Condos

Dollar Per Foot, a Critique

July 29, 2015 By Rick Jarvis

‘How much a foot?’
‘What is the per foot on that home?’
‘Feels like a lot per foot!’

‘Dollar per Foot‘ is probably the most used of the comparative statistics in the valuation of housing today. Every buyer references it at some point during the home buying process — as do most sellers. And so do Realtors, architects, appraisers, developers, builders and your local tax assessor.

And while we are all guilty of using $/SF at some point, we need to be extremely careful to make sure we are using it correctly.

Dollar Per Foot is (Unfortunately) the Main Comparison Metric

The name itself suggests that the measurement is the ratio of the price of the home relative to its size.

Stated differently, if you were to buy one square foot of the home, how much would it cost?

But it isn’t quite that simple because the $/SF metric does not account for anything other than the FINISHED amount of square feet in the home relative to its price.

$/SF is measures the FINISHED space in the home and views all SF equally, including finished basements and 3rd floors

Do you what factors are not considered to be in the $/SF measurement?

garages
unfinished basements
oversized lots or extra lots
water frontage
fencing
screened porches
exterior hardscapes/landscaping
other outbuildings
roof decks
views
age of systems
poor floor plans
beds/baths

Do you know what else $/SF doesn’t adjust for?

finished 3rd floors are given the same credit as the first two levels
finished basements are give the same credit as the first two levels
finished bonus rooms or other finished rooms over garages or outbuildings

So as you can see, the $/SF is a metric with many flaws.

So is $/SF Worthless??

Far from it.

Citizen 6 in the Fan District — Do you think new homes built in decidedly modern aesthetic are accurate indicators of $/SF in Richmond’s Fan District?

$/SF can be a great measurement when the following conditions are met:

the homes being compared are similar in age
the homes being compared are on similar lot sizes
the homes being compared have the same amount of unfinished space
the homes being compared have similar materials

When you are comparing two homes in the same neighborhood, with similar characteristics, then using $/SF as a measurement is fine.

However, far too often, the $/SF is used far too broadly and without any consideration for the many factors that can skew the results. I cannot tell you the number of times I have heard a client say that Home A is a better $/SF than House B — and thus a better deal — without making any adjustments for a finished 3rd floor or far better lot.

Some Great $/SF Applications

One the best applications for $/SF is seeking the neighborhood highs and lows.

In every neighborhood, properties will trade in a range where no home’s value rises above or sinks below. Finding these data points can be extremely helpful when trying to establish pricing, especially when pricing unique properties.

MLS provides a function that will allow agents to quickly identify neighborhood value characteristics.

The more narrowly the homes in the data are defined, the more valuable this feature becomes in establishing the limits for the values. Agents familiar with this feature will be able to help a buyer or seller understand where the subject property fits into the range of values.

Using $/SF as a Time Machine

In case you missed the memo, 2008 – 2012 was a rough stretch.

Almost every market was impacted — equities, banking, real estate, manufacturing, retail — no asset (and no individual) was spared its wrath. The financial crisis was a wholly unpleasant adjustment in values and real estate arguably led the way.

As we continue to put that ugly period further in the rear view mirror, many who made purchase decisions at or near the apex (2006/7) wonder if the 20-30% loss has recovered enough to now sell. Using $/SF as a measurement is one of the best ways to tell.

As you can see from above, a yearly breakdown of $/SF vividly illustrates the relative health of different marketplaces. Using the same geographic data but changing the time periods measured is a fabulous application of $/SF and can lead to some great strategy decisions.

Using $/SF in Reverse

Often times, we recommend to our clients to look for HIGH $/SF to find underpriced housing.

Wait … what??

In certain cases, $/SF values considered higher than the neighborhood averages may indicate that the improvements on a piece of property are low and might be a good spot for an addition or lot split. Having a situation where the value of the land is at or near the value of the improvements often times means opportunity for the shrewd investor.

Many of the close in neighborhoods of the 1920-1940's have many homes with extra lots suitable for building as part of the sale — The remarks in this listing from 2005 references an extra lot. Note the dimensions in the Legal Description and the actual Lot Dimensions to see that they were combined at some point.

As an example, decades ago, it was a fairly common practice for an owner to purchase the adjacent lot to give their home extra privacy. Over the ensuing decades, these unimproved lots were often merged with the improved ones and simply sold as a package. As pressure to create more housing closer to the city center continues to increase, a growing number of builders are looking for infill lots and will pay a premium for the opportunity to build a home upon them.

