Good luck to all the participating students. Hope all teams will be ready for the City Council on Saturday, November 1st!
Tuesday, September 30, 2008
UrbanPlan starts at REAE@UTA
The UrbanPlan project will be taking place over the month of October in the real estate development class. Dr. Hayunga and UrbanPlan coordinators Phillip Bankhead and Jon Molnoskey have been working hard to setup the project this year.
Student Question: Mortgage Markets
I have a question for you about this real estate mess that is going on with the market right now. What is going to happen to the people who are signed up for these ARM loans and the rates will be adjusting soon? They're not going to be able to refi because more than likely the value of the house is much lower than the loan they are stuck with. Are they going to be forced into foreclosure? It seems that is the only option for these people in this situation. I know on the Indymac Federal Bank website, they will consider re-writing your existing mortgage if you are in default and going to face foreclosure, but nothing is being done to prevent the problem from reoccurring in a year from now. So, if you have a loan that you know will be a problem in the future, I guess you have to default before you can get help? These loans were still being written two years ago and if you were signed up for a 3 yr ARM, the fun hasn't even started yet. I'm just curious on how you think the future is going to look for these people who are stuck.
REPLY
Yes, what you describe is at the core of this current financial crisis. Way too many people, borrowed way too much money, to buy way too expensive homes. This process was encourage by the Federal government (for several decades, Democrats and Republicans were in a competition to report the highest levels of home ownership during their terms in power) and by government sponsored enterprises, such as Fannie Mae. Federal tax deductible mortgage interest paid on first, and second, mortgages on homes also helps to encourage housing consumption.
The fact that many of these mortgages are adjustable rate is just the icing on the mess. As interest rates increase, you will see a sharp increase in default rates in adjustable rate mortgages. Now the Federal Reserve has to be very concerned about keeping interest rates fairly low which could cause problems with the value of the US dollar and inflation expectations.
These poorly underwritten and often adjustable rate mortgages are clogging-up the financial system because of the expectation that many more will default in the future, making these mortgage bad investments. Financial institutions, and all other owners, holding these mortgages or mortgage-backed securities cannot get them off their books (sell them) because no one wants to buy this junk. One of the few large scale sales of mortgage-backed securities from a while back realized an 80% discount (the purchase paid about 22 cents on the dollar).
My grandfather, who had a lot of old fashioned commonsense and was very conservative with his finances, had an old rule-of-thumb that you should not borrow more than 2 times your gross annual income to buy a house. Although this might be a little too conservative, especially in some of the higher cost of living areas, I would say a maximum of 3 times would be prudent. However, due to the run up in housing prices and lax lending standards, many people have borrowed 4 to 5 times, or more, their annual gross income.
I am afraid that we will continue to see and hear more about foreclosures. However, you don't need to fear that everyone will be out on the streets (this should not be a major concern as long as employment markets holdup). Many of the foreclosures will result in people downsizing to houses and mortgages that are more affordable (from 4 or 5 times gross income to around 2 or 3 times). The average house price in Arlington is around $150,000 so a family earning $50,000 could own a comfortable house under the 3x gross income rule-of-thumb. Finding affordable housing in other areas of the country will be a lot more difficult. If the old school rule-of-thumb of 2 to 3 will in-fact apply, then housing prices in high housing cost markets may have to adjust substantially.
If anyone out there is having difficulty with making mortgage payments, you should contact your mortgage company immediately. Foreclosure is a very expensive process for the mortgagee. It is usually a much better deal for the mortgagee to work something out with the mortgagor (the borrower), if possible. The Indymac website is a good example of a mortgagee willing to work with mortgagors to prevent foreclosures.
REPLY
Yes, what you describe is at the core of this current financial crisis. Way too many people, borrowed way too much money, to buy way too expensive homes. This process was encourage by the Federal government (for several decades, Democrats and Republicans were in a competition to report the highest levels of home ownership during their terms in power) and by government sponsored enterprises, such as Fannie Mae. Federal tax deductible mortgage interest paid on first, and second, mortgages on homes also helps to encourage housing consumption.
The fact that many of these mortgages are adjustable rate is just the icing on the mess. As interest rates increase, you will see a sharp increase in default rates in adjustable rate mortgages. Now the Federal Reserve has to be very concerned about keeping interest rates fairly low which could cause problems with the value of the US dollar and inflation expectations.
These poorly underwritten and often adjustable rate mortgages are clogging-up the financial system because of the expectation that many more will default in the future, making these mortgage bad investments. Financial institutions, and all other owners, holding these mortgages or mortgage-backed securities cannot get them off their books (sell them) because no one wants to buy this junk. One of the few large scale sales of mortgage-backed securities from a while back realized an 80% discount (the purchase paid about 22 cents on the dollar).
My grandfather, who had a lot of old fashioned commonsense and was very conservative with his finances, had an old rule-of-thumb that you should not borrow more than 2 times your gross annual income to buy a house. Although this might be a little too conservative, especially in some of the higher cost of living areas, I would say a maximum of 3 times would be prudent. However, due to the run up in housing prices and lax lending standards, many people have borrowed 4 to 5 times, or more, their annual gross income.
I am afraid that we will continue to see and hear more about foreclosures. However, you don't need to fear that everyone will be out on the streets (this should not be a major concern as long as employment markets holdup). Many of the foreclosures will result in people downsizing to houses and mortgages that are more affordable (from 4 or 5 times gross income to around 2 or 3 times). The average house price in Arlington is around $150,000 so a family earning $50,000 could own a comfortable house under the 3x gross income rule-of-thumb. Finding affordable housing in other areas of the country will be a lot more difficult. If the old school rule-of-thumb of 2 to 3 will in-fact apply, then housing prices in high housing cost markets may have to adjust substantially.
If anyone out there is having difficulty with making mortgage payments, you should contact your mortgage company immediately. Foreclosure is a very expensive process for the mortgagee. It is usually a much better deal for the mortgagee to work something out with the mortgagor (the borrower), if possible. The Indymac website is a good example of a mortgagee willing to work with mortgagors to prevent foreclosures.
