BluefoxToday blog : July 2007

Condo developers are gradually putting their arms around the green building concept and doing so in innovative ways. They know the residential real estate market for the eco product is still in its infancy, evolving, yet there are encouraging signs that it's gaining traction. More of it every passing day. Let's look at some recent environmentally-friendly projects across the country and what they've done.

A loft development in Massachusetts gets heating and cooling from underground geothermal plants. In essence they've drilled twenty wells deep into the earth and filled them with water that maintains 50 to 55 degrees throughout the year. Then heat pumps that operate like refrigerators transmit cold from the water in summer and heat in winter into the units. Utility bill savings go from 25 to 50% using this system, which can add up nicely over the years.

A Manhattan high-rise condominium has unique triple-pane windows. The inside space, the one closest to the living area, is vented during summer which lets cool air to flow through. And then in winter the same vent is shut and now the space creates an extra thermal barrier against the chill from outside. That's a creative solution. This development also features geothermal plants for heating and cooling.

Do you know what Trespa is? Well, it's a company making high-performance, high-quality panels for exterior cladding. Although their manufacturing technology is proprietary, it's known that wood pulp and resin materials are being used for their durable panels. A large San Francisco condo project is protected by Trespa, a practical product that has thus far earned multiple international certificates for its environmental considerations.

We're on the right track.

Let's qualify that statement a little bit. A luxury single-family home recently sold for almost $7.9 million which translates into over $1,000 per square foot, as the property measures 7,519 of those. That $1,000 a foot is supposedly the new high for the valley. In terms of price alone, plenty of homes have changed hands for more money than that, but then they've been much larger. Some luxury high-rise condominiums have also done better than that, like units in Trump Towers and Park Towers, but this is the first in the single-family category.

So, what happened to the soft real estate market here? Have no fear. It's still around for anything under, say, $1.5 to $2 million, according to one local expert. And it could stay soft for a while longer, making it a genuine buyer's heaven.

The ultraluxury segment is going full steam ahead, though. Property over $3 million belongs to that league. It's said that a mere ten years ago this type of buyer was unable to find a home here that he liked, that met his requirements, but now there is sufficient inventory to choose from. Las Vegas has clearly matured in that sense. Many in the money like to now have a base of operations here, too. Among their other places, I'm sure. Some of the incentives luring them to town are the tax advantages, quality of entertainment, you guessed that one, and quality of life. Some would like to add job and population growths to that list, but I wouldn't. Buyers at this level are seldom affected by those attributes.

Energy Star is EPA's, or Environmental Protection Agency, energy efficiency program for the home building industry. To qualify for it homes have to pass an independent verification process to meet EPA's rather stringent guidelines. Houses that make the grade nowadays are a minimum 15% more energy efficient than those that were constructed to the 2004 International Residential Code. And they often consist of extra features that frequently make them 20 to 30% more efficient than regular homes. As you can see, it's a worthy program.

For 2006, there were 15 states where new single-family houses that received the Energy Star exceeded 12% of the total construction volume. And it's with great pleasure that I announce Nevada being at the very top of that list. In Nevada the program's market penetration is a whopping 71%, the second place going to Alaska with 64%. Congrats, Silver State.

Do you know that housing energy consumption is responsible for about 17% of the total greenhouse gas emissions in the U.S. and it's roughly 21% of our energy use. These are pretty high numbers. EPA kicked off the program in 1992 and has worked ever since with the homebuilding industry, states and utilities to improve energy efficiency. It can proudly say today that there are over 3,500 builders nationwide committed to Energy Star.

Let's conclude this with a staggering statistic. In the year 2006 alone, we, with an assist from Energy Star, were able to save $14 billion and contained greenhouse gas emissions that 25 million vehicles would have produced.

The massive structure between Nevada and Arizona is a must-see for many visitors to Las Vegas, between losing money in the noisy casinos, eating gourmet meals at famous restaurants and enjoying some of the best shows on earth. It's an impressive engineering achievement. It has the awe-inspiring quality to penetrate your memory and stay there forever.

