2009 September | MHN Blog

‘Gimme Shelter’ with Daniel Gehman: “Land ho!”

"Gimme Shelter" with Daniel Gehman, TCA 2 Responses »

Sep 292009

Ah, if only. People around here are fond of saying “God stopped making land a long time ago.” If not precisely scientifically correct, at least those words capture the emotional tone of the current predicament—we’re running out of dirt.

Allow me to qualify. It’s not so much that there isn’t bare land available anywhere, but powerful forces have conspired to make a great deal of it simply in the wrong place, even if for the right reasons. Of course, I’m talking about real estate suitable for the development of new multifamily communities. With the tiniest glimmers of light beginning to penetrate the dense fog of the “great recession,” it is time for new projects to enter the entitlement pipeline in order to properly anticipate the arrival of a better market, one in which the latent demand for dwellings will once again surface as people “un-couple” from the hybrid households that formed during our recent painful contraction. (Phew!)

So give us dirt! I have many colleagues in the development industry who are now on the prowl for a few acres of blank slate on which to sculpt their next multi-family masterpiece. Naturally, I want to assist the search in any way possible because I need work as well. So, partly at their bidding, but largely prompted by my own survival instinct, I’m keeping my eyes open, my ears to the tracks, (place your favorite cliché here) to pay attention for purchase and development opportunities.

Our industry, at least in California, is evolving. The give-back in rents of the last few years has had the effect of rendering nearly any project with structured parking essentially impossible to pencil. Back in the day, when rents were increasing, these dense infill projects could work. Construction costs have backed off considerably, but not enough to balance out the overall picture. And here’s the rub: to quote a friend frustrated by a fruitless search, “The sellers still think it’s 2006.”

Back in 2005, apartment REITS were consistently bid out of the competition for infill sites because for-sale developers could always offer more money for the land. Then by early 2007, with the declining market, many of these properties changed hands, with the for-sale teams bailing out through sales to for-rent developers.

Today feels eerily similar, but the problem doesn’t seem so much that the land is being bid up by for-sale guys; rather, the sellers all remember those days, and still expect inflated prices. To qualify yet another aspect of this, bear in mind that cultural pressures have gelled that make the wildly ex-urban properties (think 90-minute commute stuff) unpopular due to their “unsustainable” nature. All signs point to the logic of denser communities being built near and around transit, which has recently been resuscitated due both to public will and the infusion of recovery money. This means, of course, that all the land held in these zones is offered only at premium prices! Argh!

So what does it all mean? My buddies, the acquisition folks, are working harder and being more creative than I’ve ever seen. All my in-house colleagues are all trying to pay attention to the land market, though it is far outside our typical comfort range to do so, watching for leads. Everybody wants deals to be made so we can step up our work efforts.

All this effort is going to lead to “break-away” ideas—really new and unique propositions for properties that seemed unlikely in the past (see my post “Car-ied Away, from September 10th.) The municipalities may need to help, too, by offering incentives such as zoning overlays or parking relief.

Everything in me has that feeling that somebody, somewhere, is going to break through soon.

Bring it on!

(Daniel Gehman is principal at Thomas Cox Architects. He can be reached at DanielG@tca-arch.com)

‘Editor’s Notebook’ with Diana Mosher: What will ‘Smart’ Multifamily Look Like in 2050?

"Editor's Notebook" with Diana Mosher 2 Responses »

Sep 282009

Over the weekend I attended the wedding of a high school friend—her second marriage and his first. While she has had other attractive proposals during the 10+ years since her divorce, this suitor was different. He shared her life-long dream of leaving the suburbs for an authentically rustic lifestyle in Vermont.

We all know people who despise the hustle and bustle of city living. Hopefully there will always be a choice that suits them. Demographers predict that by 2050 as much as 70 percent of the earth’s population will be living in cities. Click here for a fanciful look at what some of tomorrow’s “mega cities” might look like.

IBM is just one organization that is looking to shape this trend as it unfolds.

