Monday Morning Quarterback

(January 20, 2025)

The fires that incinerated large swathes of southern California last week are among the deadliest and most destructive in our state’s history. Scientists say that the blazes have another grim distinction: they are terrifying examples of “urban firestorms,” which are fundamentally different from the wilderness fires that tear through forests?and shrublands. In fires that burn densely populated areas, buildings themselves become fuel. Neighborhoods in the Los Angeles area went up in smoke because house after house caught fire, driving the flames’ spread. “This was an urban conflagration and not just a wildfire event,” says Ann Jeffers, a structural engineer and fire expert at the University of Michigan in Ann Arbor. The fires killed at least 24 people and destroyed more than 12,000 structures. Researchers say that such urban fires are likely to become more common thanks to population trends and climate change. Scientists are learning about how exactly urban fires spread and what can be done to prevent them. “There are so many minute physic details here that are important,” says Michael Gollner, a mechanical engineer and fire expert at the University of California, Berkeley. Those details can be crucial in helping to reduce the fire risk of vulnerable communities ― including Los Angeles as it rebuilds. The factors that drove the intensity of the Palisades and Eaton wildfires include the density of homes in steep terrain and powerful winds that fanned the flames. Another factor was “hydroclimate whiplash”, an abrupt switch between very wet and very dry conditions?that is likely to occur more frequently as the Earth warms. For example, the Los Angeles area received abnormally large amounts of rain in 2023 and early 2024, promoting plant growth. But less than 1 inch has fallen since July 1, and all that brush and grass dried into tinder. These meteorological factors are interacting with human decisions. Around the world, more people are moving into the “wildland-urban interface” where cities meet natural landscapes. Fires that ignite at these interfaces?can spread into purely urban areas with devastating results, as in Lahaina, Hawaii, in 2023 and Valparaiso, Chile, in 2024. As population in the boundary zones grows, fires that start there are more likely to migrate into areas that are unequivocally urban, researchers say. One research frontier is better understanding of how radiant heat from a building that is on fire can ignite buildings standing nearby. In other investor news, let get under the hood…

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Housing Starts Surged In December. Housing starts finished 2024 on a high note in what was otherwise a rather dismal year for homebuilders.?Starts rebounded in December, surging 15.8% to a 1.499 million rate, topping even the most optimistic forecast from economic groups surveyed by Bloomberg.?Looking at the details, the gain in starts was broad-based, with both single-family and multi-family increasing, and three out of four regions contributing.?However, the often-volatile category for multi-family homes was the main driver of the increase, rising 61.5% in December, but still down 8.4% in the past year.?Meanwhile, overall housing starts are down 4.4% in the past year, with single-family starts down 2.6%.?It appears that part of the reason why starts have lagged this year is due to homebuilders focusing on completing projects. Housing completions declined 4.8% in December but ran at a 1.624 million rate in 2024: the fastest pace for a calendar year since 2006.?With strong completion activity and tepid growth in starts, the total number of homes under construction continues to fall, down 14.8% in 2024.?That type of decline is usually associated with a housing bust or recession, but we don’t see it happening any time soon. Homes were started at a 1.365 million rate in 2024, well below the 1.5 million plus pace needed to keep up with population growth and scrappage (due to both voluntary knockdowns as well as disasters like fires, floods, hurricanes, and tornados.)?And with the brief exception of COVID, the US has consistently built too few homes almost every year since 2007.?As a result of the shortage of homes, housing is far from a bubble, and expect housing prices to continue higher in 2025 in spite of some general broader economic headwinds.

