The Ground Floor

Cincinnati Adds to Skyline

The proposed Great American Building at Queen City Square be an economic boost for the city of Cininnati. According to an economic impact report completed by The University of Cincinnati's Economics Center for Education and Research upon its completion in 2011, the skyscraper could generate an annual economic impact of $1.66 billion throughout the greater Cincinnati region.

Western & Southern Financial Group commissioned the study as part of its due diligence in connection with its investment that will represent $319 million of the $322 million project cost.

A total of 8,655 jobs will be generated or retained, with annual earnings of $388 million for local area residents Phased over three years, the proposed tower could generate $715 million for the Greater Cincinnati economy.

An estimated 5,388 jobs would be associated with the construction alone. Construction activities are also projected to produce $3.7 million in earnings taxes for Cincinnati. Once development is complete, the building is expected to result in $7.7 million in annual tax revenues for the city and Cincinnati Public Schools.

Increased renovation/construction activities would include the conversion of some nearby office properties to condominiums or apartments. This would lead to increased property values and an increased demand for retail and entertainment uses associated with residential development.

Downtown Real Estate Bypasses Housing Crisis: Gas Prices Are Making City Centers More Attractive

This post was written for The Ground Floor by Robert Krueger, communications associate at the Urban Land Institute.

An article in Tuesday’s Wall Street Journal, it was reported that despite the mortgage crisis and falling house prices, downtown properties have seemed to be unaffected by the housing downturn.

The article explains that in the bigger cities, the closer that residential properties are to the center of the city, the better they are maintaining their value. Of the three metro areas the article examines, all show resilience to tumbling prices and may serve as a great option for those buyers who are looking for an investment that is already gaining value and sure to surge even more once the economy begins to recover.

What are the reasons for this phenomenon? Many speculate that gas prices have something to do with it. Yesterday, CNN reported that according to AAA, the national average of gas is up 9 percent from a month ago and 19 percent from a year ago. Yesterday, the nationwide average for regular unleaded hit $3.83 a gallon.

As the price of crude oil continues to affect the price Americans are paying at the pump, it is also having a direct affect on the charm of living in the suburbs. In the Washington, D.C. area, like many other metropolitan areas, the average house price has plummeted. While the average of the area is an 11 percent decrease, the price decrease in parts of the housing bubble magnet, Ashburn, Va. of Loudoun County, has seen a much steeper plunge. Ashburn’s 40-mile distance from the center of D.C. is a good reason that foreclosed houses in northern Virginia and the Maryland suburbs of D.C. are not getting many bidders for auctioned homes.

Expanding Monaco Looks to the Seas

Monaco has run out of space, says The Guardian reporter Angelique Chrisafis. Prince Albert II is spearheading a questionable project to expand Monaco's less than one square mile location by expanding a new district into the sea.

Replicating Dubai's ambitious artificial islands, it will be a world landmark, designed to jut out from the shore on stilts, inspired by the design of oil rigs, which could set a precedent for coastal expansion elsewhere.

The project will take ten years to build and will enable Monaco to boost its 33,000-strong population. The new neighborhood plan boasts sustainability using ten times less energy than a normal district.

However, some environmentalists on the Cote d'Azur say the unprecedented move risks irreparably damaging marine flora and fauna, warning that disturbing the coral and Mediterranean sea plants like Posidonia oceanica could prove disastrous.

Prince Albert II is holding the environment in high regard as he has tried to put Monaco on the map with environmental measures by introducing car-sharing schemes for workers, drives an electric car, and set up an eco-foundation.

Although Chrisafis reports that Robert Calcagno, Monaco's councilor for the environment who also confers with the Prince, argued that the project was being developed so carefully that it would boost marine life.

Calcagno adds that the development would not be built over areas that were home to coral and sea-plants. Instead a zone had been chosen where "nothing remarkable" grows.

ULI's Real Estate Capital Markets Update

The following are the links to the most recent issue (Volume 10, Number 10) of ULI's Real Estate Capital Markets Update: PDF | HTML

PA Makes Money off Infrastructure

The City of Harrisburg is using its infrastructure to work its way to fiscal health. A partnership between New York-based Citi Infrastructure Investors, Barcelona, Spain-based Abertis Infraestructuras, and Barcelona, Spain-based Criteria CaixaCorp won a bid to lease the Pennsylvania Turnpike with a $12.8 billion, 75-year plan, Gov. Ed Rendell announced yesterday, as reported by Casey Freeman for GlobeSt.com.

