Will commercial real estate pause for presidential election?

My inbox is full! Today, I will parse through the noise and attempt to make some sense of the questions I receive on a daily basis. Plus purging is good. From cleared clutter to sanitized sanity — here it goes.

Does the presidential election slow commercial real estate activity?

Certainly, some small business owners take the political landscape into consideration before making a commitment to lease or purchase buildings.

Specifically, how does the current administration deal with ownership? Are there tax breaks if you occupy your business home? What about borrowing costs? The vast majority of commercial real estate financing is originated through loans either made or guaranteed by the Small Business Administration.

Frankly, in the year of the pandemic 2020 – most companies are concerned about their survival. What happens in November appears to be a distant outpost.

Will office space ever be used as it was pre-virus?

Prior to the lockdown — which sent workers scrambling home to find enough internet bandwidth and clear the guest bedroom — the trend in office space was toward more density. Meaning – doing away with fixed walls, creating a more collaborative work environment, fewer private offices and more employees per square foot.

Concepts such as WeWork – executive suites on steroids – became popular. For a small monthly fee, companies can pivot as their space needs morph. Add a few bodies? No problem. Lose a contract? Just downsize next month. The appeal of coding alongside several strangers advanced.

Now, decision-makers are re-imagining the way their spaces are occupied. Visit my office on a typical day and you’ll find four or five agents bouncing around a vacant suite. Many of us have found working from home advantageous, productive, and efficient.

Will I return to the office on a daily basis? Maybe. But taking a work break and watching “Frozen II” with our 2-year-old grandson has its advantages.

Is there a “virus discount”?

Simply: It depends. As aforementioned, office space is experiencing some uncertainty. Therefore, if you charge out into the leasing market, chances are you’ll find a deal. Retail? Who knows?

We are actually witnessing a virus premium in industrial real estate. Our vacancy was historically low at the beginning of 2020. Even the catastrophic nature of a COVID-19 pause has had little impact. I suspect the bump is largely due to cheap borrowing rates.

Are touring protocols in place – similar to residential?

Last week I read with great interest Leslie Eskildsen’s column on home-selling tactics. Outlined were the hoops required to simply walk through a house before buying it. Good grief!

No more open houses, safety gear, financial pre-qualifications prior to touring, handy wipes at the beckon and plenty of masks. Yet houses are leaving the market at a record pace!

We can still tour without much hassle. Sure, masks are required. In the case of a new build, plan on safety vests and hard hats. But, these are a good idea whenever walking a construction site. I showed up at a building in shorts a couple of weeks ago when the mercury surpassed my patience. You can imagine my embarrassment when my client perused the space alone. Long pants required. Whoops!

How is 2021 shaping up?

I’d only be guessing. However, I suspect the fourth quarter of this year will portend what’s next. If businesses reopen fully, a vaccine is discovered and most importantly, confidence returns, we could see a bounce back like no other.

Remember, not so long ago, folks were optimistic about a banner 2020. Man. That is SO 2019!

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. 

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Are 1031 exchanges at risk if Congress closes the tax loophole?

As we have now surpassed Labor Day in the election year of the pandemic 2020, expect political rhetoric to reach a fever pitch. Sorry. Pun intended.

As our nation slowly recovers from business lockdowns, distance learning, storms along the Gulf Coast, wildfires in California and upheaval in our streets – all while the government responds monetarily to stem the bleeding – expect the next question to be – “how on earth can we possibly pay for all of this?”

California has proposed a 16.8% marginal tax through Assembly Bill 1253 aimed at those who earn more than $5 million annually. Who cares, you may ask? They should pay their fair share. What’s another 3.5% of their income to help the greater good?

Consider this. Many small business owners could tip this scale and face the extra burden. How long will they remain in California when Nevada, Texas, and Washington have ZERO state income tax? If we export a significant amount of our tax base – who’ll be left to foot the tab?

