An Idea to Move the Market

Much thought and discussion went into the enactment and extension of the first-time homebuyer tax credit, and it clearly impacted the market, both while it was in effect, and after it expired. It moved sales for last year into the first half, and the immediate drop in activity and sales beginning last July proved that it motivated people to buy before it ran out.

Although I have my issues with that credit, both in terms of policy and in practice, there is no question that it made a difference while it was in effect, and that the market responded. It is also clear that the jump start that the government must have hoped that it would give to real estate did not occur, as sales fell off as soon as it was over. In retrospect, I think that the government was right in thinking that we needed that kind of stimulus, and I think we need to try again. After all, cash for clunkers helped the auto industry, the TARP money helped the financial industry, and real estate is still lagging. It is hard to imagine any real recovery taking place without our industry improving.

My problem with the first-time homebuyer credit was that it aimed at exactly the people who would buy in any type of market: those forming households; and renters with no homes to sell. One of the main problems with the current market is that it is stopped up, because sellers who can sell refuse to do so, because they feel that they are losing equity, even though that perceived equity may have been phantom gains.

In order to give an incentive for those who can to sell now, and to buy something else, I propose that the government offer a one-time tax credit for sellers who will lose equity when they sell, on the same terms and up to the same amount as the first-time credit. So, for example, someone who paid $200,000 for her house and now is selling for $180,000 could deduct up to $8000 on her tax bill this year. I believe that the market may now be ready for the jump start that such a program could provide, and that it would help even more than the last incentive, since it would both produce a supply of homes for others to buy, and sales for developers and other sellers when those people buy a new place to live. It's time for bold action, and helping the housing industry would be good for everyone.

What's a Compelling Price?

I have often been asked lately about pricing properties to sell quickly. Since things aren't selling quickly, and not much is selling at all, it's hard to know whether price is really the issue, and whether lowering it will change the outcome. We worry sometimes that, in advising people to lower their prices and get out and move on, we are helping to reduce prices across the whole market.

That's a hard question to answer. While we clearly have an influence on prices, ultimately we don't make sellers sell or, more importantly, buyers buy. So what we've come up with to explain the phenomenon is the "compelling" price. That may not be the highest price (most likely not), and isn't arrived at by figuring out what the property is worth. It's determined by figuring out the number needed to get other people to move, and move urgently.

Think about that in your own life. If you see a sale notice, you may glance at the prices in a flyer. Sometimes you look at one and decide to wait until the price goes lower, or the season ends, or something along those lines. Every once in a while, however, you look at an offer and just know that, if you don't act soon, you won't get whatever it is. That company has discovered the compelling price. Not necessarily the lowest price--that might raise doubts about quality or value--but a great incentive to buy.

So think about the real estate you know. Is it priced compellingly?

MCQUAID COMMERCIAL CLOSES BRENTWOOD APARTMENTS

July 14, 2011: On Monday Will Gibson, sales agent at McQuaid Commercial, closed the sale of the Brentwood Apartments on behalf of the estate and heirs of Pauline Walsh for the price of $1,266,208 for the two six unit buildings located at 2919 Franklin Ave E.

The buyers for the property are a group of local investors, formed as Brentwood Partners LLC, who “bought the property with the intention of completing the deferred maintenance items and performing substantial renovations and upgrades”, according to Gibson who spent considerable time with the buyers during their due diligence. Major components like the roof, plumbing, and brick work were in obvious need of attention however the buyers said they are attracted to the investment because of its great location and charm potential.

The price this property sold for equates to a 5.06 CAP and a 10.5 GRM using the current income and expense data for the property. The sellers provided the financing for two years at 6% interest only so the buyers could complete their improvements and then seek long term financing.



MCQUAID Commercial Real Estate is located at 400 Roy Street in lower Queen Anne. It is an open-concept boutique-style firm offering advising services and focuses on superior client representation.

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Welcome Jen!

Announcing our newest team member: Jennifer Smith. Jen is the new chief of marketing and administration at McQuaid Commercial. She comes to the company with a vast experience in I.T. , H.R., and has significant contemporary knowledge in social media and web design and marketing.

Jen moved to Seattle in 2009 from South Carolina for greater pursuit of enhancing her career, lifestyle, and family.

I am happy to have a fresh perspective on the way things work around here so I expect she will challenge me often.

Announcing a change at McQuaid Commercial:

Cleary O’Farrell has departed recently to pursue her photography career full time. She was the first employee of McQuaid Commercial and was completely dedicated to the company, often working evenings and weekends, especially when the company first started. Cleary was the driver behind most of the social network avenues that are in use by McQuaid today. She led all marketing efforts and oversaw all design and web structure as well as the day-to-day operations of the company.

When Cleary came to McQuaid she said that she was attracted to a start-up company in a highly competitive and well established business but that she intended to one day start her own company to do what she loved most, photography. The past year or so she has received great accolades and a significant increase in the photography business so that she now has the book of business established sufficient to allow her to do what is most attractive to people about this country: start her own business.