If approved by state legislature, the plan could raise $1.1 billion a year for highway improvements, the largest bid for private operation of a US toll road.

"This is a great day for Pennsylvania," Rendell said in a statement. "We urgently need new funding for road and bridge repair, and a turnpike lease will help us meet that need. Under the terms and conditions we set, the turnpike will be upgraded and tolls will be no higher than the Turnpike Commission will charge."

The Rendell administration would invest $3.6 billion of the lease payment to pay for highway, bridge and public transit projects. The plan would also support 73 public transit agencies. The rest of the lease money would be invested with the Pennsylvania State Employees’ Retirement System. The administration says it expects to earn a 12 percent annual return on the investment.

In addition, the Parking Authority issued a Request for Proposals last year to invite investor interest in leasing the parking facilities. The highest offer was selected and negotiations have been occurring since.

Harrisburg Public Parking, LLC (HPP), the proposed new parking facility operator, would pay the Parking Authority $215 million in one lump sum. Reed said the Parking Authority would remain the owner of these assets and would continue to own and operate the City Island parking garage and lots. The lease would be for 75 years, and during such time the operator assumes all responsibility to maintain and rebuild these assets.

Reed also noted the that the transaction must be approved by the Parking Authority board and City Council. Further, negotiations must be completed.

At the end of the lease term, operation of the Parking Authority garages and lots return to the Parking Authority, Reed said. During the next five years, if the surface parking lot adjacent to the North 7th Street Garage at North and 7th Streets is not developed with a highrise building on the site, the Parking Authority would be paid an additional sum of $3.8 million, which is in addition to the initial $215 million lease price. In the interim, HPP will operate this lot and will pay the Parking Authority $258,000.00 per year during each of the five years to do so and whatever has been paid annually would be deducted from the $3.8 million price.

HPP will also annually pay the Parking Authority a sum to cover their administrative costs, starting at $120,000.00 per year and increasing later at the Consumer Price Index inflation rate.

Former ULI Chairman New Dean at School of Design

Effective October 1, Marilyn Jordan Taylor will take over as dean of the School of Design at the University of Pennsylvania.

A partner in charge of the Urban Design and Planning Practice at Skidmore Owings & Merrill LLP, Taylor is the first woman to serve as chairman of the firm, is internationally known for her involvement in the design of large-scale urban projects and civic initiatives.

During a 35-year career with Skidmore Owings & Merrill, Taylor has led many of the firm’s largest and most complex projects around the world. She was also the first architect and the first woman to serve as chairman of ULI, where she championed a renewed focus on cities, sustainable communities and infrastructure investment.

Projects Taylor led with Skidmore Owings & Merrill’s Urban Design and Planning Practice include Columbia University's Manhattanville Master Plan, the East River Waterfront Master Plan, the reclamation of Con Ed's East River sites for mixed-use development, the new research building at Memorial Sloan-Kettering, and the new urban campus for John Jay College.

She also founded and leads Skidmore Owings & Merrill’s Airports and Transportation Practice, working on projects such as Terminal 4 at JFK airport, Continental Airlines at Newark and the expansion of Washington’s Dulles airport. Her international projects include SkyCity at Hong Kong International Airport and the Ben Gurion Airport in Tel Aviv. Taylor’s transit work has ranged from the award-winning Changi Airport Station in Singapore to the Transit-Friendly Land Use Handbook for New Jersey Transit.

In addition, Taylor has served as a member of The Partnership for New York City, president of the New York City chapter of the American Institute of Architects, and as a visiting professor at the Harvard Graduate School of Design. She is a founding member of the New York New Visions Design and Planning Coalition, and serves on the Advisory Board of the Penn Institute for Urban Research.

Home on the High Seas

Wired magazine’s Alexis Madrigal reported that with a $500,000 donation entrepreneur and philanthropist Peter Thiel, a Google engineer, and a former Sun Microsystems programmer have launched The Seasteading Institute, an organization dedicated to creating experimental ocean communities.

On April 14, the organization announced that it has been established in order to establish permanent, autonomous ocean communities to enable experimentation and innovation with diverse social, political, and legal systems. It will continue and expand on the work of Patri Friedman and Wayne Gramlich, authors of "Seasteading: A Practical Guide to Homesteading the High Seas".

