Don Tishman's Real Estate Development and Investing Solutions

I received this email from Australia about our activity in Afghanistan.

Afghanistan

“In my opinion, Afghanistan is a lost cause.  I have been there several times

in the late 70s and it was an eye-opener.  The Germans had invested quite a

bit of aid money in infrastructure (Hitler thought the Afghans were the true

Aryans) but it was really primitive.  Rich Afghans were educated in Europe,

mainly Germany.  Elections were on a show of hands and if the results

weren’t what President (he was a cousin of the King he deposed) wanted, then

all bets were off.  People washed and performed their toilet in the river,

which was also where they washed carpets, goats drank and all manner of

other things.  Streets weren’t named, nor were houses numbered and for

ordinary people, if they needed to write a letter, they went to a man in the

street who sat at an ancient Underwood typewriter and wrote it for them.

It really is a barren country and goats have eaten almost all the vegetation

(they eat roots and all).  Aside from opium, they have no exports or

marketable skills.

If you look back at history, no one has been able to conquer Afghanistan.

The Brits tried and failed in the 19th century and of course the Russians

failed in the 1980s – despite having contiguous borders in what was the old

USSR, with Turkmenistan, Uzbekistan and Tajikistan.  Historically, the

Afghans have just waited-out the invaders, who really had nothing to stay

for.  Corruption is a way of life and is unlikely to change quickly.

The quicker the Allied forces get out of there the better.  The real

conundrum is what to do about Pakistan.  It is run by the Military, they

have nuclear bombs and it is totally corrupt.  There’s plenty of evidence

that says that Taliban Central is in Pakistan, rather than Afghanistan.”

Do you agree?

The sale of syndicated home mortgages by unscrupulous sellers contributed to the severe economic hardships suffered world wide. Bank regulators at all levels set the standards for home loans. The bank examiners test bank loans to enforce these standards. How then do we have this overwhelming mountain of homes facing foreclosure? where were the bank examiners?”

The bank examiners did not examine these loans. WHY? Because these loans were NOT made by regulated lenders, but rather these loans were made by UNREGULATED mortgage companies. Each day our TV’s and radios told us about these huge mortgage companies that offering home loans to anyone over 18 whose only requirement was they were alive. The Federal Reserve and the Bush Administration encouraged this conduct. As had the Clinton administration. The equally unscrupulous investment bankers sold these syndicated sub-prime home mortgages to their clients w2hile investing their own funds based on the failure of these syndicated loans. They knew huge loan failures were soon to strike. So when the sub-prime mortgage market collapsed, the sellers of the syndicated loans were proved correct- the investment bankers made a fortune- The fees for selling these worthless syndicated loans and the pay off for betting the loans would fail. When investment bankers testified before Congress, they were asked how the could they sell these loans to their clients knowing the loans were worthless? The investment bankers said this was standard business practice in the investment banking business. The SEC sued Goldman-Sachs in a civil suit over this practice. Goldman agreed to pay a record fine of $550,000,000. This is a 4% of Goldman’s 2009 profit. The SEC is preparing similar law suits against other sellers of these worthless sub-prime loans.

Yesterday, the Congress passed a major overhaul of finance rules. This was the culmination of two years of Wall Street doing every thing possible to stop this legislation. A little history-

After the Stock Market Crash of 1929, and the ensuing Great Depression, Congress passed legislation to prevent a recurrence of those terrible times. Each time Congress acted, Wall Street came up with “legal” schemes to get around the new regulation. Some of the regulations were so strong that only by repealing these laws could Wall Street accomplish their devious goals. The last of the repeals was in the Clinton Administration. With a former head of Goldman-Sachs as Secretary of the Treasury, Clinton recommended the repeal of the Glass-Steagll Act. The Glass-Steagal Act was one of the cornerstone’s of financial reform MANDATED by President Franklin D. Roosevelt.

Daniel Pecora led the fight for financial reform in the 1930′s, taken over by FDR. . Today Representative Barney Frank is the Pecora for today with Mr. Obama leading the fight.

The sub-prime loan disaster caused the economic ruin of many throughout the world. YET almost all Republicans in Congress voted against this reform legislation. Today, Obama’s polls show he is down and many Republicans hoping to gain from this.

