California CRE firm dips its toes into the Oregon market with $5.4M retail center buy

 May 23, 2016
Jackson Creek Center

Jackson Creek Center

By Jon Bell, Staff Reporter | Portland Business Journal

Liking what it sees north of the border, a California commercial real estate company has made its first Oregon buy.

Citivest Commercial LLC, which is based in Newport Beach, Calif., has acquired the Jackson Creek Center, a grocery-anchored, 87,847 square-foot shopping center in Medford. The sale price was nearly $5.4 million.

“Medford is experiencing an economic resurgence,” said Larry Weese, president of Citivest Commercial, in a release. “Fueled by increased confidence in the local economy, the city of Medford has invested in numerous developments and created hundreds of new jobs in the manufacturing and distribution industries.

“With a population of 210,000 people and counting, the Medford MSA is the fourth largest metropolitan area in Oregon, and is poised for continued economic growth.”

Anchored by Albertsons, the shopping center includes mix of 13 national and regional retailers in the food, entertainment, and professional service industries. Citivest noted that seven tenants offer grocery or food-related services, while other tenants offer nail care, dental care, medical/beauty services, and on-site gaming, among others.

“By acquiring this internet-resistant center, we will be able to leverage the asset’s long-term stability and resiliency to drive strong yields,” Weese said.

Originally built in 2000, the Jackson Creek Center was 97 percent occupied at acquisition. Citivest plans to renew and reposition the property, which has not been renovated since 2000.

“Ultimately, this acquisition meets all of our investment criteria: value-add opportunity and location in a high barrier-to-entry submarket with strong upside potential,” Weese said. “Further, we were able to acquire the asset well below replacement cost, at an attractive cap rate, which outpaces comparable center cap rates throughout the Pacific Northwest.”

Weese also noted that Citivest will continue shopping around in Oregon for additional properties to add to its portfolio.

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MORENO VALLEY: Partnership provides discounted home to family

BY LAURIE LUCAS The Press Enterprise
STAFF WRITER
llucas@pe.com

Published: 30 January 2012 06:45 PM

PAUL ALVAREZ/FREELANCE PHOTOGRAPHER The Ruiz family from left Lorenzo, 32, Carolina, 29 , Marissa, 6, and Emily, 3, at their newly purchased foreclosed home in Moreno Valley. The Ruiz family from left Lorenzo, 32, Carolina, 29 , Marissa, 6, and Emily, 3, at their newly purchased foreclosed home in Moreno Valley. PAUL ALVAREZ/FREELANCE PHOTOGRAPHER

The house hooked 6-year-old Marissa Ruiz when she gazed out a bedroom window and saw the “M” for Moreno Valley on the face of Box Springs Mountain.

“Look, Mommy,” she told her mother, Carolina Ruiz, 29. “The M is for my name.”

The home also beckoned to Carolina and her husband, Lorenzo Ruiz, 32. They had marched through dozens of foreclosures that either were out of their budget range or trashed beyond salvation.

That changed when the couple fell hard for the landscaped, remodeled two-story house with four bedrooms and three bathrooms in the Towngate area of Moreno Valley. Two weeks ago, shedding tears of joy and disbelief, the Ruizes and their two girls turned the key to the first house they had ever owned.

They bought the house for $175,000, “a real bargain,” Lorenzo Ruiz said. A four-way partnership among a bank, a private investment firm, a private nonprofit organization and its social enterprise arm made the deal possible.

The Sisters of St. Joseph of Orange founded Taller San Jose (pronounced “tie YER,” meaning workshop in Spanish, a place to repair and build) in 1995 to train troubled youth in Santa Ana to develop skills to find jobs. Since then, the nonprofit has lifted out of poverty more than 4,500 young adults, 18 to 28. San Jose is the patron saint of workers.

Taller San Jose participates in Chase Bank’s community revitalization program, which offers foreclosed homes at a discount to nonprofits.

To support its purchase of fixer-upper homes, Taller San Jose partnered with a private investment firm in Santa Ana called Citivest Inc. Hope Builders Inc., a licensed general contractor that Taller San Jose owns, sends out a team of graduates from its construction-training program to rehabilitate the abandoned properties.

Citivest fronts the money, which enables Taller San Jose to buy the homes from Chase and dispatch its Hope Builders’ crew to return the dwellings to the community as affordable housing. Citivest then sells them to low- and moderate-income families.

“We just don’t schlock them up with a little paint,” said John M. Raya, director of business development for Hope Builders. “We make sure it’s a good job.” Citivest provides incentive by paying the workers and acting as escrow agents with Chase.

Taller San Jose splits the profit from the home’s sale with its investors. “No one is making a killing,” Raya said. “But we’re making enough to say, ‘Let’s do it.’”

