After the Fall E-Book

Steve Bergsman

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 353

Veröffentlichungsjahr: 2009

Beschreibung

Praise for After The Fall "Steve Bergsman provides his readers with one of the mostcomprehensive, yet concise overviews of real estate and all itsproperty types."--Christopher Macke, Vice President, GE RealEstate "This is an extraordinary work of detailed research andcompelling writing. I've never seen the subject presented in such acogent and skillful manner."--Phil Hall, editor, SecondaryMarketing Executive "The way out of the financial crash of 2007/2008 will comethrough skilled operations, astute investing, and the ability ofreal estate practitioners to give up their mental memory of thefuture! The heated success of ten-year, unprecedented growth in thereal estate industry has somehow atrophied the industry'sapplication of knowledge. What we need is a fresh look atopportunities and strategies for real estate investing. We arelucky that Bergsman's book has fit the bill--just intime."--Jack M. Cohen, CEO, Cohen Financial "Insightful and informative; connects all the dots, providingthe basis and foundation for making strategic decisions about realestate."--Stephen Blank, Senior Fellow, Finance, The UrbanLand Institute

Leseprobe

Table of Contents

Title Page

Copyright Page

Dedication

Acknowledgements

Introduction

PART I - COMMERCIAL REAL ESTATE

CHAPTER ONE

Where We Are Today

Where We Were

Where We Are Headed

Fundamentals

CHAPTER TWO

Where We Are

Where We Were

Bulking Up on Distribution

Where We Are Headed

CHAPTER THREE

Where We Were

Where We Are Today

Follow the Rooftops

Where We Are Headed

CHAPTER FOUR

Where We Were

Where We Are Today

Investment Interest in the Asset Class

Where We Are Headed

PART II - OTHER ISSUES IN COMMERCIAL REAL ESTATE

CHAPTER FIVE

Where We Are Today

Value Proposition

Where We Are Headed

Existing Buildings

CHAPTER SIX

Where We Are Today

Opportunities in Commercial Real Estate

Where We Are Headed

PART III - RESIDENTIAL REAL ESTATE

CHAPTER SEVEN

Where We Were

Where We Are Today

Where We Are Headed

CHAPTER EIGHT

Where We Were

Where We Are Today

Where We Are Headed

PART IV - OTHER ISSUES IN RESIDENTIAL REAL ESTATE

CHAPTER NINE

Where We Were

Where We Are Today: Insurance

Where We Are Headed

Where We Are Today: Taxes

CHAPTER TEN

Where We Were

Where We Are Today

Demographics

Where We Are Headed

PART V - LEISURE REAL ESTATE

CHAPTER ELEVEN

Where We Were

Where We Are Today

Where We Are Headed

CHAPTER TWELVE

The Condo Hotel

Destination Clubs

Fractionals

Afterword

Notes

About the Author

Copyright © 2009 by Steve Bergsman. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Bergsman, Steve.

After the fall : opportunities and strategies for real estate investing in the coming decade / Steve Bergsman. p. cm.

Includes bibliographical references and index.

eISBN : 978-0-470-46522-6

1. Real estate investment. 2. Commercial real estate. 3. Residential real estate.

I. Title.

HD1382.5.B466 2009

332.63’24—dc22 2008045558

To my oldest and dearest friendEd Mosswho continues to reposition his real estate holdings.

Acknowledgments

Each book I write is an entirely different process. For my last book project, I found myself shuttling about the world, tracking down sources on Pacific Islands or in thickly forested northlands. In a way I’m embarrassed to admit this, but for After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade, I never left my office. Off the top of my head, I can’t recall one interview that was face-to-face, and there were many, many interviews done for this book.

This is where longevity pays off. I knew so many players in the real estate and mortgage industries, having written on the subjects for over two decades, that many sources, when asked if they would like to be interviewed over the telephone for this book project, immediately answered yes. For the sources I didn’t know, it took a round or two of e-mail correspondence to convince them I was a legitimate writer with a legitimate project. I suppose if they were distrustful, they could have always googled my name to find out my background.

As it turned out, I could count the number of sources on one hand who turned me down. Either they all trusted me or they all had good Internet research skills.

Anyway, a lot of very smart people helped me to write this book, and I wish to acknowledge their help. As always, if I missed mentioning a source, it wasn’t on purpose as my intention is to thank each and every one for sharing knowledge, experience, and market insights.

