"It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness;...”
A Tale of Two Cities by Charles Dickens
When cycles change, they usually don't announce that they are here. Usually they advance onto the market in a slow gradual pace. What’s amazing about this cycle is that it’s screaming out that the real estate recession is over. I am here to tell you that we have hit bottom and now is the time to start buying.
The house on the corner where I live in Mar Vista went on the market for $795,000 (a modest 1,300 sq. ft. home). They had the first open house Sunday and had over 100 people visit.
I had a conversation with Robert Minskey of Commerce Escrow in Downtown Los Angeles, an company we use a lot. Rob told me they are hiring and are very, very busy. Deals of all types are getting done. Vacancy rates are way down and all types of real estate are getting offers from multiple buyers.
A few weeks ago, I had a meeting with Kara Savoian Chase Bank, and they are becoming very aggressive for deals. Last week I had a meeting with Joe Pacis of City National Bank and about 15 of their loan officers. They were all very hungry for deals. Today I had lunch with Gus Ghusayni and Sania Kazimi from Wells Fargo Bank. They said the bank is sitting on $150 billion nationally and they want deals.
I got a call today from mortgage broker Barry Weinstock, whom I’ve known for many years. He was so excited about insurance companies that have so much money to lend. He has arranged literally billions of dollars worth of loans in his career. My clients are making offers on properties that sat for months and some for years. The tide is turning and now is the time to buy.
The good news is that you can still find good deals. I just put a deal into escrow on a 26,000 sq.ft. vacant warehouse for $1,220,000 ($47 per sq. ft.). Once the real estate market chooses a direction, it goes that way. Since October 2008, it has been on the way down, and now in March 2012 it’s on the way up! The pace of buying, if it continues, will start to drive prices up. But I feel for the most part we have hit bottom and have stabilized.
Appraisers are starting to look at deals and putting in appreciation for future value. This is one of the most amazing phenomena that drives real estate up. If the properties don't appraise, then the deal does not get funded. When appraisers start to look at the market with optimistic eyes, that’s when things start to rise.
Low Interest rates are also a leading contributor to this new cycle. This is a man-made cycle and the force of QE1, QE2 and QE3 have for now, saved our markets. Now is the time to identify quality real estate and get in before the big increase in prices. The price per square foot and cap rates will take off in all real estate like the apartment markets have maintained. Be warned, location and property type, tenant mix and manageable debt are the new rules of the day (as they should be always). This cycle will be orderly and specific to quality and well balanced debt. Those that don't heed this warning will fall and lose money even in this up cycle. And the biggest danger to this cycle and your success is technology.
The internet is unforgiving and a merciless lifeless animal that eats up all industries that get in its growth path. Just ask Barnes & Noble and Blockbuster. And, like Netflix learned, don't mess with success and turn off the millions of users and get greedy. They will drop you and go to the next site that streams movies.
Do you think Best Buy will survive the rise of the machines? Who else is a target for the big and mighty World Wide Web? Countries have fallen to the internet. Watch your office buildings and retail stores carefully. Even the U.S. Post Office is in danger of becoming obsolete. But I hereby announce that the real estate recession is over and the next cycle has begun!
“The past is an illusion and the future is unknown, you only have the present moment, so live life to the fullest.”
