For the past two years, 96 percent of all financing for housing in the United States has been provided by the federal government. Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) have become the mainstays of financing for both homeownership and rental housing. Since the federal government’s takeover of Fannie Mae and Freddie Mac and the collapse of Lehman Brothers, the private mortgage market has become little more than a memory.
It seems that everyone in the commercial real estate (CRE) industry is attempting to retool their operations to launch a fund in anticipation of the much-anticipated CRE bust and resulting flood of distressed supply supposedly just over the horizon. But it often is those individuals pitching their new fund—created to capitalize on distressed deals—who in the next sentence say “there are just no deals out there.” Should this raise a red flag?
The principal of Citadel Realty Advisors and author of the Ross Rant newsletter discusses the private equity markets, including current challenges and what lies ahead.
The number of distressed residential properties spilling onto the U.S. market is expected to depress the national median price for a single-family home another 5 to 10 percent before bottoming by year’s end or early 2011. More than 3 million homes are expected to go into foreclosure this year, with one in four homeowners owing more on their mortgage than their house is worth.
According to Urban Land’s roundtable of housing experts (page 46), markets will be dominated by local public homebuilders, while smaller development companies will focus on small-scale infill development where sites are reasonably priced. With construction costs leveling off, home sizes will shrink. Expect smaller single-family lots and townhouses. Federal stimulus money and some state and local financial assistance are being made available for affordable housing projects. Green design, much discussed lately, is beginning to give projects a marketing edge, participants said.
The real estate industry has reached a pivot point, one at which land use is as much or more about the management and redevelopment of existing space as it is about new development. This emphasis on rebuilding and reusing the old and obsolete illustrates how the “use of land” cited in ULI’s mission encompasses existing buildings and what happens in them, how they are operated, and how they perform over time. Nowhere was this more apparent than at ULI’s recent forum on financing tools for energy-saving retrofits, held in New York City in early June.
Two megatrends are currently shaping what will become the new normal after the prolonged period of recovery for the U.S. economy. The first is the rapid emergence of America’s metropolitan areas as the true centers of population and economic growth. For the first time in history, more people are living in urban areas throughout the world than in rural communities.
The second is a worldwide shift in the sources and flows of global capital, creating a new world of funding sources available to be configured in new ways toward new goals. The fluidity of global streams is becoming more pronounced and vast sums of capital are seeking stable, long-term returns.
A growing group of developmentally disabled children and young adults will need housing that allows them to live away from their families but still provides the medical, therapeutic, and vocational support they need.
During the next 15 years, more than 500,000 children with autism-related disorders will become adults, many cared for by aging parents who likely will not outlive them. Adults with autism currently have few options for housing apart from their families. They are too old to receive continued care from the special education departments of public schools and too fragile to live on their own with no supervision.
In the current recession, thousands of stores have been shuttered, new projects have been shelved, rents have been pared, property values have cratered, and retail workers have been sent packing in legions: more than a half million lost their jobs alone in 2008. But as the dust begins to settle and the rolling metal curtains are peeled back for a new sales day, retail is reemerging as a different animal, one that is leaner and keener.
The Harvard Graduate School of Design won the 2010 MIT Boston Open, a real estate competition hosted by the Massachusetts Institute of Technology’s Center for Real Estate Alumni Association and held this year at the Prudential Center during the ULI Real Estate Summit at the Spring Council Forum in the city. The competition, a case-based competition open to all U.S. real estate graduate programs, sought redevelopment schemes for a historic and challenging site in Boston. Finalists were invited to the city to compete and pitch their highest and best-use argument to a live audience and judging panel.
Taking second place in the competition was the New York University Schack Institute of Real Estate, and the University of California at Berkeley Haas School of Business placed third. The teams were judged by industry practitioners Phil Bakalchuk of Water Street Investments, Jeff Cushman of Cushman & Wakefield, Kathleen MacNeil of Millennium Partners, and Eric Nelson of the Bulfinch Companies.
An allegory for the financial industry’s present condition might be that of a red-tailed hawk soaring above the Manhattan skyline, flying at full speed toward the sheer wall of a glass-enclosed skyscraper—and relying on the transparency of the glass for protection from undue risk. The crisis occurs, and the bird falls fluttering to the ground with a broken wing.
Is this the bird’s fault? Is it a law of nature? Should the glass have etching or cross ribs to alert the bird to the danger? Can the bird recover? Can it recover by itself, without outside help? Will it ever soar again? Will it ever fly again with uninhibited grace? What resources should be applied to its recovery? Is it too rare a bird to fail?