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Thursday, June 08, 2006

3 Years, 50% Appreciation

Here's another story pointed out by a reader. If only I had millions to sink into an apartment complex three years ago, I could have $6 million more now!

What difference can three years make in terms of rising real estate values?

In the case of Country Glen Apartments in Kent, which recently changed owners for the second time in three years: about $5.8 million.
...
Jim Claeys, a commercial real estate broker with CB Richard Ellis in Seattle, issued a press release Monday announcing the property sale, but did not name the buyer or sellers.

Claeys, who represented both parties in the transaction, described the buyer and sellers as private investors from California.
So here's the interesting question. Why is the California buyer willing to pay $5.8 million more for the apartment complex than it sold for 3 years ago (a 50% increase)?
  1. They expect to jack up rents by 50%.
  2. They expect the real estate to appreciate by 50%.
Choose one.

(Clayton Park, King County Journal, 06.06.2006)

25 comments:

meshugy said...

Now THAT's flipping....wow! Forget about condos...flip whole apartment complexes.

meshugy said...

Looks like HELOCs are now out of fashion:

Consumer borrowing up sharply: Housing slowdown, higher energy rates may slow spending

meshugy said...

Here's some news on foreclosures in Seattle:

Housing Shortage in Seattle Leads to Decline in Foreclosure Activity

Anonymous said...

Will somebody please start a new Seattle Bubble blog that is not trolled out or depends on lame RE booster articles as it's point of discussion!?

jj said...

Interesting foreclosure page. King Cty. foreclosures increased 2% in Jan or Feb this year. Now down again.

Hmmm... could it be the last of the CA equity holders and the spring buying season?

Wonder what Fall '06 will look like?

Anonymous said...

Would someone please start a new comments section where anyone that posts something other than doom-and-gloom isn't referred to as a troll or "lame"?

"Depending" on articles is the entire MO of the blogosphere, with the exception of the few people that do original reporting (which the author of this blog does not).

Are you so insecure that positive commentary from people makes you want to take your ball and go home?

meshugy said...

This article gives some sense of the job situation downtown:

10 percent jump in office lease rate predicted by year-end

The Puget Sound area has had very strong, broad-based office job growth of 6 percent over the past 12 months. That compares to national office job growth of 4 percent, Callahan said. As businesses expand, they will continue to need more space for their additional employees.

seattle long term buyer said...

somebody's missing the point of the article... it's not that there are no distressed home owners facing pre-foreclosure... but that there are home buyers that are watching closely and bailing them out (at a good price) and preventing the foreclosure from happening...

What should really be pointed out is that home owners are being kicked out of their homes either way... which will eventually lead to a glut of homes on the market either on the MLS or on the courthouse...

Marinite said...

"Depending" on articles is the entire MO of the blogosphere, with the exception of the few people that do original reporting (which the author of this blog does not).

Jeepers! If you don't like it, then you can leave. Or start your own blog and "do it right". No one has a gun to your head.

Anonymous said...

>>They expect to jack up rents by 50%.
>>They expect the real estate to appreciate by 50%.

ummm...those would be one in the same thing since an income producing property has its value determined by...get this...its ability to generate income and a market-driven capitalization rate.

other alternatives aside from the non-choice that Tim laid out are that the prior owners successfully repaired deferred maintenance, stabilized the complex, improved occupancy, negotiated rent increases and benefitted from declining capitalization rates which are affected by the declining yields that have been seen across most alternative investments. declining yields = higher asset prices, all things equal. or possibly they are going to condominiumize some of the buildings. at $100,000 per unit on the recent sale, there is upside for that.

consider this: assume the property sold in 2003 with average rents at $700 per unit, 8% vacancy, 30% expenses and a 7% cap rate. over the past three years, the owners have stabilized the property to 5% vacancy, raised rents an average of 2.3% per year to $750 per unit, expenses are still at 30% but anticipated yield in the market has dropped to 5% (this is a fact that has been seen across all stripes of income-producing properties). the difference in value? $615k or 55%. implausible? absolutely not.

but don't let the way the real world works interfere with the knee-jerk presumption that marks this blog and its cheerleaders. y'all are the real experts.

Anonymous said...

Or they're expecting to extract more value from by turning the apartments into condos and selling them off piecemeal. It's a valid investment strategy as long as the condo market holds up.

synthetik said...

You can still buy fairly large apartment complexes (100 or more units)for $75-80 bucks a door. Those can be fixed up for $15-30K each and sold as low end condos for $225-300K.

Money to be made if you have it.

realistic realtor said...

True about cap rates, which is where the value is for investment properties. Or, they could convert.

Not sure where the foreclosure talk came from. But since meshugy highjacked the topic, the foreclosure wave is gonna make land soon. My guess it'll start next year for those with the 3/1 I/O ARMS. Those people maxed out their buying power and will get hit with higher rates and principal. I for one will start looking for some bargains. (insert evil grin here)

Anonymous said...

MLS: 26089900

"Take advantage of the Ballard Craze now."

Unbelievable.

meshugy said...

MLS: 26089900

"Take advantage of the Ballard Craze now."

Unbelievable.


That's defintly overpriced...I bet they get 400K for it.

Anonymous said...

In all seriousness Tim, I can't even come here any longer because of jokes like Meshugy.

We lost some good posters who used to provide info, Meshugy is like a cancerous sore on your ass that just will not go away, nor will he take a hint that people can't stand his posts.

Anonymous said...

Meshugy has ruined this place.

Anonymous said...

It's true, Meshugy has hijacked the blog.

But Realistic Realtor and S Crow may just help us win it back.

Please RR and S Crow, keep posting to inject some common sense here.

