2024 down; 2025 Ahead - Major changes or more of the same? Too many unkowns

             Now that 2024 is in the rear view mirror, along with the presidential election, are there any emerging clues to the 2025 real estate market direction?
            To hear newly-installed Trump tell it he’s going to take care of one critical variable – interest rates.
            “I’ll demand that interest rates drop immediately,” Trump said. “And likewise, they should be dropping all over the world. Interest rates should follow us all over.” Trump blustered in a virtual appearance before the the World Economic Forum, often jusst shortened to “Davos,” for the cognoscenti of the financial world.
            Well now, that taken care of, everything should be hunky dory in real estate. He’s president and  never lies, dissembles or breaks a promise. Let’s keep an eye on eggs, which Trump touted before the election would be less costly along with prices of other consumer goods. 
            As  Elon Musk, often called Trump’s “First Buddy,”shakes things up in the federal sphere, one of the more curious new presidential edicts, euphemistically known as executive orders, is to force federal remote workers back to the office. This could mesh with another strategy to sell much of federal office space. Fewer employees left after firings and resignations would mean less needed office space, and what is left would be made unattractive to returnees.
            Maybe interest rates will fall along with the price of eggs as the bird flu abates. Maybe the idea of a “sovereign wealth fund” Trump has floated will be a reality, funded by all that surplus oil revenue from ramped up “drill baby drill.”  But how does that work to reduce the the country’s current budget deficit? One possibility mentioned is to issue more debt to “fund the fund” so to speak.
            Hmmm. Reduce the deficit by borrowing to invest and build sovereign wealth? What could go wrong?
           Let's pivot from Trumpisms, albeit realizing that  the chaos created thus far by the new administration will nevertheless hang over the economy in some way at least in these early days and weeks, and likely much longer.  

The Year Past 

            Looking back at 2024 in Bend real estate maybe the most salient observation could be the lack of any well-defined trend. Inventory of single family homes for sale remained tight, prices remained high relative to local median incomes and total sales stayed about the same as the previous 12 months.

            All this, according to the Market Action Index of First American Title Co., translated to “stasis” and a “slight sellers market,” thanks to continued low numbers of homes for sale as reported in early January.
            That assessment could easily be translated to “nothing new to see here,” in that virtually the same language had been used in nearly all of the title company’s weekly reports for 2024.
            The final Q4 2024 Beacon Report by Beacon Appraisal Group shows the the rolling 12- month median price of Bend single family homes on less than an acre was $710,000, a 3.0% drop from the $732,500 for the previous 12 months of 2023.
            The median monthly price hit a hgh of $800,000 in October and the low point in February, at $682,000.
            There were at total of 1,582 sales during the 12 months, a slight uptick of 17 closings compared to 2023, with an inventory of 2.5 months as calculated using the 319 active listings at the end of December and dividing inventory by the average monthly sales in 2024.
            In Redmond, Central Oregon’s second largest market segment, median prices for the 12 months rose by $23,000 to $509,000 from $486,000 at the end of 2023, a slight bump of 4.73%.
            Redmond sales also rose by 16%, or by 114 additional sales in 2024 from the 598 in 2023. Inventory there was also tighter than in Bend, at only a 2.0 months supply.

Affordability Remains an Issue

            Moving into the new year, the quest continues to find  strategies that will that will enable families with the Bend median household income of slightly under $89,000 to obtain affordable housing. At the median income level, with an optimistic 6% interest rate, a healthy 30% down payment, and modest $550 monthly debts a family could afford a home priced at $447,000.

            According to the Beacon Report, only 78 homes out of the total 1,582 homes sold in Bend during 2024 were priced from $400,000 to $500,000 – and only five listed in that range at the end of December.
            There is a disconnect between the availability of “affordable” homes for those with median incomes, and the high end of Bend sales  Last year 393 homes, or 24.8%, sold for more than $1 million, and 73 above $1.8 million.
            As has been reported throughout the country, among factors that likely drive higher sales prices are owners with low interest rates, or even no mortgage, who have been in their homes for a considerable time, and others who bought during the early 2000 decade recession. These may be able to roll generous cash margins into other properties – without the onus of having large mortgages at currently elevated interest rates.
            Also part of the affordable equation for the local workforce is the availability of rental inventory.

The Rental Market

In the past few yeas Bend has experienced a substantial increase in multi-family investment and new construction- to the extent that for Q3 2024 one of the region’s oldest, leading commercial brokerages concluded: “Looking ahead the wave of new apartment development will hit the brakes.”

Also in the third quarter of 2024, Compass Commercial’s Navigator market report noted that the region’s slowing population growth had reduced demand, resulting in “stagnated” rental rate growh with increased length of vacancies leading to more landlord concessions.

