Matrix Blog

Adventures in Media & Marketing

[Gavel Development] Real Estate Auctions Are An A1 Story

February 26, 2009 | 3:00 pm | |

Weirdest thing – my original post was wiped out – must have been auctioned? – or was it my newly installed Safari 4 beta?

Well today was especially fun (after a 2.5 hour session at the dentist) because I was referenced in a front page story of the New York Times (I think it’s the 9th time and it never gets old). Teri Karush Rogers wrote a story about condo auctions called: And Do I Hear $2 Million? No? $1 Million? Sold! (fun to see this in Paris too).

Auctions are a way for the developer to get out of a project more quickly than existing marketing conditions permit and is usually done in markets with rapidly rising inventory (aka more competition).

An auction is a way to compress marketing time from the market norm which current is measured in terms of years, into a few days.

In the early 1990s, many co-op conversion stalled during the recession and the construction lenders became the new sponsors of thousands of co-op apartments. The auction became an effective marketing tool and was used quite extensively during this period.

In many cases, the developer of a building with stalled sales, has no choice because they don’t have the staying power to wait until the market recovers. At the same time the lender behind the developer may be reluctant to weaken their already weak balance sheet because it has implications for capitalization and their ability to perform lending in other areas of the institution.

Real estate auctions, rarely used in New York, have the potential to both move property and indicate to reluctant buyers what the true market prices are. Given the current sales drought, even a handful of auctions could reset prices for new condominiums citywide, said Jonathan J. Miller, the president of Miller Samuel, a Manhattan research and appraisal company. He said he expects the auctioned properties to sell for 40 to 45 percent below the asking prices of the first quarter of 2008, when the market peaked.

In the current market, the contraction of credit has restricted the demand for these housing units which is placing downward pressure on price levels.

“The general impression I get is that this period of denial — the market-will-get-better mentality — is coming to a close,” said Mr. Miller, the appraiser…

[Apologist Pollyanna Prognosticator] For $495/Year, Lereah Will Drop The Spin

February 11, 2009 | 12:48 am | |

Back in January, David Lereah, former chief economist for the National Association of Realtors, came clean with the Wall Street Journal. It appeared to be more of a timed interview to coincide with the start of his new venture.

Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts — then was left to shoulder the blame when things went sour. “I was there for seven years doing everything they wanted me to,” he said, looking out his window to his tree-filled yard in this Washington suburb.

Of course his successor, Lawrence Yun, who started off with the same hard core spin, but a few months into the credit crunch pulled back from his wildly optimistic ways which was, for lack of a better word, refreshing (relatively speaking).

Coverage after the WSJ article was here, here, here and here, etc. You get the picture.

The spin from NAR was excessive and offensive during his reign – so much so he inspired blogs like David LereahWatch and kept the blogosphere full of content for many years. I remember thinking the disconnect of his press releases during his reign was significant and infuriating.

I got to meet him in the green room before we were both on a CNBC special in 2004 at his height (I was an obviously lesser figure in the program) yet he seemed embarrassed about his prognostication.

It’s hard to imagine that NAR and Lereah were not acting as a team in the false message delivered in a procession of press releases. Although both have separated ways, NAR and Lereah are still at it.

MarketWatch did a humorous recap of the major forecasting errors provided by Lereah.

So why am I bringing all this up when I said I was tired of the topic of Lereah?

Because I came across a press release today from his new venture Reecon Advisors, Inc. For $495 per year, you can get to hear what Lereah thinks about the housing market – he writes his newsletter from home and has less than 50 subscribers but hopes to get more. Because he is now independent, he will provide an non-biased viewpoint. Ok, doesn’t the very fact that he would say this completely discredit because it infers – he – can – be – bought. Why is now different?

Listen, I don’t fault the guy for trying to make a living. After 7 years of hard core spin, a subsequent apology that confirmed this, mockery by the blogosphere who outed his frequent misdirections, and later disenfranchisement with NAR, who on earth would actually subscribe?

The web is a beautiful thing. You can set up a web site and appear like a big research think tank. Makes your head spin doesn’t it.