Saturday, September 27, 2008
Urban Land Institute (ULI) Monopoly Night
The Urban Land Institute held its second annual Monopoly Night tonight in Downtown Dallas. Monopoly Night is an evening of music, dinner, dancing, and of course, the board game Monopoly. The purpose of this event is to raise money to run the ULI's UrbanPlan project, which has been a part of the REAE@UTA program for the past two and a half years. Monopoly Night is attended and sponsored by some of the most important people and companies, respectively, in the real estate industry.
Special thanks to Phillip Bankhead of CAPMARK, and the Director of the UrbanPlan project for North Texas, for inviting me. Graduate students taking Real Estate Development this fall will get to meet Mr. Bankhead soon, as the UrbanPlan project will begin next Saturday.
This is the second year I have had the pleasure to attend the ULI's Monopoly Night. How did I do? Well, for the second year in a row, I came in third in a table of four. Goes to show you, those who can't play Monopoly, teach.
By the way, the winner of my table for the second year in a row was the person who made the first deal. I am convinced that making deals as early as possible, and as often as possible, is the key. Try it!
Special thanks to Phillip Bankhead of CAPMARK, and the Director of the UrbanPlan project for North Texas, for inviting me. Graduate students taking Real Estate Development this fall will get to meet Mr. Bankhead soon, as the UrbanPlan project will begin next Saturday.
This is the second year I have had the pleasure to attend the ULI's Monopoly Night. How did I do? Well, for the second year in a row, I came in third in a table of four. Goes to show you, those who can't play Monopoly, teach.
By the way, the winner of my table for the second year in a row was the person who made the first deal. I am convinced that making deals as early as possible, and as often as possible, is the key. Try it!
Thursday, September 25, 2008
The New American Dream
By Richard M. Bowen
REAE 5311 Blog Post
Explicit Costs
REAE 5311 Blog Post
Today, more people than ever live in the suburbs of Texas versus the urban community. Roads, schools, and other infrastructure are being built every day, on land that had been a farm or vacant in the past. In fact the Fort Worth-Arlington area has a projected population of 1,800,000 for the year 2010, a 12.6% increase from the year 2000 (Williams 69). “Currently, eighty-three percent of Americans live in the country’s 361 metropolitan areas (Leinberger)”. The large majority of that sum lives in suburbs outside of the urban community. The suburban population continues to grow dramatically faster than the urban community. The growth of suburbs outside of the urban community is known as “suburban sprawl”.
Sprawl requires a city to extend its roads, water/sewer, schools, and emergency services to maintain an ocean of homes with no end in sight. People move to these sprawling suburban areas to achieve the American Dream due to a lower purchase price. When looking at the phenomenon of suburban sprawl from a larger “community” perspective, the benefit of achieving the American Dream, comes at the detriment of society. Due to social costs, explicit costs, and an uncertain future, suburban sprawl burdens the DFW area. The solution to these problems can be found within the “New American Dream,” a phrase coined by Christopher Leinberger.
Just as the American Dream is defined by the traditional suburb, the New American Dream is defined by new urbanism. New urbanism is a relatively new school of thought that looks to recreate the pre-automobile social settings of townships (Archer 636). New Urbanism eliminates or mitigates the social costs, explicit costs, and future uncertainty of suburban sprawl. Two contrasting examples of towns in Texas, Southlake and Mansfield, will exemplify the aforesaid.
Social Costs
Drawing from countless resources, viz., The Crack in the Picture Window by John Keats, there is a huge social cost associated with the suburbs that surround our urban communities. You may notice that I repeatedly make reference to communities only when referring to urban areas because it is a quality that suburbs generally lack. “A housing development cannot be called a community. Housing developments offer no employment and as a general rule lack recreational areas, churches, schools, or other cohesive influences” indicative of a community (Keats xvi). Mothers, children, and the elderly become isolated. There is nowhere to walk to, and each trip for goods, services, and work involves a painful commute (Williams 127).
A good example of an endless suburb is Mansfield, a suburb of Arlington. The City of Mansfield describes itself as a “homogeneous, low density outskirt of a core city <http://www.mansfield-tx.gov/>”. This setting, coupled with a lack of community qualities, is an earmark for potential social issues within Mansfield. The reason that Mansfield had developed in such a classic suburban manner is due to the “current Euclidean zoning codes” (Leinberger 151). These regulations essentially outlaw any type of mixed use development and strongly segregate income levels, land use, and construction styles (Leinberger 151). Stores, recreation, churches, and schools are placed outside of the housing areas at a distance that prohibits their visitation by foot.
Today, planners are looking at these social issues associated with suburban sprawl and are including components such as mixed land uses, compact building designs, preservation of natural resources (including land), and multiple transportation options (Archer 97). This is indicative of an urban environment, however, when implemented in a suburb such as Southlake it is known as new urbanism.
Southlake, a previously classic suburb much like Mansfield, took on new urbanism by allowing a development called Southlake Town Square. This project created an environment that provided a walkable destination for many, and a central destination for the whole of the community and beyond. This high density development contains retail, office, and residential units. This type of development prevents one of the major social woes found in suburban residential developments, isolation. Residents in and near Southlake Town Square can come to town in a relatively short time and spend the day. By attracting eclectic groups of people the square provides for an enriching social environment.
The major explicit costs related to suburban sprawl are environmental, strain on existing infrastructure, and the tax base. Economically these costs are weighed against the benefit of privacy, lower housing costs, and perceived safety. When looking at the scenario as a whole it can clearly be seen that the costs outweigh the benefits when considering the collective whole. By providing a high density option within the plan of the town, it would give an alternative to expanding an already vastly sprawling area.
The loss of the natural environment is considered by many as implicit; however in the context of this case it is explicit. As permeable natural surfaces are replaced by more and more impermeable surfaces the issues of runoff and aquifers come into play. To prevent runoff from destroying suburban property the city must install expensive mitigation systems to cope with the issue. Also by diverting the natural flow of water it prevents the aquifers from recharging. The water that the aquifers absorb are filtered though soils that have been heavily fertilized, and therefore the risk of aquifer contamination is high (Williams 15).