Everyone at McQuaid wishes Cleary tremendous success and she will be terribly missed. If anyone needs great professional photography work at below market pricing they should contact her directly at: Cleary@clearyphoto.net

Not the Typical July

The weather surely signals that it's midsummer, but the slow start to the real estate year means that the dog days of summer have a little more life to them. We are still seeing new listings, new offers, and new sales. Our web hits doubled from May to June. There was a downward blip for the Fourth of July, and then they went up again. People are clearly thinking about buying and selling, even if every contract seems a long and tortuous process.

On that note, I was spending the weekend in Vermont last weekend with a friend from North Carolina. She was trying to close the sale of a commercial building, which she had sold already once and it had fallen through. She was in negotiations with the new buyer on the day before what was supposed to be the closing. Her husband was bemoaning her travails. I told him that MOST commercial contracts seem to fall apart at least once, and that it is, unfortunately, very common for the buyer to come back at the last minute and ask for concessions, often due to financing conditions. Even in residential, we have a number of contracts now that seem to have taken on a life of their own. They go on and on, with delays, threats, changes, grandstanding, and probably tears. I'm telling you this so you won't take it personally if it happens to you! Forewarned is forearmed.

Cleveland's $5 Billion Development Update

We continue to be impressed and excited about the new development taking place throughout the city of Cleveland. In particular, the activity concentrated around downtown, along the Health Corridor and into University Circle highlights what appears to be a real shift in Cleveland's economic outlook.

For too long, the county, the city and the business community throughout Cleveland failed to effectively work together and get things done. It is nearly impossible to put blame on any particular person or group, as the failures of Cleveland have been a combination of failed government leaders and business leaders, fairly or not, seeking to move away or disengage from the corruption and challenges of our area.

This is all changing. The Plain Dealer has put together a great map (included below) of the current development projects either in process or being planned in their story from yesterday. Most impressive is what is actually under way. As we've learned time and time again, anything "planned" is not worth much until money is secured and we see a shovel in the ground. Of the 11 projects bigger than $100 million, only two are planned; the rest are either completed or under construction. In all, there are 84 projects listed, of which only 24 are planned. Better put, nearly $5 billion of the listed projects are either under construction or already completed. That is a huge number for a region that has seen decades of population loss and a move to the suburbs.

Yes, we note that a number of these projects, some of the largest included, are public works projects that do not necessarily add to real growth. Getting some of these projects done, however, we think buttresses the private or public/private projects. The best example is the inner belt reconstruction. The casino and med mart, along with a new office tower and growing health tech corridor, will hopefully bring increased downtown traffic. A major overhaul of our half-century old, antiquated freeway exchange doesn't sound like a bad idea.

Cleveland 2011 Development Map - Courtesy of The Plain Dealer

NEO CRE Play of the Week 7/4 - 7/8

This weeks NEO CRE Play of the Week goes to Neil Viny at The Dalad Group for his acquisition of Essex Place on Rockside Road. Dalad Group, who is already a major player in the Rockside market, added the 80,000 SF Class A office property to their portfolio.  Currently at 80% vacancy, Essex Place was one of the casualties of the economic downturn and battered Rockside sub-market.  We at the CREInsider applaud Mr. Viny's foresight and timing (not to mention financing) of this acquisition as market fundamentals continue to improve not only Rockside but across Northeast Ohio.  With a $2.9 million purchase price he should be poised to make some very competitive deals.  More on his acquisition was reported in Crains Cleveland this week.

Be Patriotic--Buy Some Real Estate

Happy Fourth of July! The front page of last Thursday's New York Times showed the results of a poll of Americans regarding their feelings about real estate. Not surprisingly, it indicated that a big majority of those polled believe that owning real estate is still the American dream, and that it would be their choice, even though those same people were more divided as to the safety of such an investment.

It used to be that almost everyone believed that buying a house was the best and safest thing to do with their money. Their faith in the second half of that statement has been shaken by the recent financial crisis, but the first half is undeniably still true. Even those who do not own homes believe in the mortgage deduction's importance, and hope that the primacy of real estate will remain steady.

That's good news for the future of the economy. While we realize that there is still work to be done in convincing people to put down their deposits and buy, it's clear that they wish to be convinced to act. It also seems true that they would be happy to find reasons to do so. When that's the case, it's important to find ways to get people off the fence. Once those who are not absolutely required to sell begin to do so, others will follow. The consumer confidence necessary for that isn't there right now. It's up to government, unfortunately, to find a way to make that so. Jobs have to be created, and the future needs to look a little brighter. But the underpinnings are there. The beliefs remain.

So this Fourth of July, while you are watching the fireworks and soaking up the sun, make plans to get out there soon and buy some real estate. It's the patriotic thing to do!

NEO CRE Play of the Week 6/27-7/1

In a move that surpised just about everyone in the Northeast Ohio Commercial Real Estate community, Monte Ahuja announced yesterday that he purchased the $5.7 note on the up-scale Barrington Golf Club in Aurora, OH.  Ahuja, a long time Cleveland philanthropist and former owner of Transtar Industries hopes to convert his debt position into an ownership position in the near future.  In a time when many Northeast Ohio golf courses and private clubs continue to struggle, Monte stepped up and made a bold statement about his commitment and belief in this region and that is certainly deserving of  the NEO CRE play of the week.