July 22, 2010- Trinity Trust Visit

This weeks class was a little different. Instead of meeting in the class room we all went to Urban Land Institute meeting at the Trinity Trust in Dallas. Is was very interesting seeing so many different people from all different parts of the real estate field. We had talked before about ULI and how it was a great institute to join because of all the great contacts you could make. The social gathering started out with some food and beverages. I met one guy who is going to join the masters program this winter. After a little mingling the presentation started. The whole reason for this meeting was to inform people about the Trinity River Project going on in Dallas. Don Raines was the one who spoke to us about the project. He is an urban planner and plays a big role in the project. He started off by talking about the history of the Trinity River going through Dallas. The bottom of the Trinity used to by limestone but was later taken out because of flooding problems. Another interesting thing was that the Trinity had been moved by man to flow a different route. In the project there are many different things that are going to be done. Starting out they want to make the river meander more to give the river more oxygen which will create a better life in the water. The project consists of 10,000 acres. The project will consist of two bridges being built. One is already under construction and will be done next year. The saying Don mentioned was "If u can sell the water you can sell the land." The project wants everything to deal with water. There is going to be a white water course for people and their kayaks. Another cool piece is the amphitheater that will be constructed and have a floating stage on the river for the performers to stand on. It will have around 18 soccer fields for people to play on. Also it will have a trail to bike, jog, or walk on. The trail will be 20 ft wide and sloped so the water and sediment will run off if it floods. There has been talks of putting a sky tram over the river so it would be easier for people to get to the great parks and the river. The presentation was interesting but only 30% of the drawings were in place. The project was huge and will take many years to complete. It was nice to get out of the classroom and learn something in a different environment.

July 15-Debt Markets/Financing/Foreclosures/Investing trends and Issues

There were many different topics to talk about tonight. We started off talking about Citi Group and how it had done many deep dark business things that were in a way secretive to the American people.
Cities are now penalizing banks who don't take care of properties they foreclose on. This is a good idea I believe more cities should do. This keeps properties going to the pits and making other properties around look bad. The banks must keep the landscape looking nice and keep the house from being stripe of all copper or such things.
The next discussion we had was about CMBS. People are really concerned about commercial real estate. Many companies who have loans are under water and are going to refinance in the near future and lose everything if they don't have substantial amount of capitol to pay part of the loan.Property values have gone down 40%, vacancy rates are up, and rental rates are down. This is a worse case scenario for any owner. The article talks about how the government is not getting ready for this fall out and we need a plan. Many small and medium size banks will go down because of this. More than 60% if mortgages maturing in 2012 and 2013 are underwater. This is a very scary situation to think about. The major problem is its only beginning and will unfold in the next couple of years. The stress test on banks done by the government to make sure they are sound was only don to 2010 and not 2011 when its going to start to fall apart.

On the other hand their are institutional investors looking at investing in commercial real estate and other alternative investments. Which is contrary to the last discussion.

Also in the investment arena non-traded REITs are becoming very popular thing to invest in. 100,000 investors can offer these kinds of trades but only a few are actual selling them. It is very interesting because the non-traded REITs have had a higher return then traded REITs. REITs are what got us out of our last recession in the 80's and early 90's.

Many lenders right now are "extending and pretending." They know many loans they have made are not good, but they pretend the loans are okay and extend the loan so that the borrower will keep paying the loan as much as they can. All this is doing is delaying the inevitable. The banks don't want to reveal their financial situation to anyone or even themselves. Countrywide was the worst at doing this in the residential part of real estate, all just to say that they don't have bad loans.

The next article we talked about was where an asset based company in Toronto, Canada is buying an Addison office building that was foreclosed on by Wachovia. This area is where one of the first urban villages was done. This property was brought, even below replacement cost. Buying it so cheap makes a domino effect occur because they can charge lower rates than other places. Then the other offices could become unable to pay their expenses. Also the city loses money because the tax money received is lowered. Dallas is one of the best markets to buy property because of its good economy. Many investment firms are saving billions to buy these kinds of properties because of their dirt cheap prices. Another fact about DFW is that foreclosures hit 1649 for the year and $880 million in debt will be foreclosed on next month.

Atlanta leads the nation in bad CMBS special servicing loans. They have 226 problem CMBS loans. It's because they and weak underwriting loans; many of the loans are going to mature this year. A really scary statistic is that 85% of all CMBS loans will not be eligible for refinancing.

We also talked about the G7 countries and how they have a growing GDP debt. New growing countries will become big players in the global markets. China's growth will soon slow down.

The last thing we touched on were workouts. Workouts are a negotiation between the borrower and the lender to keep the property from going under. Institutions don't want to hold properties; an example is lenders can make changes to the loan to help the borrower like allowing just interest payments.

