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What Dodd-Frank Means for Commercial Real Estate
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The Dodd-Frank Wall Street Reform and Consumer Protection Act is intended to guard against the excesses that led to the economic crisis. But it may also have some negative effects on financing of commercial real estate. There are two sections that are most pertinent to the commercial sector: The first is the part that deals with risk retention of securitization, and the second is the Volker Rule, which limits affected banks from proprietary trading for their own accounts. Both of these provisions have the potential to reduce the amount of commercial real estate lending and to increase the cost of borrowing. Sabeth Siddique, director of credit risk at Deloitte & Touche LLP and former assistant director for credit risk and banking at the Federal Reserve, talks about the possible implications in this REALTOR Magazine feature.
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How Accurate are Commercial Appraisals?
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It's an accepted real estate maxim that appraised value lags commercial property sale price. But it's the size of the gap between appraised and market value that can have a real impact when a seller wants to evaluate an offer or a buyer wants to qualify for a loan. How much variation is there between appraised value and sale price? What should investors keep in mind as they assess appraisals as a way of determining property performance? See this Realtor Magazine Online feature for answers to questions on common commercial appraisal issues.
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Green Still Adds Value
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Even in a volatile market, green office buildings post significantly better returns than their less-environmentally friendly competitors. Those are among the findings from a recent study by Nils Kok and Pier Eichholtz of Maastricht University in the Netherlands and John M. Quigley of the University of California at Berkeley. Using data from more than 25,000 commercial buildings on the listing site of the CoStar Group, the authors determined that buildings holding either the Energy Star rating from the U.S. Environmental Protection Agency or the LEED certification from the U.S. Green Building Council had rents that averaged 3 percent higher than comparable office buildings in the same market. In 2007, effective rents—the rent multiplied by the occupancy rate—for green buildings averaged 7.5 percent higher; by 2009, the rent premium had dropped to 5.1 percent. The authors note that some of this variation could occur because green buildings are often newer and larger than competitors.
The study, "The Economics of Green Building," also determined that between 2004 and 2009, green buildings listed on CoStar sold for about 13 percent more than comparable properties. "This strongly suggests that property investors value the lower risk premium—perhaps the insurance against future increases in energy prices—inherent in certified commercial office buildings," conclude the authors.
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Office Leasing: Back to Business?
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Office markets across the country continue to battle the lingering effects of the recession. But many cities are beginning to shed the high vacancies and fat concession packages that have dominated the last few years as expansion activity slowly returns.
A year ago, cost-conscious tenants were fueling the bulk of the leasing activity. Firms moved to take advantage of discounted rents or reduced expenses by downsizing or consolidating office space. Tenants negotiated "blend and extend" deals — rent reductions in exchange for longer lease terms — well in advance of lease expirations. These tactics were common in markets all across the country.
Office leasing is beginning to show early signs of improvement amid a fragile economic recovery. See the full "Back to Business" article at the CCIM Institute's CIRE Magazine Online.
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NAR Comments on Proposed Energy Labeling Program for Commercial Buildings
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The U.S. Department of Energy requested information on a proposal to develop a voluntary energy scoring program for commercial buildings. This proposed energy rating program would allow building owners, managers, investors and tenants to obtain a rating on how efficiently their building uses energy and would provide information on how the building could improve its energy efficiency.
The National Association of REALTORS' comments on this program mirror concerns with a recently developed residential energy performance score – these kind of scoring programs stigmatize older, less efficient existing buildings in the real estate marketplace, thereby reducing property values. Building energy rating systems will not lead to reductions in energy use. The most effective way to enhance energy efficiency in buildings is to provide the financial resources and market incentives that educate all building owners—not just those in the process of purchasing properties—about the benefits of making needed energy improvements.
DOE is in the beginning of the data collection phase for this program and has not proposed a timeframe for introduction and impementation. For more information, contact Russell Riggs with NAR at 202-383-1259.
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Stay Tax Free Campaign Update: Seeking Public Outreach Opportunities
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It is now time to expand the grassroots messaging on our constitutional amendment beyond the REALTOR community. The campaign team is seeking public outreach opportunities, such as speaking opportunities at civic and/or business clubs in your area. Rotary Club, Kiwanis Club, or Chamber business luncheons are perfect examples. We welcome and encourage your participation in this effort as well.
Please let our Grassroots Coordinator, Mandi Mitchell, know of any speaking opportunities that you are able to arrange or that you are aware of between now and November 11th. Either e-mail Mandi at mitchell.mandi@gmail.com or call her at 337-349-5825 and the campaign will ensure that a presenter is available.
Also, if you chose to make any presentations within your local community, please send Mandi the date and the name of the organization as we are keeping a record of all outreach activities for reporting at the conclusion of the campaign.
For more information on the Stay Tax Free Campaign, please visit our website at www.staytaxfree.com or "Like" us on Facebook at www.facebook.com/staytaxfree. You can also reach the campaign Field Director, Emily Davenport, at (225) 344-0381 or emilyannd@gmail.com.
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Read the latest Louisiana CCIM chapter weekly newsletter  PDF File
This week's REALTOR® events and activities...
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