“Rent rates will likely remain flat, at best, for the next couple years. For property values to rise again, we will need to see both increasing rents and declining interest rates,” the Q3 report for 2024 noted.

That assessment was validated later in 2024 when a Los Angeles based owner delayed planned construction of a massive 1,600 unit mixed use project on former industrial land near the Old Mill District, citing interest rates as a reason.
            Another factor is the city’s pause and reconsideration of offering tax deductions to developers in that area, after two builders had received them and started construction of apartments.
            Now, seemingly a whiplash about face in barely three months, Compass Commercial’s new multi-family report for the final quarter of 2024 cites an assessment of the national real estate site CoStar which paints a much rosier picture.
             “Among apartment markets with inventories under 10,000 units, Bend landed among the top 10 performing markets, a cohort that spanned the Pacific Northwest, Midwest, and Sun Belt regions,” Compass quotes from CoStar.
            If the more recent analysis and predictions for 2025 come to pass, compared to the report only a few months agin, the Bend multi-family market would indeed be a turnaround star.

 

Tourism and Real Estate

        Finally, a look at the Central Oregon tourism sector, which contributes substantially to the local economy in terms of employment in lodging and other service businesses, by some estimates  as well as real estate in the form of vacation home puchases.
             In a presentation to city officials in early January the senior budget and financial analysit for the Community Economic Develoopment Department noted that development fee revenue since 2022 showed, “development is slowing down…the type of development is changing.”
            Reasons, he noted, could be due to, “everything that happened with Covid and the macroeconomic picture with interest rates? Or is that just….a result of Bend hitting a certain size.”
            And every city that hits that certain size then slows down or the development type changes,” according to Roger Serat.
            Amond the dramatic shifts Serat noted were fees for  short term rental permits, which in 2024 according to his research showed a decline from $301,119 in fiscal year 2022 to only $42,561 in 2024.
            One report said that all of Central Oregon, including resorts such as Sunriver,  Black Butte Ranch and Eagle Crest brought in $1.5 billion in related tourism revenue for 2023.
            However, statistics from Visit Bend, the city’s tourism promotion group, have shown lodging room occupancy dropping by 6.5% in July and August of 2024, likely due to wildfire smoke in the region but possibly also the tailing off of post-pandemic travel.
            What’s the bottom line?
            With the background of a chaotic first few weeks of the Trump administration best not to count on anything in real estate – especially as to lower interest rates suddenly creating a boom in sales.
            If tariffs on Canadian building products continue to be an on and off and on again roller coaster expect new construction and housing affordability to be problematic.
            Moreover, if the stock market – a favorite performance metric of Trump– can’t digest economic uncertainty maybe look for real estate sectors to tread water in the near term.

           

Homeowners play a good round at Rivers Edge course

             Fore....
            It appears that there will be more “good walks spoiled” in the Rivers Edge community of Bend with news that opponents of developing a decades-old golf course for homes have prevailed.
            In late October, local media reported that a “settlement” had been reached in litigation by several Rivers Edge families to prevent a sale of the 18-hole course to Pahlisch Homes to build nearly 400 homes.
            As reported, homeowner associations would have the opportunity to purchase the course for $500,000 from Wayne Purcell, with 120 days to conduct due diligence and 30 days to close the transaction.
            Pahlisch and Purcell had announced the planned sale earlier this year. Pahlisch in turn had met with city officials and hosted a public meeting to answer questions about the proposed development.
            There was never a recorded document indicating more than Purcell's news release stating his intent to sell the 141-acre course to Pahlisch.
            As previously reported in Focus on Bend.

Trading golf for homes: Rivers Edge proposal raises future housng issues

Aspen Lakes facing a long winter with major financial challenges

            The Aspen Lakes Golf Course, and its Cyrus family ownership through several LLCs, again appear to be fighting for survival, weighed down by numerous creditors including a South Dakota private equity firm with a note secured by the golf facilities and other real estate and personal propoerty..

            Adding to the challenges, a recent letter from a homeowner’s board of directors reveals that two pumps providing domestic and landscaping water had failed, leaving the community to rely on a rented pump. The developer family’s Aspen Lakes Untility Company  LLC, “reports it does not have the money to replace either pump,” the letter noted.
            "Of greatest concern is the fact that Wildhorse Meadows (a family LLC) owns the land where the Water Company's wells are located, and the Water Company is a guarantor of some of all of this debt." the board wrote. 

            With fire hydrants inoperable for lack of the larger pressure landscaping pump, the HOA board letter said Cloverdale Fire District has agreed to provide, “additional resources” in the event of a fire, “and has made arrangements with sorrounding districts for use of their equpment if needed.”

