EQUITY GREEN

Publicly Traded REITs Take A Beating, Time For A Green REIT

Public REITs took a beating this week, which got me thinking.  Analysts are still claiming that REITs are undervalued...but their value reflected in their stock price continues to fall.  It seems like the trend for REITs is that the weak performers get privatized (Crescent) and strong ones remain strong.  However, one of the stronger performing apartment REITs, Archstone-Smith Trust, announced last week that they are considering an offer to be purchased by Tishman Speyer Properties and Lehman Brothers, throwing a wrinkle into the "only the strong survive" mentality. 

Quick refresher:  A REIT is a company that invests in all sorts of properties, usually within a certain sector.  For example, sectors can be commercial properties, residential properties, hotels, etc.  Sort of like a mutual fund for real estate.  Public REITs sell shares in the open market, like the New York Stock Exchange (NYSE).  One of the advantages of a REIT is that its earnings are not taxed as long as the REIT distributes those earnings to its shareholders every year. 

So are REITs undervalued?  Why are they experiencing sharp declines in their stock price?  Those are good questions with many different answers, depending on who you listen to.  I am still developing my theories but if you have one of your own, please comment.

I still think there is room right now for an all green REIT, a REIT that invests only in LEED-certified properties!  LEED properties are grabbing the attention of potential tenants, especially in the commercial property market.  Buildings are more efficient, operating costs are lower, employee satisfaction is up, architecture is cutting-edge, communities want them, skylines benefit from them, local governments want well-designed and well-publicized structures...which all lead to tenant interest, demand, and ultimately occupancy.  Healthy balance sheets containing appreciated assets occurs over time as a result of building a real estate portfolio with strong properties that have low vacancy rates, low operating costs (relative to built to code buildings), strong management teams and great designs.  I will keep noodling the Green REIT idea...       

Boston Properties

General Growth Properties Inc.

SL Green Realty

Liberty Property Trust

Enterprise Community Investment Offers Capital For Affordable + Green Housing

Everyone deserves a piece of the "green" pie.  At least that is what Enterprise Community Partners ("Enterprise") is all about.  Enterprise grants equity to non-profits and for-profit developers to build green space for low-income residents.  The catch?  Create sustainability by incorporating green standards in their projects.  Obviously the projects will have to meet certain standards for their tenants (i.e., rental housing projects should have at least 25 units reserved for renters with incomes below 60% of area median income) to receive the funding from Enterprise.  So far, they have set some pretty lofty goals in terms of funding but they are definitely seeing success.  In 2004, they launched the "Green Communities Initiative" aimed at providing more than $550 million to build affordable green housing.  One such project is Broadway Crossing in Seattle (pictured), which is home to 44 affordable apartments in Seattle's Capital Hill.  Found in the heart of a dense, urban neighborhood close to public transportation, Broadway Crossing boasts Energy Star appliances and lighting fixtures, southern and eastern facing units, low-flow water fixtures and green friendly paints, sealants and carpet.  One thing I haven't figured out is Enterprise's business model (i.e., how they generate a return on their investment).  Comments?

Green Communities
Enterprise
Broadway Crossing
Low-Income Built Green

Developer Mitsui Fudosan Brings Green Urban Development To Tokyo

Looks like Japan has gone green in the Roppongi neighborhood of Tokyo!  The Multi-Housing News is reporting that the urban, mixed-use project "Tokyo Midtown" is now ready for business!  40% of the over one million square foot development is green space.  Actually, what I like about this project is the fact that the trees that were displaced were actually replanted.  I saw this when I was in school...the university was digging out this huge hole in the middle of campus to put in a library and the trees that were removed were put in these huge wooden crates with a lot of dirt and soil and they just sat on campus until the library was built.  So, major props go to the landscape architecture firm EDAW for saving the trees!  They are actually based in San Francisco but have offices world-wide.  If you want to see the types of projects these guys are working on, check it out. 

According to Toshihide Ichikawa (general manager at Mitsui Fudosan for the Midtown project), mixed use is a relatively new concept in Japan.  As I was thinking about it, I didn't see a whole lot of mixed use developments in Korea when I lived there.  If the leases tell you anything about the project's popularity, the project seems to be a hit with the likes of Cisco and Yahoo Japan signing up to lease commercial space.  In fact, according to the project leader Toshihiko Omachi, all of the commercial space is fully leased up.  Not only does the development boast a commercial presence but it also has over 500 residential units...not to mention a Ritz Carlton, which no doubt fits in well with the Midtown project's overall elegant design, redefining luxurious city living.   

