"With more and more dollars allocated toward renovations, upgrades and additions, it is no surprise that property values continue to appreciate," said Jim Gillespie, president and CEO of Coldwell Banker. "The home improvement frenzy is likely a key reason why we are seeing a significant rise in sales of pricier homes through our luxury division."

According to Gillespie, sales of homes in the $3 million plus range grew by 35 percent in the first quarter compared with the same period in 2004. "This is in line with the study's findings, as the number of respondents who indicated they purchased a home in excess of $3 million tripled since the initial index in August 2004.  The continuing home improvement craze is a boon for the real estate market and a major reason for rapid appreciation," he said.

The survey revealed that 31 percent of luxury homeowners expect a tax refund. Of those, 51 percent intend to put that money back into their homes. The survey also found that 31 percent of respondents plan to expand or remodel their residences in the next 12 months.

Thirty-six percent of luxury homeowners have refinanced or taken out a home equity loan in the last 12 months; 42 percent of them will be using the funds for home improvement or other real estate purposes.

"The affluent American's most valuable asset is his or her home, according to our Luxury Index," Gillespie said. "Luxury homeowners take great pride in their homes as symbols of their lifestyles and personalities. While these homes are high-end, they are being transformed into more lavish and ultra-comfortable living spaces. In many cases, these affluent homeowners have more than one trophy property for either recreational, entertainment or investment purposes."

When asked whether they owned or planned to purchase a second home or vacation home in 2005, 27 percent said they already owned a second/vacation property, while 17 percent said they planned to buy one this year. Second-homeowners said that their second homes were used for recreation versus investment purposes. Fifty-four percent of homeowners who owned, or planned to own a second home said it was located within 300 miles of their primary residence. The Index also found that the number of luxury homeowners planning to purchase second or vacation homes grew slightly since August 2004.

"These findings contradict the current notion that the affluent are purchasing second homes purely on speculation," Gillespie said. "Rather, we have found that those homes are being used as recreational properties, as residences for children in college or for investment."

According to the study, nearly two-thirds (64 percent) of luxury homeowners said interest rates hikes will have no impact on their purchases compared to 61 percent  respondents in August 2004 when interest rates were lower. Only 4 percent said that interest rate hikes would influence luxury spending, with another 31 percent indicating that they will scale back luxury purchases.

The most popular luxury amenities recently purchased are security systems, gourmet kitchens, topiary/landscaped yards, home theaters, hot tubs and in- ground swimming pools, respectively. These results mirror the August 2004 findings.  Also noteworthy is the fact that 16 percent of respondents indicated that their homes are equipped with bedroom kitchens.

The Coldwell Banker Luxury Index is a survey of 300 U.S. homeowners with an income of more than $100,000 and who have purchased a house valued at more than $1 million in the past two years. International Communications Research, Media, Pa., conducted the survey through a series of phone interviews in March and April. Coldwell Banker Previews International commissioned the survey.
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Dale played an important role in encouraging a number of his employees to become involved in the legislative process by contributing to MORPAC’s success in 2005. “Tim’s level of commitment to MBA and strong support for our advocacy agenda are exemplary.  We hope that others follow his lead,” said MORPAC Chair David Kittle, CMB.

BB&T is one of the country’s top financial holding companies and is the largest mortgage lender in North Carolina and West Virginia.

MORPAC will continue to work towards its 2006 Election Cycle goal of $1.2 million. So far this year, more than $400,000 has been raised. The growth and depth of company campaign is a top priority for MORPAC. 

(This article is not a solicitation to contribute; all MORPAC contributions are voluntary. For more information, go to www.morpac.org.)
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“We need something different than the policy put in place three years ago,” said Holtz-Eakin, speaking last week at the American Enterprise Institute (AEI). “It should involve higher copays and deductibles to give proper incentives for pricing, underwriting and claims adjustments in the event of an attack and it should be designed to create market innovation."

The CBO director, however, said the Treasury believes economic policy responses to eliminate terrorism risk and their costs lie in the role of defense strategy, international diplomacy and homeland security.

Holtz-Eakin noted that the federal government has a long and “not so illustrious history” of running insurance programs, such as the interaction of deposit insurance with savings and loans in the 1980s. “I think there is a general question as to whether government programs price risk well and manage risk effectively,” he said. “One of the policy principles should be that we price the risk and manage it through the markets itself.”

Howard Kunreuther of the Wharton School at the University of Pennsylvania and co-director of the Wharton Risk Management and Decision Processes Center, said terrorism risk is “highly ambiguous."

“Everyone agrees that it is extraordinarily hard to estimate the probability of these events,” Kunreuther said. “Terrorism just presents other problems in terms of estimating those probabilities, so no one is confident on that.”

