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The Equitization of Real Estate Over the last fifteen years, the commercial real estate sector has undergone a massive capital structure transformation, moving from private debt to both public and private market equity as the primary source of growth capital. As a result of greater connectivity to the broader capital markets, the real estate industry has experienced an increase in pricing efficiency. On a larger scale, the author believes that the sector is only at the halfway point of full maturation, and will continue to evolve over the next ten to twelve years. Going forward, as real estate becomes correctly priced, operational efficiency will also increase, making the ability to add value to real estate critical.
Adjusting Opportunity Fund Fees Opportunity fund performance should be correlated with core performance, equivalent leverage, plus a risk premium. However, this is often not the case. Fee structures must be continually adjusted to reflect the risk, return, strategy, and market condiditons in which these funds operate. This paper explores opportunity fund fee structures and the disconnect that can arise between compensation and investment performance under varying market conditions.
Retail-Office Performance Rotation The office and retail sectors exhibit a pattern of rotating performance relative to the overall NPI, which has profound implications for investors. The office sector has been prone to pronounced space market and investment cycles, but the retail sector has experienced relatively moderate cycles which, at times, have caused investment performance to deviate from other property types, especially office. Retail has significantly outperformed the office sector in recent years, but the U.S. real estate market has reached a turning point. As office vacancies decline, office rents rise, and retail sales slow, the office sector should outperform retail for several years.
Forecasting 2020 U.S. County and MSA Populations Population growth at the county level can be predicted using widely available demographic and economic data. Past recent growth, the presence of immigrants, the fraction of population older than 25 and younger than 65, low taxes, and good weather are all positively associated with population growth. The authors' forecasts reveal that most growth and real estate development will occur in the West, Sunbelt, and along the Southern I-85 route. However, many unexpected places will be winners or losers in the game of future local real estate development.
How Rising Housing Prices Have Stimulated U.S. Consumption A flood of financial capital into real estate markets after 1997—for both housing and commercial properties—greatly affected property prices and the wealth of U.S. homeowners. Housing prices rose sharply and interest rates fell, especially after 2000, increasing homeowners' net equities, and made borrowing against those equities easier. Millions of home-owners "cashed in" some of their increased equities to finance greater consumption. This sustained a U.S. economic boom. Since mortgage rates have risen, such "cashing in" will decline in 2006 and beyond, also slowing U.S. overall economic growth. However, there will be no "bursting of a housing bubble" in the overall housing market.
Urban Lessons from Katrina Some have argued that New Orleans should not be rebuilt after Hurricane Katrina, given the city's continued vulnerability to a direct hit from a stronger storm. Other major U.S. cities on the Gulf and East Coasts are also vulnerable to hurricanes and have less protection than New Orleans. While a direct hit from a hurricane is not as likely in New York City as in New Orleans, flood surges could invade subways and vehicle tunnels. West Coast cities are vulnerable to earthquakes, as are Memphis, Charleston and Boston. Rising sea levels imperil coastal resort areas, and forest fires are a threat to many rapidly growing regions.
Architectural Branding A discussion of architectural branding and of the leading architectural firms, such as Foster & Partners, the Renzo Piano Building Workshop, and the Richard Rogers Partnership, that have achieved the status of international brands. The advantages of branding to architects are described. How much value does a big-name architect actually add to a real estate project? The author concludes that to the extent that a celebrated architect delivers a superior product—a truly better and more efficient building—he will add value to the project, but it is risky to place a high monetary value on a recognized architectural brand.
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