            The board letter also said its legal advisors have notified the Oregon Public Utility Commisson staff of the community’s financial situation and water problems, with the objective of making them,”aware of the situation....in the event the HOA needs assistance in the future.”

            As outlined by the HOA board, the future of the community could hinge on several possiibilities – a foreclosure by the secured creditor; a deed in lieu of foreclosure and a potential auction of all assets.

            HOA attorneys are monitoring the situation, “so we can try to get out ahead” of anything that might jeopardize water delivery or increase costs. Although the HOA cannot direct the Cyruses and their LLCs or creditors to maintain the golf course, “it is in the interest of the debtor and creditors to maximize the value of this asset,” the letter concluded. 

Map at left showing Aspen Lakes Water Rights: gray area is domestic water and yellow irrigation. Red dots are wells.
 

            In late January, a federal bankruptcy judge approved a motion to dismiss a petition to reorganize under Chapter 11 of the federal bankruptcy code by the several Limited Liability Companies, or LLCs, conrolled by Cyrus family members. 

           The federal bankruptcy trustee had filed the dismissal motion in late 2019, “insofar as there is no reasonable likelihood of reorganization at this point,” noting that the, “Debtor is entering into its least profitable season of the year.”

            This Chapter 11 filing was the second for the Cyruses and their LLCs, the first coming in 2011 as the region was struggling to recover from the national recession driven in large part by questionable real estate loans and related investment derivatives.

            In that earlier bankruptcy petition, as now, the major unsecured creditor for Aspen Lakes LLCs is GT Capital LLC,  its agent listed in South Dakota Secretary of State records as Eugene McGowan Sr.

            In turn, McGowan is a leading principal in The McGowan Capital Group of Sioux Falls, whose mission, its website says, “...is to provide select investors with exceptional private equity and income opportunites and to bring creative financing solutions to business owners.”

            Deschutes County Clerk records show GT Capital LLC in September of 2019 held a deed of trust  for $4.085 million involving the Cyrus family LLCs, and essentially secured by the assets of individual family LLC members.

            GT Capital was also the beneficiary of an earlier trust deed, also for $4.085 million executed in May of 2006, and which was a factor in the Aspen Lakes and related LLCs Chapter 11 petition in 2011.

            In April of 2018 GT Capital filed a notice of foreclosure on the debt, which appeared to trigger  the latest Chapter 11 petition for protection under the bankruptcy code. As of February 14 there was not a notice of foreclosure filed with Deschutes County on the debt filed with the Cyrus' LLCs in September of 2019.  
            Also in April of 2018 the IRS refled a federal tax lien, originally filed in 2009, in the amount of $59,977.9, that amount approximately $30,000 less than the original lien..          

            Among the various creditors listed in the recently dismissed bankruptcy action are dozens of small businesses and suppliers.

An Auction but No Bidders

            After the June 2018 bankruptcy filing the Cyruses and their LLCs announced through attorneys that the golf course and other related properties would go to auction conducted by New York based Keen-Summit Properties and golf course broker Fairway Advisors. The auction was not successful according to bankruptcy documents.

            The auction properties included the 388 acre golf course parcel; a 339 acre block noted to be zoned for 10 home sites but with resort development potential and a

mining/mineral zoned site of 118 acres. Broker opinions at the time valued the properties at more than $8 million. As a point of comparison, in 2017 a Florida investor purchased all operating assets of Eagle Crest Resort in Redmond including two golf courses, main lodge and conference meeting facilities and more than 80 entitled lots for $12 million.

            Except for several unsold lots in the Aspen Lakes Community, most of the potential development property would require substantial infrastructure investment as well as permitting costs.

            The failed auction was structured without a minimum reserve, and was receptive in the announcement to a “stalking horse” bid in which an early bidder sets a price to start the process and perhaps attract others. The seller is not obligated to accept the stalking horse bid  or higher offers, but generally must pay a “breakup fee” to the stalking horse entity. There were no acceptable bids according to bankruptcy court documents.

            Perhaps a significant impediment to any buyer of the golf course has been the interlocking LLCs controlled by the Cyrus family. The golf course LLC relies on a lease from another Cyrus LLC, Wildhorse Meadows, which also owns the land and appurtenant water rights used for course irrigation. There are also LLCs for a construction related company and the utility company.

            That potentially creates a situation for a single well-capitalized investment entity to take over all assets of the LLCs. That possible scenario could occur if there is another default and subsequent action by the major secured creditor.

            Financial challenges to newer golf communities, including those also considered resorts with other amenities such as lodging, unlike Aspen Lakes, are were not unusual. The much larger Pronghorn, Tetherow and Brasada Ranch resorts all faced stiff economic headwinds in the real estate collapse of the early 2000s.