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Forget Downtown Or The ’Burbs. The far-flung exurbs are where people are moving. Not long ago, Polk County’s biggest draw was citrus instead of people. Located between Tampa and Orlando, Florida’s citrus capital produces more boxes of citrus than any other county in the state and has devoted tens of thousands of acres to growing millions of trees. But last year, more people moved to Polk County than to any other in the United States, almost 30,000. Bulldozed citrus groves in recent years made way for housing and big box stores that could one day merge the two metropolitan areas into what has half-jokingly been dubbed “Orlampa.” Actually, the migration (and population and property sprawl) reflects a significant kind of growth seen all over our country this decade: the rise of the far-flung “exurbs.” Outlying communities on the outer margins of metro areas (some as far away as 60 miles from a city’s center) had some of the fastest-growing populations last year, according to the U.S. Census Bureau. Those communities are primarily in the South, like Anna on the outskirts of the Dallas-Fort Worth metro area; Fort Mill, S.C., outside Charlotte, N.C.; Lebanon outside Nashville; and Polk County’s Haines City. Hurricanes and citrus diseases in Florida have made it more attractive for some Polk County growers to sell their groves to developers who build new residences or stores. Citrus-growing there declined from 81,800 acres and almost 10 million trees?in 2014 to 58,500 acres and 8.5 million trees?in 2024, according to federal agricultural statistics. Anna, Texas, more than 45 miles north of downtown Dallas, is seeing the same kind of migration. It was the fourth-fastest growing city in the U.S. last year and its population has increased by a third during the 2020s to 27,500. I essence, Anna has gotten a little older, richer and more racially diverse.?

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In the Mojave Desert, a Gold Rush For Old Mines. It’s a brisk day in Johannesburg, a tiny mining town tucked among the Rand Mountains in the Mojave Desert, California. The landscape is vast and rugged, a mishmash of rock, dirt and creosote bushes, swaths of gray and brown under a deep blue sky. The terrain appears completely untouched by man, but a closer look reveals dozens of cavities pocked across the rolling hills. They look like monster snake holes. The LA Times reports that those curious holes are abandoned mines, and they’re driving a real-estate boom in a place that hasn’t had one in more than a century. As the price of gold climbs, the demand for Randsburg’s craggy land has been reawakened. Hemet Realtor David Treadwell has carved out a niche for himself in the desert, selling multiple gold mining properties over the last few years. He helped his uncle sell a 47-acre property in 2017, buying ad space in a local mining journal to spread the word. Treadwell has sold mines to amateurs and professionals alike. Small claims sell for less than $50,000, while bigger properties with more potential bring in a few hundred thousand dollars or more. Last year, he sold the St. Elmo mine (a historic mining property in Atolia with 11 mining shafts on it, some of them hundreds of feet deep) to entrepreneur Sean Tucker. His two-man team is drilling holes and gathering samples, boring into the earth 2 feet at a time to see which spot has the most gold to set up larger mining operations next year. They crowd around the towering machine as the rig starts burrowing into the dirt with a 140-pound hammer, digging into the ground with swift, strong strokes. After about 30 seconds, the drill reaches 2 feet underground, creating an 8-inch-wide hole. While most of the mining took place in Northern California and the Sierra Nevada in the past, Southern California experienced smaller, more disparate gold rushes — in places such as Big Bear, Azusa Canyon, Silverado Canyon in Orange County, the Cuyamaca Mountains of San Diego County and the Picacho District in Imperial County. One of the largest was in the Rand District in Kern County, where gold was discovered in 1895.

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Ten Steepest Drops In SoCal Property Values Last Year. Some CRE industry pros think the Los Angeles market has scraped bottom?in 2024, meaning there is no way to go but up from here. After a year of steep drops in property valuations, many of the region's highest-profile buildings, especially offices, have a long road to climb to reach their pre-pandemic heights.?A Morningstar collection of the Los Angeles-area CMBS loans?that had the greatest losses from issuance appraisal to the most recent appraisal finds that some properties have seen their values drop by as much as 70%. Retail and hotel properties, while not seeing such dramatic falls, also appear on a list of the top value declines.?Office properties made up six of the top?10 properties with the largest valuation drops, but that still might not be a totally accurate representation of the distress in the market.?Owners of office buildings that need to refinance are often struggling to do so, which leads to their placement in special servicing, in turn triggering appraisals and stark new assessments of their values.?Downtown Los Angeles has a small, dense office submarket that has been especially hard hit by the shift away from five days in the office.?The properties with the biggest drop in value include:

Gas Company Tower

Value lost: $417.5M,?a 66% fall

2020 appraisal: $632M?

