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"The finding of this international investment trend was further reinforced by the survey participants consistently identifying terrorism as one of their major concerns for 2005, with only interest rates, jobs and general economic growth listed more frequently." --Barry Ross, co-leader of Bryan Cave's Real Estate Development, Construction and Project Finance Client Service Group, on a survey about investment outside of the U.S.

Business Travel Helps Hotels Rebound, Fitch Says

U.S. Investors Look Abroad for Opportunities

Welsh Capital Extends Multifamily Property near Twin Cities

MBA and ACORD Host Insurance Discussions
MBA National Policy Conference April 19-20
MBA's Asset Admin/Tech Conference May 4-6

Terrorism Threat Not Limited to Urban Areas, DHS Says

What's Behind Foreign Debt and Interest Rates?

While the pace of recovery is not uniform, the report said, every market but one in the top 25 Metropolitan Statistical Areas posted a RevPAR increase in 2004.

"Barring any further terrorism-related incidents, the outlook for the hotel industry in 2005 and 2006 is bright, with RevPAR increases expected to range between 5 percent and 7 percent each year," said Park and Purij.
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A recent report from the Urban Land Institute and PricewaterhouseCoopers, “Emerging Trends in Real Estate Europe ,” said more money is being raised that can be currently placed in European real estate markets. The sources of capital are expanding, “but there is a shortage of suitable assets for acquisition,” the report said.

“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.”

While 16 percent of American investors chose Mexico as a potential foreign country for real estate investment, 14 percent chose the United Kingdom. Germany followed with 12 percent, Canada had nine percent and seven percent of investors chose China. The remaining 42 percent included France, Ireland, Japan and Austria.

Andrea Amadesi, managing director of AEW Italia and chairman of ULI Europe, said that investors are going up the risk curve, adapting themselves and learning more about the risks. “Large cities such as London and Paris will always attract capital,” Amadesi said. “I also look east, to Germany, where there is great potential.”

In the U.S., office property investments accounted for nearly 24 percent of interest from American investors, with 15.17 percent favoring metropolitan office and 7.58 percent suburban office. More than one-fifth of U.S. investors, 21 percent, indicated that metropolitan multifamily high-rise residential real estate would be their first choice for an investment opportunity.

The survey, conducted among more than 200 commercial real estate professionals including brokers, lenders, and mortgage bankers at a variety of companies across the country, based its findings on voluntary opt-in online interviews generated from an email communication from Bryan Cave conducted between February 1 and March 1.

[Mike Sorohan contributed to this report].
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The borrower extended the loan through Welsh Capital's correspondent lender IMPAC Multifamily Group. The 10-year term loan, amortized over 30 years, carries an interest rate at 5.625 percent.

Kip Dunkelberger of Welsh Capital arranged the deal. “The unique aspect of getting this deal done was the debt service coverage,” he said. “Most lenders will underwrite the cash flow to a 1.20 or 1.25. However, the lender we chose to do the transaction was willing in to underwrite to a 1.15.” 

Dunkelberger said the 37,200 square foot property, built in 1969, was purchased at the top end of the market but other comparisons were available to support the value. “Much of this is due to the fact that there are a number of multifamily properties being acquired with the intent to convert them to condos and this will drive up the price per unit,” he said. 

The property also had a 100-percent occupancy rate at closing. Dunkelberger said the market vacancy can become a big concern even though a property may be 100 percent occupied. “In our regional market, most of the data suggests that our vacancies are estimated at 7 percent,” Dunkelberger noted. “However, having solid information from a specific submarket can support an argument suggesting that a specific neighborhood is less. This was the case for this property. [We were] able to support a 5 percent vacancy, which the lender ultimately underwrote the deal to.”
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The first initiative, ACORD Form 28, Evidence of Commercial Property Insurance (ACORD 28), was co-developed by MBA and ACORD to serve as the first form available exclusively for the commercial real estate industry to document evidence of commercial insurance.

ACORD 28 is a stand-alone document that tracks property insurance coverage-such as terrorism, business income (interruption), and mold. ACORD 28 reflects the shared desire of both the insurance industry and the commercial real estate industry to ensure the reporting of accurate coverage information.

MBA and ACORD are hosting a series of focus groups for both industries. The focus groups are an opportunity for the separate industries to express their key issues and concerns about the process and delivery of insurance information from the insurance agents and brokers to the real estate lenders and servicers.

