The current foreclosure crisis calls for a new funding vehicle to finance the transition of real estate owned (REO) properties into the rental market. The Federal Reserve, in its recent letter to Congress, identified the need for Congress to adopt policies for overcoming obstacles inhibiting the conversion of REO properties to rentals. The Fed writes:

Reducing some of the barriers to converting foreclosed properties to rental units will help redeploy the existing stock of houses in a more efficient way. Such conversions might also increase lenders’ eventual recoveries on foreclosed and surrendered properties.

In case you are interested in the size of the market, the Fed quantifies the potential opportunity:

While the total stock of REO properties is difficult to measure precisely, perhaps one-fourth of the two million vacant homes for sale in the second quarter of 2011 were REO properties. The combination of weak demand and elevated supply has put substantial downward pressure on house prices, and the continued flow of new REO properties — perhaps as high as one million properties per year in 2012 and 2013 — will continue to weigh on house prices for some time. To the extent that REO holders discount properties in order to sell them quickly, the near-term pressure on home prices might be even greater.

One of the obstacles is the lack of large scale, professionally managed, well-financed organizations in the single-family rental space. The business has traditionally been run by small-scale, local investors. These current operators lack the resources to absorb the large number of REO properties entering the market. If financial institutions are forced to sell into a market of this structure, it will significantly increase the losses they are likely to incur.

That is why a new vehicle like a single-family real estate investment trust (SF-REIT) should be considered. REITs, with their access to public capital and highly skilled talent, represent a possible solution for the current crisis. A REIT entity tailored to the unique characteristics of single-family rentals could provide:

• ability to raise debt and equity financing in public markets to support higher bid prices for REO properties,
• professional management to implement the technology required to manage geographically disbursed and physically heterogeneous properties,
• ability to rapidly absorb large portfolios of REOs out of financial institutions in exchange for cash and REIT units and
• enable widespread public participation in this expanding industry while giving investors liquidity for their investment

SF-REITs will face much different operating needs than multifamily REITs. Therefore it will be necessary to tailor new legislation to accommodate these needs. But the benefits are clear and opportunities large.

Keep up with the latest Texas real estate news. Subscribe to our RSS feed

A few days ago, a presentation was made at the national convention of the Realtors Land Institute in Denver. Land brokers from all over America attended, and I had a great opportunity to get a sense of the current trends in the land market.

In my mind, the land market has three subgroups: agricultural land, recreational property and transitional land.

Agricultural land includes cropland and pasture for cattle. Ag land produces income to the owner; it can be categorized as an investment.

Recreational land describes properties purchased, not for income, but purely for enjoyment. A small acreage in the woods of Minnesota, or a lakefront property in New York or an arid place to hunt birds are examples. These properties are toys. You buy a toy just because you can. You buy a toy just because you want to. You buy a toy so you can have a good story to tell.

Transitional land is purchased for its development potential. This is typically land on the suburban fringe that is likely to become the next housing subdivision or the next industrial park.

Therefore, when someone asks, “How is the land market these days?” you have to recognize that each of these three categories is behaving very differently.

Farmland is on fire. Since Federal Reserve monetary policy has just destroyed any opportunity for savers, investors are searching for other “alternative investments.” In my mind, cropland is a viable alternative to owning gold. If the United States ever collapses into hyperinflation, food will retain its intrinsic value similar to gold.

Cropland has been increasing dramatically in value for the past three years. The neighboring farmer is often the buyer at these higher prices. Many sales are for cash. No leverage here. Quality cropland can still be purchased with an expected return of 4 to 6 percent. Pastureland has also increased in value but not at the same pace as cropland.

Recreational land is still languishing from the aftermath of the Great Recession and the periodic collapses that occur in the stock market. People buy toys when they feel confident that they have enough savings to support their business and their retirement plans. The Fed zero-interest policy is hurting this market. With heavy stock market losses in recent years and bonds earning virtually nothing, people anticipating retirement are ramping up savings significantly.

