GM Motors expand in Detroit
General Motors Co has shown their belief in the recovery in Detroit, by purchasing a mixed-use commercial property across the street from it's world headquarters.
Cleveland-based real estate company Forest City Enterprises Inc. announced Thursday that it sold the Millender Center's hotel, parking facility, retail and office space to GM subsidiary Riverfront Holdings Inc. for $37.8 million.
Forest City and associates retain ownership and management of Millender Center Apartments.
The sold assets had been leased to Riverfront Holdings with an option to buy since 1998.
GM spokesman Tom Wilkinson says the automaker has not occupied the center's commercial property but has used space in the parking deck.
GM bought its previously leased Renaissance Center headquarters in 2008 for $626 million. It moved into the riverfront complex in 1996.
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Improving Economy Helps Vacancies Rebound
The National Association of Realtors claims that U.S. commercial property vacancies may have peaked, caused by the improving economy.
"The basic fundamental of rising commercial leasing demand, resulting from a steadily improving economy, means overall vacancy rates have already peaked or will soon top out," Lawrence Yun, chief economist of the real estate group, said in a statement today. "Multifamily housing is the one commercial sector that has held on relatively well in the past year, and can expect the best performance in 2011."
U.S. gross domestic product grew by 2.5% in the third quarter, beating the 2% estimate, according to the Commerce Department. As the economy improves commercial real estate occupancies increase as businesses expand and employers add jobs.
"Property fundamentals are improving, investment capital is slowly flowing back into the sector, commercial mortgage originations are increasing, and demand for CMBS issuance is gaining traction," Standard & Poor's said in the report today.
As commercial property grows, investors are also looking to residential property to decide where the peak is, or whether it has already passed.
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Steady US Real Estate Recovery Predicted
A steady recovery is predicted for the US residential real estate market, despite some ongoing challenges, according to the National Association of Realtors.
NAR chief economist Lawrence Yun said to the 2010 Realtors Conference and Expo that he expects a continuing improvement of underlying fundamentals of the current market in the coming years.
'A slow recovery is taking place as we head toward our goal of a stable, solid housing market. However, the pace of job growth will determine the strength of the housing market recovery," he explained.
Overall real estate experts are cautious but optimistic about the current and future state of the industry. Panelist Margaret Kelly, chief executive officer of RE/MAX, said today"s market shouldn"t be called the new normal because the old market was abnormal. 'The spike up and down in the housing market wasn"t normal so we shouldn"t be measuring ourselves against it," she said.
Kelly added that despite some challenges there are plenty of opportunities in the housing market with low mortgage interest rates, abundant inventory and stable prices attracting buyers to the market.
'To be successful in the current housing market, real estate professionals need to educate themselves about buying and selling distressed properties and working with investor buyers, who are a significant part of the market. Real estate professionals should be learning how to handle short sales, how to market themselves and find buyers and to really understand market conditions," she explained.
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Commercial Property Boosts US Market
Commercial property is one sector which is currently booming in the US, providing stability to the property market as a whole, according to a recent report. In fact, almost one-third of global capital available for commercial real estate investment is expected to target the US market in 2011.
Both Europe and Asia are also expected to see double-digit increases in capital commercial real estate investment, and worldwide investment in commercial real estate is expected to rise substantially in 2011.
A new study by DTZ Research finds that global investors are prepared to plow some US$97 billion into the U.S. commercial real estate market in 2011. That represents a 54% increase over DTZ's previous estimate in December 2009.
On a global basis, DTZ estimates that $281 billion of capital will be available to invest in global real estate in 2011, a 22% increase over its previous estimate. The firm's latest The Great Wall of Money report analyzed the capital being raised by an extensive range of investor groups. The greatest increase in available capital is forecast to be focused on the U.S. ($97 billion), which is in line with the "DTZ Fair Value Index" score of 89. That score indicates that most markets in the U.S. now offer an attractive opportunity to investors.
"The current attractiveness of the US is in stark contrast to the situation a year ago," says Nigel Almond, Associate Director of Forecasting & Strategy at DTZ and author of the report. "Most U.S. markets were cold, offering expected returns below risk adjusted required returns. This opportunity remains largely unexploited to date, since transaction volumes in the U.S. have not yet seen the levels witnessed in Europe and Asia Pacific."
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New Research Shows Detroit as Investment Hotspot
Residential property prices in the US rose slightly last month, according to government figures, but foreclosures are still rising, increasing opportunity for overseas buyers looking for a bargain in the US.
A 0.4% increase in property prices in September almost reversed the 0.7% fall in August according to the latest report from the Federal Housing Finance Agency. However, its monthly House Price Index also shows that overall prices fell 2.4% in August from the year before and remain 13.6% below the peak of the market in April 2007. Reports also show that foreclosure filings, which include notices of default, pending cases, notices of foreclosure sale and repossessions, increased from last year in 65% of metropolitan statistical areas tracked in the third quarter of the year.
