Browse Month: December 2012

Report: National Shortage Of Affordable Multifamily Housing

Prototype residential housing system

The financing market for low income housing provides many indicators of economic trends, some complex, some straightforward. According to one new report, the plight of the hard-hit middle class is showing up in the low income multifamily market as a classic problem of heightened demand meeting constrained supply.

As population levels seeking low-income housing options rises, national vacancy rates for such multifamily are falling and the market segment financed by low income housing tax credits, (LIHTC) is struggling to meet demand, says a new report by consulting firm CohnReznick LLP. 

The idea that housing supply in the US is generally constrained runs counter to the more common national story in the post-bubble housing market.  REO departments at lenders are, the story goes, drowning in foreclosed residential properties.  How could it be, nationally speaking, that the market for places to live is at the same time a buyer’s and a seller’s market?

Affordability Is The Answer

In short, there isn’t a single such market. The application of tax credits to finance properties in the multifamily space under regulations requiring rent control and other affordability features has created a tiered national market in multifamily and done its level best to keep communities across the country from widespread homelessness in the wake of a residential property crisis.

According to the CohnReznick report, the trend in the of the LIHTC property market predates the downturn of 2008, where demand has exceeded supply for the past fifteen years.

“For those who think that our country has ‘too much housing,’ the fact is that most markets have a shortage of rental housing,” says Fred Copeman, CohnReznick principal and leader of its Tax Credit Investment Services practice, in a release. “When it comes to affordable rental housing, this report confirms that we have a critical shortage not only in our major cities, but across the entire country. There is, in short, no room at the inn.”

As one indicator, CohnReznick says, occupancy rates in housing credit properties are high, with the median rate exceeding 96% each year between 2008 and 2010. The locally based firm calls this “another indicator of the tremendous imbalance between the increasing demand and short supply of affordable housing properties. Following CohnReznick’s earlier look at the LIHTC segment in August 2011, many survey respondents noted that “unfavorable economic conditions led to enlarged tenant bases across properties in their affordable housing portfolios.”

Heightened Performance

Cash flow per-unit performance in the LIHTC market is improving, says the study, with a significant decline in the number of such properties performing below break-even 2008-2010.

A number of factors could have contributed to these improved performance metrics, CohnReznick says. They include higher rental rates, lower occupancy turnover or collection losses, lower hard debt service levels and lower-than-projected operating expenses or better expense underwriting practices.

“However, none of these factors can be singled out as a principal or overriding source for improved operations,” according to the report. “Of the various causes explored, CohnReznick found that more efficient expense underwriting and more favorable debt-to-equity ratios are the two primary contributors to improved performance.”

The report also notes that the housing-credit properties compare favorably to their market-rate counterparts in terms of foreclosures. One reason, the report states, is an improvement in terms of forecasting both yield and housing credit delivery.


CIB: How to Obtain Successful Negotiation Skills

President of Strategic Negotiations International

Many speakers try and give you tips and know-how of negotiations but few have the first-hand, global experiences, that Signature Series speaker Barry Elms can provide. From the Middle East to Midwest from the federal government to General Motors, Barry Elms discusses what his real life negotiations have taught him and will share some of those lessons learned to our Commercial Intelligence Briefing (CIB) listeners.

More on our speaker- Barry Elms, President of Strategic Negotiations International, is acclaimed by many as “America’s business coach in negotiation skills.” In the last 20 years, Barry has given more than 2,000 presentations to corporations and associations worldwide, including the National Association of REALTORS®. Click on the link to listen to this edition of the CIB as well as past recordings.

SCOTUS Set To Hear Koontz

English: The Supreme Court of the United State...


Next month, the US Supreme Court will hear oral arguments in commercial property case Koontz vs. St. Johns River Water Management District. Koontz is an interesting and lengthy case, begun 18 years ago in 1994 when Florida landowner Coy Koontz applied for a permit to develop land he had bought years earlier in 1972.


At the time of the 17.9 acre vacant lot’s purchase, according to court filings, Koontz’s property, located at the intersection of two state highways, was unencumbered by state and local regulations, and land-use law permitted him full use of his property.  By 1994, that had changed significantly.


