THE BATTLE OVER PRIZED LAND UNDER SILICON VALLEY'S TRAILER PARKS

Original Story: bloomberg.com

The free market wouldn't plop down a trailer park just a few miles from downtown San Jose. At least not today, in a sharply spiking housing market that has made the metropolitan area one of the most expensive in the U.S. But that's where you'll find Winchester Ranch and its 111 mobile-home lots, just down the street from an upscale shopping mall, a newly created development zone, and a major highway interchange. A Los Angeles real estate lawyer is following this story closely.

"The best use for that land is probably apartments," said Gary Hansen, a senior vice president at Cushman Wakefield, the commercial real estate firm with offices just across Winchester Boulevard from the mobile homes. You don't need to be a broker to reach Hansen's conclusion: “It's a premier location.”

That made Winchester Ranch look like a potential bonanza for home builder PulteGroup when it agreed to purchase the property from its longtime owner. The idea was to develop the site with a mix of market-rate and affordable apartments alongside a new hotel. To compensate residents that the project would displace, the Atlanta-based company plans to offer buyout packages "somewhere from $140,000 to more than $200,000," said Jacque Petroulakis, a spokeswoman for Pulte. The company declined to comment on the price of the deal, which hasn't yet closed. A Charlotte commercial real estate lawyer has experience assisting clients with acquiring, financing, developing, managing, constructing, leasing, and selling commercial real estate property of all kinds.

Those payouts, however, didn't prove sweet enough to win over residents and housing activists. The San Jose City Council is expected Tuesday to vote on a six-month moratorium that would prevent the closure of Winchester Ranch and 58 other mobile parks within city limits. If the measure passes, lawmakers would use the time to work out the delicate balance between the desires to spur growth and to avoid booting seniors out of their homes.

"Over the years, the most traumatic and difficult deals you can do have been conversions of mobile-home parks," said Hansen, a former city council member in nearby Santa Clara. “If you want to make a lot of enemies quick, talk about converting mobile parks in your community.”

California has about 4,500 mobile-home parks that can hold more than 393,000 residences, creating a particularly tricky problem in parts of the state with fast-climbing housing prices. Those living in mobile homes are typically older and poorer than other local residents. Lots at Winchester Ranch, for instance, are available only to residents 55 and older. Most mobile-home residents find themselves in the complicated situation of owning their dwellings but not the land underneath. Developers envision much better ways to make money than collecting modest monthly payments from mobile-home tenants. A Plymouth landlord tenant lawyer is reviewing the details of this case.

The state tried to get around this dynamic in the 1980s with the passage of rules discouraging mobile-home park owners from kicking out residents. But rising land values in recent years have changed the economics of the business, giving park owners and developers greater incentive to pay the costs of removing residents while taking on affordable-housing advocates who oppose park closures.

Buyouts to residents of Winchester Ranch under the current offer could add at least $15 million to development costs. Pulte plans to apportion a piece of the 16-acre plot for a hotel to be built by an outside developer, helping to offset the costs of the buyouts. The builder is counting on a prime location in a hot housing market whose median listing price for a single-family home in August reached $878,000, the country's second-highest level, according to the National Association of Realtors.

The same market dynamics that allow Pulte to promise rich buyouts may also prevent Winchester Ranch residents from finding new homes. A household in San Jose needs to earn $109,000 a year to afford the average market-rate apartment, and most income-restricted housing developments have long waiting lists, according to a recent staff memo from the city council. There are more than 19,000 mobile-home spaces in Santa Clara County, which contains San Jose, but only 78 active listings. The memo put the average price for those listings at $197,000.  A Los Angeles real estate lawyer has experience in many aspects of real estate law.
 
“They’re not building any new mobile parks,” said Terri Pohrman, vice president for the Golden State Manufactured-Home Owners League. “If you drive people out, where are they going to go?”
Part of the problem is that mobile homes aren’t truly mobile—about 70 percent of mobile homes have never been moved from their first location, according to U.S. Census figures—and for the most part don't even qualify for home loans. The term "mobile home" persists, in part, because it’s less evocative of exurban poverty than the once-popular phrase “trailer park.” It’s also less vague than “manufactured homes,” the industry’s preferred nomenclature. Across the U.S. there are about 2 million such homes situated in mobile parks with at least 21 lots, according to the Census Bureau’s American Housing Survey, and about 8.6 million mobile homes in total.

