2250 Blue Heron made a brief appearance here a couple of years ago the last time it was on the market. The listing agent described it as a $125,000 house and a $300,000 lot to justify the $425,000 price. I thought that was a bit rude, but it evidently worked – it sold in July 2007 for $400,000. The house is a very basic 1296 SF 3/2 built in 1972 on a bit over an acre zoned for horses. It backs up to the east bound Boomtown Garson I-80 on ramp.
The new owners started a renovation. Windows were pulled out and boarded up. It looks like all the underground utility hook-ups had to be replaced, and maybe the septic system, too. A new fence was built around the entire property. The chimney was removed. The house has gone through two winters in questionably buttoned up condition.
What’s it worth today? My take is:
$400,000 purchase price
-$160,000 (40% median reduction per Guy’s figures)
-$50,000 (2 acre feet of water now available separately)
-$50,000 (reduced value due to demo)
+$10,000 (50% of fence cost)
+$20,000 (50% value of site work)
+$30,000 (value of stored windows/doors/counters + completed work)
Estimated Value – $200,000
There is a comp 3 doors up the street. 2400 Blue Heron is larger house, on a better lot, with mature landscaping. It sold for $550,00 in November 2005, then for $301,152 out of foreclosure in December 2008, with all water rights intact.
If you didn’t click through to the listing, 2250 is asking $505,000. Up over 20% over the last 2 years. The owner is drinking something a lot stronger than Kool-Aid. Many owners are out there. They are probably just testing the market before they explore foreclosure and short sale options. But why would any real estate professional accept this listing knowing the chance of a sale is less than zero? It is financial suicide, unless they do not plan to spend any time or money marketing the property. And exactly how professional would that be? What’s the angle?
What other suicide listings do you see out there? What business model makes agents accept these dead-end assignments?
Worried Guy
Can someone explain to me the logic of 14315 Windriver Ln.? It’s in the Saddlehorn area in South Reno. I understand that, but $224 per square foot in this market? I can’t make sense of it and the listing even says the home needs some updating. Can somebody explain it? I have many more, but this is just one example of why the housing market in Reno is nowhere near bottom.
BanteringBear
With all due respect, Mike, I think you’re partaking in something a little stronger than Kool-Aid yourself, placing a value of $200k on this POS. Seriously, you believe that an acre of dirt in Verdi with some dilapidated sh!tbox on it is worth 12% more than the median priced home in the greater Reno/Sparks area? HAHAHAHAHA!!! That’s good stuff, Mike.
You’d know about overvaluing dirt, though, as I see you’re still trying to get a fortune for your lots. Didn’t you once come up with a post “Land, less than zero” or some such? Time to buy back into what you were preaching. Harsh, I know, but you’re playing the fantasy listing game yourself.
DownButNotOut
To me this is starting to become too much sensationalism of the same subject. Thanks for keeping us up on this Mike but it seems to be for shock/ conversation value at this point.
Reno Ignoramus
I say with no exaggeration or sarcasm that probably 95% of all the listings over $500K now are suicide listings. Probably 90%, at least, of all listings over $400K are suicide listings. It appears that Diane has lost interest in the blog (understandable)and has stopped reporting how many houses are selling in the various price segments. This was always very useful info and hopefully Guy will carry on in providing that info. At last report, I believe that about 93% of all sales were below $400K. Assuming that number is holding, then almost by definition all listings over $400K are not much more than shots in the dark from the perspective of the realtors taking them on.
Guy, sure hope you continue to provide the data on sales in the various price bands. That has been an extremely valuable piece of info in the past. Ok, Guy?
Guy?
Guy?
SkrapGuy
DBNO, I can understand your point. However, I have to say that Mike’s “data mining” has been exceptional and his threads about various properties have been insightful, enlightening, and have contributed greatly to the blog. I hope he continues with them.
There is a simple fact about this blog. It has been such a great resource for the Reno/Sparks (and to a lesser extent Incline)market because it has been about THOSE markets. RI is right when he says its been the data about THIS market that has been so helpful. The day this blog loses its LOCAL emphasis is the day it dies. There are a 1000 blogs about the national housing market, and the national economy, and whether rates are going up or down, or whether its going to be inflation or deflation, or whether the gov’ts intervention is helpful or harmful, or this or that or whatever. And frankly, on those topics of national import, there are a lot better blogs than this one.