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[Non Non-Heinous] Past Performance is No Guarantee of Future Results

February 9, 2009 | 10:27 pm | |

Daniel Gross has an insightful post at Slate called Declining Declinism: Don’t believe the historians and economists who say America’s best days are behind us.

Aside from Declining Declinism, I would also could consider Recessionary Recess and Falling Fallout. My kids remind me often of the double-negative wonder of “That’s totally non non-heinous” used effectively in Bill & Ted’s Excellent Adventure.

Bill and Ted take this to the extreme and use it to their advantage to really emphasize words. If something is heinous it is bad. If it’s non-heinous that’s one negative and it becomes good. It’s it’s non-non-heinous then the negatives cancel each other out but the emphasis of the word heinous becomes double, so it becomes really bad.

Here’s the gist from Dan:

Economic prognostication is hamstrung by a tendency to extrapolate from recent trends far into the future. It happens at the top of a cycle—the Dow is going to 36,000! Housing prices will never fall!—and it happens when we plunge into a ditch.

Of course that was part of the problem with the way the bad news was delivered by Robert Shiller and Nouriel Roubini a few years ago. For some reason the former hasn’t retained his momentum and the latter is now loved by the media. Perhaps its more about the way they party.

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[Of Mice and RE Bloggers] The New York Times covers 6 of us

January 24, 2009 | 2:58 pm | | Public |

It was fun to open the New York Times this morning and see Samantha Storey’s well written real estate cover story And the Blog Goes On on 6 real estate bloggers – with the added bonus of an above the fold photo. Even better that I was one of the bloggers profiled.

Aside from moi, others covered include Lockhart Steele of Curbed, Jonathan Butler of Brownstoner, Doug Heddings of TrueGotham, Noah Rosenblatt of UrbanDigs and Property Grunt of PropertyGrunt are all long time bloggers who have been on my blog roll nearly since day1 and continue to provide their unique take on all things real estate and whatever else is on their mind. All of us have different approaches, purposes, styles and audiences… thats what makes the blogosphere so cool.

On a personal note, I’ve never been superimposed on a mouse, especially as a long time trackpad user. I wonder if the “upside down” position of my photo could have some sort of hidden meaning? Like… “turning real estate on its head”, “being upside down on a mortgage”, “looking at things in a different way”?

Probably not.

Ok, back to work.

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[Market Report Pulse] Sales Contract Data Can Mean Nothing

January 16, 2009 | 2:44 am | |

One of the most sought after trending tools for housing markets is contract data. Not listing data, not closed data. Contract data.

Compile a lot of data across all regions, property types and price strata and you are golden. You are observing the market as close to the “meeting of the minds” as is humanly possible – you have its proverbial pulse.

I thought to write about the concept of reporting contract data after I got a call from The Real Deal about a new contract-based real estate market report. Their founder is a very creative, very smart and very successful marketer of real estate, first as an agent and then as a marketing expert for new developments. Visually, the report is beautifully done, consistent with the quality of their firm’s marketing materials and online presence. However, they might consider dropping the name of “real-time” from the report. It’s monthly. I understand the intention, but the use of the phrase “real-time” infers a live feed, which this report is not. Isn’t “monthly real-time” an oxymoron?

A quote from The Real Deal article:

It tracks contracts info. To me, that’s what reflects the marketplace and where we are currently, not closed information, which is actually a look back in history.

Another company attempted “real-time” a few years ago by treating real estate listings like the stock market and began publishing a “ticker” type interface. I have to give them credit for the innovation, but it never really got people’s attention.

But I digress

What is contract data exactly?

It’s a property sale with an executed (both parties signed) contract – It is usually 45-60 days ahead of a closing date if new development data is excluded. Actually this 45-60 day time frame is currently expanding as lenders become more difficult to deal with. New development data in the mix could lag the market by 1 to 2 years.

I sort of dealt with contract activity in the most recent market report numbers in my 4Q 2008 Manhattan Market Overview but not in the traditional sense of aggregating contract data and trending it.