July 8-Hospitality/Travel/Resort/International Trends

Tonight's discussion started off talking about the hospitality industry. It is hurting right now because of the recession we are in. Tourists are not traveling and businesses are not traveling nearly as much as in the past. Businesses are trying to find ways to save money. So they are having day conferences or using a lot of technology to do business across the world to be more efficient and lower their overhead. Individual companies are becoming more efficient with their money also. An example would be a builder located in Dallas, the architect located in New York, and the construction management company would be in California. All the companies would come together via the internet and talk using a web cam. They could also have web cams on the construction site for others to see the progress being made.

Even though the economy is bad. The hospitality industry's top management said two major things things to focus on in the future is growth and finding other streams of income. In the past, the major thing wanted was efficiency. Efficiency can be maxed out, and has by a lot of hotels because they have dissected their balance sheets. Then put them backed together with with least amount of costs.
Historically in the 70's and 80's hotels were wasteful and then pressure was put on them by capital markets for buyouts. This is what caused them to become more efficient.
Also hotels are trying to be more sustainable. Ex. Hotels are asking customers if they want their towels and sheets washed everyday or not. This helps their marketing and also save their bottom line.

Another way hotels are trying to make some extra money is by offering private residences at their hotels for extended periods of time.

For some hotels, those near the Gulf Coast, things have gotten worse because of the oil spill. Hotel vacancies are drastically down and this is their seasonal period when they usually make most of their money for the whole year. The truth is that many will not make it through this to next year because they have no emergency capital.

Travel trends were the next thing we talked about. Travel is changing because of the economy and because of prices to travel. Now days it is stressful going through the whole air travel process. Many people are doing a variety of different things. Some are traveling on trains to vacation spots. Others are just staying closer to home and vacationing. Trains altogether are an upcoming trend in transportation. President Obama has passed a large bill to bring high speed rail into different corridors in the United States. Most major builders of this kind of train system are not from the US though.

The last discussion we had was about international markets. China could be in a bubble or it just could be growing fast. Their overall debt is very low and their economy grew last year by 8.2%.
Another interesting real estate project going on in the international market is in Iraq. This is very interesting project. It is a multi-building project with 3,500 resident apartments, a 5 star hotel, and an upper class mall. This project is targeting the educated in the area.

June 24 Industrial/Low-income Housing/Taxes/Governmental

We started off the class period talking about low income housing. An article that caught the attention of the class was about a developer in Dallas that had been applying for HUD money and the money was taken away from them to build upscale properties. Dallas wants a lot of sustainability developments. The city is somehow keeping low income housing out of the city even though they have been taking a fair amount of money and saying they are doing as much as possible to make low income housing available. For example, in Dallas there was a building built with low income housing on the bottom floors and nice penthouses built on the top floors. When people think about this kind of housing they think of drugs and crime everywhere. That might have been what it was like 5 years ago, but it has changed. Now this affordable housing is for teachers, police officers, and secretaries that work around in that area. You don't want to bus all these people in everyday for work so you have this kind housing for them instead. With low income housing you deal with NIMBY because a lot of the wealthy don't want it close to them, but they are needed so janitorial services and other low paying jobs can be taken care of. A great example of low income housing is the New Hope project in Houston. It was a very nice place and all residents have background checks. This makes the place a great environment. Studies show that when people have housing that they can afford it helps the community as a whole and makes it a better place to live. A big discussion we also had, was should we as people be responsible for relocating others that are misplaced from buying the low income land and building it up to be a nice place? As a person we need to help them somehow. In a way we already do because of the taxes that we pay to the government, but we shouldn't just give them to the government. The developer should have a responsibility to relocate these people without them having a loss.

Taxes were the next topic discussed. The government is trying to find ways to make more money through taxes. They are looking at taxing investors that have smaller incomes and currently pay less taxes because most of their profits/income comes from trades and investments. They only have to pay 15% capital gain taxes on this part of their income. That is why the government is raising it back up to 30-35%. They don't want people working the system and they want more tax dollars. Also, the government wants to lower the estate tax minimum before taxation. By doing this, the amount of people that will invest in real estate will be thinned and financing for real estate will cost more. City governments are also trying to get more money, for example in San Francisco, CA, they are trying to put a tax on commercial rent in order to lower their deficit by as much as possible. Most states have large deficits so the government is raising property taxes even though house prices are going down. This is the opposite of what the taxes should be doing. Governments are giving tax deductions to commercial properties for becoming green and also having ADA guidelines.

The last thing we talked about tonight was industrial markets. One of the articles talked about the DFW area and said that rents are going down and construction of warehouses is also going down. Just 345,000 square feet have been constructed in the first six months of this year. Last year in the first half of the year over 1.6 million sq ft were constructed.

We talked a little about Canada and its economy. It is doing well. Housing prices are very high. They are doing much better than the United States and many European countries because they have been keeping their financial regulation tight.

The government plays a big part in commercial real estate. GHS has a big hand in owning real estate. The government buys buildings to house new employees, and new parts of the government that are being created such as for the new health care system. They also redo office spaces and sell them to the private sector.