"The public sector is simultaneously the largest industry in the world and the least innovative, with a barrier to entry and lock-in on its customers that dwarfs any private monopoly", says Patri Friedman, TSI's executive director. "The world needs a new model of politics where a diverse ecosystem of providers offers a variety of institutions that evolve to serve their citizens. The open oceans, Earth's last frontier, are the ideal place to nurture this vision of a better world. By making it safe and affordable to settle this frontier, we will give people the freedom to choose the government they want instead of being stuck with the government they get."

The Institute will initially focus on three major areas:
Community: Building a network of potential residents who are inspired by the possibilities of seasteading and have the skills and resources to establish vibrant new communities.

Research: Exploring the core requirements for seasteading to be safe and affordable, such as structure design, political feasibility, and infrastructure (power, heat, food) and advancing key seasteading technologies through independent research and partnerships.

Engineering: Proving that the mission is viable by building a safe, cost-effective, gorgeous seastead, based in the San Francisco Bay and able to travel in the open ocean.

Monday's Numbers and Noteworthy News

Recent Headline Stories from “Real Estate Investment SmartBrief”, a daily publication of the National Association of Real Estate Investment Trusts:

Economists dial back recession rhetoric

An increasing number of economists have started tempering their talk about a recession in the U.S., citing improvements in the stock and credit markets, policy responses and better-than-anticipated economic reports. "A couple months ago it seemed like we were on the abyss," said Jay Bryson, a global economist with Wachovia. "Things have changed. ...The numbers we've seen recently haven't been as bad as we were led to believe just a few months ago." Numerous warning signs remain, however.

Bernanke cautions that credit crisis isn't over

The credit crisis is not over and it "is likely to take some time" before financial markets return to normal, Federal Reserve Chairman Ben Bernanke said. His comments Tuesday led stocks to rise, bonds to sell off sharply, and rate futures markets to start pricing in prospects for higher interest rates by year-end. His comments highlighted the Fed's efforts to keep the U.S. economy out of a deep slump. Meanwhile, speeches by other Fed officials noted the fear that rising energy prices would stoke inflation.

"What a difference a year makes"

	May 16, 2008	One Year Ago	Change
Prime Rate	5.00%	8.25%	-3.25%
Federal Funds Rate	2.00%	5.25%	-3.25%
3-Month LIBOR	2.70%	5.36%	-2.66%
3-month Treasury	1.89%	4.87%	-2.98%
10-year Treasury	3.85%	4.86%	-1.01%
30-year Treasury	4.58%	5.00%	-0.43%

Monday’s Numbers

Year-to-Date Equity Market Performance:

DJIA⁽¹⁾: -2.10%
S & P 500⁽²⁾: -2.95%
NASDAQ⁽³⁾: -4.65%
Russell 2000⁽⁴⁾: -3.26%
MSCI U.S. REIT⁽⁵⁾: 9.42%

(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 May 17, 2008)

3-month: 1.84%
6-month: 1.90%
2-Year: 2.45%
5-Year: 3.11%
10-Year: 3.85%

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; +248 basis points
AAA; 10 years; +220 basis points
AA; 10 years; +637 basis points
A; 10 years; +837 basis points
BBB; 10 years; +1487 basis points
BBB-; 10 years; +1787 basis points
BB; 10 years; +2300 basis points
B; 10 years; +2700 basis points

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

Indicated Spreads for Conventional Commercial Mortgages (as of April 30, 2008)

According to the most recent survey of indicated spreads for conventional commercial mortgage loans by Cushman & Wakefield Sonnenblick Goldman, spreads remained generally unchanged with a modest amount (25 basis points) of widening here and there. However, overall cost to borrowers spiked in the most recent survey due to the widening in spreads of 5-year Treasury bonds (+46 basis points in two weeks) and 10-year Treasury bonds (26 basis points in two weeks).

	Commercial Mortgage Rate Spreads for 5-10 Year Fixed-Rate Mortgages
Property Type	<65% LTV	>65% LTV
Multifamily	+230 - 260	+250 - 300
Regional Malls	+225	+250 - 350
Strip/Power Centers	+250 - 300	+300 - 450
Multi-Tenant Industrial	+250 - 300	+300 - 500
CBD Office	+225 - 325	+325 - 450
Suburban Office	+250 - 350	+350 - 500
Full-Service Hotel	+300 - 400	+350 - 500
Limited-Service Hotel	+300 - 450	+400 - 500
	5-Year Treasury -- 3.14%; 10-Year Treasury -- 3.86%
Source: Cushman & Wakefield Sonnenblick-Goldman, LLC.