The online assignment was mostly defining different tax credits available to adaptive reuse projects. For your convenience, I’ve uploaded it here as a pdf:

Online Assignment Burns

The project was to analyze a recent project and give advice whether the decision that a particular developer had made was the best at the time. The main hitch to this assignment was that we were given no budget parameters.

The description suggested though that the investors would not be willing to authorize any major renovations. Any suggestion for such may not be relevant then.

A couple of other relevant points:

• The original project description can be seen on the professor’s web page.
• We were told in the second class we didn’t need to do the financials but I had already done them.
• One student had already gone to the site and seen they just turned it into ground floor retail (and thus not even remediated the flat roof problem).

The result:

Burns Foch Street Recommendation

Burns Foch Financial Analysis

We spent the first part of this class with a guest speaker – Mike Brennan who is with Fort Worth South, Inc. His organization is responsible for administering the south Fort Worth TIF district.

Mike showed slides of a number of pictures of projects that have taken advantage of the TIF to redevelop the area. Apparently this TIF has won awards for being such a model TIF.

One project is seen here above – this building was remodeled and is now occupied by an advertising agency.

Of note were two major streets in the area that have seen the most development: South Main Street and Magnolia Street.

For the next part of class, we visited Bill Smith, a developer working on a building near Magnolia Street. He is developing the building to be Live Oak Music Hall and Lounge.

Bill spoke at length about how he had the local community involved in the project from the beginning. He’s been working with neighboring businesses to form a shared courtyard and pool resources for common services.

Another interesting point was that he does almost all of his own design work. He said he didn’t graduate from high school but did take some drafting skills with him. He found himself in the landscaping business for a number of years, then into construction remodeling and now developing.

The most interesting point to his story to me was that all of his investors are local people. A larger company came to invest and get a big chunk of it and he turned them down. After himself, his largest investor is his brick layer.

As you can see from this picture, he has some good taste for interiors. We were able to tour the work and also go up on the roof.

After that we walked up and down Magnolia Street to see some of the other buildings that Mike had mentioned. On the way back we stopped for lunch.

After lunch we were supposed to meet an architect downtown who designed Montgomery Plaza. We went to his office downtown but he wasn’t there.

Our professors weren’t able to get in touch with him so we came back to class to discuss our class project which I’ll post here later this week.

We each took a building from www.fortwortharchitecture.com. I had the Hilton Fort Worth. The Hilton’s main claim to fame is as the last place JFK stayed. It was also interesting to read the history since it’s building in 1921.

At one point, they’d demolished the lobby to make two floors, added a ballroom, added an atrium and reopened the lobby, built an annex and then not included that annex in one of the series of rebrandings. The annex is at the other end of the sky bridge you see in the picture. There’s currently no one occupying the annex and I saw a couple of listings for it on a commercial brokerage site.

After lunch was more interesting. We visited a developer who offices with an architect just south of downtown – Eddie Vanston. We were able to get some insight into the use of the Historic Tax Credit as well as the New Market Credit.

Eddie has taken a few industrial sites in the area and renovated them into mixed use retail and loft apartments.

Some things we learned on the tour are that:

• You don’t have to meet building codes or be ADA compliant for historic redevelopment projects.
• Industrial sites are easier to work with because they often have large open spaces inside the building envelope.
• South Fort Worth has one of the best TIFs around.
• There’s still a lot of demand for affordable housing. In this case the product tends to appeal more to creative types of people since the spaces aren’t standard apartments.
• The Historic Tax Credit can be complicated to work with if you aren’t familiar with it. Eddie tried a couple of times to use it unsuccessfully until he partnered with another group that knew how to use it.
• The New Market Credit may not be funded in future years due to common use against the original intent.
• HUD financing is often used too in these kinds of projects.

That’s keeping with what I’d heard earlier about the fact that most loans these days are government backed. I’m not sure how extensive that is in commercial but my understanding is that something like 95% of residential loans are now government insured.

Another interesting fact is that Eddie stated he gets his equity out of project within a year. He seems heavily involved with the contracting and property management as well so no doubt his costs are kept down.

