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The Forces Changing Real Estate Forever: Five Years Later The forces changing real estate have changed it forever, though more slowly than many thought. Nonetheless, scale and operational focus are common themes in real estate circles in a way not dreamed of ten years ago. Similarly, the emergence of substantial equity requirements continues to reshape the operation of real estate markets. Public equity mar-kets have dramatically grown in importance over the past five years. This pattern, along with the expansion of public debt markets, will continue over the remainder of the decade. The current weaknesses in property markets will feed the ongoing consolidation of the real estate industry. The end of decade will see a real estate company among the largest one hundred companies in the world.
The Halting Consolidation Revolution The logic of consolidation became a controversial mantra of the real estate industry dur-ing the late 1990s. Five years later, the empirical research on economies of scale cannot resolve the debate. In an industry as fragmented as real estate, market dominance and pric-ing power is exceedingly hard to establish. That more consolidation did not take place dur-ing the REIT bear market of the late 1990s appears to weaken the essential thread of the consolidation logic, yet there is no definitive benchmark on which to evaluate what should have been a threshold level of public-to-public merger activity. The longer-term stumbling blocks to consolidation in the public real estate sector are less insurmountable structural barriers to further consolidation than intervening complications in a halting process. For the real estate industry, the analogy with other capital-intensive industries is not exact. A historic dependence on debt capital, a duality of local property markets and national cap-ital markets, special tax-advantaged ownership vehicles, and a large private market with arbitrage opportunities all make the path toward consolidation distinctive in its pattern and timing. Progress need not be sweeping to be significant.
The Five Overlooked Features of the Real Estate Capital Markets More than five years ago, in the inaugural issue of the Wharton Real Estate Review, Peter Linneman published "Forces Changing the Real Estate Industry Forever." How have Linneman’s arguments held up? REITs have not yet gained significant advantages in rais-ing debt or equity capital, as he foretold, but transparency has resulted in lower capital cost. Rational pricing has not brought an avalanche of capital to REITs; capital for devel-opment remains a private sector endeavor. Finally, certain real estate capital sources seem bound to private markets. But Linneman got it absolutely right when he observed that REITs had created a revolution.
The Forces Not Changing Real Estate Forever Five years later, it is clear that the thesis of Peter Linneman’s article, "The Forces Changing Real Estate Forever," has not held true. The advantages of consolidation do not apply to real estate as they do for the petroleum, aerospace or tire manufacture industries. Linneman rais-es five attributes of consolidation: leadership; long-term capital; low overhead; enhanced rev-enues; and successful risk management. These attributes have not benefited real estate, an industry that has too many players, is much too dynamic, and needs constant creativity to allow meaningful consolidation.
The Multi-Family Rental Housing Outlook Although 2002 will be a weak year for rental apartment operations in almost all markets, the real estate industry will weather this downturn significantly better than it did in the early 1980s and mid-1970s. A return to meaningful net operating growth income depends on when concessions begin to diminish and effective rents rise. The key variables to watch are whether the homeownership rate continues to rise above 68 percent, or begins to recede to its early 1990 rate of 64 percent; whether apartment starts fall to the low-to mid-100,000s, or continue closer to 200,000; and, whether the economy can gather momen-tum throughout 2002, once again creating meaningful job growth.
Legal Do’s and Don’ts for Age-Restricted Communities Although the Fair Housing Amendments Act of 1988 prohibited discrimination against families with children, the acknowledgement by Congress of many older Americans to live in communities without children led to federal law that circumscribes the requirements for communities intended for persons age 55 and over. Since that time, these age-restricted developments are on the rise, with growth largely attributed to aging baby boomers and longer life-expectancies. Through a discussion of federal law and other key considerations that must be understood by any developer considering embarking on a project of this type, this article provides a legal perspective to assist in creating a successful age-restricted hous-ing development.
American Architecture, 1975 - 2000 A discussion of design trends in American architecture from 1975 to 2000 includes two general tendencies that have influenced designers during this period: far sources and near sources. Far sources include both pre-modern, or historicizing, images, and popular, or commercial, images. Near sources include various architectural movements of the early twentieth century such as Modernism, Expressionism, and Constructivism. Whereas far sources make use of decoration and traditional ornament, near sources are essentially abstract. The work of a variety of architects is discussed under four general headings: "Inventing Tradition" (for example, the work of Robert A. M. Stern); "Celebrating the Everyday" (for example, the work of Robert Venturi and Denise Scott Brown); "Redefining Expressionism"(for example, the work of Frank Gehry); and "Expanding Modernism" (for example, the work of Richard Meier). The future direction of American architecture is seen as a fusion of various Modernist sources.
The Woods at Bath: Pioneers of Real Estate Development The eighteenth-century housing projects of John Wood and his son, John Wood the Younger, in Bath, England, are significant contributions to modern real estate develop-ment. The projects are an ensemble consisting of Queens Square, King’s Circus, and the Royal Crescent (30 three-story houses with service basements and attic servants’ quarters, arranged in a flat arc more than 500 feet across) and the connecting streets. The Woods, who were both architects and developers, found debt and equity financing for the proj-ects, and also leased and managed the properties. In integrating these diverse functions and creating projects of lasting significance, Wood and his son were among the first profes-sional real estate developers. Their architectural strategy was to control the public façade of the buildings, while allowing the houses themselves to vary considerably in the rear. They also pioneered the use of the Palladian style in housing terraces. While Bath was a spa town, this approach was emulated in commercial housing in more than twenty British cities, including London, Edinburgh, Brighton, Cheltenham, and Ramsgate.
The Art of the New Urbanist Deal New urbanism proposes new models for the urban design of master-planned communi-ties and town centers. The financial performance of three projects is examined in detail: Seaside, a second-home resort in Florida; Lakelands, a master-planned community in Gaithersburg, Maryland; and Haile Village Center, a mixed-use residential, commercial, and retail center outside Gainesville, Florida. Seaside, which consists of 630 residential units, about 45,000 square feet of retail, and about 18,000 square feet of commercial space, has slowly developed into a financial success. The first lots sold in 1982 for $15,000; by 1992, the average price of new lots sold was $130,000 and by 2001 it was $690,000. The project has become a model for several larger second-home village-type resorts in northwest Florida. Lakelands, with 220 developable acres, has about 1,572 residential units (houses as well as multi-family), the majority produced by national homebuilders. The selling rate has been good: in the first three years, the project sold about 400 units a year. The land at Haile Village was originally bought for $2,500 per acre and is today sell-ing for more than $300,000 per acre; the value of the project at build-out is estimated to be about $500,000 per acre. Due to lack of visibility, there has been some difficulty in attracting a large variety of retail tenants.
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