To glimpse what a true smart city might look like, IBM suggests looking at Masdar City, which is being erected near Abu Dhabi, in the United Arab Emirates. Click here for MHN’s most recent coverage of the project. Planners there are working with top scientists, engineers and innovators to create interconnected systems and manage them through an integrated city dashboard.

IBM is aggressively spreading its message and capabilities to consumers. A new report from the IBM Institute for Business Value, “A Vision of Smarter Cities,” argues that cities must use new technologies to “transform their systems to optimize the use of finite resources. As sustainability for cities and the planet becomes ever more important, the question isn’t whether cities will do this; the question is: Which ones are doing it first? And who will do it best?”

There’s not much detail about the role of housing in IBM’s messaging, but multifamily will play a pivotal role in the success of the cities of 2050.

What steps will apartment owners need to take to retrofit existing properties and what “smart” systems will need to be offered in new construction from an operational as well as amenities perspective?

(Diana Mosher is Editor-in-Chief of Multi-Housing News. She can be reached at Diana.Mosher@Nielsen.com)

‘The Green Picture’ with Erika Schnitzer: Can the World Learn a Lesson from Buildings?

Miscellaneous 2 Responses »

Sep 242009

New York City is flooded with some major events this week: the U.N. General Assembly, the annual meeting of the Clinton Global Initiative and Climate Week N.Y.C., which falls just a few months before the international climate meeting slated to take place in Copenhagen this winter.

At a meeting at the U.N. on Tuesday, President Barack Obama, addressing world dignitaries, noted that though some progress has been made in the fight to combat climate change, there is much more work to be done.

The President called on all nations to work together to face the global crisis. “Difficulty is no excuse for complacency. Unease is no excuse for inaction,” he said. “Each of us must do what we can when we can to grow our economies without endangering our planet – and we must all do it together.”

For a while now, much of the burden of reducing greenhouse gas emissions has been placed on those in the building industry. But the industry has also made some truly great advances in making our buildings healthier and more sustainable.

There are still those, however, who have not yet embraced the concept of building green. Perhaps it is due to finances, a lack of education about the benefits—whatever the reason, everyone, in the industry, or outside it, must come together to figure out the best means possible to make our lives, and the future, a little bit greener.

The President has called on nations to work together to fight the fight. It seems to me that many in the industry are already doing so. Is it possible that the world could learn a lesson or two from our buildings?

What do you think? How does the multifamily industry—or any building sector, for that matter—already work together to make our lives more sustainable? Or do you disagree—is there more that can be done within the industry to bring people together and take a more integrated building approach?

Share your thoughts. Email me at Erika.Schnitzer@nielsen.com, or leave your comments here for others to view and learn from.

(Erika Schnitzer is Associate Editor at Multi-Housing News.)

Foong on Finance: Restructuring Fannie and Freddie

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Sep 172009

The past few months have seen a flurry of activities to do with the possible restructuring of Fannie and Freddie. Industry observers emphasize, however, that we are only at a very early stage of the process of reassessing the future structures, and roles etc., of the two Government Sponsored Enterprises (GSEs).

Fannie Mae and Freddie Mac are now under conservatorship, under the control of the government. At this point, the government has to support the two organizations to keep them afloat. The thinking is that a better solution has to be found for the two mortgage financing organizations, long-term.

“The landscape is definitely going to change. There is no question,” comments David Cardwell, vice president of capital markets and technology, at the National Multi Housing Council (NMHC).

The proposals range from the left to the right of the political spectrum. They include, in broad terms, nationalizing the two GSEs, on one end, to abolishing and privatizing them, on the other.

The Government Accounting Office (GAO) released this month a report to Congress that analyzed the pros and cons of three categories of proposed options for the future of Fannie and Freddie. [See MHIF report "GAO Recommends that Congress Reevaluate Fannie and Freddie" in this issue of the newsletter.]