The expected returns on retirement portfolios have dropped dramatically in just the past three years. Retirees are hit even harder. Interest income on their portfolios has been crushed. Many retirees are re-evaluating how they spend their income because the government has stripped their assets of earning power.

It’s difficult to make any generalizations about price trends in this land sector. Some prices are reported to be down 40 percent from peak levels, but other properties haven’t seen that decline. However, transaction volume is way off. When properties aren’t selling, it’s hard to ascertain price trends.

I don’t expect recreational transaction volume to pick up until the United States is clearly experiencing a sustainable economic recovery and interest rates return to “normal” levels. According to Ben Bernanke, this might not happen for “an extended period of time.”

Transitional land is starting to awaken from a long and deep slumber. If you haven’t noticed, homebuilding has been almost nonexistent for the past three years. Who wants to own land for the next subdivision when you can’t predict when anybody would want the lots that you create?

The banking system has flushed many broken subdivisions back into the market after foreclosure. Banks don’t want to “extend and pretend” with these alligators, which voraciously eat cash every day. Some of these subdivisions have been sold to investors for “zero” value for the lots to investors who realize they will have to add huge capital improvements to complete the subdivision and don’t know how long they will have to hold the lots before they can be sold.

This is not true for all transitional land. In some areas of the country, jobs are being created and local economies are improving. Housing demand is gently increasing in these cities, and there is talk of “lot shortages” for desirable locations.

Industrial demand is picking up some energy too. Housing developers and industrial developers sometimes compete for transitional land. Don’t get me wrong, we are just in the very earliest stages of recovery in transitional land. In other parts of the country, land that was purchased by a developer has been foreclosed and sold at a huge loss to a farmer to put it back into crop production.

In Austin:

In Austin, Texas new home construction is finally picking up some steam. As Realtors we keep our eyes on the local market trends and we are projecting that in the very near future Austin will begin to start talking about the lack of new inventory. The demand here has been robust since Q4 2011 and the absorption has reduced inventory levels from a buyers market (over 6 months of inventory) to neutral or in my opinion a Sellers market (less than 4 months inventory). If this trend continues, which we expect it will headed into our “selling season”, the media will start reporting this supply and demand reversal very soon causing a big of a frenzy for quality property in central Austin. It’s time to make your move before the market moves up and inventory levels get stretched even more.

Gary Dolch

As professional Realtors, we follow the same philosophy; plan for perfection to attain excellence. Like Coach Walsh, we don’t stand a chance of delivering an excellent new home that satisfies a client’s wants and needs if we don’t set and expect the highest standards possible.

In the pursuit of excellence, we coach our homebuyers about the buying process so that their expectations are high but realistic. We want our homebuyers to push and challenge us to always do better, but it is also our job to define excellence … and point out the difference between it and perfection.

Our best and most effective method for doing that is listening. Really listening. Not just to find out which home style a client prefers, but why and how it will satisfy their lifestyle needs. Not just about which community they want to live in, but also their concerns and questions about the quality of nearby schools, proximity to shopping and public services, and commute routes to work.

In this discovery phase, we craft a strategy for a new home that truly addresses and justifies our client’s reasons for making such a significant investment and sets us on course to deliver it according to those expectations.

It is also critical to maintain a regular and open line of communication during the search process. As during the planning stage, our first job is to listen to and then educate and inform our buyers about the subtleties of the areas in the Austin market that are specific to their concerns.

Responding to a buyer’s question with “that’s just the way it is” or “it’s complicated” is unacceptable. Instead, we strive to deliver details, demonstrate our methods, and ensure that questions are answered to a buyer’s satisfaction. That approach and level of respect for our buyers helps build a better understanding of our process all the way through the close of escrow.

Finally, a key component of delivering excellence comes after the sale, once a buyer becomes a homeowner. We make sure to communicate and offer client services after the sale — once again demonstrating the difference between perfection and excellence. Ideally, we’ve done an excellent job of finding their new home to the point where we want our clients to call on us for help and we work to be responsive and responsible to address them in a timely fashion.

