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“Because of his past experience in the government and his credibility with OMB and within HUD, John was able to address, successfully, a number of issues facing FHA—particularly on the multifamily side. He was instrumental in re-analyzing the credit subsidy calculation which allowed many of the FHA programs to operate without an appropriation for the first time in over 10 years." --MBA Chairman Michael Petrie, CMB, on FHA Commissioner John Weicher's resignation.

Weicher to Step Down at FHA
East Meets West in Charter Mac Purchase
New Arbor Program Combines Fannie Mae DUS and Mezz

Commercial Investors: Money to Burn But Nowhere to Go?
Hotel Markets Show Signs of Upswing
Japanese Commercial Real Estate Outlook More Positive

Ashworth Mortgage Funds Nearly $26.9M in Cambridge

MBA Action Alert Urges Support of REMICs Bills
NCF Presents TRIA Summit Today

New Brownfields Bill Targets Community Aid

President George W. Bush nominated Weicher to the FHA post in May 2001. Prior to this appointment, he was director of urban policy studies at the Hudson Institute. Weicher held policy positions at HUD in two previous administrations. He was assistant secretary for policy development and research under Secretary Jack Kemp in the administration of President George H.W. Bush and chief economist for Secretary Carla Hills in the administration of President Gerald Ford. Weicher also served as chief economist at the Office of Management and Budget for Director James Miller III in the administration of President Ronald Reagan.

"Dr. Weicher has been a strong advocate for housing and a dedicated public servant while at HUD, managing a range of complex issues from RESPA reform to program improvements at the Federal Housing Administration," said Kurt Pfotenhauer, senior vice president of government affairs at the Mortgage Bankers Association. "Over the past four years, MBA has had continual contact with John and we have found him to be a thoughtful and involved manager."

Under Weicher's tenure, the health of FHA's Mutual Mortgage Insurance Fund continued to improve and now the capital ratio stands more than 2.5 times the congressionally mandated minimum. Studies implemented under Weicher's tenure showed that FHA's reverse mortgage product—the Home Equity Conversion Mortgage (HECM) program—was healthy and improvements to the program have allowed production volume to nearly double each year since.

“John Weicher brought an outstanding knowledge of housing programs and how to get things done in the government to the position of FHA Commissioner,” said MBA Chairman Michael Petrie, CMB. “Because of his past experience in the government and his credibility with OMB and within HUD, John was able to address, successfully, a number of issues facing FHA—particularly on the multifamily side. He was instrumental in re-analyzing the credit subsidy calculation which allowed many of the FHA programs to operate without an appropriation for the first time in over 10 years. John and I didn’t always agree on issues but he was always willing to listen and work with us to promote the production of affordable rental housing. He will be missed.”

Weicher was a frequent speaker at numerous MBA events, including its Annual Convention and its Commercial Real Estate Finance/Multifamily Housing Convention & Expo.

HUD has not announced a plan for succession.
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East Meets West in Charter Mac Purchase
MBA (3/17/2005) Murray, Michael

PW Funding Inc., the existing mortgage banking subsidiary of CharterMac, New York, will merge with Capri Capital Finance (Capri), Chicago, under the name of CharterMac Mortgage Capital Co., following Charter Mac’s $84 million purchase of Capri.

Daryl Carter, co-chairman of Capri, will become CEO of CharterMac Mortgage Capital Co., and Quentin Primo, co-chairman of Capri, will remain CEO of Capri Capital Advisors. The two executives built Capri Capital from a small pension fund advisory firm founded in 1992 to a nationwide mortgage banking and advisory firm.

Carter said the two companies are a “complementary business mix,” that add a broader array of products for their clients. The acquisition expands Charter Mac into the pension fund advisory business and both firms can benefit from cross selling to each other’s client base, Carter said.

Charter Mac’s purchase gives the firm a 100 percent stake in Capri and a 49 percent interest in Capri Capital Advisors, a pension fund advisory firm that oversees $2 billion in assets. Charter Mac will also oversee $9 billion in servicing assets. Capri now oversees more than $5.4 billion in servicing.

