Build It And They Will Come...Tony Hsieh's Downtown Las Vegas Dream

Tony Hsieh, CEO of Zappos, has been making waves in Las Vegas lately by going on a mini real estate buying spree in a concentrated area of Downtown Las Vegas.  Hsieh founded and has provided the bulk of funding for the Downtown Project, a $350 million vision aimed at attracting business and growth to Downtown Las Vegas and creating thriving, lively neighborhoods.  Unlike many other urban renewal efforts that focus on either residential development or large municipal structures, such as arenas, Hsieh notes that, “we are focused on office space for entrepreneurs, retail, small businesses, and in general helping make Fremont East a place of entrepreneurial energy and a safe, walkable neighborhood.”

Andrew Donner of Resort Gaming Group is Hsieh’s chief real estate deal-maker and has recently purchased 14 downtown parcels totaling around $45 million.  These properties include the former City Hall at 300 Stewart Ave. as well as several residential hotels.  Hsieh notes that it is still too early to speculate on exactly what will be done with these properties, but the overall vision is to create “pods” of activity that increase foot traffic as well as spending and prompt other property owners in the area to make improvements to their assets as well.

To spite the noble quality of Tony Hsieh’s vision, his plan is not without its detractors.  Some in the real estate community have complained that the high profile buying of the Downtown Project was driving up real estate values in a depressed area that otherwise does not command top dollar.  Terry Murphy, a downtown property owner and lobbyist, feels that any impact caused by Hsieh’s buying is likely to be short lived and subordinate to the overall benefits of The Downtown Project.  Murphy said, “There certainly has been an impact on prices, but the upward impact on actual value will more likely occur over time as the Downtown Project developments and others get under way.”

Foreclosure Frenzy Moves from Las Vegas to Atlanta

As Las Vegas foreclosures ground to a near halt after the passage of AB 284, Sin City passed its long-held foreclosure capital crown to Atlanta.  It seems Las Vegas may have sent its corporate buyers to the Georgia capital as well.  Atlanta now leads the country in foreclosures and private equity firms have definitely noticed.  Investment groups like Blackstone Group LP and Colony Capital are sending armies of representatives to Atlanta to purchase properties.  These groups specialize in purchasing single family homes, renovating them, and placing renters in the properties.  This is the same formula Team Plantone has been using in Las Vegas for the last three years.  The major difference lies in the return generated for investors.  We have been able to return double digits consistently for our investors in most cases, where these large capital groups are satisfied with returns of 6% on their investment capital.  As a result, the equity firms that are descending on cities like Atlanta are willing to pay much more for foreclosure properties than their private money competitors.  Peter Horbulewicz, a house flipper in Georgia, commented, “If you go head to head with them, they always win, because they always overbid.”

This drama that is now unfolding in Atlanta has already been played out in Las Vegas and Phoenix where the upward buying pressure exerted from institutional money has raised home prices by 20-30% in these cities.  Private equity groups are able to pay retail for home and still make their desired 6% returns because the gap between the cost to own and the cost to rent is near the highest it’s been in decades in cities like Phoenix, Atlanta, and Las Vegas.  In Phoenix, renting a house was 49% more expensive than owning in August according to Trulia.  In Atlanta, renting was 57% more expensive.  The numbers were slightly lower for Las Vegas, but along the same lines.  The large premium paid for rentals is being caused by a huge increase in demand for rental properties as displaced homeowners, who can no longer purchase a home after credit issues, seek rental properties.

It remains to be seen how this saga will play out across the country.  Some experts believe that the rise in home prices brought about by institutional investing will be temporary if the broader economy does not improve significantly over the next year or two.  Regardless, one thing is certain, rental housing will be in considerable demand for the foreseeable future.  Now is the time to buy in Las Vegas, but the purchase must be prudent, and the buy price must generate cash flow.  If you are interested in investing in Las Vegas real estate or foreclosures and would like guidance to make sure your purchase is financially sound, contact the experts at Team Plantone.  We’ve been guiding Las Vegas investors successfully for years and we are eager to help.

Now's The Time To Sell In Las Vegas!

If you are a homeowner in Las Vegas looking to sell your home, this current market may be the best opportunity you see for quite some time.  Over the last year, home prices in Las Vegas have risen steadily as the lack of foreclosure inventory has continued to put upward pressure on home values.  But this lack of supply may soon come to a close, and many experts believe this will send prices falling again in the Las Vegas valley.