Proposition 15 — on the California ballot in November — proposes to split the property tax roll and tax commercial properties differently than residential parcels. I’ve written ad nauseam about where the ultimate bill will be paid. Yep! By you as the consumer of goods and services.

You see, if the cost of commercial real estate rents rises through an increase in property taxes, businesses who occupy the industrial buildings, office space, and retail storefronts will be forced to pass that expense along to their customers — you.

A target for a significant tax grab could also be the way in which capital gains taxes are deferred through 1031 exchanges. I’ve not seen any storms massing on the eastern horizon – but it’s always calmest – so the saying goes.

Congress could propose eliminating this “loophole” and generate billions in tax revenue. It currently works like this: If you sell a piece of income property, you are allowed to defer your long-term capital gains taxes. Simply, the seller enters a contract, creates a qualified intermediary before closing, closes, net sale proceeds go into an accommodator account, the seller identifies an upleg purchase within 45 days from close, and buys the upleg at the earlier of 180 days from close or the filing date of next year’s tax returns. Easy!

Literally thousands of these are done each year. Deferred are federal long-term capital gains of 15-20%, depreciation recapture of 25%, California state taxes on capital hains of $13.3%, and 3.8% for the Affordable Care Act. A whopping amount! Assumed is – if we tax those sales today vs. allowing a deferral – think of the revenue we’d generate!

Good in theory – but here’s the rub.

Commercial property owners often ask me this question when I visit: If I sell, what will I do with the proceeds? After all, I don’t want to pay close to half my gain in taxes! We then have an in-depth conversation about tax-deferred exchanges. So, if Congress were to change the rules or disallow 1031 exchanges altogether, sellers would be left with very little motivation to sell.

Some might say this argument is quite self-serving. After all, this guy is paid to sell commercial real estate. True enough. However, please don’t forget the multitude of industries that benefit from the sale and purchase of commercial real estate. Title companies, escrow holders, transactional lawyers, CPAs, qualified intermediaries, lenders, property inspectors, environmental engineers, contractors all drink from the trough of a commercial real estate transaction. Behind the scenes are real people – with families – whose livelihoods depend on property sales.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. 

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Why business transitions are soaring: Sales, exits and shutdowns

Family-owned and operated businesses are the lifeblood of our California economy. I am passionate about helping them create legacy wealth through commercial real estate ownership.

One of the coolest things I observe during my daily grind is the many ways Californians make a living. The entrepreneurial spirit is amazing. However, many of our family-owned and operated manufacturing and logistics clients are facing a transition in their business which leads to a commercial real estate decision.

These transitions include:

Reorganization from COVID-19 upheaval.

Sadly, the pandemic has brutally thinned some industries. Others have crushed it. I walked the bulging warehouse with a chief operating officer of a family-owned and operated business last week. They supply fabric to the likes of Walmart, Joanne’s and Target. With stay-at-home orders, more folks are sewing and their sales have exploded.

Forward-looking, their facilities will not handle the uptick in orders. We are exploring ways to minimize their short-term pain, finding them more space, for now, vs. a longer-term solution.

On the flip side, a client who once supplied lights, video screens and temporary power to concerts, festivals and sporting events has no more business. Gone! Just like that. A thriving enterprise evaporated. Our task is more somber as we work through an excess of space, relieving this company of its lease obligations.

A sale of their operating company or acquiring a competitor.

Never since the halcyon days of Gordon Gecko have we seen a spate of mergers and acquisitions like now. Private equity capital – seeking favorable returns – has poured into traditional manufacturing. Plastic injection molding, aerospace tooling and packaging have found renewed interest from these groups. Common is a “roll-up” of these separate operations into a larger entity.

Generally, the play is to manage the companies for a few months or years, continue to acquire additional units, shed the unprofitable pieces and then resell the consolidation.

What is created is a duplication of facilities — akin to a “yours, mine, and ours” that occurs when a family is blended. Cultures must be morphed, excess real estate shed and a balance struck.