Similarly, it is fairly common to see a small ranch or colonial-styled home nestled in amongst larger homes, especially in the neighborhoods of the 1930’s to 1960’s. If market values within the neighborhood exceed the cost of construction by a wide enough margin, these undersized homes present opportunities to add space to the home and create value.

Knowing how to set search parameters in MLS to identify possible opportunities for the contractor/developer/flipper can be of great service to the investment-oriented client. Mastering this application of $/SF will help an agent identify these ‘value-add’ scenarios and create both loyal clients and repetitive income streams.

Condos and $/SF

The Vistas includes TV and phone in the dues. Few projects include this expense.

In case you haven’t noticed, condos tend to trade a higher $/SF than single family homes. Far more often than not, the $/SF for a condo in the city of Richmond is anywhere from $5 to $20 higher than comparable single family.

Likewise, the $/SF for condos can vary wildly not only from project to project, but often times within the same building.

Why is this?

Condos compute square footage differently. They generally measure floor space while single family measures from the outside of the walls — thus condo $/SF tend to be higher than single family homes.
Condos tend to be more valuable on the upper floors or where the views are best. A condo on the 2nd floor looking at the parking deck should have a different price than a 10th floor condo looking at the River
Condo A might include more in the dues than Condo B and thus trade a premium.
Larger condo units sometimes include more parking than smaller condos — even in the same building.

So when applying the $/SF measurement to the condo market, you really need to makes sure the external factors influencing values are taken into consideration before any decisions are made.

Summary

Beware of the overuse of the $/SF metric as many sound decisions have been undermined by the misuse of the statistic.

As we continue to speed towards the era where more and more data is more and more available, we need to remember that access and analytics are two different things. The creation of new and complicated statistics is easier than ever before, but it does not necessarily mean they are relevant, accurate or applied correctly.

At the end of the day, the $/SF statistic is one of many and tells only one piece of the overall story. Make sure to understand its application and relevance before you make your decision.

Real Estate and Minivans, Sedans and Convertibles…and 2015, too.

December 30, 2014 By Rick Jarvis

I think all salespeople, as we age, tend to do more of our selling by telling stories and using analogies than we did when we got started. Call it experience or call it wisdom (or just call it being old,) but the ability to take a current situation and compare it to a universally recognized feeling somehow makes it more real to our clients. When you can take an odd situation and make it feel familiar, it helps the client feel at ease with their decision. Familiarity begets comfort.

So recently I ran into an old friend at lunch who I do not see often. He owns a small business selling supplies to local restaurants and has been doing so for many years. Of course, he asked how the market was (all friends ask their Realtor buddies this question.) I told him it was good (which is true) but I sure would love it if people felt a little more like they did in 2006 again. If it was 2006, we would be almost TOO busy (if there was such a thing) as our company had matured greatly since we opened and I wanted to see what we were capable of in the best of times.

I said I wanted the market to feel like they were all driving convertibles again. He looked at me and grinned as he knew exactly what I meant.

We All Drove Convertibles

From 2004-2008, the development market was booming.

The long neglected neighborhoods in Richmond were in the midst of a rebirth with condos, creative office spaces and apartments all being redeveloped at an astonishing pace. The banks were willing participants with (relatively) easy terms and a shared belief that the market was bulletproof. Lending was based as much on momentum as anything else. The development community was ripe with opportunity and the developers had both the skill and capacity to really execute projects. The Richmond we knew in 1995 looked nothing like the one in 2005. It was one of the most amazing transformations I had ever seen in a 10 year period.

The best analogy was it felt like we were driving a convertible on a sunny day with no clouds and a slight breeze with the radio (or CD, or XM, or iPod) playing our favorite tunes over and over. It was a good time.

Driving in a Downpour

And then a few raindrops began to appear.

While there were hints of the coming changes as far back as the summer of 2007, the definitive marker for the bursting of the bubble came in September 2008 with the announcement Lehman Brothers had collapsed. By early 2009, all of the feelings of being bulletproof and carefree disappeared into thin air.

Beginning in late 2007, and continuing well into 2011, banks decided the best way to stay in business was by NOT loaning money. New home buyers disappeared completely and subsequently, droves of sellers decided to hand their keys back to the mortgage companies which had given them loans only a few years earlier. No one wanted to make a decision, especially not one with any risk attached to it, and the market froze. With no loans, there were no transactions and with no transactions, values plummeted.

Sticking with the driving analogy, we had gone from (in 2006) driving a convertible along the beach without a care in the world to (in 2009) driving an old minivan in a downpour, in the dark, on an unfamiliar curvy road somehow knowing that the bridge ahead was probably already washed out.

I don’t think anyone wants to live through that economy again.