I stand behind our President. I admire his courage to insist on making this country a better place for our children, grandchildren and great grandchildren.

Their future depends on a strong, viable, and large middle class. Obama’s legislative program is the answer. Let us work together to insure their future.

The June, 2010 construction industry employment figures are depressing. HISTORICALLY, The summer is the best time for construction jobs. Yet, the figures for last month show a DROP in construction jobs. The same month saw thousands of college graduations for majors in architecture, construction management, planning, real estate, civil engineering, finance, etc.. Their parents and the recent graduates have great hope for their future. These young folks are eager to contribute their newly acquired skills towards solving problems. Then the reality of hitting a brick wall- The firms that they thought would be eager to hire them, instead told them there are not only not hiring but reducing their present staffs. With little new construction, there are no new work for all who depend new construction for their livelihood. This includes a huge field. Not only the recent graduates I have listed, but all those involved in building products used in construction, appliances, furniture, flooring, office equipment, mortgages, title companies, lawyers, accountants,- in fact- almost all businesses suffer when there is a dearth of new construction.

What is the answer to the economic woe caused by no new construction?

Where is residential construction? At first blush, the demand for housing is overcome by a huge inventory of unsold homes. Why do we have this huge inventory? Has there been a reduction in population growth? Has the death rate increased? There has been no change in either the population growth or the death rate. What has changed to bring about this economic morass in housing sales?

The Gross National Product(GNP) is the sum of all goods and services sold in a year. Seventy percent of the GNP is consumer spending. Consumer spending is down. Why? Consumer confidence is way down. Why? With the highest unemployment rate in years, both public and private employers are reducing their staffs. Folks are uncertain of the future. The rate of personal savings is way up. Folks are preparing for what could be a bleak future.

Most buyers do not pay cash for homes or cars. These buyers depend on financial institutions to lend them most of the capital required for their purchases. This available credit is a valuable asset for both the buyer and seller. The stock market September 2008 huge drop in the Dow Jones Index was disaster for almost all U.S. financial institutions.Much of their capital was invested in the stock market. The stock market had lost over 50% of its value. The largest financial institutions were suddenly in very precarious financial positions. Their capital had shrunk below the minimum required to for these financial institutions to lend to their customers. In fact, unless these institutions replenished their capital accounts, they would be required to call billions of dollars of loans, many to America’s leading companies. Lending any new funds was impossible. The Bush Administration sponsored and had passed legislation to loan these financial institutions almost a Billion dollars that would replenish their depleted capital accounts. The goal of this bail out legislation was to get the banks to start lending to consumers. After these loans were made, these same financial institutions that suggested these Federal bail outs, were still so concerned about the economy that no new loans were made to consumers. With consumer sales slowed, companies needed to reduce their operating costs, a huge elimination of jobs followed. This added to the fears of consumers. Although the stock market was steadily recovering, consumer sales remained stagnant. May.2010 retail sale results were a disaster. Many economists and others with crystal balls who had announced the end of the Great Recession, suddenly were changing their tune. Now comes June,2010 retail sales results.

July 7 (Bloomberg) –” U.S. retailers’ sales are growing at the fastest pace in four years, a sign consumers may be overcoming concern about unemployment and depressed home values.Sales probably expanded at an average monthly rate of 4 percent in the first five months of the retail fiscal year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers trade group said in advance of its June report tomorrow. Nordstrom Inc. and Kohl’s Corp. are among chains that will report June sales increases at stores open at least a year, according to analysts’ estimates.

The predictions of the owners of crystal balls and “economists” are on a constant roller coaster. going from one extreme to the opposite opinion in minutes. . Depending on their very subjective interpretation of data and the consensus of these “experts”.

Increased retail sales means more new jobs, just as the recent drop in consumer sales led to huge layoffs. Eventually, this will lead to new construction. How long this will take, is anybody’s guess? As sales volume increases, we must hope for Xmas sales much improved over the last two years. . Remember.many retailers earn most of their profit from Thanksgiving to Xmas. One clue will be increased retail inventories in the next few months. This will show how many manufacturers, retailers, and banks believe there will be much increased Xmas sales. This can the key to new employment opportunities. For now the outlook is improving. Will it stay that way? Will sales grow this summer?

