Saturday, December 29, 2012

Update on Fiscal Cliff: What's at Stake for Real Estate

As we go into the final weekend of 2012, Congress continues to wrestle with what to do about the fiscal cliff, the hundreds of billions of dollars in automatic tax increases and federal spending cuts that take effect at the end of the year unless Congress acts to avert it.

NAR is monitoring the situation closely. To help explain the real estate interests at stake, NAR Chief Economist Lawrence Yun and NAR Director of Tax Policy Linda Goold sat down today for a short discussion on the issues.

With Congress and the White House expected to negotiate through the weekend, NAR will be sending out another update on the fiscal cliff situation next week.

Click the link below to access a 6-minute video of their conversation and a short post summarizing their remarks.

Monday, December 24, 2012

ACA is Boost for Medical Office Real Estate- By guest blogger Mark Alexander, CCIM

Mark is a specialist in medical office
and national team leader for Sperry Van Ness

Regardless of how you feel about the Affordable Care Act (ACA), the cloud of uncertainty has been removed. The ACA was passed by Congress and signed into Law by the President on March 23, 2010 and upheld by the Supreme Court on June 28, 2012.  This new direction for health care will ensure dramatic change in demand for real estate used by hospitals and doctors. This is especially true locally given the large number of elderly Americans that retire in Florida, combined with our large proportion of poor uninsured and under-insured who will soon be added to the ranks of medically insured.

There are two main segments of medical office real estate: hospital-controlled buildings and doctor-controlled buildings. The problem over the past three uncertain years during health care reform debate was that neither hospitals nor doctors knew how health care reform was going to wind up. Well, now we know. 

Health care (HC) systems have been more proactive regarding their real estate needs than doctors over the past three years while the debate raged. While not knowing for sure how reform was going to shake out, most hospitals felt change, was inevitable in one form or another, which would lead to more Americans becoming medically insured.  Many HC systems have already taken steps to expand their real estate needs to accommodate this anticipated increased demand for care.  Now that the Presidential election is over, eliminating any reasonable speculation about ACA repeal, many hospital systems across the U.S. are accelerating their expansion plans.  HC systems are partnering with developers to construct new projects while others are using Sale/leaseback transactions involving existing facilities to self-fund their expansion.

Most private practice physicians adopted a “maintain the status quo” attitude over the past three years while hoping for an eventual repeal of ACA. This MD uncertainty fueled today’s pent up demand for medical real estate that is now being released. This is a new environment for doctors and is causing them to change the way they manage their businesses. I find that doctors focus on the bottom line today more than ever before.

For example, over the past twenty years it had become common for doctors that owned their own medical buildings to have their medical practices pay themselves (as Landlord) rent that often exceeded fair market rental rates. This was a popular way for doctors to create exceptional “in-house investments” where their medical office building (MOB) investment returns where often quite remarkable. But this meant their practices often paid very high rental rates that sometimes exceeded fair market rental rates by as much as 200%. When many of these doctor/MOB owner’s decided to sell their buildings prior to retirement, they quickly learned that a sale/leaseback to an investor created much higher sale prices than selling to another doctor or even to their own practice.

The reason for this phenomenon is that owner occupied MOB’s get appraised as though vacant because the appraiser is not allowed to use the existing lease (that would normally drive value higher) because the lease is between related parties and not deemed “arm’s length”. This is great for the acquiring practice but it causes the seller to leave a lot of money on the table.

On the flip side, when the MOB is sold in an arm’s length transaction to an investor and the MOB is then leased back by the medical practice, the appraiser must use the lease to calculate value. The market rent lease steers price much higher and in some cases by as much as 40% higher compared to selling the same MOB to another doctor. 

Consequently, over the past 20 years, doctors that understood these advantages employed the sale/leaseback approach, often choosing the highest rental rate possible to set the highest possible sales price.  This “pushing the envelope to the top” of fair market rental rates created some eye-popping sale prices and saddled medical practice tenants with very high future rents. While this was not a significant issue under the old way of doing business for doctors over the past twenty years, it is today.  Now that ACA is anticipated to bring lower reimbursement rates to doctors in the future, doctors are very concerned and look to keep overhead as low as possible.

Today I see doctors doing the opposite of the past two decades and are either choosing a moderate rental rate for their lease back future; or they pick a below market rent sufficient to retire debt so they can lock in the lowest possible rent to maximize future practice profitability. This is a sound business move as doctors’ incomes are expected to be reduced. This is the fiscally responsible approach, in my view, and it is one example where ACA is helping to reduce the overall cost of health care in America.

Since ACA rewards doctors who work in bigger groups or alliances, there is a trend for single practice doctors to merge with larger medical practices or switch employment to hospital systems. Since stronger tenants are preferred by MOB investors, this trend of smaller groups merging into bigger medical groups is helping the single practice MD get a better price for his MOB than he would have when he was a solo practitioner.

Some forward thinking medical groups were ahead of this curve and started alliances years ago. Others are just getting started. But the trend is clear. Large medical groups are becoming more prevalent.

The Affordable Care Act is not perfect, and most doctors don’t like it because it reduces their future income. But ACA will add millions of individuals to the roles of the medically insured, and this will create higher future demand for health care services. This, in turn, will create higher future demand for medical office space for doctors to treat patients.  There are strong, long-term, underlying business fundamentals for medical office building investments. 

