UNC Real Estate Conference – February 23, 2012 – Summary Notes

March 6, 2012

Nick Sargen—SVP, Ft. Washington Investment Advisors, Cincinnati, Ohio

2012 Outlook:  Overcoming Debt, Deadlock, and Financial Depression

  • There is a loss of policy making in the US and Europe
  • Nervousness-crisis had gone from smaller countries to larger ones—Greece to Ireland
  • Markets stabilized at the end of 2011, U.S. stock market was flat, emerging markets sold off—12 to 19%, there was a flight to quality—treasuries.
  • Investors were fearful of a double dip-2nd recession, but according to Nick—we couldn’t go much lower.
  • Why don’t people feel better about things?
  • Decline in unemployment is exaggerated, U.S. households are adjusting with debt, interest rates must be kept low, corporate profits are rebounding.

Europe—how bad? 5 point plan:

  • Take Greece off the map, recapitalize the banks, reliquify the banking system, create a firewall so people don’t worry about Portugal and Italy, and move toward fiscal integration.
  • European Central Bank is expanding its Balance Sheet.  Europe’s problems are not solved—have some breathing room.
  • China is pulling off a soft landing—bubble in housing market maybe.
  • Fed policy objectives-maintain inflation expectations while lowering real yields.  U.S. is improving marginally—2 to 3% 
  • Stay Nimble, Be Humble—2012 will be a Mixed Bag……

Peter Muoio, Ph.D., Maximus Advisors

Key Dynamics for the Economy

  • When people are uncertain about the future, they wait and do nothing.
  • Uncertainty is the enemy of growth.
  • Consumer spending gyrating as consumers respond to economic winds, retailers appear to be thinking about expansion again.
  • Home price declines-industry continues to languish.
  • Stock market sell-off hurt household wealth, again.
  • Savings rate has dropped significantly in recent months.
  • People are also taking on new debt.
  • Business sector is holding up so far—investment spending is increasing.
  • Export growth has been a key ingredient of recovery, Global growth is slowing.
  • Government shifting to exerting a drag on the economy—state and local employment is down.
  • World of known unknowns and unknown unknowns—we have a lot of known unknowns that could once again break up the party.
  • Having robust apartment and hotel recoveries
  • Apartment absorption is strong—rents up 4.7% since trough
  • Household formations are picking up again—1.1 to 1.2 million is standard—400k or less for the 2 yr. recession.
  • Expect strong rent gains ahead.  Office jobs have been recovering, supply-demand in balance, office rents edging up. 
  • Retail-grabbing higher share of sales and changing retail formats
  • Spending on housing related goods are still soft.
  • Hospitality-demand increasing on all fronts-supply slowing, occupancies are healthier.
  • Hotel revenue is tracking with ebb and flow of GDP.
  • Foreign visitors to U.S.—very strong.

Mark Vitner, Senior Economist, Wells Fargo

  • Word to describe the economy—SURREAL
  • Lots of vulnerability out there
  • Europe, oil and gas prices—not sure economy can handle $4.50/gal for gas,
  • Politics is a sleeper-
  • Thinks we will see Moody’s and S&P downgrade credit this year.
  • Deleveraging—we are more vulnerable, but resilient.
  • People are not paying off debt, large growth in student loans.
  • More people realize they will not have same incomes or create wealth they used to believe they would have.
  • Banking system is stronger—competitiveness is a strong suit of our country.
  • Office employment is not as strong as the numbers suggest.  This is temporary staffing employment.  Thinks GDP growth is understated.
  • From history—recoveries from financial crises tend to be slow and protracted.
  • 2022-back to our normal—doesn’t mean we aren’t going to grow, but-lots of shadow inventory.
  • Housing-thinks starts have bottomed and will increase
  • Moderately thru 2012 returning to a normal level by 2015.
  • Single family starts—forecasted to rise 7% per Wells Fargo.
  • N.C. labor market is still severely impaired. 
  • Thinks the glass is half full, but it is a shot glass……

Notes from ULI’s 2011 Fall Meeting in LA

November 1, 2011

 What’s Next for Real Estate?  Presented by ULI Senior Fellows:

 Tom Murphy—where jobs might be in the future.