CharterMac will combine Capri’s Southern California originations platform and its Freddie Mac license with PW Funding, its east coast relationships and its Freddie Mac license. Capri will have access to CharterMac’s multifamily platform and balance sheet. Both companies have Fannie Mae's Delegated Underwriting and Servicing (DUS) operations.

Stuart Boesky, CEO of Charter Mac, expects a major expansion in Charter Mac’s mortgage banking and fund management businesses based on the acquisition. He said the merger is “a major growth period for CharterMac’s mortgage banking platform through CharterMac Mortgage Capital.” CharterMac and Capri also plan to diversify CharterMac’s revenue sources to include additional fee business, making the firm less susceptible to interest rate fluctuations.
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New Arbor Program Combines Fannie Mae DUS and Mezz
MBA (3/17/2005) Murray, Michael

Arbor Commercial Mortgage, LLC, Boston, introduced and a new loan product that merges elements of the Fannie Mae Delegated Underwriting and Servicing (DUS) program with the extra proceeds of mezzanine finance provided by Arbor Realty Trust.

Product highlights include:

• LTV up to 85 percent;
• Loan term up to 10 years;
• Amortization up to 30 years;
• Minimum of $5 million.

Arbor said its Arbor 85 Preferred product provides one-stop shopping for borrowers as the the Fannie Mae DUS program with additional proceeds from mezzanine financing from the same lending source. There is no third-party lender involvement.
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“It’s a global issue,” said Reinhard Kutscher, a director with DIFA Deutsche Immobilien Fonds AG, Hamburg, Germany. “We are seeing in some cases that European investors are looking for investments outside of Europe, which is not easy because there is a lot of money right now in Asia and in North America.”

It sounds like a pleasant problem, but it’s not; at least not entirely. For portfolio holders that seek real estate investments to match liabilities and diversify to manage risk, the dearth of investment prospects by asset class puts a strain on long-term strategies. A survey by UBS of European pension funds showed that while they held 6.5 percent of their portfolios in real estate, more than half have target weightings in the 11 to 15 percent range, while nearly 20 percent had even higher target weightings.

According to another survey, by Mercer Investment Consulting and the European Public Real Estate Association, a move to a 15 percent average waiting for pension funds “would require real estate investments of nearly 359 billion Euros—in a market that saw just 81 billion Euros in turnover in 2003.”

So what is happening, said Andrea Amadesi, managing director of AEW Italia and chairman of ULI Europe , is that “investors are going up the risk curve, adapting themselves and learning more about the risks. The problem is going to become worse this year. Our only hope is that with some consolidation and public sell-offs will absorb some of this capital. Otherwise, we may see some of this capital leaving Western Europe and heading toward other markets, such as in Eastern Europe.”

To which, says Nancy Bowen Wiggins, a consultant with AND d.o.o. Property Consultants, Charlotte, N.C., “bring it on.” Bowen Wiggins, whose company works with the government of Slovenia in attracting commercial investment, said the surplus of capital to invest bodes well for emerging countries such as Slovenia, with a population of 2 million and a well-developed infrastructure.

“There are plenty of opportunities to invest in Europe, and Slovenia is an excellent example,” Bowen Wiggins said. “Slovenia offers everything a commercial real estate investor would want.”

Except, perhaps, that it’s not London. Or Paris. “You have to look at Central and Eastern Europe and Russia. But these are smaller markets and you can only do so much,” said Yoost Captijn, managing director of Jones Lange LaSalle in The Netherlands. “So you have to combine the growth potential with the size of the market.”

“Large cities such as London and Paris will always attract capital,” Amadesi said. “I also look east, to Germany, where there is great potential.”

Patrick Leardo of PricewaterhouseCoopers noted that in the U.S., investment markets are measured differently. “When we look at San Francisco, or Dallas or New York, we’re not necessarily looking at new markets that will grow exponentially over the next five years, but rather mature markets that will fill out their existing space,” he said.

