And You Thought It Couldn't Get Any Worse!
By Bill Swift
Wiest Realty & Mortgage Co., Inc.
Hesperia/Victorville 2-4 Unit Closings Approach Zero
Second quarter Apple Valley 2-4 unit closing numbers aren't
too far behind.
REO's abound and many non-owner projects are falling into
disrepair. Softer rents, poor management, over-leveraged
properties, a lack of non-owner financing programs, and little
or no financial staying power on the part of owners continue
to result in an over-supply situation and falling prices.
We found no 2-4 unit arm's length closings in Hesperia in
the 1st quarter of '08 and only one in the 2nd quarter. Only
one Victorville 2-4 unit closing was found in the 2nd quarter.
Note prices per unit trends below:
The data omits properties in commercial zones and 2 to 4
unit sales on lots over 1.75 acres. It also omits sales between
related parties and single family homes with “granny flats”,
as well as “tear down” projects.
Average Price Per Unit (Gross Sales/Total Units)
| Period | Apple Valley | Hesperia | Victorville |
|---|
| 2Q '05 | $111,935 | $116,161 | $105,404 |
|---|
| 2Q '06 | $147,050 | $145,563 | $112,796 |
|---|
| 2Q '07 | $131,833 | No Sales | $125,100 |
|---|
| 2Q '08 | $84,121 | $89,250 | $33,500 |
|---|
The Victorville average price per unit is skewed downward
by only one closing of a “fixer”. Poor closing and price trends
suggest even lower numbers are needed to bring back
buyers. Single family prices for REO and otherwise distressed
properties rival 2 to 4 unit projects on a “per unit” pricing
basis.
Although the 5+ units sales we found indicate a
continuing anemic market, it was interesting to note that
all the 1st quarter 2008 5+ unit sales we found occurred
in Apple Valley. The following chart depicts 5+ unit
closings in Adelanto, Apple Valley, Hesperia, and
Victorville as a group.
Asking prices based on GRM (Gross Income Multipliers)
have fallen, however, it appears they have not fallen
enough to attract buyers.
| City | AVG List Price | AVG Sold Price |
|---|
| 2Q '07 | 2Q '08 | All of '07 | All of '08 |
|---|
| Adelanto | 10.91 | 8.49 | No Sales | 8.71 |
|---|
| Apple Valley | 13.47 | 13.08 | 10.75 | 11.11 |
|---|
| Hesperia | 12.66 | 13.80 | 9.89 | No Sales |
|---|
| Victorville | 12.49 | 11.75 | 12.84 | 11.70 |
|---|
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Asking prices in terms of multipliers are too high.
Many areas of Los Angeles have lower multipliers with
higher rents. In many cases, a Los Angeles area buyer
can purchase projects with higher rents with a similar
GRM and a lower expense ratio. Hence, a higher cap
rate results.
-
High desert unemployment is rising. Per the
California EDD, San Bernardino County unemployment
as of the 2nd quarter of 2008 was 7.9% (not seasonally
adjusted). We're finding many of our tenants are
leaving or downsizing due to layoffs or a cut in their
hours.
-
REO and distressed single family properties are flooding
the market. Many are priced under $100,000 with prices
between $90,000 and $95,000 being common. Considering
the rent potential of a single family vs. a 600 to 900 square
foot multifamily unit, there's no contest.
-
Financing is more difficult for multifamily projects. Debt
service coverage ratios generally result in high down
payments. Part of the problem is a higher vacancy & credit
loss deduction resulting in a lower NOI and lower loan-tovalue
ratio.
-
Buyers smell blood. Many feel there is no rush to buy.
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What you can do to get your
property sold:
-
In spite of poor conditions, we still find owners with
rents far below market. Buyers aren't buying potential
any more. If your rents are significantly below market,
raise them.
-
Cut expense where possible. Fix those leaks,
consider desert landscaping, check in to tankless
technology, manage properties efficiently, consider
efficient lighting with timers or motion sensors. Don't
let slow paying tenants slide. Have a set of rules. Don't
allow tenants to trash your property even though they’re
paying the rent on time.
-
Check tenants thoroughly. Credit and criminal
background checks are cheap. Don't be penny wise
and pound foolish.
-
Clean up the property. You have plenty of
competition. Make sure your project has good curb
appeal.
-
Keep accurate records. Proof of year over year
expenses and collected rents vs. potential gross is
essential. Buyers and lenders look at Schedule E's for
expense trends and to estimate vacancy & credit loss.
-
Good pricing is essential. Keep your price within
reasonable limits. Your property needs to stand out.
Buyers have too many choices, they're not going to
give your property a second look unless your price and
income make sense.
-
Coverage is crucial. There's more to marketing
these days than just local MLS.
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Want to pick Bill’s brain?
Contact him online...
click here
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