Rental practice can provide income, future clients for agents
By ANDREA BRAMBILA
SAN FRANCISCO -- In a sluggish economy, diversification into renting can provide new income streams for both consumers and real estate professionals, according to two speakers at Real Estate Connect Thursday.
In August 2008, shortly before the financial crisis hit, Joe Gebbia, Brian Chesky and Nathan Blecharczyk founded Airbnb.com, a site that allows consumers to rent out their extra space on a per night basis. The timing was auspicious for a site devoted to generating income from underutilized housing space.
"Even during a down economy we were thriving," Gebbia said.
For some Airbnb users, the service has provided them with a livelihood. Gebbia shared some user stories:
•A woman who saved her home by renting out a room that covered her mortgage payments.
•A couple who were about to lose their apartment rented it out through Airbnb and not only earned enough to pay for the apartment, but bought another one next door that they also rented out.
•A former fix-and-flip builder who was putting the finishing touches on a home when the housing market turned -- turning the place into an Airbnb rental was so successful that he changed his business model and now buys properties to hold and rent out.
Rentals can also represent a new way to make money for real estate professionals. By 2015, the nation's home ownership is projected to drop from about 66 percent today, to 64 percent -- the same rate it was in 1968, said David Vivero, CEO of RentJuice, which provides online rental relationship management software to real estate professionals.
While that drop may seem small, it represents more than 10 million people who will go from homeownership to "rentership" in the next five years, Vivero said.
And significant for real estate professionals, that means by 2015 there will be 4.3 million more rental units and 1.8 million fewer owned homes; 463,000 homes sales will be lost, worth $2.4 billion in commissions; and 150 million leases will be signed, worth $6.8 billion in commissions.
"If you offer only sales, (a total of) $11 billion in commissions (will be) out of your reach," Vivero told conference attendees.
Real estate agents and brokers that consider sales as part of their professional identity should remember that renting is often a stepping stone to homeownership, he said. For agents, a rental practice can provide exposure to renters, and to landlords who may decide to buy more properties in the future.
"Renters may turn into homeowners; prove yourself early," Vivero said. "No one's born 35. Between 22 and 35, they're renting."
Commissions from leasing rental properties are smaller than those from sold homes, but provide "a steady income stream" that "help keep frustrated agents afloat," Vivero said.
For industry professionals interested in diversifying into rentals, the first step is to "simply just put content out there and hang a shingle as a rental service," he said.
To get listings, he suggested searching Craigslist for those who are "renting by owner," and connecting with development companies. Especially in major metropolitan areas, developers will often convert condominiums into apartments when they can't sell them.
In terms of marketing, the multiple listing service cannot be a real estate professional's only strategy when marketing to "Generation Rent," Vivero said. RentJuice, for example, gets only 15 percent of its rental listings from MLSs.
And the marketing is different. Given demographics that skew toward younger singles, school statistics and mortgage calculators are likely to be less effective than a focus on lifestyle factors such as commute times and nearby amenities, Vivero said.
Sunday, July 31, 2011
Tuesday, July 26, 2011
Metro-area apartment vacancies hit 10-year low, pushing rents up
By Howard Pankratz
The Denver Post
Posted: 07/26/2011 01:00:00 AM MDT
Read more: Metro-area apartment vacancies hit 10-year low, pushing rents up - The Denver Post http://www.denverpost.com/business/ci_18549016#ixzz1TEYxhqSY
Read The Denver Post's Terms of Use of its content: http://www.denverpost.com/termsofuse
Grace Green considers herself lucky.
Nine months ago, the 18-year-old Crested Butte resident moved to Denver to work as a nanny.
She found what she describes as a wonderful, recently remodeled and affordable apartment complex in Glendale. She was among the first to move in.
But now, less than a year later, the world of apartment renting has changed dramatically, with tighter vacancy rates and rising prices.
The rents at Green's complex have soared — anywhere from $110 to $135 a month more than what she paid.
She has friends from the Crested Butte/Gunnison area who recently wanted to move to Denver. But rental rates have risen so much they can't afford it.
Green's analysis is supported by a report released Monday that said apartment vacancies in the metro area have fallen to a 10-year low in the second quarter of 2011, with a vacancy rate of 4.8 percent.
And with declining vacancy rates, there has been a jump in median rents.
During the second quarter of 2011, the median rent in metro Denver rose to $863.37, increasing 2.5 percent from 2010's second-quarter median rent of $842.70, according to the Apartment Association of Metro Denver and the Colorado Division of Housing.
The vacancy rate is the lowest it's been since the first quarter of 2001. It has fallen 21 percent year-over-year from last year's second-quarter rate of 6.1 percent.
Green said the impact is not just on people moving to Denver. Other people Green knows — who "doubled up" earlier — found that even by doubling up they can't afford their places when their leases are up for renewal.
Ryan McMaken, Division of Housing spokesman, said it is quite possible there will be a return to the low vacancy rates of the late 1990s if current trends continue. McMaken said that in the third quarters of 1999 and 2000, the vacancy rates hit 3.7 percent.
McMaken said a big factor is that apartment construction is not keeping up with demand.
Gordon Von Stroh, a University of Denver business professor and the report's author, said the vacancy rate reflects a tight market.
"The vacancy numbers haven't been lower than this since before the dot-com bust in Colorado, and that was a period marked by a scarcity of rental housing in many areas," said Von Stroh.
Von Stroh said it has become increasingly difficult for people — especially younger people — to move into single-family residences. Key factors are the unemployment rate, tightened credit and higher down payments.
He said there is a population increase in young people in the Denver area of about 35,000 a year, and many move into apartments. There also continues to be a large influx of people into Denver.
McMaken said that from Jan. 1 until May 31, only 1,013 permits had been pulled to build apartments, compared with 4,681 in 2001 for the same period.
Lauren Brockman, a principal in Allied Realty, which manages 25,000 rental units, said that "there is no question people are going to get squeezed."
Brockman said it isn't a huge problem yet, although he sees more people doubling up.
"You will get back to a roommate situation. which hasn't happened in five years," Brockman said.
He said that after Sept. 11, 2001, the housing market in Denver was slammed and then "the disaster in the financial market shut us down" — completely stopping rental-unit construction.
Brockman said rents in the metro area are now back to 2000 levels. "We basically broke even for 10 years," he said. He added, however, that pushing rent increases is not easy.
McMaken said rents in Denver haven't kept up with inflation.
"The Consumer Price Index is up about 3 percent over the past year," McMaken said, "but the metro Denver median rent increased 2.5 percent."
The Denver Post
Posted: 07/26/2011 01:00:00 AM MDT
Read more: Metro-area apartment vacancies hit 10-year low, pushing rents up - The Denver Post http://www.denverpost.com/business/ci_18549016#ixzz1TEYxhqSY
Read The Denver Post's Terms of Use of its content: http://www.denverpost.com/termsofuse
Grace Green considers herself lucky.
Nine months ago, the 18-year-old Crested Butte resident moved to Denver to work as a nanny.
She found what she describes as a wonderful, recently remodeled and affordable apartment complex in Glendale. She was among the first to move in.
But now, less than a year later, the world of apartment renting has changed dramatically, with tighter vacancy rates and rising prices.
The rents at Green's complex have soared — anywhere from $110 to $135 a month more than what she paid.
