In This Issue Guam Real Estate: 2011 Year In Review; Market Activity Update and Trends; Lender Activity in 2011; Prevailing Market Conditions in Historical Context; Property Preview: LeoPalace Resort; MREIC Update; Editorial: What’s Wrong With Guam Public Radio? Part III; Past Newsletter Links
HEADLINES: Guam Military Build Up: The Newly Downsized Ex-Futenma Look; Residential Sales Slow, But Housing Median Price Hits New High; High-End Housing Sales Up 50%; Lender Activity Weakens; Near Term Build Up Funding Slashed, But Outlook Remains Positive.
Guam Real Estate: 2011 Year In Review
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It’s off. It’s on. It’s 50 percent. No, it’s 100 percent. No, now its just 33 percent. It’s now. It’s never. ”It” (aka the Guam Military Build Up) is the $10 billion question (or is it only a mere $5 billion?) and “it” is dominating Guam’s real estate market decision making. This past year certainly reflected increasing uncertainty (we’re fairly certain about that). By late 2011, the opaque outlook and elevated risk substantially slowed activity in Guam’s decidedly undecided real estate market. By year end, the outlook for some of the most grandiose build-up related developments, looked grim.
Although local real estate sales activity fizzled by year end, annual 2011 islandwide transaction volume equalized 2010 figures. Sales in 2011 were boosted by $39.5 million combined by the former Okura and Sherwood hotel transactions. According to the latest release from the Captain Real Estate Group; aggregate 2011 islandwide sales volume increased by less than one percent from 2010, to $307.1 million. In the residential sector, the overall sales pace slowed to its slowest rate in nearly a decade, with only 542 single family dwelling (“SFD”) sales in 2011, down 8 percent from 2010 and down 30 percent from the 2007 peak. However, the annual median price of a house on Guam last year increased by over 15 percent to a record high $245,000, or about five times the median household income level. Guam “one percenters” fueled a recovery in the high-end residential sector with 35 sales of houses priced above $500,000 in 2011, up over 50 percent from 2010. The condominium sector reflected another slowdown in sales activity, with an anemic 57 units islandwide closing in 2011, at a combined price of $12.9 million. The annual median price of a condominium in 2011 declined slightly to $135,000.
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Local real estate market conditions have transitioned toward relatively low, stabilized sales activity, tighter lending guidelines and reduced liquidity due to the on-going reassessment of risk associated with the new look ex-Futenma Guam military build-up. The build-up, now apparently downsized to 4,700 Marines and an unknown number of dependents, was originally proposed at a $10± billion cost with completion, along with 18,000 new residents, by 2014. Market sentiment regarding the build-up downsizing by up to 70 percent varies, but the shock of a massive scale back in expectations remains reverberating among local and foreign investors. As downsizing news spread by late 2011, real estate sales in the 4th quarter tanked to pre-build-up 2004 levels of around $50 million. Many recent investments designed to capitalize on the build-up, especially worker housing and industrial property, have suffered from weak demand. Other failed projects such as the four abandoned hospital cliffline towers and the abandoned Tumon box now appear even less likely to find badly needed white knights.
Additional external market demand shifts during 2011 emanated from: the repatriation of Japanese yen following the tragic March 2011 Fukushima triple disasters, historically low interest rates, European liquidity uncertainty, alternate investment opportunities and other demand side externalities. Although the shock of reduced build-up expectations is likely to dominate near term activity, investor confidence in the long-term remains positive due to the eventual military expansion which, even if the downsized completion is pushed back a few years, would still vastly improve fundamental market conditions.
From the beginning to the end of 2011, Guam’s recent real estate market might best be summed up by those Grateful Dead lyrics, ”Sometimes the lights all shinin’ on me, other times I can barely see”. Opaque. Uncertainty. Risk. Will President Obama calm Guam real estate investors on February 13? Stay tuned …
Market Activity Update and Trends
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The $307.1 million in sales volume in 2011 was equivalent to late 2005/early 2006 figures, but more than double the underwhelming 2003 total. Last year’s sales total reflected nearly 25 percent growth compared to 2009 sales. Guam real estate lending activity in 2011 reflected a 12 percent drop in transactions, and a 3 percent decline in volume, to $374.4 million.
