Friday, April 29, 2011

Noodling About - #2

 Nood-ling (nōōd’lĭng) n. 1. Fishing for catfish using only bare hands, practiced primarily by crazy people who cannot afford proper fishing gear. 2. The intentional annoyance by bloggers who are skeptical of the news as it’s reported, as in “Noodling bureaucrats is more fun than fishing bare hand for catfish and a lot more surprising.” This is now an end of the month feature.

Pulte, Meritage and Ryland Report Lower Revenue
The current housing market is dominated by the single belief, “Wait until tomorrow, the price will be cheaper.” This is the same in both the resale and new home markets. Sure there are pockets of resistance, but, overall, the market is waiting, sitting on the sidelines, taking a timeout. If you are a public builder of detached single family homes the outlook for the rest of the year is dire. The WSJ reported today that margins are getting weaker, the buyer is afraid to buy a new house simply because they believe it will be worth less a month after they own it. The three builders lost over $65 million over the quarter, this cannot go on forever.

New versus Old, The Gap Widens
Normally the sales ratio of existing homes to new homes has been seven to one, Builder Magazine now reports the ratio at almost 20:1, a threefold change. Older homes are always more affordable. New homes can’t compete and in a seriously depressed market, don’t even try. Four out of ten sales are now foreclosures and distressed sales.

You Can’t Sell Energy Savings
Even with all the pushing and prodding by the gov’ment with incentives, tax writeoffs, and financing help, the buyer is just not seeing or buying the increased value energy saving construction provides. Even after Meritage (no, this is not a Meritage blog today) substantially improved the energy efficiency in its designs and construction thereby saving buyers a couple of thousand dollars a year, the banks and appraisers failed to mark up the value of the homes for these improvements. Meritage thinks this is an improved value, the buyer just expects it to be there, and so do the lenders. The market would not pay the full cost of solar either, they believe that, like standard heating and cooling and insulation, it should be an inherent part of the house.

Home Prices Lowest Since The Great Recession Began
News Flash: Home prices continue to drop. This drop is expected to continue through the rest of the year, and, to be honest, what could change the direction? Buyers who have been holding their homes or properties, hoping for a change, have thrown up their arms and put the property on the market, hoping for even a nibble, something to start a negotiation, anything. Foreclosures continue, and, I will bet, the banks will take on the same attitude and begin to unload more dead elephants. The seller’s market is wrong side to be on. Ah, but if you are a buyer, especially a young buyer, the opportunities are tremendous, ‘cept you can’t get a loan. But then again that’s what the Bank of Mom&Dad is for, and the rates are better.

China’s Bullet Train Must Slow Down
China is discovering that their high speed rail costs a lot to run. Gee, you mean these things are not green and run on wind farms; they actually use electricity to float above the rails. Yes, Virginia, the Emperor is not wearing clothes (sorry about that). Seems that China’s trains are using too much power to fly across the countryside, they are being SLOWED down to save money. The communists have discovered a relationship between costs and ticket prices. Seems there is a ceiling price that they can sell tickets for, higher and the buyer doesn’t bite. So they have to lower costs to make the ticket affordable. @Karl Marx, the market is supreme, signed Ludwig von Mises.

Chevy Volt is Number Three
The Chevy Volt ($41,000) is listed as number three in the Upscale Midsize Car Market, behind the Buick Regal (they’re still making that thing?) and the Hyundai Genesis. It passed its safety test, and gets about fifty miles of travel with 80 cents worth of electricity (check this out China). As always I am skeptical about the viability of the car. I will wait and see.

Stay tuned . . .

Friday, April 22, 2011

I Finally Changed My Desktop – A Mini-vacation

This week I changed my desktop picture (for all of you who have been staring, for years, at the island with the palm tree or that green Teletubbie hillside, go to your control panel and change the screen – now!), from a pleasant garden in Saint Andrews, Scotland to a beach in Amalfi, Italy. From the bucolic to the chaotic. Each area of the beach serves a particular hotel so the umbrellas change color, there are low fences and other demarcations to establish turf boundaries (really beach boundaries), my guess this hasn’t changes since the Romans and other Italians used this coast as a resort from the intense summer heat. The mountains drive themselves deep into the Mediterranean, barely a shingle at their edge; these small beaches are fought over, towel and tan.