As a homebuyer and owner, it’s okay to want the “perfect” home. The best we can do, however, is to strive for perfection and achieve excellence that satisfies the lifestyle needs of our clients and protects their investment now and well into the future.

Warm Regards,

Gary and Michelle Dolch

Marketing Strategy Video

Apple Inc.’s proposed new campus would be located on 38.81 acres of vacant land the company owns on West Parmer Lane and Delcour Drive.
Related

Austin City Council approves $8.6M Apple incentive agreement
Council members discuss one of ‘deals of the decade’ with Apple
Apple to create 3,600 new jobs in Austin

County commissioners voted 4-0 on March 27 to direct staff to construct a draft agreement outlining provisions that Apple would have to agree on before the Cupertino, Calif.–based received the rebates.

Travis County Judge Samuel Biscoe said staff would likely use the City of Austin’s agreement, which City Council approved March 22, as a starting point for the county’s agreement. He said provisions may include the amount of jobs Apple must add with requirements about what percentage of new employees must be residents of Travis County and the amount of money the company would have to invest in real property.

“We keep hearing we don’t have to do anything,” Biscoe said. “[County staff] have been making commitments since February.”

Biscoe said county staff has been discussing an incentive of 80 percent in tax rebates for the first 10 years for any improvements, such as building a new facility, that Apple would make on the 38 acres the company owns near its existing campus at 12545 Riata Vista Circle.

The commissioners are also considering a point system to determine the amount of tax rebates to give Apple. Biscoe said that under this system, Apple would receive a certain number of points for each provision the company meets, such as hiring 3,600 new employees or hiring a percentage of those employees from Travis County.

“If they don’t comply, they could lose part or all of their rebates,” Biscoe said.

If both the city and county approve financial incentives, Apple is eligible to receive $21 million from the Texas Enterprise Fund, which is designed to attract businesses to the state.

The commissioners plan to discuss the draft agreement at their April 3 meeting.

by Amy Denney

March 28, 2012

• Sound Investment: Austin is the 2nd best investment market in the country according to Realtor.com.
• Job Growth: Austin ranked No. 1 among the nation’s 50 largest metro areas in job growth over the past eight years.
• Low Stress: Austin ranks low on list of the “Most Stressful” U.S. cities.
• Innovative Spirit: Austin is No. 2 U.S. city, behind San Francisco, for tech startups.
• Retirement Mecca: Austin has been named a great place to retire by CBS Moneywatch.
• Escalating Income: Texas ranks No. 3 for income growth according to new data new data from the U.S. Department of Commerce.
• Career Happiness: Texas named 3rd ’best state to make a living’ in MoneyRates.com study.

In addition to these accolades, a Yahoo! finance report recently reported that it’s a great time to build a home due to “record levels of affordability, thanks to a combination of low rates and a steep decline in prices.”

Peter Drucker – the mammoth business genius said it better than I ever could – the husband and wife who open a delicatessen or Mexican restaurant are surely taking a risk. But are they entrepreneurs? No! All they do is what has been done many times before them. They gamble on the increasing popularity of eating out in an area – but they create NEITHER a new satisfaction, nor a new consumer demand.

The true entrepreneur has to have special characteristics over and above being new and small. In fact, Drucker believed that true entrepreneurs are a minority among most small businesses. I agree! True entrepreneurs are a rare and elite breed. They create something new, something different. They change, innovate or transmute values. In short, real entrepreneurs don’t need to be small or large. It’s more about your focus and purpose, AND COMMITMENT to transforming the industry/business model, value proposition, buying experience and overall benefit delivered to the consumer.

People who need certainty are NOT likely to be or become true entrepreneurs. They are destined to be mere proprietors. Where’s the big difference? Drucker says it’s more about your business concept and theory…than current ability. The big key (he says), that differentiates the wheat from the chaff – the entrepreneurs from the proprietors is their commitment (or lack thereof) to purposeful innovation.

