Jacob Frydman

Is Two Really Better Than One? Fannie and Freddie Work Together to Find Out

United Realty Discusses Fannie Mae and Freddie MacIt’s barely spring, but the housing market news is starting to warm up. The recent announcement by Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), that Fannie Mae and Freddie Mac will consolidate functions by starting a securitization firm, has the industry buzzing. This new firm would presumably cast a red hot beam on home loans as they are processed today, easing some of the government involvement in the process. It’s reconstruction on a grander, reasonable scale, and it might just work. Speaking to the National Association for Business Economics, DeMarco outlined a scenario that would be built on cooperation, sure, but more importantly, an aggressive consolidation whereby the company would have its own chief executive and board, jointly owned by Fannie and Freddie.

As the natural step, a sort of quantum leap from the pessimism of 2008, when the Federal Government bailed out numerous companies including Fannie and Freddie, the ground seems almost poised to produce a future harvest, or at best, the beginnings of a more stable and robust market. What are the broader implications? Less government should result in less strain on the U.S. Treasury (both companies have drawn nearly $190 billion to stay in business), at least in theory. Additionally, the goal is to shrink Fannie Mae and Freddie Mac down by 10 percent in the loan market for multifamily homes. According to Reuters, Fannie Mae and Freddie Mac collectively finance about two thirds of the loans in the U.S. Reuters also reported that Fannie and Freddie will aim to complete $30 billion in single-family credit guarantee business in 2013, in effect, sharing some of the risk with the private market. Transactions could include mortgage insurance or other types of debt securities. The Chicago Tribune reports that by next year, both companies will be required to reduce the less liquid portion of their portfolio of mortgages by 5 percent.

The offspring of Fannie Mae and Freddie Mac may share some of the junk DNA inherent in today’s mortgage loan guidelines, but tougher regulations and a new outlook could be enough to make this firm a successful up-start (if you could call it that). The housing turnaround – a rebound, if you’re closing watching the numbers – is poised for yet another collection of positive headlines, as the general climate moves from pessimistic to cautiously optimistic. It won’t happen today, and it certainly won’t happen tomorrow, yet the cogs of the machinery are getting pushed into motion. Springing forward, just took on a whole new meaning, especially if you’re on the right side of commercial real estate.

Posted on by Jacob Frydman in Commercial Real Estate, Housing Market Leave a comment

The Virtual Reality of Commercial Real Estate and Mobile Technology

Real Estate and Mobile Technology
The commercial real estate market is rebounding, and with that bounce-back, comes the increased use of mobile technology.

Commercial real estate used to rely on newspapers, magazines, radio and television ads to carry the message to the consumer, but those methods simply aren’t as effective in the 21st century. A “direct line” is more often than not facilitated by satellites in space, GPS towers, and apps downloaded onto a smart phone. To reach people where they truly live, you must slip into the virtual reality inherent in cloud computing, social media, and viral Web content. In a very real context, change has indeed come.

A recent report by inMotion Real Estate cited that mobile usage in commercial real estate is up 61 percent. And we can reasonably expect an increase this year if the trend holds. The report lists the iPhone, iPad, Sony Ericsson LT 15i Xperia Arc, HTC EvO 4G and the Motorola Droid X, as the top mobile devices of last year, with 25 percent of Internet consumption in the U.S. derived from mobile devices. In short, we carry the future of commercial real estate in our pockets. And more people are taking advantage of this technology.

Last month, the BE-Mobile app (from Building Engines), marked 1,000 downloads, and this should come as no surprise. The app helps the user to manage key operational tasks including work orders, preventive maintenance, incidents, and inspections – it’s all paperless.

And here’s something else to consider: Google Maps can now host your property with its Google Maps Floorplans app, which allows tenants or investors to better understand a building’s accessibility, suite layout, parking field and more. Additionally, it can be combined with Google Maps in 3D and a 360 Panorama by Occipital and you have a real virtual reality tour.

See? The future is truly occurring in real time. Mobile technology is the great equalizer at play in today’s society. How we capitalize – and innovate – within this seismic shift will depend on our ability to embrace this new present for a profitable future.

It’s a reality, however virtual, worth pursuing.

Posted on by Jacob Frydman in News Leave a comment

The Fiscal Cliff and Commercial Real Estate

The Fiscal Cliff, or more appropriately, the reason we are dealing with the Fiscal Cliff, will undoubtedly impact our economy in such a way that opportunities will abound in commercial real estate.

