The Downsizing of Housing

Posted January 2, 2012 by rewarrior
Categories: Uncategorized

Tags: , , , ,

In a recent interview on Financialsense.com, Robert Shiller one of the principals of the S&P Case-Shiller housing index, opined that housing prices may not recover for quite a period of time.  In fact, he pointed out that homes in general can no longer be expected to appreciate as they have in the past.

This troubled American economy has not produced enough job growth nor for that matter any appreciable income growth.  That spells trouble for the housing sector.

Many of my friends in both the commercial and residential real estate markets know what must be done.  An economic environment for business growth and job creation must be fashioned.  Under the current administration in Washington, D.C., that is unlikely to happen.  What might happen in this current stage of deleveraging, a demand for smaller houses; more affordable homes.

The net result would be the downsizing of housing.

What If, the current administration elected to sell off inhabitable lands not far from communities with the necessary resources to build?  The lands could be subdivided into lots and be sold off to U.S. Citizens to start a new American dream of home ownership.  It would be a kind of Homestead Act 2.0  Perhaps they could be called Obamaville’s.  A bundle of smaller, leaner residential areas.  Heck, an Urban Homestead Act could be created to infuse development in urban wastelands like Detroit, Michigan.

Sounds far-fetched, doesn’t it?  It could happen as many Americans have already resigned to the fact they have to live smaller.  The era of living large is over.  Shame that attitude has yet to be discovered by the folks in our nations capital.

 

An Elgin Transportation Campus?

Posted February 11, 2011 by rewarrior
Categories: Commercial Real Estate

The distinguished North Central College (Naperville, Illinois) political science professor, Dr. David Frolick, was fond of saying, “Sooner or later it all boils down to money.”  How true it is as the State of Illinois grapples with its budget woes.

One could easily amend Dr. Frolick’s statement by adding that real estate can become an important component in the money equation.  Illinois will feel the need to dramatically improve its balance sheet by consolidating facilities and selling off others.

The state might first look at the existing site of the Secretary of State’s Drivers Facility in Elgin and the nearby State Police District Headquarters and begin to develop a transportation campus that would bring many of the state’s transportation related agencies together.

The antiquated pace bus facility in downtown Elgin could be brought up to date and moved to such a campus.  Not long ago, the Air Team emissions test facility was closed down in neighboring South Elgin.  Why not include such a facility on a transportation campus?  Perhaps the City of Elgin and neighboring communities could institute a traffic court on the campus to adjudicate traffic violations and snafus.

It is important for the state to consider consolidating various facilities and agencies to create economies of scale and establish some synergy.  An Elgin transportation campus might be one way of accomplishing that.

Beyond such money saving consolidation, the state should look into other areas to squeeze out money savings from its vast real estate dealings and holdings.  Sell a few state parks, privatize a few universities, and sell off underutilized state buildings as well as land.  The state should also complete a top to bottom analysis of its leasehold interests to save additional funds.

Yes indeed it does “all boil down to money”.  And Real Estate is a major part of the overall budget.  If Illinois is serious about tackling its money problems, then it can at least start by examining creative ways to bring its real estate holdings to their highest and best use.  It might begin by developing a transportation campus in Elgin.

Re-Open HUD 203k Program to Investors

Posted October 28, 2010 by rewarrior
Categories: Investment Real Estate

Tags: , , ,

The troubled housing sector needs some new life breathed into it.  Housing values are still anemic, according to the Standard & Poors / Case-Shiller housing index.  Based on their data the average home prices are now only up to their late 2003 early 2004 price level.  Add to that, the dramatic increase in foreclosures over the past six months, it will take a very long time for the housing industry to recover.  One prescription could be lifting the moratorium on investor participation in the Housing and Urban Development (HUD) 203k program.

 What is the HUD 203k Program?

 The HUD 203k program is mortgage insurance for the rehabilitation and repair of single-family homes.  In a typical home purchase a lender requires that all improvements be completed before entering into a long-term mortgage commitment.  Under the HUD 203k program a homebuyer can secure a mortgage that is federally insured for both acquisition and rehabilitation of the housing unit.  The program allows for its use for the purchase of individual condominium units, single-family homes, two to four unit buildings, and mixed-use buildings.  With respect to mixed-use the funds can only be used to rehab the residential portion.  The owner has to occupy one unit.

 Since 1996 a moratorium has been in place that precludes investors from utilizing this program to rehabilitate housing.  In the current housing environment, allowing investors to participate in the 203k program might clear out some of the nation’s weaker or troubled housing units.

