Cranes Are Ready, Financing Isn’t
Not a single office building has been started in the District of Columbia since October, a sign that the slowdown that began in the far-out suburbs has now reached prime city locations. “Things are frozen. Nobody’s doing anything,” said Gerry Widdicombe, director of economic development for the city’s Downtown D.C. Business Improvement District. It is the first time in nine years that there’s been such a long period with no groundbreakings, according to the brokerage firm Cushman & Wakefield. The construction cranes that still thrust above the skyline belong to buildings financed before the money for commercial construction disappeared. A few small deals are still getting done, but they often require owners and investors to put more money into the project than before. Longtime developer Douglas Jemal has tried to get $400 million in financing to turn several blocks next to the new convention center into restaurants, shops, offices and housing, but says he can’t get a loan. “I went to everyone out there,” he said. “It’s ugly.” For a project to move forward, it has to get money from investors and lenders. In contract to past downturns, it’s not just over-the-top projects in far-out suburbs that are hurting. Well-located projects with deep-pocketed developers are having trouble getting financing, according to analysts, brokers, lenders, investors and developers. “If anything could get money, it is trophy projects, but now you’re seeing projects at Main and Main in good locations that aren’t getting money,” Widdicombe said. (www.washingtonpost.com)
Washington Post (3/5/09); Dana Hedgpeth
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Is the Green-Building Market Recession-Proof?
A Turner Construction Company survey conducted in November found that 75% of the more than 750 real estate executives surveyed said the credit crunch would not make them any less likely to construct green buildings in the future. Moreover, a report this year by McGraw-Hill Construction found that the green building market “seems to be somewhat insulated” from the construction slump. Reasons cited for the market’s stability include increased awareness that green buildings are often cheaper to operate, and governmental policies that promote or even mandate eco-friendly features. A focus on retrofitting, rather than new construction, is likely to be one way in which the recession affects the green-building movement. Sally Wilson, global director of environmental strategy at CB Richard Ellis, thinks there will be few opportunities to do “sexy work” in the U.S. in the coming years. Instead, she says, “the architectural community needs to quickly change gears into the existing-building side of things.” Fluctuating energy prices and uncertainty about the economy’s future notwithstanding, there is a general feeling among industry professionals that the recession will prove more beneficial than harmful to the green-building movement. Sustainability expert Robin Guenther, a principal of Perkins + Will, thinks initiatives such as the 2030 Challenge, which advocates carbon neutrality in all new buildings by the year 2030, will continue to gain steam and drive innovation in green materials and construction. (www.archrecord.construction.com)
Architectural Record (3/4/09); Anya Kaplan-Seem
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Green Companies Do Better During Downturn
A new study by global management consulting firm A.T. Kearney indicates that firms with “true commitment to sustainability” outperform industry peers in the financial markets. “The most sustainability-focused companies may well emerge from the current crisis stronger than ever,” said the authors of the analysis. The study looked at 99 firms on the Down Jones Sustainability Index and Goldman Sachs SUSTAIN focus list of green companies and tracked stock performance for six months through November last year. In 16 of 18 industries included in the review, businesses deemed “sustainability-focused” outperformed industry peers over three- and six-month periods and were “well protected from value erosion,” the paper said. The report acknowledged that many corporate drives to reduce waste and emissions, use renewable energy and produce goods that have less of an impact on the environment have seemingly become “me too” efforts in recent years. “Yet companies with a history in green innovations have reaped the most benefits,” the authors wrote. “And those that continue to make meaningful investments will continue to prosper, both in terms of business results achieved and public perception.” (www.greenbiz.com)
GreenBiz.com (2/11/09)
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Obama Budget Seeks to Shrink Tax Benefits of Owning
