The Ground Floor

Design for the Masses

Public Architecture, a San Francisco–based nonprofit, created the 1% program, an initiative where architects pledge a minimum of 1 percent of their billable hours annually to pro bono service.

Based on a 40-hour workweek, 1% represents a modest 20 hours per year per person. Were all 240,000 architecture professionals in the U.S. to sign on, the collective resources would be the equivalent of a 2,500-person firm (the largest in the world) working full-time for the public good, totaling an estimated 5,000,000 hours annually.

Cambridge Seven Associates in Cambridge, Massachusetts, was the 300th architecture firm in three years to pledge their commitment to providing pro bono design services. "This represents a growth of 100 percent since the relaunch of The 1% Web site last October," says Public Architecture founder John Peterson. "The rapid growth is fueled in part by a new matching system through which architecture firms and nonprofits can seek out partnerships online."

"As architects whose projects are inherently public, we know how important design is for enabling people to interact and work with each other," says Peter Kuttner, president of Cambridge Seven Associates. "The 1% program of Public Architecture represents the first profession-wide pro bono movement in architecture."

The 1% program was launched by Public Architecture on March 31, 2005, with the support of a grant from the National Endowment for the Arts.  Along with renewed support from the NEA, The 1% is supported by several groups, including The American Institute of Architects, Boston Society of Architects, corporate and private foundations, as well as leading firms such as Elness Swenson Graham Architects, HOK, HKS, McCall Design Group, and Perkins + Will.

In addition to The 1% program, Public Architecture sponsors a series of "design campaigns," including ScrapHouse and the Day Labor Station. Through prototypical design projects linked with comprehensive advocacy initiatives, design campaigns develop new design solutions to provocative social issues.

Harnessing the Sun

The U.S. Department of Energy (DOE) will invest up to $13.7 million over three fiscal years (2008 – 2010) in 11 university-led projects focusing on developing advanced solar photovoltaic (PV) technology manufacturing processes and products. Combined with a minimum university and industry cost share of 20 percent, up to $17.4 million will be invested in these projects.

University projects have the potential to significantly reduce the cost of electricity produced by PV from current levels of $0.18-$0.23 per Kilowatt hour (kWh) to $0.05-$0.10 per kWh by 2015 -- a price that is competitive in markets nationwide, the DOE said. President Bush’s Solar America Initiative aims to make solar energy cost-competitive with conventional forms of electricity by 2015.

Each participating university will work with an industry partner to ensure the projects retain a commercialization focus and that results are quickly transitioned into market-ready products and processes.

Apartment Market Going Strong

The apartment industry is apparently faring the economic climate well. Large apartment owners are scaling back portfolio size, whereas apartment management firms are increasing their portfolio size by as much as 70 percent.

"The apartment industry has historically been dominated by smaller local and regional firms, particularly in the area of property management," noted Doug Bibby, National Multi Housing Council president. "But that is clearly changing as we see the emergence of several powerful national property managers. These firms are using economies of scale to overcome thin margins and to refute the conventional wisdom about property management being a low-growth area."

"Not only are they surpassing investor and client expectations," Bibby added, "they are raising the customer service benchmark for the industry.  By leveraging their national platforms to recruit, develop and retain the best available talent, they are bringing a new level of professionalism to the sector and transforming the renter's experience."

According to the National Multi Housing Council's 19th annual ranking of the 50 largest U.S. apartment owners and the 50 largest U.S. apartment managers there were few changes in the top of the NMHC 50. As a matter of fact, the NMHC reports that for the first time in the survey's history, the top 10 firms on last year's NMHC 50 owners and NMHC 50 managers lists made the top 10 again this year, with only small shifts in the order.

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Responsible Property Investing Update

Formation of the Responsible Property Investing Council continues with 30+ persons committed to membership. If you have not responded to our prior "casting calls" for members, please send an e-mail to: blank@uli.org

The 3^rd Annual Responsible Property Investing Forum was held in Boston on March 25-26 with over 100 attendees representing a wide array of real estate disciplines. If you would like to be included on the distribution list for future announcements describing the Forum's activities, as well as other relevant news regarding the field of RPI, send an e-mail to: rpi@listserve.arizona.edu

Real Estate Capital Markets Update

The following are the links to the most recent issue (March 31, 2008) of ULI's Real Estate Capital Markets Update: HTML | PDF

Monday's Numbers and Newsworthy News

Take-away from the ULI Two-Day "Financing and Investing in Real Estate Workshop":

Commercial Banks are working hard to manage their balance sheets and increase reserves. Many are constrained as to availability of capital to support entire lending platform, not just real estate's. Lending standards are stricter; loans in size require "Club" structures as no one wants to risk too much balance sheet.

Commercial mortgage-securities market remains on "life support" with only 3 or 4 deals completed in 2008 so far. Delinquencies are expected to increase; liquidity remains an issue as issuers remain "hung" with unsold inventory. You can get a quote, but you probably won't like it.

Life insurance companies remain very conservative; allocations are flat to lower compared to 2007; few players are interested in large deals -- may require "clubs" or participants/syndications; AAA-rate CMBS represent a "relative value" alternative to loan origination with "reasonable" current liquidity (and improving future liquidity).

"What a difference a year makes"

	March 28, 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	2.67%	5.35%	-2.68%
3-month Treasury	1.35%	5.05%	-3.70%
10-year Treasury	3.50%	4.60%	-1.10%
30-year Treasury	4.33%	4.80%	-0.47%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -7.90%
S & P 500⁽²⁾: -10.43%
NASDAQ⁽³⁾: -14.75%
Russell 2000⁽⁴⁾: -10.82%
MSCI U.S. REIT⁽⁵⁾: 0.49%

(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 29, 2008)

3-month: 1.37%
6-month: 1.51%
2-Year: 1.65%
5-Year: 2.51%
10-Year: 3.44%

Pricing of Various Tranches of Commercial Mortgage-Backed Securities (as of March 26, 2008)

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

AAA; 5 years; +411 basis points
AAA; 10 years; +341 basis points
AA; 10 years; +914 basis points
A; 10 years; +1164 basis points
BBB; 10 years; +1564 basis points
BBB-; 10 years; +1864 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

Recent Real Estate Capital Markets Surveys

According to a survey (conducted for ULI's blog) by Cohen Financial, conduits -- if they are actually writing loans -- are writing them at extremely wide spreads. According to the survey, to which only three of five survey participants responded (which itself tells you something about the market), commercial and multifamily mortgage loans were being quoted as follows:

5-Year term: 5-year Treasuries (2.51%) plus 550 basis points, or 8.00% "All-in"

10-Year term: 10-year Treasuries (3.44%) plus 527 basis points, or 8.71% "All-in"

One would surmise they are not writing a lot of tickets.

CBRE Capital Markets "Market Watch" (March 12, 2009)

	Spread over Treasuries	Average Coupon Rate
Commercial Mortgage-Backed Securities	395 to 440 Basis Points	7.68%
Conventional Mortgage	250 to 310 Basis Points	6.30%
Government Sponsored Entities	240 to 250 Basis points	5.95
Floating Rate Mortgage	290 to 365 Basis Points	6.14%
Based upon 10-year, 75% loan-to-value, commercial loan.

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.