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Focus Section: Feb 2007
Real Estate Outlook Looking good In Fairfield County, Connecticut
It’s already shaping up to be a very good year Deals reflect confidence in area; financial services drive the market By ALEXANDER SOULE When Xerox Corp. put its Stamford headquarters onto the market last fall, it did not take long for closing documents to hit the copying machine. By December, 2006 Building and Land Technology L.L.C. had snapped up the four-floor building for $55 million, giving the real estate company an entry into the Stamford market even as it fills out a new office building in its home base of Norwalk.
While Xerox’s action reflected the company’s diminished employment locally, Building and Land Technology’s action reflects unbounded confidence in Fairfield County’s continued expansion. The firm is not alone. Growing corporate confidence has generated significant expansion and renewed commitment to the county, according to real-estate brokerage CB Richard Ellis. “Based on strong demand, the market continues to improve,” said Robert Caruso, senior managing director of CB Richard Ellis operations in Fairfield County.
“This environment is prompting landlords to reduce concessions and raise rents. We’re seeing this particularly in (the) Stamford and Greenwich (central business districts).” Holding its own Whereas in 2004 and 2005 Fairfield County suffered prominent corporate defections by Cadbury Schweppes plc, International Paper Inc. and MeadWestvaco Inc., the county held its own in 2006. After considering relocating its Greenwich headquarters to the Tennessee River Valley, UST Inc. instead chose Stamford. While Unilever abandoned Greenwich for Englewood Cliffs, N.J., it also moved hundreds of jobs to Trumbull. It is not brand-name companies but financial services firms that are driving the market heading into 2007, however -- according to CB Richard Ellis, 34 percent of the leases were in the financial services sector. Most of the activity was concentrated in Stamford, with Royal Bank of Scotland (RBS), UBS, Legg Mason, Bank of Ireland, SAC Capital and Oak Hill Capital Partners all executing deals. As a whole, the Fairfield County market absorbed a net total of 78,000 square feet of space during 2006, CB Richard Ellis calculates, despite a couple of large new blocks of space going on the market following office upgrades.
When RBS completes its new North American headquarters in downtown Stamford, the company will add 450,000 square feet to the city’s total office space. More importantly, notes CBRE, it will reinforce Stamford’s image as a premier location for financial services. Greenwich was the lone district in the county to see a significant increase in available space, with a net total of 300,000 square feet of space opening up. Besides the UST and Unilever offices becoming available, hedge fund Amaranth Advisors collapsed last year and is in the process of selling off its assets.
A bullish market In Manhattan, asking rates on premier office space are at an all-time high, according to the Federal Reserve Bank of New York, possibly making Fairfield County an attractive alternative for financial firms as their New York City leases come up for renewal. Meanwhile, even as Building and Land Technology begins tours of Xerox’s headquarters for prospective renters, its principals Carl and Paul Kuehner need only look out the window of their own Norwalk office for ample evidence of a bullish real estate market in 2007.
In November Building and Land Technology acquired the former Vectron building in Norwalk and is upgrading the facility. Up Route 7, National RE/Sources is converting a former PerkinElmer laboratory into a mixed-use facility that will include office space. At the southern terminus of Route 7, Spinnaker Real Estate Partners is moving ahead with plans for another mix of offices, retail space and residences. And beneath the Kuehners’ feet tenants are filling up floors of their own building, including local stalwarts GE Commercial Finance and IMS Health.
Focus Section : Real Estate Outlook Back to ‘normal’ Agents expect a healthy housing market in Danbury By BOB CHUVALA Metro Danbury’s residential real estate market has all the earmarks to producing a year of single-digit growth in what real estate agents are calling “a normal market” -- not too hot, not too cold, but just right. “This is a normal market, but we’ve been spoiled by five years of a sellers’ market,” said Linda McCaffrey of McCaffrey Realty Professionals in Brookfield.
“I anticipate prices going up after the first quarter, but between 5 percent and 7 percent” compared with appreciation of 18 percent in some towns during the recent sellers’ market, she said. “Interest rates are very, very good, the economy is good, unemployment is down,” McCaffrey said, ticking off the positives that should create a healthy real estate market. “The inventory is huge, up about 50 percent at the end of the third quarter from the same period a year earlier,” but buyers are also in the market.
“There are enough homes out there for buyers to look at and be able to choose the one that meets their requirements and budgets,” said Ed Magilton of ReMax Hilltop Real Estate in Bethel. And business “has actually picked up since the holidays,” he said. “Buyer interest and confidence in the economy has increased.” “Most of my market are people making in-town moves, trading up or trading down,” he said. “The new construction market is tough right now because it’s expensive, and it takes a while for people to trade up into newer construction.”