In December, representative MBA members in lending and servicing participated in the first focus group conference call. The real estate finance community outlined their concerns, including the information generally provided by insurance agents and brokers, the time and efforts associated with getting insurance information, the use of ACORD 28 and the importance of getting copies of the final insurance policy.

On Friday, March 18, MBA and ACORD held the first focus group conference call with the insurance industry. Among the participants on the call were Marsh USA Inc., the American Insurance Association, Lloyd's of London, Zurich North America and the Florida Association of Insurance Agents. The discussion focused on the quality, accuracy and access to reported insurance coverage information.

The insurance industry participants expressed concern over the increased information they are requested to provide on the ACORD 28. While ACORD 28 is intended to be a stand-alone document on which lenders and servicers may rely, there is concern that any conflicting information that may arise between the final policy and the form can lead to confusion and potential litigation.

The insurance agents on the conference call said that the insurance policies should be made available sooner than they currently are in a transaction.

There were also concerns in the industry about consistency of reported information to lenders and servicers since some insurance companies are not using ACORD 28, but select a form tailored by their own company. The insurance participants raised the importance of borrower education on the entire process from obtaining insurance coverage to closing the real estate transaction.

Next Steps
MBA and ACORD will continue to facilitate focus group conference calls on a quarterly basis. The goal is to bring the real estate lenders/servicers and the insurance agents/brokers together for in-person discussions to develop suggestions for changes to increase the business efficiencies and information transparency for both industries.
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MBA National Policy Conference April 19-20
MBA (3/31/2005) MBA Staff

The Mortgage Bankers Association’s 2005 National Policy Conference gives you the opportunity to make your voice heard with some of Washington’s most influential politicians.

And the conference, which takes place April 19-20 in Washington, D.C., also provides the opportunity to hear some of those lawmakers and policy makers. Scheduled to appear at this year’s conference:

• Sen. Chuck Hagel, R-Neb., chair of the Senate Banking Securities and Investment subcommittee and author of a bill, S.190, that would comprehensively reform oversight of Fannie Mae and Freddie Mac;
• Treasury Secretary John Snow;
• HUD Secretary Alphonso Jackson, who recently signaled that the department was ready to move forward with a new effort to reform the Real Estate Settlement Procedures Act (RESPA);
• Sen. Evan Bayh, D-Ind., a key player in legislation related to the real estate finance industry;
• Political pundits Ann Coulter and Donna Brazile, who will provide a spirited lunchtime debate on the Washington political landscape.

The conference also includes the opportunity for participants to visit Capitol Hill and discuss issues of importance with their legislators. By doing so, participants demonstrate to the newly elected Congress the united force of MBA's members and its commitment to investing in America's communities.

All individuals from MBA member companies are encouraged to attend this important event. Registration fee is just $370 for MBA members. The preliminary registration deadline is April 5.

To register, call (800) 793-6222 or visit the registration page for more details. For sponsorship information, contact Paul Hilliar at (202) 557-2858 or philliar@mortgagebankers.org.
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MBA's Asset Admin/Tech Conference May 4-6
MBA (3/31/2005) MBA Staff

The Mortgage Bankers Association's 11th Annual CREF/Multifamily Asset Administration and Technology Conference takes place at The Fairmont Chicago, May 4-6. The conference is the premiere commercial/multifamily servicing event of the year.

The schedule offers four different tracks for a wide variety of programming in all areas of the commercial real estate business, including life companies, portfolio, CMBS, multifamily and technology professionals.

Interact with your peers and learn about the new servicing and technology advances.

Special highlights include our keynote speaker Amy Henry, a technology consultant for several Fortune 500 companies, including JP Morgan Chase and Merrill Lynch. An encore presentation of the panel by Microsoft, 90 Tips in 90 Minutes, will be a full general session presented by Chris Bertelson, senior technology specialist at Microsoft.

The popular leadership and time management specialist, Ron Festa, is presenting a general session, "Providing Organizational Impact throughout Leadership: Lessons Learned," on Thursday, May 5. Thursday also has a special lunch with Jamie Woodwell, MBA's senior director of research in the commercial real estate/multifamily finance group, speaking on the industry’s economic outlook.

Diana Reid, managing partner at Beekman Advisors LLC, New York, provides an in-depth business overview of the commercial real estate market on Friday, May 6.

Conference sponsors include First American Commercial Real Estate Services Inc.; MERS Commercial; CapMark Services; Bank of America; Midland Loan Services; National Tax Service LLC; Fannie Mae; Freddie Mac; and USFN .