She has friends from the Crested Butte/Gunnison area who recently wanted to move to Denver. But rental rates have risen so much they can't afford it.
Green's analysis is supported by a report released Monday that said apartment vacancies in the metro area have fallen to a 10-year low in the second quarter of 2011, with a vacancy rate of 4.8 percent.
And with declining vacancy rates, there has been a jump in median rents.
During the second quarter of 2011, the median rent in metro Denver rose to $863.37, increasing 2.5 percent from 2010's second-quarter median rent of $842.70, according to the Apartment Association of Metro Denver and the Colorado Division of Housing.
The vacancy rate is the lowest it's been since the first quarter of 2001. It has fallen 21 percent year-over-year from last year's second-quarter rate of 6.1 percent.
Green said the impact is not just on people moving to Denver. Other people Green knows — who "doubled up" earlier — found that even by doubling up they can't afford their places when their leases are up for renewal.
Ryan McMaken, Division of Housing spokesman, said it is quite possible there will be a return to the low vacancy rates of the late 1990s if current trends continue. McMaken said that in the third quarters of 1999 and 2000, the vacancy rates hit 3.7 percent.
McMaken said a big factor is that apartment construction is not keeping up with demand.
Gordon Von Stroh, a University of Denver business professor and the report's author, said the vacancy rate reflects a tight market.
"The vacancy numbers haven't been lower than this since before the dot-com bust in Colorado, and that was a period marked by a scarcity of rental housing in many areas," said Von Stroh.
Von Stroh said it has become increasingly difficult for people — especially younger people — to move into single-family residences. Key factors are the unemployment rate, tightened credit and higher down payments.
He said there is a population increase in young people in the Denver area of about 35,000 a year, and many move into apartments. There also continues to be a large influx of people into Denver.
McMaken said that from Jan. 1 until May 31, only 1,013 permits had been pulled to build apartments, compared with 4,681 in 2001 for the same period.
Lauren Brockman, a principal in Allied Realty, which manages 25,000 rental units, said that "there is no question people are going to get squeezed."
Brockman said it isn't a huge problem yet, although he sees more people doubling up.
"You will get back to a roommate situation. which hasn't happened in five years," Brockman said.
He said that after Sept. 11, 2001, the housing market in Denver was slammed and then "the disaster in the financial market shut us down" — completely stopping rental-unit construction.
Brockman said rents in the metro area are now back to 2000 levels. "We basically broke even for 10 years," he said. He added, however, that pushing rent increases is not easy.
McMaken said rents in Denver haven't kept up with inflation.
"The Consumer Price Index is up about 3 percent over the past year," McMaken said, "but the metro Denver median rent increased 2.5 percent."
Monday, July 25, 2011
Top 8 House Hunting Tips
Buying a home? These eight tips can help make your house-hunting experience positive and rewarding.
By Marcie Geffner
1. Location counts. You've probably heard the old real estate joke about "location, location, location," but the point still bears repeating. Location is crucial. How far are you really willing to commute to your place of employment? How good are the local schools, shopping centers, public transportation, seniors services and other public amenities? Will your new home be next to a vacant lot or a commercial property? Even a picture-perfect dream home can be a mistake if it's in an undesirable location, and a poor-location home can be a particularly bad choice if you anticipate reselling the home within a few years.
2. Make a list. Do you (and your spouse, if you're married) really know what you need and want in your home? You'll save yourself many hours of shopping (and potentially arguing) if you make a list ahead of time. Zero in on the features you must have, would like to have, definitely don't want and would prefer not to have. Your goal is to find the right home for your family without falling in love with one that doesn't suit your needs. Tip: Start compiling your wish list by thinking about what you like and dislike about your current home.
3. Do your homework. Not long ago, consumers had very little access to information about recent home sales prices, market trends, homes on the market, neighborhood statistics and the home-buying process. Today, all this information and more is available on the Web. Go surfing. Get educated. Become empowered.
4. Get preapproved for a mortgage. Your top-dollar home price is a function of your household income, your creditworthiness, interest rates, the type of loan you select and how much ready cash you have for the down payment and closing costs, among other factors. Rather than guessing or estimating how much you can afford to spend, ask a lender or mortgage broker to give you a full assessment and a letter stating how much you're qualified to borrow. The true amount may be much more or much less than you think.
5. Use a checklist. Touring multiple homes is a confusing experience for most people. Rather than relying on memory, make notes about the homes you visit. Turn your priorities into a personalized home-shopping checklist and use it track the features of each home.
6. Wear comfortable clothing and sturdy shoes. House-hunting can be tiring, especially if you're relocating to a distant community and want to see a dozen homes in one day. There's no sense in torturing your feet unnecessarily.
7. Be prepared to make an offer. House-hunting can also be frustrating, especially if you know in your heart you're not really emotionally or financially ready to buy a home. If you're not ready, don't put yourself through the exercise. If you are ready, go through a blank purchase contract ahead of time so you'll know what decisions you'll face when you make an offer.
8. Relax. Granted, buying a home is a major life-altering event. But it's not worth making yourself insanely crazy or super-duper stressed. Save time at the end of your house-hunting expedition to unwind, calm your thoughts and emotions and keep the whole experience in perspective.
By Marcie Geffner
1. Location counts. You've probably heard the old real estate joke about "location, location, location," but the point still bears repeating. Location is crucial. How far are you really willing to commute to your place of employment? How good are the local schools, shopping centers, public transportation, seniors services and other public amenities? Will your new home be next to a vacant lot or a commercial property? Even a picture-perfect dream home can be a mistake if it's in an undesirable location, and a poor-location home can be a particularly bad choice if you anticipate reselling the home within a few years.
2. Make a list. Do you (and your spouse, if you're married) really know what you need and want in your home? You'll save yourself many hours of shopping (and potentially arguing) if you make a list ahead of time. Zero in on the features you must have, would like to have, definitely don't want and would prefer not to have. Your goal is to find the right home for your family without falling in love with one that doesn't suit your needs. Tip: Start compiling your wish list by thinking about what you like and dislike about your current home.
3. Do your homework. Not long ago, consumers had very little access to information about recent home sales prices, market trends, homes on the market, neighborhood statistics and the home-buying process. Today, all this information and more is available on the Web. Go surfing. Get educated. Become empowered.
4. Get preapproved for a mortgage. Your top-dollar home price is a function of your household income, your creditworthiness, interest rates, the type of loan you select and how much ready cash you have for the down payment and closing costs, among other factors. Rather than guessing or estimating how much you can afford to spend, ask a lender or mortgage broker to give you a full assessment and a letter stating how much you're qualified to borrow. The true amount may be much more or much less than you think.
5. Use a checklist. Touring multiple homes is a confusing experience for most people. Rather than relying on memory, make notes about the homes you visit. Turn your priorities into a personalized home-shopping checklist and use it track the features of each home.
6. Wear comfortable clothing and sturdy shoes. House-hunting can be tiring, especially if you're relocating to a distant community and want to see a dozen homes in one day. There's no sense in torturing your feet unnecessarily.
7. Be prepared to make an offer. House-hunting can also be frustrating, especially if you know in your heart you're not really emotionally or financially ready to buy a home. If you're not ready, don't put yourself through the exercise. If you are ready, go through a blank purchase contract ahead of time so you'll know what decisions you'll face when you make an offer.