2024 appraisal: $214.5M

Bank of America Plaza

Value lost: $416M, a 69% fall

2014 appraisal: $605M

2024 appraisal: $188.9M

Santa Monica Place

Value lost: $367M, a 59% fall

2017 appraisal: $622M

2024 appraisal: $255M

EY Plaza

Value lost: $296M, a 66% fall

2020 appraisal: $446M

2024 appraisal: $150M

Sixty Hotel Beverly Hills

2018 appraisal: $$85M

2024 appraisal: $59.5M

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Mortgage Rates Were Expected To Fall, But They’re Surging. Most economists were expecting mortgage rates to fall over the course of the coming year. But rates have risen steadily over the last month, inching back up to 7% — and they’re expected to move even higher in the coming weeks. Blame the strength of the U.S. economy, experts say: The stronger the economy is, the less likely the Federal Reserve will be to cut interest rates, because our economy doesn’t seem to need support in the form of lower borrowing costs. Yes, the U.S. economy added more jobs than expected in December, according to Labor Department data. Yes, the unemployment rate fell slightly from the previous month, while jobless claims fell to the lowest level in nearly a year. As a result, the strong jobs report is prompting financial markets to reconsider the pace of rate cuts. And that dynamic is pushing the 30-year mortgage rate higher. Of course, the Federal Reserve’s monetary policy doesn’t directly impact mortgage rates; rather, the 30-year mortgage rate typically rises and falls in tandem with the yield on the 10-year Treasury note. And the stubborn 10-year yield has inched higher over the past few weeks, bringing the 30-year mortgage rate up along with it. “In the near term … I do think stronger-than-expected jobs report will tend to push longer-term interest rates, including mortgage rates, higher,” confides a Fede official off-record. The 30-year mortgage rate is averaging close to (and at times higher than) 7%, according to various industry measurements. The Mortgage Bankers Association, a trade group that surveys lenders, had the 30-year rate at 6.99% as of Jan. 3. Freddie Mac, a government-sponsored enterprise that backs residential mortgages, said the 30-year rate averaged 6.93% as of Jan. 9.?Mortgage News Daily, which also surveys lenders, said the 30-year rate was 7.24% as of Jan. 10, up 9 basis points from the previous day. The recent increase in mortgage rates calls into question predictions that they will fall over the coming months.?

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Private Island off Palm Beach, Florida, Sells for $152 Million. Have you ever dreamed of owning your own private island? I ask this question because a private island compound in Palm Beach, Florida, just sold for a whopping $152 million, according to the listing agency that handled the deal. This would be largest sale of a single-family residence in the last 12 months. The 2-acre rectangle island residence is “one of one,” said Chris Leavitt of Douglas Elliman, who handled the listing. It’s one of the most expensive homes ever sold in the Sunshine State, and the priciest so far this year, according to the Palm Beach Daily News, which first reported the sale. “It’s that one rare Picasso, that one rare vintage car.” There’s only one private island in Palm Beach, he said, “and it’s sold.”??Accessible by a private bridge, the compound (which changed hands last week) offers more than 28,600 square feet of living space in total, with a main house, guest houses and staff areas. The property is three quarters newly built and incorporates the island’s original 1930s home, which is now the guest pavilion and a wellness facility, complete with a massage room, a hair and nail salon, a steam room and sauna. “I really will miss showing it, because I loved that everything was on property—the spa, the waterfront gym, the tennis court, the tennis pavilion,” Leavitt said. “It’s all there.”?The island also has two private docks, multiple pools, an entertainment room, a wine room and an elevator. The sale price, while below the $187.5 million the island was most recently asking, “speaks to the fact that people want to be on Palm Beach Island and they want waterfront,” Leavitt said. “It just shows this is a non-stop market that just keeps going and going—and we’re not even anywhere near the top of the market, there’s still a long way to go.” The island was sold by developer Todd Michael Glaser, who, along with his partners, paid $85 million for Tarpon Island in July 2021, according to the Wall Street Journal.?The buyer was MCI Properties, a Delaware-registered limited liability company, according to property records.