In order of appearance: Mitchell Hersh, Sam Chandon, Dan Fasulo, David Twardock, Douglas Shorenstein, Robert Bach, Colleen McPherson, Mark Weinberg, Luciana Suran, Michael McKiernan, Brad Copeland, Leonard Sahling, Michael Dermody, Charles Schreiber, Kevin Wilkerson, Matthew Anderson, Jim Koury, Sam Davis, Chauncey Mayfield, Dan Ansell, Christopher Volk, Richard Moore, Michael Pollack, Peter Donovan, Matthew Lawton, Richard Campo, Greg Willet, Gleb Nechayev, Lisa Sarajian, George Skoufis, Richard McBlaine, Jay Biggins, Dan Rashin, Jason Hartke, Mark Palmer, Anthony Irons, Matt Garlinghouse, Nicholas Eisenberger, Christopher Desloge, Olivia Millar, Nicholas Stolatis, Lauralee Martin, J. Allen Smith, Carlos Martin, Douglas Wilson, Matt Wanderer, David Tobin, Gil Tenzer, Russell Bernard, Ray Milnes, Richard Berry, Spencer Garfield, Pat Ford, Jack Corgel, Mark Woodworth, Kapila Anand, Ted Mandigo, Glenn Schultz, Peter Hooper, Jared Sullivan, Jonathan Dienhart, Richard DeKaser, Jed Smith, Celia Chen, Mel Gamzon, Robert Kramer, Raymond Lewis, David Schless, Richard Swerdlow, Walter Molony, Jack McCabe, Brian Gordon, Mario Greco, Brad Capas, Jules Marling, Robert Hartwig, Terry Butler, J. Robert Hunter, Eric Goldberg, Alex Winter, Paula Aschettino, Dennis Burke, Charlie Melancon, Natalia Siniavskaia, Elliott Eisenberg, Gerald Prante, Bert Waisanen, Charles Longino, Don Bradley, Gary Engelhardt, David Goldberg, Douglas Bibby, Charles Leinberger, Arthur C. Nelson, John McIlwain, Tom Booher, Bob Moss, Andrew Weil, Michael Novogradac, Nicolas Retsinas, Howard Nussbaum, Ed Kinney, Christine Karpinski, Liam Bailey, Ron Baron, William Van Gelder, Pat Kelly, Mark Lunt, Robert Goldstein, Jared Beck, Jamie Cheng, Nick Copley, Michel Neutelings, and Alfredo Merat.

Introduction

Around mid-year 2006, I was chatting with an acquaintance at a local coffee shop and he was telling me the story of a friend of his in California who had strung together a series of home purchases. She would buy one home, take a second mortgage on the property, then use the money from the second to acquire another property. She was so successful at this game that she had accumulated something like a dozen Southern California properties; all but one (where she lived) were rentals. It didn’t appear the rental rates were covering the mortgages, but that was all right to the woman because home values were skipping higher every month. On paper she looked like a millionaire.

My friend, who was a successful businessman, wasn’t entirely comfortable with his friend’s real estate position and asked me what she should do. I told him the outlook for residential real estate had turned sour and she should start selling as quickly as possible.

In retrospect, if she had followed my advice, she probably would have escaped the collapse of the residential real estate market in 2007. But, to illustrate how brilliant I really am as a pundit, that same year, I found myself being interviewed by a local publication and was asked what I thought about the subprime mortgage market, which was suddenly making a lot of people nervous. My response went something like this: Subprime only represents a small portion of the mortgage market. Factually, I was right, but my implied message was off the mark.

Such is the soothsaying business these days. If you get right 50 percent of whatever you might be divining these days, you should consider yourself lucky.

This is what no one predicted: When the residential real estate market bubble finally burst as it did in 2007, the collapse would be so sudden, so quick, and so deep, that a little over a year later it would mean the end of the independent investment bank, an institution that dominated Wall Street since the Glass-Steagall Act of 1933.

Here’s a journalist’s story on how fast the collapse came. In June 2007, I was asked by my editor at Mortgage Banking magazine to write a story on Tucson, Arizona-based First Magnus Financial Corp., which was one of the country’s largest privately held mortgage companies. Earlier that year, National Mortgage News ranked First Magnus as the ninth largest Alt-A lender in the country with $2.6 billion in volume.

The story was written, edited, and ready to be published when in August First Magnus filed for bankruptcy protection. In less than two months, it went from a successful entrepreneurial company with over 5,000 employees and a bright tomorrow to nothing. The company evaporated over the course of six weeks, and First Magnus executives never saw it coming. When I spoke with them in June, the future was written in hi-liter colors all over their faces.

In the course of interviewing people for this book, when picking out the culprits of the great real estate mortgage industry devaluation, a number of sources mentioned the press. I thought that was a bit unfair, not only because I’m a journalist, but for a couple of years starting around 2005 and certainly through 2006, many financial publications were calling the crazy, rampant housing sector a bubble that was about to burst.

“Bubble, bubble!” the columnists called out, quoting market analysts, investors, hedge fund execs, and equity market decision makers. And, of course, it’s all toil and trouble now—so much for bubble, bubble.

As a scribe who writes for almost a dozen different real estate and financial publications on a regular basis, I’ve personally written dozens of stories about the impending bursting of the housing bubble. Now I wonder who read those articles.

Not being an industry insider, I wonder what happens when you sense the end of the good times is nigh. Judging from what happened to lenders, homebuilders, Wall Street, big banks, and so on, I guess you do nothing and keep running forward for as fast and as far as you can before everything collapses around you.

At some point, do you say to yourself, it looks like the end of the run and we should begin to scale back. Or, is the forward momentum so great that it is just too hard to put on the brakes, let alone reverse direction?