 Let Investors use the Program to Improve the Housing Market

 Due to the current economic conditions with weak job growth, little or no income growth and overall economic growth languishing, there is increase in what housing demographers call the permanent class of renters.  Why not deploy an additional tool, the 203k program, to improve the nations housing stock by real estate investors.  Yes, it is sometimes troubling to allow the government to get more involved in the housing sector.  However, the ability to introduce new capital in areas where the housing is, for lack of a better term, crumbling, could improve broad areas in some of our nations cities.  To address the concern of too much government involvement, Congress and HUD could sunset any legislation to allow investors use of the 203k program.

 Opening back up the HUD 203k program to investors might just move the overall housing market to a better place, thereby improving this economic sector that makes up a good portion of our economy.

Elgin Good Health Campus. Good Idea?

Posted October 12, 2010 by rewarrior
Categories: Uncategorized

Situated next to the grounds of the Elgin Mental Health Center (750 S. State Street, Elgin, Illinois) is approximately 90 acres of vacant land.  The land is prime developable land as a good portion of it fronts the US Grant Highway (US Route 20) and State Street (IL Route 31).  Perhaps the highest and best use for this land would be a “Good Health Campus”.

 Some background first.  A deal for the property had been pieced together to allow the development of a million square foot warehouse and production facility for John B. San Filippo and Son, Inc.  The company is a manufacturer, processor, packager, and distributor of edible nuts.  San Fillipo had anticipated consolidating its operations, which were scattered in four to five buildings in Northwest Cook County, under one roof.  As the transaction worked its way through the governmental process, another large facility in the City of Elgin became available.  The company jumped on the opportunity to purchase and expand the Panasonic facility at the Jane Adams Tollway (I-90) and Randall Road.  San Filippo purchased the facility and immediately expanded into a fabulous and state of the art facility.  A good move on their part as one could only imagine the public relations challenge posed by a nut company situated adjacent to a mental health facility.

 Back to the land.  A “Good Health Campus” adjacent to a State of Illinois mental health facility is a better way to go.  The City of Elgin and the Elgin Chamber of Commerce, working together, could function as a catalyst to advance such a development.  No public funds should be expended; only leadership provided.  A master developer could come in and subdivide the expansive property to provide for a myriad number of individual developments and structures.  Among the possibilities on the mixed-use “campus” might be:

  •  An Urgent Care Facility fronting the Route 31 frontage.
  • Single Room Occupancy (SRO’s) dwellings.
  • Developmentally disabled housing.
  • Transitional housing for those walking wounded in the community.
  • Rehabilitation facilities for those with addiction and/or mental health issues.
  • A private mental health facility.
  • Alzheimer facility.
  • Nursing Home facility.
  • Group homes.
  • Behavioral Science Research Center and Offices.
  • Homeless Shelter.
  • Food Bank warehouse facility.

 All of this, of course, should have adequate security for the safety of the campus residents.  Each and every facility should be funded and built with private or independent sector funds.

 It will take a lot of coordination and marketing prowess to bring about such unique and forward-looking development into action.  Such a full-scale development could be a great benefit to the City of Elgin showing the state and nation what a luminating example of creative caring for the communities downtrodden might be.

 A “Good Health Campus” could be the additional polish that showcases the City of Elgin as the shining city on a bluff.

Wing Park Plaza (Elgin, Illinois) to Get a Makeover

Posted April 4, 2010 by rewarrior
Categories: Commercial Real Estate

Tags: , , , , , ,

Retail Street

Word on the street is Wing Park Plaza, located at McLean Blvd. (551-587 N. McLean) and Wing Street, will be getting a major makeover.  Confirmation has been gleaned by the fact that the “Notice of Hearing” signs have been planted by the City of Elgin.

 The Neighborhood retail center is substantially vacant with no major anchor tenant.  The Blockbuster store moved out in early March of this year.  The economic decline has taken its toll at Wing Park Plaza since the beginning of the real estate downturn in August of 2006.

 The center’s owner, Elgin Improvements, LLC (managed by DLC Management), is requesting approval of a re-development plan.  A hearing on that plan is scheduled for Monday, April 5, 2010 at 7:00 pm in the City Council Chambers at the Elgin Municipal Building.  Under the plan the North building of the center would be demolished and replaced with a 14,280 square foot, free standing, Walgreen’s.  Those businesses currently located in the North building would be moved to the nearly completely vacant South building.  Businesses including, Bab’s Big Apple Bagels are contemplating such a move.

