BROKER: The Souza Group


THE MARKET  -2008

Fiscal year 2008 will continue to see conditions that mirror 2007. This will be the ideal condition to execute on a buy and hold model.This is a temporary window of opportunity that will diminish and become unavailable during 2010.

The home building industry started an upward trend in 2004. New home starts increased 40% in 2004 and continued to increase until the market peaked in June 2005. In 2006 new home starts decreased 38% compared to 2005, and in 2007 starts are expected to decrease another 18% and drop to a 12 year low of 29,901. According to the RL Brown housing report of October 2007, September permits virtually matched the number of permits pulled in February of 1993. This means, “ if we have turned the corner we can expect that market stability will return in due time as supply and demand rebalance. (RL Brown 07)” 2008 starts are projected to increase 41%, as the market correction stabilizes. 
New Home Build Starts are expected to maintain a positive position around 42,000 for the next 5 years. Over the next 5 years job growth in the Greater Phoenix market is expected to grow at a rate of 2% per year. Additionally, our population is expected to continue growing at a rate of over 2%. With more households and jobs the Phoenix Market is positioned for success for years to come. 
OPPORTUNITY
We have identified numerous opportunities that are currently available for our Clients. The most lucrative opportunities have a temporary window of execution due to the changing condition of the housing market. Many of the start up companies that were founded in 2005-2006 exhausted their capital at the height of the real estate boom. As the correction of the housing market continues they are no longer able to grow, manage and/or retain their current projects. Additionally, National Builders have put land acquisition and some development on hold until their existing inventory levels decrease and new home sales start to take an upward trend.  As a result the land supply and demand opportunity has now shifted away from Land Owners to Investors who embrace a targeted vision for long-term success in the real estate industry.   We project in 2009 this window of opportunity will begin to diminish and become unavailable during 2010. 
 
1. National builders
 
The current status of National Builders is uncertain. As a result of this uncertainty many of the industry leaders, such as Pulte Homes, Lennar Homes, and DR. Horton have written down billions during 2007. In addition builders are discounting homes at increasing rates in order to reduce their inventory. The result of discounting homes coupled with lack of sales is creating cash flow problems even for the largest builders. This has created a condition where corporate home office has called for major reductions in labor force and inventory. Because of these trends opportunity to purchase property at steep discounts currently exists. This same scenario is repeated throughout many major metropolitan areas nationwide. 
 
2. Non-Public Builders 
 
Currently this target segment offers intriguing opportunities wherein, slow sales and diminishing cash flow is creating a foreclosure atmosphere. Currently many of these organizations are cash poor. As a result many are in or soon to be in default. Therefore due to FDIC governing rules, it is incumbent upon respective lending institutions to call the note and force foreclosure. The opportunity is for negotiated short sales with either the building entity and/or the lending institution.
 
3. Real Estate Investment Groups
 
Many of these entities paid premium dollars at the height of the market and currently cannot execute on a profitable exit strategy. Some of these groups are forced to stay in the market longer then their portfolio allows. This leaves them with few options but to sell off their respective assets at a steep discount, due to today’s market conditions.   
 
4. Lending Institutions (FDIC)
 
Lenders leading up to the peak of the market loaned money for projects that have now become distressed and/or fallen into foreclosure. Banking regulations stipulate that when projects enter default the respecting lending institutions foreclose. The opportunity is for negotiated short sales with either the building entity and/or the lending institution.