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Real Estate Journal
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By William Procida, Procida Funding & Advisors A time for pause – and urgency C Figure C
Union Investment develops Manage to Green strategy for commercial properties
will soften the coming blow to the market. (1) According to Bankrate. com R. Brenner Green is a 20- year veteran in commer- cial real estate finance and president of Real Property Capital, Inc., a full-ser- vice commercial mortgage banking firm based in the Philadelphia suburbs. leading Commercial Mort- gage Banking firm special- izing in arranging debt and equity for commercial real estate owners and residen- tial developers. Since 1990, Progress has successfully closed in excess of $40 bil- lion in commercial loans and deployed over $150 million through their direct lending platform. Kathy serves on the Board of Di- rectors at Regal Bank lo- cated in Livingston, NJ, has been retained as an expert legal witness in commercial real estate litigation, and is a featured speaker at indus- try conferences. The revised SI Check eval- uates criteria across seven categories: energy, economy, resources, user comfort, op- erational measures, location and building automation. The “building automation” cat- egory has been added to the revised check to enable the extent of digitisation within a property to be captured more accurately. In addition, the former “operation” category has been redefined as “opera- tional measures” so that it now covers smaller-scale energy- saving measures as well as major redevelopment projects such as façade renovation. The importance of green leases is also given more weight in this revised category. The overall aim of the updated SI Check is also to ensure that greater account is taken of the specific features of the different use types. Union Investment start- ed using the revised evaluation procedure at the beginning of September 2018. existing holdings on an an- nual basis in order to identify potential for continuous im- provement in the sustainability performance of office, retail, hotel and logistics properties. Properties can achieve a score of between 1.0 and 5.0. The EMPORIO office building in Hamburg currently holds the top score in the Union Invest- ment portfolio at 4.3.
place in the hands of a couple hundred hedge funds and family offices, and many of the new players are not getting or using the bank leverage to turbo charge their returns the way early, now-established debt fund lenders did to get off the ground. Hopefully the non-systemic nature of this capital, when it goes “poof,” continued from page 17C in Qualified Opportunity Zones. If you have a capital gain or plan to realize a capital gain, give us a call and we can guide you to the right investment opportunities as well as profes- sionals (legal and accounting) who are well versed in the rules regarding Opportunity Zones. Alternatively, if you are a com- mercial real estate owner with a project in an Opportunity Zone, we may be able to help you with debt and equity to realize your development goals. About The Author Kathy Anderson is the founder andmanaging part- ner of Progress Capital, a continued from page 12C Going forward, the redesigned SI Check will be used to deter- mine limits for each use type. Properties and development projects that are being consid- ered for acquisition will need to comply with these limits. Ad- ditionally, the check will make it possible to define the target values a property must achieve in future in order to meet the German government’s climate protection goals by 2050. The investment necessary to achieve these target values is factored into the due diligence process and is therefore included in the profitability analysis. Union Investment will use these limits and target values to formulate specific CO2 savings targets and other goals for its real estate portfolio at the beginning of 2020 as the core element of its Manage to Green strategy. Union Investment conducts the SI Check prior to every pur- chase of a commercial property. The tool is also used to analyse How can the building stock be made virtually climate neutral by 2050? That is the issue long- term investment managers are currently grappling with. The Paris Agreement has now been ratified by 179 countries. In light of this, Union Investment has revised the Sustainable Investment Check (SI Check) it first introduced in 2009, thereby laying the foundation for its new Manage to Green strategy.
permit growth back to- ward the metropolitan hubs began. This time around, housing starts outside of New York City were flat while met- ropolitan building boomed. Between 1995 and 2010, an impressive 42% of building permits had already returned to New York City’s five bor- oughs, compared to 58% of permits spread across the rest of the entire state (Figure C). This trend, which only took a small hit when the bubble burst in 2008, is reaching its breaking point. Nearly 60% of all housing starts in the Em- pire State were concentrated in New York City between 2011 and 2017 (Figure D). So why am I concerned? To understand, we need to take a step back and look at what’s going on right now. Last year, the U.S. hit only 1.3 million housing starts nation- ally. Median homes prices are in check. The Great Recession is so far behind us that no one even remembers the three years of housing inventory that existed in 2008 is long gone. Given that we have been several hundred thousand units below the norm for sev- eral years and supply is tight, you’d think we have a lot of runway left. And that’s true of the general real estate mar- ket. But there’s been too little focus on urban and suburban affordable housing and too much interest in high-end, large-scale urban speculative project, where banks are eager to lend and developers have little to no skin in the game. If something goes bad in one of these projects, the big banks that are financing them will have to immediately become expert skiers to get down that icy mountain. The oversupply of luxury housing that’s going up across the U.S. is also a big worry. What will happen if there’s a crash in urban luxury space? Will this cause an avalanche on the lower markets? Simply put, if something that is $50 million goes to $30 million, then something that is $30 million goes to $15 million, and $15 million goes to $10 million, $10 million goes to $7 million, $7 million goes to $5 million…But that’s about where it ends. As crazy as it sounds, there are enough people who want ontinued from 5C
Figure D
and banks backing these high- end projects: we do not need any more super luxury housing, and the market for it is inflated. If you are a developer and have already started a project, be the first to break prices if you need to, do everything you can to cover your downside, finish it, and get out. If you own land suited for a high-end metropolitan devel- opment, sit on it. You don’t want to set out on a two- to three-year project and walk in to a potential correction in this space. Just like anything else in life, if you know a storm is coming and are prepared for it, then you should be okay… And if it doesn’t come, all the better. But those who ignore the potential storm will be less secure. Billy Procida is the founder of Procida Fund- ing & Advisors, an invest- ment management com- pany that provides bridge, construction, mezzanine, and preferred equity fi- nancing for value add, distressed, and special opportunistic situations within 100 miles of New York City.
to live in a global city like New York that can afford a $5 mil- lion condo. I like the sub-$3 million and preferably sub-$2 million market in the city for solid downside protection. I love the sub $600k market in the suburbs if you can find it. Major cities have an over- supply problem coming in the high end, high-rise and mega projects. While visit- ing Charleston, a city I love, I couldn’t believe that there was a two million-square-foot mega project in the works and several more cranes in the sky. When I was there three years ago, there was not one crane. The same is true of Denver and even Sarasota! As for New York City, the old story was that real estate is the last to go and first to come back. But I think the last chapter of this cycle may be different, simply because of the massive climb in permits and cost of construction. These factors make the average unit breakeven onmost units, more than $1 million each, with sales targets of $5 million and up. That’s an area of concern. The market does not seem sustainable. My message to the developers
Opportunity Zones: What you need . . .
Brenner Green, Real Property Capital . . .
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