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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.
http://speakingofrealestate.blogs.realtor.org/2012/12/28/update-on-fiscal-cliff-whats-at-stake-for-real-estate/
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:
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| 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!
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| 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
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or provisions alleged
to have been violated, a description of
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the circumstances
present that constitute the alleged
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violation
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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
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| 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
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| 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
BACKGROUND
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.
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.
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
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 www.shelterboxusa.org
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
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.
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
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
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.
Last year, the Christie Clinic Illinois Marathon drew 18,700 runners to the streets of Champaign-Urban to tackle the various races including: the relay, the half-marathon, 5K, 10K and the big race … the 26-mile marathon. This year, race organizers are expecting to hit 20,000 runners. Add in the thousands of spectators lining the streets to cheer on the runners … and this is one of Champaign-Urbana’s largest events.
Jan Seeley and Mike Lindemann, co-directors of the Christie Clinic Illinois Marathon tell us more about the this year’s Marathon and new changes they have made this year to improve on the quality, safe experience for runners, volunteers and spectators.
I am proud that we can shine a light on this amazing event and the wonderful people in our community that make it happen. To watch the entire interview with Jan Seeley and Mike Lindemann CLICK HERE
Carolyn has long had a passion for the arts. Her interests in sculpture, architecture and the visual arts have manifested themselves in a variety of ways much to our benefit here in the community.
She and her husband Norman have renovated historic buildings and currently own three commercial buildings in downtown Urbana and three Victorians in West Urbana that house foreign exchange students attending the University of Illinois.
Carolyn Baxley has been the owner of Cinema Gallery in downtown Urbana since January 2001. Thanks to her pioneering efforts and those of likeminded creative businesspeople downtown Urbana has become a hub of the arts for the Urbana-Champaign community. To view the entire interview with Carolyn Baxley CLICK HERE
CU Aerospace is located in downtown Champaign in the M2 building, located minutes from central campus of the University of Illinois at Urbana-Champaign. This exciting location provides an environment where technology-based businesses can work with one another and the University of Illinois to take advantage of opportunities for collaborative research. Our close association with the University provides us access to state-of-the-art University labs, equipment, and services. This teaming arrangement proves to be an excellent way to provide the government and commercial customers with the highest quality service in a cost effective manner.
Dr. David Carroll is the President and co-founder of a CU Aerospace, located in Champaign-Urbana, Illinois. C-U Aerospace operates principally as a government contractor working in space propulsion, nanosat (CubeSat) fabrication, high energy lasers, self-healing composite materials, astrodynamics, and other advanced aerospace technologies.
David received his degrees in Aeronautical and Astronautical Engineering from the University of Illinois at Urbana-Champaign (B.S. 1985, M.S. 1986, and Ph.D. 1992). Dr. Carroll serves as the Chair for the Plasmadynamics and Lasers Technical Committee of the American Institute of Aeronautics and Astronautics (AIAA) and he was inducted as a Fellow of the AIAA in 2011.
To watch the entire TV interview with Dr. David Carroll CLICK HERE
My guest for a this very special interview is Don Gerard, Mayor of Champaign. Don’s family moved to Champaign in 1968 and growing up he attended Champaign’s public schools, worked for the Champaign Park District, and played baseball in the Kiwanis Little League. He also earned the rank of Eagle Scout in BSA Troop 7. He was an editor on the school paper, competed on speech team, was trainer for the varsity basketball squad and had a principal role in the school play. Don majored in Speech Communications at the University of Illinois and has taken courses at Parkland College. He has worked in a number of occupations from Day Camp Leader at the Champaign Park District to omelet chef, night club manager, resale shop owner, construction worker, shipping and receiving clerk, and freelance writer. Don spent nearly two decades performing in local rock bands including a stint as a bassist in a band on Roadrunner Records, which released three albums internationally. Don is currently the Facilities Manager for the School of Molecular & Cellular Biology and the School of Integrated Biology at University of Illinois at Urbana-Champaign. Don is the father of two children – Will and Chloe – both who are freshman at Champaign Central High School. Don had never run for public office before his election as Mayor this past April; Don took office as Mayor of Champaign on May 5, 2011. In his first eight months as Mayor of his City, Don has demonstrated an active commitment to making a positive difference in the lives of its citizens.
o watch the entire interview with Don Gerard CLICK HERE
Ploughman Analytics is a team of specialists who are devoted to helping businesses transform their data resources into practical decision-making tools. Their experts design and integrate customized packages of analytical tools to give clients greater control of their marketing, distribution, production, communications and other business functions.
Employing such advanced tools and technologies as:
•Geographic information systems (GIS)
•Business intelligence and data warehousing
•Operations research techniques and •Knowledge management tools
Ploughman's services can benefit a wide range of industries and organizations. Their team also has specialized expertise in the support of the agriculture and energy industries. Charlie Linville is an amazing talent. To view the entire TV interview with Charles Linville CLICK HERE
Joe Taylor is the founder and President of Sleepy Creek Vineyards near Oakwood, IL. After a receiving degree in Graphic Design from Southern Illinois University in 1990, He co-founded Taylor Studios Inc, with Betty Brennan. Taylor Studios, located in Rantoul, IL, is a business that designs and builds museum exhibits. In 1998 Taylor Studios was named to Inc. Magazines “Inc. 500” list as one of the fastest growing private companies. Today, they are one of the top exhibit design and fabrications firms in the country, employing over 30 people. In 2002, He was bit by the entrepreneurial bug again and started Sleepy Creek Vineyards. He, and his wife Dawn, planted their 10 acre vineyard in with plans to open a winery. After establishing the vineyard, they opened their winery to the public in 2007. Sleepy Creek Vineyards currently makes over 10 different hand crafted wines. All made on site with locally grown grapes. In addition to growing grapes and making wine, the winery host several festivals, art shows, concerts and private events. There is also a two bedroom vacation rental above the winery for visitors to rent for a relaxing getaway. To watch the entire TV interview with Joe Taylor CLICK HERE
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