Now that Diane is moving on, it really is going to be up to Guy to keep this blog alive and relevant. Or JoAnn if she choses to become more involved, which it does not appear she wants to do. We can’t expect Mike to provide the monthly sales data that has been the hallmark of this blog, becuase Mike is not a realtor and does have access to that information. So he mines the data from the public sites and does a fine job of it.
A month ago or so, I made a comment that maybe there ought to be paypal link on the blog so that at least its sponsors can cover their costs in keeping the blog going. Its obvious they are devoting little time and money to updating it as there are still links to properties that have been withdrawn from the market, lost to foreclosure, etc.
Sorry to go on and on, but I sense that with Diane’s departure from the blog, Guy may not have the time, money, and attention to keep it going. It would be a loss, IMHO, to see this blog just sort of fade away as a source of current info about our local markets. Just think about it, do you all want to have to rely on the RGJ, or Chase Nation, to get your information?
daily
This blog has worked for me, extracting bits and pieces applicable to my situation.
Responses to Diane’s comments have always received the most hits and sorry to see
this evaporating. The stats are interesting and point toward trend(s), but it’s the “bottom line” not often discussed things that have been the best. Here’s hoping this blog continues forward and evolving with the changing market. I think this is where most RE blogs have missed the point- It Isn’t Like It Used To Be !
As for suicide listings, you bet I could point to some. This one is in my neighborhood. Affectionately known as the “outpost” as it sits all alone out amongst a vast sea of unbuilt lots. Tumbleweeds here and there with a half dead lawn. The price is a choker
and an eye roller. It’s now a short sale, so you know where it’s headed. WHY bother at
this price?
daily
http://www.idxcentral.com/snar/idxsearch.cfm?idxid=dcohn&pg=profile&mls=80005444&start=1&list=1&as=drop%20tine&rows=5
here it is.
GreenNV
DBNO, sorry that I can’t break a story about half a billion dollars in developer defaults every day. I post on listings that I find preposterous or otherwise interesting, knowing that the comments will go off on whatever tangent you readers are hot on at a particular time. I post to fill the voids between the market updates to give you a chance to speak your minds, and to keep this blog interesting and current. I’ll hit a home run once in a while (Montage) but mostly I post just to give you guys a chance to speak.
BB, seriously, where do you think I should be pricing 4305 Canyon? Appraisers won’t appraise the lot since there aren’t any comps, so I’m alone on the strategy front. The lot above me on Canyon was listed for $795 (now down to $525), Pinto Place just closed for $325, as did the KD on Hackamore. This is doctor and lawyerville in Roy Gomm – it isn’t going to see median price construction or sales prices. Would it really matter in this economy if I priced the lot at $50,000 or $188,000 as it is now?
To those that have commented appreciating what I bring to the blog – a heartfelt thanks. I’m always up for your suggestions on how I could be more prevalent to your interests and what you want to see profiled.
I once had a draft posting in the queue here titled “The How-to Guide to Foreclosure”. It itemized what steps you can take to maximize your cash-out if you choose to go the foreclosure route, including HOAs, city/county taxes and fees, property taxes, and special assessments you could bank along the way. The formula would have saved a certain propery owner on Castlehawk over $K. I got vetoed over legal concerns. But it got me to wondering if there is an interest in a forum with no holds barred about Reno RE. I’ve got place holder URL waiting for you if
RRB gets lame.
DownButNotOut
GreenNV – No harm meant. Skrapguy did a good job explaining the flip side, and I tended to agree with him after reading his post. Like many, always reading up on subject matter that is the same old ‘overpriced and delusional seller’ routine seems sometimes to be a repeat – but that being said it IS what’s happening, and I DO appreciate you’re topics, (and this blog) – and every time you post it does generate good discussions, even if one was to consider Nevada the gay capital 🙂
Keep up and continue the good work!
FutureRenoHomebuyer
Mike,
(I assume you are GreenNV). I would like very much to see your draft on buying foreclosures. Is there anyway I can send you my email and you could forward via separate correspondence? Happy to sign any disclaimers you may wish to provide. I presume I speak for possibly a few of my fellow readers.
Paul
Mike, I love this blog and your contributions in particular. But if you want to start a no-holds barred blog (maybe hosted by a limited partnership consisting of a wyoming and delaware corporation) I think you know where to find me.