The project is also credited with helping to stimulate the local economy.  That's actually a part of the story that I would like to dig a little deeper.  You see that a lot, especially in big cities...I saw that happen to the commercial office space in the SOMA (San Francisco) district in late 2004 and into 2005.  At that time, leases were pretty high in the SF financial district and property managers were unwilling to negotiate rent terms.  Tenants were offered killer deals to relocate south of market...some even got building naming rights to move out of the financial district.  A domino effect ensued and now that area is really thriving.  Anyway, the Midtown project looks great and it is pretty amazing to think of how they figured out how to cram over 400,000 square feet of green space in Tokyo!   Via.

The Green Initiative Fund (TGIF) At UC Berkeley!

I got an email yesterday from Roland  Saekow, a student at the University of California at Berkeley and coordinator of "The Green Initiative Fund."  The Green Initiative Fund is a student fee referendum that Roland and other students are trying to get passed at a student election this April 11-13.  According to the measure, TGIF is a fee of $5 per student per semester that will raise over $200,000 for sustainability projects to make "Cal" greener.  The initiative is entirely student driven.  TGIF will help improve the environmental sustainability of UC Berkeley by funding projects to make it more energy efficient, increase water conservation, promote renewable energy, bring better foods to campus, and create "green" student internships.  If you visit their website at www.votetgif.com, you can find useful information, videos, and documents about this important green milestone at the Berkeley campus.  I realize that when you are in school, times are tight and you are lucky to scrap together a few bucks to hit the dollar menu at McDonalds.  However, I think that the TGIF initiative is a great cause that would not only help the students but it would also help make the campus more sustainable for years to come...building a legacy of green awareness for future students.  I have set up links below for more information.  Thanks Roland for the heads up.

Download TGIF_Overview.pdf
Download TGIF_VIDEO.mp4

Does "Green" Building Increase Your Real Estate Property Value?

Does "greening" your home or property increase its property value?  If so, how much?  Depends on who you ask.  How much would you (as a buyer) be willing to pay for a house that has quality landscaping, solar panels, energy-efficient appliances, radiant heating, etc?  Do you know how to assess that value in terms we all understand...like dollar bills?  Do property appraisers know how to assess that value?  These are questions I have been thinking about lateley.  Here's a hypothetical scenario I have been thinking about...let's say that I have greened out my home to the max but now I want to sell it.  My neighbor is also selling his home but has not greened it at all.  For all intents and purposes, both homes have similar specs (sq. footage, design, original purchase price, etc.).  So really the only difference between the two homes is the green investment I have made.  How much "more" can I ask on the sales price...over what my neighbor is asking on his home (or can I?). 

Couple things to consider...it probably cost a bit more for me due to the green investment...if it cost me X dollars to make all those green upgrades...can I ask for 2X when it comes time for me to sell the home?  1.5X?  X?  I am interested if any of the readers have been in this situation...either as a buyer, seller, agent, etc.  Obviously, there is some value associated with the reduced costs to operate the home or property (i.e, utility costs) due to the green investment, which is usually a tangible, hard number that buyers can see, understand, and justify paying a little bit more to purchase the said property.  What led me to this scenario is this...if subprimes slow down the housing market and the supply of homes available for sale goes up, will a green home sell better in any given neighborhood than a home of similar qualities minus the green upgrades?  Comments?  Experiences?

Real Estate Trends: Using Structured Sales To Defer Tax!

What's up everybody?  Well, the sun is shining here in the SLC and I would really like to get a bike ride in but...I have a lot going on today + my bike needs to be tuned.  Anyway, today's post will probably benefit real estate developers, investors, land holders better than anyone else.  Less focused on green ideas and initiatives and more focused on business transactions and tax ramifications.  The topic is structured sales (Wikipedia has a good little explanation).

Anyway, I have seen structured sales mentioned in a couple different articles recently and thought that I would dig a little deeper and then feature it in a post.  Basically, a structured sale is a tax deferral strategy.  The idea being that if you sell a piece of real estate today, you would likely pay tax on the difference between your sales price and your purchase price (i.e., you sell capital gain property for $1,000,000 but you bought it for $500,000...your capital gains tax is 15% x $500,000 or  $75,000).  But let's say that you don't really need the money from the sale to roll into another real estate deal...or you just want to defer the paying of any taxes.  Enter structured sale.  Similar to an installment sale.  With an installment sale, let's say you work out a deal with the buyer.  He agrees to pay you $100,000 for 10 years (equaling the $1,000,000 sale price).  Well, instead of recognizing $75,000 of tax in the first year...you end up spreading the tax bill over 10 years...recognizing a piece of it everytime you are paid the $100,000 from the buyer. 

