International real estate shoppers eye Florida

Posted By KERRI PANCHUK On January 30, 2012 @ 3:11 pm | No Comments

Florida attracted the most attention from international home shoppers who visited the Point2Homes consumer real estate listings portal for information on U.S. real estate in the fourth quarter.

The San Diego-based firm released its U.S. International Real Estate Traffic Report for Q4, which shows Florida ranked first in the nation when it comes to its popularity among international investors.

The state attracted 31% of all international traffic to its site, while Arizona came in second, drawing 19.44% of the site’s international traffic.

The state of Nevada ranked third after seeing its share of foreign-based traffic edge up to 8.61%, compared to 8.22% the previous quarter.

As for where the international travelers were coming from, Point2 said Canadian traffic generated the highest number of online visits. About 93% of Canadian visitors scoped out properties in Arizona, while 78% looked at homes in Hawaii and 74% reviewed homes listed in Michigan.

The United Kingdom and Mexico ranked second and third, respectively, in terms of international traffic numbers.

Write to Kerri Panchuk ^[1].

The Coming Tech-led Boom

Three breakthroughs are poised to transform this century as much as telephony and electricity did the last.

By MARK P. MILLS AND JULIO M. OTTINO

In January 1912, the United States emerged from a two-year recession. Nineteen more followed—along with a century of phenomenal economic growth. Americans in real terms are 700% wealthier today.

In hindsight it seems obvious that emerging technologies circa 1912—electrification, telephony, the dawn of the automobile age, the invention of stainless steel and the radio amplifier—would foster such growth. Yet even knowledgeable contemporary observers failed to grasp their transformational power.

In January 2012, we sit again on the cusp of three grand technological transformations with the potential to rival that of the past century. All find their epicenters in America: big data, smart manufacturing and the wireless revolution.

Information technology has entered a big-data era. Processing power and data storage are virtually free. A hand-held device, the iPhone, has computing power that shames the 1970s-era IBM mainframe. The Internet is evolving into the “cloud”—a network of thousands of data centers any one of which makes a 1990 supercomputer look antediluvian. From social media to medical revolutions anchored in metadata analyses, wherein astronomical feats of data crunching enable heretofore unimaginable services and businesses, we are on the cusp of unimaginable new markets.

Corbis

The second transformation? Smart manufacturing. This is the first structural shift since Henry Ford launched the economic power of “mass production.” While we see evidence already in automation and information systems applied to supply-chain management, we are just entering an era where the very fabrication of physical things is revolutionized by emerging materials science. Engineers will soon design and build from the molecular level, optimizing features and even creating new materials, radically improving quality and reducing waste.

Devices and products are already appearing based on computationally engineered materials that literally did not exist a few years ago: novel metal alloys, graphene instead of silicon transistors (graphene and carbon enable a radically new class of electronic and structural materials), and meta-materials that possess properties not possible in nature; e.g., rendering an object invisible—speculation about which received understandable recent publicity.

This era of new materials will be economically explosive when combined with 3-D printing, also known as direct-digital manufacturing—literally “printing” parts and devices using computational power, lasers and basic powdered metals and plastics. Already emerging are printed parts for high-value applications like patient-specific implants for hip joints or teeth, or lighter and stronger aircraft parts. Then one day, the Holy Grail: “desktop” printing of entire final products from wheels to even washing machines.

The era of near-perfect computational design and production will unleash as big a change in how we make things as the agricultural revolution did in how we grew things. And it will be defined by high talent not cheap labor.

Finally, there is the unfolding communications revolution where soon most humans on the planet will be connected wirelessly. Never before have a billion people—soon billions more—been able to communicate, socialize and trade in real time.

The implications of the radical collapse in the cost of wireless connectivity are as big as those following the dawn of telegraphy/telephony. Coupled with the cloud, the wireless world provides cheap connectivity, information and processing power to nearly everyone, everywhere. This introduces both rapid change—e.g., the Arab Spring—and great opportunity. Again, both the launch and epicenter of this technology reside in America.

Few deny that technology fuels economic growth as well as both social and lifestyle progress, the latter largely seen in health and environmental metrics. But consider three features that most define America, and that are essential for unleashing the promises of technological change: our youthful demographics, dynamic culture and diverse educational system.