The reason Congress has been dealing with the fiscal Cliff is because our nation’s $16 trillion in debt. Worse, we have $60 trillion in unfunded government pensions, Medicare, Medicaid and Social Security obligations. In other words we are a $76 trillion debtor nation.

The Fiscal Cliff is Congress’ way of dealing with the increasing deficit necessary to service our debt, it does not address the debt itself. Our real issue is the debt itself. We can only solve our debt problem by increasing taxes or cutting our spending. Since Congress is obviously not inclined to do either, our government needs to find an alternative way of solving this problem. I believe they have.

The Federal Reserve, which historically has dealt with interest rate policy on a quarterly basis, announced in an unprecedented move that it intends to keep interest rates at the Fed discount window at 0% through early 2015. This has created an artificial cap on interest rates. At the same time, by virtue of the Fed’s QE3 policy, the Fed is effectively printing $85 billion a month—without end. Undoubtedly this devaluation of the currency will help us pay our debt off in cheap dollars. It should also have an upward pressure on interest rates. But, by virtue of the fact that interest rates remain artificially low, we will not feel the effects of this printing of money until the Fed removes its cap on interest rates.

And when that happens, watch out. Interest rates should increase dramatically. Rising interest rates will have a significant impact on commercial real estate. Rising interest rates will bring with inflation. They will also bring with them increasing rates. Properties, such as triple net lease single tenant assets which have very nominal rent increases, typically lower than CPI, will start to act and look like bonds, diminishing in value with rising interest and capitalization rates. By contrast, inflation-protected real estate, those assets with underlying leases that adjust for inflation, should be able to maintain or increase in value.

Adding to the opportunity,  we’re approaching a time when many properties can be purchased at below replacement costs, and financed at historically low interest rates. Investors are able to acquire real estate assets at below replacement cost prices, finance them with long-term low-rate financing, and protect them with inflation-protected leases will benefit from the inflationary cycle we see coming.

While the drama on Capitol Hill is certainly causing headaches for economists around the world, those in the commercial real estate industry should see opportunity amidst the frustration.

Posted on by Jacob Frydman in News, United Realty Leadership Leave a comment

CRE Opportunity in 2013

Office Buildings NYC - Real Estate NYCThe Mayans might have had a bleak vision of 2012, but the financial forecast of 2013 – as far as the commercial real estate market goes – is a future worth exploring, and possibly living in. It’s been a hard road for many Americans since the recession began eating away at the economy as far back as 2007, resulting in a calamitous decline in property values, and a rise in foreclosures. But while other sectors are slowing, the Wall Street Journal reported that the U.S. Housing market remains a key economic driver.

According to the National Association of Realtors’ (NAR) chief economist, Lawrence Yun, the market has been slowly building momentum, and the economy is expected to grow by 2.5 percent next year. The NAR’s quarterly real estate forecast finds that vacancy rates over the next four quarters are forecast to decline 1.0 percentage point in the office market, 0.6 point in industrial, 0.2 point for retail and 0.1 point in multifamily.

In a recent article, the New York Times reported home values in the first six months of the year were up by 5.9 percent (the best it’s been in seven years), and a report by The Conference Board, a private group, have pointed at an increase in consumer confidence since September. Throw in the Labor Department’s report earlier this month citing the addition of 146,000 jobs in November (which brought the unemployment rate down to 7.7 percent), and a more optimistic view is clearly on the horizon.

Forbes contributor Bill Conerly, has a less enthusiastic view of 2013, and sees only marginal improvement ahead as it relates to commercial real estate, with a real boost occurring either in 2014, or 2015. But perhaps, the real lesson here has more to do with the country’s mood than with hard numbers and statistical projections. True enough, improvement in commercial real estate will likely hinge on improvement of the national economy, but good news can be its own catalyst.

Just take a look at your own neighborhood. Some homeowners are already seeing an increase in their home’s value, however small. And more people are renting with an option to lease, as a way of getting around the stricter criterion for traditional mortgages.

While no calendar exists to give us a glimpse of 2013 before it actually happens, the evidence, so far, seems to suggest a more robust economy than we’ve seen in years, which should have a positive impact on commercial real estate.

So what comes next? If you ask me, there is plenty of opportunity out there.

Posted on by Jacob Frydman in Commercial Real Estate, News, United Realty Leadership Leave a comment

Preparing For Coming Inflation

Whenever you turn on the news, you hear about our country’s $16 trillion of national debt which we cannot pay off.  Unfortunately, that’s just a small portion of our country’s financial problems.  Did you know that we also have more than $60 trillion of unfunded government pension obligations, unfunded Medicare and Medicaid and social security liabilities?  And that this debt is increasing at more than $1 trillion per year?