And the Mortgage Bankers Association (MBA) has also put forth its own proposals for the future of the two entities which involves the creation of regulated private entities. These entities would own the securities they issue in most cases. The securities would be backed by a federal insurance fund that is funded by fees charged for the securities.

“In the long-term, we think we need a private solution where by the investors in mortgage backed securities take the interest-rate risk,” Michael Berman, president and CEO of CWCapital and vice chairman of MBA, tells MHN.

Berman is the chair of MBA’s Council on Ensuring Mortgage Liquidity, and he was interviewed earlier this month life on CNBC. In the segment, he was pressed on the question of whether the government is still ultimately liable for mortgage losses.

Hearings on the future status of Fannie Mae and Freddie Mac were also held in Congress beginning in June. They may continue this fall in Congress. But everyone is waiting to see what the Obama Admininstration’s recommendations are, due out with the budget in February 2010. So far, there have been media reports, in August, that the President considers removing the bad loans from the agencies. These would be placed into separate “bad banks,” leaving the “good banks” standing.

Watch for a feature article on this topic in the upcoming October 2009 issue of Multi-Housing News magazine.

(Keat Foong is the executive editor at Multi-Housing News. She can be reached at Keat.Foong@nielsen.com)

Buy L. A. Now

"Gimme Shelter" with Daniel Gehman, TCA 1 Response »

Sep 152009

How many times in the past year have I found myself saying, “You know, when the next recession comes along, doggone it, I’m going to have a hundred grand laying around so I can take advantage of these dang fire sales that are constantly tempting me.” Wishful thinking only? Well, perhaps, but let me explain the latest observation to spark this ambition.

Over the last few weeks, I’ve had a couple of occasions to enrich my in-depth appreciation of the City of Angels. First was a downtown walking tour, sponsored by the LA Conservancy, of the locations that were central to the summer indie film “500 Days of Summer.” This romp was a great deal of fun, despite it being the hottest day of the year. Of course, there were the typical trompe l’oeil effects of making one place seem like another—Old Bank DVD standing in for a record store, and another building on South Spring Street faking it as Tom’s apartment. At least the treasured Bradbury Building (site of Harrison Ford’s apartment in Blade Runner, only much prettier in real life) was played close to the real thing as an important meeting takes place there between the architect protagonist and a prospective client. (Could this be a thinly veiled reference to the developer who is actually headquartered in this Victorian confection?)

The city itself, however, played itself, rather than imitating New York, Philadelphia, or any number of loony third world outposts. It might be noted that often when LA plays itself in a movie, it ends up being destroyed—Terminator 2 and Independence Day spring to mind. So, in this quirky little study, not only does downtown play itself, but it survives, and even thrives.

Our tour guide pointed out that the producers of the movie deliberately edited out of strategic camera shots iconic LA structures that would have plainly painted it as a modern town: the Walt Disney Concert Hall; the Library Tower. Instead they focused on what they termed “pre-World War Two” architecture. At the end of the day, this gives the film a bit of a “timeless” quality, or at the very least, a romantic patina. LA has, by the way, the largest concentration of historic early 19th century buildings in the entire country.

But on to my sales pitch. This past weekend I went on a Downtown Housing Tour, which is sponsored by the Downtown Center Business Improvement District as a means to promote dwelling opportunities in the core of the burb. I have done this before, but there was a spate of new stuff I really wanted to see, including several historic buildings that have been adaptively re-used as apartments or condominiums (and for actual people, not for actors in a movie!) A couple really got my attention. The Rowan building, on Spring Street (the emerging artsy district) is extremely classy, with the signature feature of unimaginably large windows. Seriously, these monsters must be nine feet wide by six feet tall—and the open, too! It’s almost a wall of glass, except for the existing beefy structural columns that separate the openings. Awesome. Oh, and there are special transparent guard rails added to keep your French bulldog from plummeting over the sill.

If slick, modern, chic, amenity-rich living is more your style, Evo in the south park area offers it in spades. This brand new high rise in one of downtown’s other emerging hot spots has walls of glass, too, but of the modern variety, not to mention outstanding finishes and top shelf appliances. Without resorting to hyperbole, it is really quite jaw-dropping, especially on the upper floors, when the building breaks out above it’s tall neighbors.