8. Relax. Granted, buying a home is a major life-altering event. But it's not worth making yourself insanely crazy or super-duper stressed. Save time at the end of your house-hunting expedition to unwind, calm your thoughts and emotions and keep the whole experience in perspective.
How to Price Your Home
Pricing decisions should be grounded in reality
By Marcie Geffner
When the time comes to price your home for sale, you may be tempted to start with the price you paid for it, add a healthy markup and call it a day. Unfortunately, that strategy is unlikely to result in a true reflection of your home's market value.
Here are six strategies to help you figure out how much your home is worth:
1. Abandon your personal point of view. How much will a ready, willing and able buyer be willing to pay for your home? Buyers don't care how much you paid for the home, how many memorable moments you and your family shared in the home, how much cash you need for the downpayment on your next home or how much time and money you've invested in your home's hardwood floors, fresh paint, lush landscaping or other improvements.
2. Get a couple of CMAs. Ask for a "comparative market analysis" (CMA), which shows the prices of comparable recently sold homes, on-the-market homes and homes that were on the market, but weren't sold. The on-the-market homes are the "competition" for your home. Ask the agents why each home was included in the CMA and whether any other comparable homes were eliminated from the CMA. Price recommendations based on CMAs aren't gospel. Some agents will tell you to under-price your home in hope of sparking a bidding war. Others will suggest a flatteringly high price to "buy" your listing only to demand a price reduction a few weeks later.
3. Do your own market research. Go to open houses in your neighborhood and try to make an impartial assessment of how those homes compare to yours in terms of location, size, amenities and condition. Assuming all the asking prices were the same, would you buy your home or someone else's?
4. Calculate the price per square foot. The average price per square foot for homes in your neighborhood shouldn't be the sole determinant of the asking price for your home, but it can be a useful starting point. Keep in mind that various methodologies can be used to calculate square footage.
5. Consider market conditions. Are home prices in your area trending upwards or downwards? Are homes selling quickly or languishing? Will your home be on the market in the spring home-buying season or the dead of winter? Are interest rates attractive? Is the economy hot or cold? Will you be selling in a buyer's market or a seller's market? Is the local job market strong or are employees fearful of staff reductions?
6. Sweeten the transaction terms. Some buyers have needs that go beyond the bottom line. If you're willing to close escrow quickly, you'll attract buyers who want to move in right away. If you can offer seller-financing, your home will appeal to buyers who need to stretch their financial resources. A lease-option can help first-timers who need downpayment assistance. The more creative and flexible you can be in meeting the buyer's needs, the more success you'll have in pricing your home to sell
By Marcie Geffner
When the time comes to price your home for sale, you may be tempted to start with the price you paid for it, add a healthy markup and call it a day. Unfortunately, that strategy is unlikely to result in a true reflection of your home's market value.
Here are six strategies to help you figure out how much your home is worth:
1. Abandon your personal point of view. How much will a ready, willing and able buyer be willing to pay for your home? Buyers don't care how much you paid for the home, how many memorable moments you and your family shared in the home, how much cash you need for the downpayment on your next home or how much time and money you've invested in your home's hardwood floors, fresh paint, lush landscaping or other improvements.
2. Get a couple of CMAs. Ask for a "comparative market analysis" (CMA), which shows the prices of comparable recently sold homes, on-the-market homes and homes that were on the market, but weren't sold. The on-the-market homes are the "competition" for your home. Ask the agents why each home was included in the CMA and whether any other comparable homes were eliminated from the CMA. Price recommendations based on CMAs aren't gospel. Some agents will tell you to under-price your home in hope of sparking a bidding war. Others will suggest a flatteringly high price to "buy" your listing only to demand a price reduction a few weeks later.
3. Do your own market research. Go to open houses in your neighborhood and try to make an impartial assessment of how those homes compare to yours in terms of location, size, amenities and condition. Assuming all the asking prices were the same, would you buy your home or someone else's?
4. Calculate the price per square foot. The average price per square foot for homes in your neighborhood shouldn't be the sole determinant of the asking price for your home, but it can be a useful starting point. Keep in mind that various methodologies can be used to calculate square footage.
5. Consider market conditions. Are home prices in your area trending upwards or downwards? Are homes selling quickly or languishing? Will your home be on the market in the spring home-buying season or the dead of winter? Are interest rates attractive? Is the economy hot or cold? Will you be selling in a buyer's market or a seller's market? Is the local job market strong or are employees fearful of staff reductions?
6. Sweeten the transaction terms. Some buyers have needs that go beyond the bottom line. If you're willing to close escrow quickly, you'll attract buyers who want to move in right away. If you can offer seller-financing, your home will appeal to buyers who need to stretch their financial resources. A lease-option can help first-timers who need downpayment assistance. The more creative and flexible you can be in meeting the buyer's needs, the more success you'll have in pricing your home to sell
Building "on spec" not what it used to be
By Scott N. Miller
The Vail Daily
Posted: 07/25/2011 07:53:07 AM MDTUpdated: 07/25/2011 07:53:16 AM MDT
Mike Dantas had a big decision to make as the local real estate market started crumbling a couple of years ago: either keep making payments on vacant land or build something.
For Dantas, co-owner of Dantas Building Co., the decision was fairly simple — build.
"We're builders — that's what we do," he said.
But more specifically, Dantas and his brother, Dave, are in the business of building "spec" homes — homes built without a specific buyer in mind. That business used to be a big part of the Vail Valley real estate business. Now, it may be harder than ever to build a place you intend to sell later.
What Dantas ended up building in Avon's Wildwood neighborhood is a foundation and two fairly modest homes. The foundation was sold to another builder — something spec builders don't usually do. The other two homes will sell for between $550,000 and $649,000. In 2007, those prices would have been much higher.
Read the rest of this report at VailDaily.com.
The Vail Daily
Posted: 07/25/2011 07:53:07 AM MDTUpdated: 07/25/2011 07:53:16 AM MDT
Mike Dantas had a big decision to make as the local real estate market started crumbling a couple of years ago: either keep making payments on vacant land or build something.
For Dantas, co-owner of Dantas Building Co., the decision was fairly simple — build.
"We're builders — that's what we do," he said.
But more specifically, Dantas and his brother, Dave, are in the business of building "spec" homes — homes built without a specific buyer in mind. That business used to be a big part of the Vail Valley real estate business. Now, it may be harder than ever to build a place you intend to sell later.
What Dantas ended up building in Avon's Wildwood neighborhood is a foundation and two fairly modest homes. The foundation was sold to another builder — something spec builders don't usually do. The other two homes will sell for between $550,000 and $649,000. In 2007, those prices would have been much higher.
Read the rest of this report at VailDaily.com.
Metro Denver apartment vacancies drop to lowest level in a decade
By Howard Pankratz
The Denver Post
Posted: 07/25/2011 06:29:47 AM MDTUpdated: 07/25/2011 09:12:04 AM MDT
Apartment vacancies in the Denver metro area fell to a 10-year low in the second quarter, dropping to the lowest vacancy rate since the first quarter of 2001, according to a report released Monday.
The vacancy rate fell to 4.8 percent with apartment vacancy rates falling 21 percent year-over-year from last year's second-quarter rate of 6.1 percent, according to the Apartment Association of Metro Denver and the Colorado Division of Housing.
