That Toddlin' Town

Jim Hughes, co-owner of Wheaton, Ill.–based Wiseman-Hughes Enterprises, used to meet his friend, Buz Hoffman, president of Lakewood Homes, for lunch two or three times a year. But lately, they've had time to get together more frequently, because Chicagoland's usually unflappable housing market has been much less active than normal.

“We've been hanging in there, but unfortunately we continue to see business erode,” said Hughes in early October. In the second quarter of 2007, standing and speculative inventories in Chicago's seven counties rose by 122 percent and 33.8 percent, respectively, to 5,498 and 14,275 units, according to Hanley Wood Market Intelligence. Unsold speculative inventory in August alone jumped 166 percent over the same month in 2006, to 16,671.

“Chicago weathered the first 12 months of the downturn better than most places,” notes Jonathan Dienhart, Hanley Wood's director of published research. “It wasn't like the ‘light switch' effect we saw in Phoenix and Vegas.” Still, Chicago's home sales are expected to be down at least 10 percent this year, to 31,665 homes, and the number of permits pulled is expected to be off 25 percent, to 31,299.

BUCKING THE TREND: Despite predictions that Chicago's home sales will be off 10 percent this year, the $4 billion in-town Lakeshore East complex has had a lot of success selling out its buildings before they open. Its 81-story Aqua, which won't start accepting occupants until 2009, was 91 percent subscribed by early October.

Hoffman observes that it took Chicago longer to feel the effects of less buyer demand, and builders were slower to reduce prices. But with so many public builders in the market now, price discounting was inevitable. As a result, “customers aren't buying homes, they're buying deals,” says Hughes.

Strangely enough, some projects in Chicago are selling okay. An infill community Wiseman-Hughes opened in November 2006 in suburban Aurora, Ill., called Plaza on New York, sold 75 townhouses, priced between $250,000 and $300,000, in nine months. “And that was without incentives or marketing,” adds Hughes. The condos there went on sale in the third week of October 2007, and Hughes expects to sell between 45 and 50, priced from $190,000 to the low $300,000s, by year's end.

Another successful project is Chicago-based Magellan Development's ambitious $4 billion, 28-acre Lakeshore East, a “village” in the heart of Chicago, between the Chicago River and Michigan Avenue. Upon its scheduled completion in 2015, the project will house 15,000 owners and renters in 4,950 high-rise and townhouse residences, in addition to 2.2 million square feet of commercial space, 770,000 square feet of retail space, and a charter elementary school. Forty percent of this neighborhood will remain open space for parks.

Since opening its first building, the 29-story, 209-unit Lancaster, in 2004, Magellan Development has all but sold out or has full occupancy in four other high-rises. It recently opened the first phase of its 24-unit townhouse grouping called The Parkhomes. Joel Carlins, Magellan's co-CEO, tells BUILDER that The Lancaster took 18 months to sell out because the park within the complex hadn't been completed. “But once the park was done, we had an 800-name waiting list for Regatta,” a 44-story, 325-condo building completed in August 2006. (More than 20 percent of that list signed contracts.) Since then, Magellan hasn't had trouble finding buyers or renters for subsequent buildings, including Aqua, an 81-story, $475 million high-rise with 264 condos, 474 rental apartments, and 210 hotel rooms. As of early October, 91 percent of Aqua was reserved for occupancy in 2009.

ON DECK: It took Magellan Development 18 months to sell out The Lancaster, one of the buildings within its Lakeshore East complex in Chicago. But during that period, the company built up an 800-person waiting list for its next high-rise in the complex. More than one-fifth of the people on that list eventually bought homes there.

Renters at Lakeshore East can put aside 25 percent of their rent to build equity, up to 2.5 percent, for the purchase of one of the complex's for-sale units.

New Hope?

A congressional committee votes to renew HOPE VI.

Lawmakers have given initial reauthorization to HOPE VI, the federal government's major funding source for rebuilding dilapidated public housing. The House Financial Services Committee recently voted to renew funding for the program, which was scheduled to expire in September. The bill increased funding from the current level of $100 million to $800 million annually from 2008 to 2015.

In 1992 Congress created HOPE VI to revitalize public housing and improve troubled neighborhoods. The Bush administration advocates letting the program expire, saying it has fulfilled its mission of addressing the needs of the 100,000 most distressed units of substandard housing. Housing advocates dispute that position.