PepeDaniels said...

Well, I'll repeat it as I did in some other threads. These stories about higher prices and what this or that house went for - what this article from the local newspaper said etc. don't mean a thing.

It's an old song played as recently as 5 months ago in Florida.

I'll share a story from a week ago from a friend there.

She rather wisely, sold her old family condo in Boca. She made a lot of money. She rather unwisely put a lot of the money back into a condo in the troubled market of Ft. Lauderdale. No one doubts the S. Florida Market is in serious trouble at this point right?

The condo she sold was in a group of homes that were really messed up in last years hurricane season. Still blue tarps all over the place. People can't find anyone to do the work and even when they can half of the contractors don't give a shit because they're just there to make a few bucks and return to Jersey to smoke crack or whatever.

The buyer of her old condo bought it from her at the outrageously overinflated price that everyone was paying 18 months ago but now it's still severely damaged going into this next hurricane season. So, he figures, "I better get out of this mess". His response is not to drop it to a reasonable selling price but to raise it another $15G!

It's sitting there in the parade of "For Sale" signs everywhere.

Wow, look at the rising prices of condos!!!!

Obviously it doesn't mean anything. One a-hole will come down and buy one out of a hundred of these RE versions of the Titanic.

Damn, they're still selling even now!!!!

You get my drift - slightly different circumstances same basic story lines, same contradictory press reports, same guys posting about how things are just great only he's named "Pompano Pete" or something instead of our dude here.

seattle price drop said...

Pepe Daniels-

I love your posts. Please keep reminding us of the emotional/irrational similarities between ourselves and FLA.

Many in Seattle, like the rest of the country, cannot hear that wake up call enough.

It's "different" everywhere. Americans everywhere just simply do not want to face this.

Why the heck would they? The past few years nearly everybody everywhere in the US has bought an overpriced house that they squeezed into only out of fear that RE "always goes up" or hope of future appreciation.

It's going to take a while for reality to register, for everybody from Seattle to Boston to Chicago to Ft Worth to LA and all points in between.

At some point though, all Americans will wrap the mind around this fact: A house is JUST a home.

So get your A$$ to work. love your family friends and neighbors and do something USEFUL with your life.

emcityjill said...

What I'd like to know is, and maybe someone can point me in the right direction to find out, how many condo projects are in the pipeline TODAY. How many units are about to come on the market in the next two years regardless of whether or not real estate is commonly thought of by the collective ignorant as a good investment? That, to my naive mind, is a great statistical indicator of what to expect in Seattle real estate over the next few years.

Anyone have any advice on where to get such data?

Anonymous said...

The housing market is a very slow moving market because house is very illiquid. In the other hand, the stock/commodity market is moving very fast. The housing market has been a bull market for the last decade or so. As the global liquidity is being drained by the central banks – look at the damage it has done to the stock/commodity market in just a very short time. As the housing market begins to slow down and reverses course, it will take a long time before it hit bottom, may be a decade or so. Look at the case of Germany, Japan, HongKong – the housing market in these countries/areas are in the bear mode for a long time… Can you smell dead money, lost opportunity, sunk cost, etc. here?

One more thing, I see that a lot of housing bulls here and in other areas do suffer a severe myopia problem – They walk around a few blocks and see houses around them still being sold and they conclude that “every thing is fine here – the problem is happening somewhere else – not in my back yard, etc”. They completely ignore the big macro picture. In psychology, it has a term for that – “The lizard brain phenomenon of investing”

biliruben said...

Anyone have any advice on where to get such data?

Well you can go to


Here are the changes from the previous quarter in multi-family permits:

1997 2 -23.5696
1997 3 209.7207
1997 4 -51.55123
1998 1 29.7096
1998 2 -33.18025
1998 3 75.85911
1998 4 15.09526
1999 1 -8.573854
1999 2 54.17827
1999 3 -24.23969
1999 4 -23.76789
2000 1 -6.725756
2000 2 7.769704
2000 3 74.58506
2000 4 -46.16756
2001 1 -10.37528
2001 2 83.62069
2001 3 -60.73105
2001 4 -14.17592
2002 1 -34.62687
2002 2 208.6758
2002 3 -57.74162
2002 4 5.017503
2003 1 -12.33333
2003 2 57.66793
2003 3 41.88103
2003 4 -77.22379
2004 1 135.8209
2004 2 -15.82278
2004 3 182.9574
2004 4 -45.79274
2005 1 -2.45098
2005 2 -10.38526
2005 3 44.85981
2005 4 21.03226

PepeDaniels said...

seattle price drop said...

At some point though, all Americans will wrap the mind around this fact: A house is JUST a home.

So get your A$$ to work. love your family friends and neighbors and do something USEFUL with your life.


Glad you like the posts. You could not be more correct about life's priorities.

Several of my friends, including the one I referred to have become immersed in RE crap. The amount of time, money and effort that goes into all of the RE stuff is stunning.

It became really obnoxious at some point in Florida as I've heard it has other places. You'd be on the beach or at a social function and all anyone could talk about was how their house prices had gone up. That may be why I hate the bubble phenomena so much (that and the fact it is counter productive to everyone having affordable housing). It not only sucked people's money into one area (are there not other things where our time and investment dollars could go that are valuable in the big sense of valuable? I think it had an insidious effect on what people think is important in life.

I think the addage about not wanting to spend your final day of life at the office apply equally to RE.

Go visit one of the tent cities for the homeless in Seattle if you think the "fundementals" of our economy aren't misaligned.

Anonymous said...

pepedaniels, next you are going to suggest everyone should be doing social work instead of slaving away for the souless corporation.