Monday, December 17, 2012

Sperry Van Ness Property Management Services

Kevin Maggiacimo-SNV President

IRVINE, CA-Sperry Van Ness International Corp. has launched a new property-management franchise product called Sperry Van Ness Property Management Services. The franchise offers real estate investors comprehensive property-management services including strategic local-market advice, sales and leasing, building maintenance and service-call response, tenant retention, capital-improvement management and detailed account reporting.
In addition, the product includes a newly launched master insurance program that brings lower deductibles and more comprehensive property-insurance coverage to SVN/PM Services clients. The system helps investors achieve greater operational efficiency and maximize return on investment.
SVNIC achieved significant growth in 2012 and is poised for additional expansion in the coming year. “This has been an exceptional year for Sperry Van Ness International Corp.,” said president Kevin Maggiacomo in a prepared statement. “Not only have we outperformed projections, but we have expanded our foundation in a way that sets the stage for an even better year in 2013. In addition to our expansion in services and franchises, we have brought on some key executives to continue to build the infrastructure and platform and will be making more announcements of exciting hires in the first quarter of 2013.”
Twelve new franchise offices and 10 satellite offices were added in the last year, with several more expected to open prior to year end. The company also experienced 29% increase in revenue in addition to launching an auction-services platform—on which previously reported—and expanding into specialized markets such as marinas.
Maggiacomo tells, “The launch of our property-management platform is a natural fit for our model and allows us to apply our leasing and investment-sales expertise to the value-add side of management.”
In terms of expansion, Maggiacomo says the firm has been pleasantly surprised with the interest in the PM Services product. “We quietly launched mid-year and have quickly grown to 14 offices. Our aggregate under management is now just over 35 million square feet and 19,600 apartment units.”
In terms of winning new assignments, the PM product is proving to be strong out of the gate, he adds. “Last week, we signed on an equity fund that has properties coast-to-coast, and we were able to take on the assignment for both property management and disposition services.”
Categories: WestOtherOrange County
Carrie Rossenfeld Carrie Rossenfeld is a reporter for the West Coast region of and Real Estate Forum. She was a trade-magazine and newsletter editor in New York City for 11 years before moving to Southern California in 1997 to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics ranging from intellectual-property licensing and giftware to commercial real estate. She recently edited a book about profiting from distressed real estate in a down market and has ghostwritten a book about starting a home-based business.

Monday, November 5, 2012

The World Through a Lens-Brad LaPayne Photography

Brad began taking pictures with a Kodak instamatic camera when he was eight years old.  As a sophomore, he bought his first 35mm camera, and completed several classes in photography. He also worked for the Daily Illini photo department. After receiving his degree, Brad became a photographer for a large church directory company doing hundreds of portraits weekly.
 A year later, he made an unusual career move - becoming a firefighter for the city of Champaign Fire Department.  He used nearly all of his off duty time to do photography and attend art shows at which he sold the photographs.  Much of his early work was shooting skylines in Chicago and New York City.  Being a sports fan, he approached several professional teams and was allowed to shoot the stadiums.  Building upon early successes in the sports world with the New York Mets and the Chicago Cubs, sports became an area of concentration. 
Mr. LaPayne has done panoramic photographs for many historic sports events such as:  World Series, NBA Finals, Final Fours, Super Bowls, 1996 Olympic Games, Opening Days and Nights.    Images have been published by Time magazine and several sports books.  Several of his images of “Ground Zero” in New York were published by the NY Times and one was published as a 2 page spread in a NY Times book (A Nation Challenged) and they have been placed in several 9/11 museums.
In 1995, he received the largest photo assignment of his life.  He was hired by South African Airways to photograph some of their travel destinations in the panoramic format.  He traveled for 32 days to locations in the USA, Germany, UK, Switzerland and South Africa.  More recently, he has photographed the 2009 and 2012 Super Bowl for NBC Sports and did a crew photo for them.  

To view the entire interview with Brad LaPayne CLICK HERE

Homer Soda Company Has a Legacy to Live Up To.

Kate Boyer (of Homer Soda Company) comes from a long line of entrepreneurs

Kate Boyer has only known life as a part of a motorcycle entrepreneurial family.  Starting with her great-grandparents, her entire family has been motorcycle enthusiasts for more than 100 years.  Her grandfather, Clyde "Bud" Vetter, was the first one to be an entrepreneur.  He opened a Schwinn bicycle shop in Rantoul, and later opened Champaign Cycle, on Mattis Ave in Champaign.  Her uncle, Craig Vetter, founded the Vetter Fairing Company in Rantoul.  He began with an idea to produce quality fairings for motorcycles.  He started making a few in an old meat locker building in Rantoul.  The business grew exponentially and he built it to be a large facility on the east edge of Rantoul.  
Her father, Bruce Vetter, started a little different in 1967 while living "in a van down by the river".  He painted peace symbols on rocks and sold them to the college kids in Champaign.  It was very successful and he moved into a building in downtown Champaign, making artistic leather goods with his hands.  In the late 1970's, Bruce decided to go bigger and started "Bagman", making motorcycle luggage.  His factory on north Prospect was very successful and provided jobs for 80 employees.  He sold the business in 1983 to Bell Helmets in Rantoul, intending to retire, but 3 years later Harley-Davidson asked if he could design and produce a saddle bag to go on a style of bike as it came off the assembly line.  25 years later, we are still producing products for Harley-Davidson in our small factory with about 10 employees in Homer.  
Rob Boyer, Kate's husband, has been running the facility for the last 14 years.  He has grown the company significantly since he first began.  Bruce now spends his time producing the artistic products that first propelled him into business.
Kate has done almost every job over the years.  She started with shipping/receiving when she was 13, payroll when she was 15, and then managing the office by the time she was 19.  After working for more than 15 years in manufacturing, Kate was a little bored by it.
In 2008, her and her mother, Kelly Vetter, opened "Village Wardrobe" a children's consignment boutique in downtown Homer and then another one on the square in Monticello.  In 2009, they bought the Homer Soda Company from Ray and Christine Cunningham.  They have expanded the soda business from just a retail location in downtown Homer, to distributing their varieties all across the country.  
The unexpected success of the Homer Soda Company has caused them to sell their retail stores and focus just on the sodas.
Bruce and Kelly, Rob and Kate, and their 5 children all enjoy working together in the family business.

To watch the entire TV interview with Kate Boyer CLICK HERE

Wednesday, September 12, 2012

Terrorism and Real Estate Update

On September 11, 2012, Linda St. Peter, Operations Manager for Prudential Connecticut Realty in Wallingford, CT, testified on behalf of NAR at the House Financial Services Subcommittee on Insurance, Housing, and Community Opportunity hearing on “TRIA at Ten Years: The Future of the Terrorism Risk Insurance Program.”  In her testimony (attached), Ms. St. Peter urged Congress to extend the Terrorism Risk Insurance Act (TRIA) beyond its current December 2014 authorization to ensure that adequate insurance coverage is available for our nation’s businesses.

Following the Sept. 11 attacks private insurers backed out of the terrorism insurance marketplace prompting Congress to enact TRIA in 2002, a federal insurance backstop that allows the federal government and private insurance companies to share losses in the event of a major terrorist attack. The program has since been reauthorized by Congress twice – in 2005 and 2007.  TRIA helped stabilize commercial real estate markets by making terrorism coverage available and more affordable over time.