What does your crystal ball show?

When determining whether there is a demand for  new real estate development, we look for unmet needs.  in other words does the demand for a particular real estate use far exceed the supply. A good indication is: no vacant apartments, , no empty offices,  no vacant stores or  no unsold inventory of homes.  Lack of demand is shown by a surplus of supply: some examples are high vacancy rates in apartments, offices, retail spaces, and large inventory of unsold homes.  When we examine  supply, we must differentiate by types of apartments, offices, retail, and homes. For example- We know that all apartments are not the same. It makes no sense to compare a high rise penthouse of 5 bedrooms in a great location that rents for $10,000 per month to a two bedroom in a less desirable area that rents for $400 per month.  These are two very different markets. How? The size of the households may be different, the incomes may be very different, and what each household thinks is important in choosing a place to live may be very different. This applies to all type real estate. Another example is a hotel suite in the Savoy in London can not be compared to a hotel room without room service and whose the only amenity is a room with a clean bed and a window air conditioner.

What causes shortages in supply? Increased demand for the use.  The multi-family apartments we developed five years ago has had  difficulty filling the units for two years. Suddenly, we are 100% occupied with a waiting list. Why?   There are a great many more users for our apartments. There can be many factors causing the increase in this demand. We may have unique features that the competition does not provide. This advantage can be short lived because the competition may add these features where possible. If they do not add these features when most apartments have these amenities, there units will be considered obsolete and non- competitive. Their rents will drop significantly. Then their value will topple,

The one factor that most causes increased demand is more people needing this use. What brings more people to a community? Jobs. For every new job that is hired  by a local business- a barber, doctor, etc., there is one more job created by this new job. For every job that sends its product out of town, there are two more jobs created in the community by this one new job..  So if an new auto plant comes to town and creates 5,000 new jobs. The impact on the community is 15,000 new jobs. 5,000 new jobs at the auto plant and 10,000 other new jobs created in the community as a result of the auto plant. If the average wage of these new jobs is $70,000 per year, suddenly the local economy has $1,050,000,000 annually added to its economy. What new demands will  over a billion dollars in additional  annual income create?

This is saying the community gross domestic product has increases by over $1 billion. what is the gross domestic product?  The gross domestic product (GDP) is the market value of all total goods and services made within the area in a year.  The gross domestic product for a country is called the gross national product(GNP).

If the local area. population was 15,000 before the auto plant came to town, the new population will exceed 52,500. This assumes that the average household size of the 15,000 new job holders is 2.5 people. The demand for everything after the auto plant is operating will at least triple. This community will need  additional places to live, to shop , to obtain services, for both public and private new recreation, , new places to worship , new schools, and more. Many local government use taxes on retail sales to fund their  gover the out side staffs assemdeveloper dreams about.

Now let’s look a on the dark side.  The auto company’s  automobile car production is cut back because  the locally produced cars are not selling. The automobile company is losing huge sums. Their management needs to take drastic action.  The new auto plant is closed-  5,000 plant  jobs are lost overnight. Many of the other 10,000 new jobs created to service the auto plant slowly vanish. We suddenly have thousands of households without regular income. They  obtain temporary unemployment benefits that are far less than their recent wages. These households had been extended credit based on their employment.  Now do not have sufficient income to meet all of their financial obligations they have recently incurred.  The demand for government services increases by the thousands  recently laid off. A few government jobs are created by this much increased demand for government services. Houses are being foreclosed. The families in these houses stop making ordinary repairs to the houses. Many houses are now on the market with few buyers. Home prices drop because of the over supply and the run down condition of many homes. Certain newly developed subdivisions are hardest hit.

This town that has expanded based on the assumption that the auto plant would prosper has a problem. There is no way the “old” residents can handle the devastation caused by the closure of the auto plant.  What can be done to save the town? First, it is not only the problem of the laid off auto workers. It is the problem of the whole town. If the laid off auto workers families leave the town. The new schools will close. The towns bonds were issued to pay for the school. These bonds must be paid off regardless if the school is operating or not.