Register today, or before April 20, to save and take advantage of the great opportunities the conference will offer this May. Please call (800) 793-6222 Monday-Friday, 9:00 a.m.-5:00 p.m. or visit: http://events.mortgagebankers.org/crefassetadmin2005/.
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The DHS report, “National Planning Scenarios,” said the most plausible or devastating attacks could include blowing up chlorine tanks, release of nerve gas in an office building, spreading disease in airports, sports venues and train stations, bombing of a sports arena or detonation of a nuclear device in a major city.

But the report noted that the threat to urban areas, while vulnerable to the most devastating terror scenarios, might not be the exclusive targets. Rural areas, with less security infrastructure in place, are also vulnerable.

“Risk management must guide our decision-making as we examine how we can best organize to prevent, respond and recover from an attack,” said DHS Secretary Michael Chertoff. “For that reason, the Department of Homeland Security is working with state, local, and private sector partners on a National Preparedness Plan to target resources where the risk is greatest.”

A Top Officials 3 [TOPOFF3] full-scale exercise will take place April 4-8. It involves more than 10,000 participants representing more than 200 federal, state, local, tribal, private sector, and international agencies and organizations, as well as volunteer groups.

“We all live with a certain amount of risk,” Chertoff said. “That means that we tolerate that something bad can happen. We adjust our lives based on probability and we take reasonable precautions.”

The Mortgage Bankers Association continues to lobby aggressively for the extension of the TRIA beyond its projected termination date of December 31 to protect commercial property from threats of terrorist attacks.

“We have no more certainty today about a terrorist attack than we did two years ago,” said Kurt Pfotenhauer, MBA’s senior vice president of government and legislative affairs. “We believe that the government will have to continue to play a role in helping the financial industry deal with this all too real risk.”

The DHS list includes all types of industry in all segments of the country, noted Carl Parks, senior vice president of federal government affairs at the Property Casualty Insurers Association of America (PCI).

“As the DHS report points out, terrorism is a national economic security problem that requires a long-term, national response. While a TRIA extension would provide some additional time to implement a long term solution that relies more on the private market than the federal government, PCI is urging Congress to consider creative solutions to financing terrorism risk and creating a healthy and competitive market for such coverage.”

PCI members include 37.8 percent of companies that write homeowners insurance and 31.8 percent of the commercial property and liability market. The organization said that without or a long term solution to financing terrorism risk in place, the availability of terrorism coverage “may be limited and prices are likely to increase.”

Congress is expected to take up extension of TRIA by this summer.
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(Scott Franklin is a principal at First Generation Consulting.)

Foreign Debt Threatens U.S. Economy
Discuss how creeping inflation, high interest rates, and soaring oil prices threaten the economy and businesspeople listen attentively. But turn the conversation to the current account deficit and a rapidly depreciating U.S. dollar, and watch eyes glaze over.

Granted, currency exchange rates and net trade flows aren’t typical coffee shop chatter. But shifting global trade patterns hold the potential to cripple the current economic recovery. Just because your business lacks foreign customers and imported material, doesn’t make it immune to the long arm of international trade.

The burgeoning trade imbalance and the resulting dependence on foreign lending has the potential to jolt your business, should financial markets unravel. Soaring inflation and interest rates could debilitate housing, the auto sector, and other interest-sensitive industries. The result: home prices fall, consumer spending evaporates, unemployment climbs, and business investment retreats. Not a pretty scenario, and probably not likely. But possible.

The U.S. current account deficit is the broadest measure of trade balance. It includes the balance on both goods and services trade, and investment income between the U.S. and its trading partners. The deficit was $666 billion in 2004, or 5.7 percent of U.S. gross domestic product. The U.S. now imports 50 percent more than it exports.

Only in 1816, when U.S. imports surged after the War of 1812, has the current account deficit ever been in the 5 percent range. The U.S. is not alone in experiencing negative trade balances but few countries have such a high deficit in relation to national output. In fact, only Hungary, Bulgaria, and the Czech Republic fall in this range.  Those nations can hardly be considered economic superpowers.

Why is the Trade Deficit So Large?
How did the trade deficit become so lopsided? In 1990, for each additional dollar spent on consumer goods (excluding autos), 15 cents went for imports. That figure is now 45 cents. Are Americans impulsively buying French wine, Swiss watches, Italian shoes, and German cars? Hardly, but we do shop at Wal-Mart, and send lots of dollars to Mideast oil producers.

