Transcript Slide 1

Chapter 2: In This Chapter
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Real Estate and the U.S. Economy
Real Estate and U.S. Society
Local and Regional Markets
Characteristics of U.S. Homes
Commercial Real Estate
Page 14
Real Estate and the U.S. Economy
 Personal equity
• Homeowner’s net worth: US $200,000
• Renter’s net worth: US $5,000
 Jobs
• Every 1,000 home sales adds 500 jobs
 Other contributions to economy
• US $60,000 for every home purchase
• Housing is 15% of GDP
• Homeowners pay 80-90% of
federal income taxes
 Commercial real estate: size, scope,
and quality
Page 14
U.S. Real Estate—Global Perceptions
Source: 2011 AFIRE Annual Survey
Page 15
Why U.S. Real Estate Is a Good Buy
 Access to affordable capital
• Non-recourse loans for qualified borrowers
 Organized market and orderly processes
 Strong right to own and transfer property
• Few restrictions for foreigners
 Possible currency discount
 Variety and choice
 Lower effective tax rate
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Page 16
Cost recovery
Interest deduction
Lower capital gains taxes
1031 exchanges
Who Buys U.S. Real Estate?
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Investors
Vacation homebuyers
Immigrants
US $66 billion
• 7% of the market
Page 16-18
Source: 2010 NATIONAL ASSOCIATION OF REALTORS® Profile of
International Home Buying Activity
Who Buys U.S. Real Estate? Cont’d
Source: 2010 NATIONAL ASSOCIATION OF REALTORS® Profile of International Home Buying Activity
Page 20
Impact of Immigration
 Population growth=increased demand
• 6 of 7 states with highest foreign investment also
some of the fastest growing states
 Home prices and rents rise with immigration
 Earnings of immigrants exceed the average
over time
 Higher than average homeownership rates
among immigrants
Page 19-21
Real Estate and U.S. Society
 Homeownership
interwoven with
success and
prosperity
 Expression of U.S.
ideals and the
“American Dream”
Page 22
Post-War Homeownership Programs
 Servicemen’s
Readjustment Act of 1944
and Housing Act of 1949
• Expanded affordable
financing
 Mass production
techniques by home
developers
• Rows of suburban homes
 Mass migration from the
cities and to the Sunbelt
Page 23-24
Source: U.S. Census Bureau
Urban Decay
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Result of suburban migration
Resources diverted from cities
Businesses followed employees
Deterioration of infrastructure and housing
Decline of city retail centers
Demolitions for renewal efforts and highway
construction isolated neighborhoods
Page 24
Urban Sprawl
 Common criticism of
suburban design
• Ecologically destructive
• Dependency on automobiles
• High per-person infrastructure
costs
• Lost productivity
• Low aesthetic value
• Ethnic and socioeconomic
segregation
• Declining health
Page 24-25
Urban Renewal
 Shift to renovation and commercial development
• “Gentrification”
 Increased amount, quality, and value of urban
homes
 Renewal of Central Business Districts (CBDs)
• Combination of office, residential, retail
• Public-private partnerships
• Historical, cultural, and entertainment
features highlighted
Page 25
Smart Growth
 Fights urban decay and urban sprawl
 Focuses on:
• Existing assets of community
• Long-term implications of development patterns
• Fiscal impacts of these patterns
 Does not deny the need for housing
 Open space, walkability, and other aspects of
healthy communities
 Part of green building movement
Page 25-26
Homeownership Today
 Government
promotes expanded
homeownership
 NAR supports
expansion of
homeownership
 Most Americans
aspire to own homes
Page 26-27
American Views on Homeownership
(% Agree or Strongly Agree)
Source: “American Attitudes about Home Ownership,”
NATIONAL ASSOCIATION OF REALTORS®
Tools to Promote Homeownership
 Mortgage interest deduction (MID)
 Property tax deduction
 Government Sponsored Enterprises (GSEs)
Page 27
Local and Regional Markets
 Markets vary in style and price
 Markets within markets
 Real estate professionals must know their
markets:
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Demographics
Employers
Vacation or retirement areas
Other institutions (e.g., academic)
Page 28-29
U.S. Homes: Suburban Developments
 Varied pattern
according to:
• Topography of land
• Infrastructure
demands
• Ordinances
• Amenities of
development
 Cul-de-sacs
Page 29-30
U.S. Homes: Transit-Oriented Development
 Seeks to alleviate
urban sprawl
 High-density, mixeduse development
near public transit
stops
 Livability and
walkability
Page 30-31
Source: Wikipedia; U.S Environmental Protection Agency
U.S. Homes: Common Characteristics
 Construction
• 2” x 4” (5.1 cm x 10.2 cm) or 2” x 6” (5.1 cm x 15.2
cm) stud framing
• Plywood sheathing and various materials on
exterior walls
• Drywall on interior walls
 Lots
• Yards
• Landscaping
Page 31-32
U.S. Homes: Common Characteristics
Cont’d
 Square footage
• Newly constructed homes 2,500 square feet
(232.26 square meters) on average
• Can be much larger
 Layout
• Open vs. traditional layout
 Home styles
Page 32-33
Commercial Real Estate
 Income-producing
properties
Absolute Gross
Absolute Net Lease
Lease
 Building class
Tenant pays all
Owner pays all
operating expenses
operating expenses
 Owners
Hbyrid Lease
 Buyers
Party responsible
for specific
 Due diligence
operating expenses
negotiated between
 Property management
owner and tenant
 Brokers
Source: Adapted from CCIM Institute
 Tenant improvements
and space planning
 Leases
Page 34-40
Valuation of Commercial Real Estate
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Net operating income (NOI)
Net present value (NPV)
Capitalization (Cap) rate
Cash-on-cash return
Gross rent multiplier (GRM)
Page 40
Types of Commercial Properties
Primary
• Office
• Industrial (e.g.,
warehouses,
manufacturing
space)
• Retail
• Multifamily
(income-producing)
Page 41
Others
• Hospitality
• Land
• Recreational
• Marinas
• Golf courses
• Self-storage
Commercial Services and Staff
Brokerage Services
• Acquisition and
disposition
• Corporate solutions
• Leasing agency and
landlord representation
• Tenant and buyer
representation
• Investment services
• Net lease transactions
• Auction and
accelerated marketing
• Sales and leaseback
• Market research and
opinion of value
• Site selection service
Page 42-43
Asset Services
• Asset management
• Property management
• Corporate facilities
management
• Build-to-suit and
development services
Financial Services
• Capital markets
• Acquisition and
disposition
• Investment services
• Mortgage brokerage
• Structured lease
finance
• 1031 tax deferred
exchanges
Commercial Services and Staff Cont’d
 Firms may specialize in one or several services
• Employ expert staff in those areas
 Large firms employ specialized staff in research,
appraisal, valuation analysis
 Some commercial practitioners focus on one
client
 Residential practitioners do not usually provide
commercial services
• Errors and Omissions Insurance likely
prohibits
Page 42-43