First, demographics. By 2020, America will be younger than both China and the euro zone, if the latter still exists. Youth brings more than a base of workers and taxpayers; it brings the ineluctable energy that propels everything. Amplified and leavened by the experience of their elders, youth and economic scale (the U.S. is still the world’s largest economy) are not to be underestimated, especially in the context of the other two great forces: our culture and educational system.

The American culture is particularly suited to times of tumult and challenge. Culture cannot be changed or copied overnight; it is a feature of a people that has, to use a physics term, high inertia. Ours is distinguished by incontrovertibly powerful features, namely open-mindedness, risk-taking, hard work, playfulness, and, critical for nascent new ideas, a healthy dose of anti-establishment thinking. Where else could an Apple or a Steve Jobs have emerged?

Then there’s our educational system, often criticized as inadequate to global challenges. But American higher education eludes simple statistical measures since its most salient features are flexibility and diversity of educational philosophies, curricula and the professoriate. There is a dizzying range of approaches in American universities and colleges. Good. One size definitely does not fit all for students or the future.

We should also remember that more than half of the world’s top 100 universities remain in America, a fact underscored by soaring foreign enrollments. Yes, other nations have fine universities, and many more will emerge over time. But again the epicenter remains here.

What should our politicians do to help usher in this new era of entrepreneurial growth? Liquid financial markets, sensible tax and immigration policy, and balanced regulations will allow the next boom to flourish. But the essential fuel is innovation. The promise resides in the tectonic technological shifts under way.

America’s success isn’t preordained. But the technological innovations circa 2012 are profound. They will engender sweeping changes to our society and our economy. All the forces are in place. It’s just a matter of when.

Mr. Mills, a physicist and founder of the Digital Power Group, writes the Forbes Energy Intelligence column. Mr. Ottino is dean of the McCormick School of Engineering and Applied Sciences at Northwestern University.

Dodd-Frank in One Graph

National REO rental program becoming “most popular idea”

Posted By JACOB GAFFNEY On January 24, 2012 @ 5:49 pm | No Comments

Support for a government-led program to rent out foreclosed Fannie Mae, Freddie Mac and Federal Housing Administration homes is the most popular disposition strategy among panelists at the American Securitization Forum.

It’s the most popular, they say, because it works best for mortgage finance and macroeconomic fundamentals. This is a positive development for the long-strained relationship between federal regulators and the mortgage finance industry.

“Unless you have a 30% down payment or a 20% down payment or qualify for FHA, you can’t get mortgage financing,” said Vincent Fiorillo, portfolio manager at DoubleLine Capital, who said home ownership is “trending downward” due to restrictive credit conditions.

“We need a national program, you can’t do individual trades on 3 million houses,” he said.

The Federal Housing Finance Agency appears more willing ^[1] to provide an REO rental program.

According to moderator Christopher DiAngelo, partner at Katten Muchin Rosenman, the foreclosure pipeline could add a million new REOs in this year and another million in 2013.

These properties should not enter into the for-sale market, warned Gary Acosta, co-CEO of New Vista Asset Management. “The feeling in the government is that if the floodgates open it would exacerbate the weakness in the market,” Acosta said. “This is a way to reduce supply in the marketplace and stimulate demand.”

But not everyone is convinced. Paul Willen, senior economist and policy adviser at the Federal Reserve Bank of Boston, provided some skepticism.

“I’m challenging the idea that the problem is coming. The problem is already here,” he said. “If we limit principal reduction to prevent sales, we will get a lot more foreclosures. Negative equity keeps far more properties off the market than puts it on the market.”

“I’m not inherently opposed to an REO rental program, but putting properties into rental pools doesn’t take it off the market,” Willen added. “Why buy if you can rent for cheap?”

Write to Jacob Gaffney ^[2].

Follow him on Twitter @jacobgaffney ^[3]

FHFA begins development of new REO pilot programs

Posted By JON PRIOR On December 1, 2011 @ 10:33 am | 3 Comments

The Federal Housing Finance Agency said it has begun to develop new pilot programs to more efficiently unload foreclosed homes held by Fannie Mae and Freddie Mac.

The agency received more than 4,000 submissions to its request for information sent to the housing industry ^[1] in August. Fannie Mae currently owns 122,616 properties, while Freddie holds 59,616 as of the end of the third quarter.