Now, if you’ve got a bit of bank, you can snag a fine pied a terre in one of these buildings for a total song. I’m not exaggerating. The entry-level pricing at Evo is around $350/square foot; that’s probably $100/foot less than it cost the developer to construct this gem! The Rowan was one of the first downtown properties to offer a release of units at auction, which was a tremendous success for buyers, even if the seller lost money on every transaction.

I must say that if I were serious about moving downtown and could pull it off, I would probably have a very difficult time deciding between Evo and The Rowan. Too bad I won’t have to agonize about it now.

Somebody call me again in about eight years.

(Daniel Gehman is principal at Thomas Cox Architects. He can be reached at DanielG@tca-arch.com)

‘The Green Picture’ with Erika Schnitzer: 1,000 Green Supers in One Year

Miscellaneous 1 Response »

Sep 112009

Does it matter how green your buildings are if the people responsible for their daily operations don’t know how to properly maintain their sustainable lifestyle?

In New York City, Urban Green (the city’s chapter of the U.S. Green Building Council) and 32BJ, a building service workers union, have launched a plan to train 1,000 green building superintendents this year.

According to the program’s website, the group of managers currently undergoing training (within the first two courses) represent 55 buildings, or 4,600 apartments throughout the city, ranging in age from one to 120 years old.

The program is designed to prioritize skills to reduce energy use within a building and train supers in all aspects of green building operations and maintenance.

What do you think? Is this a feasible program? Should other cities and localities institute similar programs? How important is education when it comes to your building’s daily operations?

Share your thoughts. Email me at Erika.Schnitzer@nielsen.com

Guest Blog with Lili Dunn: Lights, Camera… Where’s the action?

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Sep 102009

After essentially shutting down since the fall of 2008, the real estate transaction market is starting to show some signs of life. According to Real Capital Analytics (RCA), a leading real estate data provider, July marked the first consecutive gain in transaction volume in seven quarters. Yet sales volume is barely 10 percent of the market peak in the first half of 2007. Why so slow?

Considering the events of the past year and the front page media headlines, one would think there would be many distressed apartment asset sales–but surprisingly, that’s not the case. Banks have been recapitalized and appear motivated to restructure debt/ownership positions rather than foreclose, realize a loss, inherit operational burdens and, potentially, affect capital/regulatory requirements. As a result, they tend to be in a “pretend and extend” phase. Many distressed assets also have complicated layers of equity and financing, requiring consents from several investors with conflicting investment objectives. Underscoring this, per RCA, less than 10 percent of the distressed situations that have emerged have actually been resolved.

In most cases, deals are being brought to market by partnerships, institutions or insurance companies that are looking to bolster liquidity or lower exposure to real estate. The majority of the buyers are smaller private investors/regional companies. Many of the investors are i) entrepreneurs who were active outside of real estate; ii) foreign buyers looking for a relatively stable investment; or iii) seasoned owners/funds that were previously active in other real estate sectors. Buyers seem to be most focused on high quality locations and assets with low operating risk as well as an attractive discount to replacement cost and cash-on-cash yield. On top of this, smaller assets ($10 – $50 million) that can potentially limit exposure and risk seem to be attracting the most attention; according to RCA, the average apartment deal sold this year is roughly $20 million. Unlike other real estate sectors, ample financing from the GSEs and positive leverage have helped to support apartment pricing. Although cap rates have increased 150-200 bp (values down 25 percent-40 percent) since the market peak, the rate of change is decreasing but there is still a lot of pricing discovery and equity remains volatile.