In 1985, Florida enacted an environmental statute implementing regulations to control the use of private property containing wetlands and uplands suitable for fish and wildlife habitat. By 1994, all but 1.4 acres of Koontz’s property was included in a Habitat Protection Zone overseen by the St. Johns River Water Management District.


Mr Koontz submitted applications for development in 1994, including mitigations for the disturbance to the habitat, as per district regulations.  He offered to place eleven acres of his property into a conservation easement.


According to court filings, the district’s response was that they would recommend to deny the permit unless Mr. Koontz, in addition to the surrender of 11 acres of his property, financed the restoration and enhancement of at least 50 acres of welands on District-owned property miles away, by replacing culverts, digging ditches and building a road.


In 1994, Mr Koontz filed an action against the District which was only heard eventually in 2002 on the question “wether the off-site mitigation required by the District was an unreasonable exercise of police power”.  The court found for the landowner, causing the District to approve the permit without the work it had required to be done on land located miles away.  Damages were also awarded to Mr. Koontz.

However, the District appealed the case, and this is where the road to the Supreme Court really begins.

In the appeal, the District did not challenge any factual findings in the lower court case, but instead attacked the applicability of cases Mr. Koontz’s attorneys had argued were applicable to the exaction the District sought from Mr. Koontz, cases named Nollan vs. California Costal Commission and Dolan vs. City of Tigard.  The technical legal argument about the specifics of takings by the state — which Koontz’s legal team hard argued applied — was now back on the table.

The Florida Appellate court found for Mr. Koontz, then the Florida Supreme court found against him.

The Supreme Court is up to hear the case and settle it once and for all on January 15th.


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1031 Exchange Data Since 1995



The Source reader Christopher Suhy had an interesting comment the other day about IRS 1031 “like kind” property exchanges.  He asked if there had been any studies made showing and comparing regions and market segments where 1031 exchanges had taken place.  As he points out, it would be useful to find market segments where 1031s are underutilized.


While I didn’t know of any such study, I knew that if there’s one thing the IRS does well, it’s produce paper.  Lots and lots and lots of paper.  Somewhere in that mountain of documents, I felt sure, was at least some statistical treatment of 1031 exchanges.  All I had to do was find the right office and ask for it.  What I obtain might not be exactly what Mr. Suhy was after, but if nothing else, it’d be a chance to watch the IRS do something from a different perspective than the one from which so many of us usually encounter it: beneath our desks, curled in the crash position.


So I found the Statistical Information Services (SIS) office within the IRS’s Statistics of Income Division.  I’d love to tell a dramatic story where I had to hurdle obstacles and brave multiple layers of bureaucracy, but no such luck. I simply shot over an email asking about studies for 1031.  I was amazed to get a response right away from a friendly economist there letting me know that, yes, they do have data on in-like-kind exchanges as under IRC 1031 (hey, neat!), alas, they do not have any studies organized geographically (darn).


And so here’s what we do have, shared here for the readership: an IRS spreadsheet of estimates of data based on samples of submitted IRS Form 8824 for tax years 1995-2010. In it you can see the broad strokes of popularity of 1031s, deal volumes, splits between individuals, partnerships and corporations, recapture, gains, etc.  I’m no tax expert (and you should never, ever take anything you read here at The Source as tax or legal advice) but it does appear that form 8824 is a key filing for such exchanges.  Any real estate tax professionals who care to chime in to confirm or deny, please leave a comment.


It’s not quite what you were looking for, Christopher, but at least it’s something on the topic at a national level straight from Washington, DC’s document mountain.


Download the IRS spreadsheet “Form 8824 Data For Tax Years 1995-2010” here.





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The Rise Of The Neigborhood Property Database

Hidden Value In Abandoned BuildingsTwo truths: Technology in commercial real estate has centered around listings.  And technology is getting cheaper and easier to employ.

What happens when these truths meet?  The transformation of software applications that handle property listings.