The Ruiz family was the perfect candidate to qualify for one of these homes, said Raya, 58. They scrimped and saved for six years, Lorenzo Ruiz working two jobs, the family living with his parents in Fontana.

“It was worth the wait,” said Carolina Ruiz, a stay-at-home mom to Marissa and Emily, 3. “We loved it the moment we saw it. It’s perfect. It doesn’t need a thing. We just live in it.”

The four-member crew from Hope Builders made $25,000 worth of improvements into the 1,600-square-foot derelict home. That included landscaping, painting, new carpets, granite countertops in the kitchen, light fixtures, remodeled bathrooms and energy-saving appliances, except for the refrigerator, which the family bought. And last, the Ruizes have their first bathtub.

“The house is a dramatic change for us,” Carolina Ruiz said. Her neighbors are friendly, the mall is close by and Marissa likes her new school.

Equally gratifying to Raya is putting young people to work. Half of Hope Builders’ current eight-member crew graduated from Taller San Jose’s 16-week construction course, during which they learned everything from drywall to electrical installation. The nonprofit also offers training programs in medical and office careers. All simulate the workforce, where students earn a $100 weekly stipend.

Raya said the construction program is looking for enrollees. They must have right-to-work documents, show up every day on time and be drug-free. Hope Builders also has refurbished homes in Riverside, Perris, Pomona, Ontario and Santa Clarita.

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Phoenix's Home-Price
Puzzle: How to Rise
from Ashes?

By JIM CARLTON, US News

NOVEMBER 21, 2011

photo of Phoenxi home with sale sign in front yard.A for-sale sign is displayed outside of a house in Phoenix, Ariz., in August. (photo: Bloomberg News)

PHOENIX—The Phoenix housing market is defying conventional economic theory.

Inventories of homes for sale are low, falling 41% to 21,304 in October, compared to 35,732 at the same time a year ago for Greater Phoenix, according to the Cromford Report, a market research firm in Mesa, Ariz.
The number of home sales is rising—to 6,428 in October from 5,443 in same month a year ago, according to the Cromford Report. The city's unemployment rate is inching down and is below the national average.
The laws of supply and demand suggest housing prices should be rising, or at least stop falling. But they continue to decline, due to a flood of bargain-hunting investors who still dominate the market, as well as conservative bank appraisals. As a result, economic recovery in what was once one of the country's most dynamic cities is being held back.
The monthly median price for a previously owned, single-family home in Greater Phoenix sank 5% to $120,000 in October from $127,500 a year earlier. The national median was $165,400 in September, the latest month reported by the National Association of Realtors.
Over the same time, as prices weakened, unit sales rose 18%, according to the Cromford Report.
That compares with a 3.5% decline in median prices nationally on a 12.2% increase in sales in the 12-month period ended in September, according to the latest data from the Realtors group.
In fact, median prices here have declined year-over-year for the past 12 months, while the annual change in unit sales has been climbing monthly since last November.
The low-water mark for the market came in January 2010, when the median price for a home in the city of Phoenix fell 64% to $92,000 from $253,000 in December 2007, according to the Cromford Report. In October, the median returned to $92,000 in the city of Phoenix.
Active home listings on the Greater Phoenix market fell to a 3.3-month supply in October from 6.6 months the same time a year ago, according to the research firm. An inventory supply of 4.5 months is considered normal.
When inventories fall so rapidly in a market, housing experts say prices almost always rise.
"It defies gravity what's going on here," says Alan Langston, executive director for the Arizona Real Estate Investors Association, an industry trade group.
Nationally, there was a 8.5-month supply in September, the latest reporting period, down from 10.7 months a year ago, according to the Realtors group. The consensus for a national housing recovery is at least four years away, according to a September survey of economists, real estate experts and others in the industry by MacroMarkets LLC, an investment banking service in Madison, N.J.
Housing experts attribute the disconnect in Phoenix primarily to the fact the once-booming metropolis was among the most severely hit markets. Between 2007 and 2010, home prices fell more than in almost any other market. That has prompted a surge in sales over the past year that has largely been driven by investors seeking bargain-basement prices, said Mike Orr, owner of the Cromford Report.
"Investors are 40% to 50% of the market now and they focus mainly on the bottom end," said Mr. Orr, who added that another weight on prices is what he calls stricter lending standards and low bank appraisals.
Broker Dan Valentine said that between March and September he paid $1 million on behalf of a group of investors for 16 homes that were valued at $2.7 million before the recession. He recently inspected a 1,480-square-foot house in suburban Glendale once valued at $235,000 that was listed by its bank owner for $75,500. Mr. Valentine placed a bid of $43,750 on it in September but lost out to a bid of $78,880.
"Is the neighborhood pretty nice?" Mr. Valentine asked former owner Donna Grannis y cellphone. "It's not bad," said the 46-year-old Ms. Grannis, a single mother of two who later added she fell behind on her $181,000 mortgage. "Things just spiraled down for me."
Mr. Valentine's strategy is to buy houses like these on behalf of mostly out-of-state investors and rent them until the market returns. For investors like Gerald Jackson, a retired construction manager in Springfield, Mo., a return of as much as 10% from rent beats many investments.
"There's risk, but there doesn't seem to be a lot of risk because these houses are so cheap," said the 68-year-old Mr. Jackson, who in October paid $75,000 for a 2,000-square-foot house in Phoenix whose owner had defaulted on a $168,000 mortgage. The house hasn't been rented yet.
With the nonconstruction economy on the mend, apartment vacancies have eased from 13.3% in December 2009 to 9% as of August, according to a September report by the brokerage firm Cushman & Wakefield Inc.
Broker Joan Levinson said that in July she sold a house in upscale Paradise Valley for $1 million—but the bank wouldn't allow the buyer to pay more than an appraisal that came in at $925,000. "The seller was not happy," Ms. Levinson said.
The low prices are putting the brakes on recovery in a crucial economic contributor: construction of new homes. In October, just 339 new homes were built in the Phoenix area compared with about 4,000 in September 2006 at the height of a building frenzy in 2006, according to Information Market, an industry research report in Glendale, Ariz. "We're kind of in this recurring nightmare that doesn't want to fix itself," said Howard Weinstein, principal of Pacific Land Co., a land broker in Scottsdale, Ariz.
The dearth of new construction is also holding back the recovery of other once-booming southwestern cities such as Las Vegas, where the general economies remain slow. But inventories remain higher in Las Vegas than in Phoenix: a 5.5-month supply in October, down from 6.6 months a year ago, according to the Greater Las Vegas Association of Realtors.
Lack of home construction is particularly striking in Phoenix, where other key industries such as technology have resumed their growth, helping Phoenix's unemployment rate fall to 8.2% in September from 9% in the year-earlier month, under the 9% national rate.