On the asset side, the opening of the auto plant brought to the town many very skilled specialists. The auto manufacturer had to search far and wide to assemble the staff of skilled people to immediately start to manufacture a new product. This also applies to staffs assembled by the suppliers, etc, of the auto plant. This an asset the town did not have before. Who else needs these specialists? After analyzing and cataloging the skills of those unemployed, the town must raise enough funds needed to market this pool of talented workers. Any foreign vehicle manufacturer is an obvious choice. Or for that matter any  manufacturer of machinery is a good choice. Some company will show up. This will begin another need for unmeet needs.

Let ‘s look at some recent results of the Federal regulation.  When I recall recent examples of Federal attempts at regulation, I think of Enron, Madoff, Goldman-Sachs, A.I.G., coal mines, off shore oil wells, Katrina, etc. I am sorry but these results do not  inspire my confidence in the ability of our government to protect us. Then, is no regulation by government a viable alternative?  In most cases,regulation by our government have been the result of acts that caused grievous harm to our people.  These horrible experiences must be stopped. My thought is that regulation can work.  The Federal problem is in the method of regulation. In the foregoing ill=fated attempts at regulation, the regulators had wide discretion in determining whether to act, and when to act. We can not wait for these bureaucrats. We must to limit this discretion.

If A robs B using a deadly weapon, the crime is clearly armed robbery. When A is apprehended,the defendant is then  charged, tried, and, if found guilty, sentenced according to the prevailing laws. The only discretion involved is when the defendant is sentenced. There are sentencing guidelines for the trial judge providing a minimum and a maximum term.

If there are absolute prohibitions of certain conduct, the discretion is very limited. For instance  today when an insurance company insures your life, the insurance company must set aside the reserve to pay your family  the eventual claim. Logical- But   A.I.G was able to insure the payment of billions of dollars of financial obligations, without setting aside  one penny of reserve to pay  any claims. Some of the the investment bankers that sold these financial obligations to widows, local government, etc. did not tell the buyers that the financial guarantors had no reserves to pay the guaranties. Instead the sellers  assured the buyers that this investment was risk free because of the guaranty of payment by a third party. Further after selling these financial obligation, some of the investment bankers took action that clearly demonstrated that the sellers believed the financial obligations they just sold were worthless. The present regulators were all in place when this occurred and then our  recent recession occurred. How can we prevent this horrendous losses to innocent people?

It is very simple. No one should guaranty a third person’s debt without providing sufficient assets for a reserve to pay the debt  that they have guaranteed.

Another new law would require  that in order to sell securities , the investment banker must acknowledge that the security is valid, and the seller believes that the security is a good investment. If  the seller violates this law, the buyer is entitled to treble damages and the security  license of the investment banker is revoked for at least ten years.

A very real problem arises in a specialized industry requiring the regulator to have expertise about this industry. Many of those hired for this regulation are from the industry being regulated.  Many of these so chosen, have been indoctrinated against regulation of this industry. Thus when they take the regulatory job their sympathies are with the industry they are sworn to regulate.  This is like the fox guarding the chickens. The recent revelations about coal mine regulation and the issuance of off shore drilling permits suggest these scenarios.

Many regulators leave the Federal service and become advocates for the industry they had regulated. A simple ten year prohibition against this by making any violation a felony for both the former regulator and the company that employs the regulator.   This may eliminate this problem. This would also make it difficult for a person from an industry to accept a government position and then return to the industry.

Some years ago, I was teaching real estate development courses to high level executives of the Department of Housing and Urban Development. This Department is a major financier  of single family and multifamily developments. I was shocked by these executives low level of  understanding the fundamentals of real estate development. But what they did know was the procedure that their Department used to finance these developments. This was sufficient to get the job done. This is what should  happen in fields that require special expertise in an industry. The regulator has to understand the government’s role in the regulation, not the industry.

Every time the Internal Revenue tries to halt a scheme that legalizes a taxpayer not paying taxes, the tax practitioners devise several ways around this new regulation. One solution is an absolute tax without any deductions. The opponents of this type tax say they are against this tax  because will hurt the people at the bottom of our economy.  When you look at the actual facts by determining who is paying most of the income taxes, you will find that the people with highest income pay the most taxes. and people at the bottom of the economy pay very little taxes. All this flat tax will do is have the big earners pay a higher proportion of the income taxes. It will cause temporary reduction in the income of tax “experts”. Do not shed crocodile tears for the tax “experts”.  Their fertile imagination will devise a method of lifting some of the tax burden of the very rich.