The true entrepreneur is willing, eager to perceive change as a huge opportunity, rather than a threat or deterrent. He/she must have built-in commitment, to constantly improve their performance – on many different “fronts.” While proprietors cower from change, fears change, grovels and steeps themselves deep in the status quo… the true entrepreneur is ALWAYS excited, committed, continuously searching for new innovation. He/she wants innovation, they’re receptive to things that challenge their current beliefs, business structure or business model.

Real entrepreneurs REACH for innovation. They work hard to discover, uncover, define, refine and initiate innovation. Mere proprietors try to hold on (desperately) to the past and what already exists. True entrepreneurs know that change and innovative thinking is the perpetual path to decisive advantage and profitable, sustainable growth. They find innovation an attractive concept to invest in, educate themselves on…and master.

True entrepreneurs start their enterprises recognizing the constant need for innovation and factor into that need — the critical time frames required to stimulate the never-ending changes that propel their continued, purposeful existence. They’ve got continuous innovation plans laid out along with specific objectives/purposes for doing them.

Now, to make this concept MORE complicated. Because, the direction of innovation your entrepreneurial business takes MUST focus where the business can make the maximum contribution to the market. How does someone realizes themself to be a mere proprietor “transform” into a true entrepreneur? You need a systematic commitment to abandon whatever in your business is outworn, obsolete, no longer productive as well as mistakes, failures, underperforming or misdirected efforts, actions or opportunities. Innovating requires a major effort that (frankly) most people reading this WON’T be willing to make.

You have to be able to free your mind — to see your challenges as “benefits,” plus devote the financial resources and time/effort to make meaningful innovation occur. Do you know, for example, how desirable (or irrelevant) your value proposition, business approaches, marketing message, purchasing experience really is to the marketplace? Do you know how appealing (or unappealing) your current products/services are? Do you understand the changing attitudes, beliefs, behavior and buying dynamic of your market? Do you have a clue what additional/alternative channels and avenues of approach are available and how to best access/exploit them? Do you sense how much larger your business niche, product category will continue to grow or even remain relevant? Do you understand what product/service alternative might take their place and why and how – and when? Do you have a plan for compensating or exploiting this outcome? Do you know IF or where/when your current business and its marketing/selling/product/value proposition will become obsolete? And if you answer “yes” to any/every question, do you have a proactive/entrepreneurial strategy in place — to address these issues?

Again, change is certain. Businesses grow or die. But growth connotes much more than merely multiplying current revenue and even profits. Do you understand that “opportunity” means constant innovation, not just finding more sources of current buyers? If opportunities to innovate die from neglect, your business can die along with them. If you are a true entrepreneur, you understand the need to stay deeply focused on both the problems, and on the emerging opportunities. Finally, true entrepreneurs recognize that innovations almost always start out small. But if nourished and respected – should end up producing BIG payoffs

I’ve decided to organize a monthly gathering of TRUE entrepreneurs in my industry, real estate, to engineer innovation breakthroughs in marketing, strategy, technology,
management. We’ll focus on the nine drivers of exponential business
growth:

Marketing, Strategy, Capital, Business Model, Relationships,
Distribution Channels, Products/Services,
Processes/Procedures/Systems, and Ideology

My intention is to make significant changes in our industry in order to offer the Austin, Texas real estate market a more meaningful and satisfying experience, creating multiple revenue streams while substantially increasing our market share.

We just returned from a family ski trip in Vail, Colorado. We stayed at the Ritz-Carlton in Lion’s Head. The level of service and quality of our experience made me realize that the very survival of the real estate industry must take on the precision and efficiency of a highly committed customer service enigma. A new set of rules that are not only innovative but responsible and meaningful to our customers. The Paradigm shift will be sharing all of these new ideas and rules with our very competition, not to allow money to be the driving force for what we do, but instead cooperating with other agents because we accept the responsibility of our industry’s commitment to superior performance, market knowledge and over-all customer service.

Cheers to a new era in real estate. To participate / contribute please contact me @ garydolch@gmail.com or at my office at 512-328-0058 x 284.