From this garden in St. Andrews, Scotland
to this beach in Amalfi, Italy
The more interesting part of this image is how these homes, apartments, hotels and all other manner of buildings climb on each other’s backs up the slopes. The terraces above the houses are buttressed and walled to support olives and grapes (two of the greatest commercial gifts of the Italians, beyond Virna Lisi and Ferrari), so every inch must be used. Great trellis structures support the vines further up the canyon, lemon trees are everywhere for limoncello (a wonderful beverage only an Italian would think of), magenta bougainvillea wrap the rocks where nothing else can grow.

Density, dear old density. We Americans love to call for density for any number of reasons: save farmland, save utility costs, save transit, save money, save ourselves, and while we’re at it, save the planet. Current urban densities call for densities of at least fifteen units to the acre, and in cities like Chicago and San Francisco, sometimes more than one hundred units to the acre. But they don’t look like Amalfi and Positano. 

Positano, Italy
Maybe it’s the romantic in me, but fifty stories of steel and glass, while interesting, just doesn’t get the heart a fluttering as much as a perched vineyard and stucco home overlooking the Med. We continue to borrow the textures and colors of these regions for our architecture. The Italian piazzas still influence our planning decisions; who doesn’t want a nice little Starbucks on a plaza and fountain in their new project? But the difficulty is the issue of authenticism. I’m sure Walt Disney didn’t stay up nights worrying about his Cinderella castle and how it might have been confused with the Bavarian digs of Ludwig II, Neuschwanstein Castle. And I know, for a fact, the various faux Tuscan designs of the current spate of residential architects remind me more of low fat yogurt than a rich carbonara, oozing with cream, cheese and pancetta (but I digress, but it did give me an idea for dinner).

During the next ten years we’re going to have an opportunity to drive new concepts in housing and residential architecture. New types of dense urban housing ideas will be thrown out for the consumer to rent or buy. A lot of money will be spent, and sadly the failures will not get the treatment they should get or deserve.

It is my hope that there will be a real sense of romance and richness brought back into our new communities. Texture, color, authentic stone, bold colors, and vibrant streets need to be re-remembered and made real. Everyone should find a plaza to visit in their own town that welcomes, like Aix-en-Provence.

Aix-en-Provence, France in a gentle afternoon
Stay tuned . . . .

Friday, April 15, 2011

Great Development and Missed Markets – Stalling for Dollars

For every large project designed and developed in California (and most of the civilized world) an approval process is in place (by code and ordinance) to assure the local residents that the project will be: safe, painless, unnoticeable, environmentally neutral, pretty, and sustainable (and I still don’t know what that is). Seldom are the terms successful, marketable, and profitable used. It is like two separate worlds exist and the proposed development floats in and out of each of them.

In the economy of the world today, large projects will take five to ten years to complete. Whether they are master planned communities with a broad mix of land uses, a large commercial project with phased-in retail, or even a large institutional/research facility, the proposal has to show how every square foot of use or residential unit fits within the local government’s program (i.e. General Plan, Specific Plan, Urban Master Plan, etc.). Absorption rates are quantified, tax dollars computed, and bonds are priced and issued based on these forecasts. I would suggest that the vapors used on the Oracle of Delphi rendered better results.

To require devining the future of a particular project beyond the next four to five years is speculation, beyond ten years is just a waste of energy and paper, beyond that is like walking around with a stick looking for water. Yet, for the last twenty-five years or so, this is exactly what we have been requiring most projects to do. These thick reports, such as the Environmental Impact Report in California, produce incredible volumes of speculative studies and tweaked results. The next change in the economic cycle often made them irrelevant and obsolete. What will be built in 2025 will be what the market demands, not what a politician or a planning staffer wants. The time and energy spent on these efforts makes projects miss markets and opportunities. I worked on one housing project in Marin County that took eighteen years to be approved, it went through three economic cycles, but it was in Marin and eventually the third developer made a lot of money.

