On one of those Friday’s after work when my wife and I lay out the evening and weekend plans for ourselves and our three busy teenagers, the spin of assignments and activities sometimes splits us up into different directions. It’s like that with most busy households.
One recent evening, our two sons and I learned last minute that we had a night to ourselves. My wife and our daughter were going to a movie they knew we wouldn’t like. With no time to plan, we hopped in our truck and fell into a deep-dish pizza. Halfway through our meal, one of the boys, mouth packed full, came up for air and mentioned we didn’t have any plans after the pizza was gone.
Glancing around, I saw a crusty newspaper on the table next to us advertising a professional bull riding event in town. Forty-five minutes later we found ourselves in the front row at Comcast Arena in Everett taking it in. Popcorn passing between us, loud music, bulls and cowboys. Without any planning at all, we booked a great evening together.
Last month, though, the spin of last-minute assignments went very differently and I found myself on a concert floor chaperoning our daughter and two of her friends at a teen idol concert. The star was Justin Bieber, 16 years old and the hottest thing in the teen beat scene. A modern day version of David Cassidy or maybe Donny Osmond as I remember them from the 1970s, but with a hip-hop flair and whatever it is that makes 13-year-old girls scream. Like my last-minute assignment with the boys, I just let one moment lead to another and assumed it would all work out.
Before I could really get my arms around the evening, though, I found myself standing in the middle of a packed arena — almost in the exact same place where I watched bull riding a few months prior — but this time with 8,700 teen girls and a handful of moms in the place of country folk. Somebody didn’t tell me dads apparently don’t usually go to Justin Beiber concerts.
You couldn’t miss me and the half-dozen other dads in the same situation. We stood head and shoulders above the sea of pony tails on the floor. Nothing felt comfortable.
About halfway through the concert, I decided to embrace the situation. There was really no other choice. I put an arm in the air and started swaying with the crowd to “Runaway Love,” one of Bieber’s biggest hits. Two songs later, my ear plugs fell out and I was jumping and singing. I saw another dad doing the same across the arena. I found myself agreeing with the girls that the concert was “like … totally awesome.” Another unplanned adventure that worked out.
The historic steady growth and predictable appreciation real estate investors once enjoyed made investment decisions much simpler before the current unemployment-laden recession and the complicated situation with banks. Like a bull riding event, we used to get on, ride a bit and make some money. No difficult planning. Just jump in and it’ll work out. Today, we’re all feeling like grown men at a teen idol concert wondering what set of circumstances got us here.
It’s been more than two years since short-term value appreciation was any sort of measurable component of a return on investment and that massive value adjustment is really the major difference. Everything else is a symptom or a byproduct.
At some point, we can’t keep squirming, though, and have to start looking for opportunities.
One such opportunity emerging is bank-owned assets.
The vast majority of the inventory coming back onto bank books in the Puget Sound area is undeveloped single-family home land inventory. But income-producing properties such as retail, office or partially complete condominium properties that can be deployed as for-rent apartments are now becoming part of the mix. These property types represent opportunities for more conservative investors where the residential land inventory fits better for developers and those with a different risk profile.
Of course, all of these bank-owned assets are the product of increasing borrower defaults, where lenders — either by their own necessity or forced by regulators to reduce their exposure to real estate — must move these assets off their books. Some of the inventory is being forced into the for-sale market rather suddenly as the Federal Deposit Insurance Corp. flexes its muscle and facilitates local bank takeovers we’ve all been following.
Investors are starting to make moves. Foreclosed asset sales in the second quarter of 2010 were up over the prior two quarters.
This is a good sign. Investors buying these assets are the key to digging us out of the value free-fall of the past two years. Unfortunately, only those in a very a liquid situation are able to act, and they are few and far between — not nearly enough to dig us out of the marketwide situation.
That’s because of the absence of commercial real estate lending. It is still the big elephant in the room keeping the broad market from recovering. The only way it can come back is to get enough lenders healthy that some can get back in the game in again, sidle up with investors and stimulate buying activity again. Sales of bank-owned assets is necessary for that to happen.
We’ll need a lot more than the sale of bank-owned assets to get us back to the sort of health we once knew, though. Many investors are waiting for at least two straight quarters of solid consumer confidence matched with stock market growth and a reliable up-turn in private sector employment before they feel completely comfortable that we’re not vulnerable to a double-dip recession. With political winds blowing us into this fall, it appears some investors are content waiting for changes in Washington, D.C., and the outcome of income tax Initiative 1098 in our Washington before they draw any conclusions about the health of the broader economy and gauge their moves.
In the meantime, investors stand poised although still a bit confused. Those who can find it in themselves to put one arm in the air, tap a toe and maybe sway their shoulders a bit might find some hidden gems right now and look back one day and realize that the moves they made in the current market — while far from comfortable — were like … totally awesome.
Tom Hoban is co-owner of the Everett-based Coast group of commercial real estate companies, specializing in commercial real estate management, sales, leasing and investment. Contact him at tomhoban@coastmgt.com, 425-339-3638 or www.coastsvn.com.
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