Just think – the US owes more than $76 trillion that iInflation Hits Real Estate Investments In Philadelphiat can’t pay off.  Worse, none of our politicians are willing to raise taxes or cut spending to deal with that problem, because if they raise taxes or cut spending they get booted out of office! As expected, they are more concerned with holding on to their jobs.

So how is our government going to deal with this problem? The same way governments have dealt with this problem throughout history – they print money.

By printing money they inflate the currency, and pay off the debt with cheap dollars, and while that may be good for the government, it is terrible for investors.

When the government prints money, people who saved their money and people who invested in fixed income, bonds and other liquid assets get hurt badly.  In some cases they can get wiped out.

And what’s worse – this time around, the government is artificially keeping interest rates at zero until early 2015 so they can keep inflating our currency without much backlash.

Ask yourselves a few questions:

  • When was the last time you remember not being able to get any interest on money in savings accounts?
  • When was the last time you remember the 10-year treasury at below 1.5%, or corporate bonds at 3%?
  • When was the last time you remember the Federal Reserve printing $40 Billion a MONTH, without end, (which they are now doing and calling it “QE-3”)?

So how do you protect against inflation?  — WITH HARD ASSETS – and frankly, there is no better hard asset than real estate.  Unlike gold or commodities, real estate can generate current income and grow in value with inflation – it has historically been used to generate cash flow and capital appreciation, and is also considered a hedge against inflation.

We are living in unprecedented times, and these events will create risks for some, and opportunities for those who prepare.

 

Posted on by Jacob Frydman in Commercial Real Estate, United Realty Leadership Leave a comment

Real Estate Thoughts: Hotel Markets

The hotel market is one that remains in a state of flux.

Hotel Room in Hotel Real Estate

Over the last several years there has been a significant lack of new construction of hotel properties, primarily due to the financing markets, as well as a decline in tourism nationwide. As our economy begins to recover there will a need for additional hotel capacity. At the same time, while the European economy suffers, this may result in a reduced demand for US hotel rooms from European tourists who will be traveling less frequently, creating a forecast for a relatively shaky market. The best opportunities appear to be in larger central business districts of major cities where occupancies are at or exceed 75%.

New York is a unique market, given that the cost of hotel rooms has risen to be generally unaffordable, except at the very top of the market. Therefore, the opportunity in a city such as New York is to convert non-hotel properties that lie outside of the central business areas but are connected by transportation hubs, so that tourists can find affordable hotel rooms close to but not in Manhattan. A current example of this is Brooklyn, a good bet for new or converted hotel rooms, especially with the construction of The Barclay’s Center. In other markets, one might wish to consider a prime location with an older property that has fallen into disrepair or lack or high vacancy. Buying those hotels both on “the cheap” and repositioning them, or renovating them and “putting a flag on them” (i.e. Marriott, Wyndham, etc.) could be an opportunity as well.

 

 

 

Posted on by Jacob Frydman in Commercial Real Estate, Hotels Leave a comment

The Perfect Storm For Commercial Real Estate Investing

This article originally appeared as an Op-Ed  from  United Realty CEO Jacob Frydman on ValueWalk.com, a website dedicated to Breaking News in Business, Finance, Politics, Tech and Investing. The link can be found by clicking here.

Most of us know that timing is everything when it comes to investing. If you bought equities during the tech bubble over a decade ago, you’re investment probably hasn’t grown much over the last decade. Despite the crisis in housing market, many folks are wondering if now is the right time to get into real estate.

Some worry that the drop in real estate values over the past three years contributed to the economic downturn we have experienced and real property values will remain flat for the foreseeable future. I know it may be contrarian, but this could be the best time I’ve ever seen to get into the real estate market, especially commercial real estate.

The decline in prices since 2007 makes it possible to acquire good properties for considerably less than it would have cost even 3 years ago and often at below replacement cost. We are also in a historically low interest rate environment, which means financing the purchase of a building today is the cheapest it has ever been. Leverage is one of the components that make real estate so attractive and provides enormous returns on the upside.

I believe we are fast approaching a “perfect storm” for acquiring properties now. Over the next few years, several other trends will occur that make the opportunity even better. By 2013 an unprecedented number of securitized loans will be coming due, at debt levels that will be difficult, if not impossible, to refinance. That should create further buying opportunities for smart commercial real estate investors.

