The Ground Floor

Impacts of Inclusionary Zoning

The Furman Center for Real Estate and Urban Policy and the Center for Housing Policy in Washington D.C. released a study this month, The Effects of Inclusionary Zoning on Local Housing Markets, offering information on the impacts of Inclusionary Zoning (IZ) -- a popular but often controversial affordable housing policy requiring or creating incentives for developers to set aside a portion of newly produced housing units as affordable housing in exchange for certain benefits or cost offsets -- have on housing prices and production in the San Francisco and suburban Boston regions. The paper also includes descriptive information on IZ policies in the Washington D.C. metropolitan area.

According to the study’s findings, there are substantial variations in the design and impacts of IZ program across jurisdictions and across regions. For example, in the San Francisco area, the study found no evidence that IZ programs have increased the price or reduced the production of single-family homes, despite the fact that 93 percent of the programs are mandatory. In the suburban Boston area, by contrast, the study found evidence that IZ programs resulted in small decreases in production and slight increases in prices of single-family homes.

Urban Farming

The publication Growing Cooler, released September 2007, demonstrated how redesigning our metropolitan regions will reduce the release of greenhouse gases by reducing vehicle miles traveled (VMTs) –-- the more compact we design communities, the less people have to drive. While this is a seemingly obvious conclusion it is important to have the research to demonstrate and quantify its benefits.

But there is more that must be done in redesigning metropolitan areas in addition to building compact communities. Space must also be planned for urban and regional farms close to where people live and shop.

Stop, don’t click away.  This is not about how nice it is to have a farmers' market, though that is more than nice.  Nor is this a cute ‘60’s throwback, “Let’s all get back to the land.” Eating local food reduces energy and thus greenhouse gases, possibly as much as cutting household energy use by 20 percent, according to a Japanese study reported in Bill McKibben’s excellent book Deep Economy.

Commerical/Multifamily Finance Markets Mixed, Report Says

Washington, D.C.–based Mortgage Bankers Association (MBA) released its Commercial Real Estate/Multifamily Finance Quarterly Data Book for the fourth quarter of 2007.  The Data Book compiles the most up-to-date information on topics of interest to financial investment industry participants and observers.

The fourth quarter edition examines the Commercial/Multifamily Finance Environment in addition to other market factors.

Commercial/Multifamily finance markets for office and retail space showed signs of a slowdown in several Districts, according to comments prepared at the Federal Reserve Bank of Boston and based on information collected on or before February 25, 2008, which summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.

Office vacancies were reported up, and leasing volumes down, in Manhattan, Baltimore, Washington, D.C., Memphis, portions of Maine and Rhode Island, and Las Vegas. Districts indicated that office vacancies held steady in Boston and the Carolinas, but were down in Philadelphia, Minneapolis, and St. Louis Districts; however, contacts in the Boston and Philadelphia districts are experiencing some emerging slack.

Office rents were mixed; however, coming in nearly flat in the greater Boston and Manhattan metro areas. Richmond reported vacancies as flat or down, while Philadelphia reported an increase.

Retail vacancy was reported up in the Minneapolis while retail space demand was described as slow in Chicago. Demand for industrial space was described as either "firm" or "flat" in the districts commenting on that sector.

Sales activity in nonresidential markets was down in the Boston, Dallas, Kansas City, and Chicago Districts, with contacts citing tight credit conditions as a major factor.

Office sales activity remained strong in New York City and San Francisco. Eight of the 12 districts reported that nonresidential construction activity was slow. Meanwhile, the Cleveland, Dallas, and San Francisco districts indicated that construction remained strong.

For more information on the MBA Commercial Real Estate/Multifamily Finance Quarterly Data Book visit http://www.mortgagebankers.org/files/Research/2007fourthquarterdatabook.pdf

Monday’s Numbers and Newsworthy News

Worldwide Issuance of Commercial Mortgage-Backed Securities -- Nil

2008 Year-to-date: U.S. issuance-$5.1 Billion; non-U.S. issuance-$1.0 billion

2007 Year-to-date: U.S. Issuance-$51.9 Billion; non-U.S. issuance-$13.7 Billion

Who Are They Kidding

According to a listing in this week’s Commercial Mortgage Alert, more than 50 -- repeat 50 -- funds have been formed  in recent weeks to purchase whole loans, mezzanine positions, preferred equity positions, distressed equity and debt positions, B-notes, commercial mortgage-backed securities, senior pieces, subordinated pieces, and bridge equity and debt positions.

One has to question the optimism of the various fund managers for projecting that there is going to be that much troubled merchandise available. The capital markets may be in crises with a recession looming, but we are starting the downward slide with solid fundamentals in most markets and product types. The various funds are in the process of rising between $200 million and $1.5 billion each and are projecting returns in the 12% to 20%+ range.

If they turn out to be right, it is going to make the early 1990s look like a cake-walk.

"What a difference a year makes"

	March 22, 2008	One Year Ago	Change
Prime Rate	5.25%	8.25%	-3.00%
Federal Funds Rate	2.25%	5.25%	-3.00%
3-Month LIBOR	2.61%	5.36%	-2.75%
3-month Treasury	0.61%	5.13%	-4.52%
10-year Treasury	3.33%	4.80%	-1.47%
30-year Treasury	4.17%	4.91%	-0.74%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -8.80%
S & P 500⁽²⁾: -11.10%
NASDAQ⁽³⁾: -16.70%
Russell 2000⁽⁴⁾: -13.30%
MSCI U.S. REIT⁽⁵⁾: -0.01%

(1) Dow Jones Industrial Average.
(2) Standard & Poor’s 500 Stock Index.
(3) NASD Composite Index.
(4) Small Capitalization segment of U.S. equity universe.
(5) Morgan Stanley REIT Index.

U.S. Treasury Yields: (as of March 22, 2008)

3-month: 0.61%
6-month: 1.19%
2-Year: 1.59%
5-Year: 2.37%
10-Year: 3.33%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 12, 2008)

Rating; Term; Spread to U.S. Treasury Bonds

AAA; 5 years; +463 basis points
AAA; 10 years; +409 basis points
AA; 10 years; +924 basis points
A; 10 years; +1124 basis points
BBB; 10 years; +1675 basis points
BBB-; 10 years; +1875 basis points
BB; 10 years; +2000 basis points
B; 10 years; +2200 basis points

Source: Various Investment Banking firms such as Lehman Brothers, JP Morgan, and Morgan Stanley

Indicated Spreads for Conventional Commercial Mortgages (as of February 12, 2008)

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+200 - 220	+220 - 250
Regional Malls	+225	+250 - 350
Strip/Power Centers	+225	+250 - 350
Multi-Tenant Industrial	+225 - 300	+250 - 400
CBD Office	+225 - 275	+250 - 400
Suburban Office	+225 - 300	+250 - 400
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 400	+350 - 500
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.