It is not only the runoff that is of concern when addressing impervious surfaces. A good deal of these surfaces are roads. When extensions off of existing roads are built to service new housing developments, it places an increasing strain on the aforesaid existing road. Many of the existing roads were put in place without considering a large increase of use, and therefore create hazardous congestion. Mansfield’s major roads, Cooper, 287, and 360 are met with uncertainty every morning as 96% of all commuters leave Mansfield for work
Photo source: http://www.ctsmartgrowth.com/frontPage.do
In the case of Southlake, the transportation structure meets less of a strain because there are less automobile trips per household with this type of structure. Residents have the opportunity to take advantage of alternative transportation such as walking and bicycling (or use local roads) to buy goods, services, and to work. Once there, many trips may be combined into one. The post office and service shops are all within the same principal local. The model of new urbanism provides residents of Southlake with the opportunity to work within town.
Uncertain Future
The suburbs have more of an uncertain future than its urban counterparts. The prevailing reasons for suburban uncertainty are social and economic trends. The socio-economic externality favors urban living over suburban living.
Suburbs may become obsolete within the next fifteen to twenty years according to Christopher B. Leinberger in his book, The Option of Urbanism. One can see the trend easily when considering the lowest common denominator, television shows. “The media entertainment industry conducts more consumer research than probably any other industry” (Leinberger 86). In the 1950’s to the 1980’s shows such as Leave it to Beaver, The Brady Bunch, and Married with Children, exemplified how viewers wanted to “see themselves as living a drivable suburban life” (Leinberger 87). Today, Sex in the City, Friends, and Seinfeld, show that people would rather see themselves living in urban areas.
These television shows do not only express the physical location of our desires, but also the growing demographic trend of declining families. More people are single today than are married. Due to the social and economic costs of living without a partner, the future arena of singles are migrating to cities. In fact the typical suburban home is built for a family, not today’s growing singles class. This is dynamic because there is an exponential demand for singles housing in comparison to family housing. For each couple that breaks up, two units are needed. This exponent is compounded by another factor, rising costs of goods and services. For example, the average annual cost of a car in the United States in 1997 was $6,157 which requires approximately $8,400 of pre tax dollars (Kifer). Ten years later in 2007 the average cost was $9,498 requiring approximately $12,034 of pre-tax income (AAA). The increases of costs are more rapid than the increases in income. Clearly many Americans must be considering alternative forms living situations and means of transportation. Housing demand is reverting toward the pre-WWII design.
The New American Dream
Cities such as Mansfield and Southlake are not ignorant to these trends. In fact, Southlake was a leader in taking advantage of the progressive trend toward walkable urbanism by creating the Southlake Town Square (see picture below). Mansfield also has a similar plan on the drawing table called The Reserve. These projects are called new urbanism, walkable urbanism, and also are referred to as the New American Dream (Leinberger). Effectively the New American Dream will mitigate the aforesaid issues of social costs, explicit costs, and the uncertainty of the future.
Photo source: http://rpjaarchitects.com/
“The Reserve” would bring social activity to the homogeneous, low density suburb of Mansfield. The central downtown location will provide for recreational areas, churches, work, and other cohesive influences” indicative of a community (Keats, xvi). Residents with no automobile would be able to lead normal lives. Also, taking a walk will finally include a destination.
The time and energy that would have normally been spent in a painful commute could be dramatically reduced. This would also take the strain off of the existing infrastructure as people in general would take less trips with their automobile. In turn this decrease in the use of the transportation infrastructure would decrease environmental detriments indicative of building new streets and added traffic congestion.
The future viability of the new American Dream is also proven by the test of time. For thousands of years people have been living in an environment that can be best described as walkable urbanism. The suburban design has been used for only the past fifty years or about one - two percent of the total built environment’s history. The relationship between the social and economic forces of walkable urbanism is symbiotic. With changing demographics and trends, walkable urbanism will stand the test of time again.
Conclusion
Sprawl requires a city to extend its roads, water / sewer, schools, and emergency services to maintain an ocean of homes with no end in sight. These suburbs were created to provide Americans with their dream of home ownership, the “American Dream”. Over the past fifty years social costs, explicit costs, and an uncertain future have led people to reconsider the suburban design. The problems associated with suburban sprawl can be mitigated or eliminate by the New American Dream, walkable urbanism.
Works Cited
AAA.com. 2007 Edition. Behind the Numbers. September 19,2008. http://www.aaaexchange.com/Assets/Files/20073261133460.YourDrivingCosts%20%202007.pdf
Archer, Wayne R.. Ling, David. C.. Real Estate Principles: A Value Approach. New York: McGraw, 2008.
Citytowninfo.com. “Mansfield, Texas” September 19, 2008.
Keats, John. The Crack in the Picture Window. Boston: Houghton Mifflin, 1957.
Kifer, Ken. January 24, 2002 “Auto Costs Versus Bike Costs”. September 16, 2008. <>.
Leinberger, Christopher. The Option of Urbanism: Investing in a New American Dream. Washington, D.C.: Island Press, 2008
Mansfield, City of. “ City of Mansfield Homepage” 2008. September 18, 2008. <http://www.mansfield-tx.gov/efiles/Departments/Planning%20and%20%20Zoning/Reserve/Introduction%20and%20Creation%20of%20Sub-Districts.pdf>
Miles, Mike E. Berens, Gayle L. Eppli, Mark J. Weiss, Mark A.. Real Estate Development: Principles and Processes. Fourth Edition. Washington, D.C.: ULI, 2007.
RPGAArchitects.com. 2004. Homepage. September 13, 2008. http://search.msn.com/images/results.aspx?q=Southlake%09%09%09%09%20%20%20%20%20%20%20+Town+Square&FORM=BIRE#focal=c4a2fff796ff06a9b3cb6e684257c028&furl=http%3A%2F%2Fwww.rpgaarchitects.com%2Fimages%2Fprojects%2Fheaders%2Fsouthlake02.jpg
Squires, Gregory D. Urban Sprawl: Causes, Consequences & Policy Responses. Washington, D.C. Urban Institute Press, 2002.
Williams, Donald C. Urban Sprawl: A Reference Handbook. Santa Barbara: ABC-CLIO, 2000.
Bender, Matthew. Institute on Planning Zoning, and Eminent Domain. Dallas: Times Miller, 1987.
University of Texas at Austin. Urban Texas: A profile of Change and Diversity. Austin: UTA, 1998.
City of Arlington Brownfields Program
The City of Arlington wants to help you solve your environmental problems! Through the assistance of $400,000 in grant funding from the Environmental Protection Agency (EPA), the City can complete environmental site assessments and provide cleanup cost estimates and cleanup planning free of charge!