The typical mobile-home resident is older, whiter, and poorer than the U.S. population, according to the census. Forty-five percent were eligible for food stamps in 2013, and 28 percent  of mobile-home households are led by someone who lacks a high school diploma.

Since mobile-home residents don’t own land, they generally don’t qualify for home loans, foreclosure protection, or other benefits of homeownership. “Instead of like a traditional site-built home where the value is going to increase over time, it winds up being like a car that depreciates every day,” said Mike Bullard, a marketing manager for ROC USA, a New Hampshire-based nonprofit lender that helps resident groups pool their funds to buy mobile parks.

Attempts to block mobile-home park conversions have spread across California areas with skyrocketing home prices. Huntington Beach passed a temporary ban on conversions in 2013 so the city could decide what to do with displaced senior citizens. Subsequent attempts to redevelop mobile parks have been challenged in courts up and down the coast. The best-known case involves an effort by the municipal government of Palo Alto to raise $38 million to buy a 117-lot mobile park that has been slated for redevelopment—an outcome with the potential to disappoint those who think the land should be put to higher use, as well as those who believe there are more efficient ways to support low-income residents.

“Basically, they have to come up with the money to pay for the land at luxury prices,” William Constantine, a housing lawyer who has represented mobile-home residents seeking to block conversions, said of Palo Alto's predicament. “It’s a waste of public resources needed to preserve other housing.”

One alternative would be for local governments to apply a new state law requiring a municipal plan to preserve existing affordable housing. Local governments could also use eminent domain to help residents acquire mobile parks at prices that reflect the value of a mobile-home business, not what the land is worth to developers. Constantine has drafted legislation for Santa Cruz County, Sonoma County, and the city of Watsonville that would let the government pursue that path as a last resort.

“It’s reasonable, if you’re a park owner, that you want to make as much money as you can,” said Constantine. “But the state has a right to limit land use to provide low-income housing.”

Silicon Valley 3.0: Tech's New Wave

The Wall Street Journal

Edenvale Technology Park gives a glimpse of the new Silicon Valley.

 

 

The long recession only tiptoed through the 2,300-acre office park, with many start-ups here expanding their operations over the past 18 months. One prominent tenant, solar company Nanosolar Inc., began producing solar panels in March and plans to add space and more employees to its 350-person work force.

Scientific-equipment maker Stratedigm Inc. moved into a 6,000-square-foot space in Edenvale—more than double its old office size—as it revs up sales. And several biomedical start-ups that were started under one roof also upgraded to bigger offices in the park.

Edenvale shows how Silicon Valley's start-up economy has quietly broadened beyond information technology. It now includes a growing cadre of bioscience and "clean technology" firms, presaging a more-diversified economic base and bolstering the valley's status as the world's innovation hotbed.

Edenvale's relative strength contrasts with how it fared in the last downturn, a decade ago. Back then, the office park was filled with traditional tech companies such as International Business Machines Corp. and optical-networking company ONI Systems Corp. When the tech bust hit in 2000, the area imploded. Dozens of tech firms shut down or scaled back. Vacancy rates soared to 25%.

After that, San Jose officials sought to diversify Edenvale. "San Jose went through a soul-searching process on the nuts and bolts of our economy," says Julie Amato at the San Jose Redevelopment Agency, a governmental organization focused on creating jobs and removing blight. "We better understood how a diverse economic base could help us." Since then, Edenvale's make-up of start-ups has shifted.

It's a reflection of what's happening across Silicon Valley. Though local tech giants such as Hewlett-Packard Co. and Google Inc. still dominate headlines and payrolls, the area's start-up economy has branched out significantly in recent years.

The changes foretell how Silicon Valley's big-company makeup may shift 10 to 15 years down the road as some of the new start-ups take off into big successes, even as others fail, says Bill Miller, a Stanford University professor emeritus of computer science and management and a former entrepreneur.

"Whether these new industries will play a big role or a small role" in the overall economy remains to be seen, Mr. Miller says. But "my belief is they will play a pretty big role."

Already, the start-up ferment means Silicon Valley has become less reliant on its dominant information-tech industry, blunting the pain of the recession.