Our appraisal firm began to see a pattern in late September 2008 where current contracts of properties we were appraising, were clearly lower than contracts signed in the summer of 2008. The range was roughly 15% to 20%. My 20% number has been widely referenced by the Fed, Goldman Sachs and others, and in fact, page one of AM New York published the number “20%” in red on the entire cover. But our conclusions were based on more of a case by case analysis, similar to a repeat sales analysis.

I don’t currently issue contract reports but I certainly aspire to, but only when I have credible results. Periodically I’ll see one of my appraisal competitors distribute a press release with their own contracts tabulated. I’ll see real estate brokers and marketing agents issue contract reports.

Readers oooh and ahhhh over the relevancy of contracts because the data is perceived to be fresh and current. In principle it is current, but in practice it is much more subject to skew than other data.

I also wonder why methodologies are never fully provided, especially those prepared by marketing groups or departments.

Here are the issues that make much market analysis of contract reports suspect, despite perhaps the best intentions of the authors.

  • Quantity of data — the key issue that makes much analysis unreliable – absent from the public domain.
  • Location of the data — contract data tends to be sourced from a few institutions or entities so its availability and the potential for skew is very serious.
  • Unit mix of the data — This is subject to skew depending on the source of the data – what type of business they have – who their customers are (low end, high end, studios, 3-bedrooms, etc.)
  • Source of the data — The four largest real estate brokerage firms probably account for 80% of all sales in Manhattan. I know each of the senior management teams so I am fairly confident they will not release contract data in bulk to anyone outside their company, especially to a competitor.

I have never met a broker that will share contract data in bulk because it can jeopardize their company’s sales and commissions. We are able to get contract data periodically, but not in bulk. If producers of contract reports can win me over on these key issues, I am ready to jump in with two feet. NAR publishes a pending contract index and frankly, not many people I know believe the results.

In other words, contract data is the Holy Grail, but I am not convinced it’s yet achievable as a reporting tool.

Now give me a sales contract specific to the appraisal we are working on and I am happy ’cause that’s a whole ‘nother story.

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[Quadrillions In Indebtedness] 4Q 2008 Manhattan Market Overview Available For Download

January 8, 2009 | 2:25 am | | Public |

The 4Q 2008 Manhattan Market Overview that I author for Prudential Douglas Elliman was released on Tuesday.

Other reports we prepare can be found here.

The 4Q 2008 data and a series of updated charts are also available.

All in all, well over 100 media hits covering the report (that we know about, but who’s counting) without a formal press release. Apparently there is interest in the Manhattan housing market.

An excerpt

…At the close of the prior quarter, there was significant turmoil in the financial markets and unprecedented intervention by federal government agencies. The bailout of Fannie Mae, Freddie Mac and insurance giant AIG, the investor run on the money market Reserve Primary Fund and the bankruptcy of Lehman Brothers, marked a significant change in the Manhattan housing market as well as the US housing market. The fourth quarter was characterized by a sharp decline in contract activity and a downward correction in contract price levels. Sales contract activity showed evidence of a decline in activity of 40% to 75% compared to the same period last year. Contract price levels showed an average decline of 20% from August 2008. As a result of the 45-60 day lag between contract and closing date, a decline is anticipated in both the number of sales and closing price levels in the first quarter of 2009…

In 2005, I began posting the links of the coverage of each report to see how each media outlet reports the market using the exact same data. I find it to be an interesting way to look at how this information is interpreted and presented.

The media coverage of the report was provided here as they were released (in no particular order). The headlines selected below provide an interesting media perspective of the report contents since every outlet was working off the same information. I didn’t include all the wire stories from AP, Bloomberg or Reuters.



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It’s A Good Time To Buy A [Fill In Blank]

December 7, 2008 | 7:02 pm | |

It’s a good time to buy wine (It’s also a very good time to whine).

With all the sharp discounts available, I just bought my first large flat screen (and Apple TV which is essential for maximum enjoyment) and found that it was a good time to buy (not at Best Buy, which wasn’t).

If you are reading this blog, you are interested in following the real estate economy, and are familiar with the tired mantra from the real estate brokerage industry “It’s a good time to buy real estate” presented as relevant advice no matter what the market conditions actually are. NAR has a formal public awareness campaign called “Good Time To Buy” There are, of course, plenty of naysayers in the current as well as any market. Let’s break it down.