Driving Home From Work in April

As we enter 2015 the world has changed yet again. It is better, for sure, but we are not back to where we were…and maybe that is a good thing…at least for a while.

For the last two consecutive spring markets, we have seen rapid absorption, price appreciation and a gradual relaxation of some lending standards. The last two fall markets have been shakier. Spring momentum of 2013 and 2014 stalled by the late summer and some of the gain of the first half were gone by the end of the year. While other current economic standards (oil, stocks and bonds, employment, inflation) all seem to be in pretty good places, no one will mistake 2015 for 2006. Alas, it is no 2011 either, and that is okay by me.

The bottom line is we are now in a place where buyers and sellers can make plans based on expectations rooted in realistic probabilities. And while we have not returned to a market where the inputs (new housing, interest rates, development) are back to pre-recession levels, they are on the way back to normalizing themselves. With normal inputs comes stability and with stability comes predictability. At the end of the day, words like ‘predictable’ and ‘stable’ are good words for real estate.

Driving home to turn on the grill is never a bad thing, is it?

To use the driving home analogy a final time, imagine driving home from a good day of work on that first warm day of spring. It may be a bit chilly to roll the windows down, but you so anyway. And while you darted out a few minutes early from work, you still didn’t miss all of the traffic (and even hit a pothole or two) but it somehow seems okay after living through the ride on the curvy road in the rain. And despite the fact the days are not perfect (yet), you know summer is coming and with it grilling outside with friends, family and familiar faces all in good moods ready to enjoy life for awhile.

The drive in 2015 is less about the car and more about the attitude. Lets all sit back and enjoy the ride, whether in a VW Beetle, Dodge Stratus, Mustang GT or Maserati Quattroporte…

VCU Housing Market

July 30, 2014 By Rick Jarvis

Virginia Commonwealth University (or VCU) is a 30,000 student entity broken down into two campuses.

The Medical School Campus, located near the Broad Street/Interstate 95 interchange in Downtown Richmond, surrounds the VCU Health Center and is known by many old Richmonder’s as MCV. The main campus (Monroe Park Campus) that straddles Belvidere and Broad Streets between Monroe Ward and The Fan District, is home to the non-medical programs in the arts (both performing and visual), business, engineering and advertising. The main campus, sometimes referred to as the Monroe Park Campus, is far larger than the Medical Campus and educates the University’s undergraduate students and non-medical graduate students.

VCU relies heavily on the private sector to provide housing for its students. While there are some dormitory options for students, the large majority of the students live ‘off-campus.’ The term ‘off-campus’ in VCU vernacular means ‘adjacent to campus’ and therefore a short walk, bus trip or bike ride away. Living options targeted at the student population are far more prevalent surrounding the main (Monroe Park Campus) than the Medical Campus Downtown. This makes the housing market for the medical student far more varied and challenging.

The Medical Campus

212-interior — The 212 is one of the closest condo projects to the Medical Campus and located in eastern Jackson Ward.

For the medical students, finding a place close by means considering housing in Richmond neighborhoods that are still in transition. The neighborhoods that immediately surround the Medical Campus are Jackson Ward/Carver, Downtown, Shockoe Bottom and arguably Church Hill. All of these neighborhoods have been in the process of being aggressively redeveloped after receiving historic designations in the early 2000’s. Being designated ‘historic’ makes many federal and state incentive programs available for developers to renovate older structures and it has been used extensively to help bring life back to many blighted sections in Richmond.

Several condo projects are available close to the Medical Campus in both the Jackson Ward neighborhood and Downtown. In Jackson Ward, available for sale condos can be found in The 212, The Marshall Street Bakery and The Emrick Flats. In the Downtown neighborhood, available projects include the Vistas on the James, Riverside on the James and Gotham. The fractured condo project in the old Miller and Rhodes building Is no longer being marketed for sale and is now functioning as apartments. It offers a good option for those seeking close proximity to the Medical Campus.

Monroe Park Campus

The neighborhoods of the Fan District, Oregon Hill, Monroe Ward and Jackson Ward/Carver all surround the main Monroe Park Campus. Tenement styled 3-story walk up apartments (some renovated and some not) surround VCU to the west in the Fan along with many row homes that can be purchased by parents for their children. In the working class neighborhood of Oregon Hill to the south, the housing stock is decidedly less luxurious and therefore popular with the students. Housing in Oregon Hill can be purchased or leased relatively inexpensively. In Carver to the north, many older warehouse structures have been converted into loft styled apartments and offer a more modern option for the undergraduate student. Housing in Carver and Jackson Ward can also be purchased relatively inexpensively. Several condo and townhome projects provide newer options close to the Monroe Park campus including the Cary Mews, The Overlook, Tribeca, Iron House Place, The Windsor and the Cary Flats.