Governments at all levels are asking more and more of the development community to prove their projects are “right and just.” They are spending great parts of their budgets chasing intent, fairness, and justice in these proposals. I pointed out last year in The California Labyrinth, that there are now over 75 California state agencies and commissions that deal with development and housing (I’m sure in your particular state there are a goodly amount as well). Every one of these requires some form of obeisance or approval; dollars or fees must be exchanged, salaries paid, rules obeyed, fines collected.

Can you imagine, in 1845, if the Mexican government had set up strict rules for development in California (my guess we would have ignored them). Or how quickly the state would have adapted to the influx of “seasonal workers” brought in by the Gold Rush of 1849 (assuming H-1B visas had been required). Or later, when the “migrant worker” issues developed over the Transcontinental Railroad of the late 1860s (Chinese and European immigration – no driver’s licenses were required then), or the effects of the attack on Pearl Harbor had on California throughout the 1940s (growth in population and military spending). These all challenged and had impacts on then current land uses. These events all led to significant improvements in how land is developed, utilized and reused. We are now well beyond rational in today’s processes. There are projects today (built from land use plans from the 1980s) that are now being torn down and their sites recycled; this is how it always will be. A broader and more intuitive sense of the future must be learned and held by both the elected and hired public managers of our counties and cities.

Collectively we are now very afraid of making mistakes, yet this practice only feeds our collective paranoia about making errors, and as such, we delay, litigate, freeze and legislate. We all want to be perfect, our projects must be perfect, and to paraphrase Garrison Keillor, we all want to live in a land “where all the politicians are strong, all the developers are good-looking, and all their projects are above average.”

I would have liked to meet the politicians and planners of Lake Wobegon.

Stay tuned . . .

Friday, April 8, 2011

The Problem of Rent Control and Apartment Availability

Without a doubt, one of the most self-serving selfish acts of a democracy is the ability to vote yourself a raise. And a direct result of this treasured institution is the systematic control of private property that results in rent control. If you can elect someone or directly approve an ordinance or law that controls what you pay for rent then you have given yourself a pay increase out of someone else’s pocket. Simply, in the approximately 51 United States municipalities that have some form of rent control, you have the distinct honor of owning the property but not controlling it. All aspects of the apartment marketplace are irrelevant and are forcibly turned over to a civil servant bean-counter.

Much of rent control is left over from the crazy days of the late sixties and early seventies. Since then, the adjustments and changes to those laws, boggle the mind and make any clear thinker just shake their head. But New York City (and I am by no means an expert) has had rent control since the 1920s and it has morphed continually until, at the present, only 36% of the current rental market is non-regulated. Essentially the rent of two out of three apartments is controlled. The reasons were, at one time, low income families, concerns about the homeless, and it’s now low-income seniors (source Wikipedia).

San Francisco, according to the SF Business Times and the 2010 U.S. Census, has the largest number of vacant homes in the Bay Area, over 30,000 units (Alameda County has 37,000 units). If you go to the San Francisco Tenants Union web site you get a very active (landlord being hit on the head) view of what they think of landlords as well as a very succinct and detailed description of the City’s ordinances regarding rent control. They are proud of the fact that “In San Francisco, most tenants are covered by rent control.”

The SF Business Times editorial notes that the Bay Area is a growing region and requires almost 20,000 new units every year to keep up with the need, whether for sale or rental. Some suggest even more units, upwards of 40,000 units, are needed. Much of the demand for housing, in the mid part of the past decade, was met just outside the region and required long and congested commutes. It was also responsible for the over building in San Joaquin County and eastern Contra Costa County (these will be absorbed, eventually).