The vacancy rate was also down from 2010's first quarter rate of 5.5 percent.
The study noted that the vacancy rate generally falls from the first to the second quarter because of seasonal factors.
"A vacancy rate below five percent is generally regarded as a sign that the market is tight," said Gordon Von Stroh, a business professor at the University of Denver and the report's author. "The vacancy numbers haven't been lower than this since before the dot-com bust in Colorado, and that was a period marked by a scarcity of rental housing in many areas."
Von Stroh said Monday that it has become increasingly difficult for people - especially younger people - to move into single family residences. Key factors, he said, are the unemployment rate, tightened credit and higher down payments.
He said there is a natural population increase in young people in the Denver area of about 35,000 a year. The first step for them is moving to an apartment. Because of the economy, they're having to double up in many cases.
He said there also continues to be a large influx of people into Denver from out-of-state, many of them unemployed. The reasoning is if you have to be unemployed, what would be a nice option? The answer: Colorado.
On top of that, the lack of construction of new apartment units is not keeping up with the increased demand, sending the vacancy rate lower, he said.
"There is also a hesitancy because of the economy to move into single family residences," Von Stroh added.
With vacancy rates declining, there has been a corresponding jump in median rents in the Denver area.
During the second quarter of 2011, the median rent in metro Denver rose to $863.37, increasing 2.5 percent from 2010's second-quarter median rent of $842.70.
Ryan McMaken, Division of Housing spokesman, said that between 2002 and 2010, rents on average were flat. But now, said McMaken, there has been "some sustained growth" in recent quarters.
"However, in the year-over-year comparison for the second quarter, rents haven't really kept up with inflation. The Consumer Price Index is up about three percent the past year, but the metro Denver median rent increased 2.5 percent."
McMaken said that while "more desirable" rental communities have been able to push up rents significantly, in general many apartment owners have not been able to push rents "as much as they would have liked."
Median rents rose in Adams, Arapahoe and Jefferson counties, but fell slightly in Denver and Douglas counties and the Boulder/Broomfield area.
The largest year-over-year increase in median rent was Arapahoe county which increased four percent from $806.11 to $838.79.
The largest decline was in Denver county where the median rent fell 1.6 percent from $814.14 during 2010's second quarter to $800.94 during the 2011 first quarter.
Median rents were Adams, $863.85; Arapahoe, $838.79; Boulder/Broomfield, $969.13; Denver, $800.94; Douglas, $1,015.33; and Jefferson, $813.50.
The Denver Post
Posted: 07/25/2011 06:29:47 AM MDTUpdated: 07/25/2011 09:12:04 AM MDT
Apartment vacancies in the Denver metro area fell to a 10-year low in the second quarter, dropping to the lowest vacancy rate since the first quarter of 2001, according to a report released Monday.
The vacancy rate fell to 4.8 percent with apartment vacancy rates falling 21 percent year-over-year from last year's second-quarter rate of 6.1 percent, according to the Apartment Association of Metro Denver and the Colorado Division of Housing.
The vacancy rate was also down from 2010's first quarter rate of 5.5 percent.
The study noted that the vacancy rate generally falls from the first to the second quarter because of seasonal factors.
"A vacancy rate below five percent is generally regarded as a sign that the market is tight," said Gordon Von Stroh, a business professor at the University of Denver and the report's author. "The vacancy numbers haven't been lower than this since before the dot-com bust in Colorado, and that was a period marked by a scarcity of rental housing in many areas."
Von Stroh said Monday that it has become increasingly difficult for people - especially younger people - to move into single family residences. Key factors, he said, are the unemployment rate, tightened credit and higher down payments.
He said there is a natural population increase in young people in the Denver area of about 35,000 a year. The first step for them is moving to an apartment. Because of the economy, they're having to double up in many cases.
He said there also continues to be a large influx of people into Denver from out-of-state, many of them unemployed. The reasoning is if you have to be unemployed, what would be a nice option? The answer: Colorado.
On top of that, the lack of construction of new apartment units is not keeping up with the increased demand, sending the vacancy rate lower, he said.
"There is also a hesitancy because of the economy to move into single family residences," Von Stroh added.
With vacancy rates declining, there has been a corresponding jump in median rents in the Denver area.
During the second quarter of 2011, the median rent in metro Denver rose to $863.37, increasing 2.5 percent from 2010's second-quarter median rent of $842.70.
Ryan McMaken, Division of Housing spokesman, said that between 2002 and 2010, rents on average were flat. But now, said McMaken, there has been "some sustained growth" in recent quarters.
"However, in the year-over-year comparison for the second quarter, rents haven't really kept up with inflation. The Consumer Price Index is up about three percent the past year, but the metro Denver median rent increased 2.5 percent."
McMaken said that while "more desirable" rental communities have been able to push up rents significantly, in general many apartment owners have not been able to push rents "as much as they would have liked."
Median rents rose in Adams, Arapahoe and Jefferson counties, but fell slightly in Denver and Douglas counties and the Boulder/Broomfield area.
The largest year-over-year increase in median rent was Arapahoe county which increased four percent from $806.11 to $838.79.
The largest decline was in Denver county where the median rent fell 1.6 percent from $814.14 during 2010's second quarter to $800.94 during the 2011 first quarter.
Median rents were Adams, $863.85; Arapahoe, $838.79; Boulder/Broomfield, $969.13; Denver, $800.94; Douglas, $1,015.33; and Jefferson, $813.50.
Friday, July 22, 2011
Colorado unemployment declines as national rate increases
By Howard Pankratz
The Denver Post
Colorado's unemployment rate decreased by two-tenths of a percentage point to 8.5 percent from May to June based on household survey results, the Colorado Department of Labor and Employment said today.
The department noted that June was the fourth consecutive month there had been a decline in unemployment in Colorado.
The national unemployment rate increased from 9.1 to 9.2 percent during the same period.
Over the year, the average workweek for all employees on private nonfarm payrolls decreased from 34.6 to 34.5 hours and the average hourly earnings decreased from $23.63 to $23.54.
The largest private sector job gains in June were in leisure and hospitality, financial activities and professional and business services.
The largest decline was in manufacturing.
Over the year, nonfarm payroll jobs increased 14,300 with an increase of 19,300 in the private sector and a decline of 5,000 in the government.
The largest private sector gains were in leisure and hospitality, education and health services, and trade, transportation and utilities.
The largest declines were in construction, financial activities and information.
The report said that employers added 4,500 nonfarm payroll jobs from May to June for a total of 2,236,200 jobs, according to a survey of business establishments. Government declined by 2,600 payroll jobs and the private sector added 7,100.
The Denver Post
Colorado's unemployment rate decreased by two-tenths of a percentage point to 8.5 percent from May to June based on household survey results, the Colorado Department of Labor and Employment said today.
The department noted that June was the fourth consecutive month there had been a decline in unemployment in Colorado.
The national unemployment rate increased from 9.1 to 9.2 percent during the same period.
Over the year, the average workweek for all employees on private nonfarm payrolls decreased from 34.6 to 34.5 hours and the average hourly earnings decreased from $23.63 to $23.54.
The largest private sector job gains in June were in leisure and hospitality, financial activities and professional and business services.
The largest decline was in manufacturing.
Over the year, nonfarm payroll jobs increased 14,300 with an increase of 19,300 in the private sector and a decline of 5,000 in the government.