While the cost and availability of terrorism insurance has generally improved, currently there is concern that the uncertain future of TRIA may cause insurance prices to fluctuate and prompt insurers to drop coverage.  This became evident in both 2005 and 2007 when private insurers became reluctant to offer terrorism coverage due to the uncertainty regarding the program’s extension.  Ultimately, the uncertainty of insurance pricing impacts the net operating income of businesses and property values.  The potential unavailability of terrorism coverage could impact financing agreements and potentially hurt the fragile commercial real estate recovery.

Yesterday’s hearing is just the first step in a much longer journey to extend the federal government’s role in the terrorism risk insurance market.  Despite our successful legislative efforts in 2002, 2005 and 2007, and the fact that terrorism remains a clear and present danger, most anticipate this next effort to extend a federal program will be the most challenging.  While the program does not sunset until 2014, efforts to reauthorize the federal program will begin in earnest in 2013.  

Furthermore, a copy of the witness list is attached along with the hearing memo and a Congressional Research Service report on TRIA.  Also, the following link provides an archived webcast of the hearing:

Monday, September 10, 2012

A Report from Wayne Caplan on Commercial Real Estate Political and Regulatory Issues

Wayne Caplan

As Council Chair of Political and Regulatory Affairs, the time has come for an update on some of the current issues facing the commercial real estate industry.

There are many issues to discuss at any given time.
While we are to a large degree paralyzed as far as anything getting resolved until after the November Presidential election, below is information on three of the more important / questioned items at the present time.

1.       The 3.8% TAX
Firstly,  there have been several requests out there for clarification on the 3.8% Tax that will be implemented as part of the Affordable Care Act (aka “Obamacare”, or ACA).
While there are a number of new taxes buried within the ACA, this particular tax has been falsely labeled as a tax on all real estate sale transactions (commercial and residential).
This is not the case, as it is an investment/income based tax, not one based on a given real estate transaction. However, there are ramifications to this tax, specifically to higher income earners.
This, in addition to a potential capital gains tax increase (which will happen if the Bush tax cuts expire at years end as scheduled) could be a reason for some investors/property owners to unload commercial property before the end of calendar year 2012, especially if they are not going to engage in a 1031 tax free exchange.

Below is a link to NAR’s description of the 3.8% tax for anyone who would like some clarification:

2.       Lease Accounting Standards

The Financial Accounting Standards Board (FASB) and their international counterpart (IASB) has proposed eliminating all operating leases, forcing companies to capitalize their lease liabilities on their balance sheets.
This change, if it goes into effect, would create large devaluations of all companies, big and small, with any leasehold exposure, not to mention greatly affect the length of lease terms that corporations are willing to commit to. All in all, this would have dire ramifications on both the leasing and investment sales parts of our brokerage businesses.

Below is a link to ICSC’s public policy page discussing this matter which has lots of links and discussion on the subject.

While NAR, ICSC, and other real estate trade organizations have, if nothing else, delayed and clouded this potentially harmful new policy, it is still expected to be implemented in some fashion.
There cannot be enough discussion on this item with our elected officials and regulatory community.

3.       Sales Tax Fairness

The Main Street Fairness Act to level the playing field on sales tax collection between on-line and physical retailers has seen lots of progress.
There are bills in the House and Senate to ensure that physical retailers are able to fairly compete with on-line retailers.
While we all have enjoyed tax-free internet shopping, most people agree that traditional retailers are being endangered by on-line retailers having the advantage of not having to charge sales tax in many instances.

Below is a link to ICSC’s page on Sales Tax Fairness, and where it stands to date.

Saturday, September 8, 2012

It is Easy Being Green!

Steven Rosenberg is the Founder of Green Purpose LLC

Steven is the Founder of a unique company called Green Purpose.
"Green Purpose is an eco-minded enterprise that provides communities with innovative solutions for reducing landfill waste. The company operates on a membership business model, in which residents of Champaign County and surrounding areas can pay a nominal monthly fee to utilize their recycling services. Green Purpose is different from most traditional recycling centers; they offer the community a convenient one-stop location for dropping off both recyclable AND reusable items. With research and an attention to each customer's needs, they are developing new solutions for a world in constant change.

Green Purpose also provides B2B services for industrial clients interested in striving for zero waste.  They offer advanced solutions for assessing, designing, and implementing state of the art recycling programs for reducing expenses and landfill waste. The company’s programs and services are aimed at creating long-term, practical solutions to our community’s growing waste problem. Their experience includes working with many different industries, ranging from advertising to retail. They help their clients to develop appropriate infrastructure and procedures, while exploring the full range of appropriate options and strategies for maximizing waste reduction."

To watch the entire TV interview with Steven Rosenberg CLICK HERE!

Wednesday, August 29, 2012

Rental Property Rules Get Clarification

Governor signs SB3405 into law

I am happy to report that SB3406 has been signed by the Governor and is now the law.  The bill was an initiative of IRPOA and adds language to both the sanitation and building codes that requires the following also be included in a violation notice.

a citation to the specific code provision
or provisions alleged to have been violated, a description of
the circumstances present that constitute the alleged

IRPOA proposed this change in the law because we had  reports  our members were receiving violation notices that were not specific and so were difficult to comply with.  The notices would include general statements like "Porch in Disrepair"  or "Plumbing not to Code".  Those types of notices seemed  more common when inspections are done in response to tenant conduct.   Also, many of our member groups operate under regulations that include annual inspections.  Those ordinances apply multiple code standards to rental properties.  It is very difficult to know where to look up a code when the city can impose regulations from nine different code books.   

With this change, you should now be able to reference a code book and read the code that is in violation.  You should also receive a description of what is wrong on your property so you know exactly what action to take to correct the violation.  We believe this will make dealing with code enforcement much easier.

State Senator Dave Syverson sponsored this bill in the Senate.  Representative Chapin Rose was our primary house sponsor and Representative Sidney Mathias was a house co-sponsor.  If you live in, or own property in, these legislators districts, please contact them and thank them for their support.  

