Former lecturer Barry Burnett talks finance

(June 10, 2009)

Q&A: BARRY BURNETT

By Christopher Cadelago

Barry Burnett refers to his Magnolia Park headquarters as the “Biggest little brokerage in town.”

From the office, the walls of which are peppered with photographs of dozens of European landscapes, Burnett conducts much of the day-to-day operations of his 31-year-old real estate business.

In addition to years of civic leadership and collaboration with area nonprofits, Burnett taught real estate and finance at Cal State Northridge and the University of Texas, Arlington, before hosting a series of lectures on foreclosures.

Five years ago he lost one of his legs to amputation following a motorcycle accident. Seven amputation surgeries later, the former legislative chairman of the California Assn. of Realtors and past president of the Burbank Assn. of Realtors still engages in one of his favorite hobbies — surfing.

“I had anticipated that things would be extraordinarily different,” he said. “And they are not. They are ordinarily different. The only thing I’ve noticed that’s totally radical is the judges don’t like my style when I am surfing. They just don’t get it. But I can ride up to 10-foot waves.”

We caught up with Burnett this week to discuss the industry, get a picture of local and national trends influencing the market, and the future of residential salespeople.

CHRISTOPHER CADELAGO: How did you get into the field?

BARRY BURNETT: I expected to be a physician. I thought I pretty much had a straight ride into UCLA med. And yet my high school sweetheart was working full time for the phone company and I didn’t want to wait and do the 10 years of graduate post-graduate before I could be a physician, so I started getting job offers and I figured that the only thing I could afford to get into that didn’t limit my upward income was sales, where I didn’t have to hold my own inventory. Now I help physicians handle their finances.

Q: You’ve had an interesting go at it the last five years.

A: It’s a whole different world. The prosthetic that they can manufacture now has a computer chip and it allows me to do all kinds of things, but I don’t recommend it. It’s always better to keep your original equipment. The accident was on the Pasadena-Arroyo bridge five years ago. All I wanted to do was see the bridge at sunset, but the motorcycle didn’t get me across. For the two-year anniversary, I finished what I started. We actually walked across the bridge with 100 friends and I walked under my own power. I finished what I started.

Q: Could you give us a snapshot of the local residential real estate market?

A: First let me say we are extremely fortunate that Burbank hasn’t dropped anywhere near as much as the surrounding communities. But I will say that there are 46% fewer listings now than this time last year, and that’s a drop in inventory. The real serious buyers and sellers have much less to choose from. What it’s created is what I call a “magic-number environment.” The magic number is under a specific figure there are lots and lots of buyers who are just thundering to get in and above that figure it just stagnates.

The magic number in Burbank is right around $490,000. The magic number for North Hollywood is about $330,000. While we’re 46% down on inventory, we’re 83% down in sales numbers. That’s staggering over a two-year cycle. With properties under $500,000 for single-family homes in Burbank, the average property is now selling in less than six days as opposed to the average market time of 120 days. The average property in the magic-number cycle is selling with five to seven offers or more. In a staggered economy you don’t really expect that.

Q: Is commercial real estate next in terms of taking a hit?

A: It’s already happening. There’s a huge flux in the commercial-industrial real estate market. In particular, there are transitioning industries. While the entertainment industry, production and post-production, changes in a digital age, facilities requirements are changing. Add to it extraordinary personnel downsizing, you find that most of the production and post-production houses that service the major players — Disney, DreamWorks, NBC, ABC, CBS — what we see is many of the post-production houses have had as high as a 60% personnel shift. And because the personnel are shifting, and because their income sources are so dramatically changed, many of them are downsizing their facilities or consolidating their facilities.

Q: What about retail space?

A: Retail has suffered tremendously. Sales volumes for the small shops along Magnolia Boulevard, Burbank Boulevard, Olive Avenue, Hollywood Way, Victory Boulevard and Buena Vista Street are probably seeing an average revenue drop of 25% to 30%. As a result of sales revenue drops it’s very difficult for them to maintain their leases and/or renew their leases.

Let me give you an example. Last year there were six properties available on Burbank Boulevard — any size at all. Right now there are 32 properties available on Burbank Boulevard. That includes sale and lease, for all types of uses. Magnolia has increased to 25 from last year, when it was a stranglehold to try to get space for retail. We also see that Crown Development has had a really big downward shift in its sales revenues and volumes.

Q: How would you rate the government’s efforts so far? Is credit being made available to qualified buyers interested in purchasing?

A: That’s a brilliant question on many levels, and here’s why. The stimulus of the first-time buyers’ $8,000 income tax credit. That’s a direct credit. That’s a real $8,000, or up to, and it’s been ratified by Congress at the insistence of the [Obama] administration to allow that portion to be utilized as direct down payment for purchase under FHA and VA loans. And perception equals reality. Buyers believe that when it’s time for them to get the $8,000, they will.

But the system is not in place. There are no lenders today that can make that effective because the infrastructure has not converted the $8,000 into cash for the down payment. We’re hopeful. We think it may happen in our lifetimes. But we don’t have any evidence. So buyers are buying with the anticipation that the $8,000 will come in. The lenders are attempting to make it work. The government is attempting to make that money flow into the FHA. But it’s just a device to bolster the enthusiasm of the buying public. If you are a buyer who is buying under the $8,000 tax credit and you can actually wait until you file your return after Jan. 1, God bless you, you’re going to get $8,000. But the kicker is you’ve got to close by Dec. 1. After Dec. 1 they will either have to create a new stimulus or the housing economy will again collapse. It’s a date certain.

Q: Are you in favor of banks renting out foreclosed homes and properties in states such as Florida and Louisiana?

A: Within a market model people have to live and they need shelter. The banks need cash flow. The properties are empty and being vandalized. They have to be carried. A property that is in a condition of stasis declines. Yes, I am in favor.

Do those companies automatically manage correctly? No. Many of those companies are real knuckleheads, and they don’t understand how to manage, screen tenants, or incentivize good behavior. I am in favor of the concept. I am in favor of keeping people sheltered because I work at the homeless shelter and I understand just how desperate things are for people who have been put out. And if they didn’t need to be, then there are ways we can mitigate.

You must remember that we are in a very harsh environment and we will remain in a very harsh and fluid environment for at least two years.

Q: I’ve read that the long-standing rule of 20% of the agents doing 80% of the business is rapidly changing.

A: It’s 5% to 95% now. Because it is so technically based and because the service requirements have such a high level, things have changed very dramatically in this marketplace. In order to do a really high-class job, they really have to have a high-class operation. It is more difficult for the newbie to break in, even a highly competent professional. You have to know what you have to know to get the license, but it’s a license to learn.

Q: What type of chance does a young agent have breaking in?

A: The people that are complete students and absorbed rapidly will do exceedingly well because of the tools available to them. This is not a fast-buck industry. I am working with the fourth generation of some of my early buyers. Can you imagine? It’s still a relationship business. If there isn’t the trust, all of the gadgets and tools won’t make any difference. The youth that understand the tools also have to understand the connections, and that this is a business built on trust. If they can accomplish that, there is no limit in the real estate business. The Realtor’s old model was, ‘Under all is the land.’ I love that, but I would say, ‘Yeah, but without a roof, it’s kind of irrelevant.’

Publication: Burbank Leader