Relocation out-of-state.

California has made life quite difficult for anyone starting or managing a business. A noose of strangling regulation – licensing, enviro compliance, conditional use permitting, zoning – hangs over new and existing companies.

Layer in a few wacky – sorry – new laws such as Assembly Bill 5 (which unravels the way in which independent contractors are classified), the pending Proposition 15 (if passed, would tax commercial real estate differently than houses), and the new marginal tax rate – highest in the country – and you too might consider a moving van to tax- and regulation-friendly states such as Texas, Nevada and Arizona.

The outmigration is startling yet understandable. Left behind are industrial buildings that must be leased or sold.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.

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Pandemic winners and losers: An update

Early in the lockdown, I penned a column about the winners and losers amid the coronavirus pandemic.

As the journey began in March-April, we knew some economic passengers were not going to survive, others would thrive and still others would feel little – if any – effects. Sound familiar?

Akin to the way in which the novel coronavirus takes residence in our bodies – some die, others are asymptomatic and still others experience mild to moderate effects – this pandemic has chosen its economic winners and losers as well.

We have now been stuck in first gear for five months! A ray of economic hope glimmered in early June as businesses were allowed to rev and reopen only to be stalled again in July. Different than previous recessions, this one was self inflicted. After all, that is government’s job, right? To keep us safe. But, even at the expense of our livelihoods?

You could make a case that the recessions of 1990-1992 and 2008-2010 were also caused by an overreaching intervention. The Savings and Loan implosion in the early 1990s stemmed from deregulation. In 2006 and 2007, an easing of loan requirements led to a housing value bubble. Lancing said bubble in 2008 caused much pain! But I digress.

So, five months into our stay at home order – with no end in sight – which industries have thrived, failed to survive, or stayed relatively constant? As every business has one thing in common – it’s home – AKA a suite of offices, a manufacturing plant, or a retail storefront – there is relevance to commercial real estate.

Thriving

Clearly any business that caters to a “work from home” population has seen a huge uptick in revenue. ZOOM!, companies that make routers, Internet service providers, Google classroom, DropBox, Dell PCs, Apple, Microsoft all have experienced a pop.

Personal protective equipment – PPE – in the form of masks, gloves, gowns, face shields, and their manufacturing operations. Boom!

Residential real estate has benefited from depression-era interest rates coupled with record levels of available houses. Doubt what I say? Ask our friend Leslie Eskildsen if she’s busy.

Logistics providers that supply Costco, Target, Walmart, Home Depot, Petco and Amazon are slammed. What about items such as forklifts, racking, conveyor systems, dock and door equipment?

These all are essential to support the business of shipping things to home bound customers. Finally, home improvement contractors and DIY stores are having record years. Folks are at home. Might as well remodel that master bath which still has checkerboard tile. Ugh!

Commercial real estate housing these thriving companies have been largely unaffected. Sure, there are those occupants who believe they should derive a pandemic discount but owners are reluctant. We’ve not seen a spike in vacancy of manufacturing or logistics buildings.

R.I.P.

Unfortunately, bar and restaurant enterprises face a dismal future, especially those eateries that rely on an upscale, sit-down, white table cloth experience. Do you really want to spend $80 on a steak and sit under a tent in the parking lot? Hmmm.

Perhaps you should just pitch one in your newly remodeled backyard and fire up the BBQ.

Movie theaters: This one baffles me. Seems as though with the advent of seat reservation apps – distancing could be afforded. Theaters could be sanitized between features, and concessions monitored. Oh well. Stream away!

Regional Malls? Toast. Companies relying upon conventions, sporting events, concerts, county fairs, amusement parks, or gambling? Crickets!

What about travel? Not just airlines but cruise ships, hotels, and rental cars?

Finally, business apparel. I’ve not donned a dress shirt in several weeks. Our dry cleaner senses that. Brooks Bothers, Jos A. Bank, Ann Taylor, and Neiman Marcus are in various stages of atrophy.