Kutscher said European investors would do well to learn from the Americans. “What we’ve seen in the U.S. for awhile is that you have to be more aggressive and short in your decision making—you have to be able to put your bid in quickly and sign the contract in a short time,” he said. “Timing is getting shorter and the surroundings are very competitive.”

Captijn said it’s not impossible to put money in Europe—“there are many attractive investments.” But he said it’s a different environment than three years ago, when there was less disparity in capital and available investment. He noted that the situation should improve, rather than get worse.

“In Europe, the picture is so diverse that you can’t generalize,” Captijn said. “We are in a market where we can expect in the second half of this decade that the economy will pick up. The office market has bottomed out in Europe, so there’s a lot of good news on the horizon. Each market has its own profile, but at the moment real estate in Europe is still a good investment.”
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Hotel Markets Show Signs of Upswing
MBA (3/17/2005) Sorohan, Mike

CANNES, France—Of all the commercial/multifamily “food groups,” none seems so inexact a science than the hotel/lodging industry.

And that is hardly a secret—in fact, it’s easy to get industry experts to admit it. Take, for example, Raymond Chigot, vice president of hotel development in Europe and the Middle East for Hilton International Development, London.

“The market dictates where we are supposed to be and how many hotels there are,” Chigot said this week at MIPIM, Europe’s largest commercial real estate convention. “I don’t think any big chain operates otherwise.”

Jan-Wilhelm den Ridder, regional vice president for hotel development with Marriott Hotels International Ltd., Paris, agreed. “We are largely reactive to customer demands and markets,” he said. “We discuss this a lot in the States, where we have a massive market—2,500 hotels. You’d think we were saturated there, but we’re not. So in a country like Britain, where we have 17 hotels, we’re developing the Courtyard by Marriott plan, of which we have more than 600 in the U.S. But [the Courtyard brand] is not very well known [in the U.K.].”

While U.S. hotel chains dominate the top 10 worldwide—eight of the top 10 are American-based—in Europe their share has shrunk, according to a new study by MKG Groups, Paris, which performs hotel market analyses. In Europe, the French Accor chain, which has greatly expanded its U.S. presence, and its multiple brands claim five of the top 10 market share slots.

The study also showed that the European hotel market surpassed the U.S. hotel market for the first time in 2004, although the U.S. hotel market remains the most profitable. European growth is in part to a general slowdown and slow recovery of U.S. hotel business stemming from the September 11, 2001 terrorist attacks. But Georges Panayotis, editor and chief of HTR: Hotel, Tourism & Restaurant Industry magazine, said the European market has recovered more quickly than the U.S. market and that emerging countries such as those in Eastern Europe offer “substantial” growth opportunities.

“Development is taking place in Europe again, with a strong concentration in Western Europe. But potential still exists for development in South and Eastern Europe, which could be quite substantial,” Panayotis said. “Chains represent 25 percent of hotel beds in Europe, but in the new European Union members, it’s just 15 percent, so there is a lot of market share to grab.”

That potential is not lost on the large chains. Den Ridder said Marriott has grown by 4,000 rooms per year over the past several years in Europe, Africa and the Middle East. Marriott, which had consistently ranked among the top five hotel chains in Europe, fell to 10th in 2004. But den Ridder said that was because of Marriott’s decision to sell its European Ramada Inn operations to Cendant, New York, which already owned the U.S. Ramada Inn rights.

“It’s only logical that the Ramada chain either be housed entirely with us, or entirely with Cendant, so it went to Cendant,” den Ridder said. “Marriott opened more than 200 hotels last year, and signed construction financing for 200 more, so there is nothing wrong. We are here to grow.”

Other European-based hotel representatives expressed the same optimism. Jean-Charles Donnat, hospitality director for business development for Rezidor, Paris, said his chain would expand by 50 hotels in Europe this year and is looking closely at the Russian market, which has more than 50 cities with a population of 300,000 or more.

