Debt Market, Foreclosure, Finacing Market, and etc

We discussed several financial issues related to real estate market, especially, due to financial crisis, deterioration on real estate market is still going on. First of all, we discussed about foreclosed house taken by the bank, the problem is that those foreclosed property is not properly managed, resulting from increased number of foreclosure in the same community, neglected foreclosed property raise another vicious circle such as increasing crime rate and deterioration of community esthetics, therefore some local government has movement that penalize bank for not maintaining foreclosed house. Definitely it is unpleasant story, however, on the other hand, it is going to be another opportunity for property management division.

The next we discussed debt market situation what’s going on so far, moreover we deeply overviewed the commercial real estate market which is facing complicated financial circumstances. As Dr Forgey noting that, commercial real estate market situation is getting worse and turning point is not yet visible, the financial difficulty that even commercial real estate market make matter for worse is not only decreased property value associated with decreased NOI but also the fact that majority of commercial real estate will not be refinanced in the future, in other word, developer or property owner must inject certain amount of equity onto property in order to refinance or extend payback period because developer or property owner owes more money that property value. According to recent survey on commercial real estate market, huge amount of commercial debt will due on 2011 to 2012, presumably, this monsterous size of debt will hugely impact on financial market, to me, the problem that anticipate at this point is how huge the impact of commercial debt on overall economy is going to be and how long does it take to overcome.

Related to North Texas real estate market, Toronto based real estate investment group try to acquire Addison buildings located in North Dallas Pkwy and expected acquisition price is 80$/sf, comparing with replacing cost of new building that is approximately 250%/sf, it is recognizable how deeply discounted this class A building has, which also show the fact that new investor has huge advantage on setting up lease rate, if the investor set up lower lease rate than competitors located in same area, anticipated consequence on office market will be disastrous.

One of interesting article that we discussed was CMBS loans, the city like Atlanta apparently has serious problems in terms of CMBS loans because less stringent underwriting process during the economy prosperity era consequently cause insufficient of CMBS loans, for the future, financial institution reentering CMBS market may build up more stringent underwriting standard.

We also discussed basic concept of workout, from developer or owner’s stand point, how to deal with lenders are going to be major concern for a while, especially, constructive negotiation between borrower and lender may revitalize subjected property, and future more, in some cases, compromise between borrower and lender might be able to create “win-win” situation as well.

Hospitality, travel and international property market trends

The 5th day of class, our discussion was focused on hospitality market trends, travel and resorts industry, and international property market trends.
The first discussion was related to travel and resorts industry trends, as technology has improved, paradigm of travel industry has changed quickly, specially, in terms of economy down turn, travel industries are more focusing on reducing operating cost because increasing demands on travel are constantly limited, and increased necessity of maximize efficiency to make business feasible is not a option anymore. As we discussed in the class, increased use of social network such as face book and broadband environment provide unlimited accessibility as well as variety information associated with business, which make business travel as a option. If this trend will be retained for the future, will the travel industry keep suffering? What is the blue print of hospitality industry should be? I guess there is silver lining on travel industry, even if the demand on business travel may keep declining for the future, demand on leisure will increase at the same time.
To sum up, travel industry participants who are willing to follow this trend might be able to survive, on the contrary, travel industry participants who are not willing to follow this shift might keep struggling over time.

The next topic on class was transportation, as one of article noting that high speed train has began to progress in Florida, the importance of this shifting is what is going to be the impact on air industry and is it cost efficient to develop high speed rail corridor?
To me, the influence of high speed train would be huge in terms of time saving and cost benefit, however there are several obstacles that high speed train has to overcome in order to settle down as appropriate transportation, fist of all, railway transportation need massive infrastructure such as lands that is belong to railways, huge parking lot, and developed transportation linking home and rail way stations. Second of all, people’s preparation of driving own car might be biggest obstacle to settle down high speed train. In this context, how does high speed train cost efficient than driving car, how easily reach to destination, and how easy to use might be the key of success.

Related to international real estate trend, we took a view of real estate market on China, Latin America, and massive project in Baghdad, The escalation of property price in major Chinese City, Beijing and Shanghai, is unprecedented so that even real estate experts are worried about rapid escalation of real estate price, however real estate expert cautiously forecast that drastic assets collapsing would not happen because the rate of debt on property is low and is still manageable.
A multi-million real estate project is on the way in Baghdad, also known as Baghdad Gate project. The project is component of high ends residential apartments, five star hotel, and luxurious shopping mall, this is the first time that massive real estate development is taking place since Saddam’s era, massive development will enhance jab creation as well as positive influence on local economy.

Industrial, Tax and Low Income housing Issues and Trends

We discussed several issues such as industrial market, low income housing, taxes and governmental trends and issues. First of all, we discussed about recent issues on providing low income housing or affordable house which contains several controversial issues, especially, as one of the article note that some developers who plan to develop down town Dallas and who try to apply for funding through HUD are turned down by the Dallas government. Actually, federal government support providing low income housing, in order to stimulate this policy, federal government also provide fund that can be used to developing affordable houses, but some cases, as we discussed in class, local governments afraid having low income housing area because they have prejudice that low income neighborhood may increase crime rate and opposite influence on city aesthetics. Moreover, in administrative stand point, local government require every single documentation whether fund is using intended purpose or not, naturally, this confirmation process is necessary to regulate unintended use of particular fund, however excessive application of stringent low may make matter even more complicated and may hamper providing low income housing.
One of issue that takes my attention was “social obligation” that is related to redevelopment. If the local government or developers decide to redevelop low income housing area, several issues may occurs, especially, original community supported by low income neighborhood has to be broken down and individual family has to be relocated somewhere other place even if sudden amount of relocation expanse is awarded.

Tax issues are also provocative. Recently, a lot of state governments are struggling with budget shortage because of economy downturn. Increased numbers of small business shut down and declining job creation make matter even worse than ever before, in the same context, local government are seeking new source of taxation in order to narrow down budget deficit. As we discussed in the class, the government aim of seeking new source of taxation may be understandable, however the wrong tax police may lead critical side effect on local economy. In San Francisco, tenants would have to pay commercial rent taxes when they rent commercial or retail space. In my perspective, this tax police may increase tax revenue in the short term, but consequently small business owners in San Francisco would rather moving out their business to somewhere other place than doing their business on this tax police, and overall tax revenue on this region will be significantly decrease in the long term