The Old Way

The database software underneath the property listing sources you may use in your commercial real estate practice is heavy-duty stuff.  It has to store millions of pieces of information about properties and communities, it has to allow users to see that information in a useful way, and it has to act very fast so changes to an ever-changing set of data are reflected to all users as soon as possible.

Once, this kind of software power was reserved solely for the “big boys” – corporate behemoths employing expensive systems more akin to the kind of software that lurked at the heart of banks and airlines.  Deep capital expenditures in hardware and software for years kept innovation in the listings space from blossoming.

Then, the twin explosions of microcomputing and the internet changed the landscape forever.  A flood of technology offerings aimed at everybody in every corner of the commercial property industry has created entirely new classes of listing and related technology company while raising customer expectations to the sky.  Buyers expect good and fast matches for their property criteria in every business property sector from industrial to office to retail to specialty.

What isn’t often discussed is the next stage of this technology wave.  The plummeting cost and rising power of software and hardware means ever=greater redefinitions of what a basic listing application can be.  A new class of highly localized listing databases are cropping up in markets across the country to reflect that trend.

Old Rules, New Software

All real estate is local, and the most worthwhile intelligence about the properties is also sourced locally.  While that’s not news, what is new is a way to get that intelligence.  We’re seeing the rise of hyperlocal listing data, curated by independent community members, freely published on the web.  This freedom means the criteria for inclusion of properties and information about them is up to the local curator, leading to the exciting creation of unique resources not seen before.

One such example that caught my eye this week: Hidden Value In Abandoned Buildings.   This application contains a set of abandoned properties on the near South Side of Chicago, along with nearby amenities.  Curated by the application’s owners and creators, HVIAB helps to show at a glance a pattern difficult to find elsewhere: a view of abandoned property embedded in various communities, supported with street view.

Independent, hyperlocal database publishing of this kind is on the rise, and the criteria for property inclusion is wide open.  Commercial RE professionals working communities who don’t seek out custom listing databases like this in their markets are missing out on how local intelligence, independence, and powerful software work together.

The Odd Story Of Finance In The Senior Living Sector

Sunrise Senior Living - Church Road, Edgbaston...
Sunrise Senior Living (Photo credit: Ell Brown)

The senior living sector is a major growth area in commercial real estate. The reasons for this boil down to classic supply and demand driven by demographics. Longer life expectancy in the United States mean steady growth in age cohorts that move into senior living facilities.   The over-85 segment of the population is growing at three times the rest of the population.  In 25 years, it is set to double. Further, a great number of existing facilities are older product, so new unit development is being spurred in most markets.

REITS stepping up

This population growth meeting a 7% penetration rate  – the rate at which seniors become residents in senior living facilities – means the requirement over the next 15 years is to build 375,000 new units of assisted living and senior living facilities.  This requirement comes with a $57 billion capital cost.  Yet the investment dollars for this sector have not come from mainstream sources.  Financing of projects and acquiring equity has until recently been largely the domain of local banks, producing a highly fragmented and some would say eccentric financing picture.  Only recently has the REIT industry stepped up its acquisitions in the senior living space.  Speaking at the recent Real Estate Journal Senior Living Conference in Chicago, Manisha Bathija, Senior Investment Officer of Ventas, a REIT working the senior living space, said the portfolio she leads has picked up $18 billion in senior living property acquisitions the last 10  years and expects to continue the trend.

REITs are only one of the classic capital sources in our industry.  What about pension funds and insurance companies?  Here’s where it gets odd, and suggests a greater change.

The Missing Usual Suspects

Speaking at the conference, Jacob Gehl, VP Investments of MArcus & Millichap pointed out a surprising observation: Even though insurance giants once financed this space decades ago, in his experience, insurance companies and pension funds today “don’t like to invest in anything with a bed in it”.   Why the shyness around senior living and multifamily?  Because one aspect of ownership of such properties is evictions, and pensions and insurance companies are in the business of paying out to millions of beneficiaries.  There is a perception of a potential public relations disaster for a pension who is on one hand financially supporting a pensioner, and on the other hand, kicking that pensioner — their own beneficiary — out of his or her apartment.  Therein lies an institutional bias, one that may take some work to overcome.