A little showmanship
The length of time a house is on the market is stretching out to 120 days, said Zita Valduga of Preferred Properties in Danbury. “That’s not good, it’s not bad and it’s not indifferent. We’re just more used to the very hot market for the last six or seven years” when houses tended to sell in half the time. Buyers, surprise, “are looking for a bargain,” Valduga said. Buyers are looking for newer construction in good condition that doesn’t demand the time and labor of a home handyman, “something they won’t have to worry very much about.”
Many buyers are spending “at the top of their price range, and there’s not a lot of money left” for upgrading a house. And sometimes it takes a little showmanship to help uncover the characteristics that can sell a house. More and more sellers, she said, are hiring “stagers” to spruce up a house so that it shows well. “If the buyer sees that every room needs some work, they’ll run off.” But a stager can suggest the homeowner install new faucets on kitchen and bathroom sinks, for example, or paint a dark room to lighten it up.
“It’s just a matter of spiffing up a house, of presenting it well. It’s all designed to make the buyer see the value of the house.” In a tighter market, “you have to use ingenuity to place yourself ahead of the competition by offering what’s perceived to be a batter deal,” she said. Sometimes it’s a choice of “presenting a product that’s visually in excellent condition versus a home that a buyer sees needs upgrading.” Waiting for spring Houses that are selling well in the region are priced below $450,000, Valduga said, although that moves up to the $500,000 to $600,000 range in the wealthy suburb of Ridgefield, according to Doug Yeomans of Weichert Capital Properties in that community.
But while the prices are higher in Ridgefield, the market is basically the same, with buyers coming back into the market looking at a full inventory, “so there’s plenty to pick from,” Yeomans said. “Buyers are looking in every price range, but houses that are popping now are mostly at the lower end.” Houses are on the market for about 100 days compared with 63 days a year earlier, he said. During November and December last year, 38 single-family houses sold in Ridgefield at an average sale price of $994,000, he said.
A year earlier, the average sale price was $948,000 for the 43 homes sold in the same period. “In the last few weeks there’s been an uptick in business, and I hear that from quite a few agents I speak with,” he said. “We’re coming out of four relatively flat months, and I’m optimistic about the market picking up in the spring
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Study Assesses Possible Risks and Impacts of Mortgage Resets
Sunday, April 01, 2007 
In the midst of the upheavals surrounding the subprime market a new study has emerged that appears to quantify the problem and, at the same time, offer hope that it isn't as bad as it seems. Christopher L. Cagan, Ph.D., Director of Research and Analysis of First American CoreLogic recently released Mortgage Payment Reset: The Issue and the Impact. Dr. Cagan utilized two large databases to conduct his study: information on over 32 million single-family homes and condominiums and townhouses in 694 counties and 41 states plus Washington, D.C and including over two thirds of the nation's population; and a database consisting of 25.9 million active first mortgages from all fifty states and the District. Each of these loans was originated between 2004 and 2006 and totaled $5.38 trillion. Both data sets are proprietary to First American and its subsidiaries In the midst of the upheavals surrounding the subprime market a new study has emerged that appears to quantify the problem and, at the same time, offer hope that it isn't as bad as it seems. Christopher L. Cagan, Ph.D., Director of Research and Analysis of First American CoreLogic recently released Mortgage Payment Reset: The Issue and the Impact. Dr. Cagan utilized two large databases to conduct his study: information on over 32 million single-family homes and condominiums and townhouses in 694 counties and 41 states plus Washington, D.C and including over two thirds of the nation's population; and a database consisting of 25.9 million active first mortgages from all fifty states and the District. Each of these loans was originated between 2004 and 2006 and totaled $5.38 trillion. Both data sets are proprietary to First American and its subsidiaries The study looks at the possible results as adjustable rate loans adjust and payments on those loans reset to long-term levels from several different perspectives. How much will mortgage payments change on a national basis? How will these reset payments impact on homeowner default and foreclosure? When will the impact actually...impact? How will changes in the real estate market mitigate or magnify the impact of mortgage rate resets? The study analyzed the data using techniques to classify market segments on both a payment and an equity axis. On the payment side loans were quantified as relatively safe or vulnerable under the pressure of mortgage payment reset and according to its initial and fully reset rates to find the proportional increase in monthly payments. Loans were put into a laddered arrangement with adjustments for time and the type of loans. On the equity side a laddered arrangement was established for time and loan type to classify each loan into one of five levels of equity; assigning to each an associated probability of equity risk and level of influence upon possible default. By examining both the risk of reset and the risk of equity Cagan was able to build projections of overall default that arise when borrowers cannot make payments after reset and there is insufficient equity to allow them to sell or refinance the property. The highest reset impact is among those loans with the lowest initial rates; generally the teaser loans with artificially low initial rates often under 4 percent; even as low as 1 percent. The second greatest impact is with market rate adjustable mortgages. Payment increases in this group can be sizeable, but these borrowers more often have the financial capabilities to survive the impact. Sub-prime loans may have resets that are actually proportionally lower than market rate loans but these borrowers are likely to have fewer financial resources or they would not be in the subprime category in the first place. Mortgage payments are expected to change by $42 million