BanrteringBear
Mike posted:
“BB, seriously, where do you think I should be pricing 4305 Canyon? Appraisers won’t appraise the lot since there aren’t any comps, so I’m alone on the strategy front. The lot above me on Canyon was listed for $795 (now down to $525)…”
That’s a good question, Mike. I think $50k is a good start, though. Honestly, I don’t see much reason to even have it on the market at this point unless you’re in financial straits.
Your post was about “suicide listings” and how it burns through agents resources, and I was simply pointing out that’s precisely what your listing is doing. $188k is a bubble price (regardless of your sunk costs).
As we know, all land is NOT created equal. I’ve seen your parcel and I’m well familiar with the area. It is difficult to develop, sits at the base of a steeply sloped hill (20+ feet down?), and below all of the nice homes, is somewhat shaded (northern exposure), and fronts Mayberry. IMO, it is not desirable for anybody with real money for many reasons.
This is just my honest opinion, and I welcome anybody else who’s familiar with your parcel to weigh in. It seems to me that anybody with $190k to burn on dirt would probably be more interested in buying a few acres in St. James or Cauglin Ranch, or at least a parcel that is private without all of the issues yours seems to have.
Maybe I’m wrong, and you’ll find a buyer. Time will tell. Perhaps you can keep us informed of your progress.
PS- $795k for the lot above you? That’s more ridiculous than words can describe. Whoever dreamed up that price should be committed.
BanteringBear
BanrteringBear?
Josh in SW
A note for Mike,
I do not follow Commercial Real Estate, and have been a fan of the blog since moving here two years ago.
I am curious if you could do a blog entry on the relationship between the commercial and residential markets in Reno. Are they related? Is one healthier than the other? Does one often used as an indicator of future movement in the other?
I know this blog tends to be residential – but nothing I have found indicates this must be exclusive. Not sure if you are the guy, not sure about others but would really appreciate a juxtaposition of these two markets.
Josh
hopefulbuyer
Interesting information on this blog. As a non-professional in real estate but a potential buyer (no rookie in that regard) why don’t you shed light on folks who are listing short sales knowing that the sale will not be accepted by the lender. Many of these short sale listings are a real disservice. And who’s being misled as a result: the customer.
Walter
I have viewed the lot and I have to agree with BB in two regards. First, and perhaps of lesser importance is the slope. It would create interesting builder issues. Second, the neighborhood may doctorville and lawyerville, but the lot’s location fronting Mayberry is a problem for any doctor, lawyer, or indian chief thinking about sinking a pile of dough into a custom house in that neck of the woods. Too much Mayberry traffic and not enough seclusion.
You do a great job on the blog. The idea of a let ‘er rip blog on Reno real estate is intriguing, but I would advise you consult with competent counsel before you stake your money and reputation behind the corporate veil of out of state shell companies.
billddrummer
Mike,
Thanks for keeping up this blog in addition to all the other things you have in your life.
As far as the relationship between commercial and residential markets (and CommercialLender may comment here), it seems to me that both markets were influenced by the boom mentality of the period. The old adage “retail follows rooftops” became the mantra for commercial developers watching acres of new homes being built in Somersett, Arrowcreek, Spanish Springs, Double Diamond, Damonte, etc. etc. As a result, retail power and strip centers soon followed, blessed by the municipalities expecting huge increases in property and sales taxes as the new stores came online to serve a seemingly limitless pool of homebuyers.
Unfortunately, when the housing bubble burst, new homeowners didn’t move in, and many left. As a result, new power centers expecting traffic didn’t get enough action to lease up fully. This put pressure on developers’ cash flow requirements, especially after construction funds were depleted. Add to that the number of overleveraged retailers that expanded beyond their funding ability, mix in a pullback in consumer spending, and suddenly there are more vacancies in existing centers than anyone could have predicted.
We’ve all seen the number of retail outlets that have closed over the past two years, and there’s little to indicate the trend will reverse this year.
With office and industrial properties, demand slowed because of the recession, again putting pressure on developers, while the credit crisis choked off financing for new commercial projects.
As the credit markets heal, financing will again become more plentiful. But underwriting standards have tightened, so marginal projects will probably not get funded.
Hope that helps. Welcome CL to further expand on this issue.
CommercialLender
Josh and BillDDrummer,
I’ll expand later on, busy at the moment, but yes, let’s just say SFR’s are in the 6th inning (my own opinion) of this dowturn while commercial real estate just entered the 1st inning. No score yet, but the visiting team is very daunting.
I’ll go into the why’s/how’s on my next post.