Ever since it was built in 1936, movie makers have also found its magic power. As have documentary shooters and commercial photographers. For the most part they like to use it as a backdrop, but can also work their way inside the concrete behemoth and do scenes there. The latest movie to film in and around it is Transformers, in a theater near you right now. Its producers secured a special permit to gain access to locations normally inaccessible to the general public, among them the generator floor, power plant roof and penstock tunnels.

Before you get to set foot on site to film, though, you need a permit from the U.S. Bureau of Reclamation. A right-of-use one. Anyone with a commercial intent needs that, except newspaper and TV news people. It's kind of funny, but part of the application is a script approval. That's right. The facility management justly considers the dam a public icon and they want to make certain that its image is properly looked after. Their mission is that the dam has to be shown in a positive light.

Here are some of the other movies that had a role for the icon. Ocean's Eleven, the original one from 1960 with Frank Sinatra and the boys. Diamonds Are Forever, made in 1971, that featured Sean Connery as the real James Bond. Superman from 1978 that had a story line to destroy the place. And what about Vegas Vacation with Chevy Chase whose cousin or somebody fries an egg on a piping-hot rock sitting in his yard.

The real estate market is rather tough out there today. Property is moving very slowly. In many areas a glut of houses await visits from buyers who are patiently going from one property to the next looking for the best deal. Can't blame them. I'd do it, too, if I were shopping. This is their market, so go ahead and take advantage of it.

Knowing that, how can a seller attract a prospect to purchase his home? In other words, what type of incentives are likely to work? Price, of course, comes first to everybody's mind. That's a given. Besides price, the seller can offer to buy down the mortgage interest rate, say from 6.5% to 4.5% for the first year and maybe 5.5% the second year. It's always good to see the monthly payment a little lower, at least for a few years.

Another popular method is to pay a portion or all of the buyer's closing costs. They can add up to 2% to 7% of the loan amount, a large chunk of money for those who are short on cash. What about helping the buyer with the down payment? Especially with a first-timer it can frequently make the difference between being able to purchase the home or not. The above tactics work well because they save the prospect real money. It shows on the bottom line in terms of a lower mortgage payment and/or less cash withdrawn from the checking account. Unlike throwing in a vacation trip to an exotic location or a bunch of colorful appliances which don't save him anything.

Here's another tip. Offer the buyer a home warranty, a policy that covers a lot of territory in a house, including wiring, plumbing, heating and cooling. This gives him a peace of mind. Assures him that should something go wrong, the repair cost won't come out of his pocket. What are some of the other ones?  

Las Vegas valley still has a good amount of land available for residential development and eventually it'll be graded for more houses and condos and townhouses. But real estate is getting so expensive here that the future homes will be priced out of reach for many buyers. Another housing solution has to be found. Home builders have their finger on the pulse, of course, and are gradually shifting some operations into the outlying towns like Mesquite, Pahrump and Coyote Springs, each about an hour's drive from the Strip.

Prices over in these bedroom communities can be 20% to 50% less than here, incentive enough for many to handle the extra commute time with a smile and a favorite tune. Not only that, but you can get more house and yard for the price, too. How about a single-story home on close to a quarter-acre lot? In comparison, some of the new Vegas houses are mere three-story boxes sitting on tiny slices of land, leaving so little space out front and back that you can't call them yards any more.

Las Vegas also suffers from water supply issues and these suburbs don't. Colorado River brings the lifeline here and has been way below its normal flow over the last several years. During that time Lake Mead has plunged 95 feet, an astounding figure. The situation is so worrisome that Clark County, where Vegas is, has for now scrapped new golf course construction. Whereas Mesquite takes its water from the Virgin River. And Pahrump is in Nye County and Coyote Springs is mostly in Lincoln County, both of which have ample water resources on hand.

Look for these communities to become trendy options for many who desire to own a home in Southern Nevada.

It pays to know what type of a mortgage you have. What comes to mind first is the kind of home loan program you opted for. Whether it's a fixed rate product or an ARM of some sort, look up the details. If you happen to have an ARM, it's good to be aware of when it resets, like does it do it annually, every three years or when. Learn the index that's being used, and the margin.

