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Architecture and Density For most of their history, cities have tended to be dense, with tall buildings a key feature. The attacks of 9/11 struck at the notion that density and tall buildings are desirable. In the wake of the attacks, it seemed that terrorism spelled the end of the skyscraper. But density is a necessary feature of the twenty-first century. This article argues that density is possible without extremely tall buildings, and challenges some common misconceptions—that horizontal development is more or less incompatible with density; that horizontal development can happen only at ground level; that vertical development means "going up," whereas it can also mean "going down;" and finally, that tall, high-density buildings mean dead public space at ground-level.
Understanding the Return Profiles of Real Estate Investment Vehicles Opportunistic real estate private equity funds target gross returns of 16 percent to 20 percent by pursuing unique and aggressive value-added investment strategies. As a result, benchmarking performance for these vehicles is difficult. This article simulates four types of real estate investment vehicles (NCREIF, core plus, NAREIT, and opportunity funds) under various market conditions. At almost no point during comparable investment horizons does the return profile for the opportunity fund resemble that of the other three investment vehicles, regardless of whether market conditions are "normal," "strong," "weak," or "disastrous." However, relative return patterns are shown to change under different market conditions, and each vehicle is susceptible to particular risk factors in varying degrees. So, while there is currently no quick solution to benchmarking the performance of real estate opportunity funds, this analysis attempts to dissect the relative weight of each risk factor affecting the returns of each vehicle.
Can Property Taxes and Development Charges Help Shape Metropolitan
Areas? This study reports on a survey that sought the opinions of developers in Ottawa and Tor onto on property taxes and development charges and the effect of these instruments on land-use, density, and the timing of development. The results show that developers do not consider property tax differences in their planning decisions. Spatial differences in devel-opment charges are recognized and the instrument can be used as a planning instrument to help redirect growth in ways that help rationalize infrastructure development. Developers did not see development charge differences as reflecting cost differences, nor did they see the charges as easing the development approvals process. The high degree of uncertainty regarding future markets eliminates, in the developers' view, the effect of the fiscal instruments on the timing of their decisions. Developers build when a reasonable return is possible and do not wait for development opportunities to ripen in ways that would yield even greater profits. The effects of the fiscal instruments are therefore due primarily to their substitution effects. The study supports the use of development charge schedules that accurately reflect the differences in the social cost of building types, density, and location.
New York City's Ten Year Capital Plan for Housing During the Ten Year Capital Plan for housing, begun in 1985 and now lasting beyond fifteen years, New York City has spent more than $5.1 billion to build or rehabilitate more than 180,000 housing units. A variety of strategies were adopted. To achieve the required levels of production and diversity, the city took advantage of the resources and capacity of the private sector. Private mortgage capital played a pivotal role. Many leading financial institutions made the construction and permanent loans for the city's gap-financing method. One of the greatest innovations of the Ten Year Capital Plan was that it married the twin objectives of housing production and neighborhood revitalization. Budgets did not typically include incentives for cost-saving, with the result that hard costs exceeded $100,000 per unit rather than the $60,000 to $65,000 per unit typical at that time. High union wages and restrictive work rules added thousands of dollars in useless requirements and lost productivity. According to one set of estimates, the cost to construct a mid-rise building in New York City was 4 percent higher than in Los Angeles, 10 percent higher than in Chicago, and 22 percent higher than in Dallas.
Connecting the Disconnect To outsiders—still far more numerous than insiders—real estate investing has never seemed particularly attractive. Where insiders see obvious progress, outsiders see things that have always been problematic about real estate investing. However, the attractive returns and diversification value of real estate are hard to ignore. This article reviews the traditional argu-ments for real estate: first, real estate has been proven to be a good diversifier of portfolios, one that lowers volatility of results in a way that enhances risk-adjusted return; second, real estate is an income generator; and third, because of important changes in the industry over the past decade, liquidity and transparency are up, cyclicality is down, and leverage is lower. The range of returns from top to bottom quartile in real estate investing has been similar to those from equities, and the overall returns have been comparable. Real estate today looks like a decent relative bet, given where the other major asset classes are starting.
Two Decades of Multifamily Financing Multifamily property finance has evolved dramatically over the past decade. The role of the traditional actors—thrifts, commercial banks and life insurance companies—has been overshadowed by the emergence of those with lower-cost access to the national and inter-national capital markets: Freddie Mac, Fannie Mae, and Commercial Mortgage-Backed Securities (CMBS). For example, since 1990, financing through Freddie Mac, Fannie Mae, and CMBS represented 69 percent of the net increase in conventional multifamily debt in the United States. The many changes accompanying this transformation include lower-cost access to capital; the decoupling of the underwriting, servicing, and investment decisions; and an injection of new capital from investors who had previously shied away from the complexities of apartment finance. Changes in capital holding requirements as well as the reduced risk of securities investments have encouraged banks, thrifts, and insur-ance companies to trade in their multifamily whole-loan holdings for Freddie Mac, Fannie Mae, or CMBS. Consequently, multifamily mortgage rates relative to benchmark yields have become less volatile and regional disparities in multifamily loan pricing have nar-rowed. The multifamily mortgage market has become bifurcated into small property financing (50 or fewer units) dominated by depositories' portfolio lending, and large property financing largely funded through Freddie Mac, Fannie Mae, and CMBS. Large apartment financing has been for the last decade the stabilizing core of commercial real estate finance. Moreover, it appears that the secondary mortgage market's underwriting standards and due diligence procedures have introduced sufficient market discipline to mitigate the past cycles in apartment financing.
Design Innovation and the Single-Family House Although American homebuyers are generally conservative when it comes to house design, being concerned that houses may be perceived as dated or unusual when it comes time to resell, the last 50 years have seen a number of design innovations in production housing. The 1950s and 1960s saw the introduction of ranch houses, split levels, bi-levels, breeze-ways, and picture windows. Most of these innovations have subsequently been supplanted. A number of CEOs of national homebuilding firms are interviewed. The predominant new design features in housing today include two-story houses, open first floors, and traditional features on the exterior. Homebuyers have consistently demanded larger houses, despite the fact that family size has not increased. There is a general tendency toward greater informality in house plans, more openness, and family rooms rather than formal living rooms.
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