You see a lot of installment sale structures when you are selling a business...but what about real estate.  One lot...one piece of land...one house.  Well, enter structured sales.  Structured sales differ from installment sales in that SS are usually backed by an insurance company (Allstate or Prudential) acting as a third party.  The seller sells it to the insurance company...who in turn sells it to the buyer.  The buyer pays the insurance company for it...in the meantime, the insurance company has set up the seller with an annuity based on agreed upon terms.  Insurance companies are large and liquidenough to be able to set up structured sales...offering annuities to the seller, where individual buyers would be unable to do so.  The market for structured sales right now is still small but it is growing.

There are some other nuances but that is the general idea.   Pretty cool idea if you want to defer the tax.  Structured sales have emerged in response to the IRS ending another popular tax-deferral strategy called a private annuity trust.  If you would like more details on anything in today's post, shoot me an email.

TechNet Explores Technology + Green Trends

I came across this ABC News (search: 'Tech Goes Green:) video clip on Yahoo about TechNet, which is a bipartisan political network of CEOs and Senior Executives of leading U.S. technology companies...representing more than 1 million employees.  It is pretty cool actually.  All of these CEOs and big wigs get together and talk about issues facing the world today and try to figure if/how technology can be used to tackle some of these problems.  Members of TechNet include heavy hitters like Microsoft, Amazon, Ebay, Cisco, and Visa.  The video I saw was an interview with John Chambers, the CEO and Chairman of the Board of Cisco Systems.  He had some really interesting ideas and I was trying to apply what he was saying about technology to real estate. 

According to Chambers, there is approximately 1.5 billion dollars of venture capital right now chasing green technologies and renewable forms of energy...he feels that it is the next big wave that will cause a paradigm shift in how we live and conduct our lives. 

I agree with that.  Not only does it provide efficiencies from an financial or economic point of view...socially, it is the right thing to do.  And it seems like the green movement is close to a irreversible tipping point...with groups from all different platforms (government, business, Al Gore) coming together with a common goal...that's when things can happen and happen very fast!  Alright, how does this relate to real estate.  Follow this...technology-->real estate-->sustainability-->economic footprint-->profitability-->new trends-->TELECONFERENCING! 

This was a trend mentioned by Chambers but it hit me pretty good.  As the internet continues to grow and progress and as businesses cater to and develop more sophisticated forms of employee flexibility (work when and where you want...just get your work done) and as homes and businesses are built with an infrastructure for teleconferencing (demand for these types of building structures will increase and the quality of the structures will have to improve because we will spend more time in them)...the quality of our personal lives will increase.  We will be able to work faster...be more flexible...more efficient...less congestion on the highway...less emissions...smaller personal footprint...increased profitability!  So, if anyone at work asks where I have been...I will respond, "I work at home to reduce emissions!"

Green REITs Part II (Hines REIT + Liberty Property Trust)

Well, today's entry is long overdue.  A while back, I wrote the first-part of a two-part series about green REITs.  The purpose of this two-part series is to explore the idea of an all-green REIT and to speculate if there is room for this type of vehicle in the investment world.  In the first article, I looked at Equity Office Properties, which isn't shy about investing in green real estate but you are hard pressed to find any mention of their green activities on their website or in their annual report (speculation was that if they marketed themselves as a green REIT, they would lose large institutional investors).  This time around, I want to look at companies that make no apologies (to investors or the general public) for their investments in sustainable real estate. 

The first company I want to look at is the Hines Real Estate Investment Trust.  Hines REIT has already developed and built several green buildings.  Among the buildings that Hines owns and manages, 70 are major U.S. office buildings that account for 22% of the total square footage of all non-goverenmental office buildins in the EPA's Energy Star Program. The Hines REIT was launched in 2004 and currently holds about 6 million square feet of office property throughout the U.S (it actually owns one of the buildings I used to work in when I was in San Francisco).  The company has stated its intention of being committed to growing the portfolio over the next couple of years.

Another REIT making some headway is Liberty Property Trust (NYSE: LRY).  Liberty Property Trust is one of a few REITs to focus on U.S. Green Building Council's LEED rating system instead of the EPA's Energy Star Program.  As of June of 2006, Liberty had five LEED-targeted developments in progress and owns one of the first LEED Gold-rated office buildings in the U.S. with its Plaza at PPL Center in Allentown, PA. 