Housing and banking trade groups are worried that the proposal in the Obama Administration’s first budget to cut back on the ability of upper-income families to write off mortgage interest and other expenses is just the opening move in a longer-range effort to reform the federal tax code. They also argue that because tax subsidies are now embedded in home prices in most segments of the market — not just the upper end — removing them even partially would cause housing values to drop across the spectrum. Obama has not referred to a broader agenda, but some of his top economic advisers have advocated major reforms of the federal tax system. For example, his budget director, Peter R. Orszag, is on record favoring scrapping current tax deduction incentives and replacing them with a system of “refundable tax credits.” The credits would provide the identical dollar amounts to home owners at all income and price brackets. The advantage of a uniform tax-credit approach, Orszag argued in a 2006 paper for the Brookings Institution, is that it is usable by lower-income and higher-income taxpayers alike, whether they itemize or not. The credits would be “refundable” in that households who pay little or no income taxes could receive them as income supplements. Given how deeply rooted the breaks are in politics and the economy — plus the fragile state of housing — the odds would appear to be against Congress agreeing with this year’s budget proposals on tax write-offs, says columnist Kenneth Harney. “But Obama is at the height of his game, and he needs to come up with revenue to pay for health-care reform from somewhere. So don’t count him out.” (www.washingtonpost.com)
Washington Post (3/7/09); Kenneth R. Harney
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Outside Buyers Drawn to Detroit’s Foreclosed Homes
Outside buyers from as far away as the United Kingdom and Australia are the latest in a long line of landlords taking over the deteriorating housing stock in Detroit, a city that because of its once mighty auto industry boasted one of the highest owner-occupied housing rates in the U.S. And unlike many large cities, Detroit’s single-family homes dominate its landscape, not high-rise apartment buildings. The outside investors aren’t only interested in Detroit, but it’s been targeted because of the sheer volume of homes and the fact that values have fallen so much more than elsewhere. Even the sale of U.S. Housing and Urban Development homes has been impacted by the poor housing climate in Detroit. The average sales price of such homes plunged from $46,702 in 2003 to $8,692 last year. Through the first month of 2009, average sales were $6,035. “In the past few months, I’ve picked up 10 new clients from out of state that are buying in bulk,” said Mike Shannon, a suburban Detroit real estate agent who specializes in foreclosures. “They’re coming to us, saying, ‘Look, I want to buy 50, 100, 1,000.’ They want to own every decent and cheap house they can find.” The winners in this city — whose population has plummeted to half its size since the 1950s — might be renters lucky enough to live in a home that’s been fixed up by a legitimate landlord. Darren Veness, who lives near Brighton, England, said he sent 10 e-mails to Detroit-area real estate agents after learning about the city’s real estate bargains. He promptly heard back from Shannon, whose firm invited him to Detroit for a tour. Veness came for three days, and he and his colleagues bought their first two homes. Veness said they have considered other U.S. cities, but so far Detroit is it because the homes are cheap and plentiful. “Do the math, you can buy and rehab a home for $20,000, then rent for $900 a month,” he said. “Three to four months of the year, rent is going to pay the taxes….We just want to build our portfolio as big as we can. I know Detroit has been in a mess…and I think now is the time. The next 10 years, it’s going to change.” (www.chicagotribune.com)
Chicago Tribune (3/9/09); Jeff Karoub and Corey Williams, Associated Press
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Buffet’s ‘Canary in the Coal Mine’; Manufactured-Home Lending Mess Predicted Housing Crisis
In his annual letter to Berkshire Hathaway shareholders, Warren Buffett, chairman of the board, said that the bad experiences of family-run manufactured home builder Clayton Homes, which his company acquired in 2003, “should have served as a canary-in-the-coal-mine warning for the far-larger conventional housing market.” Based in Maryville, Tenn., Clayton has been building manufactured homes since the 1930s, but its overall sales have been down since peaking in 1998. “At that time, much of the industry employed sales practices that were atrocious,” said Buffett. “To begin with, the need for meaningful downpayments was frequently ignored. Sometimes fakery was involved,” he said, pointing to lucrative commissions for salespersons if the loans were approved. “Moreover, impossible-to-meet monthly payments were being agreed to by borrowers who signed up because they had nothing to lose.” Buffett explained that those mortgages were typically bundled and peddled by Wall Street to investors and that this mortgage securitization contributed to the late 1990s “fiasco” in manufactured housing. Conseco, which filed for bankruptcy in 2002, had large exposure to manufactured-home mortgages that went bad. Conseco bought Green Tree Financial Corp. — which specialized in manufactured-housing mortgages and was later called Conseco Finance — in 1998, when sales of mobile homes were booming, thanks in part to loose lending standards. Investors, the government and rating agencies “learned exactly nothing from the manufactured-home debacle,” he said. “Instead, in an eerie return of that disaster, the same mistakes were repeated with conventional homes in the 2004-07 period: Lenders happily made loans that borrowers couldn’t repay out of their incomes, and borrowers just as happily signed up to meet those payments. Both parties counted on ‘house-price appreciation’ to make this otherwise impossible arrangement work.” He said the consequences are now making their way “through every corner of our economy.” (www.marketwatch.com)
MarketWatch (3/2/09); John Spence
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