Government regulation is an evolving process. Clear prohibitions by Congress with less discretion to regulators is a way for successful regulation.

A caveat about passing these proposed  laws. Wall Street is by far the largest contributor to Federal campaign chests.

The summary of  the Urban Land Institute Real Estate Business Barometer for this week.

Key news in the latest ULI Barometer includes a number of economic improvements tempered by some weak or worsening indicators. These, together with the recent Greek debt crisis and early May’s stock market volatility, suggest further unpredictability and slower-than-desired expansion ahead.

Job growth in April was strong but not enough to bring the unemployment rate down. Unemployment even ticked higher as discouraged workers re-started their job search. GDP growth in the first quarter of 2010 was historically strong but a disappointing deceleration from fourth-quarter 2009.

For the first time in two years, a CMBS securities offering backed by multiple loans was priced in early April. Still, CMBS delinquency rates rose in April to a record high in the history of the CMBS industry. The Moody’s/REAL Commercial Property Price Index fell slightly in February, following on the heels of three months of rising prices, and is now down 42 percent from the peak.

Housing sales were up in March, months of supply decreased, and prices strengthened for existing homes. Still, housing foreclosure filings spiked significantly in March to even higher levels than those of summer 2009.

Investment property rents and vacancy rates, reported by Property and Portfolio Research, stabilized in the first quarter of 2010 after consistent deterioration since 2008.

Other bright spots include April’s consumer confidence index, which continues March’s rebound; the increase in retail sales in March, which was the highest since September 2008; and the increase in commercial property sales volume in March.

See below for a summary of more than 60 key indicators of the economy, real estate capital markets, housing, and commercial/multifamily investment property.

ULI Real Estate Business Barometer
Summary as of May 7, 2010

The Economy

The key economic news also came in threes in April: employment growth, a slightly higher unemployment rate, and disappointing GDP growth.

April’s employment growth of 290,000 jobs was strong and higher than expected, and followed an upward revision of March’s employment growth to 230,000. Two-thirds of the growth took place in three sectors: professional and business services, the federal government due to hiring of 66,000 temporary workers for the 2010 census, and manufacturing. There was little change in wholesale, retail, information, and financial activities. The unemployment rate, which had remained at 9.7 percent in January, February, and March, edged upward to 9.9 percent, reflecting at least in part former job seekers returning to the job market; a total of 1.38 million jobs have been lost since April 2009, and 7.8 million jobs have been lost since January 2008. It will take several years of higher growth to fully recover from that level of job losses.

The advance estimate of GDP growth in the first quarter of 2010 is 3.2 percent, a disappointing deceleration from the 5.6 percent growth of 2009′s last quarter, but still a reasonably strong number. This increase primarily reflects growth in four areas: personal consumption expenditures, particularly motor vehicles; private inventory investment; exports; and nonresidential fixed investment, particularly equipment and software. The deceleration was due, in large part, to decelerations in private investment and in exports, and downturns in residential fixed investment and state and local government spending.

The Consumer Confidence Index continued its rebound in April, reaching 57.9 after falling sharply to 46.4 in February, and now sits at its highest since September 2008. March’s retail sales showed a third-straight month of improvement, and are at their highest point since September 2008. Sales of motor vehicles showed the strongest increase at 6.7 percent, followed by building materials (3.1 percent) and apparel (2.3 percent). The growth in building materials is the highest since November 2007.

Inflation, as measured by the Consumer Price Index, rose slightly with a 0.1 percent increase. Cost increases were found in energy services, used cars and trucks, food, medical care, and transportation services. These increases were largely offset by declines in energy commodities and apparel.

The S&P 500 index increased 1.6 percent in April, while year-over-year returns at the end of April stood at 38.8 percent, a welcome improvement over 2009 returns.

Overall, many economic indicators are improving or stabilizing, which paints a hopeful picture, but the millions out of work suggests how slow the pace of recovery really is.

See the economy table

Real Estate Capital Markets

Though many problems continue, real estate capital markets are showing improvement and signs of increasing stability.

