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Many commercial real estate investors are reeling right now from miscalculations made in past years about what the future would hold in commercial real estate. Senior-living developers are working on innovative solutions to turn struggling communities that were predicted to fill with baby-boomers into viable businesses (read that article here), and while everyone agrees that a double-dip is unlikely, many commercial analysts are having trouble determining just when the market will overcome high unemployment and massive uncertainty to really bounce back. So it’s not particularly surprising that a niche of commercial investing that offers “recession resistant” payoffs and may actually grow in the face of budget cuts is starting to gain attention[1]. This specialized area of growth will not work for every city, but its proponents recommend getting in where you can because student housing is the next big thing in commercial real estate.

Here are several trends that Charlotte-based real estate developer Ted Rollins, who owns Campus Crest, a now-public company generating strong results ($382 million in the initial public offering), believes indicate that student housing is a great way to stay involved in commercial real estate and in new construction during difficult times:

1. College enrollment is up and off-campus housing is still relatively new. The National Multi Housing Council (NMHC) called the business “recession-resistant.”

2. Campus Crest communities reported in a recent op-ed piece in the Coloradoan that occupancy is right around 90 percent in its existing communities[2].

3. More foreigners are enrolling in U.S. universities, which increases the need for student housing.

4. Students are taking longer to graduate, increasing the need for student housing.

5. Budget cuts are likely to compel states to turn to private developers in order to create adequate volumes of student housing.

Of course, Campus Crest is just one developer, and admittedly they have faced some serious criticism for the way that they lease and run their operations and apartment complexes. However, regardless of this particular developer’s issues (which Rollins adamantly contests), the argument for student housing is looking good. Is this an area in which you would be interested in investing?

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[1] http://www.kansascity.com/2011/02/17/2662014/student-housing-developer-flourishes.html

[2] http://www.coloradoan.com/article/20110217/OPINION04/102170336

Oregon’s legislature must be fed up with all the brouhaha surrounding mortgage assignments because Senate Bill 663 in that state would prohibit “the sale, assignment, conveyance or transfer of the loan or right or obligation to service the loan” for five full years after the closing date[1]. The Oregon Senate Committee on General Government, Consumer and Small Business Protection sponsored the bill. Not surprisingly, this extreme proposal has elicited some extreme responses, and many fear that if it passes, it would decimate the Oregon economy. Bill 663 would effectively tie lenders’ hands once they had made their initial quota of loans because they would be unable to move portfolios, and Andy W. Harris, president of Oregon’s Association of Mortgage Professionals (OAMP), plans to lobby against the bill aggressively. “This bill would devastate our Oregon economy, housing, consumers and small business,” he said yesterday.

Do you think that this type of regulation on the mortgage market could be a good thing for Oregon or another state? How would this impact your investing, or would it impact you at all as a commercial investor?

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[1] http://nationalmortgageprofessional.com/news23680/oregon-small-business-protection-committee-bill-could-eliminate-non-servicing-mortgage-lenders

An historic structure in Detroit will now take on new historic significance as its new owner combines two popular forms of commercial real estate in one building: senior housing and a luxury hotel[1]. Mike Roberts, CEO of St. Louis’ Robert Companies, believes that his initial and groundbreaking entry into the Detroit market in the former riverfront Omni Hotel will be successful because it combines cash-flow consistency with the higher volume of profits possible in a hotel. “The senior residence side of things will give us a consistency in cash flow and income,” he explained, while “we’re running a much smaller hotel.”

Roberts plans for the hotel to be an “upscale, boutique property” operating in conjunction with a high-end senior living property. According to Stephanie Donaldson, the residential manager to-be, seniors are attracted to living environments where they can “interact with a younger population” and “be around people of all ages.” This unusual approach could be the answer to a problem plaguing existing senior living communities right now. Many homebuilders are not particularly confident in the “mature-market real estate sector” at this time because baby boomers, who were expected to flood the senior living market, are opting to stay in their homes due to a loss in equity[2]. As a result, the plethora of senior residences constructed in the past five to ten years could stand empty unless they have something to attract seniors and other sources of cash flow. Roberts’ hotel/senior living combo could represent an attractive solution.