 Walgreen’s currently has a store located at 955 N. McLean, in a small center that it anchors.  It is one of its old, ugly stores that do not have a drive-thru pharmacy.  That store would close once a new one is built.

 As the Great Recession battered Wing Park Plaza and other older neighborhood centers similar to it, I gave thought to the idea that ownership should shift and re-develop them into mixed-use developments. With respect to Wing Park Plaza, perhaps tearing down the South building to re-develop as residential condos.  Of course, this could have only been done when the economy improves.  Essentially, such a re-development would reduce the supply of retail square footage. 

 I am glad to see some development forthcoming.  Though, this particular retail development will be economically neutral as one Walgreen’s will close and be replaced with the newer Walgreen’s business model.  Overall it is very positive.  A fresh, newer Walgreen’s across from the recently re-built Illinois Park School will create entrepreneurial stimuli to an otherwise drab retail area.

Vultures Circle General Growth Properties

Posted March 2, 2010 by rewarrior
Categories: Commercial Real Estate

Tags: , , , , , ,

The wrangling continues over General Growth Properties (GGP) as it attempts to emerge from bankruptcy.  Indianapolis based Simon Properties who appears to be teaming up with New York based Blackstone Partners to purchase the entire shopping center portfolio.  Under their offer all creditors would be paid in cash.  What could be a major hurdle in Simon’s offer, is the fact that close to 50% of all regional malls would be under the Simon Corporate Umbrella,

 Meanwhile Canada based Brookfield Properties has entered the fray by joining GGP management to bring the firm out of bankruptcy as two unique entities.  Both desire that the company exit bankruptcy as a stand-alone company and not taken over by another.

 The dark horse in this epic retail development battle is Australian based Westfield properties who, according to reports in Crain’s Chicago Business, have signed a non-disclosure agreement with GGP.

 With the economy still in the doldrums one wonders whether some retailers are going to make it.  Additionally, how the regional malls themselves will survive is a huge question.  Most of the retail development has moved toward “Lifestyle Centers” and other mixed use developments.  The regional mall is dying as specialty retailers and mass merchandisers like Wal-Mart and Target take market share away from the big department store anchors that take up the bulk of the square footage of the malls.

 Regional Malls can survive if they adapt to a different business model.  Perhaps creating a hybrid of the indoor mall and lifestyle center.  Or create a mixed-use development that could be called a city within a city.

 Let’s take GGP’s Springhill Mall (West Dundee / Carpentersville, Illinois) as an example.  The retail area surrounding the mall has been plagued by vacancies.  The trade area has fairly strong demographics.  It could be the test for a new retail development business model.  The area lacks a sufficient entertainment venue to draw additional foot traffic.  This could be an addition to one wing of the regional mall.  Should other department stores scale back as a result of the current great recession a reconfigured mall might include the following elements to the “city within a city” development concept:

Wing One—(Sears):  Entertainment / Parking Garage.

Wing Two—(Carson, Pirie, Scott):  Senior residential development with parking.

Wing Three—(Kohl’s):  High-rise apartment complex with secure parking.

Wing Four—(JC Penney’s):  Condominiums with parking garage.

 Of course the economy will have to improve in order to put many of these development ideas in play.  Working with village officials where individual regional malls are located, creative development ideas can be found to save them from severe obsolescence.

Where Do We Go From Here?

Posted February 9, 2010 by rewarrior
Categories: Commercial Real Estate

Tags: , ,

Commercial real estate and residential real estate have both been hit hard by this great recession.  As one real estate executive recently commented, “It’s not a good time to be in commercial real estate”.  An overriding question in many real estate professionals’ mind is where do we go from here?

Consider the following:

1)     Retail foreclosures are continuing at a fierce pace.  In fact, according to GlobeSt.com Chicago retail development has dropped by 79%.

2)     Office building foreclosures continue to ripple through the market becoming the hardest hit of the investment property asset classes.  To add accelerant onto the situation, the State of Illinois is having serious trouble paying rents due to office building owners in which Illinois has a leasehold interest.

3)     Hotel properties continue to struggle with several companies closing down some high profile operations in the Chicago market.  The Sheraton Northwest near Arlington Park Race Track to name one.

4)     The foreclosure process causing some developers to shift to a rental market business model has significantly affected residential condo developments.

 What are urgently needed are policies that encourage job and income growth.  It there is a single action that would result in bountiful growth is a cut in the capital gains tax to 10%.


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