In September of 2011, there were 4,684 notices of default issued in Las Vegas.  In October, Nevada Assembly Bill 284 went into effect and the number of NOD’s dropped to 80.  New regulations aimed at holding banks accountable for the transfer of paperwork and ownership throughout the loan process effectively handcuffed the lending institutions with the threat of stiff fines and criminal culpability if foreclosure agents did not have “personal” knowledge of a property’s document history.   Banks have slowly found ways to resume foreclosures in some cases, but foreclosure filings still measure only a fraction of what they should be based on the number of homeowners in default.  Last month, November 2012, there were 1,417 notices of default issued in Las Vegas, up considerably from last year, but still well below the 4-5,000 foreclosures per month that were being initiated prior to AB284.

Most analysts believe that AB284 is stalling legitimate foreclosures and creating an artificial boost in housing prices that is likely to collapse once banks begin to foreclose again in earnest.  The end to this boom may be drawing very near.  Banks are currently in talks with Attorney General Catherine Cortez Masto discussing possible amendments to AB284 that would allow foreclosures to continue in Nevada.  Cortez Masto has expressed concern at the results of AB284, stating that the bill was meant to uphold the integrity of the legal process and protect homeowners from wrongful foreclosures, but that it was never meant to prevent legitimate foreclosures.  (It is interesting to note that several real estate professionals, including the author, warned Cortez Masto that this is exactly what would occur if AB284 was passed.)

Regardless of how this matter is ultimately resolved, one thing is certain.  It may be the best opportunity to sell your home in Las Vegas that is likely to exist for quite some time.  It is almost certain that this “shadow inventory” of foreclosures will be released onto the Las Vegas housing market at some point in the next year.  It seems logical to assume that once the artificial imbalance of supply vs. demand has been corrected, home prices will drop again in Las Vegas.  My recommendation to any homeowner considering selling is to move quickly.  Contact Team Plantone if you would like more information on current market conditions or to enlist our help in selling your home quickly.

Extending the Mortgage Debt Relief Act Far From Certain

 

Last month I reported on the looming expiration of the Bush tax cuts at the end of this year.  Included in these expiring cuts is the Mortgage Debt Relief act.  This provision, passed into law in 2007, allows an exemption from taxes for people who have lost their home through foreclosure or short sale and have received forgiveness from the banks for the portion of their debt that was not covered by the foreclosure auction or short sale.  If the tax cuts are allowed to expire without modification or extension, then the Mortgage Debt Relief act would also expire.  This expiration would mean that any homeowner receiving forgiveness for a portion of the amount owed on their mortgage, whether through short sale, foreclosure, loan modification would be required to pay taxes to the Federal Government on this amount as if it were regular income.

Although there is widespread bi-partisan support in both houses for an extension of the Mortgage Debt Relief act, it is still not certain that this act will, in fact, be extended.  The reason for this can be found in the figures behind the law.  Although we do not have data available to show exactly how much total debt homeowners have been forgiven in the last five years, we do know that the Congressional Budget Office has estimated that allowing the exclusion to expire would generate around $1.3 billion in taxes from affected homeowners.  According to Brian Bernardoni, senior director of government and public policy at the Chicago Association of Realtors, this juxtaposition between what is best for homeowners and what is best for a government struggling to combat a huge deficit is what keeps the extension of the Mortgage Debt Relief act in doubt.  Bernardoni notes, “This could be one of the unintended consequences of a deal to avoid the fiscal cliff.  Singling out any one group for tax relief is going to be difficult.”

There is a bit of the chicken and the egg paradigm at work here.  Some lawmakers believe that the health of the overall economy must be considered over the interests of a particular group of citizens or a particular sector of the economy.  Others believe that the health of the housing market is so directly tied to the recovery of the economy at large that failure to extend this measure could prove debilitating to the entire recovery effort.  Mesirow Financial’s Diane Swonk puts it this way, “Housing is finally showing signs of healing after a prolonged illness...We still have a long way to go, but it has reached a critical shift in momentum, if allowed to continue; the choice is in the hands of our elected officials, and the clock is ticking.”

I will continue to update my readers on the status of all negotiations in Congress, and their potential impact on the housing markets, as those details become available.