R4’s Price on ‘Green Shoots’ in the Condo Market
- May 04, 2011
Earlier this year, the RADCO Companies announced the formation of R4, a real estate sales and marketing firm to serve builders, banks and other lending institutions around North America in expediting the completion of their development plans. Principal Kevin Price, who heads R4, talks to MHN about pockets of opportunity for developers as well as buyers in Southern California and in the condo market at large.
MHN: What do you see happening in Southern California right now in terms of condos versus apartments, renters versus homebuyers? What specific demographics are you looking at, and how are you using those demographics to better sell properties?
Price: The California market from a macro level is very anemic right now. Like with most other major cities, there are a lot of distressed sales on the market. It’s confusing buyers, and it’s driving down pricing. What we are finding, though, in the California market, when you get a little more granular in certain product types or certain submarkets, is there are “green shoots” out there, and there is life to the market. You just have to peel back the layers and find those areas where it’s happening.
For example, the Met in Woodland Hills [a condo community in the San Fernando Valley] is a project whose price range is from the 190s to the 280s for one- and two-bedroom condominiums. What we are finding here—and we have the data and the success to support it—is that the first-time homebuyer is ready, willing and able to step into the real estate market. They have to find the right home at the right location at the right price, and if they find it, they’re ready to act.
What’s interesting about this demographic is that first-time homebuyers don’t have legacy assets; they didn’t buy a home at the height of the market in 2006 and 2007. For a while they were actually kicking themselves that they hadn’t gotten into the market and thought they were missing an opportunity. Maybe that was the case at the time, but now, fast-forward several years down the road and you have a demographic that is ready, willing and able to buy. If you have the right product in the right location at the right price, you will be rewarded. The Met sold last year 132 [condominiums].
Those first-time homebuyers, when they start comparing the economics of rent versus own and they start looking at the value of the entry point at which they’re able to get into the market, this demographic—this segment of the marketplace—is responding, and we look at that as a green shoot.
MHN: How does the Southern California market compare to other distressed markets in terms of these shifts?
Price: Southern California in general has always had an extremely robust real estate environment, and California, like a lot of the other coastal cities or major metropolises, definitely had a bigger run up in the boom time and has fallen further than other markets in the country. You could juxtapose that with Texas. That’s a market where you didn’t have the run up, but at the same time, your correction is also muted. So California at large has had a very difficult time with the recent meltdown in the market.
Add on top of that financing constraints. Because of the value of the majority of the California homes, most of the financing out there was geared toward the jumbo market. The jumbo market really was decimated during the financial crisis. So not only did you have a run up and a subsequent falling knife in values, those who were ready to buy—who saw the opportunity—were having a very difficult time securing financing. But as time has gone by and markets have started to stabilize, you’re starting to see lending loosen up a little bit—not a lot, but a little bit—and every time you see things loosen up just slightly, buyers step into the market. And that is the pent-up demand that we’re speaking about.
I’d say the California market, generally speaking, is still anemic. We’re still seeing some contraction in values. But in certain submarkets with certain product types, we’re seeing a little bit of a firming out there.
MHN: How would you put these buyers in the context of this resurgence of renters?
Price: There’s a time and a place for both, but if you want an opportunity for a hedge against inflation and long-term capital appreciation, purchasing real estate provides an incredible platform to do that. That’s not to take away from why the rental market is seeing such a surge as well. We’re seeing opportunities, quite frankly, on both sides.
It’s all about the proper cost basis. As a developer or as a consumer, your money is made on the buy side, so if you’re able to have a good entry point and price—whether you’re a developer buying dirt or an individual buying a condo—it’s all about finding that right entry point in price and in value.