GreenNV
BB, I hope you’re not right on the valuation, or Mr. Goober Eyes is going onto genereic kibble, and I’ll be sharing it with him. In this market. would it even matter if I listed at 50K, 150K or 250K? Mayberry Canyon is a 2004 project. I’ll be the first to admit that the market has probably moved on and that I’m going to get creamed. Washoe is finally coming to the rescue with density bonuses, but probably too late to save me. Take a look at 5690 Maybery to complete my portfolio. That’s where my house is supposed to go.
inclinejj
Please people get the facts right..Diane, had to do what was best for her family..Her husband needed to be down in the Bay Area for his job..They had a family meeting and did what was best for the family..
Diane did the we thing, not the me thing..
She should be commended not raked over the coals..
Jim
billddrummer
To CL,
Thanks. We await your insight.
Otto
Inclinejj,
That’s complete garbage. What Dianne did was despicable.
It represents everything that is wrong with this country.
She gambled. She lost. She baled. Now she’s leaving us, the tax payers, to pick up the tab.
That, in my eyes, is criminal.
billddrummer
To Otto,
I agree with Inclinejj. What Diane did or didn’t do is open to conjecture, but the impression I get is that the family’s security was more important than staying the course in Reno.
In her shoes, I’d have done the same thing.
Reno Ignoramus
Hey guys, all I said was that Diane has basically lost interest in the blog. Which she clearly has. She has had basically no presence on this blog for at least a couple of months now. I said nothing about her character and attributed nothing to her motives. As far as getting the facts right, I submit that my facts are 100% right in that Diane has essentially left the blog as a sponsor. Thus did I call upon Guy, hopefully, to carry on with providing the monthly sales info that has been so insightful.
All you newcomers might want to go back to the very earliest days of the blog and you will see that there has been no greater supporter of Diane since she started this blog almost 3.5 years ago than I have been. For the first few months of this blog, most of the threads and comments were not much more than Diane and I talking to each other. I remain totally steadfast in my support of her, and continue to praise her for her willingness to sponsor a blog, all by herself in the beginning, that was not just another realtor spin site.
CommercialLender
InclineJJ and Otto,
Sorry, but I’m not following your thread on Diane. Where are you picking up her story? Why is she being castigated here, for a short sale?
****
Josh and BDD,
Commercial lending, therefore the commercial property market as a whole, is just now entering into a downward spiral. Oddly enough, I’ve/we’ve been feeling this downturn as it relates to the financial markets since 2/23/07. I remember it well, as I was busy trying to lock in a rate on an industrial property in a market that suddenly and drastically spooked, a result that day of the first inklings of the sub-prime crisis, and it spilled over into the CMBS market for loan pricing that day. Since then, its slowly succumbed to the pressures of this recessionary market. Its taken a while, but we are only recently feeling it in commercial valuations.
CMBS debt to that point and until late 2007 was the biggest part of the commercial lending market (for $5M+ assets). Now, it is totally and completely dead – $0/yr as opposed to over $200B/yr. As a result, the demand for commercial lending either had to a) dry up, b) be funded by remainging banks and life companies or c) not have adequate souces of cash to satisfy the demand. All 3 happened, but first it was b) then c) and then a).
As a result, very few life companies and banks are still lending en masse in the commercial space, causing more illiquidity, thereby forcing demand lower and becoming a self-fulfilling prophecy. Now, the spigot is turned off and values are now plummeting. Add to this a general economic recession effecting jobs (office sector), manufacturing (industrial sector), the consumer (retail sector) and a glut of distressed homes on the market (effecting apartment sector primarily via the shadow inventory of single family homes renting for class A apartment rents). All the while you all hear about the sub-primes, then Alt-As, now Jumbos, thrown in with Fannie and Freddie takeovers, AIG, GM, Obama’s socialist nationalizations and bailouts, Bush’s complete ineptitude, TARP, Lehman, Bear Stearns, et.al. – but commercial real estate was just a swell in the ocean far out from land. Nearing land now, it is steadily rising into what many think might be another tidal wave. In my business, I just started to actually feel it in terms of assets we as a lender are taking back, in only December ’08. Its much worse even now.
Certainly, whatever debt there remains for commercial assets (primarily banks and life companies and for apartments only there’s Fannie, Freddie and HUD) is both hard to come by and is very risk averse. High leveraged debt is, well, gone, while moderate leveraged debt is cherry picked by the few lenders still left, and low leveraged debt is either being refinanced or paid off cash by those owners who did not get into trouble.