Now that foreclosures are rising across the land, it's equally important to know what kind of a financial instrument secures the loan to the property. Is it a conventional mortgage or a deed of trust? They fulfill the same role in real estate purchases, but are quite different from the legal point of view.

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Buyer's market, like today's, is always enticing for real estate investors and those who want to become investors. There are opportunities everywhere and sometimes it's hard to focus on the fundamentals that are key to making a profitable acquisition. It's easy to get caught in the atmosphere of abundant supply and then make hasty decisions that turn out less than satisfactory. Let's look at three major areas that I value the most when selecting an investment property.

The house has to be in a basically sound condition. You don't want to replace the roof, do major plumbing work or get involved in a costly window replacement project. All of that is unprofitable work and should be avoided. Cosmetic improvements are the ones that will give you the best returns, like fresh paint inside and outside, new lighting fixtures can make a big difference and smart new landscaping.

Location of course. If the property is in a neglected neighborhood, there isn't much you can do to help overcome that. Stay away from freeways and busy streets. Look for property in areas of well-maintained homes and zero in on ones that are the worst of the street. Those have the best profit potential once they are fixed up to the surrounding standards and even the neighbors will like you for renovating an eyesore.

Motivated seller is my third point. If you're working with an agent, he/she probably knows why the house is for sale. Ask him. Mortgage foreclosure could be imminent, owner has a job transfer, death in the family, divorce, there are many reasons why people are selling. If it's a FSBO, just kindly ask the homeowner and he'll tell you. What about the house having been listed for 120 days? That ought to help elevate anyone's motivation level. Once you find a seller who is willing to negotiate, put your creativity to work and see what happens.

Of course, there are other areas to consider, but these are the main ones I focus on.

Harrah's Entertainment isn't sitting still with one of the premium brands of anything in the world, Caesars Palace. Or just plain Caesars. When Harrah's bought the venerable hotel and casino on the Strip around two years ago many in Caesars' management feared their days in the high-end market were numbered. The precedent was there. They remembered what had happened to the Rio that Harrah's had purchased earlier and somewhat clumsily transformed to fit their middle-range marketing strategy.

Well, everybody is smiling at Caesars nowadays. The management and staff alike. Just this week Harrah's announced a massive $1 billion expansion plan at the company's flagship property. It includes the construction of another tower on Flamingo with 665 rooms, building a new 263,000-square foot convention complex, reshaping the front entrance area, again I might say, and putting in three new swimming pools. These are, among some others, the major improvements.

If the property wants to stay competitive in the upper end of the market, this is the direction it had to take. And Harrah's executive suite agreed with that assessment. There are plenty of worthy rivals. MGM Mirage is currently putting up the mammoth, mixed-use CityCenter only a half a block away, the Venetian is about to complete its expansion project called the Palazzo, Steve Wynn is working on the opulent Encore and Echelon Place across the Strip from Encore is just breaking ground. This is the latest resort development wave to hit the city in the desert valley and it already is creating excitement among resort visitors around the world.

The pattern is quite familiar. For several months in a row now the stats that the local analyst Home Builders Research puts out show that home sale numbers remain soft. The market is in a funk, that's clear. Besides product oversupply, there also is another factor in the mix at this time of the year. Namely, when the middle of the summer temperatures reach 111 degrees and higher, who wants to go out house shopping. It's called a seasonal trend.

Here's a quick rundown on some of the numbers that matter. New home sales decreased in June by 45% from a year ago and existing sales dropped 36%. This is pretty much what has been happening for the last four to six months.

The only bright spot in the Las Vegas real estate market continues to be the median price level. The June new home and resale median sales prices actually rose a few ticks from May's numbers. That is somewhat surprising. A local developer says he knows why. Vegas is gradually turning itself into a top-tier city with multiple beneficial factors - weather, except now, solid economy, terrific entertainment, to mention a few of them - that just attract people here to live and own property. He cites as an example San Francisco a few decades ago where prices were predicted to crash and they went up instead. Because people wanted to set up house over there.

When we compare median price levels with last year's, they are down a tad, 2% for new homes and 4% for resales. All in all, not much has changed recently.