The largest private sector gains were in leisure and hospitality, education and health services, and trade, transportation and utilities.
The largest declines were in construction, financial activities and information.
The report said that employers added 4,500 nonfarm payroll jobs from May to June for a total of 2,236,200 jobs, according to a survey of business establishments. Government declined by 2,600 payroll jobs and the private sector added 7,100.
Sunday, July 17, 2011
Five Real Estate Trends to Watch For - Real Estate Veteran Points out Key Growth Opportunities
RISMEDIA, Thursday, June 30, 2011— If the housing market were human, it would look like it just wrestled a few alligators, after running an obstacle course through a snake pit.
The market is beaten and bruised, but still trying to emerge from the recession, which is why Greg Rand, a 20-year real estate veteran and author of Crash Boom from Career Press, wants people to know about five new trends that could help them beat the housing blues.
“One of the key elements of a free market is chaos,” Rand says. “Chaos is how the markets figure out how to move forward. The important thing to realize in the midst of all these people talking about ‘the housing market’ is that the market isn’t some nameless, faceless thing that lumbers around aimlessly as if it has a life of its own. The market is made up of buyers and sellers. People, just like you and me, who are trying to figure out how to buy low and sell high. It doesn’t matter if you’re a homeowner or an investor. The secret to making sure your real estate doesn’t turn into a money pit is to watch the trends so you can predict where the prices will rise and where they won’t.”
Rand’s five trends to watch include:
• Short-Term Pain – Show me a market where home prices are back to 2002 levels, and I will show you a market that is overcorrecting.
• Overdevelopment – One of the reasons the market is overcorrecting is overdevelopment and speculation, as is the case in Florida. Another reason is that the job base has eroded, like in Detroit. Isolated, explainable, short term distress is the secret. Find your Florida.
• Jobs, Jobs, Jobs – Track employment trends to see where companies are moving, and you will see a harbinger for long term housing demand.
• Lifestyle – Nothing drives migration patterns long term more than the pursuit of happiness. Look at climate (the Carolinas), leisure trends (Colorado) and cost of living (Texas) for triggers on where the market may shift.
• Responsible Government – Look at the state government. Does the state and city in question reward or punish risk-takers? Are you likely to suffer if you succeed there? If so, find somewhere that appreciates entrepreneurs. There's nothing worse than putting your money on the table, only to have it redistributed.
“It comes down to the idea that no matter how the markets change, no matter which way the winds shift, people will always need a place to live,” Rand adds. “That’s been true of America since the first log cabin. If you plug into that concept, and leave fear in a box on the shelf, you can be ahead of the curve and ride the wave of the trends that matter.”
The market is beaten and bruised, but still trying to emerge from the recession, which is why Greg Rand, a 20-year real estate veteran and author of Crash Boom from Career Press, wants people to know about five new trends that could help them beat the housing blues.
“One of the key elements of a free market is chaos,” Rand says. “Chaos is how the markets figure out how to move forward. The important thing to realize in the midst of all these people talking about ‘the housing market’ is that the market isn’t some nameless, faceless thing that lumbers around aimlessly as if it has a life of its own. The market is made up of buyers and sellers. People, just like you and me, who are trying to figure out how to buy low and sell high. It doesn’t matter if you’re a homeowner or an investor. The secret to making sure your real estate doesn’t turn into a money pit is to watch the trends so you can predict where the prices will rise and where they won’t.”
Rand’s five trends to watch include:
• Short-Term Pain – Show me a market where home prices are back to 2002 levels, and I will show you a market that is overcorrecting.
• Overdevelopment – One of the reasons the market is overcorrecting is overdevelopment and speculation, as is the case in Florida. Another reason is that the job base has eroded, like in Detroit. Isolated, explainable, short term distress is the secret. Find your Florida.
• Jobs, Jobs, Jobs – Track employment trends to see where companies are moving, and you will see a harbinger for long term housing demand.
• Lifestyle – Nothing drives migration patterns long term more than the pursuit of happiness. Look at climate (the Carolinas), leisure trends (Colorado) and cost of living (Texas) for triggers on where the market may shift.
• Responsible Government – Look at the state government. Does the state and city in question reward or punish risk-takers? Are you likely to suffer if you succeed there? If so, find somewhere that appreciates entrepreneurs. There's nothing worse than putting your money on the table, only to have it redistributed.
“It comes down to the idea that no matter how the markets change, no matter which way the winds shift, people will always need a place to live,” Rand adds. “That’s been true of America since the first log cabin. If you plug into that concept, and leave fear in a box on the shelf, you can be ahead of the curve and ride the wave of the trends that matter.”
Colorado's suburban homeowners face invasion of oil and gas wells
By Mark Jaffe
The Denver Post
"Not what you expect when you go for a walk with the dog," Banfield said.
But Banfield and her neighbors in Rinn Valley Ranch — a Weld County development where homes sell for more than $400,000 — are learning what to expect when a drilling site becomes a neighbor.
Oil and gas industry officials say there is also a challenge for the industry.
"As we move into more urban areas, we will have to work harder to address people's concerns," said Doug Hock, a spokesman for Encana Oil & Gas. "The whole industry will have to do a better job."
At its Rinn Valley well, Encana appears to have met all the state's requirements and even special conditions attached to its permit, state regulators said.
Even with all that, environmental advocates believe Banfield's experience underscores the limitations in Colorado's oil and gas regulations, passed in 2008 in the face of industry opposition.
"The rules are an improvement, but there are gaps, and as drilling increases in suburban areas, those gaps are going to become more visible," said Mike Freeman, an attorney with Earthjustice, a nonprofit public interest law firm.
For example, the Colorado Oil and Gas Conservation Commission deferred a decision on setbacks for wells — leaving the standard at 350 feet in developed areas.
"Some people thought it was too politically charged to deal with," said Traci Haupt, a former Garfield County commissioner who served on the oil and gas commission.
The 2008 rule revision did not look at noise regulations, Haupt said.
"It wasn't even on the list, and it needs to be updated," she said.
Some counties have stepped in with their own rules.
La Plata County has imposed a 400-foot setback requirement, and Gunnison County has had a 500-foot setback rule. Fort Worth, Texas — scene of some of the most active urban drilling — has a 600-foot setback rule.
Nine out of 10 wells drilled in Colorado are at least 500 feet away from the nearest building, according to Dave Neslin, executive director of the oil and gas commission.
As drilling moves into more developed areas, the commission "may have to revisit the issue," Neslin said.
One thing that Banfield and her husband, Alan Pinkerton, say they now know is that 350 feet is not buffer enough.
Six months of misery
When Banfield, 53, and Pinkerton, 54, got married in 2005, they built a home in Rinn Valley Ranch, knowing there could be oil and gas drilling in the area.
Even before their home was built, Banfield saw a rig drilling just beyond their 1-acre lot.
"There's an Elitch Garden ride in our backyard," Banfield remembers phoning her husband.
Pinkerton told her not to worry, that the subdivision developers said all that would be left was a 4-foot-high jungle gym of pipes — called a Christmas tree.
"We felt we could live with that," he said.
That all changed in January, when Encana returned to drill and hydrofracture six wells, and the couple was plunged into six months of round-the-
clock noise, lights, truck traffic and odors.
