Appraisal Podcasts

The Journal of Property Management has a good article titled “Marketing the unmarketable: Difficult-to-lease spaces need special attention and unique marketing tactics”. 

From the article:

“You know how it goes: Your shopping center has a vacant space or two you just can’t seem to lease up. You planned to have the space leased this quarter, but time is passing and it just hasn’t happened. Merchants are dissing, brokers seem disinterested, and your owner is dissatisfied.”

The article goes on to give you four steps to help this issue including

1. Deal with the curb appeal

2. Make sure you understand the owner’s goals

3. Network, Network, Network

4. Market Creatively

 It’s a quick one page read that may give you some insight into how a property’s productivity (or lack thereof) can be dealt with in the marketplace.

Lenders Raise the Bar For Commercial Real Estate

From the article:

Commercial real-estate lenders, spooked by the collapse in residential housing, are reining in riskier loans on fears that underwriting standards were too loose.

During the last few months, lenders have been requiring significantly more equity to get projects rolling, while the cost of obtaining debt continues to shoot higher. Meanwhile, banks are avoiding making loans to commercial real estate on concerns about the quality of construction and development loans.

“Six months ago, it was money chasing deals. Now it’s deals chasing money,” said Larry Vogler, president of Prime Group Inc., a Chicago-based commercial real estate developer.

Pack ‘em in – New Yorkers get a robotic garage - CNN.com

Would you trust a robot to park your car?

The question will confront New Yorkers in February as the city’s first robotic parking opens in Chinatown.
The technology has had a good track record overseas, but the only other public robotic garage in the United States has been troublesome, dropping vehicles and trapping cars because of technical glitches.

Nonetheless, the developers of the Chinatown garage are confident with the technology and are counting on it to squeeze 67 cars in an apartment-building basement that would otherwise fit only 24, accomplished by removing a ramp and maneuver space normally required. (read more)

RealEstateJournal | Tenants May Gain Clout In Office-Rental Market

Office landlords had a heyday in 2006 as rents rose at the fastest pace in six years. Yet there are signs that conditions could be turning a little more in the favor of tenants.

Newly released data by Reis Inc., a New York real-estate research firm, show that office rents rose 9% nationally last year, the heftiest increase since the height of the technology boom in 2000. However, the report also found that demand for new office space slowed sharply near the end of last year, a sign that large rent increases may not continue.

Demand for office space is measured by tracking the “absorption” rate, a closely watched number that quantifies the change in the net amount of occupied space. In the fourth quarter, tenants in the nation’s 79 largest markets absorbed a net 7.6 million square feet of space, according to Reis, compared with 11.6 million in the third quarter and 15.9 million in the second.

“It is clear that investors cannot expect the same pace of rent growth without a more cooperative level of net absorption,” said Lloyd Lynford, Reis’ chief executive. He noted that slowing growth in demand for office space tracks closely with the slowdown in employment growth in the second half. (more)

RealEstateJournal | Failed Condos Spur Rise in Vacant Apartments

The U.S. apartment market ended 2006 with a surprisingly large increase in the number of empty apartments, due to a combination of rising rents, seasonal factors and increased supply from failed condominium projects converted to rentals.
The average vacancy rate for the 79 largest U.S. markets rose to 5.9% in the fourth quarter, up from 5.5% in the third quarter and 5.7% a year earlier. The increase was the fastest quarterly jump since the first quarter of 2003, according to Reis Inc., a New York research firm.

“It’s a bigger increase in vacancy than we expected,” said Sam Chandan, chief economist at Reis. Rental buildings that were converted to condos reverted to rental units in a slowing housing market, most notably in Florida. Completion of new apartments also increased supply, bumping up vacancy rates, he added.

Meantime, landlords continued to increase rents at a strong clip as people fled to apartments from a pricey and uncertain for-sale market. Rents increased 0.9% in the quarter from the preceding quarter and rose 4.4% from a year earlier. The average apartment rent nationally, including concessions landlords give such as a month’s free rent, was $930, versus $922 in the third quarter and $891 in the fourth quarter of 2005. (more)

RealEstateJournal | Ohio’s High Court Says City Can’t Take Property
The Ohio Supreme Court ruled unanimously on Wednesday that economic development isn’t a sufficient reason under the state constitution to justify taking homes, putting a halt to a $125 million project of offices, shops and restaurants in a Cincinnati suburb that officials said would create jobs and add tax revenue.

The case was the first challenge of property rights laws to reach a state high court since the U.S. Supreme Court last summer allowed municipalities to seize homes for use by a private developer.

“For the individual property owner, the appropriation is not simply the seizure of a house,” Justice Maureen O’Connor wrote in a case that pitted the city of Norwood against two couples trying to save their homes. “It is the taking of a home — the place where ancestors toiled, where families were raised, where memories were made.”