We’ve already witnessed carnage with retail sites – especially those mentioned. Office space is a bit slower to respond. Suffice it to say, the way in which companies operate and consume office space will change. Medical offices will occupy more. Those who can benefit from a virtual workforce means fewer square feet.

Business as usual

Drive-through food outlets and restaurants that responded early to take-out are maintaining – albeit maybe not at pre-virus heights.

Most contractors – HVAC, plumbing, roofing, flooring have experienced a steady flow of biz. See above. Manufacturers have generally not seen a huge dip – especially those who manufacture a consumable – paper, plastic, packaging, auto parts, tires, food. I wonder how long this will last?

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. 

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2 O.C. men sentenced to prison for scamming distressed homeowners during ’08 recession

SANTA ANA — Two Orange County men were sentenced Wednesday to five and 12 years in prison for their roles in a Santa Ana-based home loan modification scheme during the Great Recession in 2008.

Aminullah “David” Sarpas and Samuel Paul Bain started Santa Ana-based U.S. Homeowners Relief in late 2008 during the collapse of the housing industry that tipped the nation into a recession.

The company promised distressed homeowners relief on mortgage payments in exchange for advance fees ranging from $1,450 and $4,200, prosecutors said. The two falsely promised they had a 97% success rate lowering mortgage payments for clients, prosecutors said.

About 1,600 homeowners lost about $3.5 million in the scheme, prosecutors said. Many of the victims lost their homes.

Sarpas and Bain also co-owned Greenleaf Modify, Waypoint Law Group and American Lending Review.

Sarpas, 37, of Irvine, was sentenced to 12 years in federal prison by U.S. District Judge Cormac Carney. Sarpas was convicted in a trial of 10 counts of conspiracy and mail fraud in April 2019.

Bain, 40, of Tustin, was sentenced to five years in prison, but has already served that amount of time behind bars, said his attorney, Kate Corrigan. Bain pleaded guilty in 2016 to conspiracy and mail fraud.

Bain “has changed his life quite a bit and Judge Carney recognized the changes,” Corrigan said.

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Coronavirus twists Southern California housing: Slowest sales, highest prices

Southern California house hunters, challenged by a pandemic, bought the fewest homes in any June on record while record-low mortgage rates helped push the median selling price to an all-time high.

DQ News/CoreLogic reported on Wednesday, July 22 that buyers closed purchases of 17,678 residences — existing and newly built — in June in the six-county region. That’s down 15% in a year as sales fell across SoCal. It was the slowest-selling June in a database that dates to 1988 and was the third consecutive monthly record low for local homebuying.

Stubbornly high unemployment, due to “stay at home” orders designed to limit the coronavirus’ spread, has been a drag on the entire economy, including the home-selling businesses. In addition, many homeowners have chosen not to sell — perhaps fearful of the virus or the fate of their finances. Overall, that cut house hunter’s choices, depressed sales and helped nudge up prices.

Here are five things we learned about the local housing market in June, when homebuying and prices went in opposite directions …

1. June’s balloon

As business limitations were loosened throughout the spring  —  and the real estate industry better adapted to pandemic restrictions — June’s sales improved 44% from May.

That’s the largest May-to-June gain on record and the eighth-largest one-month jump for any month since 1988.

Recent pending sales stats from Zillow show newly opened escrows in Los Angeles and Orange counties were close to year-ago levels as of July 11, with the Inland Empire up 10%. This suggests closings could be back to normal levels later this summer.

“I would argue that we’ve already seen plenty of evidence of a rebound in closed sales consistent with the uptick in pending sales since mid-April,” said Jordan Levine, the California Association of Realtors’ deputy chief economist. “We still have a long way to go to reach full recovery, but the market certainly clawed back a significant chunk of April and May’s lost ground.”

2. Record prices

June’s successful homebuyer paid more to win what’s been a rare find: Homes to buy.