Which market type is the best housing market to buy in?

  • Rapid price growth
  • Modest price growth
  • No price growth
  • Modest price decline
  • Rapid price decline

Pretty simplistic, right? Yet that’s the framework of the conversation. Visit one of those markets and there are plenty of reasons to buy or not to buy. Is it price? affordability, future plans, employment outlook, etc. It’s not all about the market trend.

I think where the real estate brokerage industry (primarily NAR) has gone wrong has been it’s general unwillingness to be candid in any of these 5 scenarios. Yet there are many agents and brokers who have always been forthcoming and they will do well in any housing market.

Do you notice how NAR is not sought out in the media much these days as a “trusted advisor?” It’s been relegated to basic press release coverage at each existing home sale report release.

Blaming the media (whining)

Is there good media coverage and bad media coverage about an event cycle like housing?

Of course.

Few in the real estate brokerage business were complaining about the media cheering of rising housing prices during the early days of the boom. When the news turns negative, the brokerage industry turns a critical eye at the media. However, I see general real estate media coverage as somewhat predictable, but certainly not unfair

Media response to housing trends

  • Rapid price growth (cheering)
  • Modest price growth (cheering)
  • No price growth (skepticism)
  • Modest price decline (critical)
  • Rapid price decline (critical)

I think much has been said and dissected about housing since peak a few years ago. Yet here’s a new trend in news coverage: It’s a good time to buy.

Are we seeing the beginning of a contrarian news cycle?

Has the negative cycle gone on so long, readers are getting bored and want something new to read about?

Is it a good time to buy?

Another flat screen is starting to seem like a good idea.

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[Crackin’ The Crystal Ball] Short Selling Real Estate

September 18, 2008 | 11:00 pm | Milestones |

About a week after 9/11/01, seven years ago to this very day in fact, I remember a real estate broker telling reporters that the market had fallen 30% over the prior week and was expected to fall much further. I got calls from several reporters to confirm or to provide empirical evidence to support or disprove the claim.

Falling 30%?

I basically said:

How can someone describe a market as “falling” only days after a significant event occurs when there is no activity to base such a conclusion? What is the basis? A client conversation concerning one deal?

When someone loudly calls a market (up or down) based on anecdotes rather than evidence, it’s irresponsible. Everyone is entitled to their opinion, but it should not be presented as fact.

At that moment back in 2001, who would have anticipated one of the biggest housing booms in US history (and we are painfully unwinding from that expansion right now) was soon to follow?

Fast forward 7 years.

A high end Manhattan broker did the same thing today. Without empirical evidence (no data), who can state the market is instantly down 25% a few days after the Lehman bankruptcy?

Was this pronouncement based on a handful of conversations with past clients? A gut feeling after years of experience?

Quick, call the SEC!

I suspect this was simply extracurricular media commentary by the individual because the brokerage firm is one of the big three in New York and has a great reputation.

Don’t get me wrong, I like Brian Ross’ work and ABC, but he falls short with headline…”Top Broker: NYC Real Estate Already In Steep Decline” …is considered “investigative journalism“? It’s more like entertainment journalism, no?

Better yet…

Good grief.


[On Stage] The Real Deal Takes Lincoln Center

September 10, 2008 | 11:00 am | |

The 4th New Development Forum held by The Real Deal magazine, led by publisher Amir Korangy packed the house yet again, the second consecutive year the event was hosted at this venue.

Larry Silverstein, the storied developer and owner of the World Trade site, shared insight and his vision for the downtown market. After all, tomorrow is 9/11.

I was initially concerned because most of the panelists have commercial rather than residential real estate backgrounds. But they spoke in the context of both and it was very informative. I did miss Mark Zandi, founder of whom I greatly admire for his analytical insights, who had to cancel at the last minute.

