Archive for the ‘Development’ Category
Thursday, March 4th, 2010
The last 30 years have seen a boom for skyscraper construction because the cost of borrowing money had declined significantly. When investors borrow money to purchase assets, they send prices higher. The problem is that this borrowing makes the markets susceptible to busts when investors sell assets to pay their debts. The recent financial crisis was one result of this process, with the debts larger and the price swings broader than has been seen in the past three decades. According to central bank critics, focusing on consumers - and not on the dangers of asset-price inflation - have encouraged bubbles by keeping interest rates artificially low.
The central bank critics argue that the desire to end the credit crunch may be causing authorities to make the same mistake by maintaining short-term interest rates at less than one percent in a majority of the developed world. Developing markets, thanks to their tendency to emulate richer nations, have the same cheap-money policies. The irony is that many of these economies are growing faster than those in the developed world.
For the commercial real estate industry, the bubble means that it is unlikely that we will see more high-profile skyscrapers like the Burj Dubai or Petronas Towers under construction very soon. All three projects were started during financial booms and delivered in hard economic times.
Listen to our interview with Rick Mattoon, a senior economist and economic advisor in the economic research department of the Federal Reserve Bank of Chicago, on the dangers of asset price inflation. Click here for the podcast.
Tags: Asset-price inflation, Ben Bernanke, Burj Dubai, central banks, Federal Reserve, financial markets, interest rates, investors, MSCI index, Petronas Towers, Skyscraper construction, Wall Street crash
Posted in Development, Economics, Financing, Office | No Comments »
Monday, March 1st, 2010
Arizona, Georgia and Texas are the growth centers in terms of new residents in the last few years, according to an Associated Press analysis of Internal Revenue Service migration data. The IRS compared the states where taxpayers filed their returns from 2007 to 2008 to arrive at their conclusions.
Texas led the nation, with 62,827 new households; the largest number of families moved there from California and overseas. Georgia ranked second, with 37,559 new households, many of whom moved there primarily from Florida and New York. Arizona reported a net gain of 20,300 new households, with the majority relocating there from California and Michigan.
The IRS statistics indicate that Americans are not moving much at present, with the annual migration rate at 11.9 percent - the lowest number in decades. United States Census Bureau estimates released at the end of 2009 confirm the IRS numbers. According to the AP analysis, counties with better-educated taxpayers typically see the highest county-to-county migration gains.
“People who move tend to be younger and have lower incomes,” according to William Frey, a demographer with the Brookings Institution. “Normally, if there is a big influx of young people, that could pull down the income of an area; and if there is a big outflux of young people, that can raise income in an area.”
Tags: Arizona, Associated Press Economic Stress Index, bankruptcy, Brookings Institution, demographics, Georgia, Internal Revenue Service, Migration, recession, Texas, unemployment rate, United States Census Bureau
Posted in Development, Industrial, Office, Residential | No Comments »
Wednesday, February 24th, 2010
Commercial real estate will begin its long-awaited recovery in late 2011 or 2012, according to the fourth-quarter Korpacz Real Estate Investor Survey, which questioned more than 100 real estate investors, including REITs, pension funds, private equity firms and insurance and mortgage companies. Confirmation is provided by a PricewaterhouseCoopers survey, which notes that Washington policymakers are increasingly tweaking the strings that impact pricing.
According to the Korpacz survey, “Rental rates will continue to decline until strong, consistent job growth resumes. With $1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector.”
Government and regulatory policy will have greater impact on pricing than occupancy levels or rents, according to Real Capital Analytics, Inc. “Policymakers control what happens to commercial mortgages in default,” Robert White, the president of Real Capital Analytics, wrote in a report. They “have encouraged loan modifications and extensions even in cases where loans are above a property’s current value. Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keep rates low and easing restrictions on foreign capital will also influence industry prospects.” Real Capital Analytics notes that commercial mortgage-backed securities (CMBS) hold 42 percent of distressed loans; American banks 31 percent; and foreign banks 13 percent.
Tags: CMBS, commercial real estate, Pricewaterhousecoopers, Real Capital Analytics Inc, recession, recovery
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Tuesday, February 16th, 2010
Congressman Barney Frank (D-MA) wants to scrap Fannie Mae and Freddie Mac in favor of an entirely new mortgage-financing system. According to Frank, Chairman of the House Financial Services Committee and who previously supported the programs, “The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current forms and coming up with a whole new system of housing finance.”
