Thursday, May 21, 2009

Trends updated

This is an update with the recently released April data for California.

My conclusions are not changing. While the last few data points are above trend, there is no break in the overall downward slope. We should expect a season spike this time of year, but what the CAR is raving about is a really weak seller's season. In none of the zip codes is there anything but noise around the long term trend.

I'm assuming that any potential 90275 buyer looks at that coastal developments that are failing:,
Wait... they next a tax break!

Terranea is locally famous as the reason it was given the go ahead based on the expected tax revenue for the city... hmmm...


ROTFL. Their own web side points out that out of the first 5 homes constructed, only one is is escrow!?! So Trump sues the city as some of the lots are unstable (the local 'slide zone' that swept the signature golf course hole into the ocean)... sigh. 1 out of a planned 50 sold. Trump, leave the city alone. This is like your Baja, Tampa, and other projects, a failure.

One out of 50 sold... talk about a missing the boat. Its called 'hamburger hill' for a reason. People stretch to get into the good school districts in RPV. The 'flashy money' is in Manhattan beach, various Westside areas, or elsewhere.

The data really says it all:
1. The price per square foot is declining.
2. Sales are slow. Again, only Rancho Palos Verdes, 90275, broke 20 sales in an area where, for this time of the year, pre-bubble sales would break 30 per month for every zip code!

Why am I being harsh on the coastal developments? They are far overpriced for the local market. When that one home closes in Trump National, it will skew the data. How could the only sale above $2 Million out of 20 sales not skew the data? I have no idea where in the $8M to $10M price range that sucker is going to pay. But ouch... RPV is not where people buy estates. Oh, there are a few true ones in 90274. That is not 90275. There simply is not a market for the combined 82 McMansion 'estates' these two developments are trying to sell.

I have not done my real estate emotions lately. Basically, we're still in Panic. Capitualation isn't here yet. But that is next... When these charts turn down, we'll know we hit the next investment emotional state.

Got Popcorn?


The Anonymous said...

Hey Neil have you seen the latest Census data? It turns out it IS different here:

Median Household Income Growth 2000-2007

Rancho Palos Verdes +14%
Arlington +43%

RPV population looks about as stable as always -- population growth in all racial categories. By contrast, Arlington was losing 1,000 - 2,000 white people per decade to the burbs for the last 40 years. Now, 10,000+ have returned in the last 7 years -- the strongest population shift this area has seen in 140 years.

I still cant believe you used to hold up Arlington as your DC area model of its "not different here". Had you chosen any other nice area (except Alexandria & DC which also saw this trend) you would have seen much different results. Yet you chose one of the few areas in the U.S. that is experiencing seismic shifts -- a reversal of the "white flight" movement of the 1950s & 60s.

Im happy to finally know why prices arent falling much, but I cant help but wonder -- how many people truly were "priced out forever" because they didnt pay attention to local trends and followed the mantra "its not different anywhere"?

The Anonymous said...

Also, here is the link to the census data. Not all areas are covered, but its interesting to see how much certain areas have changed from 2000 to 2007. Enjoy.

wannabuy said...

The anon,

Interesting stats. In particular the income growth. I've seen other numbers suggesting RPV grew 20% in income for active (non-retired) workers. So those numbers seem believable.

Interesting for reversal of white flight.

What I find interesting is the talk about 'Its different here' is getting louder in the coastal areas. The first thing I look at is incomes. Due to the drop in advertising... every high end area in LA is getting spanked (it was one of a few high paying growth industries here).

Got Popcorn?

taylor1042 said...

terranea is such a s**t show. if the city of RPV gives him the tax refund, then the entire city council should be thrown out.

let's assume the 360 rooms have an ADR of $1000 - which is highly unlikely considering that La Ventana in Cabo has the highest resort ADR in north america at $1300/night.

a 70% occupancy rate (the practical max for a resort hotel) would generate $90M of top line revenue, which at a 20% EBITDA margin would drive $18M of NOI. F&B would add another couple million, as would the management fees on the casitas (more on that later).

that's best case. more likely is a $200-400 ADR given that this is an unbranded hotel in a freaking residential area with no natural tourist attractions or potential business customers.

at a $200 ADR the hotel will generate $20m of revenue and $5M of EBITDA. credit another $5m or so for F&B and the fee on renting out the casitas and you get maybe $25M of cash flow.

the construction cost was reputedly $500M. now, originally the developer was expecting to sell those casitas at $3m a pop, which would make the effective development cost of the hotel $250m. at 10x a conservative ADR estimate, there would be some upside there - especially given how much leverage he put in.

but the sad reality is that (a) the casita's aren't going to sell AT ALL (i'm willing to bet that not a single one of the 49 units under contract sells). so the developer owes corus bank (again, total s**t show. all these lenders and developers should be f***ing* keel-hauled for doing this s**t) the princely sum of $500M - plus accrued interest.

for a hotel that needs a $1000 ADR to generate $25M of cash flow in year one. ROTFLMFAO!!!!!!!!!!

here is how i would value this POS ....

1. assume $200 ADR (remember, we have no idea what the demand is for this, given the location). hotel MAYBE cash flows $5m first year. put a conservative 8x EBITDA multiple on that (that's slightly below where HOT, HST and other property owners are trading, but not a deep value price). so the hotel itself is worth $40m.

2. the golf course has negative value in reality (capex drag, only used for marketing purposes). but i'll be charitable and assume it's zero.

3. the 86 casitas ..... who f***ing knows. i am dead certain the average realized price won't be $4m. i doubt it's even $2m. given that these are second homes that can only be used 60-90 days per year in a market that isn't exactly a tourist destination, i don't think they will attract much consumer interest.

my base case would be that they get bought by investors who put them in the hotel rental pool. if they can get 2x the ADR of a standard room, that's $400/night x 70% occupancy - 20% management fee to the resort = $80,000 of cash flow. put a 10x multiple on that = $800,000. each. round up to $1m to be charitable. base case estimate of the value of terranea is $120M - or roughly 25% of what it cost to build. that feels about right for a real estate project that was conceived and built at the peak of the market.

furthermore, i suspect that if i'm wrong, it because i'm too optimistic about (a) realized ADR's; and (b) the cost structure for an unbranded, stand alone hotel.

the bottom line is that bob lowe doesn't own this pig anymore, the FDIC does (once it puts Corus in receivership, which probably happens tonight). RPV has no business loaning him $8M of city tax revenues. this company is so clearly insolvent that only a fool would run the risk of becoming an unsecured creditor.

f***ing fools. this country is run by fools.

wannabuy said...

but the sad reality is that (a) the casita's aren't going to sell AT ALL (i'm willing to bet that not a single one of the 49 units under contract sells).

Actually, concur with your entire post. The two large 'resort' developments (Trump & Terranea) are just out of place in a residential area. Oh well. PV now has two newish golf courses. I secretly hope both become public courses. :) (Unlikely)

Got Popcorn?

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