"It was just exhausting," Banfield said.
It started with a drilling rig — a tower more than 100 feet tall studded with lights that burned all night.
Then there was the steady truck traffic — most annoying at night as headlights raked the rooms and cast shadows like a search light.
"We tried to keep the blinds and curtains closed," Pinkerton said.
Each well took seven to 10 days to drill, according to Encana, and during that time, the rig ran round-the-clock.
"I felt like I was vibrating all the time," Banfield said. "You could hear it all night."
Once the drilling was finished, the rig was removed and the site was filled with equipment to hydrofracture — by pumping a mixture of millions of gallons of water, sand and trace chemicals into each well under pressure.
The "fracking" creates small fractures in the rock, releasing the natural gas. It took 10 to 15 days to frack each well, Encana said.
The fracking equipment includes trucks with special diesel pumps, large bins and tanks — including a battery of 49 tanks, by Pinkerton's count, lined up 15 feet from his property line.
"The well may be 350 feet away, but there's activity all over the site," Pinkerton said.
Through the winter and into the spring, there was no chance of using the hot tub on the back deck, Banfield said.
"It's all very intrusive," she said.
There was the rotten-eggs smell when the trucks were loaded and an occasional petroleum smell, although both have abated, Pinkerton said.
By June, the work was largely done — but instead of a few Christmas trees, the couple now look out on a set for four large tanks, three separators and two tall combustors.
They still have trucks coming six times a day — night and day to remove gas from the collection tanks, Pinkerton said.
"We thought we were going to live next to a green space, and now it's an industrial site," he said.
Last Monday, Banfield was awakened in the night by a "big swooshing sound. It sounded like a dragon," she said.
After calling Encana, a company community representative phoned Banfield to explain gas pressure had quickly built up in the new well and it just needed to be adjusted.
The oil and gas commission attached conditions to the Encana drilling permit at Rinn Valley aimed at limiting noise and traffic.
"We will attach special conditions to where we think they are appropriate for public welfare," Neslin said.
Encana used modified lighting on the rig and deployed shipping containers filled with foam to try to damper sound, Hock said.
"It's fine to attach conditions, but they have to work," Banfield said.
Failure to communicate
One breakdown, Hock said, was that the company did not "adequately communicate" that the tanks and burners would be permanently left on the site, Hock said.
"We are in on-going talks with the town and the residents to address their viewshed concerns," Hock said.
If the industry can control traffic, noise and visual impacts and communicate with neighbors, it will go a long way to solving a lot of the conflicts, said Tisha Schuller, president of the Colorado Oil and Gas Association, a trade group.
That, however, won't fix all the problems.
"The industry has to admit that oil and gas development is an industrial process and everyone is not excited about having it in their neighborhood," Schuller said.
Consolidating wells and tanks in one location is better for the environment than scattered operations, Neslin said.
"The problem is that it has a big impact on the neighbors," he said.
While Banfield and Pinkerton have talked to Encana about some way to screen the tanks, they've also had a landscaper in to discuss adding berms and shrubs in the backyard.
"This has hurt our property value," Banfield said. "We've talked about moving, but we can't imagine selling in this economy. So, we'll stay for now."
The Denver Post
"Not what you expect when you go for a walk with the dog," Banfield said.
But Banfield and her neighbors in Rinn Valley Ranch — a Weld County development where homes sell for more than $400,000 — are learning what to expect when a drilling site becomes a neighbor.
Oil and gas industry officials say there is also a challenge for the industry.
"As we move into more urban areas, we will have to work harder to address people's concerns," said Doug Hock, a spokesman for Encana Oil & Gas. "The whole industry will have to do a better job."
At its Rinn Valley well, Encana appears to have met all the state's requirements and even special conditions attached to its permit, state regulators said.
Even with all that, environmental advocates believe Banfield's experience underscores the limitations in Colorado's oil and gas regulations, passed in 2008 in the face of industry opposition.
"The rules are an improvement, but there are gaps, and as drilling increases in suburban areas, those gaps are going to become more visible," said Mike Freeman, an attorney with Earthjustice, a nonprofit public interest law firm.
For example, the Colorado Oil and Gas Conservation Commission deferred a decision on setbacks for wells — leaving the standard at 350 feet in developed areas.
"Some people thought it was too politically charged to deal with," said Traci Haupt, a former Garfield County commissioner who served on the oil and gas commission.
The 2008 rule revision did not look at noise regulations, Haupt said.
"It wasn't even on the list, and it needs to be updated," she said.
Some counties have stepped in with their own rules.
La Plata County has imposed a 400-foot setback requirement, and Gunnison County has had a 500-foot setback rule. Fort Worth, Texas — scene of some of the most active urban drilling — has a 600-foot setback rule.
Nine out of 10 wells drilled in Colorado are at least 500 feet away from the nearest building, according to Dave Neslin, executive director of the oil and gas commission.
As drilling moves into more developed areas, the commission "may have to revisit the issue," Neslin said.
One thing that Banfield and her husband, Alan Pinkerton, say they now know is that 350 feet is not buffer enough.
Six months of misery
When Banfield, 53, and Pinkerton, 54, got married in 2005, they built a home in Rinn Valley Ranch, knowing there could be oil and gas drilling in the area.
Even before their home was built, Banfield saw a rig drilling just beyond their 1-acre lot.
"There's an Elitch Garden ride in our backyard," Banfield remembers phoning her husband.
Pinkerton told her not to worry, that the subdivision developers said all that would be left was a 4-foot-high jungle gym of pipes — called a Christmas tree.
"We felt we could live with that," he said.
That all changed in January, when Encana returned to drill and hydrofracture six wells, and the couple was plunged into six months of round-the-
clock noise, lights, truck traffic and odors.
"It was just exhausting," Banfield said.
It started with a drilling rig — a tower more than 100 feet tall studded with lights that burned all night.
Then there was the steady truck traffic — most annoying at night as headlights raked the rooms and cast shadows like a search light.
"We tried to keep the blinds and curtains closed," Pinkerton said.
Each well took seven to 10 days to drill, according to Encana, and during that time, the rig ran round-the-clock.
"I felt like I was vibrating all the time," Banfield said. "You could hear it all night."
Once the drilling was finished, the rig was removed and the site was filled with equipment to hydrofracture — by pumping a mixture of millions of gallons of water, sand and trace chemicals into each well under pressure.
The "fracking" creates small fractures in the rock, releasing the natural gas. It took 10 to 15 days to frack each well, Encana said.
The fracking equipment includes trucks with special diesel pumps, large bins and tanks — including a battery of 49 tanks, by Pinkerton's count, lined up 15 feet from his property line.
"The well may be 350 feet away, but there's activity all over the site," Pinkerton said.
Through the winter and into the spring, there was no chance of using the hot tub on the back deck, Banfield said.
"It's all very intrusive," she said.
There was the rotten-eggs smell when the trucks were loaded and an occasional petroleum smell, although both have abated, Pinkerton said.
By June, the work was largely done — but instead of a few Christmas trees, the couple now look out on a set for four large tanks, three separators and two tall combustors.
They still have trucks coming six times a day — night and day to remove gas from the collection tanks, Pinkerton said.
"We thought we were going to live next to a green space, and now it's an industrial site," he said.
Last Monday, Banfield was awakened in the night by a "big swooshing sound. It sounded like a dragon," she said.