Property rights’ advocates, business groups and backers of city planning were watching the Ohio case because of the precedent it could set. The ruling comes a year after the U.S. Supreme Court ruled 5-4 in a case from New London, Conn., that cities can take land for shopping malls or other private development.

Norwood wanted to use its power of eminent domain — the authority to buy and take private property for public projects such as highways — to seize properties holding out against private development in an area considered to be deteriorating.

In the ruling, Justice O’Connor said cities may consider economic benefits but that courts deciding such cases in the future must “apply heightened scrutiny” to assure private citizens’ property rights.

Targeting property because it is in a deteriorating area also is unconstitutional because the term is too vague and requires speculation, the court found.

Justice O’Connor wrote that the court attempted in its decision to balance “two competing interests of great import in American democracy: the individual’s rights in the possession and security of property, and the sovereign’s power to take private property for the benefit of the community.”

Dana Berliner, an attorney for the Arlington, Va.-based Institute for Justice that represented property owners in the case, said Wednesday’s decision will have ramifications in high courts and legislatures across the country.

“This case is really part of a trend throughout the country of states responding to and rejecting the U.S. Supreme Court’s Kelo decision last year,” she said. “There are now 28 states that have taken legislative steps to protect owners more after that decision, and this case is the next movement in that trend, and I believe now not only legislatures but other courts are going to begin rejecting that terrible decision.”

After the U.S. Supreme Court decision, Ohio declared a moratorium that prevents local governments from seizing unblighted private property for use by private developers until 2007. A legislative task force is expected to go ahead with reforms when it meets Aug. 31.

“I anticipate that many of our recommendations, combined with today’s Supreme Court decision, will ensure that Ohio sends a strong message to its citizens that their private property rights are secure,” said state Sen. Tim Grendell, chairman of the state’s Eminent Domain Task Force.

Norwood Mayor Tom Williams defended the plan and said he still believes the project was lawful.

“I believed that we did that right thing then, I believe we did the right thing now,” he said.

Tim Burke, a lawyer hired by Norwood, called the decision a significant disappointment and said it will halt progress on the planned development. He said the city likely will not appeal.

“Norwood, every step of the way, followed the law as it existed,” Mr. Burke said.

Development interests in other areas — particularly Cleveland’s Flats development along Lake Erie — signaled their intentions to proceed with plans that involve similar seizures.

“The Flats case is fundamentally different from the Norwood case and as such, we do not believe today’s ruling will impact the outcome of our legal actions,” the Port Authority and The Wolstein Group said in a joint statement.

Ms. Berliner called Norwood emblematic of development trends across the country.

“This was a perfect example of what is going on all over the country: a perfectly nice, working class neighborhood with no tax delinquencies, no falling down buildings, a nice neighborhood of homes and businesses, that a developer thought could be much more profitable as an upscale shopping and high-end housing center,” she said.

FDIC REPORT ASSESSES PROSPECTS FOR BANK CREDIT QUALITY

Performance remains strong in the three largest loan categories at FDIC-insured institutions, but surging loan volumes and relaxed underwriting point to the possibility of rising losses in the future, according to the Summer 2006 edition of FDIC Outlook released today.

The latest report focuses on bank credit quality in the context of what is referred to as the credit cycle—a periodic fluctuation in the volume and quality of credit. While cycles of expanding and then contracting credit volumes are common in financial markets, they tend to play out in different ways across the various banking lines of business. Today’s report concludes that while loan performance remains historically strong in the three largest categories—mortgage lending, commercial and industrial (C&I) lending, and commercial real estate (CRE) lending—credit quality may have peaked. Rising loan volumes, loosened underwriting standards and untested products raise concerns about future credit losses.

In the report, the FDIC studies the nature of credit cycles and what the future could hold for an industry in which the three largest loan categories have grown rapidly in recent years but loan losses remain at or near historic lows. Perhaps the most far-reaching changes have been observed in U.S. mortgage lending, where the use of interest-only mortgages (in which borrowers pay only the interest for the first five or 10 years of the loan) and pay-option mortgages (in which borrowers may elect to adjust their monthly payments under certain conditions) increased dramatically in 2004 and 2005. Use of these products has led to concerns about the risks they may pose to lenders and to homeowners, although mortgage loan performance at FDIC-insured institutions remained strong through March 2006. Regarding commercial and industrial lending, FDIC analysts find that while risk management practices have undergone large-scale changes over time, the outlook for C&I credit quality continues to depend on the financial health of nonfinancial businesses. Commercial real estate lending, too, has been transformed. The availability of better information about market developments and new, market-based sources of capital may have dampened loan losses as vacancy rates rose after 2000. Still, rapid expansion in bank CRE lending has contributed to concentrations of CRE loans that are, by some measures, higher now than at their last peak in the late 1980s.