Overall, the housing market surrounding both campuses is very diverse with many shapes, sizes and prices all within a reasonable walk to either. The fact that the private sector provides much of the student housing means more options for parents including single family homes, row homes, town homes, condos, lofts and flats. With interest rates and pricing at some of the lowest points in decades, it means a wonderful option to offset some of the cost of tuition with a strategic purchase.

Where Are the Cranes?

December 28, 2013 By Rick Jarvis

One of the prettiest views of the Richmond skyline is as you approach the city from the south along 95.

You can see the skyline of Downtown, the James River, Manchester, Shockoe and Church Hill as well as a host of other areas from the I95 Bridge. It gives you a sense of what Richmond is and where it going.

I was returning from an appointment, coming back up 95 from Chester and something a friend said struck me … a few days prior, we were grabbing a bite to eat and talking about a condo he had recently purchased when he made the remark ‘I sure would feel more comfortable about Richmond if I saw a few more cranes.’

My mind had not really had a chance to properly digest that statement.

What Do Cranes Mean?

Counting cranes was not a way of measuring development I had heard before. He was implying that the number of cranes (or lack thereof) was a way of seeing the development activity within a Metro area. The more cranes you see, the more development must be occurring.

New construction in Richmond VA — More cranes = more business? Maybe not in Richmond…

So as I crossed the James River bridge on 95, I decided to count cranes – it did not take long. I could count 2. One was located near the MCV Campus and the other was along the Downtown Expressway near 4th street. I saw no others.

Despite knowing that the development momentum in Downtown Richmond was as strong as it ever had been, the lack of cranes seems to suggest otherwise. Was the development of Richmond lagging behind other Metro areas? Had the market recovery somehow skipped Richmond? Were we about to experience another downturn? Where were the cranes?!?!

Cranes Mean Height

The more I thought, the more I realized that Richmond has never really been a ‘crane town.’ Cranes imply NEW high rise development and the primary path for Richmond is that of RE-development. We RE-develop our buildings in lieu of tearing them down. We adaptively RE-use them and we RE-purpose them. We use the Historic Tax Credit programs to take that which is old and obsolete and bring it back to a new life. We take our warehouses and make them living spaces and turn gas stations into coffee shops. We take car dealerships and convert them into condos and remake call centers into grocery stores.

We are RE-builders as a city and that is a good thing, in my opinion. Redevelopment is greener, more responsible and far more interesting. It is the way we have rebuilt Richmond at a rate far faster than at anytime in our history and will be the reason that Richmond thrives in the coming years – and it does not require cranes.

But We Need to Learn

Richmond VA Warehouse Renovation — The stock of warehouses to renovate is dwindling rapidly in Richmond VA

That said, redevelopment at our current rate will begin to wane as we run out of the supply of historic properties. The rate at which we have repurposed the staggering number of warehouses in our urban core is amazing but will be ending soon as we simply run out of historic building stock.

Warehouse properties which used to be acquired at less than $15/SF are now selling above $40/SF and the number of blighted/abandoned/underutilized properties in Manchester, Shockoe and Scotts Addition are dwindling quickly. Many in the development community have already begun to expand into other cities and towns with historic districts and blighted properties. The tobacco towns of central North Carolina and the smaller towns of SW Virginia as well as the Tidewater area (Suffolk/Norfolk) have seen Richmond’s developers create presences.

While this is understandable, it is also unfortunate in that there is still much to do here.

New Costs More

The next frontier for development in Richmond is not a specific area or neighborhood, it is on the vacant blocks and crumbling surface parking that dot many different places within our city. Currently, incentives strongly encourage developers to redevelop historically and not to build new structures. The cost of ‘building new,’ due to these incentives for renovation of historic properties, is anywhere from 30-50% more expensive when all of the factors are accounted for.

Those who wish to build new structures have a significantly higher cost structure. The rental rates and market values are not high enough to make NEW construction viable in the eyes of lenders. No financing means no cranes.

Its Working, For Now …

So, for now, I am comfortable with only seeing two cranes mostly because I see happy people in places I have not seen them in years. I see more hardhats and dump trucks in neighborhoods where they never used to be and I can’t seem to get to all of the new restaurants that are opening. I can’t find street parking as easily as I used to and I now see nostalgia overpower fear leading to a reemergence of some of Richmond’s most neglected architectural neighborhoods. The City of Richmond has a positive population trend for the first time in my lifetime and I think that is not just a good thing, but a great one.

