This article first appeared on Minyanville.

A piece in this weekend’s New York Times contends that the golden era of real estate is over. The author, David Streitfeld, argues that for the foreseeable future (and possibly forever), a home will simply be four walls and a roof, ceasing to be the lucrative financial investment it’s been since the end of World War II. The premise is mildly compelling, particularly given the dour housing data of the past couple months. But to argue that real estate as an asset class is dead is to grossly misunderstand not only housing, but the nature of human progress itself.

After five years of a housing depression that brought the entire global financial system to its knees, it’s easy to get behind the argument that housing is dead: Shadow inventory is looming, government incentives are running their course, the employment outlook is cloudy at best, and people are thinking twice about plunking down a life’s savings for the privilege of 30-years of indebtedness.

Moreover, according to Streitfeld and the housing economists he quotes, a shockingly large portion of Americans’ disposable income over the past several decades was generated through real estate appreciation. Not only did banks like Wells Fargo (WFC) and JPMorgan Chase (JPM) get rich off originating, packaging, and selling mortgages, but cruise operators like Carnival Corp (CCL) and Royal Caribbean (RCL) and gadget-makers like Apple (AAPL) and Research in Motion (RIMM) cashed in as homeowners cashed out.

And while all this is true, to say that “real estate’s gold rush seems gone for good,” is to lump Silicon Valley in with the Wasatch Mountains, Daytona Beach with Huntington Beach. Articles like Streitfeld’s make for interesting chatter at the water cooler and cocktail parties where being bearish on housing is all the rage, but they miss the larger point that progress and development are ongoing, and there are good long-term real estate investments out there if you know where to look — even if you’re just looking for a place to raise your family.

The bearish thesis breaks down when you look at what it means to actually buy a house, and what factors effect the future price of that particular home. Buying a house isn’t the same as investing in the “housing market.” Not even close. The argument relies on the naive, yet now-popular belief that the same factors that make taking a flier on a Vegas condo risky must, by extension, also make buying a starter home in Austin, Texas, a dicey proposition.

Rather, buying a home is investing in a neighborhood, a community which may or may not be squarely in the path of demographic patterns that were set in motion well before our country had ever heard the term “subprime.” If done right, a happy medium can be found between finding a place you want to live and settling down in what may even turn out to be a good investment.

Population shifts evolve over decades, not years, and are based on fundamental factors that run deeper than short-term blips in the national, or even regional economy. Demographic movements, not short-sighted speculation, are behind the creation of real estate wealth in the long run. These shifts explain why rural towns with stagnant populations won’t see appreciation for decades (if ever), while regions with expanding job markets and a growing population are ripe for smart investment (yes, such areas exist, even now).

At the same time, established, snobbish communities of aging baby boomers may see home prices flatline for years, while buyers in many gritty, neighborhoods on the fringe currently far outweigh sellers. In these markets, prices are creeping back up based on fundamentals, not government crutches.

So as stubborn housing bears drone on, spouting their frail generalities, the precious few of us with vision to see beyond next quarter’s GDP data will be the landlords of the future.

This post first appeared in the June edition of: Cirios Trends: In Search of Real Estate Opportunities

Humans, as a species, are lousy fortunetellers.

A few intrepid visionaries aside, most people simply cannot grasp what the world will look like in 20, 10 or even five years.

And for good reason. Trying to envision the future doesn’t mean picking some individual aspect of society and dreaming up “how cool would it be if …” Proper forecasting requires taking into account all aspects of human interaction, projecting advances in each area out into the future, envisioning a world with those new, unknown rules, then deriving a hypothesis within that framework.

Investing - whether it be real estate or stocks - requires just that predictive aptitude in order to make truly good decisions. The ability to look forward and predict what things may be like based on a set of projections is what separates great investors from those who are content with “market” returns.

In real estate, effective forecasting is impossible without examining and understanding demographic shifts. Populations move slowly, but with great inertia. Trends develop over time, based on fundamental factors that develop over decades, not years or months.

Ask any successful real estate investor and they will tell you that getting in front of demographic movements is the best way to build real estate wealth. Time horizons may vary wildly, whether one is spotting hipster migration within a city that typically foretells more affluent gentrification; or entire towns that over 60 years transformed into an almost exclusively upper middle class Asian-American community.

But how can you know, before, and buy accordingly? And here we are back to the human inability to predict the future.

