2010 April | MHN Blog

‘Foong on Finance’ with Keat Foong: One More Reason Why More Distressed Properties Will Become Available

"Foong on Finance" with Keat Foong No Responses »

Apr 282010

Interest in distressed properties remains high, among homebuyers and investors alike. Some CRE investors may even be holding off on acquisitions at the current ridiculously compressing cap rate environment in the expectation that more distressed properties will be hitting the market down the road.

This month, attorney Stuart Saft, Dewey & LoBoeuf’s Global Real Estate chair and an authority on workouts and distressed assets, pointed out another reason to expect that more assets may be put on sale in the near future.

He says that “Until now many workouts involved merely extending the term of the loans with the hope of the market improving. Lenders were taking this approach to avoid foreclosing or taking a deed in lieu, which would necessitate writing off the loan and increasing regulatory capital.”

Recently, however, says Saft, there has been pressure on regulators to require lenders to recognize that many loans are in excess of the value of the property, and as a result, need to increase their loan loss reserves. If regulators do indeed move ahead with such requirements, more properties will be liquidated by banks as lenders will be less incentivized to merely extend the terms of the loan, he suggested.

Saft was speaking at the IMN Banker’s Forum on distressed properties and real estate loan workouts.

Editor’s Note: Catch the Student Housing Wave

"Editor's Notebook" with Diana Mosher No Responses »

Apr 262010

On March 31, just days after signing his controversial healthcare legislation, President Obama advanced another piece of his domestic agenda. In what he has called “one of the most significant investments in higher education since the G.I. Bill,” the President signed The Health Care and Education Reconciliation Act of 2010, which includes legislation to revamp the federal student loan program. “We will provide the support necessary for you to complete college and meet a new goal,” President Obama pledged to the American public. “By 2020, America will once again have the highest proportion of college graduates in the world.” The new law will help student borrowers manage their loan debt by capping repayments at 10 percent of their discretionary income, so it will be easier for students to repay loans after graduation.

Students reportedly will also benefit from the elimination of the fees paid to private banks for serving as intermediaries in the loan process. The Pell Grant Program will be extended, and the new law will invest $2 billion in community colleges over the next four years to provide education and career training programs to workers eligible for trade adjustment aid after dislocation in their industries. These measures are designed to make higher education more affordable—whether they’ll create additional opportunities for student housing investors, developers and property managers remains to be seen. But, the picture is already rosy for this multifamily niche. According to the Chronicle of Higher Education, this year will see 18.6 million students enroll in college, up slightly from 18.4 million in 2009. Enrollment is expected to increase to 19.2 million by 2013, and 20 million by 2017. And The New York Times reports that applications to elite private colleges rose again this academic year despite economic constraints on many families.

This month’s cover story, “Catch the Student Housing Wave” (page 20 of the magazine), includes a look at the differences between student and market-rate housing. Some investors see student housing rents as virtually guaranteed by parents, so as demand rises along with enrollment, there is the opportunity for excellent financial returns. On the down side, everyone clears out in the summer and the leasing effort can be daunting to newcomers, but consider that student housing tends to rent at a premium. A four-bedroom apartment with four student residents each paying $500 a month can yield as much as 30 percent more than the apartment norm in that region. Donna Preiss, president, the Preiss Company reports, “In the past three months, we have been 93 percent leased for the fall.” The trend of fewer students living on campus also bodes well for the student housing niche. University of Texas, for example, has an enrollment of about 50,000 but has room for only 6,500 students in campus dorms. And when’s the last time you heard of a student housing community in foreclosure? Fans of the student housing niche say it’s nearly recession-proof… knock on wood.

Diana Mosher

Editor-in-Chief
dmosher@multi-housingnews.com

‘Foong on Finance’ with Keat Foong: Centerline’s Schnitzer to Head New Venture

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Apr 212010

As we know, prices for Low Income Housing Tax Credits (LIHTC) have come down considerably. Marc Schnitzer is making a move to help players take advantage of what can be a great time to invest in LIHTC properties.

Schnitzer, Centerline Capital Group’s CEO and president, is leaving Centerline to join an affiliate of Island Capital Group LLC. At his new company, Schnitzer will establish and lead a business venture to help investors take advantage of the favorable terms in the Low Income Housing Tax Credit market.

“Tax credit market conditions have created unique opportunities for savvy investors to take advantage of historically attractive deal terms and risk adjusted yields,” states Schnitzer, a 24-year veteran of the industry. He says he would make the opportunities available to new and experienced investors alike.

And–distressed opportunities are not overlooked. Schnitzer would also help identify distressed real estate in the LIHTC sector for his clients.

Island Capital is a real estate merchant banking firm established in 2003 and the parent company of C-III Capital Partners LLC and Anubis Advisors. In a comprehensive restructuring transaction completed March 5, 2010, C-III Capital became a 40-percent owner of Centerline, and Island Centerline Manager LLC, a wholly-owned subsidiary of Anubis, became the external manager of Centerline.