The global sovereign debt crisis and the sluggish economy have forced governments to take actions, such as quantitative easing, which nearly everyone agrees will eventually lead to inflation. For all these reasons, we at United Realty Partners believe we can acquire properties at great prices, finance them with low interest rate debt, improve the value of the rental stream as inflation starts to kick-in, and then dispose of the assets at higher prices towards the end of our holding period.

While stocks and bonds have their place as traditional instruments of investment, investors are increasingly looking towards alternative investments – real estate, hedge funds, private equity and commodities to engineer an overall enhanced performance of their portfolios.

Historically, real estate has been relatively un-correlated to the broader stock and bond market. Said differently, investments in real estate typically do not fluctuate based on the broader stock market, and therefore, real estate helps to diversify a portfolio. Real estate provides an investor with the opportunity to earn current cash-flow, while serving as a hedge against inflation.

Institutional investors have historically allocated a portion of their overall portfolios to direct real estate investments. In 2010 that allocation was 8.53% of their overall portfolios, but has been steadily rising as equities prove more volatile and fixed-income yields remain low. Many experts believe that investors should allocate at least 20% of their portfolios to real assets.

While most small investors do not have access to commercial real estate deals, they can invest through a well-managed Real Estate investment Trust (REIT). Choosing the right REIT can be difficult, but those that acquired property during the boom and have little capital for new investments should probably be avoided. Remember, timing is everything.

Posted on by Jacob Frydman in Commercial Real Estate 1 Comment

Recovery in Retail CRE Under Way, Proceed With Caution

It might not be ‘shop til you drop,’ but a recent report by commercial real estate services provider Cassidy Turley notes that the retail sector absorbed 3.1 million square feet in the first quarter, following a pace of 3.4 million square feet in the fourth quarter of 2011.

The pace over the last six months is five times faster than any point in the recovery cycle. Further, vacancy fell 10 basis points to 10.9% — the first decline in five years. Average asking rents, which have fluctuated in the past year, increased slightly in the first quarter of 2012 to $19.00 per square foot. Markets with the highest percentage of rental growth include Austin at 3.4%, Charlotte at 2.9%, Oakland-East Bay at 2.7%, and San Jose and Seattle at 2.6%. Manhattan claims the top per-square-foot rate with an average asking rent of $56.96.

“We may have a long way to go to reach what’s considered full recovery, but the U.S. retail sector also has made tremendous strides from our depths,” said Cassidy Turley’s Chief Economist Kevin Thorpe in their May 22 report.  We don’t see the middle-class consumer returning to its old spending patterns, much less the credit-fueled ‘aspirational shopping’ of the mid-2000s, for a number of years. This simply is not going to happen until the housing market recovers and much of the equity lost in the downturn is restored.”

Moreover, some investors remain cautious when it comes to retail CRE. Even through a recovery, given the long-term impact of online shopping on bricks and mortar, as well as the shopping habits of American consumers, one must be cautious about retail real estate.  The market is bifurcated, with high end luxury brand urban locations such as Fifth Avenue in New York, the Miracle Mile in Chicago and Rodeo Drive in Beverly Hills, continuing unprecedented increases in demand resulting in significantly higher rents, contrasted with an oversupply of suburban strip centers, which likely will be negatively impacted as consumers increase their online shopping trends.

First-tier shopping centers – those in vibrant urban markets or top suburban intersections or trade corridors – are posting marked improvement, with the highest rate of deal activity and, in most cases, rental-rate growth. Second-tier locations – shopping centers lacking strong anchors or not “on the main drag” – in the nation’s strongest market are generally posting rent growth as well. The trend is not replicated in weaker markets as third-tier shopping centers face challenges in nearly every market. This goes to prove again that real estate is all about location.

One of the most encouraging signs for the industry is that the era of massive big-box vacancies appears to be over, according to Retail Traffic Magazine. Several big chains stores including Ulta, Five Below, TJ Maxx, Ross Dress for Less, REI and Whole Foods have been snapping up those big-box vacancies, Thomas W. Gilmore, executive vice president with Los Angeles-based Madison Marquette, told the magazine recently.

“Landlords at high quality, well-located shopping centers no longer have to give in to tenants when it comes to rents. At those centers, the power equilibrium has returned to leasing negotiations. In the strongest markets in the country, landlords are even able to push rents,” Matthew K. Harding, president and COO of Levin Management Corp., told Retail Traffic.

That momentum is likely to continue as retailers try to gain a better understanding of their customers and real estate, marketing and merchandising departments interact with each other in order to make the best decisions on store openings.

Posted on by Jacob Frydman in Commercial Real Estate Leave a comment