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A Colony of Bees Is Living At This SoCal Mall. The Los Angeles Times reports that on an afternoon in late summer, the bees that live at a Long Beach mall were flying high, winging their way back to their hives atop a parking garage. Upon their return, they emptied the “pollen pants” they were sporting on their hind legs to make food for the colony’s offspring. The colorful clusters of pollen are a sign the bees are well and producing more honey than they need to eat. Far from happenstance, the arrival of the bees at 2nd & PCH?came at the invitation of CenterCal Properties, which owns the outdoor mall. Treated like valued (albeit nonpaying) tenants running a business, not interlopers to be shooed away, their presence reflects a growing trend among owners of shopping centers and other commercial buildings such as offices looking to set their properties apart from the competition and underscore their commitment to improving the environment. In addition to making honey to share with shoppers, the bees also provide research data points used to help prevent die-offs. To make their jobs easier, CenterCal Properties has landscaped it with hanging baskets, gardens and planters raising fragrant plants that bees find appealing, such as Spanish lavender, Tuscan blue rosemary and yarrow. The bees also travel miles away in their search for nectar, which they collect in their stomachs and bring back to make honey. The bees, which are bred to be docile, do little to make their presence known, said Samantha Lopez, general manager of the upscale $100-million mall on Pacific Coast Highway overlooking Alamitos Bay. On a recent afternoon, as ocean breezes cooled the mall, not a bee was in sight as visitors strolled past bee-friendly flora on their way to such stores as Johnny Was and Anthropologie, or relaxed among greenery-filled planters and pots outside Shake Shack and Whole Foods Market. “Nobody has noticed anything,” Lopez said, “and we don’t call attention to the hives themselves.” The hives?are short stacks of wooden boxes sheltered behind a covered-cyclone fence.

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Basic Training Investing Boot Camp. This Saturday, January 25, 2025, 9:00 am to 6:00 pm, will be our semi-annual Basic Training Boot Camp. Everything you ever wanted to know about real estate investing but were afraid to ask. Iman Cultural Center, South Hall, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034.The cost of the Boot Camp is $249.00 per person. (Gold Members and former Boot Campers can attend for FREE, but still need to register.) So don’t wait to register. Plus free parking. Please register at our website: LaRealEstateInvestors.com.

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Vendors Expo Returns!?Our world-famous "Vendors Expo"?returns in 2025, on Thursday night,?February 13, 2025. The Vendor Expo opens starting at 6:30 pm. We'll have 30+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Our Vendor Expo will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Culver City CA.?FREE Admission.?Please RSVP at our website, LARealEstateInvestors.com.

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February LAC-REIA Meeting. Our special guest for February will be investor Jeremy Beland. Jeremy Beland is a real estate investor with extensive knowledge in investing, wholesaling and acquiring off-market properties. In 2017, at 40 years old, he sold his townhouse and downsized to a tiny apartment, using the equity to invest in a beginner’s coaching program and start his wholesaling journey. Since then, he has completed over?450 off-market acquisitions, utilizing various exit strategies like wholesaling, flipping, and rentals. His efforts have generated?$10 million?in total gross profits, transforming multiple markets into million-dollar successes. Now he is passionate about showing others how to achieve the same financial freedom and success. We are fortunate having Jeremy visiting us from New Hampshire.?Thursday night, February 13, 2025, 6:30 to 9:30 pm, Iman Cultural Center, 3376 Motor Avenue, Culver City, CA 90034. Free admission. RSVP: www.LARealEstateInvestors.com.

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This Week. Investors will continue to look for additional guidance from Fed officials on their plans regarding future monetary policy. For economic reports, it will be an extremely light week. Existing Home Sales will be released on Friday from the National Association of Realtors. Markets will be closed today for MLK Day.

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Weekly Changes:

10-Year Treasury:???????????? ????Fell????015 bps

Dow Jones Average:??????? ????Rose??1500 points

NASDAQ:?????????????????????????????Rose??500 points

Calendar:

Thursday (1/23):??????????????????Jobless Claims

Friday (1/24):????????????????????????Existing Sales

Friday (1/24):????????????????????????Real Estate Investing Boot Camp

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For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

[email protected]

310-792-6404

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