When Ralph Cioffi and Matthew Tannin, two former Bear Stearns hedge fund managers, were arrested in 2008 and indicted on conspiracy and securities fraud charges, in my heart I wanted to say it was unfair that two people should be singled out for the company’s folly, but truth be told I had no sympathy for them. Cioffi said (on record!), “I knew the party was over, especially for residential mortgages,” but neither he nor Tannin could bring themselves to stop selling mortgage-backed securities investments. After years of pitching this stuff to investors worldwide, they just couldn’t stop—the forward momentum was too great.

The other thing that no one predicted was that the subprime mortgage collapse would not be a limited sector event. Much to everyone’s shock, subprime ended up to be a virulent, financial contagion infecting banking systems, investment markets, and all real estate sectors worldwide. It was the flu epidemic of the financial world. Over a period of a few short days in September 2008, three major financial firms went down. Lehman Brothers filed for bankruptcy, Merrill Lynch was acquired, and insurer AIG needed to be bailed out by the federal government.

Considering all the inaccurate punditry, what made me want to try my hand at predicting what would happen to the various real estate sectors after the onset of the residential mortgage crisis, shaken financial sector, ensuing credit crisis, slowing economy, property value depreciation, and any other sad issues one might want to throw into the mixer?

The answer is when bubbles burst and market sectors fall apart, the knee-jerk reaction is always to say something to the effect, “Okay, we’ve got a problem, but it will be short-lived.” I’m not sure why people who should know better say that, when all evidence suggests otherwise. I could understand the reassurance factor, but where is the credibility? When bubbles burst, the effects almost always last a long time. When real estate bubbles deflate, it is never a short-term problem.

Although I hesitate to admit this, when the last great real estate recession struck at the end of the 1980s, I was doing what I’m still doing, writing about property and financial markets. Although that recession was different in that it was led by commercial real estate overbuilding instead of residential real estate overlending, essentially when it comes down to it, we are talking about the same thing: too much liquidity in the system, which overstimulates investment and drives values up falsely.

A time-line summation of that property crash and recovery shows about three years in the trough and then another three years to clean up the markets and reset values. By year seven, financial systems and real estate markets get back to normal.

Although that is a very general model, my guess was that the time consequences would repeat again in this current real estate downturn. Despite all those assurances, my gut reaction was that this downtrodden real estate market—and I’m including the mortgage end of the system as well—would take a long time to get back to normal.

Knowing that all real estate sectors act differently and all geographic markets move on different time lines, I nevertheless decided to undertake this book project—what to expect from real estate over the next few years and into the coming decade—because sudden, wrenching, often very negative change in markets creates opportunities. Smart investors read the future in the carnage.

To write the book, I turned to everyone I knew in the industry and many people I knew of but had never spoken with in the past.

The tone and accent of this book, as revealed by each chapter title, would focus on an individual asset class such as office, industrial, multifamily, and so on. But as I was writing, other issues and other asset types turned up so I added them as bonuses (actually bonus boxes) in each chapter. Some issues were obviously a kind of “megatrend” (e.g., the Green revolution and infill development), so I carved out new chapters for those subjects as well.

What I sidestepped was government legislation as there were a tremendous number of federal initiatives being bandied about over the course of writing this book, but none had become law. Since I couldn’t guess which bill would pass and in what format, I stuck strictly to market forces.

Of course, what readers want to know is “When will real estate markets come back?” Since I’m not a soothsayer, I don’t know that answer, but what I tried to do is script a time line for individual real estate sectors based on historical paths, movement of data fundamentals, market analysis, and collective opinion. After wading through all that, I do indicate for many sectors when I believe the trough will finally be reached, how long the climb back will take, when the next peak will occur, and, unfortunately, play taps for those asset classes that physically, mentally, and economically will be scraped away.

Much to my surprise, After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade ended up being much more comprehensive than I had intended. I took that to be a good thing. But who could have predicted it?

PART I

COMMERCIAL REAL ESTATE

CHAPTER ONE

THE OFFICE MARKET

Steady fundamentals; This sector will bifurcate into have and have-not metros

“The office market is going nowhere—fast,” observes Mitchell Hersh, president and chief executive officer of Mack-Cali Realty Corporation.

Hersh should know a thing or two about the office market as his company, based in Edison, New Jersey, ranks as one of the largest real estate investment trusts, or REITs, that owns, develops, and manages office buildings. In the first quarter of 2008, Mack-Cali revenues totaled just over $800 million.

I have never met Mitchell Hersh, but he and I have spoken many times over the past years. I would have thought he would be more optimistic about the markets considering the fact that in 2007 he shrewdly increased Mack-Cali’s liquidity by issuing over a quarter of a billion dollars in new equity in a secondary offering and then in the third quarter increased the company’s credit facility by $175 million—all before the commercial real estate market, following the residential markets, froze up. Mack-Cali’s portfolio of properties (almost all of which were located in the Northeast) going into 2008 was about 93 percent occupied.