Fannie Mae and Freddie Mac, which back a majority of the nation’s home loans, buy mortgages from lenders, insure them against default and supply new money to create new loans. Thanks to growing losses on these loans that threatened the health of Fannie Mae and Freddie Mac, the federal government took control of the programs in September 2008. Since their seizure, Fannie and Freddie have been run by regulators and kept alive by $110.6 billion in taxpayer money. Frank says that Congress needs to decide what to do with Fannie’s and Freddie’s remaining shareholders, as well as investors in the companies’ $5.4 trillion in mortgage bonds and $1.7 trillion in unsecured corporate debt.
Fannie Mae and Freddie Mac profit by financing mortgage-asset purchases with low-cost debt and on guarantees of home-loan securities they create out of loans from lenders. They currently own or guarantee more than $5 trillion in U.S. residential debt, and were responsible for as much as 75 percent of the new mortgages made in 2009.
“We’re going to look at the whole question of housing finance,” Frank said. “Sorting out the function of promoting liquidity in the market, and also the secondary market in general but then also doing some kind of subsidy for affordability.”
Fannie/Freddie were caught in the eye of the subprime meltdown. In February of 2007, the residential mortgage-backed securities market crashed with sales plummeting 90 percent. While reform is needed, Fannie and Freddie operate like a public option - by making home ownership more affordable and creating competition to commercial banks. A positive step is the Deed for Lease program. After foreclosure - at 57,000 homes in the first half of 2009 - the new program allows owners to lease their homes and avoid foreclosure.
Artificially creating/guaranteeing a market for home loans has lost billions. Hopefully, whatever entity replaces Fannie and Freddie will be prohibited from contributing to congressional campaigns and PAC’s.
Tags: Barney Frank, congress, Deed for Lease program, Fannie Mae, Freddie Mac, House Financial Services Committee, house of representatives, Massachusetts, mortgages, PBS News Hour, Timothy Geithner
Posted in Development, Economics, Financing, Residential | No Comments »
Monday, February 15th, 2010
A building boom is transforming the core of a fabled city that endured decades of war and turmoil. It’s Beirut, where battered Ottoman-era building are being restored and high-rise apartment towers with mirrored facades are rising along the Mediterranean waterfront.
Beirut’s unprecedented building boom is transforming Lebanon into an investment haven at a time when regions such as the oil-rich Persian Gulf are bleeding cash. “The market is continuing to really stun a lot of people and to attract some new players,” according to Raja Makarem, the founder of Ramco, a real estate company. Makarem noted that Lebanon has seen property values rise 30 percent in each of the past four years. Beirut’s boom might be partially related to Dubai’s financial meltdown, forcing all-cash buyers in search of a better real estate market.
Luxury high rises with apartments selling from $5,000 to $8,000 per square meter are being constructed in downtown Beirut, while buildings dating back to 19th-century Ottoman rule are being carefully restored. One project is the Beirut Souks, a 1,076,400 SF, $300 million high-end outdoor shopping mall constructed by Soldiere, Lebanon’s largest development and construction firm. Beirut’s number and value of property sales have soared over the last year, according to statistics from the Bank Audi. In December, the value of real estate sales was $1.25 billion, an increase of 40.8 percent over the same month of 2008.
“The global crisis that has strongly impacted the real estate market in the Gulf has somehow pushed investors to turn toward Lebanon,” said Tina Chamoun, marketing manager for Plus Properties, the Dubai-based marketing firm that is promoting two high-profile projects in Beirut. The $700 million developments - Plus Towers and Venus Towers - encompass five luxury residential towers with penthouse views of downtown Beirut and the city’s waterfront. The 50-story Sama Tower, which is scheduled for completion in 2014, will be Lebanon’s tallest office building.
Tags: Bank Audi, Beirut, Beirut Souks, Dubai, Hezbollah, Lebanon, Ottoman Era, Persian Gulf, Plus Properties, Raja Makarem, Ramco, Sama Beirut, Soldiere, Tina Chamoun, Venus Towers
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Wednesday, February 10th, 2010
Chicago existing home sales soared by 33 percent in December, although the statistics were flat for the year, according to research by the Illinois Association of Realtors. The average home sale price fell approximately 18.3 percent to $196,000 when compared with 2008. During 2009, a total of 69,290 Chicago-area homes were sold, a 0.2 percent slide when compared with 2008. That does show improvement over 2008, when home sales fell nearly 26 percent compared with 2007.
A total of 5,742 metropolitan Chicago homes sold in December, compared with 4,320 during the same month of 2008. “In 2009, we saw demand primarily for lower-priced homes from first-time buyers in addition to short sales and sales of foreclosed homes,” said Mike Onorato, president of the association and broker-owner of Onorato Real Estate in Coal City. “There is opportunity now for the move-up buyer to take advantage of the tax credit that ends April 30 and lower mortgage interest rates, which many analysts expected to rise by mid-year.”