To read the text of SB3406, now Public Act 097-1088 CLICK HERE

Monday, August 27, 2012

The Making of Mark in the Industry-Mark Roberts

Mark has always remembered his Central Illinois Roots

Mark Roberts was born in central Illinois and raised here.  He is also a renowned playwright, comic and television scribe. He is the creator and executive producer of the CBS series Mike & Molly and the author of several hit plays.

Roberts’ comedy career began at an early age when he worked as a stand-up comedian in Chicago while pursuing a career in acting and writing. After re-locating to Los Angeles, Roberts became a regular comedian on The Tonight Show and was a series regular on The Naked Truth with Tea Leoni. He was also a guest star on television series such as Seinfeld, Friends, The Practice, The Larry Sanders Show and The Fresh Prince of Bel-Air and starred in feature films Next of Kin and Bulletproof.

In theater, Roberts has written and produced several hit plays all of which are marked by his quick wit and comic sensibilities. Such productions include Welcome to Tolono, Whitey, Where the Great Ones Run, Parasite Drag, and Rantoul and Die. Several of his works have been picked up by the Dramatists Play Service, Inc. and published into acting editions.

After writing and starring in the one-act comedy, Couples Counseling Killed Katie, Robert’s comic spin on eight couples going through therapy turned the production into a sold out, cult phenomenon and showcased his talents to television executive Chuck Lorre who hired Roberts as a writer on Two and a Half Men. The show quickly became a ratings success and Roberts rose through the ranks to executive producer and head writer, most recently departing to create his own series, Mike & Molly.

Mike & Molly, which stars Melissa McCarthy and stand-up comedian Billy Gardell, focuses on the blossoming relationship between two people who meet at Overeaters Anonymous. Roberts’ comic-sensibilities made the series the most watched new comedy of Fall 2010 and earned McCarthy an Emmy Award for Outstanding Lead Actress.  

This summer, Roberts returned to the stage to star alongside Jessica Tuck in the Los Angeles revival of Couples Counseling Killed Katie. In addition, Rogue Machine and Shakespeare & Company will present renewed productions of his original plays Where The Great Ones Run and Parasite Drag in Los Angeles and Massachusetts, respectively.  To view the entire TV interview with Mark Roberts CLICK HERE

Tuesday, August 7, 2012

The Answer My Friend is Blowing in the Wind

MUTI is an INC 500 Fastest growing company

Derek Woods of Midwest Underground Technology, Inc. - MUTI as it is called shares the story of how his company was started here in the fair fields of Champaign County.
Founded in 2000 and starting with two employees, MUTI is headquartered in Champaign, IL and now employees over 140 people through 4 locations. In addition to wind energy, MUTI specializes in communications tower erection, multi-site maintenance, full site construction, and horizontal directional drilling, with extensive experience in the installation of tower foundations both mat and drilled shaft types, installation of access roads and site clearing, all types of excavation, tower erection, multi-site tower maintenance/inspection, installation of full grounding systems, and underground directional drilling. MUTI is also proud to be recognized by INC 5000 Fastest Growing Private companies over the past 5 years and is currently on track for continued success this year and beyond.

Mr. Woods has over 25 years of project management, construction & marketing/sales experience spanning a variety of industries including the pharmaceutical, medical devices, real estate development, & telecommunications fields.  In 2009, Mr. Woods joined the MUTI team & is currently Vice President of the Renewable Energy Division & is responsible for all aspects of the division’s development, operations & expansion within the renewable energy markets, with the main emphasis in the distributed wind energy segment.  To watch the full TV interview with Derek Woods CLICK HERE

Friday, July 27, 2012

The Cost of Capital- Update from NAR


As you may recall, on June 12, 2012, the Federal Reserve, OCC and FDIC proposed regulations implementing the Basel III capital accords. Basel III is an international agreement that updates capital and liquidity requirements for banks and other financial institutions. This 750 page regulation will impact the ability of non-financial businesses to raise capital and increase their costs of borrowing.
In a series of three separate but related proposals, the regulators proposed substantial revisions to the U.S. regulatory capital regimen for banking organizations that, if adopted, will have a significant impact on the entire U.S. banking industry. The U.S. rules are based on the core requirements of the 2011 international Basel III Accord and in significant part on the “standardized approach” for the weighting and calculation of risk-based capital requirements under the 2004-2006 Basel II Accord. Importantly, the proposals will extend large parts of a regulatory capital regime that was originally intended only for large, internationally active banks to all U.S. banks and their holding companies, other than the smallest bank holding companies (generally, those with under $500 million in consolidated assets).
Commercial Real Estate

Most commercial loans will continue to be risk-weighted at 100 percent. The one significant change is for “high volatility” commercial real estate loans (“HVCRE loans”), a subset of ADC loans. HVCRE loans will be risk-weighted at 150 percent. A lender may be able to return an ADC loan to the 100 percent risk weight through underwriting and the imposition of certain terms, as follows:

• The LTV ratio is less than or equal to the “applicable maximum supervisory LTV ratio.”

• The borrower has contributed at least 15 percent of the appraised “as completed” value of the property. The contribution may take the form of cash or unencumbered readily marketable assets, or the borrower may have paid development expenses out of pocket.

• The borrower has paid to the bank the capital charge that the bank will have to incur on the loan and has done so before the bank advances any funds.

• The contributed capital, which may eventually include capital generated internally by the project, must remain in place until the project is completed, the facility converts to permanent financing, or is sold or paid in full.

• Permanent financing by the bank must conform to the bank’s underwriting criteria for long-term commercial mortgage loans. An ADC loan to finance one- to four-family residential properties, however, may continue to be risk-weighted at 100 percent.

Residential Construction and Multifamily Loans

The current risk-based capital rules assign a risk weight of 50 percent to certain one-to-four family residential presold construction loans and to multifamily loans. A 100 percent risk weight applies to a presold construction loan if the purchase contract is cancelled. These risk weights are fixed by statute and cannot be changed. The proposed Standardized Approach, however, adds several new conditions to both kinds of loans in order to qualify for these risk weights.

Presold construction loans must meet several prerequisites designed to ensure that the property will, in fact, be sold on completion. Two notable new requirements are, first, that the builder incur at least the first 10 percent of the direct costs of construction (land, labor, and construction) before the builder may begin to draw down on the loan; and, second, that the loan amount may not exceed 80 percent of the sales price of the presold residence.