  • Employment change 1990-2010, Boston lost 120,000 manufacturing jobs—55%
  • Realized gains in professional and business services, healthcare and education
  • Average space per US employee—from 1985 to 2011 dropped 150 square feet per person
  • Expected to drop another 150sf by 2020.  People are plugging in their computers in designated work spaces and working together.
  • Educated work force is important going forward—gives you a competitive advantage-D.C. leads, San Fran, San Jose, Raleigh.
  • Research $ a region attracts is critical, availability of capital—2/3 of venture capital goes to Silicon Valley, Boston and New York area.
  • Necessary ingredients—low crime, leadership, infrastructure investment—how you move people around.

John McIllwain

  • We are 4 yrs. into the housing recession nationally, home prices are down this yr. and he thinks they will continue that trend next year.
  • Home prices are down 30% from 2006.
  • Forming 400k households/yr—New home sales of 300k or less
  • Homeownership rate typically 65% and falling—we will see more renters in the future
  • Since 2004—US has 4.3 million more renters,  11 million homeowners are under water—equates to 57% homeownership rate.  There are far more renters living in the suburbs.
  • Gen. Y—16 to 33 yr. olds—pent up demand of 4-6 million households waiting to be formed.  They are poorer than any generation since the ‘30’s.
  • Highly mobile, well educated, very urban—most want to be a homeowner eventually.  They are in debt—projection is they will buy in their mid to late 30’s.
  • Seniors (65-75) there will be 14.5 million more by 2020, they are living longer, most are active and healthy, family is important and they are deferring retirement—they are urban, diverse, and open to change.  Question is do they have enough money to live for the rest of their lives? They say they will age in place—can they continue to pay for housing?
  • Financing—nothing certain here—90% of all housing is financed by the Fed.  Expect no changes until 2013 at the earliest.

Ed McMahon—sustainability

  • Energy and green building—retrofitting of existing buildings—where will our energy come from? Global energy consumption will double by 2050. $8/gal gas in 2020.
  • Revitilization and redesign of suburbs—conversion of dead or dying strip commercial centers in suburbs into urban, walkable places.—Opportunities with greyfield sites—tear up parking lots and rebuild paradise.
  • One less car for greater homebuying power allows people to live closer in.
  • Leveraging green—Millennium Park in Chicago.
  • Water is more precious than oil—San Antonio has instituted innovative water conservation techniques.

Steve Blank—Investment

  • Volatility and uncertainty will be on the rise—4 paradigm shifts
  • Securitization-more jv’s, partnerships, reits’
  • Globalization-public and private debt and equity will evolve, Volker rule will be implemented.
  • Consolidation-size becomes prized.
  • Technology-Myths/legends exposed—AIG was rated AAA.

  

Respondents to the book—What’s Next For Real Estate?

 Rosemary Feenan—Jones Lang LaSalle

  • Ebb and flow of cities—which will do well, city to city commerce
  • Attitudes to risk are changing
  • Transparencies are more important
  • Stress on water-natural resources
  • Competitiveness with cities—gen x and y, which cities do you want on your resumes?
  • Riots in London—concern for real estate and unemployment.

Thomas Tooney—UDR- apartment reit –owns 60,000 apts.

  • How does current environment change my business model—how do I make money in the future?
  • 80% of US GDP is an urban platform
  • 6 million more renters by 2015.
  • Cities resources are strained. If a weak city, maybe can’t service us.
  • Jobs/education attract capital
  • Energy-water-living with less.
  • Gen Y phones are on all the time—need bandwidth—criteria for apt. dwellers
  • Seniors are larger part of the work force—how to create a market niche? Suburbs are not dead—immigration-positive trend-how does your product fit for them?

Thought Leaders—Brooke Warrick-President of American Lives, and Peter Yesawich-Chairman of Y Partnership.