After calling Encana, a company community representative phoned Banfield to explain gas pressure had quickly built up in the new well and it just needed to be adjusted.
The oil and gas commission attached conditions to the Encana drilling permit at Rinn Valley aimed at limiting noise and traffic.
"We will attach special conditions to where we think they are appropriate for public welfare," Neslin said.
Encana used modified lighting on the rig and deployed shipping containers filled with foam to try to damper sound, Hock said.
"It's fine to attach conditions, but they have to work," Banfield said.
Failure to communicate
One breakdown, Hock said, was that the company did not "adequately communicate" that the tanks and burners would be permanently left on the site, Hock said.
"We are in on-going talks with the town and the residents to address their viewshed concerns," Hock said.
If the industry can control traffic, noise and visual impacts and communicate with neighbors, it will go a long way to solving a lot of the conflicts, said Tisha Schuller, president of the Colorado Oil and Gas Association, a trade group.
That, however, won't fix all the problems.
"The industry has to admit that oil and gas development is an industrial process and everyone is not excited about having it in their neighborhood," Schuller said.
Consolidating wells and tanks in one location is better for the environment than scattered operations, Neslin said.
"The problem is that it has a big impact on the neighbors," he said.
While Banfield and Pinkerton have talked to Encana about some way to screen the tanks, they've also had a landscaper in to discuss adding berms and shrubs in the backyard.
"This has hurt our property value," Banfield said. "We've talked about moving, but we can't imagine selling in this economy. So, we'll stay for now."
Friday, July 15, 2011
Down on the farm, investors see big potential
By BERNARD CONDON AP Business Writer
Posted: 07/15/2011 09:34:54 AM MDTUpdated: 07/15/2011 09:44:43 AM MDT
Braden Janowski has never planted seeds or brought in a harvest. He doesn't even own overalls. Yet when 430 acres of Michigan cornfields was auctioned last summer, it was Janowski, a brash, 33-year-old software executive, who made the winning bid. It was so high—$4 million, 25 percent above the next-highest—that some farmers stood, shook their heads and walked out. And Janowski figures he got the land cheap.
"Corn back then was around $4," he says from his office in Tulsa, Okla., stealing a glance at prices per bushel on his computer. Corn rose to almost $8 in June and trades now at about $7.
A new breed of gentleman farmer is shaking up the American heartland. Rich investors with no ties to farming, no dirt under their nails, are confident enough to wager big on a patch of earth—betting that it's a smart investment because food will only get more expensive around the world.
They're buying wheat fields in Kansas, rows of Iowa corn and acres of soybeans in Indiana. And though farmers still fill most of the seats at auctions, the newcomers are growing in number and variety—a Seattle computer executive, a Kansas City lawyer, a publishing executive from Chicago, a Boston money manager.
The value of Iowa farmland has almost doubled in six years. In Nebraska and Kansas, it's up more than 50 percent. Prices have risen so fast that regulators have begun sounding alarms, and farmers are beginning to voice concerns.
"I never thought prices would get this high," says Robert Huber , 73, who just sold his 500-acre corn and soybean farm in Carmel, Ind., for $3.8 million, or $7,600 an acre, triple what he paid for it a decade ago. "At the price we got, it's going to take a long time for him to pay it off—and that's if crop prices stay high."
Buyers say soaring farm values simply reflect fundamentals. Crop prices have risen because demand for food is growing around the world while the supply of arable land is shrinking.
At the same time, farmers are shifting more of their land to the crops with the fastest-rising prices, which could cause those prices to fall—and take the value of farms with them. When the government reported June 30 that farmers had planted the second-largest corn crop in 70 years, corn prices dropped 8 percent in two days.
And even if crop prices hold up, land values could fall if another key prop disappears: low interest rates.
When the Federal Reserve cut its benchmark rate to a record low in December 2008, yields on CDs and money market funds and other conservative investments plunged, too. Investors were unhappy with earning less, but they were too scared about the economy to do much about it.
As they grew more confident—and more frustrated with their puny returns—they shifted money into riskier assets like stocks and corporate bonds. To many Wall Street experts, this hunt for alternatives also explains the rapid rise in gold, art, oil—and farms.
Those who favor farms like to point out that, unlike the first three choices, you can collect income while you own it. You can sell what you grow on the farm or hand the fields over to a farmer and collect rent.
In Iowa, investors pocket annual rent equivalent to 4 percent of the price of land. That's a 60-year low but almost 2.5 percentage points more than average yield on five-year CDs at banks. That advantage could disappear quickly. If the Fed starts raising rates, farmland won't look nearly as appealing.
For now, though, investors can't seem to get enough of it.
At a recent auction of 156 acres in Iowa, the 50 or so farmers who showed up withheld their bids out of respect for a beloved local farmer who had rented the land for two decades and wanted to own it. But his final bid of $1.1 million was topped by a California insurance executive. In Iowa, 25 percent of buyers are investors, double the proportion 20 years ago.
"They were angry, but what are they going to do about it?" says Jeffrey Obrecht of Farmers National, the brokerage that ran the auction. He told the farmers they shouldn't worry because some of the new investors will find a new way to make money in a few years and start selling their land.
Other dangers lurk for investors. In Iowa, corn prices are high partly because corn is used to make ethanol, a fuel additive subsidized by the federal government. The U.S. Department of Agriculture expects 40 percent of the nation's corn crop this year will go to factories that make it. But with Washington running up record deficits, it's anyone guess how long the subsidy will remain.
As with stocks, U.S. farms can swing wildly in value along with the economy. Despite the fragile recovery, though, farm prices are nearing records now, capping a decade of some of the fastest annual price jumps in 40 years. In Iowa, farm prices rose 160 percent in the decade through last year to an average $5,064 per acre, according to Iowa State University.
Concern that farm prices may be inflated is serious enough that the Federal Deposit Insurance Corp. held a conference for farm lenders in March titled "Don't Bet the Farm." Thomas Hoenig , head of the Federal Reserve Bank of Kansas City, oversaw dozens of bank failures when a farm boom turned bust 30 years ago. Today, he suggests prices may be in an "unsustainable bubble."
Veteran bond trader Perry Vieth doesn't think so. Vieth, the former head of fixed income investments for PanAgora Asset Management in Boston, started buying farms with his own money five years ago, when buyers with no farming experience were rare.
"Agriculture was sleepy," he says. "People looked at me like, 'What are you doing?'"
Now he's buying for 71 wealthy investors. Ceres Partners, his 3 1/2-year-old private investment fund, owns 65 farms, almost half bought since November. He says he's returned 15 percent annually to his investors overall.
Though Vieth says prices in some places have climbed too high—he won't buy in Iowa, for instance—he says the price of farms elsewhere will rise as big money managers start seeing them as just another tradable asset like stocks or bonds and start buying.
"When Goldman Sachs shows up to an auction, then I'll know it's time to get out," he says.
Janowski, the Tulsa software executive, is bullish for other reasons. A self-described serial entrepreneur, he has built four companies, including a software developer that he sold for $45 million three years ago.
Listen to him speak, though, and you'd think he was an economist. He'll talk your ear off about how inflation could rage out of control, and how farmland is more likely to keep up with inflation than other assets. Janowski sold all his stock in April.