Loans secured by mortgages on multifamily properties will remain eligible for the 50 percent risk weight if several conditions are met. For example, a newly originated multifamily loan cannot be risk-weighted at 50 percent and must be weighted at 100 percent. If, after at least one year, the borrower has made all principal and interest payments on time, the loan will be eligible for the 50 percent risk weight, if other conditions are satisfied.

These conditions include the following: (i) the LTV ratio does not exceed 80 percent on a fixed rate loan or 75 percent on a loan where the rate may adjust; (ii) amortization of principal and interest must occur over a period of not more than 30 years, and the original maturity for repayment of principal is not less than seven years; and (iii) annual net operating income of the property must exceed annual debt service by 20 percent for a fixed-rate loan or 15 percent for a loan where the rate may vary.

Basel III Working Group

We have formed a staff level working group with various real estate groups in Washington. This group is meeting regularly to share information and develop a collective strategy on these proposed rules.

Tuesday, July 17, 2012

Media Mogul Sees a Bright Future for Industry

Mark Scifres is Chairman, CEO and President of Pavlov Media, which he started while working on his engineering degree at the University of Illinois in Champaign.  Mark comes from a family with a strong engineering background.  
While at the U of I, Mark had an idea that off-campus and private certified housing could be networked together.  These were the early days of data—Netscape didn’t even exist.  Mark’s vision was a network that provided data throughout the off-campus housing area.  That project was right in line with Mark’s engineering studies.  Long story short, Mark designed a network, built it and things took off from there!
That was more than 17 years ago and Pavlov Media has grown into a multi-million dollar operation, providing television, broadband and telephone services in more than 140 markets in 34 states.
The company has grown to more than 90 employees and has deployed network facilities to more than 70,000 registered users.  Along the way, Pavlov Media has acquired Wavelength Broadband—a major player in the emerging broadband industry—and made other acquisitions, as well.
In addition, Mark is a patent holder on specialized network processes.  
As part of Mark’s work as CEO, he led the construction and deployment of a network that provides television, broadband and other services to tens of thousands of apartments, hotels and other MDU’s (Multi-Dwelling Units).  He also led the wireless mesh deployments in Champaign, Illinois and New York City, which includes the free downtown wireless project in Champaign.
Under Mark’s leadership, Pavlov Media has become an industry leader in serving MDU’s and private cable operators.  To watch the entire TV interview with Mark Scifries CLICK HERE.

A Legend in the Industry-An Interview With Mark Rubel

Since 1980, Mark Rubel has made about a thousand recordings at his Pogo Studio in downtown Champaign IL for many wonderful artists including Hum, Alison Krauss, Rascal Flatts, Fallout Boy, Adrian Belew, Luther Allison, Ian Hobson and Henry Butler, for such clients as RCA, Capitol, Warner, Jive/Zomba, Volition Games, Electronic Arts, The BBC, Smithsonian, and many more. 
Mr. Rubel is on the national board of SPARS (the Society of Professional Recording Services) and belongs to the AES, NARAS, ASCAP, MEIEA, EARS, and numerous other acronyms.  Having taught audio to thousands of students since 1985, Prof. Rubel teaches recording, music business, music technology and the history of rock, and is the Audio Director at Eastern Illinois University’s $65 million Doudna Arts Center.
Mark writes for recording magazines, especially Tape Op Magazine for whom he interviewed Les Paul, Terry Manning and others. He works as a panelist, consultant, beta tester and legal expert witness.  Mark has been in the thrash oldies rock band Captain Rat and the Blind Rivets for over thirty years.  He plays many instruments badly and sings worse, and is ridiculously happy cultivating songs, students and cats along with his saintly wife, Nancy.

To watch the entire interview with Mark Rubel CLICK HERE

Monday, July 2, 2012

Good News on Flood Insurance

On June 29, 2012, both the Senate and House passed the Biggert-Waters Flood Insurance Reform Act of 2012 as a part of H.R. 4348, the Surface Transportation Conference Report.  The President will sign the measure in a few days.  This is the culmination of a successful multi-year REALTOR campaign and a final push at NAR’s Midyear Legislative Rally and Meetings in May 2012.  Congress had been extending the National Flood Insurance Program a few months at a time since 2008.  Twice this led to shut downs, including one that stalled thousands of real estate sales in June 2010 alone.  Passage of this 5-year reauthorization will bring certainty to real estate transactions in more than 21,000 communities nationwide where flood insurance is required for a mortgage.  The bill ensures the program will continue long-term for more than 5.6 million business- and homeowners who rely on it, achieves one of NAR’s top priorities for the year, and means taxpayers will spend less on federal assistance for flood disasters over the long run. 

Monday, June 25, 2012

Averting Diaster-One Box at a Time!

Gary Olsen received his Bachelor's Degree in Architecture in 1969 and Master’s degree with Highest Honors in Architecture from the U of I in 1976. After graduation, Gary served two years in the US Army as an officer in the Corps of Engineers with tours of duty at Ft. Belvoir, Va., Ft. Benning, Ga. He was also deployed overseas to the Republic of Vietnam in 1970 where he was the Depot Engineer and Facilities Chief in Danang, RVN, with quarters on China Beach.  Before and after his military service, Gary worked for the Champaign Architectural Firm, Laz, Edwards and Dankert.Gary was licensed as an Architect in 1974 and started his architectural firm, now Olsen + Associates Architects, in 1976. Gary's firm has completed over 2,000 projects involving Historic Preservation,Church, Library, Commercial, Residential and Adaptive Reuse Architecture. He has served in many leadership capacities throughout east central Illinois including Chair of the City of Champaign, Historic Preservation Commission, CCDC (Champaign County Design and Conservation Corporation) and  President of the Central Illinois Chapter of the AIA (American Institute of Architects).

In the last few years he has become a promoter (disciple) of "Modular" Architecture.  He completed his first Modular building, an apartment project that houses 96 students, last year in Champaign. His design for a Modular Fraternity House is currently underway in Urbana.   He is currently involved in the design of a 48 unit housing project located on the site of a former private swimming pool on Windsor Road in Urbana.

ShelterBox Mission:
The mission of ShelterBox is to provide safety and dignity to families who lose everything when disasters strike.  While many aid organizations provide food, water and medical care, Shelterbox gives immediate assistance in the form of proper shelter during the critical period following an earthquake, tsunami, landslide flood or other natural and man-made disasters.  Each ShelterBox supplies an extended family with a tent and life-saving equipment to use while they are displaced or homeless.  The contents are tailored depending on the nature and location of the disaster.