“We've taken out some of the most dangerous, egregious examples of public housing,” says Henry Cisneros, who was Secretary of Housing and Urban Development (HUD) in the first years after HOPE VI was authorized and now heads CityView, an affordable housing development company. “Unfortunately, there is more that needs to be done. We used to fund about 12 to 15 communities a year at the $35 to $50 million level. They can't do anything like that anymore and that's what the need is.”

The bill requires projects to replace units within 12 months of demolition, to build one new housing unit for every one demolished, and to use green building standards.

The one-to-one replacement requirement is a valuable tool, as long as the units don't all have to be on the site of the ones that are demolished, Cisneros says.

“There's always been the critique that the flaw in HOPE VI was that in reducing density on site, we came out with fewer units,” he says. “This is a workable approach. It's challenging because it's very hard to build units in other areas because of objections, but it's not impossible. Insisting that the units be replaced on site defeats the purpose of redevelopment.” - Pat Curry

Due to a ruling by a federal judge in Northern California, the U.S. government will not be able to implement a new Department of Homeland Security measure that would force employers to fire an employee within 90 days of receiving notice that the employee's Social Security number did not match records with the Social Security Administration. The matter will now go to trial.—E. Butterfield

Incentive Real Estate (IRE), a broker in Southern California, is referring buyer prospects to builders that are participating in a program through which buyers earn up to 250,000 air miles with the purchase of a new home. IRE earns a “success-based” fee once the sale is contracted. Buyers can choose from up to four airlines and can redeem miles for travel or selected merchandise. —J. Caulfield

America's Hispanic homeownership rate is 48 percent, but California's is only 44 percent, according to a recent study by the California Building Industry Association (CBIA). But the CBIA says the Golden State will grow by more than 14 million people by 2030 and nearly 80 percent of those will be Hispanic. The state must produce 4 million homes and apartments to meet that demand. —S. Zurier

What would the average home buyer do with an extra $10,000 in their construction budget? Respondents in a recent survey by Knoxville, Tenn.–based Shelton Group said they'd opt for granite countertops (26 percent), higher-efficiency HVAC units (24 percent), energy-efficient kitchen appliances (21 percent), additional tile or hardwood (21 percent), and indoor air purification systems (18 percent).—J. Sullivan

SOURCE: WWW.ENERGYPULSE.ORG

Suburban sprawl is an often-overlooked cause of climate change, warns a group of urban planning researchers in an Urban Land Institute report that says global warming can be slowed only by changing development patterns to reduce the American public's dependency on automobiles. The report, “Growing Cooler: The Evidence on Urban Development and Climate Change,” calls for developers to build more compact, pedestrian-friendly neighborhoods.—S.Z.

SOURCE: BALIMORE SUN

Seattle's housing market has weathered the downturn fairly well, but that hasn't stopped hometown heavyweight Microsoft from feeling its effects. The software giant reportedly took a hit when it sold the former Connecticut home of its CFO, Chris Liddell, at a loss during the last fiscal year. The closing price of the home, which Microsoft acquired as part of a relocation deal when it hired Liddell in 2005, was unspecified, but was lumped in with a $2 million relocation expense on the company's proxy statement.—J.S.

SOURCE: SEATTLE TIMES

A real estate brokerhas launched Zolve.com, a MySpace-type Web community for real estate professionals to help them streamline the client referral process and expand their influence. Brian Wilson of Colorado Springs, Colo., debuted the site in October with 2,200 members worldwide.—P. Curry

The EPA is deeming its 20-day, nationwide Energy Star Change a Light Bus Tour a success, with nearly 1 million Americans pledging to change more than 2.6 million lights to help fight climate change. This represents a potential savings of nearly $70 million in energy costs and the prevention of 1 billion pounds of greenhouse gas emissions, the agency says. The bus, which was powered by a clean diesel engine fitted with a particulate scrubber, stopped for 16 events in 10 cities.—N.F. Maynard

Water World

The EPA has released a list of high-performance toilets.

The EPA has released the first list of toilets that have received its WaterSense label, making it easier to identify products that conserve water.