In mid-July, for example, the number of existing homes listed for sale was down 27% in a year in Los Angeles and Orange counties and down 26% in Riverside and San Bernardino counties, according to Zillow.

That short supply was a key reason why the region’s median selling price hit an all-time high of $555,500 in June, according to DQ News — up 2.9% over 12 months. That broke March’s all-time high of $550,000 as record highs were also set in Los Angeles, Orange and San Diego counties.

“It’s likely true that unemployment has knocked some would-be buyers out of the running, but home shoppers are combing over a very limited set of options,” said Jeff Tucker, a Zillow economist.

Do not forget that cheap money is helping the housing market. Mortgage rates, pushed lower in an attempt to stimulate a depressed economy, have fallen from an average 3.7% in December to 3.2% in June.

And this month the 30-year rate fell below 3% for the first time.

3. Builders benefit

Local builders fared relatively well in June, selling 1,692 new homes, down just 7% in a year. Builders got a $558,000 median price — essentially flat in a year.

Having a supply of unsold new home inventory boosted builders’ share of sales in the region to 9.6% vs. 8.7% a year earlier.

Meanwhile, the resale market for existing homes suffered.

Sales of single-family houses totaled 12,472, down 15% in a year. The median selling price was $590,000 — a 3.7% increase over 12 months. Condos fared worse with 3,514 sales, down 18% over 12 months. Median? $470,000 — a 2.8% increase in a year.

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4. Coastal challenge

The sales slump was decidedly deeper by the coast where prices tend to be higher.

Los Angeles County was hit hardest with 5,063 sales, down 24.3% over 12 months. The L.A.median price was $643,000 — up 4% in a year. Ventura County’s 781 sales were down 23.9%. The median of $600,000 — was up 3.5%. Orange County’s 2,447 sales were down 22% as the median price rose 4% to $765,000.

Breaking that trend was San Diego County. Its 3,557 sales were off only 2.4%, the region’s smallest dip, as its median of $600,250 was up 1.7%.

Prices rose sharply in the Inland Empire, the region’s housing bargain.

San Bernardino County had the second-smallest homebuying decline: 2,501 sales, down 3%. It’s SoCal’s cheapest spot with a median of $365,000 — after a 7.4% increase. Riverside County had 3,329 sales, down 12%. Its median of $430,000 — was up 7.8%.

5. Resurgent doubt

Acting fast seems to be common advice in a summertime market with limited choices and folks looking the cash in on cheap mortgages.

As of July, an existing L.A.-O.C. home went into escrow after just 19 days after listing – nine days faster than the same time last year. In the Inland Empire, it took 21 days — 11 days faster than the same time last year.

But the virus still has its say on the economy, and a recent surge in cases, hospitalizations and deaths — and the state’s ensuing U-turn on business reopenings — leaves room for doubt.

“There is certainly concern among some of the potential home buyers about the outcome of the COVID-19 crisis, however there still remains a solid buyer demand which is reflected in the further push of home prices,” said Selma Hepp, deputy chief economist at CoreLogic. Her firm recently forecast what would be the first drop in local home prices in eight years.

“Resurgence of the pandemic in the Southern California region will likely put a damper on future demand and will cause further uncertainty among buyers,” she said.

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What can loss teach us about commercial real estate?

Loss — “the state or feeling of grief when deprived of someone or something of value.”

2020 so far has been a year of loss. Businesses bankrupted, careers cratered, freedoms foregone, routines re-routed, celebrations canceled – all losses – in some cases forever. We are required to change – like it or not.

Last week, our family experienced loss in its most poignant form. Our father, Samuel A. Buchanan Jr., left us to be with the Lord. I’m certain this is true. Dad was a faithful follower of Jesus and loved his church. Thought suffering from a terrible bout with cancer, Dad’s final days were peaceful.