When it comes to small bedrooms and confined spaces it is only a matter of time before you want to do anything in your power to maximize your space. There are many ways to do this, and organization is one of the most important and powerful tools you can have. Each space in your home have their own unique ways to get the most out of the area you have, you simply have to understand a little about what is available to that room and the tools that can be useful. When attempting this in your bedroom there are some obvious steps, such as bunk beds and storage. But these are not the only methods.

To begin with, the most important is to start with the big things. As already mentioned, do something about the space that your bed is taking up. If you are sharing a room, or if you are working on a space for children then bunk beds are truly a great option. Not only can futon bunk beds help to free up valuable floor space by illuminating additional furniture, but you can also add to these remarkable pieces with extras. This can include shelving and storage, but can also include valuable items such as desks and closet type drawers. If you are not using bunk beds, it is still a good idea to attempt to reduce the size of the bed you have in your room to try and maximize the space that you have.

One thing that seems at first to be a good idea to try and give yourself more space, but ends up taking up more then it is worth are large storage furniture. This includes armoires and various dressers that occupy a large amount of space on the floor and walls, yet do very little to give you useful organization.

Another area that gets somewhat overlooked because of how challenging it can be to manage is the closet. However, taking the time to organize this space to get the most out of it is critical. You need to use as much of it as you can because the more that you are able to store inside the closet space, the less that you will need to keep out in the open.

A good option to adding some space a room is to add a futon or a sofa bed. This is an effective way to free up a lot of floor space while not loosing out on any comfort with the useable size of your bed. As an alternative to using beds like futons, or bunk beds, you can also install a Murphy bed, although these can be somewhat costly.

One of the best ways to free up space in a small room is to utilize the space of other rooms. Try storing seasonal items, such as winter coats, or other items that are only used half the year in a hall closet or other area that might have extra space and is not often used.

Adding space to a smaller room is not impossible; however it does take some creativity. By looking at the area that you have in different ways you can possibly find ways to get more out of your space, without also having to pull out your hair in the process.

Rob Lobitz specializes in space saving design. He currently writes for bunkbeds.net.

From Book: Pocket Neighborhoods: Creating Small Scale Community in a Large Scale World

It’s been an interesting experience so far from building a tiny house to seeing the foundations of modern architecture to understanding how developers evaluate risks.

At this point, I still think tiny houses are cool. Is anyone going to be able to make a living from building them? Not likely. Tumbleweed makes their money from selling books and plans. It’s mostly folks building their own.

I’ve seen the idea for starting a tiny house community float around a few times. I have to ask why people would want that. You’d have to probably go outside of city limits because few zoning ordinances would allow for it.

Alternately you could build it on something zoned as a trailer park. But then you’d have to wait for others who had built tiny houses to show up and rent a space. If you’re retiring and don’t mind having your money tied up in the “if you build it, they will come” model, I guess that’s fine.

Folks who would be willing to rent in a trailer park and live in 100 sq feet might not make that stable a community. It seems that tiny houses make great places for individuals – or couples who eat out a lot. If you want a community with families, kids, pets, etc. a tiny house trailer park isn’t going to do that.

And a trailer park is still a place set up for trailers. It’s not especially walkable given the set up or the probable location. If you’re looking primarily for affordability then yes, a trailer park could do that. But that’s not a solution tiny house affectionados are necessarily looking for.

Pocket neighborhoods meet the same general intent for community. If you look at the image I linked from the pocket neighborhoods website above, you see that everyone still has their own house (some can be tiny if desired), it has great walkability and maximizes the opportunity for community.

I’m currently living in Arlington, TX. I looked up cohousing because my wife and I are planning to move somewhere near Richardson, TX so I can do a PhD in game development at UT Dallas (another story). I looked up Dallas Cohousing and there is a site: dallascohousing.org.

There is one development and a meetup group for it too. But for the most part, it’s a fairly non-existant concept.

After reading over some of these cohousing sites I wanted to add a few comments about starting a pocket neighborhood or cohousing.