“FHFA is proceeding prudently but with a sense of urgency to lay the groundwork for the development of good initial pilot transactions,” the agency said in a response summary this week. No timeline for when a program would launch was given.

The FHFA is also sharing the responses with other government agencies, including the Treasury Department and the Department of Housing and Urban Development.

Federal officials expected new ideas for how to rent out these properties and they were not disappointed. Most of the submissions, the FHFA said, involved renting these properties for different periods of time. Others even suggested that in some cases the homes should just be demolished if it is too expensive to rehabilitate the property and resell it.

As for selling these properties in bulk, respondents stressed the need for the government to screen any partners it works with.

Some provided recommendations for specific geographies, while others took a nationwide approach, the FHFA said.

Based on some of the agency’s language, it seems to be leaning toward developing new financing tools for those who want to buy these properties.

“There is also broad agreement that ‘seller financing’ provided or guaranteed by Fannie Mae, Freddie Mac, or the government is likely important to execute large-scale transactions, at least in the early stages of a disposition program,” the FHFA said.

Financing for investment firms could also be available. Many of the respondents said only a few participants are capable of managing REO rental conversions, for example. If the FHFA assures these investors that a steady of flow of new properties would be available, most would begin building more capacity to do so.

“Availability of attractive financing will encourage that investment,” the FHFA said. “As more firms develop the capacity to participate, competition will increase, resulting in higher bids and reducing the need for financing assistance.”

Nonprofits and trade groups stressed the importance of documenting any partnership with an investor to make sure these neighborhoods are maintained and begin recovery after the REO is sold. Most want documentation to ensure investors with poor management histories do not have access to bulk transactions. Many respondents requested standards for evaluating if an investor has the ability to properly rehab and maintain any REO it buys from the GSEs.

A group of 33 Senators sent a letter ^[2] to top regulators in October asking for the FHFA to adopt new programs as quickly as possible to help alleviate the housing system overwhelmed with too much inventory.

“Based on the input of responders, we understand the magnitude of the task at hand,” the FHFA said Thursday.

Write to Jon Prior ^[3].

Follow him on Twitter @JonAPrior ^[4].

FHFA targets first bulk REO deals in early 2012

Posted By JON PRIOR On January 9, 2012 @ 1:19 pm | 2 Comments

The federal government is still cautiously moving forward with a plan to offer previously foreclosed properties in bulk starting in early 2012, according to the Federal Housing Finance Agency.

In August, federal agencies sent a request for information ^[1] to the housing industry as it began to develop a new plan for managing the amount of homes repossessed during the foreclosure crisis.

As of the end of the third quarter, the Department of Housing and Urban Development held more than 40,000 homes repossessed through foreclosure, or REO. Fannie Mae and Freddie Mac owned more than 180,000 REO properties at the end of the third quarter combined, according to their financial filings.

“FHFA is proceeding prudently but with a sense of urgency to lay the groundwork for the development of good initial transactions in early 2012,” in regards to agency REO, an FHFA spokesperson said in a statement to HousingWire Monday.

CNBC reported ^[2] Monday that plans for pilot programs were imminent, but no agency could confirm any pending announcement.

FHFA Acting Director Edward DeMarco has long said any plan would be structured for local markets and would be implemented in cautious stages so as not to disrupt a very fragile housing sector.

In the fall of last year, Senators pressed ^[3] the White House to move more swiftly. Within the last week, some on the Federal Reserve board of governors called ^[4] for federal agencies to be more proactive on a still struggling housing market. Fed Chairman Ben Bernanke suggested ^[5] in a recent white paper that the government take a role in renting, or otherwise liquidating to a third party, many of these properties.

Some aren’t so taken with the idea. Analysts at Fitch Ratings said in a note Monday that such a program would face many operational challenges.

“A direct rental program could be an undertaking of some magnitude and cost for an REO holder due to the staffing and property management demands associated with large-scale property rental programs,” Fitch said. “While a third-party sales program could minimize these direct costs, an investor’s ability to secure financing and the lower bids for bulk REO present a different set of challenges.”

Nonetheless, if such a program is implemented appropriately, “we believe these recommendations could be a net positive for private-label RMBS because they would primarily reduce distressed housing inventory and some could lessen the downward pressure on prices,” wrote Fitch analyst Rob Rowan in a note to clients.