It’s about lifestyle, not real estate.  It’s about family, not goals.

Thomas Friedman-something’s happening here—value shifts are taking place.

Technology is changing the way we work.

Internal focus used to be making money, now more family oriented.

6 Trends

  • Voluntarily Simplicity—they can live a simple life, family and relationships are more important.
  • Cutting back-doing so in favor of family-home becomes more important—2nd home even more important now.
  • Book—Encore—people our age want to create something new, search for fulfillment and meaning,  not cutting out, but cutting back.
  • New resourcefulness—way $ is managed in households, practical vacations.  This is not a fad.

 In 2008 US had 10 million millionaires, lost 3 million in 18 months. There is a pervasive degradation of trust in government and most institutions—causing us to turn more inward, more cocooning.

  • Health and wellness—well established trend—not a fad. Biking and walking trails within communities is the connective tissue.  Happy places in the world are characterized by 6 hours of socialization/day.
  • Brooke lives in Carmel—observes strollers and older people walking daily.  Health thru nature-can do art on these trails, promontory points, waterfalls, gazebos, sanctuary places.
  • People our age have intellectual curiosity—dimension of wellness as it relates to lifestyle—programming-software is intriguing to people—art classes, cooking—want to learn more.
  • People are looking at fulfillment thru giving—not necessarily making money.  Sun City lifestyle is not what is happening—there is an opportunity here to service the boomers.
  • Canyon Ranch—guests talked about the spiritual journey they got—not the great massage or spa.  Miraval-talked about mindfulness and intentionality.  Women are taking the lead.  Neuro channel physical activities.
  • Buyers of 2nd homes used to take a vacation, fell in love with the experience and bought the property.  Now they are looking for a more practical investment, prices they pay are lower—takes them to shared ownership—not whole ownership.
  • Need to create a multi generational experience.
  • Sustainability—do it—all other industries are creating consumer monsters—Wal Mart is doing it.  Look at as a system issue—local people, local food, local resources.  Organizations should have a meaning and a mission, not just transactions.  Need to communicate that mission.

Book-Differentiation

Work life—habits changed about 1996

  • Average work week is 48 hrs.  We are consumed by work
  • People are not willing to leave their work life behind.  Work life is transforming us.  Vacations are getting shorter—weekends are most popular.

 Personalization—one size no longer fits all

The way people use it is important to figure out—resort developers need to figure this out—how do I want to spend my time, family.  Technology piece fits in there.  Worked with Texas homebuilder—had a showroom—people had choices to make—easier for consumer to choose from 6 vs. 24.  Amazon.com—bought this book, might like this book.

Multigenerational—those that took a vacation—1 out of 4 is a grandparent—1 out of 3 of those took vacation with grandchildren.  Hallmark sold 84,000 cards last year where people turned 100 yrs. old.

The “Girlfriend experience” 4 girls reconnect each yr at Canyon Ranch—transformational experience—75% of spa business is women.

Authenticity is in demand—fundamental in all the experiences we have.

Marti Barletta—founder of Trend Sight Group and author of Marketing to Women–helping companies get smart about women.  Prime Time Women—50’s and 60’s.

Hotels tell us that women comprise 50% of the business travelers and 76% of meeting planners.  Lifestyle-real estate—women are the primary decision makers.

Five stages for couples in the buying process:

  1. Decision to buy—woman is the budget manager-pays bills in 83% of households.
  2. Research the short list—she must be aware—she does the research thru referrals, pr and adv., target tightly on top prospects—magazines, direct mail and email. Looks at your website and dvd’s.
  3. Visit/sales consultation—man and wife go and “assess the fit”. He assesses the property, she assesses the home-livability, functionality, flexibility. Most Realtors say He can say no, but only She can Yes.  Salesperson’s ability to connect with her often makes a difference—Listening-details make the difference—Aligning communication with her priorities, creating rapport, trust and confidence.
  4. Purchase negotiations/contract—lots of questions and what ifs.  She will often defer to him.  This is where husband steps forward and she steps back.
  5. Referrals-word of mouth is huge—“surprise and delight”—ex. of receiving bouquet of red roses from PeaPod—online grocery delivery service—told everyone about it.
  •  Industry issue is “Why Buy Now”?—Women’s values and priorities are family, friends, girlfriends and grandkids.
  • Our focus should be on Prime Time Women—prime marketing target in the prime of their lives—not retired, exec. VP’s, work outside the home—very large growth expected.
  • Looking for a hotel in mid town Manhattan under $500/night—location and price are important—she will shop around, looks at more options than men.  Deciding factor was Westin—“heavenly bed”.
  • When you meet expectations of women, you exceed expectations of men.  To Women, people are the most important and interesting element of any situation.  Ads with women on the golf course are attention grabbers.
  • Women want the same things as men, and then some…..

Effective Sales and Marketing in the New Economy-

  • Prospective buyers must experience it-must visit the property.
  • Sales associates need to be coached and retrained.
  • Website needs to be compatible with IPAD and IPHONE
  • Need programs where people can stay on the property-have special events and get your prospects to attend.
  • Need to understand your prospects, their likes (hiking, birthdays) and communicate with them.  Know your audience, be able to tell the story.  Buyers want validation, they will bring their wife, their friends and their children.
  • In the Boca market—built some models and prospects bought model and interior furnishings as well.  They also saw benefit in reaching out to top brokers in major markets.

Toll Brothers Golf—David Richey—Why is Toll Brothers Buying Golf Courses/Clubs without real estate?

  • Wants their clubs to match the image of the homebuilding company—Toll’s brand as a luxury homebuilder.
  • Clubs are in trouble today and need creative solutions.
  • Opportunity to purchase at an attractive price.
  • Using homebuilding company’s resources for existing membership and management talent.
  • Have available capital and corporate resources.
  • Restructuring/New Memberships:
  • Expects more non equity will prevail at a lower price
  • Will be non refundable
  • Fees will come down
  • Working on removing the objections to joining and removing the obstacles to resigning.

Boomer Values Realignment Study


Capital Connections — ULI South Carolina Capital Markets Conference 9/19-20/11

September 28, 2011

Tim Quinlan—Economist—Wells Fargo

  • He forecasted stagnation in economic growth—income continues to grow and sustains consumer spending growth—however slight.
  • Rates will move sideways to slightly up.
  • Housing starts have bottomed-will increase modestly thru 2012 and “normal “ levels in 2015—1.3 million starts
  • Gap between existing and new home sales is widening.  Enormous supply of vacant homes for rent and for sale—2006 level.  Stimulus programs and foreclosure moratoriums are going away.
  • Commercial real estate prices remain weak
  • Apartment market growth has started to slow.
  • Office fundamentals are improving.
  • Industrials improving slowly.
  • Retail hit the wall in first half of 2011—higher food and energy prices.
  • Job growth in S.C. concentrated in professional and business services, education and healthcare.
  • S.C. housing market continues to struggle—building activity is flat.
  • N.C. job growth is dipping—new housing construction is constrained by high levels of inventory.
  • Overall inflation is trending up—economy is not expanding.

Opening session—Dean Adler, CEO & Founder of Lubert-Adler and Bob Faith, Founder of Greystar

Moderated by Steve Navarro of the Furman Co.—positioning your companies over turbulent times.

  • Bob-knew downturn would eventually come-need to plan and position for it, Greystar manages 185,000 multi family units—focus entirely on that business.  “Never bet the ranch”.
  • Dean-in the fall of 2007 they were not prepared for the Depression—enormous uncertainty-not sure banks would survive-everyone wanted to get liquid.  His firm communicated with lenders, partners and investors consistently.  Had too much equity in some of their developments-couldn’t get liquid.
  • 2009-10—focus on rental assets-had an appetite for yield-needed whatever generated yield-weren’t many assets for sale so they went to the debt markets to get control of those assets.
  • Bob-know who your partners and lenders are—that is critical, Greystar gave 2 properties back—AIG—had no clue!
  • Dean-know who you are dealing with going forward, their goal is to acquire assets where they have a competitive edge.  Auctions are creating very high prices—they use the “borrowers approach—trying to recap the loan with the borrower so they get the right information.