Cohousing.org lists 6 principles of cohousing:

1. Participatory process – future residents help design it
2. Neighborhood design – designed like a pocket neighborhood
3. Common facilities – usually a house that has community dining, classrooms, exercise, tool storage, etc.
4. Resident management – similar to a condo board or neighborhood association
5. Non-hierarchical structure and decision-making – they prefer consensus to voting
6. No shared community economy – none of the residents are supposed to make money from providing a service to the community

To accomplish this, you’d basically have to get 10-20 households together who would agree to start a non-profit and purchase and develop all of this without financing. And that’s if you can find a location inside city limits which I think would be preferable. Otherwise you’re starting some kind of rural commune.

That seems fairly far fetched and idealistic. Promoting pocket neighborhoods that way will pretty much insure that they remain a nice post-apocalyptic idea.

The book Pocket Neighborhoods (and companion website) also promotes a few low commitment ideas too. Residents of regular neighborhoods can agree to take down their privacy fences and devote some portion of their backyards to a community walkway and possibly some other community feature such as a gazebo, playground, bbq, etc.

In Richardson, TX where we’re looking to move, most streets have alleys in the back. The idea was to move the cars and the trash off the main streets and into the back. While it did succeed in moving the trash to the back, there are still cars on the main streets. And the alleys seem like fairly inhospitable places to be because they’re all surrounded by backyard privacy fences. The book talks about taking back the alleys by taking down the fences and using most of it for community spaces.

If you were going to start a pocket neighborhood from scratch though, here’s some things to consider:

• Most people aren’t going to have meaningful contributions to make toward design. Waiting until you have a large enough group that can come to a consensus on such things pretty much insures it will never happen. Just follow the guidelines set out for pocket neighborhoods and take into account the location you’re in. You’re much more likely to find people willing to buy in after things are built.
• Buy a house with some land. There are plenty of places inside city limits with an acre or two. Check with your zoning (Plano doesn’t allow more than one additional house per acre) and subdivide the larger parcel into your individual neighborhood parcels.
• With as many houses as we currently have on the market (with more likely on the way), it might be possible to buy a few houses next to each other and start taking down fences. They say you just need three to start a trend and gain momentum.
• I read somewhere that currently 95% of residential mortgages are government insured. Banks just aren’t interested in lending without that coverage. FHA and others don’t lend on coops. Your structure will need to either be condos or include a non-profit neighborhood association that owns or leases a community building. Or one of the residents can donate a portion of their land to building a community building.
• People are going to have to take a step back from the cohousing model of everyone being in everyone’s business. Most literature advocates the management board doing a full financial and criminal background check similar to what you’d expect to go through for a security clearance. Hopefully most of this will be done by a third (non-resident) party. The point is that residents have to be screened to buy and then they have as much challenge when they want to sell. If we want more pocket neighborhood opportunities, we have to lower the bar. As it is, it seems like you’re getting married and having to meet the family’s approval first.
• Along the same lines, some cohousing groups more or less expect residents to attend a certain number of community meals each week or month. Personally, we love having people over for dinner. The only thing with community meals is that you have a limited input into what is served. I happen to mostly eat raw, organic, free range food. I don’t eat sugar or grains except on rare occasion (eating out). Most of the time I’ve been to larger community meals, people go for the easy to mass produce dishes – lasagna, pasta, other processed foods, etc. While I like eating with people, I don’t see it being feasible to regularly accommodate a variety of nutritional requirements and preferences. I could see potlucks working better because if you don’t like what someone else brought, you can eat more of your own.

The bottom line is that cohousing needs to lower the bar on what they consider legitimate cohousing. Pocket neighborhoods would work okay without a community building too. Going without that feature would solve a lot of problems right off the bat. Either use a gazebo on someone’s lot or eat at someone’s house. Or make it a picnic until there’s enough support to build a structure.

Even if what I’m suggesting might seem a little watered down, it’s more feasible and therefore more likely to come into being. If we say these kinds of communities are better for most people who currently live in a typical suburb, then we need to make it as accessible as possible.

Please feel free to comment as this is a community topic and I’m only meaning to contribute to the conversation.

If you’re interested in how the numbers work out, check out the pdf here:

Real Estate Analysis Project

Also, I’ll say that I just finished reading Pocket Neighborhoods by Ross Chapin who I know is a favorite of tiny house enthusiasts. It seems that figuring out the financing is holding a number of people back from venturing into cohousing and related arrangements. After I finish some more work up, I’ll see about posting some thoughts on it.