Less than a third of Silicon Valley's work force is now employed in chips and computer manufacturing, compared with more than 50% in 1990, according to research firm Collaborative Economics.

Instead, the area's jobs and local municipalities' tax base have begun spreading to emerging sectors such as clean tech. Between 1995 and 2008, the number of clean tech and related jobs in the San Francisco Bay Area rose 58% to around 44,000 positions, according to Collaborative Economics. Though such jobs remain a fraction of the area's overall work force of 4.1 million, the growth far outstripped the region's 8% employment growth over the same period, the research firm says.

Today, less than half of the region's venture capital, which is used to finance start-ups, goes to tech companies—compared with nearly 70% five years ago, according to research firm VentureSource.

The amount of venture capital going into Silicon Valley and Bay Area companies—at $8.3 billion in 2009—is far below its peak of $11.8 billion in 2008, according to VentureSource. Nationwide, venture capital expenditures fell to $22 billion last year, down from its peak of $32 billion in 2007, according to VentureSource.

Silicon Valley's diversification should lead to greater economic stability and the creation of more high-paying jobs, says Mr. Miller, who likens a broader economic base to a diverse gene pool, which helps species adapt to big environmental shifts. The broadening also is necessary for Silicon Valley to retain its standing as an innovation center, particularly as some mainstay industries such as corporate software and hardware mature, he adds.

Like many tech start-ups before them, some of the new bioscience and clean-tech start-ups will disappear before they can become big-companies. Unlike Web start-ups, which can be started cheaply with a few programmers and inexpensive equipment like personal computers, clean-tech and bioscience firms require substantial capital to build manufacturing facilities and undergo drug trials. Such costs can keep the companies unprofitable for years.

Solar and many clean-tech industries also rely on government subsidies, and demand for their products could depend on government environmental policies, which are out of the control of those companies.

Still, Silicon Valley's start-up scene has often led to generational shifts in its big industries. In the 1970s, chip start-ups foreshadowed the chip-company era of the 1980s. A few software start-ups in the 1980s became a mainstream industry made up of behemoths such as Oracle Corp. in the 1990s. And the dot-com ferment of the late 1990s—much scoffed-at by 2002—foreshadowed today's established Internet industry of Google, eBay Inc. and Facebook Inc.

Today's start-ups include clean-tech outfits such as Bloom Energy Corp., which is working on a fuel cell to deliver energy more efficiently. There are also bioscience companies like Pacific Biosciences of California Inc., which is developing a DNA sequencing process to help medicine and health research.

The growth of such firms is having a magnet effect, attracting more clean-tech and bioscience companies to the area.

In just one building in Edenvale alone, about half a dozen of the more than 20 bioscience start-ups residing there moved in all or some of their operations from outside the area. GeneWeave Biosciences came from New York. Oxford BioTherapeutics, a U.K. company, opened lab operations in Silicon Valley.

Some of the region's new start-ups are already making a move toward big-company status. Electric car maker Tesla Motors Inc. went public in June and has signed a deal to develop electric cars with Toyota Motor Corp. Biofuels start-up Codexis Inc. raised $78 million in an April initial public offering and expects to hit nearly $100 million in revenue this year. In August, Pacific Biosciences filed plans for a $200 million IPO.

In five years, "our vision is that we will have many factories and that we'll have an impact on the climate," says Chris Gronet, chairman of solar-panel maker Solyndra Inc. in Fremont, Calif. Solyndra has raised around $1 billion in funding and took over the space of an old-tech hard-disk drive maker for its headquarters in 2007.

But Solyndra is already facing challenges. It pulled its IPO filing earlier this year, citing "adverse market conditions." Codexis, which is unprofitable, has also seen its share price trade down since its IPO. Imara Corp., a maker of high-power lithium-ion batteries, shut its doors last year after failing to raise more venture-capital funding.

Information tech start-ups also remain a big part of Silicon Valley's economic mix. The rise of social-networking companies such as Facebook and Twitter Inc. has spurred hiring and the creation of new sectors such as online social gaming. Apple Inc.'s iPhone has spawned a booming cottage industry of "app" makers for smartphones. Some 37% of app makers that it tracks are now in Northern California, estimates Mobclix Inc., which runs a nationwide app exchange, making the region the top locale for apps, ahead of 12% in the New York and New Jersey area.