Regarding capital sources

  • Dean suggested using existing investors—matching assets they have not been able to sell—feels responsible to get best price for his investors when they sell.  Rebalance your portfolio and learn from the best.

Strategic Planning—most important for new investors

  • Dean-focus on mid market ($10-30 mil) with local partners—local businesses.  Big pools are selling at a premium-not at a discount, rates of return are 12% on leveraged basis for non performing loans.
  • Backing partners where they can find opportunities-local executors—Multi family and retail space.
  • Bob—started Greystar in 1993-focus on MF-largest in the US.
  • Dean-huge changes in retail-been dominated by large guys—Wal Mart, Best Buy.
  • Huge risks for shopping centers that are not in top tiers, must have retailers in advance, retail is a game of winners and losers, need to be the premier center or don’t be in the game.
  • Hotels-urban, in major markets are ok-real problem is pricing—can’t get 10x NOI.  Volatility has not been priced in.
  • Steve- geographic markets—where will you invest?
  • Bob—Dallas, Atlanta, L.A., D.C., Boston
  • Dean-want informational or operational competitive edge-where partner in the transaction has been operating the asset.
  • His exit strategy has changed dramatically over last 120 days, never been a better time to sell, no yield in the world today—5 cap doesn’t mean anything—he has been a net seller where there is no significant growth.

Leadership:

  • Bob—Trammel Crow told him to get 3 bids on a deal and them add them together! (for most realistic pricing)
  • Doing things the right way gives you competitive advantage, treat people with respect, honesty, acting with humility—this is a relationship business. We are in a cyclical business so plan accordingly, and do not ignore the data plus trust your gut when it comes to people decisions.
  • Dean—real estate is a local game—local guy has the pulse of the market.
  • Insider has a lot of on the ground experience.
  • It is about execution-not just acquisition
  • Real estate is all about leasing to Real Demand—they got in the resort business—his advice was when the investor is the buyer or user—RUN!

John Bucksbaum—Former Chairman and CEO-General Growth Properties

  • His father and uncle built their first shopping center in Cedar Rapids, Iowa in 1954
  • In 1970 GGP became a publicly traded REIT.
  • 1985-took it private–$800 million value—largest real estate transaction ever in this country—they were a ground up developer. ( IBM pension fund)
  • 1993 went public cause they saw the business changing, expected large acquisition opportunities–$1.2 billion company with 22 malls.
  • 1994 acquired Centermark Co—shopping center arm of May Co.’s that owned 20 properties-$1 billion value—brought in Westfield and Goldman Sachs to help.
  • 1999 John became CEO
  • 2004-bought Rouse portfolio $13 billion that included Columbia, Maryland, Woodlands in Houston and Summerlin in Vegas.
  • August of 2007—GGP had market cap of $45 billion with 200 malls, 200 million sf of space and over 24,000 tenants.
  • They had paid over $4 billion in dividends, never defaulted on debt—paid off over $32 billion in loans.
  • Problem: financial market driven issue—they financed each property individually –60 to 70% loan to value.
  • CMBS market shut down in 2008—was $32 billion market in ’07, $16 billion in ’08, 0 in ’09.  Had large near term debt maturities—average time to maturity was 2.82 yrs (compression of maturities hurt).  Cash flow of $2.5 billion/yr.  Stock price at peak was $67.50
  • Lesson: while you cannot imagine what a doomsday scenario can bring—think about the worst case possible
  • 11-08—stock price was $.32/share with $100 million mkt. cap
  • 4-09 filed for bankruptcy
  • Return of GGP in 2010—new entity is Howard Hughes Co with stock priced around $18/share.
  • Lessons learned from bankruptcy:
    • Trust your instincts
    • Must be your own advocate
    • Don’t trust anyone!
    • Everyone gets rich but you–$250 million paid in professional fees.
    • What do you really think of equity?
    • Who is serving whom?
  • How important is the judge?—In his case, critical in that he told the creditors they were not going to destroy this company.  John worked with the equity committee and helped them understand the value of the company.

