I want to share with you a quick excerpt about Federal Reserve Chairman Ben S. Bernanke. He spoke at the Economic Club of New York last week about the policy on commercial loans. Perhaps this will keep commercial real estate from dipping s far as residential did.
While I am on the topic of bank lending, I would like to add a few words about commercial real estate (CRE). Demand for commercial property has dropped as the economy has weakened, leading to significant declines in property values, increased vacancy rates, and falling rents. These poor fundamentals have caused a sharp deterioration in the credit quality of CRE loans on banks’ books and of the loans that back commercial mortgage-backed securities (CMBS). Pressures may be particularly acute at smaller regional and community banks that entered the crisis with high concentrations of CRE loans.
In response, banks have been reducing their exposure to these loans quite rapidly in recent months. Meanwhile, the market for securitizations backed by these loans remains all but closed. With nearly $500 billion of CRE loans scheduled to mature annually over the next few years, the performance of this sector depends critically on the ability of borrowers to refinance many of those loans. Especially if CMBS financing remains unavailable, banks will face the tough decision of whether to roll over maturing debt or to foreclose.
Recognizing the importance of this sector for the economic recovery, the Federal Reserve has extended the TALF programs for existing CMBS through March 2010 and newly structured CMBS through June. Moreover, the banking agencies recently encouraged banks to work with their credit worthy borrowers to restructure troubled CRE loans in a prudent manner, and reminded examiners that–absent other adverse factors–a loan should not be classified as impaired based solely on a decline in collateral value.
You can read the entire write up of Bernanke’s address here.
The article emphasizes a focus on social and environmental responsibility integrated with simple amenities. This trend also speaks to the health and wellness focus that every aspect of our society is now addressing. Amenities that can help build relationships and make you feel healthier at the same time seem to be what we all are craving.
Based on emerging trends and buyer demographics; I think Brian De Lowe of Viceroy Hotel Group put it best.
“The resort development model of the past is dead”
A very blunt and straightforward comment, but it was what we need to hear right now.
Rebecca Zimmerman, president of Design Workshop, had this to say:
“Social connection is truly important” and “Now, people need people, and people find social nourishment by engaging with others”
It is an interesting take on resort development. Does this sound familiar to anyone? How about the emergences of social media?
Zimmerman pointed out a great statistic. 82% of the US populations enjoy walking outdoors for fun or exercise. Numbers indicate a growing trend for the future. This completely reinforces my blog from last week. Consumers are looking for something simple and natural. The good news for developers is that the startups cost for these amenities are low and require low maintenance expenses. Because of the concern over the economic future of real estate, these amenities also protect your bottom line while giving the consumer something they crave.
This article along with everything else I am reading, points back to a central theme or idea. The key to successful future building is simplicity. From housing to amenities, we are seeing a demand for simple design in everything.
A HealthyBuilt Home is a comfortable, healthy and affordable home that reduces energy and water usage and protects the environment. Building materials and processes are selected to reduce pollution and the waste of natural resources both during the manufacturing and construction phases and throughout the life of the home. Because the quality, amenities, and energy savings are evident, these homes have a higher value and are easier to sell.
Is This A Good Idea?
I think this is a great program that could be initiated in other cities. What do you think? Leave a comment below. I am looking forward to some thoughts about this.
An emergence of contemporary design in the 50+ markets is very evident. This is an interesting point because most developers design their models to look like the homes their residents are moving from and not a fresh approach.
I think this is a very important point. Having room for the antique heirloom is still important, but it is obvious that they are looking for a new look and a new lifestyle.
Sherwood Village in California was the states first successful rebate application under the solar Initiative’s Multifamily Affordable Solar Housing (MASH) program. Being green is important to many demographics as long as it ads value in the form of dollar signs.
Easy Access to Transit
The article also noted that convenient access to public transit was a major factor in the success of the award winning developments. The 50+ crowd who are looking for urban are also looking for easy access to dining, shopping, arts and entertainment. If you cant proved a form of transit on-site, it is still a good idea to have near by access. The 50+ would love to park the car and leave it there.
How Can We Use These Trends To Our Advantage?
What do you think? Would you use any of these ideas in your next development? Let us know by leaving a comment below.
I recently read an article in the Wall Street Journal detailing the tendencies of teens to generation Y. They describe them as the “network generation”. It raises this question, “If more affordable housing is the market for 2010 – 2012, how will we communicate this to the younger generations?” You can read the article here.
It’s one thing to understand the product, but we also need to understand whom we are selling it to. A big part of that is understanding how they communicate and perceive information.
Below are some of the questions that the article evokes and the answers I have for them.
Will the next generation buyer want to visit a sales center?
Most home buyers are able to gather all the information they need about a property from the comfort of their own home. This includes information about the area, amenities and pricing. They can also gather this information through their friends via social networks. So what should we do? Should we establish realistic virtual tours of a property and hope they buy from that? Should we cut down or eliminate sales agents on property?
The answer is no. Sales agents will still be needed somewhere along the way, but in new ways in order to accommodate this generation. Maybe it will be through Facebook or Twitter. Regardless of the channel, young home buyers will always need legal and financial guidance when purchasing a new home.
Generation Y sees blogs, Facebook and Twitter as valid and trustworthy information. If a friend tells a potential buyer that your property has terrible amenities, will they take this as the gospel?
The described scenario will be difficult to combat. The reality is that you have no control over what people are saying about your product. This is especially important in marketing. You have to make sure that what you’re advertising is truthful. There can’t be any vagueness to what you’re selling. Disclaimers can’t protect you from social conversations. Any developer will tell you that what is planned at the beginning can be very different from the final product. We need to be very careful about what is promised.
The article argues that this generation breaks through the “fluff” and gets right to the point. My teenage daughter doesn’t want to be “sold”. She sees straight through the “fluff”. Real estate has historically sold the “dream”. Will we have to sell this generation differently?
I think this generation still has a dream; they just don’t approach it from the same direction as previous generations. It’s human nature to desire, plan and to have expectations. In the future, we are going to have to sell more on the practicality of the product, and how it fits into the “dream”.
With social networking, the marketing of your brand has become more important than ever. I understand this, but how dependent should we become on social networking?
I don’t think social networking is going away anytime soon, but I do feel cautious about how dependant real estate is trying to become on it. It’s become this “next big thing” very quickly, which makes it vulnerable to the next “next big thing”. Marketing is going to become a much more active field than it has been in the past. As opposed to setting up ad campaigns, collateral materials and websites and letting them remain static for months at a time, we will have to provide a steady stream of information/marketing to the world on a regular basis. The more content and the faster it’s released, the better. The danger lies in the untruthfulness of our messages. The reaction time from the consumer is going to be much faster and less forgiving.
What are some of your thoughts?
What questions did the article raise in your mind? Share it with us by leaving a comment below.
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