Write to Jim Carlton at jim.carlton@wsj.com

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Big Money Gets Into
Landlord Game

by ROBBIE WHELAN

August 2, 2011

VALLEJO, Calif.—Agustin Gutierrez, a construction worker from this town in the hills northeast of San Francisco Bay, lost his job in 2009, then, 10 months later, he lost ownership of his home.

Now, the husband and father of four rents the same five-bedroom ranch from McKinley Capital Partners, an investment company that's at the forefront of a new breed of big-money landlords.

McKinley, which has acquired more than 300 foreclosed single-family homes in the Bay Area over the past two years, recently teamed up with Och-Ziff Capital Management Group LLC, a New York hedge fund, with plans to buy at least 500 more foreclosed homes in the next year. Those homes, too, will be rented to people like the Gutierrez family.

Buying foreclosed homes as investment properties has long been dominated by mom-and-pop investors. But now hedge funds, private-equity firms, pension funds and university endowments are dipping into that market. The attraction is double-digit returns at a time when most bonds and other income investments yield very little.

The most popular strategy is for a big investor to team up with a local company that scouts out houses and finds the renters. The hope is to flip the homes in the future when prices recover.

"It's kind of the Wall Street meets Main Street phenomenon," says John Burns, an Irvine, Calif.-based real-estate consultant who has discussed investing in single-family rentals with hedge funds. "The Main Street guys need the capital, and Wall Street needs the expertise."

At the end of May, 3.5 million loans were at least 90 days delinquent or in foreclosure, according to investment bank Barclays Capital. At the same time, the country's home ownership rate has fallen, to 65.9% in the second quarter of 2011 from its peak of 69.2% in 2004, according to figures released by the U.S. Census Bureau last month. That drop has produced millions of new renters and helped push the vacancy rate for rental housing down by about two percentage points, to 9.2%.

Fueling the Rental Market chart

"The single-family rental market is actually quite large," said Dennis McGill, director of research at Zelman & Associates, a research firm that follows the housing market. "The average American says, 'If I've got two kids and a dog, I can't live in a one-bedroom apartment.'"

Zelman recently issued a report saying that in Arizona, Florida and Nevada, states hard-hit by the foreclosure crisis, the number of families renting a single-family home increased 48% from 2005 to 2010.

Large institutional investors could eventually help stabilize the market by soaking up the huge overhang of foreclosures, which could allow housing to begin healing. However, the number of single-family homes being bought by institutional investors is still small compared to the millions of distressed properties. The biggest players in the market are deploying hundreds of millions of dollars, not the billions necessary to make a major dent.

The federal government has a large role as well. The Obama administration is currently considering ways of selling foreclosed homes to investors who agree to rent them out. Fannie Mae and Freddie Mac and the Federal Housing Administration own more than half of all unsold foreclosed homes.