per year. This amount, however, represents only 0.36 percent of the $12-trillion dollar economy. Thus, reset will not break the national economy but it will affect the subset of loans subject to adjustment. The study found that the risk of default due to rate reset will result in some 1.1 million foreclosures, but they will be spread out over a total period of six to seven years. This number represents 13 percent of all adjustable-rate mortgages originated for purchase or for refinancing from 2004 to 2006 and will total $326 billion in debt It is further projected that an additional $112 billion will be lost post foreclosure and resale to remaining equity, lenders, and investors, again spread over several years. "These losses represent less than one percent of the total mortgage lending projected for that period. Thus, mortgage payment reset will not break the national economy or the mortgage lending industry." This impact, however, will not be spread evenly. It will be the teaser-rate and sub-prime mortgages originated in the last three years that will bear the brunt of the reset. These loans will begin the reset processes earlier than market-rate adjustable loans and are more likely to default. The study projects that 32 percent of teaser loans will default due to reset as will 12 percent of sub-prime loans while only 7 percent of market rate adjustable rate loans will do so. But these projections of foreclosure are sensitive to changes in home prices. Because the default risk is a combined effect of higher payments and lower equity even a small increase in house prices will lift homes into a positive or near positive equity position and allow potentially defaulting buyers to escape difficulty through refinance or sale. Conversely, a small decrease in housing prices will have the opposite effect, increasing the risk of default. In fact, each one-percent rise in national prices will result in 70,000 fewer homes lost to reset-driven foreclosure while a one-percent fall in prices will cause an additional 70,000 homes to enter foreclosure. The study also looks at remediation. External remediation such as might come from government or another type of outside intervention is likely to happen only after problems begin to occur. Therefore, regulators, lenders, and investors should be aware that teaser-rate and subprime loans will be the "canary in the coalmine." Marketplace remediation has, according to the study, already begun. Borrowers are, on their own refinancing out of risky loans and lenders are working with clients to modify or refinance loans to avoid default. One can assume from the results of the study that rate resets may cause a lot of individual pain and some market discombobulation but that the overall economy is strong enough to withstand the fallout which will represent only a small percentage of the mortgage market.

Housing Market Shaky Not Plummeting
Saturday, March 31, 2007
Two reports that contribute to the picture of the housing industry were released on Monday. After news from the subprime mortgage market, the quarterly delinquency report, and the accompanying reaction of the stock market the two most recent pieces of information were pretty much non-events and the stock market reacted enthusiastically. Two reports that contribute to the picture of the housing industry were released on Monday. After news from the subprime mortgage market, the quarterly delinquency report, and the accompanying reaction of the stock market the two most recent pieces of information were pretty much non-events and the stock market reacted enthusiastically. The National Association of Home Builders and Wells Fargo released their Housing Market Index (HMI) which measures the state of builder confidence in the construction market along several parameters; their perceptions of the current state of the market in terms of sales; their measure of buyer traffic at present, and their predictions for the market over the next six months. The HMI has been hammered in recent months, dropping to 39 (anything less than 50 on the index as a whole or any of its three component parts is considered negative) on revised figures for February which was originally given a score of 40. This month the overall index dropped another three points to 36. This is not terrific news, but is still up from the low of 30 the HMI hit in September. The three component indexes also declined in March after going up in February. Current single-family home sales and sales expectations over the next three months each declined three points to 37 and 50 compared to February's revised numbers and the index measuring current buyer traffic was down one point to 28. NAHB Chief Economist David Seiders said, "Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity. The fundamentals of today's housing market still are relatively strong, including a favorable interest-rate structure, solid growth in employment and household income, lower energy prices and improving affordability in much of the single-family market - due in part to price cuts and non-price sales incentives offered by builders. NAHB continues to forecast modest improvements in home sales during the balance of 2007, although the problems in the mortgage market increase the degree of uncertainty surrounding our baseline (i.e., most probable) forecast." The second report, the official one coming out of the U.S. Census Department in conjunction with the Department of Housing and Urban Development, is the February count of new home construction including permits issued and homes started. The two were a mixed bag. Permits were issued in February for privately-owned housing units at a rate that was 2.5 percent below the revised rate for January; the annualized estimate is now 1,532,000 and 28.6 percent lower than the number of permits estimated in February 2006. However, this number is on a par with permits issued since September, 2006 after the figures for the previous six months took a precipitous drive from 2,1470,000 to 1,727. In other words, its not 2005 but it's not a disaster either. Housing starts totaled 1,525,000 units, up 9 percent from revised January figures but still 28.5 percent below figures for February 2006. Single family housing starts fared even better, rising 10.3 percent above January numbers. The figures from both studies indicate that the housing market is shaky but not plummeting to the bottom. We will, hopefully, see nothing worse than a few more months of data that goes up and down.