Rates have not been set yet, but will likely start around $2,000 per month. Seniors will have access to all hotel amenities and volunteer opportunities through hotel-sponsored charities to work with children and within the community. Critics of this model believe that “market confusion” could prevent either or both facets of the property from functioning properly. Would you move into or invest in this type of residence?

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[1] http://www.crainsdetroit.com/article/20110213/SUB01/302139975/former-omni-to-combine-hotel-senior-housing#

[2] http://www.upack.com/press/article/senior-housing-market-viewed-as-weak-among-homebuilders-800404081

In an effort to make up for mistakes on military foreclosures, JP Morgan Chase announced yesterday that it is going to “significantly enhance its programs to help military and veteran customers”[1]. In a statement from Jamie Dimon, the company’s chairman and chief executive, the lender expressed regret for “the mistakes we made on military foreclosures,” calling the incidents a “painful aberration on [our] track record [of honoring military and veterans].” The lender admitted before a congressional committee last week that they foreclosed on homes of active-duty personnel who should have been exempt from foreclosure under the Service Members Civil Relief Act (SCRA)[2]. The bank also charged some armed forces personnel interest rates of more than 6 percent, which is in violation of the act also. The violations affected some 4,500 service members, 18 of which lost their homes. $2 million has been dedicated to paying back over-charged military members, and Chase is rescinding sales of foreclosed homes not already sold and forgiving the remaining mortgage debt on those homes.

As part of its initiative to demonstrate commitment to the U.S. military, Chase has also announced new programs to “begin a new way forward with the military and veteran community.” Programs include initiatives to keep rates for military members on active duty low and a special military modification program that will exceed HAMP requirements and could lower rates on second mortgages as low as one percent. Furthermore, Chase will no longer foreclose on “any currently deployed active military personnel.” Lenders are only required by SCRA to forebear from foreclosure if military borrowers took out loans prior to going on active duty. As part of its new military outreach program, JPMorgan Chase will also donate 1,000 homes to military members and veterans over the next five years, host 10 borrower outreach events near large military bases and open five new Chase Homeownership Centers near large military bases.

Officially, Chase blamed internal breakdowns for the problematic foreclosures, but former employees of foreclosure law firms have testified that military checks are sometimes falsified in order to take advantage of active-duty loan perks and privileges. During hearings on the subject, industry leaders suggested that Chase’s problems were not unique to that lender, but likely industry-wide and one employee of a Florida foreclosure law firm claimed to have been fired after refusing to fake military checks.

Our military deserves our support every step of the way and Chase clearly violated existing laws and regulations governing how military families and their mortgages are handled. Do you think that these new programs make up for the transgressions?

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[1] http://nationalmortgageprofessional.com/news23648/jpmorgan-chase-announces-new-programs-military-and-veterans

[2] http://www.palmbeachpost.com/money/foreclosures/jpmorgan-chase-vows-to-fix-mistakes-on-military-1257148.html

In Illinois, tax lien auctions will now be taped as part of an initiative to “guarantee fairness” at local tax auctions. The bill, proposed by state senator Bill Haine, includes legislation to require that all tax sales be videotaped and that will prevent bidding from culminating in a tie[1]. Illinois auctions have faced scrutiny recently due to practices that allegedly “discouraged free bidding at lower rates.” Lawmakers are concerned that there is no policy in place permitting auctions to be reviewed, and believe that the mandatory tapings could help resolve the issue.

The impetus for the bill is a controversial investigative report by the Bellville News-Democrat that alleged that a former county treasurer was conducting tax auctions in such a way that liens could be arbitrarily awarded to bidders at higher interest rates than might have been appropriate[2]. In Illinois, bidders “bid down” the interest rate on the liens and the lowest bidder gets the lien. However, in Madison County, Fred Bathon allegedly was simply starting the bidding and then awarding liens to whomever appeared to have shouted out “18 percent! [the max interest charged in Illinois on tax liens]” first.