Operations vs. Equity

Similar to hospitality properties of all kinds, the business of senior living property ownership is a mix of equity and operations.  It’s operations that drive performance, particularly in properties where cost controls and rent caps associated with government affordability programs are part of the picture.  If there was a theme at the conference, it was a reverence for skilled operators of senior living facilities, as they hold the key to performance.


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REALTORS® Relief Foundation Hurricane Sandy Donations

Logo of Realtors Relief FoundationDuring the REALTORS® Conference & Expo in Orlando NAR collected donations to the REALTORS® Relief Foundation (RRF) for Hurricane Sandy disaster assistance. At a member forum at the conference, NAR President Moe Veissi announced that NAR would match members’ donations up to $500,000.  Moe later wrote on

“As REALTORS®, we help build and maintain communities. We aren’t just there when the time comes to buy or sell a home. We are there during periods of need as well. Now—in the wake of Hurricane Sandy—is one of those occasions.

It will take more time to know the full impact of Hurricane Sandy, but the devastation in the mid-Atlantic is widespread. I personally have contacted the state associations in New York, New Jersey, and all the affected areas. At this point, we know that more than 8.2 million homes and businesses lost power in the United States because of Sandy, and there is a significant loss of life attributed to this deadly storm.

For more than 11 years, the REALTORS® Relief Foundation has been dedicated to providing housing-related assistance to victims of disasters. Without a doubt, there are many, many families out there who need our help now. If you can spare even a small amount, now is the time to make that commitment. A little bit can go a long way when we all give.

So please, follow your heart and reach out a helping hand to those in need.”

You can make a donation today to Hurricane Sandy victims through the REALTORS® Relief Foundation.

The REALTORS® Relief Foundation distributes one hundred percent of all funds collected to disaster relief causes. The funds are distributed on an “as-needed” basis by the Foundation’s Directors. The Foundation cannot guarantee donors that donations made in response to a particular disaster will be used for that specific disaster, but the Foundation does guarantee all donors that one hundred percent of their donation will be used for an appropriate disaster relief effort.

For the RRF, REALTORS® have raised and successfully distributed over $23 million in its 11 year history with the grants going directly to victims of disasters to provide immediate & temporary housing related assistance – that’s the mission and focus.  In many disaster situations, RRF checks have been the first forms of aid victims have received.  Because the RRF guarantees that 100% of each donation will go directly to the victims, we do not give our funds to other charities to further distribute.  The majority of charities take administrative fees out of each donation and the final net amount that ultimately reaches the victim is usually less than the original amount donated.   For Sandy, we’ve raised $1.9 million since the beginning of November and have already sent help to 200 members who have been impacted by this superstorm.  There are many more RRF will be assisting in the coming weeks.
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Announcing MVP+ Offer To REALTORS®

NAR members!  Announcing the latest offer from NAR’s Member Value Plus program!

Comment Here At The Source, Earn Valuable Research

REALTORS®, leave a comment on the Source, NAR Commercial’s commercial real estate blog from December 1-15. Comments on the blog will earn you “New Foundations in an Uncertain World” Research product, a joint study between Deloitte, the Real Estate Research Corporation and the National Association of REALTORS®. Learn how the relative safety of the commercial real estate investment is even more attractive to investors in today’s market.

How It Works

Upon posting your comment on the blog, you’ll receive an email within 48 hours with information on how you can download the “New Foundations in an Uncertain World” publication for free! Just click the “Comment” link on any The Source blog post to get started.

Only comments posted between December 1 and December 15, 2012 will be eligible for this offer. Only U.S. members of the National Association of REALTORS® are eligible to receive this offer. Must have full name (as registered to NRDS id) and e-mail address for comment to be eligible for the offer.

Join The Conversation, Earn Rewards

Deloitte’s work in commercial real estate research is known the world over (download their Top Issues In 2013 CRE outlook here).  A joint study from Deloitte, NAR and the venerable Real Estate Research Corporation is, if I may say so myself, a heck of premium offer for leaving a blog comment.  So join the conversation!