FOR THE INVESTOR
Rents On Increase In Much Of Area As People Delay Buying
By ROBIN STANSBURY, Courant Staff Writer
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Strong growth in the apartment market last year is leading to rent increases throughout most of the Hartford region in 2007 - with hikes of as much as 8 percent. But just how much more you pay this year will depend on where you live. ADVERTISEMENT SPONSORED LINKS Landlords say demand - and occupancy rates - for apartment units is strongest in the West Hartford-Farmington Valley area, as well as the Wethersfield-Rocky Hill corridor. There, renters can expect to pay an average of 3 percent to 5 percent more this year, and in some of the best buildings with the best locations, as much as 8 percent. But demand in the Manchester area, and in the Norwich-New London area, has slowed in recent months, the landlords said, because of an increase in the number of apartments, as well as condominiums. As a result, monthly rents in those areas will, in most cases, stay flat this year, and in some cases owners are offering a month or two of free rent, or reduced security deposits, to attract new tenants. "Last year started out with a bang, but then those markets started softening in the later part of 2006 as more product came on line," said Marie Mazzotta, vice president of Konover Residential, which owns almost 3,000 apartment units in Connecticut. "I think New London and Norwich will have a resurgence in 2007, but I'm not sure about Manchester yet," she said. "I don't see that percolating." Overall, the apartment rental market has strengthened dramatically during the past 12 months because of a slowdown in the purchase of homes and because there has been little construction of apartment complexes in the area. Fewer home buyers has meant more renters, and more renters means that occupancy rates in mostparts of the area are increasing. "In the midst of the housing boom, people moved out of apartments and into houses because interest rates were low and they were able to afford it, and so the apartment market suffered," said Ron Van Winkle, a West Hartford economist. "Now, mortgage rates are rising, costs of houses have risen, so people are holding off on purchases and the apartment market is doing better again. " That is not always the case. The apartment market can mirror the home purchase market. At those times, when one slows, the other slows, as well. Or, in areas with strong population and job growth, a strong home purchase market and a strong apartment rental market can exist side by side. But in central Connecticut right now, the slowing market is benefiting apartments. "The apartment market here is a fairly stable market, without significant ups and downs," Van Winkle said. "It should remain that way for the next couple of years." That stability has led investors to see a lot of strength in the local multifamily market, making the purchase of apartment buildings a good bet for 2007, said housing expert Steve Witten, senior director at Marcus & Millichap Real Estate Investment Brokerage Co.'s National Multi-Housing Group in New Haven. "It's my honest feeling that the bulk of the apartment sales for 2007 in the state of Connecticut will take place in Hartford County," Witten said. "The perception of the Hartford market is extremely positive. This is a burgeoning or growing market where stability will lead to reasonable appreciation. When you have investors who perceive you have a strong market, that is a good thing." Witten said the Hartford area is seen as so positive because for many years the market was undervalued, and at the same time development from private investors is finally taking place in the capital city. "Hartford's time is coming, and people are looking to position themselves in a market where they see excellent growth and appreciation of value," he said. In his report on the 2006 Connecticut apartment market, Witten said sales of apartment buildings statewide remained healthy, with 5,617 individual apartment units traded in 2006, compared with 5,676 units in 2005. At the same time, average per-unit sales value increased, from $88,368 a unit in 2005 to $122,803 a unit in 2006, a jump of 39 percent. That does not mean the typical value of an apartment unit increased by 39 percent; it could reflect the sales of higher-priced complexes. For example, two upscale apartment complexes in Middletown with 518 units sold for $73.2 million, or about $141,000 a unit, in early 2006. And already this year, a newly built 180-unit complex in Meriden sold for $30.2 million, or about $168,000 a unit. In addition, The Hawthorne at Gillette Ridge, a 246-unit upscale complex on CIGNA's campus in Bloomfield, is now under contract. The sale price is expected to value units at more than $200,000 apiece. In downtown Hartford, hundreds of upscale apartment units have been built in several projects, including Northland Investment Corp.'s Hartford 21, a 36-story, 262-unit rental tower with full amenities at the site of the old Civic Center mall. It remains to be seen how that market shakes out, although Northland and other developers say their rental plans are on track. ADVERTISEMENT SPONSORED LINKS Brokers said one area