Interestingly, in addition to increasing transparency of the process through taping, the new legislation allows for taxes to be “forfeited” if there is a tie between two bidders.

Do you think that this is a good bill or should the Madison County case be handled individually rather than through statewide legislation?

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[1] http://www.bnd.com/2011/02/11/1586935/legislation-seeks-to-tighten-up.html

[2] http://www.bnd.com/2011/02/10/1585369/reporters-to-receive-award-for.html

Self storage has been quietly growing on the commercial real estate scene for some time, but while many retailers and office-space tenants spend a lot of time thinking about how to invest in green commercial properties, until now self storage has slipped largely under the radar. After all, just how much energy does a building full of stuff that is, for the most part, unused by living tenants, really consume? Turns out, quite a lot. In fact, climate-controlled self storage can really burn through electricity and in locations like Florida, which experienced “record high temperatures all summer long in 2010,” lowering energy costs can dramatically increase self-storage related profits according to one property owner in Florida [1]. In Arkansas, one storage company has seriously stepped up “its energy-efficiency game with spray foam insulation, reflective roofing and tightly controlled ventilation technology”[2]. The owners of the unit hope not only to cut energy costs but also to eliminate as much as 40 percent of the building’s radiant energy, which will cut the costs of controlling temperatures in the building.

By lowering the operating costs of self storage, owners have the ability to compete more effectively in the self storage market by lowering prices or by remaining even with other competitors but collecting more profits each month. Also, green self storage is likely to appeal to renters because it is better for the environment. Do you own self storage buildings? Do you think that this could be a potentially good way to improve your operating costs?

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[1] http://www.smartcool.net/media/news-releases/104-news-releases-2011/353-smartcool-cuts-electricity-costs-for-florida-self-storage-facilities

[2] http://sprayfoam.com/npps/story.cfm?nppage=670

While “hardest hit” areas like Phoenix and Las Vegas still dominate media coverage of the housing market doldrums, around the country markets previously considered to be “stable” despite the crash are starting to cave. This “new wave of distress” is probably not surprising to residents of these areas who may have been experiencing low prices, high foreclosure inventories and difficulties selling for some time, but many “outside” analysts who believed that “economically diversified cities” would emerge relatively unscathed are finding themselves to be painfully incorrect[1]. According to a report from the New York Times, last year Seattle home prices declined more than those in Las Vegas, and Atlanta home prices declined more than Phoenix.

“Bubble markets” like Phoenix and Vegas may have fallen harder and faster overall because “builders and banks ran wild.” However, they may be slowing just in time for other markets that appeared to be more stable to start catching up. According to calculations by Zillow, Seattle home prices, for example, could fall as much as an additional 10 percent in the coming year. Government tax credits may actually have prolonged the pain because they artificially stimulated markets and made a recovery appear to be imminent when, in fact, the markets were simply not ready to recover yet. “We went into 2010 feeling gangbusters, thanks to Uncle Sam,” explained Zillow’s chief economist Stan Humphries. “We ended it feeling penniless, with home values tanking.” According to a report by Zillow earlier in the month, 34 percent of Seattle homeowners were underwater on their mortgages at the end of 2010[2].

With mortgage application volumes falling[3] and government-controlled Fannie Mae and Freddie Mac being phased out in the coming months, 2011 looks to be a year of uncertainty for the housing market for many areas instead of the beginning of a recovery. Many experts and real estate investors are adjusting to this change by placing heavier emphasis on a property’s current income potential (e.g. how much rent it brings in each month or how much cash it will generate in short order when it is resold) rather than on its appreciation potential, since no one knows what the future will bring in that regard. How have you adjusted your investing strategies to the new housing market in America?