Market stability in 2011 was highlighted by Guam’s residential sector. Single family home sales reflected $141.3 million in 2011, down a smidge from the $141.7 million recorded in 2010. The condominium sector reflected $31.4 million in 2011, off slightly from the $32.2 million reflected in 2010.
During 2011, the median price of a single family house hit a record high $245,000, up 15 percent from 2010 and nearly double the 2004 level. The increasing median price in recent years is substantially attributable to the change in product mix, which includes an increasing number of new (more expensive) houses compared with prior years. The flat residential dollar sales in 2011 occured along with shrinkage of 8 percent in the number of houses sold, which reflected 542 units in 2011. Unit sales volume peaked during 2006 to 2008 with over 700 houses sold annually. The 2011 unit sales volume reflected the slowest pace in a decade. High end SFD sales (above $500,000) increased over 50 percent in 2011 with 35 transactions, as wealthy individuals returned to the market.
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In the condominium sector, the median price decreased slightly to $135,000 in 2011, while the number of transactions declined nearly 10 percent, to 167 units. Condominium sales volume (in dollars) in 2011 was down by 3 percent to $31.4 million. The high end condominium sector stabilized with 20 transactions priced over $350,000, slightly less than 2010 activity.
Notable Transactions - Notable sales in 2011 included the former Okura and Sherwood hotel transactions, which reflected a combined $39.5 million sale price. Other 2011 notable sales include the largest land deal of the year, a $17.6 million Tumon beachfront site acquired by a Taiwan-based investor. Industrial sales last year were highlighted by the $2.0+ million sales of the Tamuning Industrial Park and Proline warehouse complexes. Luxury residential sales included the bulk, 8-unit sale of unsold Tasi 17 condominium units at a price of $4.1 million. Other notable sales during 2011 included Route 3 land sold at $3.0± million and Young’s Plaza commercial complex at $3.0± million.
Lending Activity in 2011
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Bank of Hawaii and Citibank earned our “Comeback Lenders of the Year” award in 2011, increasing real estate lending by 70 and 86 percent, respectively, according to Captain Real Estate Group statistics. Real estate loans by these banks were still down by 30 percent compared with 2008. Bank of Hawaii, Citibank and Bank of Guam were the only lenders reflecting real estate loan growth in 2011. Bank of Hawaii’s lending growth returned the bank to a more normalized #3 market share position.
In 2011, First Hawaiian Bank retained its status as Guam’s dominant real estate lender with 20 percent market share, at $76.4 million, down 8 percent from 2010. Bank of Guam continued to close the gap on First Hawaiian Bank in 2011 with real estate loans totaling $73.6 million, only four percent less than First Hawaiian Bank. The sharpest drop in lending occurred at Coast 360, down by almost 30 percent from $50 million in 2010 to just $35 million in 2011. Newly appointed CEO Dick Northey and his team are well positioned to capitalize on opportunities and increase market share for Coast 360 in the near future.
Prevailing Market Conditions in Historical Context
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Guam’s real estate market reflected explosive growth and significant price appreciation between 2004 and early 2008. Improved mid-2000s market conditions resulted from an end to recessionary economic conditions, followed by the foreign investment and speculation associated with what was previously widely reported as a $15± billion military expansion. By mid-2011, a series of negative political events and the triple disasters in Japan resulted in widespread concern that the build-up could be indefinitely delayed or altered considerably. Issues negatively impacting build-up projects included the Futenma base relocation opposition in Okinawa, massive federal expenditure cut-backs, increased construction cost estimates and other factors. The Guam military build-up process, roughly $600 million of which is already underway, is expected to dominate local economic and real estate market conditions during this next decade.