If you have a site that has environmental concerns, complete the City’s Application Form at http://www.arlingtontx.gov/planning/pdf/Brownfields/Application_&_Phase_II_Agreement.pdf and fax it to 817-459-6671, Attn: Lexin Murphy, or e-mail it to Lexin.Murphy@arlingtontx.gov. Please contact Lexin Murphy at 817-459-6657 with any questions or concerns. (Sites must be located within Arlington city limits.)
Thanks to Sharon for sharing this with us!
If you have a site that has environmental concerns, complete the City’s Application Form at http://www.arlingtontx.gov/planning/pdf/Brownfields/Application_&_Phase_II_Agreement.pdf and fax it to 817-459-6671, Attn: Lexin Murphy, or e-mail it to Lexin.Murphy@arlingtontx.gov. Please contact Lexin Murphy at 817-459-6657 with any questions or concerns. (Sites must be located within Arlington city limits.)
Thanks to Sharon for sharing this with us!
Tuesday, September 23, 2008
Job Opportunity at WindStar Properties
Windstar Properties511 E. John Carpenter Fwy, Ste 200
Irving, Texas 75062
REAL ESTATE RESEARCH ASSISTANT
POSITION AVAILABLE
DETAILS
Job Purpose: Support brokerage marketing operations Location: Irving, TX
by compiling, formatting and reporting
information and materials. Status: Full Time, Employee
Entry level position
Pay: $22,000+/year depending on experience, plus mileage.
Relevant Work Experience: 2+ years similar experience and/or related college real estate
course work completed.
Hours: 8:30am - 5:30pm Monday through Friday with some extended hours.
Duties:
Support sales presentations by assembling: quotations, proposals, videos, slide show
demonstrations, product capability booklets, and competitor analyses.
Design marketing brochures and packages by editing photos, graphics, and text content.
Produce and edit aerial and street maps of retail areas.
Maintain inventory and accuracy of marketing library (flyers, brochures, etc).
Research property ownership, retailer contacts, zoning, etc.
Update job knowledge by participating in educational opportunities.
Travel to retail sites to gather information, take property photos, display signage, etc.
Assemble consumer rating reports, area demographics, traffic counts, and other related
information.
Prepare internal property status reports.
Analyze various industry reports.
Software Skills: Word, Excel, Publisher, PowerPoint, Adobe Acrobat, Photoshop, Illustrator,
ACT!, SitesUSA/Regis.
General Office Skills: Reliable, Multi-tasker, Good Written and Oral Communication, Time
Management, Reliable Transportation, Attention to Detail, Good
Documentation Skills, Confidentiality, Multi-line phone, Copier/Scanner.
If interested, please submit
resume and cover letter via email
to Cynthia Bailey at
windstarjob@gmail.com.
NO CALLS PLEASE.
Graduation Requirement Reminder MSRE and CRED
Just a reminder about graduation requirements for the Master of Science in Real Estate (MSRE) and Certificate in Real Estate Development (CRED). You must maintain a 3.0 GPA and obtain 36-credit hours for the MSRE and 15-credit hours for the CRED (in addition, the 15-credit hours are in five specific courses). If you receive a grade of 'D' or lower in any course, you will not receive credit for that course toward graduation. You must retake the course.
Also, it is important to remember that you must 'sign' for graduation at the beginning of the semester that you intend to graduate. The Graduate Business School sends out reminders about the Signing Date so make sure they have a valid e-mail address for you.
Also, it is important to remember that you must 'sign' for graduation at the beginning of the semester that you intend to graduate. The Graduate Business School sends out reminders about the Signing Date so make sure they have a valid e-mail address for you.
Saturday, September 20, 2008
Ryan/Reilly Scholarship
Thanks to everyone who applied to this scholarship. The 2008/2009 Ryan/Reilly Scholarship was awarded to Mr. Yibing Du. Yibing's is a graduate student and also works for Nationwide as a credit analyst. Congratulations Yibing!
For more information on this Ryan/Reilly scholarship, please visit the REAE@UTA homepage (http://www.uta.edu/realestate - click on the link for the Ryan/Reilly scholarship). We have the funds available to award a 2009/2010 scholarship. Deadline is July 31st.
Also note, information for the CFA Level 1 University Scholarship can be found
at http://www.uta.edu/faculty/hansz
(scroll down to "Scholarships"). The Deadline for this scholarship is November
30th and this is for the CFA exam Level June exam only. Applications have
already been submitted and we are limited to 5 scholarships total.
For more information on this Ryan/Reilly scholarship, please visit the REAE@UTA homepage (http://www.uta.edu/realestate - click on the link for the Ryan/Reilly scholarship). We have the funds available to award a 2009/2010 scholarship. Deadline is July 31st.
Also note, information for the CFA Level 1 University Scholarship can be found
at http://www.uta.edu/faculty/hansz
(scroll down to "Scholarships"). The Deadline for this scholarship is November
30th and this is for the CFA exam Level June exam only. Applications have
already been submitted and we are limited to 5 scholarships total.
Friday, September 19, 2008
The Shorthorn - Today, page 1
REAE@UTA student gets story in UTA newspaper. Check out the story at http://www.theshorthorn.com/index.php?option=com_content&task=view&id=11840&Itemid=62. Congratulations Georgia!
Wednesday, September 17, 2008
Some timely student questions...
A student e-mailed some interesting questions last week. You do not need to agree, but I thought I would share the thoughts on our blog.
1.) How important is finance to the U.S./the world?
Very important. With the decline of defined benefit pension plans and the increase in defined contribution retirement plans, most people are relying on the financial markets for their retirement and general financial security. For most of us, how we manage our retirement investments and the return on these investment will dictate the quality of life we will have during retirement (or even if we can afford to retire).
2.) Has financed changed much over the years? How have events like the Iraq war and Sept. 11 changed finance?
Regarding your question about Sept 11 and the Iraq war, I am amazed at how well the financial markets stood up and bounced back from the September 11, 2001 terrorist attaches, especially considering the physical damage to Wall Street itself. I believe this is a sign of the strength and level of sophistication of the US financial markets. However, there are serious challenges today. Maybe even more challenging than the recovery from 911.