Stream of consciousness:

  • Amir, you are unable to think small. Congratulations once again for pulling off another one.
  • Stuart – I met your parents – don’t worry, I put in a good word.
  • Lauren – keep the web site going, but still call.
  • Brian – You’ve got the richest voice in business news television and can moderate with the best of them.
  • Cathy – the plum color worked – thanks for keeping me in my place.
  • Lock & Josh – Offering a great vehicle for listing advertising, better yet, Josh with a tie on (if Lock wore one = end of the world).
  • 30 second advertisement onstage before the event showed Bruce at C&W and me 120 times (at last count) on the big screen.
  • The best Real Deal bag yet – to replace last year’s model.
  • Happy that the audience was very supportive of the opening sponsors.
  • 3,000 attendees suggests real estate is not dead in New York, no?
  • I ran into my attorney at the show.
  • Larry taught us all the importance of cycles and taking the long view – and we knew he was right.
  • Larry thinks that luxury development prices, on an average sales price basis, will be higher next year than this year.
  • Bob emphasized segmentation and shared a 1% cap rate story. He knows his craft.
  • Steven was particularly articulate, being the first to be open about looming problems and answering my question about the new development pipeline.
  • Charles recently learned how to calculated IRR but probably has a higher IRR than hedge funds that live and die by formulas like cap rates.
  • Barbara continues to radiate – her marketing contrarianism can intrigue.
  • Don is looking at a $13M penthouse and was by far the most bullish on Manhattan – it’ll be back in a year?
  • Michael Shvo was at the event – he was the main draw card at the 2nd forum held at Cooper Square two years ago. That one sold out too.
  • Ran into a former dotcom era real estate development guy who lost millions (of other peoples money) but is doing very well now.
  • Paul, with beard, is itching to be a major player again in the brokerage business.
  • After asking my question to the panel, 2 people in line behind me told me I asked their question.
  • It is apparent that the audience has come to terms with the new market reality.
  • Don’t hold your breath, real estate is still first in the New York conversation.

And that’s the real deal.

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[Weedless Green] Grass Gets You Higher (Property Values)

September 5, 2008 | 12:11 am |

A study by Michigan State University, one of the best schools on the planet (ok, it’s my alma mater), found that:

Good landscaping can increase your home’s value by 5% to 11%

“Most lawns should be cut between 2 1/2 and three inches high,” says John Stier, professor of horticulture at the University of Wisconsin’s turfgrass extension program and playing-field consultant for stadiums in the National Football League and Major League Baseball.

It’s essentially like decorating the interior of a house. Sellers should present a home in a neutral manner so the buyer can envision moving in.

The marketability may be enhanced because the property has an edge over competing listings. This may translate into shorter marketing times, a higher price or both.

Inman SF, A Convection Oven Of Information

July 24, 2008 | 12:09 pm | |

I thought I wouldn’t make it there:

Here’s a glass is half empty whining, seeking empathy recap:

  • Drove to JFK, pouring so hard traffic would periodically come to a stop on the expressway
  • JetBlue flight was packed, with warm air blowing like a convection oven at about the halfway mark
  • Two kids, about 3 and 4 years old, screaming, fighting and crying for 6 hours directly behind me, parents oblivious or helpless
  • Two people next to me became fast friends, speaking so loud for 6 hours straight, I couldn’t tune them out with my iPod. I now know their mortgages, financials, plans to divorce, how they met their spouses in intimate detail
  • My tv screen went black halfway into the flight
  • Room wasn’t ready for 2 hours at the hotel
  • Apple store across the street ran out of iPhones 20 minutes before I got there, and were surprisingly rude

Here’s a glass is half full, glad to be here in San Francisco summary:

  • But I made it, alive
  • 65 degrees, sunny (perfect)
  • Met a ton of old friends, long time online friends finally in person
  • Brad Inman can still put on a show
  • Chief Economist at BofA main session gave great, forthright overview
  • Listened to Craig Newmark – quirky and endearing, “Constitution gets used again after the election” discussion (plus, as an added bonus, Craigslist discussion)
  • Hung out with Dustin Luther, saw his terrific presentation at the main conference
  • Winced at hyperinflation talk (1000%, 20 years, without factoring in corrective market forces) but otherwise loved the bull vs bear discussion, and at the end decided I didn’t need to jump off the Golden Gate
  • Couldn’t twitter during the conference, no ATT reception on the main conference and didn’t realize how simple the wireless password was. duh!
  • Went to the Trulia BBQ – on the trolley and spoke at length with the Marker Man who had to turn sideways to fit – best (only) meatballs I have ever had in SF
  • Had dinner with some of the smartest econ bloggers out there – UrbanDigs, Naked Capitalism, Calculated Risk and their better halfs
  • Realized it was about 2:30 am EST and had to end the evening without going to the Curbed party (I know, serious wimp)

Going to cook some more today.

