Marketing green is a new step in the emergence of sustainability. In a tight credit environment when rates have climbed and LTVs have dropped, green may offer a way to ease the underwriting criteria on a deal.
The green-building revolution is spreading, and the underwriting community has embraced sustainable design because it enhances marketability and income. To illustrate, net rent in a particular office market may include a $15 psf in base rent and another $8 in common-area costs - the latter driven largely by energy and water-use costs. It adds up that if you reduce that common-area cost and pass the savings along to the tenant, your building will be more attractive because it operating costs are lower.
Community banks in environmentally conscious markets or in areas where local building requirements foster sustainable projects are offering standard loans with terms favoring green development. In San Francisco, the New Resource Bank offers qualifying green projects a generous loan-to-value ratio of as much as 80 percent, and a slightly better interest rate than it does to conventional project developers. Green lenders look for incremental steps such as preferential review, quarter-point interest-rate discounts, longer amortization and relatively small changes in return for LEED or Energy-Star certification.
In Houston, the Green Bank recently moved into a 20,000 SF headquarters specifically designed to earn LEED’s gold certification. Previously known as the Redstone Bank, it was acquired by a local banker who rebranded it as Green Bank and launched in January of 2007 with a focus on sustainability. Just 1 ½ years later, Green Bank has $275 million in assets and is creating a group of environmentally conscious companies and individuals. One vital goal is to educate team members to identify green-oriented customers, whether they are recyclers or LEED-certified construction space users.
Richard Gatto
Two trends in international trade worth highlighting:
American exports are booming, thanks to the dollar’s current weakness. This considerable increase in volume has made it virtually impossible for U.S. manufacturers to get space on container ships within a four-week window, especially for products shipping from the ports of Los Angeles or Long Beach to any Pacific Rim destination. To illustrate the scope of the change, container space from these ports was available on demand just one year ago. And, according to a recent Reuters article, waiting times for cargo space have jumped from two days to three weeks on the East Coast.
Fast-rising transportation costs that are a direct result of the cost of fuel is another important logistics trend - one that could negatively impact globalization. According to an August 2 article in the International Herald Tribune by Larry Rohter, shipping a single loaded 40-foot container from Shanghai to the United States has soared to as much as $8,000 per unit, compared with just $3,000 earlier in the decade. Additionally, there are cost add-ons, primarily in the form of fuel surcharges and government-mandated fees. To save on fuel costs, container ships have shaved their top speeds by nearly 20 percent, which means it takes longer for products to reach their intended markets.
Shipping to and from Prince Rupert in British Columbia is slightly less costly, because the distance to Asian ports is shorter than from Los Angeles or Long Beach. Still, space amounts to several thousand dollars per container.
“If prices stay at these levels, that could lead to some significant rearrangement of production, among sectors and countries,” said C. Fred Bergsten, author of The United States and the World Economy and a director of the Peter G. Peterson Institute for International Economics in Washington. “You could have a very significant shock to traditional consumption patterns and also some important growth effects.”
A far better alternative could be to ship to and from Asia from the southern border regions, where the going rate is approximately $800 per loaded container. That price differential could potentially lure companies to move production facilities to Mexico or the Southwestern United States - primarily Texas. This would give them the opportunity to leverage the more attractive shipping rates through the growing Mexican ports of Lazaro Cardenas and Punto Colonet.
Pat Gallagher
Two trends in international trade worth highlighting:
American exports are booming, thanks to the dollar’s current weakness. This considerable increase in volume has made it virtually impossible for U.S. manufacturers to get space on container ships within a four-week window, especially for products shipping from the ports of Los Angeles or Long Beach to any Pacific Rim destination. To illustrate the scope of the change, container space from these ports was available on demand just one year ago. And, according to a recent Reuters article, waiting times for cargo space have jumped from two days to three weeks on the East Coast.
Fast-rising transportation costs that are a direct result of the cost of fuel is another important logistics trend – one that could negatively impact globalization. According to an August 2 article in the International Herald Tribune by Larry Rohter, shipping a single loaded 40-foot container from Shanghai to the United States has soared to as much as $8,000 per unit, compared with just $3,000 earlier in the decade. Additionally, there are cost add-ons, primarily in the form of fuel surcharges and government-mandated fees. To save on fuel costs, container ships have shaved their top speeds by nearly 20 percent, which means it takes longer for products to reach their intended markets.
Shipping to and from Prince Rupert in British Columbia is slightly less costly, because the distance to Asian ports is shorter than from Los Angeles or Long Beach. Still, space amounts to several thousand dollars per container.
“If prices stay at these levels, that could lead to some significant rearrangement of production, among sectors and countries,” said C. Fred Bergsten, author of The United States and the World Economy and a director of the Peter G. Peterson Institute for International Economics in Washington. “You could have a very significant shock to traditional consumption patterns and also some important growth effects.”