Commercial property owners who, not unlike single family bubble-buyers, overlevered to buy more assets and at ever higher, riskier prices are now in quite a bind. Either they weather the storm with long term debt they already have, while cost cutting and paying any mortgage payment shortfalls with cash, or they sell into a very picky, very dead buyer market where buyers will only qualify for moderate and lower leveraged acquisition financing. Or, they give back maturing loans to the lenders. Or, they strike some deal with the existing lender to extend the existing debt. Given the vast, vast majority of commercial debt is ‘balloon’ debt (maturity date of say 10 years, despite a longer amortization, 25 or 30 years) there is literally tens and hundreds of Billions of dollars of maturing commercial debt coming due in each of the next 10 years. There are few new sources and many of the existing lenders are unable or unwilling to extend the loans; therefore I am seeing many assets going back to the lenders now.
The commercial debacle has lagged the single family class for many reasons, but suffice it to say that it will follow the SFRs into a recovery. So, I say SFRs are in the 6th inning while commercial is in the 1st.
I could write a book on the where’s, why’s, how’s, when’s but this might not be of any help to you. I will say real estate happens in cycles of usually 7-10 years up followed by 2-5 years down. Given we went effectively 2 cycles upward (1994 to 2008), I could argue we’ll see 2 downward cycles (2009-2013+). I also think that institutional lenders have institutional memories, that is they are not likely to overlend anytime soon. So, there will be little reason for demand to increase or values to pick up any time soon.
What specifics would you like to know? Reno retail? It’ll be hurting for many years. BDD articulated that well. Reno industrial? Might do OK as industrial assets never really boomed and in fact in many areas supply of these assets contracted over the last 10 years. Maybe it’ll hum along. Reno office? Good luck, as so much of the office space was to FIRE tenants (financial, insurance, real estate). The financial markets? I think the story in commercial real estate is nowhere near played out, so we’ll hear many more months, maybe years of gloomy stories, helping to mute any recovery. Financial sector? What they already have on their books will take years to go away. We may see another round of lenders fail. Construction? Both SFRs and Commercial projects are drastically reduced and will be for I’d guess another 18 months.
All this might, just might, point to a lack of supply in 4 years, but no cause to go buy vacant land right at the moment. No, the next wave is already setting up and that will be a wave of very cheap, distressed and even abandoned assets for purchase in the next 2-5 years, not unlike where SFRs are already. Construction will only follow when the slack supply is absorbed.
Finally, here are current market rates:
Apartments, 70% LTV, 1.25 or 1.30x DSC = 6% to 6.4% for 10 year, non-recourse. Lower LTV would have 10-40 bps lower rates.
Office and industrial, banks are 6.5% and higher, full recourse, 5 yr fixed rate max, 30 year amort, up to 70% LTV. Life companies are 65% LTV max, mostly non-recourse, 7+% rate, 25 yr amort, 10 year fixed.
Retail, forget it. Good luck unless its 50% LTV and with very good long term tenancy. 7+%.
All in all, you might say 7% is not so bad, which historically its not. But its only available if the asset is squeaky clean and is believed to be going up from here. Any hair on your asset today, you might not find any financing at all.
Hope this helps.
billddrummer
To CL,
Thanks for the insight and lucid explanation of what’s happening now.
I recently saw a fully leased industrial building in the Reno airport submarket for sale at a 13% cap rate. Now, these were established tenants with long term leases, and lease terms out to 2011 for more than 60% of the available space. Further investigation showed that the owner of record appeared to be a REIT out of Northern CA. Perhaps they had trouble rolling over some maturing debt elsewhere and had to come up with some quick cash.
In any event, the property sold in less than 60 days.
Is this a harbinger of things to come?
CommercialLender
Uh, a 13% cap on decently well leased industrial asset in Reno? I’m a buyer… no wonder it sold in 60 days. I’m guessing it sold for well under $50 psf?
Yes, I’m seeing REITs try to raise cash any way they can, including being net sellers, and taking on portfolio refis and lines of credit, etc. One could argue that when the market comes back, they’ll have the cash to jump in in a meaningful way. Likely, it’ll be the little guy investors coming back first, then the REITs will jump in. Kinda like the kids’ pool party when the huge overweight guy comes 2 hours late then does a cannonball in the kiddie pool (how’s that for a summertime metaphor?)