Write to Jon Prior ^[6].

Follow him on Twitter @JonAPrior ^[7].

Anxiety Mounts Over Maturing Real Estate Loans

 

Richard Perry/The New York Times

Vornado Realty Trust is in the market to refinance the $232 million loan maturing on the Manhattan Mall.

By JULIE SATOW

Published: January 24, 2012

Borrowers and lenders are starting to grapple with the billions of dollars in commercial real estate loans made during the boom year of 2007 that are coming due this year, in a greatly contracted economy.

Multimedia

Graphic

Top 10 New York Commercial Mortgage Deals Maturing in 2012.

Experts have warned of a rash of recapitalizations, refinancings and building sales. In New York City alone, nearly $70 billion worth of commercial mortgages that were bundled together and issued as collateral for bonds are maturing this year. Of those, $26 billion, or 37.4 percent, are five-year loans that were originated during the height of the real estate bubble, when underwriting standards were loosest, according to data from the research firm Trepp LLC.

These include loans on prominent properties, including the Manhattan Mall, with $232 million maturing, and the Jumeirah Essex House, with a $180 million loan, according to Trepp.

“These loans are going to have the hardest time being refinanced since they were underwritten when property values and revenues were far higher,” said Thomas A. Fink, a managing director at Trepp. “We are going to see a wave of loans maturing this year, then again in 2014 and 2017, when the 7- and 10-year deals underwritten during the bubble mature.”

Most large commercial mortgage loans are typically not self-amortizing — that is, they require a balloon payment upon maturity.

While the number of loans maturing is expected to spike this year — $40.7 billion worth of securitized commercial mortgage loans matured last year and $49.5 billion worth is expected to mature in 2013 — the universe of lenders has shrunk. European banks, reeling from the debt crisis, have mostly stopped underwriting loans in the United States, while the market for commercial mortgage-backed securities remains relatively small, at roughly $30 billion in new issuance expected this year. And while insurance companies have increased their appetite for commercial mortgage loans, they are very conservative in their lending standards and selective in their deals.

“This means there may not be enough money available to refinance all of the debt that is coming due,” said Lawrence J. Longua, a clinical associate professor at the Schack Institute of Real Estate at New York University.

In a typical situation, a building that was worth $100 million in 2007 was financed with 80 percent debt, or $80 million. Now the loan — which was interest-only, meaning no principal was paid — is maturing. The borrower owes $80 million, but the value of the property has also dropped, to $80 million. This means that the ratio of the loan to the value of the property is 100 percent. Lenders have little appetite in this market environment for highly leveraged loans, so in one increasingly common outcome, the borrower will recapitalize the property by finding an equity partner to inject new capital into the deal, thereby lowering the overall amount of debt on the property.

Other possible resolutions include the lender extending the maturity date of the loan in the hopes that the property’s value will rise, or pursuing a foreclosure. It is also becoming more common for banks and other lenders to sell their loans to third-party investors who may negotiate with the borrower.

One factor that may drive more deal activity this year is that banks, special servicers and other lenders are eager to find solutions to troubled loans now, rather than postpone a resolution in the hope the market will improve down the road, said Scott Rechler, the chief executive and chairman of RXR Realty, which has recapitalized several properties in the last year, including the recent acquisition of 620 Avenue of the Americas.

“The first half of 2011 was very strong, with a lot of deal-making,” Mr. Rechler said, “but then several incidents, including the European debt crisis and the downgrading of the U.S. debt, made the market seem frothy. This was actually somewhat healthy because it put things back into perspective.”

As a result of these market jitters, he said, “lenders who had been waiting in the hopes that the market would improve, realized that things were still unstable and so they are more ready to resolve their loans now than in the past. Maybe not in the first quarter of this year, but by the second and third quarter I see a lot of things in the pipeline.”

Already, the number of recapitalizations has ballooned. There was $13.3 billion worth of recapitalizations nationwide in 2011, according to the research firm Real Capital Analytics, the most since the firm began tracking the number in 2001.

Another factor driving deal flow is the efforts by European banks to offload some of their American loan portfolios. In December, for example, Blackstone bought a $300 million portfolio of commercial loans backed by American properties from Eurohypo, the troubled real estate arm of Commerzbank in Germany. Other sellers include Allied Irish Banks, Bank of Ireland and Anglo Irish. American banks have also been shedding loans: In September, Bank of America sold nearly $1 billion worth of loans to several investors at a discount.