All those topics are residential markets, multi-family, single family residences, appraisal, valuation, development, construction, adaptive re-use, redevelopment, transportation, TOD, architecture and facilities management.

Out of all of that we mostly talked about residential which is the hottest market right now. Multi-family is still selling well as residential prepares for another wave of foreclosures. Then we talked about adaptive re-use (for which there is another entire class later this semester) and finished with transportation. Obviously I still have some thoughts about architecture so I’ll include those at the end.

If you can believe it, we actually watched Jay’s Tiny House Tour as part of our class. While I don’t think that’s a major trend, I think it does fit in with the trend of changing living situations. Accessory dwelling units (ADUs) are becoming more popular and many cities have issued guidelines on how they can be built. Call them what you want – granny flats, mother in law suites, guest cottages… or tiny houses.

The trend is that more families are moving back in together to save money and recover from the recession. And as the Baby Boomers start needing more medical care, we’ll see a lot more of them either move back in with their kids or have their kids move in with them to provide care.

And then many more Millennials are moving back in with parents to save money. They don’t feel the need that previous generations did to go out and buy a home – especially in this economy. They’re more interested in socializing, traveling and collecting experiences. A mortgage on a house that may or may not appreciate is low on the agenda.

As for development, the trend seems to be that private-public partnerships are slim pickens given the budget shortfalls that most cities seem to be experiencing. I tried to argue the case that developers would do better for themselves to avoid adopting a business model that depended on government help. I saw one article that major developers like Trammel Crow have opted out of the mixed use development trend because they concluded that most of them required public funds to be successful.

Think of it this way. If you can generate a product that stands on it’s own, then you can do even better with public funds. If you can only create a product that requires public funds then you’re at the mercy of public funds being available. While there does seem to be a trend of government getting more involved in everything, I think there’s still something to be said of learning to be profitable.

Also in development is foreign investment. I read earlier that a gambling company in Malaysia had bought up ocean front property in Miami to build the world’s largest casino even though gambling isn’t legal there. No matter though, they’ve also hired 13 lobbyist to get that fixed.

Turns out the same company is building the world’s largest convention center for NYC and – wait for it – another huge casino. The government is all for it because they get a convention center out of it. And… it’s all privately funded.

In appraisal it seems that they recently (past 2 years) passed laws to separate appraisers from lenders. Some claimed that part of the real estate bubble was from appraisers and lenders having too cozy a relationship and inflating prices. The result we have is that often appraisals are done by non-local appraisers and they’re turning out to be less accurate due to not knowing the local market.

In construction, costs are going up due to higher demands for medical coverage and insurance fees. A significant portion of the residential demand for construction is going to remodels. When people can’t sell their homes, they fix up the one they have.

Adaptive reuse is getting a lot of press. Some of these are privately funded and some are public-private partnerships. This is like rehabbing for the commercial market. A lot of the value in a commercial property is in the leases it has. If a slightly run down building is sitting vacant, it can be bought for a lower price, updated and then find good tenants. Many green building projects are being featured as redevelopments too.

As for transportation and TODs (transit oriented developments), that’s a big trend too. Of course cities want to build in density and promote public transportation. Market trends though are that everyone still wants to drive their own car where feasible. We watched the Japanese bullet train go by at 300 mph.

There’s no question that train stops help shape future development. Whether they’re so important that the future will be cities around these nodes is to be seen. What’s important at the moment is that there are opportunities to be had where transit oriented development is done well.

Another point of interest is that there have been rumors of high speed rail coming to the DFW/Austin/San Antonio/Houston corridors. If you were able to work in Dallas but commute 45 minutes to live in Austin, that would be a significant game changer.

Finally on to architecture. I have strong feelings about this one as I recently had a fairly unpleasant experience with my architecture department. As I’ve continued to read and study, I’ve come to figure out why.

I came to architecture with a builder’s perspective. I built on spec and then wasn’t able to sell for as much as I’d anticipated. Having studied marketing and been a Realtor previously also informed my background.

What I’ve come to learn about the current state of architecture is that it’s still functioning under faulty premises. If you’ll allow the comparison, modern architecture is like Newtonian physics while our better understanding is now quantum mechanics. Things are much more connected than our simple aesthetic of architecture as art trying to communicate something.