Chigot said Hilton expects to add 90 hotels in Western Europe and has its sights set on the “huge demand” for Hilton hotels in Eastern Europe. And Accor Vice President Laurent Bonnefous said his chain’s goal is to expand by 700 hotels by 2012, targeting markets in Eastern Europe, Russia and Kuwait.

“We want to be perceived as a major player in the mid-scale hotel market, because we think we have a lot to offer,” Bonnefous said.

The HTR report showed great disparity in hotel performance among European countries. The U.K., and France, for example, enjoyed steady growth, improving occupancy rates, increases in prices and steady revenue per available room (RevPAR). But other countries, such as Spain, suffered from oversupply, the report said. The result has forced luxury hotels in Spain to take a hit by reducing prices while seeing lower occupancy.

“Overcapacity is a problem in Spain,” Panayotis said. “There is a price war going on in Spain right now.”

But other panelists disagreed with the Spanish outlook. “If you take Spain, for example, there is a crisis in the four- and five-star hotels, but the zero- and 1-star hotels are doing quite well,” Bonnefous said. “You have to take the statistics with a practiced eye. We cannot be out of Spain; we need to be there, but we must also weigh the costs and benefits of Spain, despite the economic situation. Think about the potential—if Madrid gets the Olympic Games in 2012, then the hotel situation there will stabilize quite nicely.”

Which brings the story back to the inexact nature of the hotel industry. “You can’t generalize what is critical mass,” den Ridder said. “You have to be very pragmatic—you work with your investment partners and institutional partners. Some statistics can tell a story, but it’s often misleading. Spain, for example, has bad-looking figures but is actually quite stable. A country like Denmark, where the cost to build is higher, is more difficult to assess.”

Panayotis expressed optimism that worldwide, the hotel industry will fare better. “2003 was one of the worst years in tourism,” he said. We expected 2004 to be better, and it was, but not as much as had been hoped. But for the first time since 2000, the aggregate occupancy rate has been on the rise, a rise that increases with category.”

Unfortunately for the industry, Panayotis said, the market is dependent on lagging indicators. “We have to wait for demand to match supply, though, which is why the occupancy rate is positive now,” he said. “When you emerge from a crisis, the first thing that takes off again is the occupancy rate. But full recovery usually takes about two years.”
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Japanese Commercial Real Estate Outlook More Positive
MBA (3/17/2005) Sorohan, Mike

CANNES, France—Japan would like you to know that it's turned the corner.

So if you’d heard that the Japanese economy is still struggling; or that deflation had made it worthless to hold even a bank account, or that securitization was all but impossible, put those fears aside.

Economically, the Land of the Rising Sun reeled for the better part of the past 15 years because of real estate price bubbles (a “real” bubble, not the supposed real estate price bubble that exists in the U.S. residential real estate market), the devastating economic recession in Asia in 1997 and a resulting deflationary period. But today, Japan, in part because of aggressive new government policies and an influx of foreign investment, is attracting its highest level of commercial real estate development since the boom period of the early 1980s.

“There appears to be a feeling among investors that Japan has turned the corner on its problems,” said Shuji Tomikawa of Mitsui Fudosan Investment Advisers Inc., Tokyo, speaking here at MIPIM, Europe’s largest commercial real estate conference. “With new laws, there is a return of Japanese capital into the investment market. The land price decline has stopped and the future looks bright.”
 
On a national average, land prices in Japan continued to decline last year—part of a continuing pattern—but the breadth of the drop shrank for the top three metropolitan areas, including Tokyo. For a country that until recently saw a free-fall in real estate prices, a small drop is a positive sign, said Masaaki Sugai of the Japanese Ministry of Land, Infrastructure and Transport.

“Within the signs of recovery in the Japanese economy, the reasons for the decrease in land prices in central Tokyo and other locations stopping is the growing ability to draw visitors and customers through urban revitalization efforts,” Sugai said.

One reason for the turnaround is a series of laws passed that opened up the Japanese banking system, which, because of deflation, had become its own worst enemy. Passage of the SPC Law in 1998 and the Investment Trusts and Investment Corporations Law in 2000 helped to establish a viable and expanding real estate securitization market, which in turn has contributed to a new flow of capital into the Japanese commercial real estate finance market.