For the first time in two years, a CMBS securities offering backed by multiple loans was priced in early April by RBS Commercial Funding. CMBS delinquency rates, according to Trepp LLC, rose to 8.0 percent in April, yet another month with the highest rate in the history of the CMBS industry.

Property sales volumes stood at $5.6 billion in March, up from $4.2 billion in February, according to Real Capital Analytics. Sales volume for the quarter, however, is up significantly from the same period one year ago, suggesting the continuation of a thaw. Core rather than distressed sales dominated the transactions.

The REIT sector provided a solid performance again in April, with a 6.9 percent total return for the month. Since March 2009, monthly returns have been positive in all but three months; total returns for the past year are a very healthy 68.7 percent.

After a dismal 2009, the NCREIF Property Index turned in a positive first quarter, with total returns of 0.76 percent, comprised of income of 1.66 percent offset by 0.90 percent depreciation in value; total returns for the past year are -15.3 percent. The Moody’s/REAL Commercial Property Price Index fell 2.6 percent in February, following on the heels of three months of rising prices. Values are down 25.8 percent from a year ago and down 42 percent from October 2007′s peak While prices seem to be near the bottom, these latest data suggest we might be in for a bumpy ride on the bottom for some time.

Capitalization rates remained steady at 7.81 percent in March, similar to February levels. However, cap rates have come down substantially in the office sector over the past quarter, and they are down in the apartment sector as well. Cap rates are well above the 6.39 percent of June 2007, but just slightly above the historical norm of 7.6 percent (since 2001).

See the real estate capital markets table

Capital Markets Update

Housing

Total housing starts edged up to 626,000 in March from 616,000 starts in February, providing a three-month stretch of growth. Housing starts are now 20 percent higher than in March 2009 and about 30 percent higher than April 2009. Housing starts last April sank to the lowest point since 1970. Multifamily starts fueled March’s growth with a 40 percent increase from 63,000 starts in February to 88,000 in March. Single-family starts remained about the same at 531,000.

Prices for new homes decreased in March to about January’s level after a modest rise in February and are now 4.3 percent above where they were one year ago. Prices for existing single-family homes rose 4 percent in March, according to the National Association of Realtors (NAR), and are about the same level as they were in March 2009.

The S&P/Case-Shiller Index for existing home prices continued a five-month decline in February, decreasing 0.8 percent, following on five months of increases in the middle of 2009. Still, the net result is that prices were up year-over-year for the first time since December 2006; February’s index is a modest 0.6 percent higher than 12 months earlier. (This index is reported monthly as a three-month moving average, with a two-month lag.) Prices of existing condominiums stayed about the same, according to NAR, and are 0.7 percent lower than last March. Housing affordability remains near historic highs.

Total existing single-family home sales (seasonally adjusted) increased 7 percent in March and the supply decreased to 7.7 months, approaching the historical average (since 1982) of 7.2 months’ supply. The number of new single-family homes sold increased by 27 percent in March and the supply decreased to 6.7 months, also approaching the historical average of 6.3 months’ supply (since 1970).

Foreclosure filings-default notices, scheduled auctions, and bank repossessions-increased 19 percent in March after consistent declines since September (with the exception of December). Foreclosure filings are 8 percent higher than in February 2009 and 2 percent higher than the historical peak in July 2009. Home mortgage rates (30-year fixed) were at 4.97 percent in March.

With housing sales up, month’s supply decreasing, and strengthening prices among existing homes, as well as growth in housing starts, the housing market is showing signs of a slow revival. These positive changes follow February’s lackluster performance due to unusually bad weather and come in the spring, when a bump up is always expected. It remains to be seen how much of this is sustained in the coming months. Of key importance is the impact on prices and inventory of the foreclosure spike, as well as the April 30 expiration of tax credits for home purchases.

See the housing table

Commercial/Multifamily Investment Property

Office vacancy rates stood at 19.6 percent in the first quarter of 2010, up slightly from 19.4 percent in the fourth quarter of 2009 and 200 basis points above the same quarter a year ago, according to Property & Portfolio Research (the source of all data presented in this section). Completions in the first quarter were down as a percentage of inventory, decreasing from 0.2 percent in the fourth quarter of 2009 to 0.1 percent, both quarters substantially below the historical average of 0.7 percent. The absorption of -7.5 million square feet was an improvement from the -39.0 million square feet absorbed in the same quarter a year ago. Rents remained stable and are off 7 percent from the same quarter a year ago.

