects to submit designs for apartments measuring just 275 to 300 square feet to address the shortage of homes suitable and affordable for the city’s growing population of one- and two-person households. While the apartments would be twice the size of the Portland house-on-a-trailer, there’s a good chance the New Yorkers would get fridge and a shower.
The big question: Is this just a curious new fad, or has the housing market taken such a big turn that tiny houses are the new McMansions?
We’ve noted the moving target better known as the Portland Public Schools earmark in the mayor’s proposed “Education” Urban Renewal Area. The original earmark of $14.5 million was dropped to $10 million, with much of the money shifted to support the city’s “Cluster Development Strategy.” Lost in the money shuffle, however, has been any description of exactly what the $10 million is going to be used on.
Peyton Chapman, Lincoln’s principal, said the URA could benefit the school’s long-term plan to build a new facility, 1,682 workforce housing units and a large parking garage. Chapman recognizes that a number of bonds would have to be passed for the plan that could cost $130 million; however, she said the URA is necessary to establish essential partnerships.
A parking garage?
Who need’s a parking garage in a multi-modal Mecca served by TWO light rail stops?
Only soccer fans and members of the ultra-posh Multnomah Athletic Club (initiation fee $10,200):
Chapman said the structures proposed in the plan could be used by other schools and area businesses. For example, the proposed two-story parking structure could be used by PGE Park and the Multnomah Athletic Club.
Now you know why we use the quotation marks around education in the “Education” Urban Renewal Area.
In an earlier post, we asked why Portland’s toniest high school was jumping to the head of the line to get rebuilt out of urban renewal dollars.
Now it seems that in less than two weeks, about one-third of that money has been taken away from the Portland Public Schools earmark. The money appears to have been transferred to Portland State University and added to the porkbarrel better known as the city’s (somewhat silly) “Cluster Development Strategy.”
Where is the urban renewal at Lincoln High School?
This is one of the bigger mysteries of the “Education” Urban Renewal Area. It’s no secret that PPS, Lincoln parents, and the construction industry are eager to rebuild Lincoln High School.
Even so, no one seems to know what the city plans to do with the $14.5 million $10 million earmarked for PPS. In particular, no one wants to admit that the money would go toward rebuilding the city’s public ivy. Here’s a tweet I got from PPS government relations:
Edu URA doesn’t guarantee a rebuild of LHS, inclusion of site merely allows for leverage & flexibility, if needed.
Portland’s League of Women Voters believe the blank check aspect the PPS earmark runs afoul of state law:
According to the Plan, $10 million will be spent on Lincoln High School redevelopment. There is no explanation of what is envisioned for the redeveloped site. We understand there are proposals for reconfiguring the school facilities to allow for possible condominium and commercial development. As noted above, ORS 457 requires that the Plan include descriptions of the projects, timing, costs and source of moneys. Council should insist that Portland Public Schools provides that information for inclusion in the Plan before adoption.
What’s taken away with one hand is given with the other
Even more curious is that Portland’s mayor has announced that he is “looking under every rock” to come up with $5 million to hand over to Portland Public Schools to stave off massive teacher layoffs in the beleaguered school district at the same time he’s taken $4.5 million away from the districts urban renewal earmark.