Real Estate Investment Trusts (REITs), known as J-REITs in Japan, made their first appearance in 2001. That year, two J-REITs were listed on the Tokyo Stock Exchange; today there are 15. In 2003, the total amount of commercial assets acquired for securitization was 18 billion yen, five times higher than in 1999.

The introduction of J-REITs has made for more attractive leverage and liquidity,” Tomikawa said. “And there are more players in the market. Higher loan-to-value [LTV] are also allowed now by lenders, with a compressing spread of which investors can take advantage.”

The J-REIT product is very attractive to individual investors because of the price of the investment units—equivalent to a share—is about 200,000-800,000 yen and a roughly 4 percent dividend return can be expected, Sugai said.

Japan has taken an aggressive approach to urban development projects, supplying funds to the “middle risk/middle return” sector that has traditionally had difficulty procuring funds from financial institutions and investors and guaranteeing their debt. The government has also promoted interest-free loans to cover a portion of the construction costs to improve roads, parks and other public facilities by private-sector developers, and tax breaks to promote urban renaissance, thus reducing the burden on developers by providing special tax incentives at all stages of approved private-sector projects (e.g., land acquisition, construction and ownership) within areas requiring urgent improvement for urban renaissance. This includes reduced real estate transaction taxes and accelerated depreciation for income and business taxes.

At least four major construction projects in Tokyo, representing nearly 2 million square meters of office and residential, have been built or are slated to be completed by 2007. One completed project, the 54-story Roppongi Hills, is a self-contained city that includes a museum, a private club, offices, residences and a spa. The building attracted more than 45 million visitors last year.

“We now have a new Tokyo rising,” said Toru Nagamori of Mori Building Co., Tokyo, which constructed Roppongi Hills. “It means in Japan that something dramatic is happening.”
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The financing was structured in two tranches. Ashworth said the first tranche was completed with a "large pension fund advisory group," and the second tranche was done with a real estate investment trust (REIT).  The loan was for a ten year term on an interest only basis. “We had a very complicated structure with a very firm closing deadline,” said Richard Ashworth , principal of Ashworth Mortgage Co. “All the parties worked extremely hard to see that it was accomplished in a timely manner.” 

The main lobby of 100 Cambridge Park is a three-story soaring glass and aluminum curtain walled atrium with a number of plantings, Ashworth said. Exterior walls of the property are brick and pre-cast concrete panels secured to the structural steel frame of the building. The brickwork and panels are set flush. The window system is coated aluminum-framed system with thermal pane glass units.
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The bills are H.R. 1010, introduced by Reps. Mark Foley, R-Fla., and Earl Pomeroy, D-N.D., and S.580, introduced by Sens. Gordon Smith, R-Ore., and Kent Conrad, D-N.D. REMIC modernization is one of MBA's advocacy priorities for 2005. On March 10, MBA sent a letter to senators urging them to cosponsor the REMIC bill.

The bills would bring “crucial modernization” to the REMIC tax rules that govern commercial mortgage-backed securities (CMBS) transactions by updating a small section of the tax code and removing a large barrier to growth in the commercial real estate sector, MBA said. “By modernizing the REMIC law, the bills will allow property owners to make improvements or additions to the mortgaged real estate. These enhancements will protect CMBS bondholders and allow borrowers to increase the value of their property.”

In addition, the bills would “enhance greatly” the ability of commercial property owners to upgrade buildings after the mortgage has been securitized, without the need for costly and burdensome tax opinions.  Perhaps most importantly, by facilitating renovation of commercial properties, these bills will help spur new economic growth and employment.

For more information, go to MBA’s Capitol Assets Program Web site, http://www.mortgagebankers.org/wash_update/cap_assets/. The Capitol Assets Program is MBA’s grassroots membership initiative, designed to bring MBA members into the political process and strengthen the real estate finance industry’s political voice and lobbying power.
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NCF Presents TRIA Summit Today
MBA (3/17/2005) Rawak, Melissa

The Mortgage Bankers Association will sponsor and participate in the National Chamber Foundation’s presentation "Insuring America’s Economy Against Terrorism" today in Washington. The start time is 8:45 a.m., changed from 9:30 a.m.

