There is a great deal of talk about “Distressed Real Estate.” Generally,that means that the owner can’t meet his mortgage paymentsand is facing default, foreclosure, and perhaps even bankruptcy—an awful and truly distressing situation. Now, what I havedescribed is not really distressed real estate, but a distressed ownerof real estate. The property may be fine, but the owner is definitelyup against a wall.
Distressed real estate, as opposed to distressedownership, means it is a poor location because offlood plain, environmental contamination, difficultstreet access, declining property values in the neighborhood,etc.
I suggest that what we have in San Antonio is asmall amount of Distressed Real Estate, and a wholelot of “Stressed Real Estate Owners!” A stressedowner is one who bought a property years ago for$2.00 per square foot and could have sold it for $5.00per square foot a year and a half ago, but now they’renot getting any interested Buyers. He is stressed overthe lost opportunity to sell and get his moneyback with a big profit, but in actuality theowner and property are really doing fine. It’sjust a stressed mental attitude he has to dealwith.
Another example: Stressed Real Estate iswhere a developer can’t move forward on a project that he wouldreally like to build, but he lacks pre–leasing and financing. DistressedReal Estate means the developer moved forward on a project withinadequate leasing and the financing lender is about to foreclose orrestructure the deal.
I think that is where we are in San Antonio today. The volume ofresidential and commercial transactions has slowed pretty dramatically,down 1/3 to 1/2 from levels a year and a half ago. A reducedtransaction volume even caused one title company to declare bankruptcy.
In June, the City had 2,127 home sales, down almost 13% fromthe previous June, 2007. The inventory of unsold homes was at 7.6months, at the high end of average but not in dangerous territory.Home starts are down 35% but sales are only down 26%, so buildersare making up ground. And Texas is the bright star in the U.S.,dominating Forbes Magazine’s list of the Ten Best Cities to Buy aHome, nabbing four spots, with San Antonio placing fifth in the Nation.
‘Are we at the Bottom or will things get worse?’ I think we will seecontinued weakness in the real estate market through the rest of thisyear and into the first half of next year, because . . .
- This is an election year, that has really occupied two years, with a great amount of uncertainty.
- We have a housing and mortgage crisis like we haven’t seen in 20 years, scaring everybody.
- Inflation is upon us, in possibly a big way.
- The housing market still has excess inventory of home lots, enough for two more years.
- Many banks are scrambling to rebuild equity that took decades to build up. They are in no position to make loans for new construction, including commercial and apartments.
- Retail sales have slowed due to all of the above.
- The Media is losing market share to the Internet and in desperation to get people to tune back it searches for the “crisis” du jour to make us feel helpless and glued to the T.V.
For San Antonio, it may be a shallowand extended bottom or dip extending intomid 2009, but the snap back in San Antonio should be very solid.Job growth is still strong with over 20,000 new jobs created in thepast year. And there’s a lot of money waiting for “the deal of a lifetime”that may never come because someone else got there first. InCommercial Real Estate there will be opportunities for knowledgeableand well capitalized buyers. IRC is looking for those really gooddeals now for our investor clients. Call us if you would like more details.