ULI Snapshot: Charlotte, North Carolina

February 22, 2011

Several analyists predict that the 2011 residential market in Charlotte will closely mirror that in 2010 with a recovery in sales prices and sales activity in 2012 . . . . to read more from Urban Land online, visit http://bit.ly/gHXpXK.


Notes from ULI Fall Meeting, Washington, D.C. – October 13-15, 2010

November 2, 2010

Recreational Development Council meeting:  Politics, Policy, Recovery.  What is on the Horizon?

Speaker was Kevin Hassett, Senior Fellow and Director of Economic Policy Studies with the American Enterprise Institute.  Served as policy consultant to the Treasury Dept. during Bush and Clinton administrations and for John McCain.

  • 3 parts to this year, including 4th qtr of last year—at first looked like a traditional recovery, Milton Friedman’s belief that with a deep recession comes a fast recovery (like plucking a violin string).  In mid March the health care bill passed and the economic data looked worse, people freaked and the situation became even worse so that in June and July we experienced negative GDP.  Then things turned on a dime where we were thinking double dip recession, and then expected 2% growth in the 3rd qtr. and escaped the recession.
  • Rhinehardts wrote a paper for the Jackson Hole conference recently about what happens after a financial crisis occurs:
  • We spend a decade growing much slower than we used to.
  • Unemployment goes up and stays up for a long time.
  • If history is a guide, unemployment might drop to 8% over the next 8 yrs.
  • Equity markets are a surprise—drop 50% and then in the 2nd yr. or so, grow to 11%/yr for the next 10 yrs.
  • Residential real estate prices do not rise however, they drop steadily and sharply for 3-4 yrs. after the crisis, drop 35% typically and stay lower for a long time.
  • 10 years later, prices reach 85% of peak, unprecedented if they exceed peak prices.
  • Real estate markets have major impact on GDP—if bad new in real estate, then conditions remain bad—Rhinehardts call it “regulatory forbearance”.  Unemployment stays high because when people get out of the labor market, they tend to stay out and become even more discouraged.  Plus, employers are hesitant to hire someone who has not had a job for 2 yrs. 
  • Economic policy going forward—If Congress does nothing, Hassett thinks the situation is quite scary—the Bush tax cuts will expire and 25% of U.S. will pay alternative minimum tax.  The payroll tax is used to pay for health care (3.8%), so with all the increases, the highest tax rate jumps from 39.6% to 44.6%.
  • Claimed Bush’s greatest success was cutting the dividend tax to 15%.
  • Hassett’s expectation 60-40 that the current policies will be extended in to next year and then Congress can argue over tax issues, etc. for the next several yrs.
  • Website- www.intrade.com – trades political futures—probability that Republicans capture the Senate is 45% and capture Congress is 85%.

 Two theories:

  • Obama came is as a political pragmatist—his agenda was ambitious and he passed a lot of legislation.  He delegated authorship to the Pelosi team who turned out to be more liberal than he was and is now in a conciliatory position.
  • The agenda we saw was Obama’s and his view of how the world should work is really what is in his heart—so confrontation and gridlock result. 
  • Hassett thinks we could be looking at a “nuclear winter “ next yr. —where nothing is accomplished.
  • Asia is doing well, European nations are in the midst of a debt crisis.  The next  financial crisis could start as a result of the debt crisis in Ireland and Greece.  Major problem if Greece defaults, but even larger problem if Spain defaults on its debt.  Thinks the risks are high that these defaults could occur.
  • Serious concern that we don’t do anything to reduce the Risk of Panic—lots of folks are worried about this.
  • Upside is that policies have been so bad and we are in such a mess, everything is as bad as it can be and we can’t screw up any worse than it is now.
  • Manufacturing has declined so much in the U.S. due to corporate tax rate being so high—40%.
  • We will be higher than Japan (reducing to 30%) after first of the year.
  • Looking at the election: thinks there needs to be a big pow-wow with the new Republican majority and an action plan to solve some of our problems—then we can look at a 2% GDP growth possibility.