Launched in 2006, Water–Sense is a voluntary program that seeks to promote water efficiency. Through its labeling program, WaterSense identifies products—at the moment, toilets and bathroom faucets—that are 20 percent more water efficient than a standard product in the same category. The program “just made it easier for consumers and communities to save money, energy, and water,” says Benjamin Grumbles, assistant administrator for water at the EPA. “Water efficiency is the wave of the future,” he adds.

The agency's Office of Wastewater Management says the list is a significant development at a time when water conservation is more important than ever. The agency says, for example, that between 1950 and 2000, the U.S. population nearly doubled, but during the same period, public demand for water more than tripled. Adding to the problem, many regions are in the midst of severe droughts, making water even more scarce.

At the moment, fewer than 10 manufacturers have products that earn the WaterSense label. Stephanie Tanner, an environmental engineer with the WaterSense program, says more products are now showing up in retailers' showrooms and more are being added on a regular basis. The high-efficiency toilets (HETs) she says, have passed the EPA's requirement not to exceed 1.3 gallons per flush, as opposed to the standard 1.6 gallons per flush.

In addition to performing their intended function as well as, or better than, their less-efficient counterparts, an HET can pay for itself in only a few years and allow home buyers to receive a rebate—ranging from $25 to more than $200—from their local utilities, the EPA says. - Nigel F. Maynard

Model of Efficiency

Wilshire Homes is installing solar panels on two of its models to educate both home buyers and lawmakers alike.

Austin, Texas-based Wilshire Homes, which hopes to build about 725 homes in the Lone Star State this year, plans to increase consumer awareness of solar power statewide by installing a solar system in two model homes.

Brian Binash, partner and director of Wilshire, says the home builder will include solar power in the model homes by the end of the first quarter of 2008. In one home, the solar panels will be on the roof; the second home will have a solar trellis.

“Solar isn't very popular in Texas. There are no rebates or tax credits the way there are in states like Arizona, California, and Florida,” Binash says.

Binash says the company also wants to use the model homes as a showcase to demonstrate the technology to state and local officials, as well as home buyers and Realtors.

POWER OF SOLAR: Wilshire Homes plans to show solar power in two model homes by the end of the first quarter 2008.

Wilshire is working closely with Houston-based NewPoint Energy Solutions, which will install the solar systems. Brett Sailors, vice president of sales for NewPoint, says a typical system in a 3,000-square-foot home starts at about $15,000 and will save 30 percent to 50 percent on the home's electric bill.

A solar bill was introduced in the state legislature in Texas in 2007 but did not pass. Binash aims to be involved in making a push for a solar bill that will include rebates for consumers and tax incentives for businesses when the legislature reconvenes in 2009. - Steve Zurier

The Good Life

The super-rich continue to buy ultra-luxury items, including homes, and feel little impact from the credit crunch.

The biggest earners and wealthiest families are not feeling the effects of the credit crunch the way most Americans are. Sales of luxury yachts are up 15 percent year-over-year for several years running, according to published reports coming out of the Monaco Yacht Show in October. Even 5,000-square-foot, four-deck, luxury submarines have a market.

And sales of homes priced at $5 million and above are holding up, says Milton Pedraza, CEO of the New York–based Luxury Institute, noting that people in the market for such homes are likely worth at least $30 million.

“They're going to be less susceptible; they're going to buy what they want,” Pedraza says. “They're going to see this as a buying opportunity actually, because there are lower prices.”

Buyers shopping for houses between $1 and $3 million are a different story, says Leon Nicholas, principal of the consumer markets group for Global Insight, in Waltham, Mass. The credit crunch is being felt at the lower end of the luxury home market, where jumbo loans are tougher to qualify for, Nicholas says.

But wealth creation at the top of the economic food chain is booming. Households making at least $150,000 grew at 2.6 percent from 2000 to 2005, Nicholas says. Global Insight projects that between 2005 and 2010, the number of households earning at least $150,000 will grow even faster, at 3.7 percent.

While a potential reduction in bonuses to those working in the financial industry could impact the market for high-end homes in America, neither Pedraza nor Nicholas see that as likely this year, as the Dow Jones Industrial Average continues to soar near record highs.

And due to better access to technology, education, and capital around the world, the creation of billionaires and centimillionaires (people worth $100 million or more) is also growing, Pedraza says. That will keep demand for all things luxury on the rise. - Ethan Butterfield