Kunreuther also noted that insurance company dynamics would be different if the company knew it would bear “all the risk after a disaster” compared to a federal backstop. As for diversification of insurance through the capital markets, Kunreuther asked what it would take to bring capital markets into the equation.

Lloyd Dixon, senior economist at RAND, Philadelphia, questioned investor motivation based on diversification in the capital markets because investors also need information for their decisions. “If insurers cannot collect it, reinsurers cannot collect it and reinsurers are not comfortable with this, why would we expect investors in the capital markets to [be comfortable with it]?” 

The Mortgage Bankers Association favors extension of TRIA through 2007 and a permanent solution to terrorism insurance. TRIA is set to expire at the end of this year. "MBA supports TRIA extension legislation already introduced in Congress (S. 467 and H.R. 1153) and agrees with Senate Banking Committee Chairman Richard Shelby, [R-Ala.], that Congress may need to enact a temporary extension of the program to provide time to craft a long term solution,” said Kurt Pfotenhauer, MBA's senior vice president of government affairs.

“We are left in a situation where most observers will be trying to decide this issue on which downsides [of TRIA] they fear most—the market downsides of letting TRIA expire or the government downsides of extending and modifying it in some way,” Holtz-Eakin said. “It would be nice to be able to bring formidable artillery of empirical evidence to this question and settle it, but we simply do not have it at the moment.”
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In all of 2004, LNR Property had one less deal and a $7.2 billion total while CW Capital/Allied had one more deal for nearly $10.96 billion.

Rounding out the list were JER Partners, McLean, Va., at nearly $7.87 billion and ARCap, Irving, Texas, at nearly $5 billion, with four deals each. Citigroup, New York, Anthracite Capital, New York, Hyperion-GMAC, Horsham, Pa., and ING Clarion, New York, had two deals each that ranged from roughly $3 billion to more than $4.4 billion. Banc One, New York, had one deal at slightly over $3 billion.

Last year, ARCap had six deals totaling more than $6.3 billion and Anthracite had four deals at more than $4.8 billion. Five players accounted for 73 percent of market share for all of 2004, Commercial Real Estate Direct.com said.

*****

Bridger Commercial Funding introduced SuperSTAR Loan, a commercial mortgage-backed securities (CMBS) program that allows borrowers to finance transaction costs, rather than pay them at loan origination, and reduce initial property investment costs.

Bridger said the SuperSTAR loan will finance third party reports, legal and application fees.

Peter Grabell, senior vice president at Bridger, said that as the yield curve has flattened over the past year, borrowers moved toward the “long term, fixed rate, non-recourse hallmarks of CMBS loans, and away from variable rate loans.” Grabell added that a SuperSTAR Loan gives borrowers another way to generate “significant fee income at a time when their net interest margins are compressing.”

*****

New York City-based Somerset Partners LLC purchased 85 Tenth Avenue, a 600,000-sq.ft. office building in the Chelsea sub-market of Manhattan, for a reported price of $300 million.

Built in 1913, 85 Tenth Avenue, the former Nabisco Factory, had nearly $200 million of capital improvements since 1999. The building is 100 percent leased to credit tenants including the U.S. Government, Lehman Brothers, Moet Hennessy and the State of New York. Keith Rubenstein and Marshall Allan led Somerset's acquisition team.

Last month, Somerset Partners closed on its $100 million Somerset Multi-Family Fund I to support a $400 million acquisition campaign of Class-A multifamily housing. Since 2002, Somerset Partners completed seven acquisitions to assemble a $250 million, 3,000-unit portfolio made up of properties in markets such as Atlanta, Oklahoma City, Cincinnati, Little Rock, Tulsa and Wichita. In the past six months, Somerset Partners completed two acquisitions totaling nearly 1,000 units.
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Ritchie said the Westside of Los Angeles, The Water Garden's location, is considered a “24 hour” city. The tenant roster of companies varies from financial services and law to entertainment, advertising and media.

Terri Slocombe of Newmark Realty Capital arranged $13.2 million for a multi-tenant industrial building in Sylmar, Calif. State Farm Life Insurance Co, Bloomington, Ill., arranged financing on behalf of Sylmar Cascades Properties, LP.

Cascades Industrial, located in a new industrial park in the northern San Fernando Valley town of Sylmar, was built in 2001. The land totals 10.4 acres and the property has more than 200,630 square feet of space fully leased to two tenants.

The building has 28 feef of clear height, with 18 dock-high doors and four grade level doors. Office build out is roughly eight percent with some mezzanine space. Future industrial development is expected in and around the industrial park.

Peter Welsh, managing principal at Newmark Realty Capital, arranged acquisition financing of   $56 million on the Tropicana Center, a 578,000 square foot power center is in Las Vegas. The buyer is a large privately held Los Angeles-based retail investor/developer. The long term fixed rate financing was provided by Newmark correspondent Deutsche Bank, New York. This deal represents the third major Las Vegas retail center Peter Welsh financed with Deutsche Bank in the last two years.