This month’s Cirios Trends is devoted to one of the most controversial, yet potentially important development projects in the Bay Area, and how its relative success or failure could accelerate a demographic sea change in San Francisco that is already underway.

The Hunters Point/Bayview neighborhood is best known for being the most dangerous part of San Francisco. Gang violence is common, the streets are far from safe and, as one might expect, home prices are lower here than anywhere else in the city.

But Hunters Point also includes the largest untouched piece of land within the San Francisco city limits. Mired in environmental, social and political controversy for decades, plans to redevelop Hunters Point are edging closer to reality. Coupled with ongoing socioeconomic changes in San Francisco, the project is part of a potentially massive shift in demographic orientation within the city.

In the following pages, we barely scratch the surface of what the successful redevelopment of this area could mean for the city. In order to truly grasp the potential opportunities, sit back, close your eyes and imagine a world that is, in a word, unimaginable. (Click here to read the next story)

This post first appeared in the June edition of: Cirios Trends: In Search of Real Estate Opportunities

Over the past several years, precious few shovels have broken ground in San Francisco. The credit crisis and economic slump have caused developers and investors to pull back, as builders have focused on surviving, rather than thriving. But despite the slowdown, Lennar Corp., a Florida-based developer, has been moving steadily forward with plans to redevelop large portions of the San Francisco neighborhood known as Hunters Point.

In 1999, San Francisco awarded Lennar with a contract to redevelop Hunters Point. A decade later, Lennar is making strides to move forward with its ambitious plans, despite myriad setbacks and opposition from local community groups. Last week, the San Francisco supervisors overwhelmingly approved Phase II of a project to transform the abandoned Hunters Point Naval Shipyard into a new waterfront community of homes, businesses and green technology. Major Gavin Newsom called the Shipyard project a key to the city’s future.

The development is massive in size, covering over 702 acres at Hunters Point. Plans include building 10,500 residential units, creating 320 acres of parks and open spaces including the planting of over 10,000 new trees. The project will include waterfront retail and entertainment facilities, commercial space designed for green businesses and a bridge across Yosemite Slough, connecting the Shipyard with Candlestick Point. Plans also include a new 49ers stadium, which are, however, likely to be scuttled thanks to Santa Clara voters’ decision to approve the team’s to move to Silicon Valley.

In order to understand the scope of what is being planned at Hunters Point, one must appreciate the history of the area and the community that has grown up around the former Navy shipyard there.

Hunters Point Shipyard is located in the Bayview neighborhood in southern San Francisco. Established around 1870, the Shipyard was the first dry dock on the West Coast. It was also well known for its butcheries.

From World War II to 1974, the Navy managed the Shipyard, employing tens of thousands of people, while massive developments built up around the site in support of the industry that the Navy provided. Unfortunately for the residents of Hunters Point, the Navy’s activities at the Shipyard contributed to massive pollution in the area.

The Hunters Point Shipyard has been plagued with both chemical and radiological contamination, which the Navy believes was primarily the result of efforts to decontaminate ships that participated in atomic weapons testing in the Pacific Ocean.

In 1989, the US Environmental Protection Agency listed the Hunters Point Shipyard and other nearby areas on its Superfund National Priorities List and closed the base in 1991. Under Superfund law, the Navy became responsible cleaning up the area. Over two controversial and litigation-filled decades, the Navy and other groups have been busy with the required environmental cleanup of the surrounding areas. In November 2000, San Francisco voters passed Proposition P, which required that the Navy clean the Shipyard site to the “highest practical standards.”

With cleanup in certain areas of Hunters Point now meeting San Francisco’s strict standards, development plans are moving forward. On June 3, 2010 the San Francisco Planning Commission narrowly approved the Environmental Impact for Lennar’s Hunters Point development. Despite this big step forward for Lennar, future lawsuits by local groups and environmentalists could arise due to disputes over the environmental impact of the proposed bridge over Yosemite Slough.

In addition to environmental concerns, the social impacts of the project are troubling for the local community. A 2000 study found that 50% of current households in Bayview could not afford even Lennar’s proposed “very low income” units. Despite the likely social impact on local residents, the San Francisco supervisors rejected adding a provision that would require Lennar to make over 50% of residential units “affordable” housing units.

And so, with the project on track to move forward, Cirios is monitoring the progress and impacts of the Hunters Point development, which will be ongoing for the next decade, and beyond. The impact on real estate in the city will be, to say the least, significant.