In May, AVB completed the first REIT deal of the year, when we acquired Verona Apartments for $33.1M (or $150,000 per home) on behalf of our Fund. The property, built in 1994, comprises of 220 homes and is located in downtown Bellevue, Wash. The price reflects a discount of approximately 45 percent below estimated replacement cost and a 200 bp increase over a sale AVB completed in Seattle less than one year ago. Given that AVB manages over 1000 apartments in Bellevue, Verona will benefit from the company’s deep local knowledge, established management platform and economies of scale. In addition, there is potential to reposition the asset through additional physical upgrades as the market strengthens.

We’re still early in the revaluation process but the market appears to be firming again and confidence is re-emerging. Uncertainty can bring tremendous opportunity for buyers with strong reputations, extensive track records and discretionary equity. Assuming short-term operating weakness is underwritten, now may be an ideal time to secure high quality assets at relatively attractive risk adjusted returns that should be well positioned to take advantage of strong fundamentals once the market recovers.

(Lili Dunn is the senior vice president of investments for AvalonBay.)

‘Gimme Shelter’ with Daniel Gehman: Car-ied Away

"Gimme Shelter" with Daniel Gehman, TCA No Responses »

Sep 092009

So I was sitting in a ULI professional conference on “Developing Green” several months ago and made a small note to myself. “What a good idea it might be to consider the adaptive re-use of shuttered automobile dealerships.” Well, imagine my ironic delight as I read in Globe St. this morning about a new arm of a well-known brokerage firm that had been set up to deal in “work-outs” for closing car lots. Hmmm. Should have registered my idea somewhere, I guess.

Anyway, I still find the notion quite compelling. Naturally, there are as many variants in the location of car dealers as there are option packages, but some of these sites might really work if re-purposed. The ones that spring to mind are those located right on the fringe of residential neighborhoods. Now, I’m aware that today is not the most propitious moment in history to be considering the development of new ground-up housing, but every now and then something comes along that’s just too good to pass up, at least as far as land values are concerned. So a dealership that has been family-run for three generations in the same spot—what’s the land value there? Wouldn’t re-zoning for multifamily or mixed-use development on some of these properties make sense?

On the other hand, what if some portion of the vertical improvements (especially some of those bombastic, palatial homages to the muscle cars and mini-vans of yore with the soaring volumes and granite floors) could be saved and given new life with some minor tweaking? Adaptive re-use is such a wonderful exercise in resource sensitivity; it just requires the proper brilliant design team and a fearless developer. But what uses might work?

I’m thinking a school might be a good fit (at least for a dealership close to residential areas—for those located under freeway off-ramps, maybe not so much). There’s one major assembly area, then lots of support spaces around it to be used for classrooms. Actually, when I hear myself describe it that way, it sounds like a church might also be a good use, especially with all that convenient surface parking scattered around. (The really frustrating thing about a church, of course, is how much surface parking is really required. Talk about designing for the Easter crowd.)

But perhaps there’s a creative hybrid (note the subtle car reference) to be generated with one of these properties, in a mixed-use vein. I could see an enhanced neighborhood center/transit hub where the local (alternate fuel) shuttle stops to pick up people bound for the train station or other public transportation. It could be a small school, library and recreation facility with a tiny amount of retail and maybe a handful of executive suites. Then, build as much multifamily housing around this highly recognizable central element as could possibly fit, generating lots of residents to interact with this new multi-use facility.

The shuttle-to-transit provision could possibly help reduce the amount of parking required for the new residential units, as well as bring interest and activity to the re-purposed dealership building, not to mention reduce overall vehicle trips and greenhouse gas emissions. One might anticipate some municipalities shrieking at the specter of having a huge tax-generating facility re-purposed as something that makes a more modest contribution, but this is a case where the greater good—say the holistic health of the community—needs to be considered over the mere means of income.

Besides, as everyone already knows, this is not your father’s Oldsmobile.

(Daniel Gehman is principal at Thomas Cox Architects. He can be reached at DanielG@tca-arch.com)

‘The Essential Kitchen’ with Kevin Henry: The Hearth Still Makes a Home

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Sep 082009

Today, when uncertainty surrounds us and the world outside seems lost to confusion and chaos, we seek, almost by instinct, sanctuary and communal comfort, much like our ancestors once did around an open fire.

