According to the April 1, 2008, issue of Commercial Property News, there are five prime reasons why developers should continue building condominiums and apartments.Why is this happening in the multi-family market considering the fast pace of single-family home foreclosures? Strong echo and baby boomer demand – 7 million echo boomers are starting their careers and want to live somewhere affordable, where they can build equity to ultimately buy a house.
Multi-family’s status as an investor-safe haven.
Security, thanks to Fannie and Freddie – Fannie Mae and Freddie Mac are crucial backstops for multi-family financing.Because multi-family is the only property type that has this protection, Fannie and Freddie are all-important to apartment investors, whether large or small.
The national need for affordable housing – As an example, Governor Jon Corzine of New Jersey recently launched an initiative to spur the development of 100,000 affordable housing units in the state over the next 10 years.
Urban-renewal initiatives – Many older United States cities are encouraging multi-family development – both new construction and repurposing of older buildings — to revitalize their downtowns.
According to Commercial Property News, condo completions this year are likely to overshadow 2007’s deliveries by more than 56,000 units.The 2008 projection, totaling nearly 250,000 units nationally, would represent a three-year high.
Tom Silva
The Spring 2008 issue of Development Magazine quotes Mark Gibson, Leader, Strategy and Operating Real Estate Advisory Services for Ernst & Young, on the seven skills that corporate real estate executives should bring to the table, listing them in order of importance:
- Project Management
- Strategic Planning
- Process Implementation
- Understand the Business
- Fortitude
- Real Estate
Real estate makes the bottom of the list. This is interesting and a concession to the idea that the new commercial real estate executive is largely a strategist with a global perspective who reports directly to the CFO and works to harmonize real estate with IT and HR to achieve enterprise-level objectives.The one thing I think Gibson missed is CRM (Client Relationship Management) which remains, along with strategy, where the focus of the internal corporate real estate department is since the movement toward outsourcing began in the 1990s.
Tom Silva
The current debate about spiralling fuel prices uses the price of gasoline at the pump as the belwether of energy prices. In the real estate industry, the energy metric commonly raised is electricity. But another spike is more striking: Diesel fuel prices soared 26.75 cents, or 7 percent, to an average $4.0630 per gallon from $3.7955 two weeks earlier, according to a report by Reuters, Sunday, March 23, 2008. While gas prices hit us directly, diesel is the fuel of our macroeconomy, driving the global supply chain — from trucks to trains, ships, boats and barges, not to mention farm and construction equipment Worldwide demand has been increasing because of emerging economies like China and India, as well as Europe — all of which has tightened global refining capacity. Also, the Federal excise tax on diesel fuel is 24.4 cents per gallon — a full nickel higher than the tax on gasoline. Time will tell what impact this will have on the industrial real estate sector which remains strong — in part because manufacturing output in the U.S. has never been higher and continues to expand, helped by the weakening dollar which has buoyed a good deal of outbound trade. Also, retail remains solid, particularly the indy grocers and big-box retail which fuel so much of the warehouse/distribution construction in our country. Will the rsising cost of fuel cause a shift in the suply chain? Perhaps the most compelling proofs of the impact of diesel prices may be anecdotal and personal. Take trucker Charles Monroe, a driver for more than 30 years. During an interview with WDEF in Chattanooga, TN, Monroe said, “Since I’ve been driving fuel prices have tripled at least. It’s about $600 to fill this one up if she’s empty.” With diesel prices at almost $4 per gallon, many drivers are cutting back. Independent trucker Jessie Smith says , “If they got three or four trucks they’re parking them and running just one and doing short hauls. The rate of the freight is not going up with the fuel prices. I’m doing mostly short hauls. They pay a little bit more per load and per mile and that helps with my fuel bill.”
Tom Silva
With the current upheaval in the capital markets and the news that Citigroup, Merrill Lynch and Morgan Stanley have written off $70 billion in loans, it is interesting to note a whole cadre of financial institutions that are doing gangbusters. According to an article in the 2/19/08 USA Today by Matt Krantz, smaller banks which avoided the enticement of lowering underwriting standards and issuing subprime loans, are on average, only 6% off their 52 week high. Most of these names are unfamiliar — Danvers, First Merchants and Oriental Financial. As the heavily leveraged buyers retrench and the access to bridge loans and mezzanine financing pulls back, could we see a number of well capitalized small cap financial institutions step in to fill the void in the commercial real estate investment market?
Tom Silva
|
|
|