This post first appeared in the June edition of: Cirios Trends: In Search of Real Estate Opportunities

San Francisco Gives Hunters Point Redevelopment Thumbs Up
(San Francisco Chronicle)

In a nearly unanimous vote last week, the San Francisco supervisors approved plans to redevelop the Hunters Point Naval Shipyard, pushing forward what has become one of the most controversial development projects in the city. The area, long off limits due to hazardous conditions in the water, is slated to be transformed from a gritty, urban neighborhood to a glitzy commercial area replete with shopping, nightlife and eco-friendly housing. But not everyone is cheering, as local residents who spent years fighting the development appear to have lost out to the city’s profit-minded interests. In this month’s Cirios Trends, we dive deeper into the Hunters Point project and what it means for the city in the coming decades.

(Read more here: http://tinyurl.com/ciriostrendsaugust)

High-Speed Rail Chases More Cash
(Silicon Valley Business Journal)

After receiving more than a quarter of the federal stimulus money allocated for domestic rail projects, the California High-Speed Rail Authority is after more funding. The US Department of Transportation has set aside another $2.3 billion for such projects, of which the Rail Authority is asking for $1 billion. But like nearly all development plans, the bullet train doesn’t sit well with everyone. The Peninsula Cities Consortium, made up of representatives from Palo Alto, Menlo Park, Atherton, Belmont and Burlingame, is pushing for plans to be delayed and rethought. Claiming that the train should be “built right or not built at all,” the group is often criticized as rich suburbanites who don’t want the train running through their back yards.

(Read more here: http://tinyurl.com/ciriostrendsaugust2)

Alameda Point Development Hits Snag
(San Francisco Business Times)

Even as San Francisco okayed development to start at Hunters Point, across the bay in Alameda things aren’t going so well. The Alameda city council voted not to extend a development agreement for Alameda Point, a section of the former naval station slated for redevelopment. SunCal, an Irvine-based developer, had been working for three years on plans for the site, navigating the minefield of political, social and financial hurdles to get such a project off the ground. SunCal failed to rally community support and plans didn’t conform to the city’s vision for the project. With choice views and a short commute to San Francisco, Alameda Point represents a tremendous opportunity … for somebody.

(Read more here: http://tinyurl.com/ciriostrendsaugust3)

Ellison Beat out in Bid to Buy Warriors
(ESPN.com)

Ending months of speculation, Golden State Warriors fans will not get to count on Larry Ellison’s fortune to return the NBA franchise to respectability. Last month, Warriors owner Chris Cohen agreed to sell the team to Joe Lacob, a minority owner of the Boston Celtics, and Peter Guber, CEO of Mandalay Entertainment. Fans were shocked, especially after Ellison reportedly tendered the highest offer for the woe begotten franchise, which has made the playoffs just once in the past 16 seasons. Lacob and Guber have vowed to rebuild the franchise, relying on a passion for the team and experience in building successful, profitable brands.

(Read more here: http://tinyurl.com/ciriostrendsaugust4 )

This post first appeared in the June edition of: Cirios Trends: In Search of Real Estate Opportunities

Here at Cirios, we like to believe that every house should be viewed as an investment. From purchasing your first home to acquiring rental property, buyers should always factor in the value of the home based on current market conditions as well as what the future value could be. This forecasting isn’t just a wild stab in the dark, and should be considered not just based on the desirability of the location, but also improvements that can be made to increase the home’s value.

In the city of San Francisco, one of the most valuable commodities for any piece of real estate is parking. All other things being equal, homes with parking sell for a significant premium to those without, especially if that parking comes in the form of a private garage.

Installing a garage at a property can be a very time consuming and expensive process in the city. In neighborhoods like Telegraph Hill and North Beach, adding a garage is particularly difficult because of city fears that garages will replace affordable housing (apartments).

However, when it comes to single family residences, looking at homes without garages offers a more affordable way to acquire a desirable home in a desirable neighborhood. And if a buyer is prepared to build a garage in the future, the investment is likely to pay for itself, and then some.

We examined two properties that are a block apart on the edge of Noe Valley and Glen Park in San Francisco, to show what a difference a garage really makes.