An introductory article in today’s edition of FDIC Outlook traces the historical evolution of the concept of the credit cycle and points to the possibility that credit cycles may play a more important role in shaping bank financial performance today as a result of banking deregulation in the 1980s and 1990s.

Commercial Real Estate’s Perfect Storm: What Lies Ahead? - Knowledge@Wharton
“For the last few years we’ve enjoyed a perfect storm in commercial real estate,” said Brian Lancaster, head of structured products research at Wachovia Securities, the brokerage group within Wachovia, a financial services firm with more than $541 billion in assets. “There has been a simultaneous occurrence of stabilizing rents, improving fundamentals, and really, really cheap money.”

The commercial real estate market has been on a tear in the last few years. Banks, insurance companies and institutional investors funneled money into the market because its returns, in an environment of low interest rates, exceeded those of alternative asset classes. This segment of the broader real estate market typically includes office, retail, multifamily and industrial properties.

Lancaster observed that the commercial real estate market remains strong, although “not as great as it has been in the last few years.” More than 10% of Wachovia’s assets are in commercial real estate.

Lancaster made these comments at a conference last month on Innovation and Risk Management in Real Estate Markets, sponsored by the Wharton Financial Institutions Center and Mercer Oliver Wyman, a financial services strategy and risk management consulting firm. He took part in a panel discussion about the emerging risk profile of commercial real estate lending. The other industry experts were Caroline Blakely, a vice president in multifamily housing and community development at Fannie Mae; Richard Edelstein, a professor at the Haas School of Business at the University of California at Berkeley; and Bradford Case, an economist with the Board of Governors of the Federal Reserve System.

Fannie Mae’s Blakely agreed with Lancaster that investments in commercial real estate continue to be strong, adding that in the multi-family sector, “real estate fundamentals are on the mend.” U.S. demographic trends and steady job growth bode well for apartment rentals. In line with that, “vacancies are declining and asking rents are climbing,” she said. Fannie Mae is slightly less optimistic about rent growth than other institutions in the real estate industry, but nonetheless expects it to be in the 2.5% to 3.5% range over the next year.

The mortgage financing giant also does not see the expanding supply of multi-family rental properties as a threat. “We’re not concerned right now about an increase in multi-family construction, although we’re certainly watching the condo conversion market and the oversupply in condos,” Blakely said. Last year, Fannie Mae helped finance more than $25 billion in multi-family rental apartments in the U.S. The company’s portfolio of multi-family commercial real estate assets totals more than $124 billion.

For the complete article, follow this link.

Bush Order Limits Federal Eminent Domain
President Bush has weighed in on the debate over the use of eminent domain to spur economic development projects. He issued an executive order June 23 that bars federal agencies from seizing property through eminent domain except for public works projects, such as roads. Most eminent domain activity occurs at the state and local levels, but Bert Gall, an attorney with the Institute for Justice, claims Bush’s directive sends a message to Congress, where legislation aimed at curbing eminent domain is pending.

Last November, the House passed a bill, 376-38, to cut federal economic development aid to states and localities for two years if they use eminent domain for development projects. In the Senate, the bill is being considered by the Judiciary Committee, but there has been no substantive action in the chamber. “The federal government doesn’t really use eminent domain for private development, but…this order encourages the Senate to pass the House bill,” says Gall.

Bush signed his order on the first anniversary of the Supreme Court’s decision in Kelo v. New London. The court ruled the city of New London, Conn., could use eminent domain to transfer property from one private owner to another for an economic development project.

Eminent domain use has been rising since Kelo, according to a study co-authored by the Institute for Justice. It says 5,429 properties were threatened by eminent domain in the year after Kelo, compared to 10,282 properties between 1998 and 2002.

Kelo also has sparked a backlash. In January through May, 325 eminent domain bills were introduced in 42 states, says the U.S. Conference of Mayors. The measures ranged from defining appropriate uses of the procedure to banning it for purposes other than public works.

Several mayors are concerned that the bill in Congress will bring an end to many development projects that benefit their communities. Philadelphia, which says it has the most abandoned real estate, per capita, of any U.S. city, seizes about 2,000 properties a year and develops 500 to 600 affordable housing units, says Philadelphia Redevelopment Authority Executive Director Herb Wetzel. “An outright ban on the conveyance of property to private citizens through use of eminent domain would mean none of those units could be built,” he says.

Bill Hudnut, senior fellow at the Urban Land Institute and former mayor of Indianapolis, says some municipalities abuse eminent domain, but most projects are necessary. “This is a knee-jerk reaction by politicians jumping on a temporary issue because they think there’s political mileage in it,” he says. “They are trying to kill a fly with a sledgehammer.”

Here is a link to the actual order

Links to additional news stories can be found here, here, and here