He plans to move most of his money into farms and has clearly done his homework. In the past five years, he has flown to more than a dozen farms up for sale, often with an agronomist in tow. Before bidding on that Michigan farm last summer, he visited five times to walk the property, which includes a house and land for commercial development as well as tillable fields.
The day of the auction, which drew more than 100 bidders to the Century Center in South Bend, Ind., he didn't leave anything to chance. Janowski arrived two and a half hours early to get a seat near the entrance so he could size up rival bidders as they walked in.
Then he kept quiet as an auctioneer carved the farm up into lots numbered 1 through 40 and began taking bids for each. After 30 minutes, Janowski broke his silence with an offer to buy the whole thing: "One through 40 ... $4 million." For the tillable parts, he figures he paid about $6,000 an acre.
"I'm probably on the fringe of being a nut job," he says. "But as each month goes by, I become less nutty."
Posted: 07/15/2011 09:34:54 AM MDTUpdated: 07/15/2011 09:44:43 AM MDT
Braden Janowski has never planted seeds or brought in a harvest. He doesn't even own overalls. Yet when 430 acres of Michigan cornfields was auctioned last summer, it was Janowski, a brash, 33-year-old software executive, who made the winning bid. It was so high—$4 million, 25 percent above the next-highest—that some farmers stood, shook their heads and walked out. And Janowski figures he got the land cheap.
"Corn back then was around $4," he says from his office in Tulsa, Okla., stealing a glance at prices per bushel on his computer. Corn rose to almost $8 in June and trades now at about $7.
A new breed of gentleman farmer is shaking up the American heartland. Rich investors with no ties to farming, no dirt under their nails, are confident enough to wager big on a patch of earth—betting that it's a smart investment because food will only get more expensive around the world.
They're buying wheat fields in Kansas, rows of Iowa corn and acres of soybeans in Indiana. And though farmers still fill most of the seats at auctions, the newcomers are growing in number and variety—a Seattle computer executive, a Kansas City lawyer, a publishing executive from Chicago, a Boston money manager.
The value of Iowa farmland has almost doubled in six years. In Nebraska and Kansas, it's up more than 50 percent. Prices have risen so fast that regulators have begun sounding alarms, and farmers are beginning to voice concerns.
"I never thought prices would get this high," says Robert Huber , 73, who just sold his 500-acre corn and soybean farm in Carmel, Ind., for $3.8 million, or $7,600 an acre, triple what he paid for it a decade ago. "At the price we got, it's going to take a long time for him to pay it off—and that's if crop prices stay high."
Buyers say soaring farm values simply reflect fundamentals. Crop prices have risen because demand for food is growing around the world while the supply of arable land is shrinking.
At the same time, farmers are shifting more of their land to the crops with the fastest-rising prices, which could cause those prices to fall—and take the value of farms with them. When the government reported June 30 that farmers had planted the second-largest corn crop in 70 years, corn prices dropped 8 percent in two days.
And even if crop prices hold up, land values could fall if another key prop disappears: low interest rates.
When the Federal Reserve cut its benchmark rate to a record low in December 2008, yields on CDs and money market funds and other conservative investments plunged, too. Investors were unhappy with earning less, but they were too scared about the economy to do much about it.
As they grew more confident—and more frustrated with their puny returns—they shifted money into riskier assets like stocks and corporate bonds. To many Wall Street experts, this hunt for alternatives also explains the rapid rise in gold, art, oil—and farms.
Those who favor farms like to point out that, unlike the first three choices, you can collect income while you own it. You can sell what you grow on the farm or hand the fields over to a farmer and collect rent.
In Iowa, investors pocket annual rent equivalent to 4 percent of the price of land. That's a 60-year low but almost 2.5 percentage points more than average yield on five-year CDs at banks. That advantage could disappear quickly. If the Fed starts raising rates, farmland won't look nearly as appealing.
For now, though, investors can't seem to get enough of it.
At a recent auction of 156 acres in Iowa, the 50 or so farmers who showed up withheld their bids out of respect for a beloved local farmer who had rented the land for two decades and wanted to own it. But his final bid of $1.1 million was topped by a California insurance executive. In Iowa, 25 percent of buyers are investors, double the proportion 20 years ago.
"They were angry, but what are they going to do about it?" says Jeffrey Obrecht of Farmers National, the brokerage that ran the auction. He told the farmers they shouldn't worry because some of the new investors will find a new way to make money in a few years and start selling their land.
Other dangers lurk for investors. In Iowa, corn prices are high partly because corn is used to make ethanol, a fuel additive subsidized by the federal government. The U.S. Department of Agriculture expects 40 percent of the nation's corn crop this year will go to factories that make it. But with Washington running up record deficits, it's anyone guess how long the subsidy will remain.
As with stocks, U.S. farms can swing wildly in value along with the economy. Despite the fragile recovery, though, farm prices are nearing records now, capping a decade of some of the fastest annual price jumps in 40 years. In Iowa, farm prices rose 160 percent in the decade through last year to an average $5,064 per acre, according to Iowa State University.
Concern that farm prices may be inflated is serious enough that the Federal Deposit Insurance Corp. held a conference for farm lenders in March titled "Don't Bet the Farm." Thomas Hoenig , head of the Federal Reserve Bank of Kansas City, oversaw dozens of bank failures when a farm boom turned bust 30 years ago. Today, he suggests prices may be in an "unsustainable bubble."
Veteran bond trader Perry Vieth doesn't think so. Vieth, the former head of fixed income investments for PanAgora Asset Management in Boston, started buying farms with his own money five years ago, when buyers with no farming experience were rare.
"Agriculture was sleepy," he says. "People looked at me like, 'What are you doing?'"
Now he's buying for 71 wealthy investors. Ceres Partners, his 3 1/2-year-old private investment fund, owns 65 farms, almost half bought since November. He says he's returned 15 percent annually to his investors overall.
Though Vieth says prices in some places have climbed too high—he won't buy in Iowa, for instance—he says the price of farms elsewhere will rise as big money managers start seeing them as just another tradable asset like stocks or bonds and start buying.
"When Goldman Sachs shows up to an auction, then I'll know it's time to get out," he says.
Janowski, the Tulsa software executive, is bullish for other reasons. A self-described serial entrepreneur, he has built four companies, including a software developer that he sold for $45 million three years ago.
Listen to him speak, though, and you'd think he was an economist. He'll talk your ear off about how inflation could rage out of control, and how farmland is more likely to keep up with inflation than other assets. Janowski sold all his stock in April.
He plans to move most of his money into farms and has clearly done his homework. In the past five years, he has flown to more than a dozen farms up for sale, often with an agronomist in tow. Before bidding on that Michigan farm last summer, he visited five times to walk the property, which includes a house and land for commercial development as well as tillable fields.
The day of the auction, which drew more than 100 bidders to the Century Center in South Bend, Ind., he didn't leave anything to chance. Janowski arrived two and a half hours early to get a seat near the entrance so he could size up rival bidders as they walked in.
Then he kept quiet as an auctioneer carved the farm up into lots numbered 1 through 40 and began taking bids for each. After 30 minutes, Janowski broke his silence with an offer to buy the whole thing: "One through 40 ... $4 million." For the tillable parts, he figures he paid about $6,000 an acre.
"I'm probably on the fringe of being a nut job," he says. "But as each month goes by, I become less nutty."
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