of weakness is in the development of condominiums. Although the condominium market in the area is still strong - sales of condos in 2006 outpaced sales in 2005 by about 6 percent - demand in recent months has softened, leading some projects to be scrapped. In other cases, developers have said they will build apartment units instead of condos. In recent months, about a half-dozen plans to build condos have been canceled or changed. Among them: Plans to transform the former Capewell Horse Nail Co. factory in Hartford into moderately priced condominiums was scrapped after investors cited concerns about the strength of the marketplace and profit margins. Another project that would have turned the city-owned building at 101 Pearl St. into condominiums also collapsed after the developer encountered escalating costs. A developer's plan to take a 12-story, city-owned building just blocks from Hartford's Bushnell Park and turn it into a few dozen luxury condominiums has collapsed - a victim of the project's small size, high remediation costs and the rising cost of construction. And in West Hartford, plans to build a second complex of condominiums at Blue Back Square were changed to include apartments instead after rising construction costs caused some concern about the ability of the units to sell. "There is no question there was a softening of the condo market," said Van Winkle, the West Hartford economist. "Condos did well for most of 2006, but by the end of the summer, sales started to slow, and they fell precipitously by the end of the year. When the market slows down, it makes a lot of developers rethink their market until it picks up again. " As sales slowed, construction prices increased - a bad combination, the economists said. "A lot of projects planned at a certain dollar value weren't able to be built," Van Winkle said. "With rising costs and slowing demand, you don't have to be an economist to figure out why the projects were canceled. It will come back. I think the market will revive itself later in 2007."

When your lender goes bankrupt
By Carolyn Bigda, Money Magazine writer-reporter
Tuesday, April 03, 2007
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NEW YORK (Money) -- With one of the largest subprime lenders, New Century Financial Corp., filing for bankruptcy Monday, borrowers may be wondering what will happen to their loans now. "The general answer is they can expect nothing," says Jack Guttentag, professor of finance emeritus at the Wharton School and founder of mtgprofessor.com. New Century and its subsidiary Home123 say borrowers will not see an immediate impact on how their loan is serviced, and should continue to make monthly payments as scheduled. Like many lenders, New Century originates loans, many of which are later serviced by other banks. It's estimated that New Century is servicing $30 billion of some $130 billion loans it originated in the past two-and-a-half years, according to Bose George, an equity analyst at Keefe, Bruyette & Woods. As a result, only about a quarter of New Century borrowers may see any difference. If any change is made, it likely will be limited to where you mail in your payment - not the terms of the loan itself. And New Century (Charts) says it will give borrowers ample notice. In the meantime, if you have questions, contact your loan officer or broker for more information, or to go to New Century's restructuring information Web site to get the latest news on the company's restructuring. Though operations "will continue as usual," says Laura Oberhelman, a company spokesperson, New Century and Home123 has stopped making new loans, meaning refinancing for now is not an option. It also means that if you have a loan application still pending you'll need to find another lender (though any advance fees you've paid will be refunded). New Century, based in Irvine, Calif., is one of several mortgage lenders in the so-called subprime market - for borrowers who are considered at greater risk of default - now grappling with a rise in delinquencies, or late or missed mortgage payments. According to the latest data from the Mortgage Bankers Association, the delinquency rate was on the rise at the end of 2006, most notably in the sub-prime market with 13.33 percent of subprime loans delinquent compared to 2.57 percent for prime loans. As a result, financing provided to these lenders has started to dry up. In 2006, the subprime sector originated $655 billion in loans, or 20 percent of the total mortgage market, according to National Mortgage News, which tracks the industry. Still, over the past year, an estimated 15 percent of loan origination volume has been wiped out, and another 20 percent is at risk. Dozens of lenders have filed for bankruptcy or sold a portion or all of their subprime division, including Fremont General and Ownit Mortgage Solutions. "But the big story for borrowers now is whether the government or private sector is going to step in to bail them out," says Richard Bove, a financial strategist at Punk, Ziegel & Company, a specialty investment bank. Bove argues that any relief would help keep housing prices above where they ought to be. As a result, "those homes will be closed off to other buyers," he says