 

Q and A:

  • Health care bill—extremely unpopular and poorly designed—there will be bills next yr to fix some of the provisions.  Government official’s quote: “You get to keep you health care plan, it is just going to change!”
  • Dodd-Frank is a catastrophe for real estate—financial sector will be a lot of monopolies and Fed can tell you what to do, will drive up costs of finance in U.S.
  • Tea Party revolution’s impact—not really a Republican thing—more people thinking the government’s gotten too big.  Government spending $3.6 trillion this year goes into the baseline and will spend more next yr.  Government will be 24-25% of GDP—for yrs. was 19%, steadily.  This was the max people could tolerate.
  • Interesting note that the tea party consists of 60% females.
  • Government spending increased under Reagan and both Bushes, but did not grow under Carter or Clinton.  He anticipates 1.5% inflation over next 8 yrs.
  • FNMA and FHLMC should be shut down—no one is willing to defend them—very dangerous practices and they are still making loans to people that can’t afford them.

 

Real Deals Part 1: Re-Financed and/or Acquired

Jeff Meyers of Meyers Builder Advisors—observations:

  • Private sector jobs have been added this year—this housing cycle is deeper and longer than previous ones.  Home sales will experience a 15-20% increase in 2011.  Inventory is 9 months.
  • Per Case Shiller most major markets can see a bottom.  Land prices have reached a trough.
  • National builders starting making significant investments in developed lots in April of 2009.
  • Shadow inventory looms large.
  • Vacation buyers preferences: Beach, lake or water, boating.
  • 66% of vacation buyers are willing to travel more than 100 miles, primarily coming from West and South.
  • “A” markets for vacation buyers are near major airports, have a long primary season –coastal California and Palm Beach, Miami, sustainable offseason activities, and proximity to water.
  • Equity Markets—there is lots of capital but just can’t find attractive property types—most are chasing
  • MF and industrial.  Some looking for target land deals—sf homebuilding and land development, looking at big bets–$50 million + deals—targeting Calif., Arizona and Las Vegas with significant price declines make these markets attractive.  Returns looking at 20-30% IRR.  Most equity firms think we are at or near bottom in the cycle.

 

Jeff Woolson—CBRE—“we don’t set the market, we service the market”

  • What’s Selling?—well located highly amenitized developments—properties with prices ranging from 10-40% of debt or former value.
  • What’s not selling?—poorly located properties and land for 2nd home communities.
  • Who is Buying?— 1)rich guys who don’t need a pro forma to prove they got a good deal—70% of buyers, 2) Funds with proven track record of success—15% of buyers, 3) Developers teamed with the above funds—15%.
  • Who is Not Buying?-those with hands full with problem properties, promoters with out successful track records.  OPM (other people’s money) is much harder to access than it used to be. 
  • Recent sales included Sea Island–$212 million and Amelia Island–$67 million.

 

Tom Harrison—Colony Capital

  • Have not invested in resort real estate in past 12 months, invested in Wm.Lyon—regional homebuilder in S. Calif.
  • There is a New World Order with paradigm shifts dealing with Demand, Demographics, Needs vs Wants, and Public Policy.  Lots of rethinking, repositioning and restructuring going on.
  • Leadership is the key factor Colony Capital looks at—not jobs or consumer confidence—perception of value must exceed price.
  • Churchill—“when you are going thru hell, keep going.”
  • Looking for proven markets and A quality products.  Angel investors are a must.