One very important issue, noted in the article, is that due to the cost and difficulty of removing a bad tenant, it is cheaper to leave the unit empty. Many of these 30,000 units probably fall into that category. By not making these units available the pressure on the market increases, there are fewer units and currently more renters, the result is higher rents (in both controlled and uncontrolled units). This is probably twisting the undies at the Tenants Union I’m sure. Even in the most socialistic management of one of the basics of life, shelter, the marketplace finds a way to assert itself. Sadly it also can make criminals, just ask New York Congressman Charles Rangel how to game the system.

The result of foreclosures and the loss of homes by their owners has had a two-fold affect. There are more people and families in need of rental housing and there is pressure on the market to increase rents due to declining vacancies.

Rent control actually plays into the marketplace (and it is now built into the system). These units, kept off the market for whatever reason, are helping to increase rents. Another consequence is that developers and builders now see a potential for getting back into the rental market. Five years ago, I heard a builder say that the rental market was dead for the next ten years, unfortunately his company is not around anymore; he put all of his eggs in one basket and was squashed.

We all try to have personal control over the basics of our lives: income, food, housing, health, etc. We plan and save, build equity, educate our kids, plan for a successful retirement. Then we get clobbered upside the head. Rental housing is a necessary option in many of these choices. Those foreclosed, for the most part, are not living on the street, they are now renting, sometimes in the same neighborhood. Balance is somehow achieved.

But we will get too aggressive; we will jump on the bandwagon. States will issue tax deductions to assist the rental industry, the Feds will diddle around with some form of legislation that will enable the development industry to flood the marketplace, rents will drop, builders and lenders will fail. We will relive the 1980s and the S&L scandal. The Wall Street Journal        notes nationally: “. . . about 22,500 units to be added this year, followed by 94,600 in 2012, and more than 109,000 in 2013. Of course, that might put downward pressure on rents and occupancy levels.”

You think?

Stay tuned . . .

Friday, April 1, 2011

Model Homes – Relearning What We Know

There is a slow (especially in the SF Bay Area), rebirth of the housing industry. While starts are way down and the future for new housing, during the next six months, is less than exciting, there is one thing I’m noticing: We have forgotten how to develop a model home experience for the customer.

This loss of collective knowledge and experience may be through the decimation of staffs, the loss of design studios, the costs of going to trade shows, or even trying to save money. But it’s critical to the seller and buyer relationship that they be relearned and applied.

Model homes, at one time, were an art form; interior designers, architects, and landscape architects worked closely with the builder and their PR people to create the most exciting and stimulating buying experience for their customers. In the past, during the glory days of the first decade of the twenty-first century (five long years ago), it was not unusual for a customer to visit maybe a dozen model complexes while looking for a home. How the complex (townhomes, condo, single family homes, and neighborhoods) appealed to the buyer was critical to the buyer and the product’s success. I can’t tell you how many complexes I’ve seen that were borderline (and even worse) disasters, projects with inconvenient access, sites where the customer drove through a muddy project, dead flowers in the planting beds and pots, dead lawns, dirty windows; the list is endless. These change the buyer’s experience and impression, for the worse, about of the project and the builder.