Reaching into our collective past, to a time when all family, community and social activates took place deep within the heart of the castle, we find the “Hearth”, a place where life, feasting, entertainment and communal gatherings centered.

Today’s hearth, the modern kitchen has evolved far from its original function of food preparation to that of “the social hub of the home”. In the modern kitchen, the family, both nuclear as well as tribal, still gathers to share, rejuvenate and commune together, but the walls have come down and this once hidden and secluded place is now part of a larger social arena. As the hearth of yore, the modern kitchen serves as a meeting place, a dinning room, a home-office, a place to do homework; it can also serve as a sanctuary for quite reflection, or a place to gather for fun and entertainment.

Once the center of all communal life, the modern hearth has taken on a new domestic role, now finding it self reflecting a family lifestyle based on the sharing of traditional roles and functions. With a more democratic lifestyle the modern hearth embraces the kitchen as a multifunctional arena, were food is prepared, people talk, homework is finished and where family and friends sit by a modern hearth to bathe in the warmth of community.

So throw another log on the fire, pull the children closer and tell a tale or two of days gone by, and let the winds of uncertainty blow outside and feel secure in the natural warmth of the hearth of your modern castle.

(A writer, speaker, designer as well as a green activist, Kevin M Henry is the Executive VP of Bazzèo Kitchen + Home Interiors. Henry can be reached at kevin@bazzeo.com or follow his blog at www.theessentialkitchen.blogspot.com)

‘The Green Picture’ with Erika Schnitzer: It’s Not Easy Being Green…If Your Renters Don’t Know that You Are

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Sep 022009

According to McKinsey & Co.’s recent report, “Unlocking Energy Efficiency in the U.S. Economy,” investing in energy-efficient buildings now will lead to $1.2 trillion in savings, as well as reduce the nation’s energy consumption by 23 percent, by 2020.

“Green building can stimulate the economy at a level one and a half times larger than the federal stimulus bill,” says Rick Fedrizzi, president, CEO and founding chairman of the USGBC, one of the 12 sponsors of the report. “By leveraging existing green building approaches, like LEED, which is rooted in holistic and integrated design, we have the ability and capacity now to address multiple barriers, and thus generate additional resource efficiencies and cost savings.”

The report points out the importance of “whole-building design,” which considers optimizing the building’s design for the local environment, minimizing energy consumption, pursuing holistic design and improving design and installation practices.

Many multifamily developers and architects who I have talked to recently have acknowledged these opportunities, at least to some extent. Even if their buildings aren’t certified by any particular standard, these methods are certainly considered at some point in the building process, even if it’s stemming from a financial, rather than a sustainable, motivation.

The problem with multi-housing developments, it seems, is that not all residents understand and employ green methods in their lives. While you can’t force your residents to embrace a sustainable lifestyle, you can certainly give them the tools they need to understand what this means. Because even if you build to the highest of green standards, it won’t be nearly as effective as you had hoped if the end user does not utilize these tools.

As operators, you need to educate your residents about what it means to live in a green building. (As a side note, I recently visited a LEED Silver multifamily community as a prospective renter. Not once did the leasing agent describe a single green benefit—he didn’t even mention the solar roof panels!—to me. Is this because he didn’t think I’d care or I wouldn’t deem it important to my decision?)

Why not promote your green features? (You never know who will be visiting your site and their knowledge of green building!) And when your prospect decides to choose you—maybe because of those green features you forgot to highlight—make sure you educate him about living in a green building and the role he can play in furthering your building’s, and your company’s, green initiatives. Because you’re just one piece of the green puzzle—everyone needs to be involved.

What do you think? Should green features be highlighted on a tour of your building? How much education do you provide your renters about living a green lifestyle, whether your building is certified or not? What steps are you taking to invest in energy efficiency in your buildings today?

(Erika Schnitzer is associate editor at Multi-Housing News. She can be reached at Erika.Schnitzer@nielsen.com.)