The Rancon Team attended the 2011 Pacific Coast Builder Conference in San Francisco in San Francisco and gained some keen insights on the current and future market for new homes in Southern California.
Seas may be choppy but basic market forces still at work
For all the doom and gloom you hear in the press about the Real Estate Market, the attendees at this year’s PCBC were consistently upbeat about the future of building, especially in “A” locations in Southern California.
Our feet on the street—Jim Lytle, John Johnson and Mike O’Donnell—attended numerous presentations and talked with stakeholders and attendees about the current state of the building market. Their consensus was that while these are trying times in the new-home market, the basic market forces are still at work i.e. provide the right product in the right location and the market will respond.
Jeff Meyers, Principal at Meyers LLC, noted in one of his presentations that equity partners looking at investing in one of the “A” areas of Southern California should look for a sponsor with an “open book approach and extensive local knowledge about a specific area.
“Sponsors who have done their homework and who control properties in key areas will be in a position to provide the right type of product for the next emerging market,” said Meyers.
According to Ken Rosen, PhD, in an Economic Forecast presentation the sweet spot in future residential building will be in apartments and senior housing. In an interesting note Rosen, who holds a doctorate in economics from M.I.T., said that if you take all the “distressed” sales out of the equation and use only “arms length transactions” some of the prices are actually rising.
Distressed properties are certainly an influence on the current market; however, they also represent an opportunity for long-term investors. In a presentation on “Accessing Land / Distressed Debt, CityView's Mark Beisswanger and Encore Housing Capital’s Tony Avila both stressed the importance of underwriting and local knowledge in assessing properties.
“Hearing the experts talk about the importance of underwriting and local knowledge hit home with us because that’s what Rancon is all about,” said Lytle after the conference. “We pride ourselves on local market knowledge, making excellent market projections and generating accurate pro-formas. These are the building blocks that have established a successful track record for more than 40 years.”
Lytle, Johnson and O’Donnell returned from PCBC with numerous insights and a new perspective on managing the Rancon portfolio of assets.
“Jeff Meyers provided us with a great perspective on the market when he said that long-term commitment to a project is a key to its success. Nothing happens overnight,” said Lytle.
“Now is the time to make long term land investments…,” said Meyers. “Yes, the market is choppy, but we are at the bottom, we are bouncing, but we are bouncing on the bottom.”