            But those resorts had significant advantages in that all were zoned for resort expansion and also had considerable real estate in the form of buildable lots to aid in their recovery. All three received an infusion of capital from new investors coming out of the recession and are benefitting from championship caliber golf courses and significant marketing efforts.

A Bright Future in the Beginning

            In its early days the future looked very promising for Aspen Lakes when the first drives blasted off the inaugural nine tees in 1999. Another nine holes were added in 2000.

            Just five minutes east of Sisters, OR, with views of the 10,000 foot plus peaks of the Cascades, the course garnered accolades from players and infuential golfing media.

           

An early master plan: no lodgings has been built

One golf publication named it one of America’s top new public play courses, and with the notoriety and pre-recession optimism of the mid-2000s came interest in having a home along the fairways.

            Lot sales were brisk. Custom homes rose along the fairways, some selling near to or above $1 million, at that time the higher end of regional prices. The course and real estate were competing favorably with such well-established golf communities and resorts as Black Butte Ranch eight miles west of Sisters and Eagle Crest 20 miles east near Redmond.

            The Aspen Lakes restaurant, known as Brand 33, to reflect the development family’s ranching heritage, gained a loyal clientele until the recent troubles. It is closed for the winter season now. The scenic location with banquet facility has also been a popular wedding venue.

            But today, even if the Cyruses/their LLCS and their secured creditor come to an agreement, there’s a cloud over potential home and lot sales. And its likely that careful brokers will exercise extra caution in crafting due diligence clauses to protect their potential buyer clients.

            As of February 10, the MLS of Central Oregon showed nine lot listings in a range of $189,000 to $380,000 and a single home offered at $1.85 million. In 2019 there were three lots sold in the range of $210,000 to $225,000 and 10 homes at $757,000 to $1.6 million. There were five lot sales at $185,000 to $325,000 in 2018, and eight homes from $660,000 to $1.77 million.

            With the various challenges facing Aspen Lakes and its developers, one veteran real estate professional recently offered a near disaster opinion – “game over.” Perhaps, but Aspen Lakes owners have been able to rise from near collapse in the past.

            The coming of the Spring golf season, with pending decisions by the major creditor and the necessity to provide irrigation water for common area and course landscaping, might give a clearer picture of the way forward for Aspen Lakes.

             

Earlier post:

Aspen Lakes goes to auction

https://bendisbetter.blogspot.com/2019/03/aspen-lakes-golf-course-in-bankruptcy.html

Guest ranch application puts focus on additional ag land uses

            An application now making its way through the Deschutes County land use process puts the spotlight on the potential for new tourism-related activity on property zoned for agriculture.

            In a session January 8 a  hearing officer took into consideration a county staff decision to approve a guest ranch on property adjacent to the Sisters city limits, and an appeal filed by Central Oregon Land Watch.

Site plan (north to right) for Pole Creek guest ranch

            County staff had earlier approved the application by Glenn and Jen Cole, principals of Pole Creek Properties LLC, to establish guest ranch lodging and other facilities on what was formerly known as the Patterson Ranch, once a breeding ranch for llamas that at one time include a small elk herd.

            Oregon law allows owners of 160 acres or more of land zoned for agricultural use to build guest facilities provided ranch and farm activities are continued on the property.

            From four to 10 cabins totaling up to 12,000 square feet and a central lodge common area for dining and other uses are allowed on a parcel of at least 160 acres. More limited lodging is allowed on another 160 acres. Any dining facilities and other activities are limited to lodging guests.

            Proponents of the guest ranch option generally point to it enabling smaller ranches without “high value” farmland to have other sources of income while also preserving agricultural activites and open space from development.

Pole Creek Ranch (north to top)

            In filing an appeal of the Pole Creek application, Land Watch cited four objections: 1) that the ranch livestock operation had not been “existing and continuing” before the application; 2) that livestock operation would be “dwarfed” by guest ranch activities; 3) that the property did not have “accepted livestock practices”; and 4) that a dwelling for the livestock manager was not on the property.

            The Cole’s purchased the 345-acre ranch in mid-2017 for a reported $6.5 million.

            In a statement to the Sisters Nugget newspaper, the Coles disputed each point made by Land Watch in its objections filed with Deschutes County.

            The newspaper also quoted the Cole’s statement,

            “We have proposed and Deschutes County ahs approved, a guest ranch that compliese with the law. Guest rnach lodging will be provided by an existing house and five small cabins. Guest events area limited so they will be less intense than those allowed on large ranch and farm properties with an agri-tourism/special event permit. The guest area is tucked in the trees where it will not interfere with farm use.”

            Agri-tourism/special event permits noted by the Coles have aroused opposition in some cases due to additional noise from crowds, music and traffic. Many of the permits are used to hold weddings on agricultural zoned land and in some cases larger concerts.