Wal-Mart and Sam’s anchor the center that was built in 1991. It ranks as one of Nevada’s largest non-mall retail centers.
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"Education keeps mortgage professionals up to date on the latest developments in the industry and helps us serve our customers better," said Larry Gilmore, AMP, chair of MBA's Diversity Task Force and vice president of government of housing and industry relations for Option One Mortgage Corp. "The Path to Diversity scholarships provide opportunities for these industry professionals to extend their knowledge and enhance their careers, while ensuring that the industry meets the needs of the diverse communities we serve."

The Path to Diversity program continues through a sponsorship provided by the Research Institute for Housing America (RIHA), a trust fund subsidiary of MBA. The following companies have also provided scholarship funds: Irwin Mortgage, Option One Mortgage, SunTrust Mortgage and Wells Fargo Home Mortgage.Companies can participate in the Path to Diversity program by enrolling as a participating company or by sponsoring 10 or more scholarships. Additionally, member firms providing internships to qualified college students are eligible to receive free distance-learning courses for each intern through CampusMBA.

To date, 147 scholarships have been awarded since the program's inception in 2001. 

Visit http://www.mortgagebankers.org/pathtodiversity to download the scholarship application. For more information, contact Joanna Truitt at (202) 557-2835 or jtruitt@mortgagebankers.org.
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"At about 3.5 percent, economic growth will be solid this year, despite a drag from sharply higher energy prices and a widening trade deficit," said Doug Duncan, MBA chief economist and senior vice president of research and business development. "Housing will continue to be a major contributor to economic growth. We expect the string of record-high home sales to continue for the fifth consecutive year."

The labor market should remain strong, even with an expected pickup in productivity in the second half of the year, Duncan said. "Core inflation should edge higher this year but remain near the Fed's target of 1.5 percent.  The Fed is expected to continue its modest tightening through next year to insure that inflation remains under control. Long-term rates will remain quite low, supporting residential and commercial real estate finance activity," he said.
 
Long-term rates should increase from current levels by 20 to 30 basis points by the end of 2005, and by another 40 to 50 basis points during 2006, finally reaching about 6.25 percent for a 30-year, fixed-rate mortgage in 2007, Duncan said. “Despite a moderate increase from a currently low rate environment, interest rates will still be quite low by historical standards," he said.

Following are the key points of the latest MBA forecast:

• Real GDP growth will average 3.5 percent in 2005 through 2007.

• The unemployment rate will decline from the current level of about 5.0 percent to 4.9 percent by the beginning of 2007. The labor market is expected to add an average of about 180,000 jobs monthly.

• Fixed mortgage rates will rise to an average of 5.7 percent in the fourth quarter, 6.2 percent during the fourth quarter of 2006, and 6.3 percent in 2007.

• Existing-home sales will increase by 2 percent to a record level in 2005, but will pull back by about 3 percent in 2006 and decline by another 2 percent in 2007. New-home sales will also rise by nearly 2 percent to a record in 2005, and slip by 4 percent in 2006 and by about another 3 percent in 2007.

• Home price appreciation is expected to moderate this year, with median existing home prices increasing by 6.8 percent during 2005 and 5.5 percent for new homes, compared with 9.3 percent and 13.3 percent in 2004, respectively. Price gains in 2006 and 2007 are expected to slow further to a more sustainable pace of 4 to 5 percent.

• Residential mortgage originations for purchase loans will increase to $1.62 trillion in 2005, edging up to $1.64 trillion in 2006 and $1.68 trillion in 2007.  Residential refinance loans will decline to $1.12 trillion in 2005, $863 billion in 2006 and $791 billion in 2007.

• Total residential mortgage production in 2005 will be $2.74 trillion, the third-highest level ever.

• The 2005 multifamily market will be similar in volume to 2004's market. Brisk property sales and refinancings are the underlying themes. This will be the front of an elevation of refinance activity based on the maturing of a significant volume of loans made a decade ago.

• Mortgage bankers appear to be on pace to exceed last year's record volume of commercial loan originations. Commercial mortgage activity should remain strong as rates remain low, yield-maintenance clauses expire and loans get refinanced, and the strengthening economy improves underlying commercial property economics.

• Just as in residential mortgage markets, there are differences in local economic effects on real estate finance activity–the same principle applies to regional and local commercial property markets.

• There are both upside and downside risks to this forecast. On the upside, a rebound of inventory investment could boost growth in the second half of the year by more than projected. On the downside, higher oil prices, higher core inflation or more aggressive tightening by the Fed could result in a slower economic growth than projected.
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