History of ShelterBox
ShelterBox began as an idea of one man, Tom Henderson, for a Millennium (year 2000) project for his Rotary Club in Cornwall, England.  After buying a big Green PVC Box at a hardware store in his local village, he set out to fill it with things that he felt would be useful when a family faced a natural or man- made disaster. After several weeks of gathering and discarding things for the Box at his home, Tom felt he had the right combination of disaster relief equipment and supplies in the Box to bring it to his Club for their approval as the Millenium Project that would last forever.  He began finding manufacturers for the equipment and supplies, finding volunteers to fill the boxes and arranged transport to the nearest airport.  Tom also arranged for volunteers of first responders to accompany the ShelterBoxes to the disaster area.
Shelterbox Deployment Around the World

About  150 ShelterBoxes were deployed with volunteers forming the first ShelterBox  Response Teams ((SRTs)  in 2002. That number more than doubled to 350 in the third year.  The great Tsunami of 2004 quickly exhausted our supplies, but we reached tens of thousands of people by purchasing more tents, and equipment worldwide. We answered the call when Hurricane Katrina hit the Gulf Coast, and we still have 330,000 earthquake survivors living in SB designed tents in Haiti today because there is still no better place for them to live.

America became the first affiliate country to join the ShelterBox Trust in 2002 and now 25 affiliate countries throughout the world have joined to form ShelterBox International .   ShelterBox USA has emerged as the worldwide leader and largest affiliate, training volunteers to become Ambassadors, sponsoring partnerships, and has become the most prolific fundraiser for disaster relief of all the affiliates.  Since 2000 ShelterBox has provided more than 111,000 ShelterBoxes to over 900,000 of the world’s most vulnerable people.
Purchasing a ShelterBox 
Each ShelterBox costs $1000 which includes all equipment, transportation to the disaster site and a team of volunteers who implement the aid.  Smaller donations are combined to purchase a box, and each donor is supplied a tracking number so that they can see where their Shelterbox is being sent.

To watch the interview with Gary Olsen CLICK HERE

Wednesday, June 20, 2012

Apartment Market Shifting Focus To New Supply

CoStar article by: By Randyl Drummer May 16, 2012

Current Lull In Multifamily Fundamentals Expected To Be Overtaken by Demographics, Jump In New Construction

The ongoing recovery of the U.S. apartment market is entering a new phase, one marked by an increasing level of permits and construction starts for multifamily development projects. The upwelling in new development is expected to increase supply across many markets starting in 2013 after years of almost zero growth.

The new phase follows the dramatic vacancy declines and strong apartment rent growth that has occurred in the tightest and more desirable coastal markets, and a rare moment of solid income growth even in vacancy-challenged markets.

The rising supply pipeline, coupled with the gradually improving market for single-family housing, is expected to help bring some equilibrium to an apartment market which experienced strong renter demand and plunging vacancies from late 2009 through middle to late 2011.

Demand has tapered off somewhat since last summer due to slower seasonal leasing -- and perhaps some sticker shock among tenants that have watched asking rents eclipse pre-recession highs in some supply-challenged metros, according to Michael Cohen , head of advisory services for CoStar Group’s economic and market forecasting company, Property and Portfolio Research (PPR).

Cohen, along with PPR’s new director of multifamily research Luis Mejia and senior real estate economist Erica Champion, made the observations during CoStar’s First Quarter 2012 Multifamily Review and Outlook.

"Vacancies have been slipping in the apartment sector for several years due in large part to favorable cyclical demand factors and little-to-no new supply," Cohen said. "But the next chapter in the apartment recovery is going to look pretty different, particularly on the supply front."

Overall, the national apartment vacancy rate has dropped by a precipitous 170 basis points through the first quarter of 2012 since peaking at 8.3% at the end of 2009, with the lion’s share of occupancy gains recorded during the six-quarter period between fourth-quarter 2009 and second-quarter 2011. That's equal to demand for about 270,000 additional units, two-thirds of them occupied in 2010 alone, the single strongest year for multifamily demand since 2005.

Rent Hikes Bring Sticker Shock

But demand has eased in the last six months, with the year-over-year vacancy closing the first quarter at 6.6%, down only 60 bps. Several tight coastal markets have already reached or are approaching pre-recession vacancy lows, however, and it’s likely the seasonally weaker pace of demand over the last two quarters will pick up over the rest of 2012, the analysts said.

Four of the top five rental markets that experienced the sharpest vacancy declines are fast-growing southern metros, led by Charlotte, Austin and Raleigh, NC. Detroit, with its surprising auto industry rally, ranked an impressive fourth place, followed by San Antonio. Apartment vacancies have not dropped as sharply in markets like Washington, D.C. and Seattle, where new supply is already starting to come on line.

The recovery has shifted away from the southern metros and toward West Coast markets in the last six months, much of it driven by strength in technology sector. Los Angeles was ranked first in the nation in the first quarter in year-over-year nominal demand growth with about 12,000 units, followed by Dallas, Chicago, New York and Houston.

Ranked by the percentage rise in demand growth, Richmond, VA, led all markets with a year-over-year gain of over 4%. Charlotte, Raleigh, San Antonio and Houston garnered the other top five spots.

Salt Lake City and the San Francisco Bay Area metros saw the largest declines in vacancy. But at least 30 of the top 54 U.S. metro areas have seen their vacancy rates increase at least slightly over the last six months.

"I’m not suggesting that’s indicative of the health or the trajectory of the market, but it’s not a straight line down in absolute vacancy improvement. There is a little bit of a lull," Cohen said.

Although job losses and the housing collapse are still fresh in the minds of 20-to-34-year-olds who make up the bulk of the renter base, and mortgage underwriting standards are stricter, the math is becoming more appealing for people deciding to buy a home or condominium over renting an apartment, Cohen said.

Those decisions are being influenced by spiking rents that have already pierced their pre-recession highs in such markets as San Jose, Oklahoma City, Denver, East Bay, San Francisco, Chicago, Portland and Pittsburgh.