Finance has evolved and change tremendously over the decades. Take for example, residential real estate finance. The old model of residential real estate finance was depicted in the movie, It's a Wonderful Life, the Christmas classic starting James Stewart as George Bailey. George Bailey's job was managing a Savings and Loan (S & L). The original S & L financial institutions simply collected deposits from a local community and made residential mortgage loans to that same community. These old time S & L held the mortgages in-house and therefore needed to make 'good' loans or live with 'bad' loans.
Today we have a sophisticated secondary mortgage market that has its advantages, but also some disadvantages. Very quickly, the new model of real estate finance provides tremendous liquidity to the mortgage markets. Primary lenders, such as the remaining Savings and Loans and many other types now, can sell their mortgages to secondary market, most likely to Fannie Mae (FNMA). FNMA creates large mortgage 'pools' from primary lenders from across the country. FNMA then securitizes these mortgages making nice diversified mortgage investments for investors from around the world. Quiet different from the simple Bailey S & L model.
However, we are currently realizing some problems with this modern system. Because primary lenders are most often selling mortgages to the secondary mortgage market, and not holding these mortgage long term, primary lenders now have a big incentive to generate fees from mortgage originations and shift the risk of mortgage default (bad loans) to secondary mortgage market investors. We have originated a lot of bad loan over the last 10 to 20 years and we are paying the price. With changes and innovations comes new challenges.
I am concerned with the financial responsibilities that the US tax payers are taking on by bailing-out some of these companies, such as Bear Sterns, Fannie Mae, and Freddie Mac [now AIG too]. These bailouts will be a tremendous financial burden, present and future. Also, I am worried about the signals these decisions send. If we keep bailing out people who make bad investments or companies that make bad choices, there is no incentive to stop making bad investments and decisions. Do a deal, makes some money off fees, and if the deal goes well, everyone is happy. If the deal goes bad, not a problem-you get bailed out.
The Iraq War is also a financial strain on our economy but there could be future benefits, including economic, if there are improvements in this region. If chaos breakout in Iraq, we will loose the investment that we have already made and might be forced to reinvest here again in the future. Unfortunately, this issue is such a political hot button it is difficulty for most people to think about this objectively. From a financial perspective, I think we need to do the best that we can here. Especially considering the economic burdens we are taking on at home, I don't think we have a choice.
As opposed to Iraq, there are no foreseeable benefits to these bad loans and mortgage market bailouts, except for some managers, debt holders, and even some stockholders of these bailed-out companies (for example, FNMA preferred stockholders have not been bailed out yet but some are speculating that they will be in the future).
It is a shame. Despite the transparency, sophistication, and strength (especially in times of crisis like 911) of the US financial markets, it seems like we cannot avoid a major self-inflicted financial crisis about every 10-years or so. I attribute this perpetual problem to moral hazards and a little bit of human nature.
1.) How important is finance to the U.S./the world?
Very important. With the decline of defined benefit pension plans and the increase in defined contribution retirement plans, most people are relying on the financial markets for their retirement and general financial security. For most of us, how we manage our retirement investments and the return on these investment will dictate the quality of life we will have during retirement (or even if we can afford to retire).
2.) Has financed changed much over the years? How have events like the Iraq war and Sept. 11 changed finance?
Regarding your question about Sept 11 and the Iraq war, I am amazed at how well the financial markets stood up and bounced back from the September 11, 2001 terrorist attaches, especially considering the physical damage to Wall Street itself. I believe this is a sign of the strength and level of sophistication of the US financial markets. However, there are serious challenges today. Maybe even more challenging than the recovery from 911.
Finance has evolved and change tremendously over the decades. Take for example, residential real estate finance. The old model of residential real estate finance was depicted in the movie, It's a Wonderful Life, the Christmas classic starting James Stewart as George Bailey. George Bailey's job was managing a Savings and Loan (S & L). The original S & L financial institutions simply collected deposits from a local community and made residential mortgage loans to that same community. These old time S & L held the mortgages in-house and therefore needed to make 'good' loans or live with 'bad' loans.
Today we have a sophisticated secondary mortgage market that has its advantages, but also some disadvantages. Very quickly, the new model of real estate finance provides tremendous liquidity to the mortgage markets. Primary lenders, such as the remaining Savings and Loans and many other types now, can sell their mortgages to secondary market, most likely to Fannie Mae (FNMA). FNMA creates large mortgage 'pools' from primary lenders from across the country. FNMA then securitizes these mortgages making nice diversified mortgage investments for investors from around the world. Quiet different from the simple Bailey S & L model.
However, we are currently realizing some problems with this modern system. Because primary lenders are most often selling mortgages to the secondary mortgage market, and not holding these mortgage long term, primary lenders now have a big incentive to generate fees from mortgage originations and shift the risk of mortgage default (bad loans) to secondary mortgage market investors. We have originated a lot of bad loan over the last 10 to 20 years and we are paying the price. With changes and innovations comes new challenges.
I am concerned with the financial responsibilities that the US tax payers are taking on by bailing-out some of these companies, such as Bear Sterns, Fannie Mae, and Freddie Mac [now AIG too]. These bailouts will be a tremendous financial burden, present and future. Also, I am worried about the signals these decisions send. If we keep bailing out people who make bad investments or companies that make bad choices, there is no incentive to stop making bad investments and decisions. Do a deal, makes some money off fees, and if the deal goes well, everyone is happy. If the deal goes bad, not a problem-you get bailed out.
The Iraq War is also a financial strain on our economy but there could be future benefits, including economic, if there are improvements in this region. If chaos breakout in Iraq, we will loose the investment that we have already made and might be forced to reinvest here again in the future. Unfortunately, this issue is such a political hot button it is difficulty for most people to think about this objectively. From a financial perspective, I think we need to do the best that we can here. Especially considering the economic burdens we are taking on at home, I don't think we have a choice.
As opposed to Iraq, there are no foreseeable benefits to these bad loans and mortgage market bailouts, except for some managers, debt holders, and even some stockholders of these bailed-out companies (for example, FNMA preferred stockholders have not been bailed out yet but some are speculating that they will be in the future).