11 Whitney St., 1-car garage
MLS no.: 369926
Bedrooms: 2
Bathrooms: 2
Living Area: 1,756 sqft
Sold: 7/1/2010
List Price: $1,250,000
Sold Price: $1,320,000
Description: Nice open floor plan, updated kitchen
Price per square foot: $752

1793 Sanchez, no garage
MLS no.: 371482
Bedrooms: 4
Bathrooms: 4
Living Area: 2,110 sqft
Sold: 7/13/2010
List Price: $1,189,000
Sold Price: $1,189,000
Description: Updated kitchen with city views, 1-br apartment in backyard
Price per square foot: $564

Based on condition and location, these homes should be considered very similar. While the difference in price per square foot is not completely due to their respective garage situations, the buyer of 1793 Sanchez bought a large home in a desirable neighborhood and can then add value by adding a garage at a later date.

If you apply the price per square foot that 11 Whitney sold for ($752) to 1793 Sanchez, you arrive at a potential value of almost $1.6 million. Now, it’s not entirely reasonable to say that adding a garage would increase the home’s value by $400,000, but it is an indication of just what a discount this home sold for, partly due to the lack of a garage.

Of course, putting in a garage is no simple task. The good news, however, is that because so many homes in San Francisco were built without garages, the garage-installation industry is well-established in the city. Permits can be tough to come by in certain neighborhoods, but in more residential areas like Noe Valley and Potrero Hill, adding a garage is really all about the money.

Depending on the location and the amount of rock that must be moved, whether changes must be made to the foundation and if the contractor must dig down below the ground, garage installations typically run between $150-200k.

Not cheap, to be sure, but as the example above helps show, given the premium attached to a garage, even such a large investment may end up being a great economic decision.

This post first appeared in the June edition of: Cirios Trends: In Search of Real Estate Opportunities

The concept that current housing data is masking true market activity is slowly gaining mindshare. Of course, readers of Cirios Trends will recall that this is a concept we have been pushing for months, even if the mainstream financial media is just catching on. Just last week, Housing Wire quoted Altos Research, a Silicon Valley-based real estate data provider, as saying that anyone who generalizes the size and length of time it takes to clear the shadow inventory will be wrong. Altos even went so far as to compare three Central Valley markets which have been acting very differently of late, analysis which we performed last month here in the Bay Area. As housing perma-bears predict an imminent collapse in home prices, smart investors are seeing opportunities in markets where fundamental supply-demand dynamics look positive, while avoiding markets that look primed for more declines.

Richmond isn’t exactly known for a quiet, family community. Less infamous but almost as crime-ridden as Oakland to the south, Richmond has its share of problems. The real estate collapse was particularly acute here, and as homes were repossessed, blight spread into an already struggling community. But since early last year, investors have been stepping into Richmond. With prices the lowest they have been in a decade and rental yields looking juicy, investors have shown a willingness to deal with Richmond’s gritty streets.

The lesson here is not that it’s time to move the family to Richmond, per se, but there are precious few places left in the Bay Area where homes can be bought for $100/sqft. These investments aren’t for everyone, to be sure, but it pays to know where investor money is flowing.

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If it seems like we highlight East Palo Alto just about every month, it’s probably because we do. In keeping with the theme of this issue of Cirios Trends, looking at long term demographics trends to figure out where to buy real estate, we would be remiss if we did not bring East Palo Alto, or EPA, into the equation. By far the most affordable city on the Peninsula, EPA is also the most dangerous. During the housing boom gentrification sped up, as developers and investors swooped in for (relatively) low prices. Values collapsed 66% from the peak of the market in 2006 to the recent nadir in 2009, only to have recovered more than 17% since early last year. As we wrote in June, “Investors are finding value on these once dangerous streets, betting the disparity between EPA home prices and everywhere else will narrow in the years to come.”

Like Richmond, this is not some ringing endorsement of moving to East Palo Alto, or even buying real estate there. What it is, however, is an observation that homebuyers - be they investors or first home buyers - are looking for value. Some of the hardest hit areas are some of the strongest markets right now, and not just because of government-sponsored efforts to stem the flow of foreclosures. These areas that are cheap relative to their peers, not the ones that have already been discovered, are most likely to prove to be the best long term real estate buys.

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Danville isn’t know for sky high foreclosure rates like other cities in Contra Costa County, but it’s housing market has certainly not been spared from its share of pain. With prices down almost 30% from their peak, the city has been spared the worst of home price declines in the area, with prices are only back to levels not seen since 2003. Nevertheless, Danville has most of what suburban home buyers want: Good schools, quiet safe streets and a bustling downtown. One negative, however, is that it’s a 15 minute drive to the nearest BART, so the commute into San Francisco isn’t the best.