One contributing factor to the trade deficit is the flight of American production overseas. American consumers may be buying the same type of clothing, furniture, and appliances as a decade ago, but now these goods are made outside our borders. U.S. parts suppliers are disappearing from the economic landscape as low labor costs allow Asian vendors to undercut prices. Asia has been a popular platform for foreign companies to establish operations. About 60 percent of China’s exports are produced by multinational corporations.

Weak foreign economies, particularly in Europe and Japan, impede the demand for U.S. exports, even though the declining dollar makes U.S. products less expensive.  This year, the U.S. economy grew at a healthy 4.4 percent inflation-adjusted rate.  But most economies in Europe remain sluggish.

Oil prices approaching and occasionally exceeding $50 a barrel bloated our import bill in 2004. Although the U.S. is less dependent on foreign oil than we were 25 years ago, the jump in the cost of crude can still deplete margins and raise producer and consumer prices as it moves through the economy’s pipeline.

Historically low interest rates are a key villain in the trade gap. Consumers prefer to spend rather than accept anemic savings rates. Higher rates that make savings attractive would help absorb consumer dollars that are headed overseas.

Why Are Interest Rates So Low?
Despite consistent quarter-point rate hikes by the Federal Reserve, the yield on long-term bonds has dropped, sustaining low mortgage rates and a housing market on steroids. Why are the long rates dipping despite the Fed’s commitment to elevate rates to a “neutral,” less stimulating level?

An unholy alliance links overseas investors with U.S. consumers and businesses. They finance our budget and trade deficit through purchase of financial securities, keeping interest rates low. In return, Americans support growth in global economies by gorging on consumer goods at the expense of personal savings.

Central banks have an additional motive to buy U.S. dollars and dollar-denominated securities. A weak dollar makes imports more expensive for U.S. consumers. By aggressively intervening in currency markets through purchase of dollars, foreign central banks keep native currencies from rising to levels that make their exports less competitive.

How Long Can This Last?
Overseas creditors’ recent purchases of U.S. securities are enormous. Estimates are that foreign investors own over 40 percent of all U.S. Treasury securities. With the dollar’s steep drop in the past three years, foreign-held U.S. bonds and cash declined in value.  Since the dollar is the most popular reserve currency, holding dollars has become a liability for foreign central banks.

The scenario that keeps economists awake at night involves a massive sell-off of dollars by central banks. At some point, the benefits of supporting export purchases by holding a currency that steadily declines becomes counter-productive. If central banks begin to gradually divest U.S. dollars from their foreign currency reserves, a meltdown could occur. Just as stockholders engage in a selling frenzy when their investment begins a free-fall, so central banks might be motivated to cut their losses from a downwardly spiraling dollar.

The U.S. would need to find other investors to fill the void left by fleeing central banks.  Private foreign investors could step forward, but only if interest rates were high enough to provide a competitive return and also compensate for anticipated future declines in the dollar.

That required return would be much higher than current bond rates. A sudden and significant spike in interest rates would shake investor confidence. The housing market, housing-related sectors, and other interest-sensitive industries would face setbacks. Inflationary pressures would result from both rising import prices and the ability of domestic producers to match those higher prices.

A More Optimistic Scenario
One would hope that by acting in their own self-interests, nations will prevent this doom and gloom scenario. Despite some challenges, the U.S. is the engine driving the world economy. Any action that hobbles the U.S. ultimately harms countries whose economies are dependent on exports. A sell-off of dollars by foreign central banks sharply diminishes the value of foreign currency reserves.

A smaller U.S. budget deficit decreases dependence on overseas creditors. Gradual and predictable rate increases by the Fed should produce interest rate levels that spur consumers to save, thus decreasing demand for imports. And the weaker dollar should make U.S. exports more competitive overseas.

During the Cold War, “mutually assured destruction” emerged as a concept. Because the Soviet Union and the United States both had the capability to destroy each other, public officials were comforted by the assumption that no rational leader would launch a nuclear attack. Today, the U.S. and its overseas creditors are involved in a financial balance of terror. Each has the potential to seriously impair the other’s economy.

Recognizing this unhealthy cycle of mutual dependence, perhaps the U.S. and its creditors can gradually recalibrate the trade and financial imbalance and break this cycle of vulnerability.

The opinions expressed in this article do not necessarily reflect the views or policies of the Mortgage Bankers Association.
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