It is a shame. Despite the transparency, sophistication, and strength (especially in times of crisis like 911) of the US financial markets, it seems like we cannot avoid a major self-inflicted financial crisis about every 10-years or so. I attribute this perpetual problem to moral hazards and a little bit of human nature.
Tuesday, September 16, 2008
COBA Business Week: Cowboys Development Team
It is official, the Cowboy's Development Team will be the featured speakers during COBA Business Week this spring.
In case you haven't seen the new unnamed stadium lately, ESPN has some photos posted at http://sports.espn.go.com/espn/flash/zoomGallery?section=gen&photoGalleryId=3587812.
Who knows, maybe they will name the stadium at Business Week?
Monday, September 15, 2008
CB Richard Ellis report on the credit crisis
CB Richard Ellis has posted a special report on the credit crisis. You can access it at http://cbremarketing.com/ve/ZZ797068rj82BN74Cw65.
Friday, September 12, 2008
Former UTA REAE student sets-up shop near campus
Former REAE student, and blog member, Robert Ola opened his law practice near UTA campus on Abram. Robert did his BBA at UTA and completed his JD at Texas Tech. One of his specialties is real estate law.
Nice to see him back in Arlington! Check out his website at www.robertola.com.
Nice to see him back in Arlington! Check out his website at www.robertola.com.
Will my ______ (insert property type here) property value increase?
This is a common question and a question relevant to anyone who owns property. Unfortunately, this is not an easy question to answer.
There are so many variable and factors to focus on in any real estate market. We could looks that the relationship between property values and interest rates, vacancy rates, inflation rates, rental rates, regional output, etc… All of these factors are relevant.
If forced to narrow our answer to this question down to one factor, the key variable is most likely basic employment. If local basic employment is strong in the future, this is good for local real estate markets and property values. If prospects for local basic employment are weak or deteriorating, this is bad for local real estate markets and property values.
This is also why appraisers, market analysts, investors, developer, and lenders perform or commission market analyses before making decisions. A primary focus of an appraisal or market analysis should be basic employment that leads to economic forecasts for that local economic basis.
Although many other factors come in to play for any specific location, the easiest answer to the tough question above is as follows. If basic employment in your local economy and growing, yes, your property value is likely to increase. If basic employment in your local economy is declining, sorry, your property value is likely to decrease.
University Policy for Bad Weather
The University monitors weather conditions and will close if necessary. For updates on University closures please monitor the UTA homepage www.uta.edu.
If the University closes we cannot hold REAE classes. If the University is open, we will hold classes as scheduled. This applies to REAE class during the week as well as Saturday REAE classes.
If the University closes we cannot hold REAE classes. If the University is open, we will hold classes as scheduled. This applies to REAE class during the week as well as Saturday REAE classes.
Thursday, September 11, 2008
Steve Isbell and Rory Maguire Cited in Star Telegram
UTA real estate instructor Steve Isbell and MSRE program alum Rory Maguire were cited in a recent article on Metroplex retail development (see Star-Telegram 9/8/2008, C1). Steve, president of Strategic Equity & Investment of Colleyville, discusses one of his recent developments, Cross Creek shopping center at the intersection of New York Avenue and Green Oaks Boulevard (this property was also the subject of the appraisal projects from REAE 5334 Fall 2007).
Rory Maguire is an executive vice president of Realty Capital Partner in Colleyville and also a guest speaker last fall at UTA as part of the ULI UrbanPlan project. Rory was interviewed in regards to the availability of commercial development capital. Check it out!
Rory Maguire is an executive vice president of Realty Capital Partner in Colleyville and also a guest speaker last fall at UTA as part of the ULI UrbanPlan project. Rory was interviewed in regards to the availability of commercial development capital. Check it out!
Housing Affordability: Arlington #7
The Star Telegram (9/10/2008, C1) published a recent article summarizing a nationwide study of housing affordability by Coldwell Banker. Arlington was ranked number 7 with an average price of $143,775 for a 2,200 square foot, 2.5 bathroom house. Killeen, Texas was number 9 and Fort Worth was ranked 11th. The highest average price for a similar house was $1,841,667 in La Jolla, California.
Hopefully this get out to business owners looking to start-up or relocate businesses. Housing prices is a competitive advantage for Arlington.
Hopefully this get out to business owners looking to start-up or relocate businesses. Housing prices is a competitive advantage for Arlington.
Wednesday, September 10, 2008
SSRE Organizational Meeting - You are invited!
The Student Society of Real Estate (SSRE) will be having an organizational meeting on Tuesday, September 16th 6:00 to 6:45 PM in room 610 Business Building. Anyone with an interest is invited to attend!
Real estate majors and other UTA students are welcome to attend. Most of the SSRE officers have recently graduated or are graduating this semester. There are definitely leadership opportunities this year.
In the past, the SSRE has been a student created/run club that has brought speakers from the real estate industry to campus and has held social events. We have office space on the second floor of the business building and Dr. Hansz is the faculty advisor.
Real estate majors and other UTA students are welcome to attend. Most of the SSRE officers have recently graduated or are graduating this semester. There are definitely leadership opportunities this year.
In the past, the SSRE has been a student created/run club that has brought speakers from the real estate industry to campus and has held social events. We have office space on the second floor of the business building and Dr. Hansz is the faculty advisor.
Monday, September 8, 2008
Census Date 9/10/2008
The Census Date is September 10, 2008. From September 11 to October 31, any ADD/DROP slip must be signed by the instructor.
Job Opportunity
This notice came by blind e-mail from a professional recruiter but it might be a nice tip for a real estate student or recent graduate.
Job Order:
DM0614-001-1211
Title:
Portfolio Manager
Location:
Charlotte, NC
Summary:
Commercial real estate development firm seeks an entrepreneurial executive to effectively raise, manage and oversee the fund’s investment activity. Candidate must have REIT or Real Estate securities experience.
Responsibilities:
Evaluate/select investment strategies and sub-advisors, including development of annual investment plan.
Perform oversight/due-diligence on funds, including additions/replacements/fund substitutions.
Guide/manage funding and investment strategies/activities of the firm consistent with management-approved policies/guidelines.
Develop analytical models to measure portfolio performance and risk tolerance.
Lead marketing and sales programs to raise money for funds.
Development and presentation of marketing materials.