The ultimate question, however, isn’t where Danville home prices have been, rather where they are headed. And if you are looking for an expert on Danville real estate, check out www.bayarearealestatetrends.com, a blog by Greg Fielding, founder of real estate community HousingStorm.com. A friend of Cirios, Greg knows Danville (and much of the Bay Area) as well as anyone, and is definitely worth a read.

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In last November’s Cirios Trends, we highlighted Mountain View, CA, the suburb best known as the home to Google. And while we didn’t go as far as predicting a rise in prices, we did point out that inventory was subsiding from recent highs and the proximity to Google and other Silicon Valley job centers would bode well for real estate values in the long run. Since that time, prices are up more than 9% as measured by price per square foot. However, at $650/ft, true affordability remains elusive. Recent data show that sales are slowing in Mountain View and that buyers remain picky. And with prices back just to where they were in 2008, its not unreasonable to believe that in the near term there could be more pain for this well-to-do Silicon Valley locale. But in the long run, if home prices are driven by jobs, there are worse places to be than Mountain View.

This post first appeared in the June edition of: Cirios Trends: Finding Real Estate Opportunities.

“Mow much should I pay?” is about the most common question we get here at Cirios. Unfortunately (or fortunately), the answer to this question is never black and white. Depending on a buyer’s desired use for a property, there are many ways to determine value and what the right price to pay is.

An investor looking to rehab and sell a home quickly may put a different value on it than an investor looking to buy and rent for several years. Since each investor has different profit targets and time horizons, formulas that determine what price the investor would pay nearly always differ.

Still different is the price a regular home buyer would be willing to pay after accounting for mortgage payments, tax breaks, upkeep expenses, etc.

This piece covers a couple different methods for valuing a property, and is at best a cursory examination of these topics. Each one contains many further levels of complexities and nuance.

Many investors that purchase and hold income generating properties use the Income Method of valuation to determine an attractive purchase price. If an investor wants to earn, say 6% on his money, he would use the annual operating cash flow generated by the property to calculate what purchase price would achieve that level of return.

This type of investor often uses the concept of a “Cap Rate” to figure out how much properties are worth. A Cap Rate (short for Capitalization Rate) is the rate of return generated by net cash flows - that is, rental income minus all operating expenses associated with owning the property. For example, if a 6-unit apartment building bought for $400,000 generated $30,000 in net operating income, the Cap Rate would be 7.5% ($30,000 / $400,000).

If a nearby 6-unit building generated $45,000 of income, applying the same Cap Rate you would arrive at a value of $600,000 ($45,000 / .075). In general, as markets improve and property values go up, Cap Rates go down. This makes sense: When times are good, there are usually more buyers than sellers, so sellers can demand high prices which push down rates of return.

The reverse is true when prices fall and markets tighten up. Investors demand a higher rate of return for taking the risk of buying a property in a hard environment, which drives down the prices they are willing to pay and thus pushes the Cap Rate up.

For home buyers, the decision of what price to pay is determined by two primary factors. First, the buyer’s ability and willingness to pay. Monthly income and savings will often dictate how much a buyer can pay, then more emotional factors kick in to determine how much he or she is willing to pay. The confluence of hard numbers and soft feelings creates a price range where the buyer can be satisfied both economically and emotionally.

Second, recent sales, other listings and general market conditions will determine what a fair price for a given home is. Subjectivity plays a huge factor in comparing like properties, so valuing single family homes is much more an art than a science.

Often, relative affordability between different cities is evaluated using a “Rent Ratio.” A Rent Ratio is exactly what it sounds like, a ratio between the cost to buy and the cost to rent. If a $200,000 home would cost around $16,000 per year to rent, the Rent Ratio is 12.5 ($200,000 / $16,000). According to Rent.com, which compiles rental data nationwide, a Rent Ratio around 15 means the buying and renting are roughly equivalent options. Below 15 and buying may be the best route, while above 15 and it may be best to hold off.

According to the most recent data, San Francisco is actually ranked as the best city to rent, with a whopping Rent Ratio of 37. That’s higher than New York at 21 and Honolulu at 24.

So, does that mean it’s a terrible idea to buy a home in San Francisco? Far from it. There may be plenty of valid reasons not to buy in San Francisco, but a broad metric like this doesn’t tell the story of individual neighborhoods.

What this high ratio does tell you, is that if you are lucky enough to find a property in San Francisco where buying and renting cost roughly the same, you are probably getting a pretty good deal.