On March 8, House Democrats Michael Capuano, D-Mass., Steve Israel, D-N.Y., Barney Frank D-Mass., Paul Kanjorski D-Pa., and Joseph Crowley, D-N.Y., introduced HR 1153, a bill to extend TRIA by two years (through 2007) and:

• Provide mandatory availability for terrorism coverage for policies written in the final two years of the program;

• Make terrorism reinsurance coverage available to group life insurance policies; and

• Require the Treasury Department to develop recommendations on long-term solutions to the terrorism reinsurance program.

Last month, Sens. Christopher Dodd, D-Conn., and Robert Bennett, R-Utah, introduced S. 467, a Senate bill that also proposed an extension of TRIA. As recently acknowledged by Federal Reserve Chairman Alan Greenspan, the private market alone cannot adequately insure against the continued threat of terrorism.

It is with this urgency that MBA is pleased to be a sponsor and participant in the National Chamber Foundation's presentation. Attendees at the Chamber's TRIA Summit will hear updates and outlooks from the unique perspectives of Congressional leadership members, including:

Reps. Kanjorsky, Chief Deputy Majority Whip and Ranking Member in the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Eric Cantor, R-Va., Pete Sessions, R-Texas and Senate Minority Leader Harry Reid, D-Nev.

Business leaders will also participate in a panel discussion.

Kieran Quinn, president and CEO of Column Financial, Inc., Atlanta, and vice chair of MBA’s Commercial Real Estate/Multifamily Finance Board of Governors (COMBOG), will represent the commercial real estate finance community. Other panelists include Jeffrey DeBoer, president & CEO of The Real Estate Roundtable; Lloyd Dixon, senior economist at RAND Corp., and Bradley Wood, senior vice president of risk management at Marriott International, Inc.

Click here for the agenda and registration form for this summit or you can find the Chamber’s event homepage at: http://events.uschamber.com/conference/brochure/index.cfm?ConferenceID=65 .

For additional information on MBA’s participation, please contact Josh Denney, MBA's director in government affairs, at jdenney@mortgagebankers.org or (202) 557-2816.
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H.R. 1237, the “Brownfield Redevelopment Assistance Act of 2005,” was introduced March 10 by Rep. Melissa Hart, R-Pa. The bill would amend the Public Works and Economic Development Act of 1965 to aid communities in redeveloping brownfield sites. Specifically, the bill would

• Provide targeted assistance, including planning assistance, for projects that promote the redevelopment, restoration and economic recovery of brownfield sites and eco-industrial development; and
• Through such assistance, to further the goals of restoring the employment and tax bases of, and bringing new income and private investment to, distressed communities that have not participated fully in economic growth because of a lack of an adequate private sector tax base to support essential public services and facilities.

The bill was referred to the House Committees on Transportation and Infrastructure and Financial Services.

Two other brownfields bills have been introduced this year. S. 398, introduced by Sens. Rick Santorum, R-Pa., and Evan Bayh, D-Ind., would make permanent Internal Revenue Code Section 198, which allowed the expensing of brownfields clean up costs but sunsets at the end of 2005 (The law expired at the end of 2003 but Congress extended it to 2005 last year). It would also broaden the definition of “hazardous substances” in Section 198 so it covers petroleum contamination; and repeal the provision in the law that recaptures the expense deduction as taxable income when the property is sold.

Reps. Jerry Weller, R-Ill., Nancy Johnson, R-Conn., and Xavier Becerra, D-Calif., introduced H.R. 877. the bill is identical to S. 398. Also, Rep. Gary Miller, R-Calif., introduced H.R. 280.

The Mortgage Bankers Association has “strongly supported legislation and programs that support states and localities in cleaning up polluted industrial sites,” said MBA Chairman Michael Petrie, CMB.
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