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[1] http://www.nytimes.com/2011/02/14/business/economy/14dip.html?src=busln

[2] http://www.kirotv.com/news/26795616/detail.html

[3] http://www.bloomberg.com/news/2011-02-09/mortgage-applications-in-u-s-fell-last-week-as-costs-rose.html

According to the Chairman of the Board of the Miami Association of Realtors (MAR), there is nothing like an unusually harsh winter season to send South Florida’s home sales soaring[1]. “There is solid demand for local properties…as we see increased interest from U.S. buyers looking for moderate weather and an exciting lifestyle,” Jack Levine said of Miami’s climbing home sales. In the fourth quarter of 2010 sales of homes and condominiums together increased 29 percent compared to a year prior, giving Miami 10 consecutive quarters of increasing sales. Wintery weather throughout the country in January likely gave the Miami market even more excitement, and Levine believes that international buyers will also continue to be active in the market thanks to “increased affordability enhanced by the weak U.S. dollar and world-class ambiance and amenities.”

However, while sales are up, prices are down. According to Zillow, now is an even better time to buy in Miami than a year ago, as prices in December 2010 were actually 7 percent lower in the area than they were the same month in 2009[2]. However, realtors’ associations have their traditional high hopes, with the MAR’s Residential President, Ralph DeMartino, observing that “as excessive distressed inventory is absorbed in Miami, we expect home prices to strengthen”[3]. The inventory in the area has decreased 9.5 percent from the third quarter of 2010, which is a pretty significant drop given that it had fallen less than 2 percent in the quarters prior. Based on these numbers, it should come as no surprise if you hear “Let it snow, let it snow, let it snow,” being caroled in Miami ‘til May.

Would you make a buying decision based on weather?

Are you investing in South Florida?

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[1] http://www.realestatechannel.com/us-markets/residential-real-estate-1/miami-home-sales-miami-condo-sales-miami-association-of-realtors-southeast-florida-multiple-listing-service-miami-home-foreclosures-winter-weather-3877.php

[2] http://finance.fortune.cnn.com/2011/02/10/miami-cuts-the-weather-a-break/

[3] http://www.prweb.com/releases/miami/real-estate/prweb8128925.htm

Bidding at a real estate auction can be complicated and intimidating, but it becomes even more so – and actually frightens a lot of would-be investors off entirely – when the issue of bid-rigging comes into play. A major issue in today’s real estate auction arena is that of “bidding rings” or “clubs” of bidders who all agree ahead of time to put competition aside until the auction is over in order to keep prices artificially low. At first, this might seem harmless. After all, if businesspeople get together and work out an arrangement ahead of time to avoid competition, that is just foresight, right? Well, although it can be, but in many cases it is more simply fraud.

When a bidding ring works at an auction, bidders decide ahead of time who is going to bid on the properties on the block. Once the properties are won and purchased, they are entered in a secondary, private auction. Ultimately, most – if not everyone – involved walks away a winner because the properties go for less than they would have on the “open” block and the designated bidders make a bundle on the second auction since they paid artificially low prices on the original properties. In some cases, these “clubs” actually divide the profits up to make membership more worthwhile.

Whether it seems fair or not, the Department of Justice says “not.” In fact, this type of rigged bidding violates the Sherman Antitrust Act and people have been charged and convicted for this type of behavior.

Have you ever encountered this issue? How did you deal with it as an investor?

Please leave your questions and comments below.

While many advocates’ groups in Detroit, Michigan are currently engaged in trying to keep real estate investors who purchase large volumes of property in tax lien sales out of the city and preferably away from the auctioneer, Wayne County commissioners endorsed a plan yesterday that is a little more investor-friendly than many of the recent proposals. Under the proposed legislation, any individual or company whose property taxes are more than two years behind cannot participate in tax auctions[1]. Bernard Parker, commissioner who proposed the ban, says that he hopes that this will “stop speculators who are buying property with no intent to maintain the property or pay the taxes” without interfering with the real estate investors who are buying in good faith. “I have no problem with someone taking a chance to make money,” said Parker.

Critics of the plan argue that tax delinquents can simply create a new company and continue to buy property in the area. However, the strategy does allow for investors buying in good faith to continue to inject needed housing stimulus into the area. Do you think this is a good compromise for Wayne County, or are more aggressive measures needed?

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[1] http://www.freep.com/article/20110209/NEWS01/102090386/Wayne-County-Commission-panel-bans-tax-delinquents-from-house-sales