Retail vacancy rates stood at 19.4 percent in the first quarter of 2010, up slightly from 19.2 percent in the fourth quarter and 320 basis points above the same quarter a year ago. Completions in the first quarter of 2010 stood at 0.1 percent of inventory, down from 0.3 percent in the previous quarter and below the 0.6 percent historical average. Rents remained stable in the first quarter and are off 7 percent from the same quarter a year ago.

Warehouse vacancy rates stood at 13.3 percent in the first quarter of 2010, up slightly from 13.1 percent in the fourth quarter and 200 basis points above the same quarter a year ago. Completions in the first quarter of 2010 stood at 0.1 percent of inventory, down from 0.2 percent in the previous quarter and below the 0.6 percent historical average. Rents fell slightly in first-quarter 2010 and are off 8.5 percent from the same quarter a year ago.

Apartment vacancy rates stood at 8.4 percent in first quarter of 2010, which was unchanged from the fourth quarter and 60 basis points above the same quarter a year ago. Completions in the first quarter of 2010 stood at 0.1 percent of inventory, down from 0.2 percent in the previous quarter and below the 0.4 percent historical average Rents remained stable in the first quarter and are off 5 percent from the same quarter a year ago.

Hotel occupancy rates (a moving 12-month average) stood at 58.5 percent in first quarter of 2010, 340 basis points below the same quarter a year ago. Completions were down slightly as a percentage of rooms, from 3.2 percent in first-quarter 2009 to 3.1 percent, but remained above the historical average of 2.3 percent. The Index of Revenue per Available Room (RevPar Index) was down 5 percent from the same quarter of 2009.

The magazine Architecture lists 10 things that can improve architecture, construction, and development in the next 10 years . Here is their list with some comments by me

1. Technology: Buckminster Fuller’s concept of “ephemeralization”—that technology gets smaller as it gets more sophisticated—could go extreme, and energy systems could appear to disappear. Green buildings would no longer wear technology on their sleeves.

For example, In Germany, homes are being built that reduce utility costs, when compared to a conventional house, by 90%. This does not include solar panels. Their utility companies pay the consumer a premium for energy consumer  produced by wind or sun.

2. Construction: More automated processes, such as robotic construction, could become more common in conjunction with a growing demand for better building craft, leading to smarter, faster, tighter, richer architecture.

See next item comments

3. Manufacturing: The building materials industry could concentrate less on individual parts and pieces and more on whole assemblies and components. On the other hand, factories could begin to disappear as on-site manufacturing becomes more common.

Panelization of walls, producing electric harnesses that contain all the house wiring, wet modules for plumbing, and framing systems have been used in various parts of the U.S. for at least the last 40 years. A serious problem with factory production  of building modules and buildings are  the cost of transportation and the cost of adding the extra product requirements needed to make the product withstand the rigors of transportation and erection. Many multi-story building systems can erect a floor a week. This may involve pre-stressed concrete, etc. combined with dry and wet modules.  A factory that produces building parts must be working  year around to be feasible. Building in most areas of the country is a 3 season business, caused by cold or rain. Because of the seasonal nature of construction work, the pay is substantially higher than factory work. One of the advantages of pre-fab construction is the lower labor cost. Another factor is large capital costs to purchase machines to make a factory production line.

4. Economics: Smarter building products and systems could become both cheaper and more effective, finally killing the misperception that sustainable design has to cost more.

5.Metrics: Subtler tools for evaluating building performance could find clearer links between quantitative factors (energy, water, etc.) and elusive quality-of-life indicators.

6.Practice: Architects could expand their scope of services to guide clients well before predesign and well after occupancy. As a result, the profession could become more financially stable and more essential to business.

Architecture is a part of the real estate development process. A private development is an economic engine that must produces a required return for the investment to be feasible. The architect must understand this when undertaking the design of  a private development. How can the architect do this?  This must be a part of the architect’s education.

7. Operation: Smart monitoring of buildings and the global sharing of performance statistics could become standard practice, creating unprecedented feedback loops and richer networks of information.