Schnitzer has been part of Centerline, and its predecessor companies, Related Capital Company and CharterMac, since 1986, where he assembled and led a team that raised and deployed $10 billion of investor equity in a portfolio of more than 1,400 Low-Income Housing Tax Credit (LIHTC) properties. In his new role, he will establish and lead a new business venture to expand the investor base in the affordable housing industry.

‘Gimme Shelter’ with Daniel Gehman: Halftime

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

Apr 202010

OK, so it’s like we’re all in the locker room, right, and, say, the other team has a lead of at least one, and maybe two touchdowns. We’ve just received some combination of dress down and build up by our fearless leader and mentor/coach, and we’re all chomping to get back on the field to see if we can’t rally to pull this one off.

Our industry is such a mutually dependent thing. Though each of us on a development team may carry the ball for a different stretch of the field, no individual would really have a salient function without the rest of the huddle. So we all keep scratching, digging, looking, waiting, and imagining how great it will be when we get to play again.

This week I heard a bit of news from one of my clients, a large national apartment REIT, that they had recently “green-lighted” a number of projects that had been slumbering. Hooray! (I hope it’s one or two of mine!) Together with a perceivable increase of the number of calls from both new and existing clients about possible deals, it certainly seems like the fog may be starting to lift, one pixel at a time.

It’s got to be a tough patch for the decision makers. Think of the revenue stream I could generate with a crystal ball at this moment! The conventional wisdom, at least in rental apartment circles, is that nobody wants to wait too long to bring new product to market lest they miss a couple of years of hefty run-ups in rent. Naturally, this sentiment sounds absurd at the moment, but when you consider a typical high-density, podium-style project with around 200 units is going to take conservatively two years to build—even if the permits are in hand—the time frame starts to feel a bit more relevant. So we’re stalled or still moving slightly in reverse at the moment, how long does that really take to turn around?

Everyone knows it’s cheaper at the moment to buy an existing, performing asset than to build new from the ground up. And yet, at best, these established properties changing hand can be fluffed and buffed, which is appropriate for the market, but they are not now, and can never be, the new thing on the block, for which there will always be an interest. What are the right signs that will encourage the decision makers to pull the trigger and start the next new things?

Perhaps rent stabilization would be an element. But what’s the delay, I wonder, between a leveling off of rents and the beginning of a new acceleration cycle? Again, I wish I knew.

What nobody wants in the dreaded ‘double-dip’ recession, where, just as things seem to be moving in the right direction, they stall in mid-air and begin a sloppy second sludge into backward movement. May it never be!

Watch the consumers. My financial advisor told me once that the reason recessions end is because folks grow tired of being super thrifty, and just go out and start spending again. So, basically, the downturns end due to boredom. Would only that were the case we see being played out in front of us.

I don’t know. The Dow’s over 11K today; last month the economy added jobs, oh—and did anybody mention it’s an election year?

Put me in coach, I’m ready to play.

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

‘The Essential Kitchen’ with Kevin Henry: Look Ma, No Wires

"The Essential Kitchen" with Kevin Henry No Responses »

Apr 052010

Imagine a kitchen where you will no longer have to wander about like a desert nomad with your blender or toaster in hand searching for an oasis of power or at least a clear space near a free outlet.

The idea of wireless electricity was first conceived by legendary inventor, Nikola Tesla in the early 1900’s. His idea was to build giant transmission towers across the US that would emit an electrical frequency that your home appliance or light bulb would receive and be powered, much in the same way as a radio picks up a broadcast signal. After a major legal battle that was finally settled in the Supreme Court on the side of GE and Thomas Edison, Tesla and his idea of free electricity faded into obscurity.

But all is not lost, Sony Japan announced that it has developed a highly efficient wireless power transfer systems that elements the use of cables or cords for small appliances. The new system can transfer wirelessly 60w of electrical energy over a distance of nearly 24” with 80 percent efficiency. This new technology is based on magnetic resonance, where two or more devices can transfer energy when using the same resonant frequencies.

The idea requires embedding a line-connected power transmitter into a counter-top, table top or wall, which then transmits power to an adapted appliance placed near or on the transmitter without the need for a cord between the transmitting or receiving elements.

Once developed to its full potential, you would be able to place any future portable household appliance, such as a toaster, blender, coffee maker or can-opener anywhere in the kitchen you would like to work without the need of a power-cord, plug or socket.

One of the greatest benefits of this new technology will be safety with the near elimination for electric shock. Gone will be the days of socket guards and curious hands and just think of the fun of making margaritas poolside with no need for plug. The possibilities are endless, and the modern kitchen as we know it, will continue to open up and expand its borders as new technology and applications continue to emerge.

Now Mr. Tesla…about that “free” electricity idea?

(Kevin Henry is a designer, writer and speaker with over 25 years of experience in the kitchen industry. Henry has been behind the success of such brands as Snaidero, Poliform/Varenna, Küppersbusch, ALNO in North America and Bazzeo Earth Friendly Kitchens. Currently, he is the president and creative director at Group42, a design + marketing collective dedicated to redefining the boundaries of the modern kitchen. He can be reached at kmhenry@group42.net)