Renting a Dream Home chart

Being a landlord can be a costly hassle for large investors. Unlike apartment complexes, which concentrate hundreds of rental units in one place, investors must buy hundreds of single-family houses that are miles apart, each with separate maintenance problems. Tenants can be troublesome.

"You could have a bad tenant who doesn't want to pay their rent, or maintain the pool," says Guy Johnson, an investor who buys foreclosed properties in Nevada, Arizona and California and rents some of them out. "A hedge fund manager doesn't want to have to be their own plumber or electrician."

Buying foreclosed properties isn't easy either. Investors sometimes have to pay thousands of dollars in "cash for keys" payments to the previous homeowners in order to entice them to leave the property, and foreclosed homeowners often damage their homes before they are evicted.

Private-equity giant Carlyle Group LLC tried its luck with the single-family home market two years ago but abandoned the strategy late last year after concluding that the returns weren't large enough. Carlyle's strategy was different. The company formed partnerships with local asset managers in California that bought and flipped homes, rather than renting them.

For now, more investors are plunging into the single-family rental market. McKinley, the Oakland, Calif., company that owns Mr. Gutierrez's house, has already begun to use Och-Ziff money to purchase houses. Its model is to buy homes at an average price of about $100,000 apiece, put between $10,000 and $25,000 in renovations into them, and set the rental rate of the house so that it produces a return of 8% to 12% annually. This often works out to a rent of roughly $1,200 per month.

McKinley and Och-Ziff could see additional returns from selling the houses at a higher price after a few years, once the market has improved. "Two years ago no one thought you could scale this business or that it could be institutionalized," said Gregor Watson, a principal with McKinley. "Now, you can get very good yields. It's a very good long-term strategy." He declined to comment on the Och-Ziff investment. Och-Ziff also declined to comment.

Other large investors have formed rental-housing partnerships.

G8 Capital, a private-equity fund based in Ladera Ranch, Calif., has bought 3,000 homes across the country since 2008, mostly to flip them. It decided last year to begin pursuing a hold-and-rent strategy. It has since bought 250 foreclosed homes as rentals. Carrington Property Services LLC, a Santa Ana, Calif.-based property investment company that manages about 4,500 homes nationally, is in talks with investors to raise funds for a real-estate investment trust, to be called Residential National Trust, which would acquire foreclosed homes for rental. The company plans to buy as many as 5,000 more rental homes in markets including Chicago, Miami, Phoenix and Las Vegas.

Waypoint Real Estate Group, an Oakland, Calif.-based company, has bought 700 homes in the past two years as rental properties. Doug Brien, a former place kicker for the New York Jets who is now managing director of Waypoint, says that his company has approached pension funds, university endowments and large private investment groups about investing in his fund. In July, he says he closed on a financing deal from an Ivy League university endowment, but declined to name the university.

"At some point, there will be a shortage of housing," Mr. Brien said. "Everyone is realizing that single-family buy-and-hold is the way to go."

In November, hedge fund manager William Ackman's Pershing Square Capital Management LP released a report arguing that single-family rental properties are an "under-owned asset class" that would make "an intelligent investment for institutional investors." Pershing Square predicted that investing in single-family homes and holding them as rentals for 10 years could produce double-digit investment returns, even if U.S. home prices only improved marginally.

All the activity is fueling a renewed debate over whether investors are good or bad for the housing market. In the early days of the housing bust, some community groups discouraged banks from selling foreclosed homes to investors for fear they wouldn't take proper care of the properties. Some communities riddled with foreclosed homes became slums.

Alan Mallach, a senior fellow with the Brookings Institution in Washington, argues that instead of running from investors, local governments should provide subsidies to investors who buy, rent out and are good landlords for foreclosed properties. "If a neighborhood has a high rate of home ownership, that's obviously better," he said. "But in some markets, there was so much inventory coming on the market that the sheer number of properties was destabilizing those markets."

Mr. Gutierrez, the Vallejo construction worker, now pays $1,800 a month in rent, compared to the $2,500 per month he was paying to cover the cost of his mortgage when he owned the house. He says it bothers him that he no longer owns his home, but is happy to pay less and says his new landlords are good property managers.

He bought the house in 2003 for $340,000 using a $322,700 loan. He refinanced the home five times, driving up the total amount of debt on the house to $400,000. He lost the house to foreclosure in 2009. McKinley paid about $155,000 for the house that year.

"It's confusing, because sometimes I think it's my house, but I have to remind myself that it's not," said Mr. Gutierrez, who says he doesn't plan to try to repurchase the house. "It's sad, but it's what happened to a lot of people."

—Nick Timiraos contributed to this article.