Figures from RealtyTrac shows that the Seattle area had the highest increase with filings rising 71% from the third quarter of 2009. Chicago was second with a 35% increase followed by Houston, Texas at 26%.
California, Florida, Nevada and Arizona accounted for 19 of the top 20 foreclosure rates in the country. The only exception was Boise City, Idaho, which was 14th.
Las Vegas saw the highest rate in the third quarter, where one in every 25 housing units received a filing, more than five times the national average. But the 32,288 filings is down 20% from last year.
Cape Coral-Fort Meyers, Florida, was second with a one in 35 foreclosure rate. Filings there reached 10,352, down 22%. While one in 36 houses in Modesto, California, received a filing in the third quarter for the third highest rate, but it was an 18% drop from a year ago.
Miami, Florida, experienced the highest total number of foreclosures in the third quarter, at more than 58,600 filings, an increase of 9% from last year and up 25% from the previous quarter.
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New Research Shows Detroit as Investment Hotspot
The Michigan city is fast becoming a top choice for foreign real estate buyers, as US president Barack Obama declares he loves the place and the US government pours millions into its car industry.
According to a market commentator, it is displaying classic signs of being ripe for investment for buy to let investors in particular.
'The US housing market, in general, remains ideal for investment opportunities. House prices are still low due to foreclosures and rental demand is high. Now, as Detroit enjoys an economic recovery, investors can benefit from Government subsidised rents, capital growth over time and re-selling back into the local market," it was explained.
Interest doesn"t just come from the more traditional investors in Canada and the UK, investors from Saudi Arabia and Singapore are also making enquiries and looking to buy.
Analysts believe there are two potential investment strategies for Detroit, the first involving robust cash flow for purchase at a low cost, refurbish and rent and then a strategy for capital growth over time.
'Detroit was in a terrible state when we first looked at investment opportunities there. However, this worked in our favour because we approached the City and offered to assist with the housing and economic regeneration by bringing in international investment. This led to the City endorsing our product and also offering a significant reduction in taxes for investors," said one commentator.
Analysis shows that employment and the local economy are picking up in Detroit. Auto companies such as Ford and General Motors (GM) are reporting second quarter profits in the $billions. GM"s electric car, the Chevy Volt, is about to go into production for worldwide sales. Chrysler"s Fiat 500 electric car is also planned for 2012.
Although approximately 230,000 workers were laid off when the motor industry crashed in Detroit a few years ago, the industry has already taken on around 15,000 new employees so far this year. Reports indicate 10,000 new auto workers will be required, per year, from 2011 to 2013. US Mortgage collective, Quicken Loans, is creating 4,000 new jobs in Detroit. Plus Marathon Oil Corporation is expanding its refinery and creating 2,000 new positions in the area.
Detroit is also becoming a major player in the film industry. Tax incentives mean that in 2009 parts of 470 movies were filmed in Detroit and a number of 2011 release films are being shot there this year including Scream 4, LOL: laughing Out Loud with Demi Moore, Real Steel with Hugh Jackman and The Mechanic with Donald Sutherland.
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Detroit Property Shows Signs of Recovery
Signs that the Detroit region is starting to recover have appeared in home foreclosure rates and jobless figures. August figures showed that the foreclosure rate slowed for the first time in the year, while the state jobless rate was steady for the second month at 13.1%.
"In the Detroit area, the worst part of the recession is over," said Patrick Anderson, an economist and principal of Anderson Economic Group in East Lansing.
Anderson cited a two-percentage-point drop in the Metro Detroit area's jobless rate to 14.1 compared with a year ago, and improving median sales prices of homes and condominiums.
Comerica Inc. Chief Economist Dana Johnson said it "all adds up to fairly convincing evidence that a moderate recovery is under way." He contends the housing market may be poised for a healthy rebound next year.
"Once people in Michigan become more convinced that their jobs are secure and that house prices have stabilized, demand will begin to build and homebuilding will start contributing to a more broadly based recovery," Johnson said in a recent report.
The state's jobless rate remained unchanged in August at 13.1 percent compared with July and was down 1.2 percentage points compared with the August 2009 rate of 14.3 percent, the Michigan Department of Energy, Labor & Economic Growth reported Wednesday.
"Michigan job levels have stabilized somewhat since August 2009," said Rick Waclawek, director of DELEG's Bureau of Labor Market Information and Strategic Initiatives.
Another positive sign is that Metro Detroit foreclosure activity, while on a record pace for the year, fell 7.8 percent in August compared with a year ago, according to RealtyTrac, a California-based foreclosure tracking firm.
Foreclosure activity from initial notices of default to sheriff's auctions of seized properties fell to 9,849 from 10,683 a year ago in Macomb, Oakland and Wayne counties. For the six-county area -- which also includes Lapeer, Livingston and St. Clair counties -- foreclosures dropped 8.8 percent last month compared with the same period a year ago.