Richmond in 2020 and beyond will need cranes and I just hope that those with the power to make a difference understand how they can help us transition to a bigger, better and more balanced Richmond as we move forward.

Understanding Condo Dues

April 14, 2013 By Rick Jarvis

Someone should write a condo app. The app wouldn’t sell anything or make sounds or track anything. It would simply be an app that brokers could point their clients to once the litany of questions about condo dues comes up.

And they will come up.

While some of the questions I get, pretty much on a daily basis, are quite astute and on point, many indicate a complete lack of understanding of what “dues” really are. And that isn’t an easy concept to explain. A sentence or two usually won’t do the job. It can take not one but two agents—the purchasing and sales agents—to get a buyer comfortable with the idea of dues.

Condos are still relatively new to Richmond. In Downtown Richmond seven years ago, condos didn’t really exist. The rapid rise and growth of condos in the city created a steep learning curve for both the Realtor community as well as the buyers. Many agents went out of their way to understand the intricacies of condo ownership. And they’re better for it. But more than a few agents punted, and this lack of knowledge has given rise to too many buying agents feeding their clients bad information.

newIMG_7643 — The Marshall Street Bakery has a dues structure lower than the Emrick Flats despite a largely similar profile. What is the difference?

I’ve taken it upon myself to give back to our fine real estate community and once and for all explain condo dues.

For starters, this is not a true statement – SINGLE FAMILY HOMES DO NOT HAVE DUES. If you are a buyer and your agent tells you this, show them the door. They don’t understand dues. Let me repeat, if your agent tells you that single family homes do not have dues, then fire them.

Single-family houses have dues….you just aren’t made aware of them in the same way as you would be with a condo.

Before we go any further, let’s apply some numbers so that we know what we are talking about.

The majority of the condos in Richmond have a dues structure of roughly $2.50 – 3.50 per square foot per year of dues expense. Let’s use an example: a 1,000 square foot condo with a parking garage and an elevator will typically generate $200-300 per month in dues, or somewhere in the neighborhood of $3,000 a year.

Do you get a water or sewer bill at your home? Well, in a condo, water and sewer is typically a part of your dues ($200-300 per year is about right in most places).

How about hazard insurance? A group of condos must be insured by the association. Therefore, the vast majority of your insurance bill is included in your dues (about $500-700 per year).

So before you get worked up about high condo fees, think about what normal operating expenditures are included in them, and what you won’t be paying in the normal course of business.

The second (and most misunderstood) component of dues is the maintenance and reserve budget.

osrg_vcu_poster_final — The condo options within the ‘VCU Bubble’ all offer different dues structures. Make sure to compare services as part of your analysis of the overall cost of ownership.

Do you have a roof on your single-family home? I’m going to go out on a limb and say yes. What does that cost to replace? A lot. When will it happen? When you can least afford it. Are you putting any money away for that replacement? Probably not, right?

The condo people are.

How about those exterior walls you see every day? What does it cost to keep them painted or cleaned? What does it cost to replace the rotten siding or wood trim? Are you putting money away for this repair?

The condo people are.

Each month, the condo association stuffs some portion of the dues go into an account for future repairs and maintenance. In lieu of waiting for the repair to be needed and then asking for each person to put up their pro-rata share, the money is available. If the repair is not needed, then the money is not spent. It is sitting in an account, ready when needed.

But there’s more. Who mows the lawn? Who cleans your pool? Who cleans your gutters? Ahh, you’re starting to understand condo fees, right?

When you think about it, putting $2,000 a year towards both current AND future repairs seems to make a lot of sense, right? When you’re paying 100 percent of the repair and maintenance expense for your house, and you encounter some big-ticket items, your checkbook will feel that pain. Look at the last year. Better yet, look back five years at what you spent on maintenance. My bet is that living in a condo is actually cheaper than living in a single-family home when the entire cost of ownership it truly examined.

Here’s the takeaway—all improved properties (single-family, commercial, apartment, condominiums) have “dues” by one name or another. The question is whether or not they are paid collectively in advance (as they are in condos) or in a lump sum in arrears (as they are on a single-family home). To say that one property type has dues and one does not is foolish, especially if you’re using dues as a deciding factor in your purchase decision. You have to dig deep to make it an apples-to-apples equation.

Lay it all out on a spreadsheet and review the condo association’s budget (which by law you have the right to do) and then make your decision. There are a lot of factors you should consider when thinking about condo living. But don’t let condo dues have too much influence, at least without truly understanding exactly how they measure up to single-family living.

Dollar Per Foot, a Critique