Apartment Starts Ramping Up

While only 60,000 new apartment units are expected to be added this year, well below longterm average, construction starts and permitting activity are beginning to pick up from historical industry lows not seen since 1993.

"In advising our clients on market selection, we are starting to get calls with concerns about the rate of supply and net completions," Cohen said.

But developers who have delayed decisions to build are seeing the window close as capitalization rates reach record lows.

"2013 will be the first year we’ve seen deliveries above 100,000 units. We need to readjust our perspective on supply for Chapter Two (of the recovery). We haven’t seen 100,000 units come to market since 2009."

CoStar's outlook for supply is moderate through 2015, with between 100,000 and 130,000 units delivered per year, a rate expected to achieve equilibrium between supply and demand, Cohen said.

Homeowner Distress Continues To Help Apt. Investors

Meanwhile, apartment investors continue to reap benefits from the current weak housing market, with the flow of distressed homeowners-turned-renters still above average, while the flow of renters turning into buyers is still quite low, according to Mejia, who recently joined PPR as director of multifamily research.

A comparison of homeownership and foreclosure trends confirms that the homeownership rate could continue to decline -- possibly falling below 65% -- until the delinquencies and foreclosures that have plagued homeowners finally ease.

In the early 2000s, optimism about rising home prices and loose underwriting standards helped push the ownership rate up to almost 70%, leading to a price bubble that began to deflate in 2006, causing a surge in foreclosures and sending the homeownership rate tumbling.

"Apartment markets will continue to see additional demand while the foreclosure rate remains above pre-crisis levels and potential home buyers are cautious about committing to a purchase, even amid all-time low mortgage rates," Mejia said.

Mejia also pointed that as foreclosures remain elevated and renters mull their home-buying decisions, the ownership rate will likely continue to decline, although the extent of the decline depends on the length and strength of the housing recovery.

Tuesday, June 12, 2012

Basell III and Dodd-Frank Update

The Federal Reserve Board of Governors met on June 7th to publicly discuss proposals for implementing the Basel III capital requirements and Dodd-Frank capital requirements in a simplified manner, as well as to vote on a final market risk capital rule (Basel 2.5).
The Board unanimously approved the release of three Notices of Proposed Rulemaking (NPRs) for Basel III and the final rule for Basel 2.5. Basel III requires that a bank hold 4.5% of its risk-weighted assets (RWA) as common equity (up from 2% in Basel II) and 6% as Tier 1 capital (up from 4% in Basel II). Total capital (Tier 1 plus Tier 2) must be at least 8% of RWA. Additionally, Basel III requires that banks hold another 2.5% capital buffer, made up of common equity. Restrictions are also to be imposed on what assets can be counted toward Tier 1 capital.
The Board is under the impression that most banks already meet these requirements at the present time (especially those under $10 B). The approach for calculating risk weighted assets would also change the treatment of residential mortgages, making it more risk-sensitive. Under the NPR, residential mortgages are divided into two categories and the risk weights would depend heavily on LTV and would range from 35%-200%, while High Volatility Commercial Real Estate Exposure (HVCRE) risk weights would jump to 150% from 100%. Governor Elizabeth Duke raised concerns about this portion of the proposed rule reducing the willingness of banks to make mortgage loans.
While the new capital rules won’t take effect until 2019, concerns have been expressed by both industry and some Fed governors, that such an increase in capital requirements would have negative economic effects, as there would be less capital available to lend. The Fed’s rule-writing staff said that these effects were likely to be modest and would largely be mitigated by having a long phase-in period. Furthermore, the staff said that banks could largely meet requirements via retained earnings, and would probably not have to issue more equity.

The Federal Reserve surprised the banking industry by forcing even the smallest lenders to comply with Basel III -- all 7,307 U.S. banks. Many bankers had expected regulators to exempt smaller, community bank lenders. While the core Basel III rules will apply to all banks, other aspects of the new regime single out the biggest, most complex banks for tougher treatment than their smaller peers. The banks will have more than six years to fully comply with the new rules, with the phase-in period starting next year.
Potential Impact on Credit Capacity

While the goal of the new regime is commendable, requiring banks to hold far more capital to prevent financial disaster could further exacerbate credit challenges for real estate and broader credit capacity. There is grave concern among many in the banking community that stricter capital rules may curb economic growth by making it more expensive to lend.
As proposed, there is concern that the measure is not appropriately calibrated and could lead to disproportionately higher borrowing costs for commercial real estate borrowers. Setting excessive capital requirements will limit the availability of funds that support new investments and job creation – particularly for commercial real estate.
The current risk weight under Basel II for commercial real estate loans, including acquisition, development and construction (ADC) loans, is generally 100%. However, the Accord permits regulators the discretion to assign mortgages on office and multi-purpose commercial properties, as well as multi-family residential properties, in the 50% basket subject to certain prudential limits. Under Basel I, commercial real estate was assigned to the 100% basket. The proposed Basel III measure would increase the risk weighting to 150% for High Volatility Commercial Real Estate Exposure (HVCRE) and, which could also deter banks from making real estate loans and reduce credit capacity.
Importantly, however, the NPR specifically permits regulators the discretion to exempt certain commercial real estate collateral from HVCRE treatment that fall under certain guidelines. Such collateral would generally be treated as corporate debt position, with a 100% risk weighting. These CRE exemptions would apply to:

(1) One- to four-family residential property; or

(2) Commercial real estate projects in which:

(i) The LTV ratio is less than or equal to the applicable maximum supervisory LTV ratio in the agencies’ real estate lending standards;

(ii) The borrower has contributed capital to the project in the form of cash or unencumbered readily marketable assets (or has paid development expenses out-of-pocket) of at least 15 percent of the real estate's appraised “as completed” value; and

(iii) The borrower contributed the amount of capital required under paragraph 2(ii) of this definition before the banking organization advances funds under the credit facility, and the capital contributed by the borrower, or internally generated by the project, is contractually required to remain in the project throughout the life of the project. The life of a project concludes only when the credit facility is converted to permanent financing or is sold or paid in full. Permanent financing may be provided by the banking organization that provided the ADC facility as long as the permanent financing is subject to the banking organization's underwriting criteria for long-term mortgage loans.