He left a legacy of five children, 10 grandchildren, nine great-grands and countless friends. I’m sad that Dad is gone but relieved he is no longer in pain. Thank you for allowing me to share that!

So, you might be wondering, what does loss have to do with commercial real estate? Only this. From loss comes gain. Here are a few examples.

Let’s go back to the Great Recession. In 2008, the year ended with many commercial real estate professionals scrambling. Our world abruptly halted. Buyers weren’t buying, sellers refused to sell at such depressed values and lenders were more frozen than Queen Elsa.

Tenants suddenly were seeking great deals. Landlords were stubborn. A mist of uncertainty shrouded our industry akin to that over the Enchanted Forest in “Frozen II.” Yeah, you read that right. Recently, I got my “Papa cred” by watching The Disney Channel with our grandkids. But I digress.

In 2009, we were forced to adapt. With vacancy in commercial properties rapidly rising, I focused on tenants and buyers.

“Blends and extends” became a thing — a reduction in a rental rate today in exchange for a longer lease term. “Working out loud” – a phrase coined by my wife, Carla – was the start of a blog in 2010. It offers online content for owners and occupants of industrial buildings in Southern California.

My Location Advice blog is now published by the Southern California News Group on Sundays. Yep, you’re reading a post now. A return to fundamentals caused the decade of the 2010s to be my best yet.

Gains from the losses we’ve experienced in 2020 are starting to sprout. E-commerce has exploded. More folks are shopping from their iPad or phones instead of visiting a brick and mortar store. Logistics companies that feed the supply chain are hustling to fulfill demand.

Material handling outfits such as forklifts, racking, dock and door equipment are recording a record year. Owners of warehouses have enjoyed steady rent checks.

Rumored is a re-shoring of manufacturing. Our economy’s dependence on cheap stuff may shift. Less reliance on low-cost production will cause prices to rise but quality and reliability will as well.

Regional malls could spell the end of our housing crises. How so, you ask? Brookfield Properties made an enormous bet on mall ownership in 2018. Now Brookfield is the nation’s second-largest owner of regional malls.

As we see major mall tenants such as Sears, JC Penney, Neiman Marcus, Macy’s, Pier One, J-Crew, Forever 21, Brooks Brothers and others struggle and fail, watch for a gradual re-tooling of these massive spaces into multi-family, mixed-use re-developments.

Closer to home, Integral Communities just bought the land beneath the JC Penney store at the Village in Orange. A similar proposed development is slated for a portion of Main Place Mall. So, it’s happening!

I’ll always be grateful to my Dad for not hiring me to run the family business. The rejection motivated me to seek an alternate career path — a commercial real estate brokerage. What I viewed as a horrendous loss at the time resulted in a huge gain.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.

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Market peak? Southern California homebuying drops, 1st dip in 11 weeks

Southern California house hunters put 3% fewer homes into escrow in the most recent week, the first homebuying drop in 11 weeks.

Zillow’s weekly report on activity from brokers’ listing services in Los Angeles, Orange, Riverside and San Bernardino counties shows the housing market’s first slip amid a rebound from economic turmoil created by the coronavirus pandemic.

With 3,647 existing homes put into escrow in the week ended July 4, the buying pace is 1% above a year ago. Bear in mind, the holiday weekend could be a factor in the cool-off.

Finding something to buy is a challenge. Southern California owners listed 4,592 homes for sale in the week — up 2% vs. the previous week but down 18% in a year. That put total inventory at 28,068 — down 1% vs. the previous week and down 29% in a year.

Record low mortgage rates have put house hunters in a buying mood since early April. But the durability of an employment rebound is now in question. A recent spike in COVID-19 infections has forced a slowdown, if not reversal, of some business reopenings.

This economic uncertainty led CoreLogic to forecast a drop in Southern California home prices. The data tracker predicts Los Angeles County prices will drop 6.3%, Orange County 5.2%, and the Inland Empire 2.4% in the coming 12 months.