A far better alternative could be to ship to and from Asia from the southern border regions, where the going rate is approximately $800 per loaded container. That price differential could potentially lure companies to move production facilities to Mexico or the Southwestern United States – primarily Texas. This would give them the opportunity to leverage the more attractive shipping rates through the growing Mexican ports of Lazaro Cardenas and Punto Colonet.
Pat Gallagher
admin
As the United States government commits a bare minimum of $100 billion of taxpayer money to bail out Fannie Mae and Freddie Mac, the final reckoning depends on how effectively Washington runs the mortgage powerhouses.
According to the Christian Science Monitor, with the sheer magnitude of Fannie and Freddie – with $5 trillion in home loans on their combined books – the taxpayers’ burden is likely to add up to billions of dollars very quickly. The worst-case scenario could see the tab rise as high as the $125 billion it cost the taxpayers in the early 1990s to bail out failed savings-and-loan institutions. The rosiest scenarios hypothesize that the short-term cash infusion might be recouped with little or no net cost to the taxpayers.
Part of the reason that Fannie and Freddie are under conservatorship is that foreign central banks and investors have been divesting themselves of American mortgage debt, because they are nervous about falling prices, weak credit and the weak dollar. Since foreign ownership represents $1.4 trillion, it is a sizable piece of the puzzle.
The bottom line is that every U.S. taxpayer is now tied directly to the troubled housing market. And the stakes here are significantly higher than the government’s $30 billion bailout of Bear Stearns. The ultimate cost to taxpayers is tied directly to the depth of the housing slump. If housing prices continue to fall and foreclosures rise, the losses to Fannie and Freddie will increase. The opposite scenario would be far better news for taxpayers.
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs), because Congress chartered them to create a stable mortgage market. They have functioned well by guaranteeing home loans or buying them outright. Even with steep declines in the number of sales and prices, investors have continued to fund home loans with a Fannie or Freddie seal of approval; this has kept mortgages relatively available and affordable.
The Treasury Department had no alternative but to intervene, become an equity investor in Fannie and Freddie, and a buyer of their mortgage-backed bonds. Their objective is to restore consumer confidence in the credit markets, reduce the cost of mortgages, and help the housing market recover.
James I. Clark III
Contrary to the recent grim news about home foreclosures, bank failures, the credit crunch, rising unemployment rates, soaring oil prices, inflation and stock-market jitters, the United States’ economy — surprisingly — grew by 3.3 percent during the second quarter of 2008.
The economy grew at its fastest pace in nearly a year, thanks primarily to foreign buyers purchasing inexpensive U.S. exports, as well as the tax rebates that sent Americans on a shopping spree.
According to Commerce Department statistics, the GDP increased at a 3.3 annual rate from April through June. This revised statistic represents a significant improvement over the initial 1.9 percent estimate, and exceeded economists’ expectations of a 2.7 percent growth rate.
The rebound was welcome news after two grim quarters. The economy contracted during the last three months of 2007, and registered a feeble 0.9 percent growth rate during the 1st quarter of 2008. Spring’s 3.3 percent performance was the best result since the third quarter of 2007, when the economy grew by an impressive 4.8 percent.
Still, the good news is something of a fluke. The economy is still quite fragile, according to Federal Reserve Chairman Ben Bernanke, who recently warned that the weakness will remain throughout 2008. Analysts expect the economy to hit another pothole during the 4th quarter, once the glow of the tax rebates dims. Additionally, exports could decline if other nations experience similarly slowing economies.
Add presidential politics into the mix. Democratic nominee Barack Obama favors a second government-stimulus package, while Republican John McCain supports free trade and other business measures to energize the economy. With less than two months remaining until the election, the candidates are certain to have a lot more to say on how they plan to energize the economy.
Richard Gatto
Bill Alter, founder of The Alter Group, passed away peacefully Friday, August 8, in his Winnetka, IL, home of complications from Alzheimer’s at age 78. Named one of the most influential people of the 20th century by National Real Estate Investor magazine, Alter presided over the development of more than $1 billion of space over a half century.
Alter’s Realty Company of America began building homes for post-war, first-time buyers. In 1959, Alter developed the first residential community for middle-income minority buyers, Kingston Green in Markham, IL. With Olympian Jesse Owens as his national spokesman, Alter brought the dream of home ownership to hundreds of families.
Dubbed the “sky broker”, Alter was known throughout his native Chicago for using a twin-engine plane to scout land sites. His son, Michael, who succeeded his father as president in 1995, said “his was a uniquely American story.”
Over the decades, The Alter Group developed millions of square feet of speculative office, industrial, research-and-development, and healthcare space in a variety of business parks. A recipient of the Lifetime Achievement Award from the Urban Land Institute, Bill helped create the now widely copied concept of the professional planned industrial park.
Bill is survived by his wife, Evelyn. He was the father of Michael, Harvey, Jennie, Jonathan, and the late Rhonda Alter. Additionally, he had two step-children, Nicky Bliwas and Tony Winski, as well as 13 grandchildren.
