Best Practices Construction Law : Construction Lawyer & Attorney : Matthew DeVries : Stites & Harbison Law Firm : Green Building & LEED Litigation

A few weeks ago I received my diploma in "moderating panels for non-profit groups that support research and education in real estate and urban land use" when I received call from Nashville ULI to moderate a local panel on the emerging trends in the real estate market.  Lucky me!  Lucky them!

This morning, ULI Nashville presented its highlighted event, "Real Estate Outlook 2012 featuring Emerging Trends in Real Estate."  ULI's annual report, available for download, reflects the views of leading real estate executives from around the world who completed surveys or were interviewed as a part of the research process for the reports. Interviewees and survey participants represent a wide range of industry experts—investors, developers, property companies, lenders, brokers, and consultants.

This year, ULI Nashville was proud to host Dean Schwanke, Vice President and Executive Director, ULI Center for Capital Markets and Real Estate.  Dean oversees and coordinates ULI's work on real estate finance and capital markets issues, including books, Emerging Trends reports, online content, continuing education programs and sessions at ULI meetings and conferences.  Among many other items, Dean highlighted two emerging trends for the new year:

• For 2012, real estate investors must resign themselves to a "slowing, grind-it-out economic recovery following a period of mostly sporadic growth."  This is confined largely to a few real estate markets that offer the primary 24-hour transportation hubs with global access.
• "Well-leased core real estate in leading markets will continue to produce solid single-digit, income-oriented returns." According to the report, more opportunistic investors will ratchet down forecasts – even projections of returns in the mid-teens appear to be a stretch as risk increases from questionable supply/demand fundamentals.

Local panel members included Bert Mathews of The Mathews Company and Charles Carlisle of Bristol Development Group. 

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The Property Report in the Wall Street Journal this morning featured the $200 million Museum Tower, a Dallas condo project that is touted as the "Exception to the Slump" (sub. req'd).  It is called an "exception" for a few reasons: (1) new condo construction in this economic environment is not the norm; (2) weakening appraisals for existing condo units show signs of continued distress; and (3) financing for a project of this magnitude is simply difficult.

As highlighted by reporters Nick Timiraos and Kris Hudson, it is this last point that makes the Museum Tower deal intriguing: "The $200 million project, located in a prime parcel in an up-and-coming arts district, is being financed entirely by the Dallas Police & Fire Pension System." (my emphasis added). Say that again ... it is being financed entirely by a local pension system!

The original developers struggled for months to find conventional financing.  But as most other developers have learned over the past couple of years, traditional financing methods are simply not available.  According to Richard Tettamant, the pension fund administrator in this case, the timing was "perfect ... to pull the trigger." Tettamant credited the low interest rates and low construction costs as chief factors in the decision to invest in the project.

This project financing deal highlights that alternatives do exist to traditional financing.  Others may include: public financing, such as funding through the Federal stimulus package; private investment and syndication packages; public incentive programs, such as local tax increment packages; and public private partnerships (known as PPPs).  Like most other real estate and construction projects, timing becomes the driving factor.

Image: Museum Tower Dallas

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