An increase in foreclosures usually leads to lower home sales prices, but prices have been recovering in Metro Detroit because of a drop-off in foreclosure sales.
One explanation is the slowing loss of jobs and growing confidence among homeowners, Johnson said. "Houses are worth whatever people are willing to pay for them," he said. "I think you are seeing more people feeling secure in their jobs and feeling (home) prices have fallen enough."
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Foreclosures reach record high
A record number of homes in September and the third quarter fell into foreclosure as lenders continue to work through the shadow inventory of distressed properties, according to RealtyTrac, which monitors the filings across the country.
For the month of September, foreclosures increased 3% from August to 347,420 properties. Banks repossessed 102,134 properties in September, the first time REO reached triple digits for a single month.
Foreclosures were filed on 930,437 properties in the third quarter, a 1% dip from last year but a 4% increase from the previous quarter. In the third quarter, one in 139 homes received a foreclosure filing, which includes default notices, scheduled auctions and bank repossessions (REO).
REO for the third quarter reached a new record as lenders took back 288,345 properties, a 7% increase from the previous quarter and up 22% from last year.
But as lenders work through the supply of serious delinquent loans, fewer are defaulting. RealtyTrac reported 269,647 default notices in the third quarter, down 22% from the peak in the third quarter of 2009.
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Freeze on Foreclosures Restricts Supply
The largest mortgage firms in the US have put a halt on home foreclosures, to attempt to process legal issues. This sudden tightening of supply, with distressed properties accounting for almost a quarter of transactions, is likely to lead to soaring prices on foreclosed property, and a rush by investors to purchase what is left over.
Bank of America Corp, the largest US lender, extended a freeze on foreclosures to all 50 states on October the 8th 2010. JPMorgan Chase & Co. and Ally Financial Inc"s GMAC Mortgage unit stopped repossession cases in 23 states where courts supervise home seizures.
According to one data company, foreclosure sales accounted for 24% of all home sales as of September 2010. They made up an even larger share in states which suffered strongly in the downturn. In Nevada it was 56%, in Arizona 47%, and 43% in California. Florida, Massachusetts, Michigan and Rhode Island the share of home sales was about a third.
Some indicators show the U.S. real estate market had turned a corner in August. The number of contracts to purchase previously owned homes increased 4.3 percent, the second monthly gain, according to an Oct. 4 report from the National Association of Realtors. Sales of previously owned homes rose to an annual pace 4.13 million, up 7.6 percent from July"s record low, the Chicago-based group said last month.
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One in Four US Home Sales Foreclosed Property
A massive 24% of homes sold in the United States in the second quarter of 2010 were foreclosure homes, according to new research, highlighting the amount of homes going into foreclosure as well as the demand for these homes due to their below market value cost.
The report, which examined homes for sale in Q2 2010 that were in a stage of foreclosure—either default, scheduled for auction, or bank-owned (REO)—said that more than 150,000 properties sold in April, May, and June 2010 were distressed.
The number is a rise of 3% from Q1 2010, but a decrease of 28% from Q2 2009, when the housing market crisis was at its peak. This may mean tightening supply as the recovery continues.
Despite the rise in the number of foreclosed houses sold in Q2 2010, the percentage of properties sold that were distressed dropped, due to a surge of sales of homes that were not in foreclosure.
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Michigan Bank Boosts Home Borrowing
The bank JPMorgan Chase & Co. has released new plans to help unemployed home borrowers across Michigan, by participating in a state fund which aims to pay a portion of the resident"s mortgage payment for up to a year.
This will boost the property market across Michigan, especially cities whose property markets were hard hit during the downturn, such as Detroit.
Michigan's Hardest Hit fund helps qualified borrowers by paying up to half of their mortgage payments for up to 12 months, saving them thousands of dollars. The help will be available for Chase customers who are behind on their mortgage payments as well as those who are current. Chase said it will roll out the program once the Michigan State Housing Development Authority has all the logistics in place.
For example, a borrower who has been making a $1,400 monthly payment for principal, interest, property taxes and homeowners insurance may be eligible to pay only $700 per month, with the state paying the difference.
This is likely to provide support to the housing market in Detroit, and helping with the recovery.
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Investment Accounts for 21% of US Home Sales in August
Residential property sales in the US increased in August with investors accounting for 21% of sales, up from 19% in the previous month. August saw an increase in sales of 7.6% alongside the ending of the homebuyer tax credit scheme, according to the latest index from CoreLogic.
Paul Dales, an economist at Capital Economics, said, 'Looking ahead, as the distortion from the tax credit continues to fade, home sales will rise further. But when unemployment is so high demand for housing in certain areas may remain relatively weak," he warned.
'Home values have shown stabilizing trends over the past year, even as the economy shed millions of jobs, because of the homebuyer tax credit stimulus. Now that the economy is adding some jobs, the housing market needs to steadily improve and eventually stand on its own," one analyst explained.
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