Experience:
Bachelor’s degree with 7-10+ years of portfolio management experience with strong knowledge of commercial real estate.
MBA or advanced degree preferred.
Proficiency in Excel, PowerPoint and Word.
Proficiency with real estate financial/cash flow modeling and/or asset valuation programs.
Proficiency with Argus.
Advanced professional designation (such as CFA) preferred.
Experience building/growing a business.
Seven to ten years+ industry experience.
Three to five years+ relevant experiences in an investment management capacity.
Real Estate/REIT background strongly preferred.
Strong communication skills (verbal and written)
Compensation:
Commensurate with experience
If you are interested in this opening, please email us a copy of your resume as an MS Word attachment.
Thank you,
Tom Wisner
BCI - Financial Services Recruiting
(312) 460-8222 x118
Tom@brokerageconsultants.com
www.bcius.com
Job Order:
DM0614-001-1211
Title:
Portfolio Manager
Location:
Charlotte, NC
Summary:
Commercial real estate development firm seeks an entrepreneurial executive to effectively raise, manage and oversee the fund’s investment activity. Candidate must have REIT or Real Estate securities experience.
Responsibilities:
Evaluate/select investment strategies and sub-advisors, including development of annual investment plan.
Perform oversight/due-diligence on funds, including additions/replacements/fund substitutions.
Guide/manage funding and investment strategies/activities of the firm consistent with management-approved policies/guidelines.
Develop analytical models to measure portfolio performance and risk tolerance.
Lead marketing and sales programs to raise money for funds.
Development and presentation of marketing materials.
Experience:
Bachelor’s degree with 7-10+ years of portfolio management experience with strong knowledge of commercial real estate.
MBA or advanced degree preferred.
Proficiency in Excel, PowerPoint and Word.
Proficiency with real estate financial/cash flow modeling and/or asset valuation programs.
Proficiency with Argus.
Advanced professional designation (such as CFA) preferred.
Experience building/growing a business.
Seven to ten years+ industry experience.
Three to five years+ relevant experiences in an investment management capacity.
Real Estate/REIT background strongly preferred.
Strong communication skills (verbal and written)
Compensation:
Commensurate with experience
If you are interested in this opening, please email us a copy of your resume as an MS Word attachment.
Thank you,
Tom Wisner
BCI - Financial Services Recruiting
(312) 460-8222 x118
Tom@brokerageconsultants.com
www.bcius.com
Competitive Advantages of Cities
Why do some cities seem to grow and thrive and other cities seem to decline in population and importance? This is a complicated question, but the answer should be related to a city’s competitive advantage. A competitive advantage is a feature of an urban area that is attractive to residents and businesses.
The US is a mobile society. Citizens have great freedom and flexibility to move to a neighboring city or state. This is a important benefit to our economy as workers and employers can relocate to find each other.
This mobility is not as apparent in other parts of the world. In Western Europe, for example, citizens have political freedom to move but nationalism, employment permits, and language barriers usually prevent an unemployed German worker from relocating to France to fill a job opportunity, and vice versa.
With the US population mobility, cities need a reason to attract and keep residents and businesses. The reason people and businesses migrate to and remain in a particular city is the city’s competitive advantage. Competitive advantages fall into a wide range of categories. We will review several typical competitive advantages.
Skilled and educated workforce A good labor force can certainly attract potential employers to an area. In the 1990s, Mack Truck moved some production operations from its headquarters in Pennsylvania to South Carolina. South Carolina offered a skilled and non-unionized labor force, and also relatively cheap land prices for its new facilities.
In today’s information-based economy, an educated labor force is important to many service and technology driven companies. These companies might choose to locate near universities for the access to prospective knowledge workers and academic research. This was certainly a factor in Michael Dell’s decision to locate Dell Computer in Austin, Texas, home to the University of Texas. Bill Gates selected Seattle, Washington as Microsoft’s headquarters in part because of the concentration of knowledge and technology workers in this region.
Natural resources Proximity to natural resources was an important competitive advantage when the US was primarily an industrial based economy. Cities like Pittsburgh, Pennsylvania were very important because of their proximity to coal. Coal fueled the blast furnaces used in steal production. As our economy transitioned from a manufacturing to an information-based economy, Pittsburgh had a difficult transition. Pittsburgh’s competitive advantage in steal production was no longer important and the city lost many factories and citizens. However, Pittsburgh was able to eventually transform its competitive advantage to education, medical, cultural, and entertainment activities, and Pittsburgh is doing well today.
Climate A warm, snow-less climate can be very appealing. Particularly with so many Americans, specifically the Baby Boomers, currently retiring, climate can be an important competitive advantage. In fact, there has been a general population trend for several decades of people moving from the northeast and the Rust Belt region to the south and the southwest, called the Sunbelt region. States like North and South Carolina, Georgia, Florida, Texas, Arizona, Nevada, and California have experienced population growth due to net migration.
Let’s also give some credit to a technological innovation for this trend too. This southern migration would not be possible without the invention and economical, widespread use of air conditioning. The Sunbelt cities definitely owe a thank-you to air conditioning. Imagine how popular Las Vegas and Phoenix would be without A/C.
Transportation Some cities have important transportation advantages. Our earliest colonial villages were settled because of their ports. On the East Coast, New York City, Baltimore, and Charleston still enjoy competitive advantages in shipping. The West Coast has important port cities San Diego, San Francisco, and Seattle.
Atlanta and Chicago are important terminuses for rail distribution. Today, these cities also have advantages in air transportations. (In fact, Florida retirees say you can’t go to heaven without passing through Atlanta’s Hartsfield International Airport.) Although Chicago or Atlanta airports usually hold the record for the busiest airports in terms of passengers, airports of Denver and Dallas Fort-Worth are close rivals in terms of traffic.
Denver and Dallas airports are located near the geographic center (good hub locations for National carriers) of the US and have plenty of room for expansion. These are the two largest airports in the country in terms of land area. Both of these airports will be become airport cities, cities within the airport itself, over the next 15-years.
Attitude and leadership Some cities encourage development and business growth where other cities are not aggressive in attracting new residents and may even put up barriers, such as high property taxes, to new residential and business relocation. Municipal leadership and a good chamber of commerce can be an important factor in attracting new residents and businesses in a competitive and mobile environment.