Still, a shift in Silicon Valley's economic makeup appears inevitable, says Paul Holland, a venture capitalist at Foundation Capital, which is funding clean-tech start-ups. "Some of the diversification happening at the early stage is already starting to show up in the bigger players," he says.

Edenvale typifies Silicon Valley's latest crop of start-ups. Prior to the 1970s, the area was largely ranch and farm lands. In the early 1970s, property developers such as Carl Berg, CEO of Mission West Properties Inc., began buying land there.

Starting in 1976, the San Jose Redevelopment Agency designated 2,300 acres in the area as a redevelopment project, meaning the neighborhood was targeted for construction and job growth. Companies such as disk-drive maker Western Digital Corp. soon began opening facilities there, joining existing tenants such as IBM and then Fairchild Semiconductor Corp.

Edenvale took off in the late 1990s as dot-com fever and a telecom boom enveloped Silicon Valley. Networking companies such as StrataCom Inc. moved in, building a manufacturing facility in the office park before being acquired by Cisco Systems Inc. in 1996 for $4 billion.

To accommodate the tech boom, more than 2.8 million square feet of new research and development space was built in Edenvale between 1998 and 2002, according to the Redevelopment Agency. Vacancy rates in the park still went to nearly nil. Tech companies "were spending money like mad," says Mr. Berg, the property developer.

Then the tech bust hit. In its wake, dozens of companies shut down or moved out.

That was when San Jose officials began studying industries beyond IT that it could potentially tap, such as biosciences. In 2004, San Jose funded and opened a 37,000-square-foot bioscience start-up incubator in Edenvale to nurture new companies. In 2007, the city created a program to give solar companies capital-equipment grants if they moved into Edenvale.

By that year, a trickle of non-IT companies began appearing in Edenvale. One was Nanosolar, a solar company founded in 2002 with funding from Google founders Sergey Brin and Larry Page.

The start-up, which uses a high-speed printing technology to lower the cost of making solar panels, was initially located in Burlingame, Calif., in a 1,000-square-foot space with 10 people, says Nanosolar co-founder Brian Sager. By late 2007, it had raised around $100 million in venture capital, grown to 50 people and needed to expand into a manufacturing space to start producing its panels.

That year, Nanosolar scored a $1.5 million incentive package from San Jose to move into Edenvale. In exchange, Nanosolar promised to create an undisclosed number of jobs in the area. In addition, San Jose officials promised streamlined permits to get Nanosolar's manufacturing facilities up and running, says Mr. Sager. The company moved into a 100,000-square-foot building in Edenvale that had previously been StrataCom's facility.

With production of solar panels now ramping up, Mr. Sager says Nanosolar has already expanded into a part of the parking lot. It plans to add an adjacent 110,000-square-foot space over the next few years.

"When we first came, there were a lot of empty buildings in Edenvale, since a lot of companies that focused on optical networking here had disappeared," says Mr. Sager. Now he notes that other solar companies have also appeared in Edenvale, including Stion Corp. and SoloPower Inc.

Indeed, in the recent recession, Edenvale's vacancy rate didn't rise above 20%, says the Redevelopment Agency.

At the same time, bioscience-related firms have sprouted in Edenvale. Earlier this year, medical products maker Hospira Inc. signed a lease to shift some operations into the office park. Biomedical start-ups have also clustered there around the bioscience incubator, the San Jose BioCenter. The BioCenter leases out small lab spaces and "clean" rooms for testing products so that start-ups don't need to build their own research-and-development facilities.

Raj Chhibber, a former chip-industry executive, moved into the BioCenter incubator in 2005. He says he decided to go into bioscience and leave semiconductors because chips "are a mature technology." He named his start-up BrighTex Bio-Photonics LLC, and by late 2007, had created a $10,000 to $70,000 machine that cosmetics companies and others can use to analyze and test skin.

In 2008, the self-funded start-up graduated from the BioCenter into a 4,000-square-foot industrial space in Edenvale.

With BrighTex's sales set to grow 40% this year, Mr. Chhibber plans to boost his staff to 40 by the end of 2010, up from eight in 2007. He's also considering buying another 4,000-square-foot property in Edenvale for expansion.

"There's definitely been a shift here," says the 50-year-old. "In the late 1980s, it was all data-storage companies here. Now that's no more."