[Sounding Bored] Hiding Behind USPAP To Avoid Getting Sick

July 20, 2008 | 10:03 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. Righteous USPAP indignation runs rampant in the appraisal profession and I worry it is leading to our demise as an industry.

Take the case of Mike Lefebvre, a Realtor in Massachusetts, who also happens to have an appraisal background.

There are many appraisers who were originally real estate agents and in fact, I believe there are still states that require appraisers to have a real estate sales person’s license in order to get their appraiser license.

Mike has an interesting approach to getting a listing. He performs an appraisal on a potential listing rather than a broker market analysis (BMA) because it is more detailed and helps him properly price the property. He uses that appraisal as part of his marketing effort. In many ways, he is being more professional as an agent by providing a more thorough analysis for his clients than a BMA affords.

Since pitching a listing is not a federally related transaction and he discloses (and it is apparent) that he has a vested interest in the eventual transaction by the fact he is an agent paid on commission, I don’t see this being a problem or a violation of USPAP.

Of course, I would love another perspective on this.

However, I often see more seasoned appraisers make a habit of needlessly scaring clients, banks and agents by using USPAP as a grey fogging tool…almost like the way a consumer feels reading an insurance policy…it is something so confusing that it is not meant to be understood, except by appraisers.

And THAT, in my humble opinion, is one of the things that is killing the appraisal profession. USPAP was in place during the housing boom so it is apparent that this standard alone is not the panacea of the lending industry. Create so much confusion that you motivate the industry to find alternatives.

Others see it differently, and this email is the inspiration for this post.

Mike forwarded me an email sent by an appraiser. I am not familiar with him but he appears to be well-qualified as an appraiser in his market judging from his web site. I’ll even assume he is a good appraiser and a nice person.

The appraiser was “sickened by Mike’s performance of an appraisal on each of his listings to more accurately price the property and alludes to connecting him to bank fraud (the irony is that USPAP clearly forbids appraisers to mislead their readers, which this email is treading awfully close to that, no?):

From: [kept anonymous]
Date: June 6, 2008 10:07:42 PM EDT
To: mlefebvre
Subject: Re: Inquiry About 30 Jefferson Road, Franklin, MA – why would you bias yourself like this? Ever hear of USPAP?

You do understand that when you do an Appraisal you must adhere to USPAP including “I have no present or prospective interest in the property that is the subject of this report…..”

How can you do an Appraisal on a property you list, this is sickening to see.

Do you know what constitutes acceptable versus unacceptable business practices? This is required in all 50 States. Follow this link…

Giving a comp check without an Appraisal IS BANK FRAUD.

Ethics? Do you understand them? Follow this link to learn more about what an Appraiser is required to do and what not to do.

In addition to our Appraisal services we can also offer sessions for your office on how to be compliant with USPAP.

We “VALUE” your business! Specializing in honest and accurate results!

[deleted content to keep anonymous]

“Think about USPAP and how to follow it now, or you may get a long time to think about it in prison later.”

“People only think USPAP Requirements are stupid until they are caught and punished for not following them.”

I think having USPAP is a good thing, a necessary thing. The fact that the lending industry went to hell in a handbasket isn’t because every appraiser didn’t follow USPAP. The problem is much bigger than that.

We all need standards to live by and the public needs to have comfort that when they order an appraisal, they understand what they are being provided. If an appraiser has a potential conflict, it must be fully disclosed.

I also think this sort of threatening message is self-serving and shouldn’t be tolerated either. You don’t use USPAP as a weapon to create mass hysteria in the public domain as a way to generate business. That makes the profession look even worse than it already does.

Good grief.

Here’s Mike’s post on the subject.

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