The sale of these loans can help spur deals because investors who buy these loans at a discount have more room to negotiate a payoff with the borrower, said Andrew A. Lance, a partner at the law firm Gibson, Dunn & Crutcher. A loan that has an outstanding balance of $100 million, for example, may sell to an investor for $80 million, enabling the investor to settle the loan with the borrower for any price between $80 million and $100 million, resulting in a profit for the investor and a discount for the borrower. While under this situation the original lender loses out, in the case of several European banks, regulators are ordering them to increase capital and shrink their balance sheets.

Dune Real Estate Partners participated in such a deal last year when it acquired the loan on the Mark Hotel on East 77th Street from Anglo Irish, recently completing a recapitalization of the property. Dan Neidich, the chief executive of Dune Real Estate Partners, said: “There are so many players now who aren’t the natural owners of real estate — like banks and special services — that never intended to own equity and who want to exit those positions. It opens opportunities for people like ourselves, who are in the business of taking equity risk, and bringing capital into the market to restructure deals.”

But not all borrowers will find themselves in trouble. There are many New York landlords who can simply pay down the loans without much struggle, market experts say. Vornado Realty Trust, for example, refinanced a $430 million loan at 350 Park Avenue in January with $300 million in debt and $132 million in cash. It is currently in the market to refinance the $232 million loan maturing on the Manhattan Mall, at Broadway and 33rd Street.

Still, even those borrowers who can pay down the loans themselves will have to contend with the softened market. “The key issue that cuts across all property types and all kinds of loans,” said Dennis W. Russo, a partner and co-chairman of the real estate practice at the law firm Herrick, Feinstein, “is that property values — the value of the collateral that secures the debt — are down. Combine that with the fact that lenders are conservative right now, and the bottom line is that in many scenarios, borrowers are going to have to find additional capital.”

A version of this article appeared in print on January 25, 2012, on pageB8 of the New York edition with the headline: Anxiety Mounts Over Maturing Real Estate Loans.

Housing Crisis to End in 2012 as Banks Loosen Credit Standards

By: Krista Franks 01/24/2012

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.

However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”

In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.

Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.

Converting foreclosed single-family homes into affordable rental properties through the low-income housing tax credit (LIHTC) program

Opening Up LIHTCs for Foreclosed Homes

By Donna Kimura

http://www.housingfinance.com/news/ahf/011812-ahf-Opening-Up-LIHTCs-for-Foreclosed-Homes.htm

Converting foreclosed single-family homes into affordable rental properties through the low-income housing tax credit (LIHTC) program is an idea that?s getting increasing attention inside the Obama administration.

With a few changes, the program could become another tool used to transform the vacant properties, said Carol Galante, acting assistant secretary for housing at the Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) commissioner.

She noted that developers have been using LIHTCs to finance scattered-site developments for years.

?We?ve got people who are doing similar things but maybe haven?t taken those programs and skills and used it specifically on what I would call today?s problem,? said Galante, a former affordable housing developer.

Before joining the Obama administration, she headed BRIDGE Housing, a top affordable housing developer in California, so she?s well familiar with LIHTCs.

The housing tax credit program isn?t a perfect fit when it comes to foreclosed homes. However, with some minor changes, Galante thinks it could be made more compatible.

For example, exempting foreclosed properties from the 10-year holding rule would help. The Housing and Economic Recovery Act of 2008 provided some waivers to this rule.

Last year, federal officials also proposed the idea of creating an ?income-averaging? option, which would allow properties to serve households whose average income is no greater than 60 percent of the area median income and with no individual household above 80 percent.

This change could be helpful in the single-family home discussion as well, said Galante.

The option hasn?t moved forward, but officials continue to work on the proposal, she added.

The conversion of real-estate owned (REO) properties is an ongoing conversation at FHA and HUD. Last September, FHA and the Federal Housing Finance Agency officials released a ?request for information,? seeking input on new options for selling REO properties held by FHA, Fannie Mae, and Freddie Mac.

?We?ve gotten lots of good proposals on that and are in the process of sorting through them and hope to have some good models that we?re going to each or collectively work on soon,? Galante said.
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