Tom Silva
The 2nd quarter of 2008 ended with a slight economic rebound - an extremely lethargic one - that raises new fears of a recession. The Commerce Department reported that the GDP increased at an annual rate of just 1.9 percent from April through June. Although an improvement over the feeble 0.9 percent reported during the 1st quarter, the number was not as positive as the 2.4 percent increase that economists had predicted.
While any improvement is a welcome sign, the increase also indicates the fragile nature of the economy. The numbers indicate that the recent income-tax rebate stimulus package did not work the magic that the government expected. This news only leads to fears that the economy will remain unstable for the rest of the year, further curtailing capital expenditures by corporations and lengthening the credit crunch.
According to the federal government’s annualized revisions, the GDP actually contracted by 0.2 percent during the last three months of 2007. That reflects the negative impact of the ongoing housing slump - the worst in 26 years - and cautious consumer spending because people are wary of purchasing big-ticket items just now.
It’s true that consumer spending rose 1.5 percent during the 2nd quarter, an improvement over the 0.9 percent reported during the 1st quarter. This was the best showing since the 3rd quarter of 2007, when the economy was still performing strongly despite the housing slump.
Tom Silva
In a transaction that demonstrates the inherent strength of the red-hot student-housing market, an Australian firm recently purchased the 725-bed Illini Tower in Champaign, IL, for approximately $60 million. Do the math and you’ll find that the cost-per-bed adds up to a whopping $82,758. The building serves students of the University of Illinois at Urbana-Champaign.
The 16-story structure’s purchaser is Campus Living Villages, a Sydney, Australia-based firm that owns 10,000 student beds in Australia and New Zealand, and an additional 30,000 beds in 41 properties in the United States. The seller was Chicago-based Walton Street Capital, LLC, which had purchased the building just five years ago for $29.6 million, and spent approximately $6 million on capital improvements.
The significance of the transaction is that despite the fastest rising inflation in almost 30 years, the relative weakness of the dollar and of American securities on global exchanges, foreign capital still sees the United States as a safe haven in the right categories. Student housing cap rates continue to be strong, outpacing inflation and showing no signs of abating as college enrollments top 17 million a year.
Matt Ward
According to a recent Crain’s Chicago Business article, suburban office vacancy rates shot up to 13.1 percent during the second quarter of 2008. That is the highest level in more than two years. According to the commercial real estate services firm, Transwestern Commercial Real Estate, the vacancy rate is at its highest level since the first quarter of 2006, when it rose to 13.7 percent. There’s no doubt that demand for suburban office space is in lockstep with job growth or loss; we’re not seeing any job growth in the suburbs right now.
Class A landlords are more likely to accept lower rent deals right now than was true in the last year, but this can be risky. This has the effect of also reducing the building’s value, because this is a function of the in-place income stream. Sometimes, it is better to pass on a low rent deal and simply “assume” accepting a higher rent to protect the building’s value.
The sales market has been robust over the past several years, so protecting value has been a priority. With credit now being largely unavailable, building owners are no longer in the sale market because buyers are unwilling or unable to pay top dollar. Because we don’t know when the office market will stabilize and since selling isn’t viable at present, landlords may take that lower rent to boost occupancy.
A respectable number of transactions will be completed this year, but only because there is so much low-cost sublease space available. Additionally, some industries are likely to make positive contributions to the suburban office scene. Companies providing goods or services to hospitals, physician practices and the senior-housing market are experiencing growth, as are data-center operations and some engineering firms, especially those working with energy production or conservation.
John Coleman
Despite all the doom-and-gloom reports on the residential real estate market, there are some bright spots. In several markets, housing has become surprisingly affordable to families earning a median household income of $61,500. And there’s more good news. Mortgage rates are again nearing the record lows of a few years ago; and family incomes jumped an average of a $2,500 between 2007 and 2008.
What are some of the markets most strongly impacted by this trend?
Indianapolis, IN - The largest affordable cities - Indianapolis, for example — tend to be in the Midwest. More than 90 percent of all Indianapolis households have sufficient incomes to buy a median-priced $125,000 home. During the first quarter of 2008, Indy ranked as the most affordable major U.S. housing market for the 11th consecutive quarter.
Stockton, CA: — The average single-family home price fell 35 percent to $230,800 in the first quarter of 2008, compared with $357,800 just two years previously.
Kokomo, IN: — Among smaller metro markets, Kokomo ranked well in terms of housing affordability during 2008’s first quarter. A median-priced home in Kokomo is about $147,000.
Grand Rapids, MI: — Approximately 88.7 percent of homes sold were affordable, a 4.2 percent change from 2007. A median-priced house in Grand Rapids is currently $132,100.
Youngstown, OH: — In this small city with a population of 82,000, the median sales price dropped 13.5 percent to $67,700 in just one year.
Matt Ward