There’s fantastic article on a permaculture site regarding the state of architecture:

Architectural Myopia: Designing for Industry, Not People

The trend for architecture will be to adapt to design for people, not for industry. Terms such as “evidence-based-design” and “biophilic design” are coming more into play.

Architecture must design within the context it finds itself and strive toward functionality. Profitability is an intermediate step that most architects haven’t made it too yet.

I’d say we’re a ways away from it yet. If you tell an artist that their work needs to be functional, you’d probably be scoffed at. But then that’s probably why architects in general are having a hard time finding work these days and that they only design something like 3% of buildings.

Either they need to learn to design for people or stop designing buildings that people will inhabit. If you want to build art, build art and keep that separate.

This one didn’t have much to do with real estate either but it was still an interesting trend. This facility is a recycling facilitator rather than a recycling facility themselves.

Their business model is to charge companies to haul away their recyclables which include just about everything. The idea is if you’re going to pay a waste disposal company to come pick up your trash, why not pay a little less to have it picked up as recycling instead.

They also facilitate the recycling of hard to recycle items like electronics, glass and even toilets. They consult on other projects like LEED construction waste management and zero waste businesses.

The owner is a great guy and wants to see how this model can scale. Right now they’re primarily serving the downtown Dallas area though they can service anywhere in the DFW area though they might charge extra for mileage. If you’re close enough, you can drop off household items too.

The next thing he wants to do is use synergistic approaches to community building. He was showing us a diagram that would integrate a community center, his business, composting and local schools in a particular Dallas neighborhood. It sounded like a good permaculture system though he didn’t mention that specifically.

It’s been interesting to see LEED projects up close and see that average people not only wouldn’t do them, but couldn’t.

This project had a lot of really interesting features, some done impractically and some that wouldn’t have been done at all if a cost/benefit analysis had been done.

They’re an independent non-profit dedicated to botanical cataloging and research. See more about their mission here:

http://www.brit.org/

Some of the cool features was that one wall was made of reclaimed sinker Cyprus wood which was basically wood lost and abandoned years ago in the logging industry. But then the architect went and made funky designs out of it and used a lot more wood than needed.

They have a green roof where they’re trying to grow native prairie grass. Another roof has solar panel tubes on it. The tubes can catch solar energy from any angle. Unfortunately it wasn’t very practical because the company who made them has since gone out of business. They provide 14% of the building’s energy. The tour guide thought that they cost 2-3 times more than regular panels but that they would recoup the investment in 5 years. That doesn’t sound right though as most regular solar panels take longer than that to recoup.

They tried to do their parking lot according to low impact development which is a way to maintain the natural hydrology of a place instead of contributing to the storm water runoff problem most buildings have. When I was leaving I didn’t see many curb cuts where they probably should have been. But they say they’re able to collect enough rainwater in a retention pond that they can continue to irrigate in the summer when everyone else has water restrictions. Of course they have to do press releases to explain that they’re not violating the restrictions.

The put 100% wool carpet in many of the rooms which was a bad idea. While it doesn’t have VOCs, it sheds terribly when vacuumed. In the low light I could see it was worn and dirty from foot traffic. Even the tour guide thought that one was probably a bad idea.

They have a geothermal well that we didn’t get to hear much about. Evidently their cooling/heating bill is pretty low.

They have flushless urinals which we were encouraged to go see. Honestly, I think those things need to be flushed at least a little. It was kinda gross.

The research area made more sense. The floors were frequently dirty from plant clippings and dirt and were made of recycled rubber which were easy to clean, durable and hid the dirt well.

They have to keep the storage areas cool for the 1 million plant clippings they have. Most of the plants carry an interesting story though none of that seemed relevant to our real estate class.

Overall, it was an interesting science and sustainability tour. Like I said, the more I see of LEED projects, the more I understand why most people don’t do it.

When we returned to class, we touched on the topics of the day. Honestly, this was the hardest discussion for me. Emerging markets are interesting. I could talk about Brazil, India, China, Chile, etc all day.

But the rest of the institutional money… well there just isn’t that much going on with it in the news. Everyone knows we’re in a recession and this percentage point or that percentage point just isn’t interesting. So we didn’t talk about that much other to make the point that debt is usually cheaper to use than private equity.