Here’s how Zillow’s July 4 data broke down in Los Angeles and Orange counties …

New escrows: 2,100 contracts signed — down 4% in a week; up 14% in a month; down 6% over 12 months.

New listings: 2,821 over seven days — down 1% vs. the previous week; down 2% in a month; down 16% in a year.

Total inventory: 17,450 homes on the market — up 0.2% in a week; up 3% in a month; down 26% over 12 months.

Median list price: $923,178 — up 1% vs. the previous week; up 4% in a month; up 9% in a year.

Selling speed: 19 days, median time for homes entering escrow from listing, 8 days faster than this time last year.

In the Inland Empire …

New escrows: 1,547 — down 1% in a week; down 2% in a month; up 11% over 12 months.

New listings: 1,771 — up 7% vs. the previous week; down 6% in a month; down 20% in a year.

Total inventory: 10,618 — down 3% in a week; down 10% in a month; down 34% over 12 months.

Median list price: $446,760 — up 1% vs. the previous week; up 3% in a month; up 5% in a year.

Selling speed: 21 days, median time for homes entering escrow from listing, 11 days faster than this time last year.

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Statewide …

New escrows: 8,214 — down 0.3% in a week; up 7% in a month; up 14% over 12 months.

New listings: 10,364 — up 1% vs. the previous week; down 10% in a month; down 20% in a year.

Total inventory: 46,847 — down 3% in a week; down 11% in a month; down 41% over 12 months.

Median list price: $697,571 — up 1% vs. the previous week; up 8% in a month; up 16% in a year.

Nationally …

New escrows: 82,488 — down 4% in a week; down 0.04% in a month; up 13% over 12 months.

New listings: 124,516 — down 2% vs. the previous week; down 8% in a month; down 27% in a year.

Total inventory: 1,097,755 — down 1% in a week; down 2% in a month; down 22% over 12 months.

Median list price: $338,760 — up 0.5% vs. the previous week; up 3% in a month; up 4% in a year.

Read more about Market peak? Southern California homebuying drops, 1st dip in 11 weeks This post was shared via Orange County Register’s RSS Feed

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Avoid a re-trade by getting ahead of buyer requests

Last week we covered four things that can occur once a commercial real estate deal reaches the end of its contingency period – that time frame whereby a buyer can determine whether or not to proceed to close.

As you recall, the four outcomes are move forward, cancel, seek additional contingency time or ask for a price reduction — also known as a re-trade.

Promised last week was a discussion of how to avoid a re-trade. But first, let’s spend a moment and dissect this request a bit more.

Once a buyer spends time and money understanding a commercial real estate purchase, in many cases, they know the building better than the owner. After all, they’ve poked, prodded, reviewed, surveyed and analyzed every aspect of the structure, title, roof, HVAC, mechanical systems, zoning, tenancy if any, and operating history.

Therefore, it should come as no surprise if something untoward is discovered. Hopefully, what’s uncovered is a minor fix and the deal can proceed smoothly. However, if the issue requires a price reduction, your options as a seller are:

Agreement. If the request is well reasoned and thoughtful, you might simply agree.

Cancellation. I’ve seen sellers get very defensive and cancel. Certainly, this is your right. You entered a contract to sell for a certain price. Your buyer agreed to buy the property in its “as-is” condition. Now they’ll proceed but at a lesser amount.

Sure, something is cheesy about a buyer that operates this way. A deal’s a deal. But, if you walk away, the next buyer may ask for more. You’ll certainly have to disclose what you encountered. Plus, you’ll now start over with another buyer and reset the shot clock with another contingency period.

Compromise. We just completed a lengthy due diligence process. The buyer discovered three things that gave them heartburn. We successfully whittled the three down to one, and the seller agreed to a slight price reduction to remedy the remaining problem. Had the buyer sought recompense for all three, the conversation would have been short. Fortunately, the seller was prepared and the buyer’s ask was reasonable. Game on!