To meet the demand for an instrument that invests in a diverse pool of fiscally, environmentally and socially responsible real estate, Jonathon Rose Company LLC launched the Rose Smart Growth Investment Fund--the first REIT devoted primarily to smart growth.  The fund was launched with $100 million in initial capital-->raised from a network of affiliated planning and development firms. 

Are REITs undervalued?  Good question.  Values for office space over the last couple of years have increased tremendously...what about the value of REITs...well, I am not 100% sure...if we take a 5-year look at Liberty's stock price (here), they have done well.  I guess the question that still lingers in my head...public or private?  Invest in public REITs that invest in various green properties or invest in the green property itself?  Chime in...email me or comment.

Red Reef Labs + JDM Capital Are Renovating Buildings Green

Red Reef Laboratories International, Inc. (Pink Sheets:RRLB) and JDM Capital Corp. recently announced the formation of JDM Reef Capital Management, LLC, a joint venture poised to purchase environmentally distressed buildings, green them up in order to increase their market value and then sell them.  According to JDM's president, "The bottom line is to create profitability while leaving the assets and our environment in a better place than we found it."  LEED certification will be sought for some of the properties.  According to the press release, Red Reef Labs has a strong reputation for restoring healthy environments in properties that require restoration.  Red Reef Labs is a specialized chemicals company dedicated to develop and apply advanced decontaminates for the remediation of polluted environments.  Most Red Reef Labs' products are considered environmentally benign and human friendly when compared to some competitor's products, generally used in surface decontamination.  On the other hand, JDM Capital Corp (NYC-based boutique real estate finance company) has the ability to thoroughly understand, analyze and creatively finance real estate projects...seems to me that this JV is strategically aligning itself to do some good things.

However, I am not totally convinced that a JV can be financially successful enough to warrant the thousands/millions spent on reclaiming the property to a workable condition.  Once that has happened, then additional thousands/millions must be spent to build the structure to green standards.  Maybe that is where JDM's experience in creative financing comes into play.  Depending on the cost, if you can obtain favorable financing (100 year interest only loan-->just kidding) you can make a real estate project successful.  Anyway, I am just trying to brainstorm a little bit-->it just seems to me that reclaiming a distressed property would be much more of a hassle and much more expensive than just finding a building in a great location or even starting from scratch...the key-->being able to avoid the cost that comes with making whole a structure that has been environmentally distressed.  Comments welcome.   

New Release

Green Trends in Real Estate!

I have been thinking a lot about trends lately.  Trends and infrastructure.  I think we all tend to think about trends...the latest trends in music, clothes, television programming (i.e., reality shows, emergency room drama), home prices, etc.  Regarding home prices...you hear and read everyone's speculation about what prices are going to do...with respect to interest rates, with respect to supply and demand...how some areas of the country are flat-lining while others are still experiencing growth.  On the other side of the coin, we have infrastructure.  It seems that if you have a solid infrastructure, you are poised to rule the world...no matter what industry.  Consider Microsoft and Windows.  Consider the freeway system of a city whose population is growing like crazy...I don't know how many times I think to myself, "I wish they would have just built an 8 lane freeway to begin with as opposed to starting with a 4 lane."  Granted, there are numerous reasons for the current infrastructure (budgetary, etc) but to the extent you have a good infrastructure to push your products...you are that much more ahead of the competition.

So, these thoughts have been occupying my mind's space.  Now join the two...trends and infrastructure...now add a side of real estate and a sprinkle of green technology...where does that leave us?  That leaves us with a huge bowl of opportunity soup!  In all seriousness, we are at the front-end of some tremendous growth.  I know the "green" industry is growing and gaining a lot of speed, but there is still a lot of work to not only educate the masses but also to bring existing infrastructure (built-to-code structures) up to sustainable standards in the US alone.  Infrastructure includes everything from roads and bridges to energy supply and mass transportation systems.  Improving our infrastructure will ultimately reverberate to homebuilders and other developers...creating opportunities for growth. 

Do we have the capacity to accept more growth if we improve our infrastructure?  Maybe.  But first, let me first introduce private funds (billions of dollars parked in the private sector like pension funds, hedge funds, equity funds, banks, etc) to diversification.  Diversification will show private funds the world of opportunity that is infrastructure.  Anyway...I think there is a ton of opportunity over the next 10-20 years building up a sustainable "green" infrastructure.

California is getting there.  Voters have approved an almost $40 billion infrastructure bond that would spurn various infrastructure development in the start.  What do you think?  Do you think growth in the infrastructure market is important?  Do you have any ideas on how to finance the rebuilding of the infrastructure market?  Let's hear it!    

California Infrastructure