Many years ago, I was shown very detailed maintenance records of U.S. public housing. These were fantastic sources  showing  the life of almost every building component. by manufacturer and model. This treasure of records could create huge savings for new developments future maintenance costs. These records were never made public. These type records still exist in many places in many countries. There must be a central clearing house for the public to easily consult.

8.Education: Ecological literacy could reform education at every level and transform design schools around more aggressively interdisciplinary curricula.

The key here is interdisciplinary curricula. In the 40 years I have taught in universities, the number one failure of higher education has been lack of interdisciplinary curricula.Why?  Each department very jealously fights to maintain their “empire”.  Twenty years ago, at the University of New Mexico I was asked to teach about real estate development. I wanted this course to be an interdisciplinary curricula using the Business School, Architecture School, Law School, and the Engineering School. I met with all of the  Deans.  All agreed it was a wonderful idea and all would participate. The first year was great, every Dean was on board. There after, less and less co-operation. The key was when a Dean was replaced, the successor did not sign on. Finally there was Engineering and Architecture. When the Engineering Dean retired, it was only my original advocate, George Anselvicius, The Dean of Architecture.  When George retired , the successive Deans was very helpful.

Development involves accountants, attorneys, architects, engineers, construction managers, appraisers, brokers, maintenance, bankers, economists, planners, public relations, investors, public officials, community groups, users ,geologists,  et. al. How many of these are included in a designers education?

9.History: The scholarly history of architecture could focus less on monuments of wealth and power (temples, churches, museums) and more on the interaction of people and place over time.

See #8.

10. Culture: The glamorization of the individual architect could become less and less appealing as design becomes valued more for how it serves communities. Death to starchitecture.

One of the “abilities” of many starchitects is how to get publicity for themselves. Some recent winners of the Pritzker Prize have had little or no body of built work. The importance of scale and being compatible with the community design is essential for an attractive community.

Santa Fe, New Mexico, lost industry when the railroad by passed them. By decreeing that all houses looked similar, Santa Fe recovered by  becoming a tourist attraction.

The other extreme is a place like Beverley Hills, California, where much of the housing design does not relate to its neighbors. When I used to jogs through the streets there, the mix of building materials and design styles  gave me a huge headache.

Our communities must eliminate oil spills, mine cave-ins, and contaminated air for our children and grandchildren to survive. Recent news stories have described the recent disasters involving carbon products.  Let us look a little closer.

Why did recent BP oil spill in the Gulf of Mexico occur? One reason is the U.S. demand for domestic oil production. These off shore oil rigs are a major source for U.S. oil production.  How do we prevent such a disaster? One way would be to stop off shore oil well digging. If   a major source U.S. oil production is closed down, the price of gasoline  and other petroleum products will rise substantially. Off shore oil production is major source of oil world wide.  Consumers would choose  lower energy costs over stopping off shore oil well production. Today, we can not afford to throw out the baby with the dirty bath water.

The problem at the BP site was the emergency  system for stopping oil production failed to work. First, why did this fail to stop oil pumping? If the system is a reliable and safe way to automatically stop oil pumping, there must added requirements for  frequent testing of these devices. In any event, the oil producers must provide fail safe methods for stopping oil production regardless of the cause of the leak.

Who will pay for the damages caused by this huge oil spill? Will it be a repeat of the Hurricane Kristina damage payments that took years to be paid , if at all?

As new electric devices are devised, the demand for electricity will increase. As long as carbon products are our sources of energy,  coal mine cave-ins, oil spills and contaminated air will be constant threats to your lives. We must have safer forms of energy. Solar and wind technologies are being developed that reduce the need for carbon products. Studies by leading universities show that wind and solar production are required, but at this time in America these energy sources will never provide more than a fraction of the energy production we demand.  We need a additional sources of energy. In France, over 80% of energy demand is fueled by nuclear plants.  All U.S. submarines are fueled by nuclear power. For many years we have been safely placing  our Navy sailors next to atomic power. Nuclear power is a source of energy that can eliminate the use of carbon products for producing energy. Only by  substantial increases in the development of nuclear power can we eliminate oil spills, mine cane-ins, and contaminated air.