But, in my experience, the best way to avoid a re-trade is to anticipate them and be prepared. You know your buyer will require a water-tight roof. How about conducting a preemptive inspection? You’ll then know if there is a problem.

Take it a step further and get bids from contractors to repair the leaks. I’ve found some buyers will inflate the cost to remedy what they find. Imagine that! It’s your option whether you bear the expense pre-marketing or wait.

You’ll then be armed to address any request for a price reduction – because you know the extent of the issue and what it costs to fix it. I also enjoy putting a seller into a great offensive position – with back-up buyers who’ll step in and perform in case buyer number one hiccups.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.

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Southern California pending home sales rise 8th straight week, just 2% below 2019

Southern California house hunters put 5% more homes into escrow in the most recent week — the eighth consecutive weekly increase — as the buying pace runs 2% below a year ago.

My trusty spreadsheet’s compilation of Zillow’s weekly report on activity from brokers’ listing services in Los Angeles, Orange, Riverside and San Bernardino counties shows the local housing market rebounding from economic turmoil created by stay at home orders designed to slow a pandemic’s spread.

With 3,605 existing homes put into escrow in the week ended June 13, pending sales are up 172 in a week but down 78 in a year.

Options for house hunters remain slim. Southern California owners listed 4,452 homes for sale in the week — down 8.3% vs. the previous week and down 15.1% in a year. That put total inventory at 28,778 — up 0.2% vs. the previous week but down 26% in a year.

Fewer restrictions on businesses, including home sales, plus low mortgage rates are putting owners and house hunters in a selling mood. But even after a significant run-up of late, some slices of the market still trail year-ago levels.


STAFF GRAPHIC

How the data breaks down in Los Angeles and Orange counties …

New escrows: 1,974 contracts signed — up 7.6% in a week; up 34% in a month; down 10.9% over 12 months.

New listings: 2,793 over seven days — down 3.5% vs. the previous week; up 13.9% in a month; down 12.5% in a year.

Total inventory: 17,156 homes on the market — up 1.659% in a week; up 10.4% in a month; down 25.7% over 12 months.

Median list price: $890,800 — up 0.9% vs. the previous week; up 3.6% in a month; up 6.5% in a year.

In the Inland Empire …

New escrows: 1,631 — up 2.1% in a week; up 35% in a month; up 11.1% over 12 months.

New listings: 1,659 — down 15.3% vs. the previous week; up 7.4% in a month; down 19.1% in a year.

Total inventory: 11,622 — down 1.9% in a week; down 3.5% in a month; down 27% over 12 months.

Median list price: $435,826 — up 0.8% vs. the previous week; up 2.2% in a month; up 3.1% in a year.

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Statewide …

New escrows: 8,112 — up 4.5% in a week; up 36% in a month; up 6.9% over 12 months.

New listings: 10,335 — down 11% vs. the previous week; up 11.3% in a month; down 20% in a year.

Total inventory: 51,293 — down 1.6% in a week; down 5.5% in a month; down 33% over 12 months.


STAFF GRAPHIC

Median list price: $661,241 — up 1.8% vs. the previous week; up 8.4% in a month; up 10.3% in a year.

Nationally …

New escrows: 85,778 — up 2.8% in a week; up 17.7% in a month; up 13.6% over 12 months.

New listings: 132,790 — down 3.8% vs. the previous week; up 13.9% in a month; down 16.6% in a year.

Total inventory: 1,120,998 — down 0.4% in a week; up 0.1% in a month; down 17.1% over 12 months.

Median list price: $332,680 — up 0.8% vs. the previous week; up 3% in a month; up 2.5% in a year.

Remember, pending sales must get through the escrow process. May’s data on closed sales from DQ News shows Southern California homebuyers bought about half as many homes in May as they did a year ago.

A total of 12,271 new and existing homes changed hands in the six-county region last month, the lowest number for a May and the third-lowest for any month in DQ News’ 32 years of tracking the market.

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