MARCH 2011 |
www.opp.org.uk WORDS | Amit Katwala
Finding a way forward “
It actually all started for us back in 2007,” says Garrett Kenny, the chief executive of agents Coldwell Banker Feltrim. “I got a call from a mortgage broker about sub- prime mortgages, which affected a lot of foreign nationals. For example, I had a resort that was built, with 281 units, and 70 people walked away from their contracts because of a lack of fi nance.” Florida suffered particularly badly because it was overbuilt says Kenny. This was also the case in Arizona and Las Vegas, but less of a problem in Michigan, where job losses in the auto industry were to blame. The national market is also a problem for a state reliant on inward migration from elsewhere in the country. Kenny said: “Four years ago there were 1,100 people moving to Florida every day, but they can’t sell their houses now.” CB Feltrim survived the tough times by cutting expenditure, and the workforce. “We absolutely had to slash costs. We tolerated a certain amount of fat during the good times, and we went down from 56 to 24 staff. Good projects had to be abandoned. We were lucky in a way, because we didn’t buy anything at the peak of the market, and we didn’t over-borrow ... we had 70% loans not 90% ones.” What about suppliers? “Most people
work with you if you communicate with them, and are willing to stage payments if you just can’t pay this month.” Kenny is optimistic about the future of the market. “We’ve cut everything to the bone, and I think we’ve come through the toughest part of it. It has started to move in the right direction. In around April and May a home listed for $150k would sell for $100k, but now they’re selling at $150k, $155k. I had happy endorphins for the fi rst time in ages this weekend, I feel good about the business again. I used to be a an estate agent, but for the last few years I’ve been a fi re-fi ghter.”
Finance problems remain though. “There was a spike in fi nance in the fi rst quarter of 2010 thanks to Obama tax breaks making it easier to get,” says
Kenny, “and in fact we were very busy during this period. But they expired, and it went back to a trickle. In the last 90 days I’d say its been bouncing along the bottom. “There is also a severe lack of fi nance for overseas buyers – it’s taking 4 to 5 months to sort out fi nance even for US buyers. But we’ve just fi nished putting a deal together with a hedge fund to fi nance homes, and over this weekend we’ve sold 4 units, so I think that’s the proof of the pudding – if there were fi nance available, more people would be willing to buy.” Kenny believes that Florida offers “exceptional value”, with some homes on the market at less than 50% of
“We cut everything to the bone, and I think we’ve come through the toughest part of it”
their price a few years ago. This is corroborated by data, according to Vani Ungapen, director of Global Business and Legislative Research at Florida Realtors. She said: “According to the Florida Realtors data, home sales have been going up monthly and yearly. In 2009, there were 162,873 sales while in 2010 sales were at 170,848 in the state. This represents an increase of 5%. Folks are still buying. Prices on the other hand have been going down. This
is due to the growing problem of short sales and foreclosures. The median home price of a home in Florida at the end of 2010 was $136,500, which is very affordable. Mortgage rates are still very low at around 5%.”
Ungapen says realtors have responded
to the downturn by focussing on education and marketing, as well as looking for opportunities outside of America. “Realtors have focused a lot on education and also improving their marketing efforts during this tough time. Some of them are expanding their reach and hence they have an increased interest in promoting real estate in Florida to international buyers.” “The outlook for the future is good
but real estate needs to be seen as a long time investment,” she adds. Kenny says the experience of having
ridden out recessions before helped him to navigate his business through this one. “The 80’s were tough, so I’ve been through it before. It’s just taken a bit longer to recover this time. We’re diversifi ed, we did residential, land and industrial real estate in Florida, Ireland and the UK, but no-one foresaw all 3 markets collapsing at the same time.” But forget Florida and the obvious holiday hotspots if you want to make a good return buying American distressed property says Andrew Broeren, the boss of Paragon Investors. The former HSBC banker, who now
DISTRESSED
USA | 51
What has been happening in the USA? OPP takes a look at the housing climate in the hard-hit Sunshine State of Florida and in the slightly more positive cities of the busier and more businesslike Mid West.
runs Paragon from his base in Santa Monica California, says “the mid- west is the place to go” to fi nd a good distressed bargain. Paragon, whose fund is supported
by private investors, seeks out “foreclosed homes in areas with high business rental demand. We look for places where we can renovate to a high standard, put in tenants and then manage the unit professionally.” Broeren told OPP that “we buy
smart and we hold the property for the medium to long term, and we target big and busy cities like Cleveland, St Louis and Kansas City. For us it is all about location, price, asset quality (which has to be good to get the 22% net returns we want), a strong and reliable income stream and managing properly.” Paragon opts for a city like
Cleveland in Ohio because, says Broeren, it has “a large population, a long list of Fortune top 1000 companies based there, a big healthcare sector, a huge bio-tech industry and some of the most under- valued prices in the USA.” He is not keen on the big holiday
markets, on the whole, but Broeren is now looking carefully at Arizona, a market much loved by sun-seeking Canadians. “The key driver is always a high and consistent rental demand,” he says.
Blue skies | are coming back to light up the gloomy Flordia market ... slowly, says Coldwell Banker Feltrim boss Garrett Kenny
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