As for emerging markets, we looked at China’s building boom and their ghost cities. They’re building cities to meet mandated growth goals but only a small fraction of their population can afford the price so they’re sitting vacant. They’re also already starting to need maintenance and may become uninhabitable before people can afford to move in.

There are a few videos out there on China’s modular building prowess. See this 2 minute video on a Chinese Hotel Built in 6 days:

http://www.youtube.com/watch?v=E76uJi744Do

We talked about modular or prefab building a couple of times. The reason I think it hasn’t caught on here yet is the scale needed to make it profitable. China has production factories constantly running with orders for these things. A factory like that here would need a lot more business. If some major builder picks it up, we’ll probably see a lot more of it.

The full list of topics assigned for Friday and Monday were hospitality, travel, resorts, international property, debt markets, lending, financing, foreclosures, REOs and workouts.

We started off talking about all the resources available at the Texas Real Estate Center:

http://recenter.tamu.edu/

It’s worth checking out if you have any interest in Texas real estate.

We were also shown the Wall Street Journal’s real estate section.

From the prior class we started off with picking back up on affordable housing. One example we looked at was:

http://www.newhopehousing.com/newhopehousing.html

It’s a non-profit in Houston that’s building SROs – single room occupancy units. The rent is around $415 a month all bills paid. They are very small apartments but they’re renting out like hot cakes.

The most surprising feature we saw was that they do not allow couples, children or pets – only on person per unit. That doesn’t sound like what we typically think of when it comes to affordable housing but it probably makes production of additional inventory easier. There’s probably less management required and an endless supply of tenants that fit that demographic.

One conversation that we started what the ethics behind affordable and especially subsidized housing. My point was that if you’re just going to have the city pay the person’s rent, why not instead lower property taxes and cut out all the bureaucracy? The arguments went from improving schools (it doesn’t) to redeveloping blighted areas.

While we were advised that we were getting into policy issues rather than real estate per se, my argument for developers was whether you’d want to base your business model on government funding. No doubt the trend is that government funding is taking a larger role in just about everything but that can’t last forever. At some point we need producers instead of simply redistributors.

I see it as a win-win if you hone your business skills to survive without government support. That way you can thrive with government support and make it just fine when it runs out. There’s also a perverse loss of sense of things when you exclude normal market feedback such as supply and demand and price.

Take education for example which we also mentioned. When government funded education fails miserably, we think we need to give it more money. When a company (without inside political ties) fails, the capital is reallocated to something that’s more appropriate as evidenced by profitability. Without profitability we can’t know if anything the government does benefits the consumers more than what they would choose for themselves.

Then we got to hospitality. We watched a video on an ice hotel in Sweden. That’s not a trend but trying to be more unique is. Capsule hotels in airports seem to be catching on. I can guarantee you they beat sleeping in the waiting area which I’ve done before.

Other hotel/travel trends we discussed were couch surfing, house swapping, and hostels. We briefly touched on convention center and attraction hotels, kid free establishments and dog hotels.

Another big trend are all inclusive hotels and online pricing channels. Mobile is playing a big part not only in finding hotels but in check-in, ordering room service and even acting as keys.

We finished up talking about the debt markets. The big news yesterday was that the White House is working up a deal to sell off government REO in massive lots of 50-500 houses at a time to investors to be used as rentals. The big issue with that (policy ethics aside) is the management of those properties. It will be a massive undertaking to locally manage property that’s spread across the country.

We briefly talked about foreclosures and short sales. Of note was that last year foreclosures decreased. Not because the market was improving though. It was due to slow processing from “robo-signing” paperwork. That automation led to missing documents and fraudulent foreclosures. Servicers backed off until they could revamp the process and experts are anticipating foreclosures to increase again this year.

The situation some owners are finding themselves in is that their properties aren’t worth the remaining value of the mortgage. It’s becoming more popular to simply walk away from the house and let the bank take it back. That’s called “strategic default” and it’s on the rise. Thirty percent of foreclosures were strategic defaults in 2011 up from 22% in 2010. That trend will probably increase this year too as property values across the US decreased by 7.5% in the third quarter last year.