Last year, home sales in the city of Chicago fell 7.4 percent to 19,401, compared with 20,946 in 2008. City sales in December rose 39.8 percent in December to 1,768 units compared with 1,265 in December a year ago. Median home prices in the city fell 22.4 percent to $225,000, compared with $290,000 one year ago.
Tags: Chicago home sales, collar counties, foreclosed homes, Illinois Association of Realtors, mortgage interest rates, Onorato Real Estate, short sales
Posted in Development, Economics, Residential | No Comments »
Monday, February 8th, 2010
Olgga Architects took an inventive approach to creating student housing in Le Havre, France, by building a 100-unit complex using recycled shipping containers. The result is stylish student housing that is portable, affordable, durable and eco-friendly.
Called the “Crou”, the 2,841-meter (30,700 SF) pyramidal structure stacks the shipping containers on top of each other. The complex has individual rooms for students with areas for living, studying and sleeping. Another plus is that the Crou puts surplus containers to use instead of letting them rust in a landfill.
Tags: Crou, Olgga Architects, shipping containers, sublease
Posted in Development, Student Housing | No Comments »
Thursday, February 4th, 2010
Capital is flowing out of the Middle East and being invested in real estate across the globe, according to Nicholas Maclean, Managing Director, CB Richard Ellis, Middle East. “The outflow of capital from the Middle East to be invested into real estate properties worldwide has been higher than the influx of global capital into real estate properties in the Middle East. The UAE, in particular, has been looking to diversify its investments and part of the reason has been the lack of transparency within this region.”
Europe and the Far East have received the lion’s share of Middle East investment, with India and China perceived as strong growth markets. Additionally, United Arab Emirates capital is being infused into Abu Dhabi’s office and hospitality sectors. “Capital spent as FDI into real estate within the Gulf Cooperation Council represents only 11 percent of the total. Cross-border activity in the world has exceeded 50 percent and so we have a great opportunity to be the recipient of more investment,” Maclean said.
In terms of where the Middle East is placing its investment dollars globally, “London, Paris and Germany have been the largest recipients in Europe while Hong Kong, Singapore and Australia saw the largest inflows in the regions in the Far East. Knowledge and liquidity have been the key driving forces for the Middle East investors transferring capital to these areas. Institutional investors from the Middle East are investing in commercial developments in these markets while individual investors are looking at residential properties in the UK,” Maclean said.
To learn more about the Middle East and its real estate market, listen to Rochdi Younsi, director in the Middle East and Africa practice of Eurasia Group, analyze the major players in real estate and the new investment opportunities in the Middle East.
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Tags: Abu Dhabi, CB Richard Ellis Middle East, Dubai, Gulf Cooperation Council, Jumeirah, Middle East, Offshore real estate funds, Saudi Arabia, Sheikh Zayed Road, United Arab Emirates, Zawya
Posted in Development, Economics, Office, Residential | No Comments »
Wednesday, February 3rd, 2010
Washington, D.C. office leasing is on the upswing for the first time in a year. Not surprisingly for the District, the rise in leasing activity is driven primarily by expanding federal agencies. A study by CB Richard Ellis of fourth quarter leasing activity showed that the private sector is again leasing space they had subleased in late 2008 and early 2009, a sign that they might be on the verge of rehiring laid-off employees. According to the report, the amount of vacant space shrank 715,384 SF during the fourth quarter. That is a major change from the third quarter, when vacant space grew by 375,558 SF.
Vacancy rates reached a high of 11.8 percent last year, thanks to the region’s net loss of 24,000 jobs and new office buildings coming on line. Now, commercial real estate brokers are seeing new interest from law firms, associations and financial service firms wanting to lease space. Some are planning for future growth, while others are taking advantage of large discounts being offered to attract new tenants. “We have clients call and say maybe this is the time to go into the market and see what’s available,” said Ernie Jarvis, managing director of CB Richard Ellis’ Washington office.
Approximately 32 percent of commercial leases are with the federal government, an increase over the 21 percent reported in recent years. In normal years, the government has three of the top 10 transactions in the region; that rose to eight in 2009. These include 802,000 SF leased by the Department of Health and Human Services in Rockville, MD; 503,000 SF leased by the Drug Enforcement Administration in Pentagon City, VA; and 360,000 SF leased by the Nuclear Regulatory Commission in North Bethesda, MD.
Tags: Capital Riverfront, Cassidy & Pinkard Colliers, CB Richard Ellis, commercial real estate, Department of Health and Human Resources, Drug Enforcement Administration, NoMa, Nuclear Regulatory Commission, vacancy rates, Washington DC
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A long-term steelmaker is not fleeing Chicago for Canada, thanks to a deal in which A. Finkl & Sons Co. purchased six properties adjacent to the Verson Steel site on the southeast side for just $1.