Signs of Life in Real Estate Markets?

Online, April 14, 2010 (Newswire.com) - by Paul Wingate

Following a rise in the stock market and a current stabilization of some large economic systems, this is an appropriate time to review the state of real estate and evaluate what activities might enjoy growth in the near future. The recent presentation at DES Architects + Engineers provided an educated perspective on the subtle and macro influences of developing trends.

Jon Haveman, PhD, Founding Principal of Beacon Economics and a leader on goods movement and trade policy, started with a lucid, factual explanation and slide show of current economic conditions, what might follow in the economic markets, and how it impacts real estate markets. He gave reasonable probabilities for the near future based on economic precedence and projections of tax and policy choices. There were both reassuring and cautionary projections. Reassuring in that data suggests that the 2008 -2009 recession is over, or on pause. Cautionary in that there could be another recession starting in 2011, depending on what government policies are enacted or maintained.

Haveman is concerned that the private bubble contributing to the recent recession that was bailed out with over a trillion dollars from the government, is being replaced by a public bubble of enormous government debt. If the combinations of jobs programs, tax incentives and other policies are not balanced, a commercial property value crash similar to the housing market crash may result.

Haveman said another crash might be avoided, but he was clear that delicate handling of a precarious economy will be needed, requiring certain policy choices. When asked if more income tax reductions and further reductions of capital gains taxes for a few big earners will stimulate the economy, Haveman explained that such a connection is a theory that has never been proved, despite ample efforts to do so. He emphasized that extensive research of tax economics by experts from all sides of the issue has not revealed instances of tax cuts for narrow sectors, or just a specific few resulted in overall economic stimulus. He added, however, that an increase in today's broadly applied low tax rate (12%) could squelch growth and could make a second recession dip very likely.

According to Haveman, venture capital funds are a significant source of private money ready to stimulate job growth and stabilizes and increase real estate values and therefore investments. (Luckily for CA over 50% of all US VC funding is in this state and over 38% of that is in the Bay Area. CA is a large exporter of technology and products and govt funding of green jobs, TARP, and incentives are good for CA. - Only include for CA publications that don't get national and international distribution on the Internet.)

$5 billion to loan

Prudential Mortgage Capital Corp. principal Jean Baker noted a similar accumulation of capital at real funding companies. Baker said that Prudential Mortgage has more than $5 billion to loan, but is being cautious due to uncertain market conditions. She and the others noted that the reserves waiting for worthy investment projects is earning little or nothing at today's near zero Federal Reserve Bank interest rates, hence the increased desire to identify good deals and put money to work.

Baker noted that financial institutions in general have about $1.3 trillion in excess reserves but anticipate $1 trillion to $2 trillion in default/bad loans yet to be covered, so they are holding the excess reserves until they determine the extent of their risk. Prudential Mortgage itself recently sold $200 million in non-performing loans during the previous several months and still owns $2 billion in challenged properties, according to Baker.

Don Polishuk, senior vice president with CB Richard Ellis' Capital Markets Group agreed with many of the facts of this economy as presented by Haveman and Baker. He added valuable detail about markets, at one point saying that at least two experienced local players in the commercial RE markets are aggressively buying, which might indicate that select real estate is at an attractive price. He also agreed that there is a significant interest in "green" projects and noted there are premiums in sales and rental of green real estate.

Harley Stanfield Inc. is combining the buildup of undervalued, underwater, and discounted properties, and the heightened focus on "Extreme Green©" asset enrichment to create a more secure, predictable and reliable "PITIE" investment formula with a estimated rate of return at or well above market averages.

Principal Interest Taxes Insurance (PITI) costs are known, defined and unavoidable expenses that are factored into most real estate investments when determining value, ROI, quality of investment, and other deciding factors. Harley Stanfield uses experience and advanced technology to also incorporate Energy as a known, defined and unavoidable cost.

By incorporating a reduced known-rate of energy use into it's financing structure, Harley Stanfield helps tenants and property owners have an advantage over companies or individuals who are likely to experience greater pain from rising energy costs as international demand for energy increases and as third world economies continue to consume fossil fuels at exponentially increasing levels.

Whether or not energy prices increase, Harley Stanfield's Extreme Green© approach to building performance optimization provides ample ability for meeting the energy reduction, and increased health and safety requirements established for investment security and return on investment in undervalued properties.

The goal of Harley Stanfield is to have their clients, investors and communities benefit from the cumulative and interactive impacts that many Extreme Green© properties will have on reducing local and regional energy loads. The reduction lowers energy and health expenses that are hidden costs to society and real estate. Extreme Green© properties also increase worker productivity by improving health and reception to education.

While cautious, the comments and insights presented at DES Architects + Engineers point out the issues to beware of and suggest ways to approach and benefit from a promising future real estate market.

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