Next Steps

The Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) must also review the proposed Basel rules before they take effect, and are expected to do so on June 12th. Comments on the three NPRs' will be due on September 7, 2012.
NAR is currently reviewing the measure and its potential impact on commercial and residential real estate credit capacity. We are already working with a number of industry groups to develop consensus viewpoints in an effort to begin raising concerns about the economic consequences of proposed rules in advance of the comment deadline.

The documents may be found at CLICK HERE

Saturday, June 9, 2012

GEMBA and Lean Management in Healthcare

For the past 13 years, Alan Gleghorn has been the CEO of Christie Clinic, one of the largest physician-owned, multi-specialty group medical practices in Illinois. Faced with a challenging economic environment and fierce competition upon his arrival, he quickly sought to guide the organization to a stronger financial and strategic position by empowering his team members to focus on continual organizational improvement. In moving the organization from a command-control leadership to a dispersed/consensus style model, he implemented Lean Healthcare and created a true cultural transformation at Christie.

As Systems Manager, Stephanie Van Vreede is responsible for network coordination at ThedaCare Center for Healthcare Value.  She handles the organization of Gemba visits for attendees of the 53 organization-strong healthcare organization. The HVN is a consortium of like-minded healthcare organizations from North America that come together to share and learn, while leveraging their unique perspectives to accomplish a shared goal of fundamentally improving healthcare delivery through lean thinking.

Change is bearing down fast on healthcare in the United States. The good news is that competitive, choice-driven care is still possible, as long as we focus on three essential elements:
The ThedaCare Center for Healthcare Value is a resource hub that brings together in one place the important insights, examples and worthy experiments from across health care. We provide the framework and tools needed to unite leaders behind an integrated approach focused on better patient value.

 Gemba has several different meanings, so to start let’s use the literal Japanese translation and define gemba as meaning ‘the real place’.
In traditional (i.e. manufacturing) Lean, gemba is frequently used synonymously with ‘shop floor.’ (You may hear the term genba-with an ‘N’-used interchangeably with gemba. Lean is funny that way. There are many ways to say the same thing.)
But as Lean has migrated to the office, gemba has a new meaning. This ‘real place’ can be in an engineering cubicle, at a cash register in a retail store, or in front of a computer where orders are entered.
It is not as common to hear the term gemba specifically used in the Lean office, but the principle behind ‘going to gemba’ (meaning the real place where the work is being done) is just as strong.

Alan has incorporated GEMBA principles in his Lean Management at Christie Clinic with such success that many health care groups have come to look at Christie Clinic as an example to follow.  In this interview Alan and Stephanie Van Vreed discuss Lean Management and its applications in the healthcare industry.  To watch the entire interview with Alan Gleghorn and Stephanie Van Vreed CLICK HERE

Thursday, May 24, 2012

All Commercial Real Estate Sectors Continue to Improve, Multifamily Strong

Shaking off a prolonged impact from the recession, fundamentals are gradually improving in all of the major commercial real estate sectors, according to the National Association of Realtors quarterly commercial real estate forecast. The apartment rental sector has fully recovered and is growing.

The findings also are confirmed in NAR’s recent quarterly Commercial Real Estate Market Survey, which collects data from members about market activity.

Lawrence Yun, NAR chief economist, said new jobs are the key. “Ongoing job creation, which is at a higher level this year, is fueling an underlying demand for commercial real estate space, assisted by a steady increase in consumer spending,” he said. “The pattern shows gradually declining commercial vacancy rates, with consequential but generally modest rent growth.”

Yun expects the economy to add 2 to 2.5 million jobs both this year and in 2013, on the heels of 1.7 million new jobs in 2011, assuming a new federal budget is passed before the end of the year. “Although we need even stronger job growth, by far the greatest impact of job creation is in multifamily housing, where newly formed households striking out on their own have increased demand for apartment rentals – this is the sector with the lowest vacancy rates and strongest rent growth, which is attracting many investors.”

Rising apartment rents also are having a positive impact on home sales because many long-time renters now view homeownership as a better long-term option, Yun noted.

A large problem remains for purchases of commercial property priced under $2.5 million. “Our recent commercial lending survey shows that there is very little capital available for small business, which is significantly impacting commercial real estate transactions, although funding is less restrictive for bigger properties.”

NAR’s latest Commercial Real Estate Outlook1 offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS, Inc.,2 a source of commercial real estate performance information.

Office Markets

Vacancy rates in the office sector are projected to fall from 16.3 percent in the second quarter of this year to 16.0 percent in the second quarter of 2013.

The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.3 percent; New York City, at 10.0 percent; and New Orleans, 12.6 percent.

Office rents should increase 2.0 percent this year and 2.5 percent in 2013. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is forecast at 24.7 million square feet in 2012 and 48.0 million next year.

Industrial Markets

Industrial vacancy rates are likely to decline from 11.0 percent in the current quarter to 10.7 percent in the second quarter of 2013.

The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 4.7 percent; Los Angeles, 5.0 percent; and Miami at 7.2 percent.

Annual industrial rent is expected to rise 1.6 percent in 2012 and 2.4 percent next year. Net absorption of industrial space nationally is seen at 44.1 million square feet this year and 62.4 million in 2013.

Retail Markets

Retail vacancy rates are forecast to decline from 11.3 percent in the second quarter to 10.7 percent in the second quarter of 2013.

Presently, markets with the lowest retail vacancy rates include San Francisco, 3.7 percent; Fairfield County, Conn., at 4.0 percent; and Long Island, N.Y., at 5.0 percent.

Average retail rent should rise 0.8 percent this year and 1.3 percent in 2013. Net absorption of retail space is projected at 8.0 million square feet this year and 21.9 million in 2013.

Multifamily Markets

The apartment rental market – multifamily housing – is likely to see vacancy rates drop from 4.5 percent in the second quarter to 4.3 percent in the second quarter of 2013; apartment vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents.

Areas with the lowest multifamily vacancy rates currently are New York City, 2.1 percent; Portland, Ore., at 2.3 percent; and Minneapolis at 2.4 percent.

After rising 2.2 percent last year, average apartment rent is expected to increase 4.0 percent in 2012 and another 4.1 percent next year. “Such a rent increase will raise the core consumer inflation rate. The Federal Reserve, in turn, may be forced to raise interest rates, possibly as early as late 2013.”

Multifamily net absorption is forecast at 215,900 units this year and 230,300 in 2013.

The Commercial Real Estate Outlook is published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.