Once the competitive advantage of an area is identified, it is important to understand the future competitiveness of this current advantage. Will the competitive advantage persist? Will the nature of the general economy change? Some cities that thrived during the decades of the manufacturing-based economy have had difficult transitions into our newer information and service-based economy. To help address these questions, we need to define and discuss the concept of an economic base.
Wednesday, September 3, 2008
Profile - Johann Heinrich von Thünen
Von Thünen was born 1783 and died 1850. He was a German landowner and is credited with the first serious treatment of spatial economics, The Isolated State. The Von Thünen model of agricultural land use (the Thünen rings) and the concept of highest and best use are relevant today and important fundamental concepts in spatial, regional, and urban economics.
Monday, September 1, 2008
History of the World Over the Last 13,000 Years, in a Blog Post
This post was developed from the 1997 book titled Guns, Germs, and Steel by Jared Diamond. Subsequently, videos were produced based on this volume by the National Geographic Society and broadcasted by PBS in 2005.
Jared Diamond, professor of geography and physiology at University of California Los Angeles, won a Pulitzer Prize and the Aventis Prize for Best Science Book for his theory of societal evolution described in Guns, Germs, and Steel. We find from his book, which is summarized crudely in this post, that geography maybe the single most important factor in human history.
After studying the history of the world over the last 13,000 years, Dr. Diamond concluded that the roots of inequality and the fates of societies could be traced back ultimately to environmental and geographic factors. The reason that some societies have progressed and others remain as hunter/gather or agrarian is not due to differences in genetics, culture, or morality, but geography. See figure below (arrows in figure not visible but diagram flows from top to bottom with most important factor at the top).
Ultimate Factors
East-West Axis
(Geography)
Various Suitable Wild Animals Easy Movement of Animals
Numerous Domesticated Plants and Animals
Food Surplus and Storage
Large Complex Societies
Horses Technology Politics & writing Epidemics
Guns
Steel
Ships
Proximate Factors
From this diagram developed in the text, we can see that the ultimate factor in determining which societies developed proximate factors of horses, technology, politics and writing, and antibodies to major epidemics was geography. Let’s look briefly at each of these individual factors.
East-west Axis
East-west axis refers to the migration of humans, animals and vegetation. Climate, temperature and soil conditions are more similar when moving from east to west rather than north to south. Most domesticated animals and crops originated in the Fertile Crescent (Middle East) and migrated to the east (Asia) and to the west (Europe).
Farming developed in relatively few places independently and migrated on the same line of latitude. Wheat, barely, sheep, and goats spread from the Fertile Crescent to Europe and Asia.
Various Suitable Wild Animals
Plant and animal domestication provided food surpluses, a prerequisite for civilization development. For example, the inhabitants of the Fertile Crescent were the first to stored large quantities of wheat and barely in humidity controlled granaries. Many of history’s greatest empires have their roots in or near this area.
Domesticated animals provided meat, milk, fertilizers, and strength to pull plows. Diamond counted 148 wild plant eating terrestrial mammals over 100 pounds. These animals are the best candidates for domestication. However, only 14 of these animals have been domesticated for any length of time. 13 of the 14 domesticated animals originated in Asia, North Africa, or Europe. Only 1 0f 14 originated elsewhere, as the Llama is indigenous to South America.
Large Complex Societies
Food surpluses allowed for development of societies and specializations. Mesopotamia, Egypt, and China emerged in roughly the fourth millennium. Large complex societies also created epidemics, politics and writing, and technology.
Epidemics
Large sedentary populations created the conditions for wide spread epidemics, called crowd diseases. These diseases need large concentrated populations to sustain themselves and all major diseases have originated from animal genes. Animal microbes are passed on to humans all the time and some of these germs can cause serious diseases to humans.
Societies with domesticated animals have suffered from these epidemics but these populations have acquired defenses from these diseases due to the exposures. People in societies with no or few domesticated animals have not acquired any immunizations and have been devastated, and some wiped-out, when exposed to these germs.
Major epidemics in history:
Greece 400 BC Malaria & Mumps
Origin unclear 200 BC Leprosy
Europe 1350 Bubonic Plague
Vermont, USA 1894 Epidemic Polio
Africa 1959 AIDS
Politics and Writing
Writing developed relatively late in human history and developed separately in the Fertile Crescent, China, and Mexico. These societies already had complex political systems, but writing allowed for record keeping and propaganda dissemination. All societies that subsequently developed writing were influenced by these early systems.
Technology
Population growth fostered the development of specializations and technologies. Freed from burdens of hunting, gathering, and farming, some members of societies could focus on creating and inventing items that could improve their lives (we referred to this as ‘engineering’ today) and could barter for food. As an example, early homebuilders constructed sophisticated housing over 9,000 years ago.
Ships, Horses, Steel Swords, and Guns
Geographic advantages that resulted in productive farming and ranching led to the development of ships, steel swords, and guns. Horses and ships led to superior mobility and colonization. Steel swords and guns provided lethal firepower and led to decisive military victories by Europeans over Native Americans (Incas and Aztecs) and the conquerors’ germs decimated these indigenous populations.
Now most of us in real estate do not have the luxury of thinking strategically over thousands of years in terms of our investment, lending, and development decisions. Typical investment holding periods assumptions range from one to twenty years. Furthermore, most real estate investors and portfolio managers probably can't think too far past the next mortgage payment or fiscal quarter, let alone the next century or millennium. However, the histories of civilizations highlight the importance of geography and demonstrate how seemingly small, small at a particular moment in time, location advantages resulted in the fall or rise of an entire society. This of course is a very macro perspective, but any time period you evaluate (could be a single battle in a war or the effective life of a strip shopping center), you will find the importance of location, location, location.
Dr. Diamond studied history over the last 13,000 years to explain the state of current society. What if Dr. Diamond was around to write a sequel to Guns, Germs, and Steel 13,000 years from today? What would be the title of part II?
I am afraid that germs would be the one constant proximate factor as the earth’s population grows and we continue to battle epidemics today (AIDS for example). Technology would likely be included in the title but probably represented by a more contemporary form than guns or steel. A future title might include references to ‘information’ and 'energy,' but I bet geography would still be an ultimate factor. Just a little something to think about.
Subscribe to:
Posts (Atom)