Over the years I have collected a list of things that a model complex must do and achieve to be successful. Outside of the first item, there is not a particular order, but all are important:
  1.  Remember that the buyer’s experience must be the most important concern. The buyer cannot be inconvenienced, embarrassed, or inadvertently placed in danger. (Parking inside the construction site comes to mind – and it has been done).
  2. A clear path, through the use signage and wayfinding, must start at the project’s entry and proceed to the front door of the sales office. I always see the circulation arrangement as processional from the entry on the street, to the parking, to the sales office, to the models, to the sales office, back to the parking, and finally the exit. These connections should be as simple and convenient as possible. The parking near the sales office is the most critical.
  3. A safe and easily accessed parking area must be defined. Be careful with how remote you make the parking, again convenience is important. It must be striped, paved, and clean. No gravel, dirt, and construction parking will be allowed.
  4. Be sure to include the proper number of handicap stalls. While difficult to accommodate, this can catch you later if not strictly followed. The required numbers vary based on model complex size – but you must have at least one closely and safely located near the entry.
  5.  The path to the sales office must be a safe hard surface. Be careful with how rich you make the paving, the buyer may think this is standard and may expect it in front of his house, signage may work – like: “Not Included with Home.” But be careful with how many “Not Included . . .” you use, the buyer will be put off.
  6. Trap fencing is necessary to manage the buyer. This means getting them to the sales office in a quick and direct way. It leads them to the sales office and your smiling, helpful staff, and then manages their travel through the complex and requires them to return to the sales office for a post-walk through meeting with your beaming staff. I suggest that trap fencing be at least 48” high, minimizes climb over escapes to get out, make sure you have a locked gate for maintenance staff.
  7. Watch steps and stairs. Try to not have any steps to and from the sales office. Steps may be required inside the models (most are two story anyway), but if you are offering accessible units – they MUST be accessible. And no one-step situations – they beg for lawsuits. 
  8. Depending on your marketing season and the complex’s duration, watch and anticipate site lighting needs. I have spot lighted facades, lit stairs, highlighted trees (uplighted mature olives are spectacular), and signage. Consider this in your marketing and budgets.
  9. Landscaping. No one expects to see full sized trees, but the buyer does expect to see a richly developed landscape. Nothing says it better than flowers. Hanging baskets, flowerbeds, rich ceramic pots overflowing with petunias, colorful edges all add to the richness of the complex. BUT DON’T USE THEM IF YOU ARE NOT COMMITTED TO THEIR WEEKLY MAINTENANCE. Dead and spent flowers are like spaghetti stains on a white shirt, they project an image that’s lazy, unkempt, and inattentive. The buyer will translate this to what they are buying, “How thorough is the builder, if he can’t even take care of the landscape?”
  10. Weekly landscape maintenance is important. Select a firm that knows more than ‘mow and blow.’ In California we are heading toward conditions where lawn may not be permitted in model complexes, what will you put in its place? It takes years for a good bed of groundcover to fill in, it’s here where the landscape architect can be very helpful, but don’t expect miracles, the solutions are tough and potentially expensive. In most cases less landscape is better.
  11. I suggest that most plants be evergreen. Groundcover should be planted three times denser than their normal in-ground spacing, shrubs must be a minimum of 5 gallons (larger if possible), annual flowers should be 4 inch pots (not 6-packs), trees as large as possible and affordable – and evergreen unless the sales program will last only one summer-fall season. After that, deciduous shrubs and trees don’t contribute anything.
  12. Handicap bathrooms are now required. If you cannot provide an ADA accessible toilet in the sales office, make sure the portable is as nice as possible – do not go cheap (and make sure they aren’t the same graffiti infested boxes you find on the job site). Remember, they do need to be serviced often and need to be near the road for pumping. Screening works well, but watch how it integrates with the complex.
  13. Secure outdoor furniture with out of sight cables and locks. I remember a Jordan furniture grouping and teak chairs stolen from the back of a complex (about $6,000 plus) they were lifted over an eight foot high soundwall. I suggest that you use nice but inexpensive furniture and ignore what your interior designer requires; Cost Plus and Pier One are good sources. They will be stolen if they look too nice. The same goes for barbeques and outdoor kitchens – watch what you install.
  14. If you are theming the unit (ie. seniors, young family, empty nesters), then the exterior should reflect that demographic. We have put small play structures, greenhouses, spas, waterfalls, barbeques, and swimming pools in the back yards to improve the experience of the buyer. It is a matter of budgets, so choose wisely.
There are many other items to consider, and these don’t even include the interior. The primary reason for spending thousands of dollars on the exterior model complex is to encourage sales. Anything that gets in the way of this mandate must be removed, discarded or replaced.

Remember, as your mother always said, “You have only one time to make a first impression.”

Stay tuned . . . .