 

Chris Fair—New Geography of Resorts

  • Surveyed aspirations—top 9% of all households—1200 people, average age-52, income-$378k, net worth-$3.7 mil.
  • Most desired in 2010 very similar to 2008:
    • Taking exotic vacations
    • Owning vacation home in mountains or beach
    • Extended time off work
    • Work from home
    • Gourmet kitchen at home
    • Owning their own business
    • Wife/husband able to stay home with the kids.
  • Vacation Property Ownership: 
    • 43% owned and 52% were considering a purchase.
    • Considering vacation home or vacation condo was most important.
  • Key characteristics of affluent intenders:
    • Younger across all product types, lower net worth across all product types, little difference in incomes, timeshare considered equally by men and women, but private residence club and destination club were more favorably considered by men.
    • Top locations: Fla., Calif, Carribean, Carolinas and Arizona.

 

Real Deals Part 2:

Changes in Existing Communities and Resorts—Toni Alexander

1)      Talking Rock Ranch—Prescott, Arizona

  • Drive to market, 2nd home, about 1.5 hours from Phoenix
  • 3600 acres, 1000 acres of open space
  • Sold 600 lots, have 600 members, have 1000 lots to sell, have 165 homes built and occupied.
  • Buyer is affluent, not wealthy—really pulled back, 98 foreclosures this year,  mostly pre-retiree and retiree.  Have advertised full page in WSJ on Saturday and are pleased with success.

 

2)      Kiawah—Buddy Darby

  • Have 300 remaining lots to sell, 80% of owners do not live there full time—use 8.2 weeks/yr. 40% from NE, 40% from Mid West, 20% all over.  95% of property transactions are resales.  Sold $168 million in 2009, will do $250 million this yr—05 sold $500 mil.
  • Over 50% of sales are from referrals of property owners—age is getting lower, Sanctuary is 6 yrs. old and great resource for prospects.  They do a fair amount of advertising with imaging ads—quality of life, nature, environment—golf is #5 as most important feature.
  • Have 1400 members, $150k for full membership—don’t have to join the club.
  • Friday night member mixers inviting guests is a big hit and helps move real estate.

 

3)      Hualalai, Oahu on big island of Hawaii—Pat Fitzgerald

  • 865 acres, 280 members, created in 1996—sold $1.8 billion, 580 transactions during that time.
  • Four Seasons Hotel is a great resource for them—get prospect list.
  • Experienced decline in prices so agents are letting prospects know this is a good time to buy—values are down 20% or so.  Sales manager puts out Recommendations of the Month and eblasts to prospect list. Have Monday night cocktails for members and guests, guests get a lei—let’s members know who to work on for buying real estate.

     

State of the Timeshare Industry:

Howard Nusbaum, President of the American Resort Development Association

  • Timeshare is defined as one (1) week intervals that you use 1 time/year.
  • 1548 resorts and 170,000 units in U.S.
  • Sales price/interval in 2009—$20,468.00
  • Occupancy at 80% in ’09 and has held steady for 5 yrs at that level
  • Fractional is multi weeks and more of a 2nd home market.

 

  • Maintenance fees have grown 9% over past 5 yrs and 87% of ts owners are current.
  • Units to be built in 2010—3,538 and 2,908 in 2011.
  • Average purchaser is 52 yrs. old, makes $80k and is highly stable borrower.
  • Average loan is $20k, fixed rate for 10 yrs. 
  • Tours are down 6% this year (536,000), close rate is 15.4%
  • Average transaction value is $16,393, get 20% down payment and better fundamentals are now in place compared to a few years ago.
  • 31% of owners are retired, 17% own more than 1 product, and have an 84% satisfaction rate. 
  • Capital is starting to come back and chase a few deals—80% of owners belong to an exchange company.
  • www.vacationbetter.com   

Other resources and links:


Welcome to Burnett Real Estate

July 22, 2009

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Burnett Real Estate Advisory Services, LLC utilizes a diverse team of experienced consultants and strategic partners to analyze the profitability and viability of residential communities. 

We assist in:

  • Completing infrastructure improvements;
  • Providing financial analysis;
  • Developing sales and marketing initiatives;
  • Establishing builder programs; and
  • Securing investors to purchase developed home sites in underperforming residential developments. 

We are able to add value with creative solutions to complex issues with meaningful results.