Archive for April 2010
RECGA
ALSO, I just got back yesterday from Las Vegas, attending the semi-annual meetings of the Real Estate Counseling Group of America. It was a terrifically well-attended meeting, organized by Dr. Jeff Fisher of U. Indiana. RECGA is something of a “think tank” on real estate valuation, formed about 40 years ago by the late Dr. Bill Kinard. Over the years, its membership has constituted a “who’s-who” of real estate appraisers, counselors, professors, and investment advisors. I’ll outlined the program and some of the more interesting highlights in the upcoming issue of The Greenfield Advisor. Drop us a not at Greenfield (info@greenfieldadvisors.com) if you’re interested in a copy.
Share this:
American Real Estate Society
I just finished participating in the 26th annual meetings of the American Real Estate Society, one of the world’s premier real estate academic groups. Participants are a mix of academics (both U.S. and global) as well as senior-level researchers from the private sector and the government.
There was a significant focus on valuation models — lots of discussion of where the appraisal industry and methodology are headed. I’ll elaborate more on this in the April issue of The Greenfield Advisor, our semi-monthly newsletter, which will come out later this month. If you’d like to be added to the subscription list, just contact info@greenfieldadvisors.com.
Share this:
Mortgage Fraud
I added a comment today to the “Mortgage Fraud” blog. I highly recommend reading — it’s eyeopening.
Share this:
Hospitality…. on the mend?
Following up on my previous post, Marcus & Millichap’s Hospitality report also hit my desk this week. They would posit that, “In fact, a recovery in the sector has already begun.” The projected nationwide occupancy of 51.6% in the 1st quarter topped 1Q-2009, but is still lower than the 57.7% 1st quarter average from 2005 – 2009. The primary drivers? Strengthening of the labor market and other key economic measures.
Hotel investments, however, are still waiting to mend. Sales of branded full-service hotels have declined 60% in the past 12 months, and sales of chain-affiliated, limited-service hotels are down 48%. The flight-to-quality which is evident in other sectors has yet to catch on in hospitality. Well capitalized buyers appear to be ready, but there is a gap between buyer and seller expectations. Room revenues continue to improve, but the physical condition of some assets (a result of deferred maintenance during the downturn) is problematic.
For more information, visit the Marcus and Millichap website.
Share this:
Office Markets Report
Marcus and Millichap just released their Office Markets Report and their Hospitality Report this week. I’ll comment on the former today, and the latter later.
To quote, they believe the recovery will be “…muted and choppy…”, which is a departure from prior recession recoveries. They note that in the second half of this year, the business sector will need to step up to the plate and replace the government as the primary driver of economic recovery. Is the business sector up to the challenge?
Specific to the office sector, the rise in unemployment really masked the overbuilding in the office sector. As a result, while the overall vacancy rate has not yet peaked, the rate of increase in vacancies has slowed and should turn around later this year, with gradual recovery in 2011. Above-average job growth in 2012 and 2013 should fuel the slow recovery in the office sector.
Office investment hit a near-standstill in 2009, but they now see it picking up somewhat. (At Greenfield, we’ve noted that there is a fair argument for bargain hunting, particularly among choice properties which are on the market.) However, credit markets are still tight, keeping a lid on investment activity.
For the full report — which runs 66 pages — you’ll need to visit the Marcus and Millichap website and “join” as a client.
Share this:
Small vs. Large?
Over at Jones Lang Lasalle’s blog, Ben Breslau (head of America’s Research) discusses the topic of whether small or large real estate firms will dominate the landscape. His thoughts are good, and I won’t repeat or attempt to refute them. Go read for yourself.
My own thinking is that small firms and large firms are most efficient when they occupy different but “interactive” niches. Larger firms (and yes, we’re talking about JLL here — but also REITs and such) do a great job of aggregating, brokering, and managing real estate when it’s fully developed. Smaller firms, on the other hand, are more nimble and agile at the development, redevelopment, and repositioning. These latter functions have a very “local” component, and smaller entrepreneural firms are typically better at that.
The fly in the ointment is money. The big firms have it, and the small firms generally don’t. Prior to the melt-down, smaller firms could dance around this topic pretty well, since there was risk-capital out there, as well as overly-compliant bankers. In today’s world, where cash is king, the larger firms are the only ones that can afford a seat at the table. Couple this with the fact that, for most sectors, “development” is on the back burner, and we get a scenario where the larger firms will dominate for the time being.
Larger firms would be well advised to ignore the devil on their shoulders telling them that they can be everything to everyone. They are great at raising and managing money and managing stabilized properties. They need to aggresively partner with smaller, agile firms at the front end and back end of the property life-cycle for optimal results.
Share this:
Chinese drywall… redux
Judge Eldon Fallon just issued a ruling in the first Bellweather CDW cases (click here for the news article). It completely follows the recent Consumer Products Safety Commission guidelines that the homes need to be stripped back to the studs, and also leaves open the reality that there are other losses such as loss of use and enjoyment. We’ll be examining the potential stigma losses (post-remediation) in the coming weeks.
Share this:
all I can say is…. whew…
Twenty years ago, when the Savings and Loan Crisis was all the rage, a significant number of professionals — appraisers, brokers, mortgage lenders — went to jail over mortgage fraud. I’ve been thinking in the back of my mind that the dam would eventually burst on this housing crisis with similar ends. (Indeed, I consulted on one of those prosecutions recently, which resulted quite a few folks going to Federal prison.)
Rachel Dollar, an attorney in Santa Rosa, California, has compiled a great blog which keeps track of this — www.mortgagefraudblog.com. I’ve added a link to this over on the right. The volume of prosecutions listed on her site is utterly amazing. Check it out.
Share this:
Chinese drywall
The consumer products safety commission finally issued an interim set of guidelines regarding Chinese Drywall remediation. You can view the entire document as a .pdf at: http://www.cpsc.gov/info/drywall/execsum0410.pdf (Naturally, you’ll need adobe reader to view it, if you don’t have it already — it’s free — visit www.adobe.com.)
The guidance is “interim” for several reasons. Most importantly, issued regarding off-gassing of the drywall itself were studied at Lawrence Berkeley National Lab, while secondary impacts (e.g. — electronics, appliances) are being studied at Sandia National Lab. The latter’s preliminary results won’t be available until this summer.
Nonetheless, even these preliminary guidelines are significant. They call for a complete “stripping” of the drywall and electrical wiring (including breaker systems) back to the studs and then refinishing the home. Coupled with the probable need to replace electronic appliances (e.g. — alarm systems, computers, microwaves) and the expense per home will be huge.
This does not yet even address the question of property values post-remediation. Our experience with other construction defects situations, such as synthetic stucco and moisture intrusion cases, suggests that even after remediation, these homes will be problematic to market.
I’ve inspected several Chinese drywall homes recently, including situations where the homes have been remediated (albeit without authoritative guidance) and situations in which the homes are still affected. Included among the homes I inspected was the home of Sean and Beth Payton — Sean, of course, is the coach of the current Superbowl Champions, the New Orleans Saints.
Cases are currently headed for court in Louisiana and Florida. I’ll keep you posted.
From a small northwestern observatory... 