Recent cyclical real estate market conditions peaked in 2007 and 2008. Along with global financial market fallout starting in late 2008, Guam real estate transaction activity (aggregate dollar sales) contracted sharply. Since mid-2009, transaction activity has fluctuated at prior cyclical low (pre-2004) levels, although price declines in most market sectors have been relatively limited. Price movement has varied by sector with some highly leveraged and build-up related speculation purchases reflecting the greatest declines. By early 2012, the combined negative impacts associated with the March 2011 triple disasters in Japan, as well as the subsequent, massive downsizing of military build-up plans, resulted in further contraction in real estate sales volume, liquidity and demand. Most recently, investor caution is widespread due to the growing frustration associated with the military build-up, global economic risks and an increase in alternate investment options. It is widely expected that real estate demand will continue to remain relatively weak in the near term, with substantial mid to long term growth possible if downsized and protracted military build-up activity significantly impacts economic and population growth by 2016-2018.
Property Preview: LeoPalace Resort
Guam’s Only World-Class Resort Living Option
The Leopalace Resort is the only world-class master planned resort located in the Western Pacific and includes a wide range of luxury residential units, as well as some of Guam’s finest hotel, golf and other sporting facilities. The lifestyle residential leasing program was designed for tenants that desire amenities found only at world class resorts. All lifestyle residential program tenants benefit from the use of four swimming pools, discounts at the resort restaurants and retail facilities, a courtesy Hotel Belvedere stay, free bowling, monthly wine offering, special event cake and champagne programs, as well as other lifestyle benefits. In addition to the courtesy lifestyle benefits, optional golf, spa and fitness packages are available. A limited number of condominium and duplex units at Leopalace Resort now available for lease. One to three bedrooms, furnished and unfurnished units available.
 Aerial View |
 La Cuesta Bedroom |
 La Cuesta Living Room |
Click here to download the brochure.
6th Micronesia Real Estate Investment Conference
Captain Real Estate Group is pleased to provide this brief update regarding the 6th Micronesia Real Estate Investment Conference (MREIC). This popular event has featured numerous off-island speakers that share views and opinions on the future of Guam real estate. The event has featured Investor of the Year, Lifetime Achievement Award, panels and expert sessions over a day and a half. This idea forum brought nearly 300 delegates together in 2007 and 2009. If you are interested in supporting the conference as speaker, underwriter or workshop presenter, please call Nick Captain directly at 1(671) 472-1819.
Editorial: What’s Wrong With Guam Public Radio – Part III
I love Guam Public Radio. It’s on 24/7: great programming, especially the local shows, all night long. Ever wonder how they do that, with staff working 8-5? Automation. Major investments in equipment upgrades between 2005 and 2010 allows remote, internet control of the station. These investments in automation allow the GM nearly four months of paid leave this year. Unfortunately, during that 2005-2010 time frame, management costs ballooned to a level where the GM salary and benefits package alone now accounts for every penny of membership donations! Try to find another public radio station that can match that claim (we’re #1)! Not surprisingly, along with our recent series of articles exposing the self-serving management and lax Trustees, membership at Guam Public Radio has declined from nearly 600 (when I recently resigned as Board Chair) to the 400s. The drop in membership prompted a seemingly desperate (more expensive giveaways) one day “Winter” membership drive on which the GM blatantly lied to listeners: claiming that member donations were the #1 source of revenue to Guam Public Radio. The truth is, every penny of Guam Public Radio member donations (around $60,000) is used to pay the fat GM salary and benefits package. The #1 source of revenue to Guam Public Radio is GovGuam, via UOG appropriations. With development now outsourced and automation that allows absentee management, one might wonder where the 160 hours of weekly salaries goes? Other than the excellent DJs, there are no volunteers that could help reduce overhead. No local bands, no events coverage, no volunteers … let’s get Guam Public Radio back to where it should be, by for and about its members and volunteers, not by, for and about management and his cronies.
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Past Newsletters
- Captain Real Estate Newsletter – October 2011
- Captain Real Estate Newsletter – August 2011
- Captain Real Estate Newsletter – April 2011
- Captain Real Estate Newsletter – January 2011
- Captain Real Estate Newsletter – November 2010
- Captain Real Estate Newsletter – August 2010
Sincerely,
Nick Captain
President