Silicon Valley To Take Advantage Of Record Low Mortgage Rates
As Originally Posted to Mercury News

Mortgage rates dropped to a record low this week, stoking a surge in refinance applications in the South Bay as homeowners look to take advantage of some of the best loan deals in nearly 40 years.

The national average interest rate for 30-year home loans fell to just 4.85 percent this week from 4.98 percent last week, Freddie Mac said Thursday. That's the lowest ever recorded by the government-backed mortgage financing company, whose data goes back to 1971. The previous record low was set in mid-January, when rates fell to 4.96 percent. Average rates are those for "conforming" loans, up to $417,000.

Experts say rates are likely to stay low for the rest of the year, perhaps providing a much-needed balm for the wounded housing market.

Even in Silicon Valley, where residents need bigger loans to buy in the area's more expensive neighborhoods, news of the low rates is spurring loan applications, local mortgage industry professionals said.

"I am busier right now than I was all of last year," said Todd Flesner, a broker with Stern Mortgage in Palo Alto, "due primarily to low interest rates and the correction in values on home purchases."

With home prices down from last year, he's got several first-time clients purchasing homes in the $500,000-and-under price range in San Jose.

Similarly, Chris Amsden, owner of Golden State Lending in Los Gatos, said he's seen a surge of loan applications in the past two weeks. Sixty-five percent are for refinances, he said, and the rest are for purchases. Most of those purchasing are seeking foreclosures or short sales, he said.

Interest also spiked as measured by Zillow.com. At the real estate site's Mortgage Marketplace, there were 7,868 requests for loan quotes from March 12-18, and 21,841 requests from March 19-25, just as rates dived to 5 percent and lower.

A lack of equity

But despite the good news about low rates, obstacles remain for many local homeowners who want to refinance. Loans are generally available only to those who have at least 20 percent equity in their homes. And with home values falling, fewer people have the equity needed to refinance. Also, while rates for conforming loans and so-called "jumbo conforming loans" ($417,000 to $729,750), are at or near record lows, rates for loans even bigger than that remain at an average of 6.66 percent this week, according to Bankrate.com.

The recent drop in rates occurred after the Federal Reserve announced plans last week to buy more than $1 trillion worth of Treasury bonds and mortgage-backed securities from Freddie Mac and its sister company Fannie Mae, in an effort to keep mortgage rates attractive and bolster the weak housing market.

Rates dropped sharply on the news last week, although they have ticked upward slightly since then. (Freddie Mac's report provides an average rate for the seven days ending Thursday.)

For borrowers willing to pay a point up front, rates for loans of up to $417,000 were about 4.75 percent Thursday, Flesner said. And for jumbo conforming, rates were about 5.125 percent with 1 point paid.

A point is equal to 1 percent of the loan's principal; some borrowers opt to pay points in exchange for lower interest rates. In the Freddie Mac survey, borrowers paid an average seven-tenths of a point on the record-low average 4.85 percent interest rate.

The Fed's announcement nearly assures that rates will stay low, said Greg McBride, senior financial analyst with Bankrate.com.

"By purchasing mortgage debt and Treasuries over the remainder of the year, the Fed is going to keep a lid on mortgage rates for the remainder of the year. Low mortgage rates for as far as the eye can see is what's needed to bring buyers back to the market," he said.

Refinance, refinance.

The mortgage market is being dominated by refinance transactions, according to the Mortgage Bankers Association. In its most recent weekly survey, for the week ended March 20, nearly four out of five mortgage applications nationwide were for refinance transactions. Refinance applications increased 42 percent compared with the previous week, the trade group said.

Arlene Allert, Bay Area regional manager for Wells Fargo Home Loans, urges homeowners to consider their long-term financial goals and research various loan products available before deciding to refinance.

"A lot of people over the last few years got into a culture of 'the rates are down, I'm going to refinance,' " she said. "A lot of people ended up in products that maybe weren't the best for them."

Allert added that the Obama administration's new refinancing and loan modification programs, dubbed Making Home Affordable, should help some "underwater" homeowners — those who owe more than their homes are worth — when the programs are up and running. She wasn't sure when Wells Fargo will begin helping customers navigate the options available through Making Home Affordable, but said the bank was "working diligently" on a process that will help customers quickly gauge whether they qualify for refinancing or loan modification.