Letter from Professor Norm Miller
Norm Miller, PhD
As a guest columnist, I’d like to briefly address three topics: our MSRE graduate program and why it is so important to the region; how incredible the housing re-sale market has been doing; and the status of the commercial real estate market.
First, on behalf of the Burnham-Moores Center for Real Estate, I would like to congratulate the recent graduating MSRE Class of 2013. I hope and believe that these graduates are among the future leaders for the region; they are both responsible and civic-minded. For the 2014 class, the good news is that the job market has finally turned and job placement is no longer an issue. In fact, several jobs and internships have recently crossed our desks that we cannot fill. This is a good leading indicator for commercial real estate and also suggests that it is no longer risky to leave a job to accelerate skill enhancement for moderately experienced professionals.
Secondly, two years ago I asked the question; “why aren’t home prices more responsive to the unbelievably low mortgage rates?” We attributed the lack of response to extremely strict mortgage underwriting. In the past year, and especially in the second quarter of this year, home prices surged. Hedge funds like Blackstone swallowed up distressed inventory to the point of pushing down yields and pushing out many investment groups with higher yield requirements. In San Diego County, volumes are approaching long-term normalcy and the average price per square foot (for regular sales) rose more than 10 percent in the second quarter of 2013, reminiscent of what we saw in mid-2003. This begs the question of whether we are headed for another housing bubble. Prices remain significantly under the peak from 2006 and new home sales remain sluggish. Both factors help to negate concerns of a bubble, unless mortgage rates rise rapidly in the near future. We should not expect housing prices to continue to surge, yet at the same time, we should expect mortgage rates to continue to rise, albeit not too fast in the next few quarters unless Congress forces a general debt default by not agreeing to raise the debt limit later this fall.
Finally, in the commercial market, multi-family remains the darling of the region and the country, now approaching the peak pricing of 2007. This is the only sector approaching pre-crisis prices with the lowest cap rates of any sector. While supply increases, there is little concern for an over-supply in the near-term. Hotels and office prices continue to rise as vacancy and distress volumes continue to decline. Distress remains at seven percent of total sales volume, but is declining. The REITs and Blackstone have been voracious net buyers and a lack of new construction suggests that rent increases will exceed inflation for the next few years.
For all of us, the big economic issue is the prospect of the Fed tightening up on the cheap money flow. When rates increase, all real estate markets will be impacted and the only question is by how much. We still have time to plan, position and strategize. Hiring one of our USD graduates is a good start in that direction, but you must recruit early as they are going fast.
Norm Miller, PhD
The Burnham-Moores Center for Real Estate will be offering another two-day Argus training workshop for industry professionals on Sept. 7 and 8. Argus Valuation-DCF is the industry standard for commercial real estate cash flow projection, transaction analysis and asset valuation solution.
Professor Charles Tu, PhD, will teach the course. Tu has served as faculty adviser for the winning “Argus Software University Challenge” Master of Science in Real Estate teams each year the competition has been held.
The course, which is limited to 20 attendees, will cost $600 per person and will be held on the University of San Diego campus. A 10 percent discount is available for USD alumni and for multiple registrations.
To register for the course, go to www.sandiego.edu/bmctraining. For questions about the course, contact Charles Tu, PhD, at firstname.lastname@example.org.
The Burnham-Moores Center for Real Estate (BMC) is pleased to announce that Kimberly Malasky has joined the Center as its new director of communications and administration. Malasky is responsible for managing the development, implementation, monitoring and assessment of a broad range of strategies, services, policies and programs of the BMC. The scope of these responsibilities encompasses building strong and mutually beneficial relationships with constituents of the BMC, including: the University of San Diego, the School of Business Administration, and BMC faculty, staff and administrators; the real estate and financial services industries; members of the media and donors to the BMC. She also oversees all projects in the communications department.
Malasky has over 20 years’ experience implementing strategic public relations, communications, marketing, investor relations and event strategies for private and publicly held companies. Her experience also includes implementing customer loyalty programs and promotional events for major commercial and residential real estate property management companies in the Washington, D.C. metropolitan area. She is the founder of three San Diego businesses. Malasky is a native of Bethesda, Maryland and graduated from Goucher College in Baltimore, Maryland with a major in communications and a minor in journalism and English.
Malasky filled the vacancy left by Jeryldine Saville, who moved to the Los Angeles area earlier this year.
Malasky may be reached at email@example.com or (619) 260-4786.
|Richard Schulman, Esq. ’85 (JD)
Several recent U.S. Supreme Court decisions have gained a great deal of attention, but one that did not gain much attention will help developers in California. In Koontz v. St. Johns River Water Management District, the Court considered a State of Florida demand that a property owner either dedicate most of his land as a conservation easement or pay a fee to preserve land elsewhere. The applicant had rejected both proposed conditions. The underlying issue was how to apply the general constitutional standard that conditions imposed on development must mitigate impacts of the development — the so-called “nexus” test.
The U.S. Supreme Court made two holdings that will affect the way courts in California consider development projects. First, Florida argued that it had not taken any property because the permit had been denied; the applicant had rejected both proposed conditions, so no property was (illegally) dedicated and no money was (illegally) paid. The Court unanimously rejected that argument, noting that Florida’s position would allow governments to make illegal demands without consequence. California courts have generally reached a result like Florida’s by a different route, i.e., by allowing the government to argue that it had some other basis for denying the permit. Koontz will make it more difficult to make that argument. However, California’s stringent environmental reviews often conclude that larger projects could cause unmitigable environmental impacts; once an unmitigable impact is found, the agency can demand virtually anything to approve the project. Thus, this part of Koontz is likely to affect only smaller projects in this state.
Second, the Court held (by a 5-4 vote) that a fee could be a “taking” of property and is therefore subject to the same standards as other conditions. This issue may be more important in California because it directly overturns some California decisions. Many cities have argued that their development impact fees (e.g., for inclusionary housing) could not be challenged because only money was demanded. The Koontz case, however, makes it clear that a fee must be justified by a “nexus” the same as a dedication of land. One by product of this part of Koontz under California law is that it creates a path by which aggrieved developers might be able to recover their attorneys’ fees if they succeed in litigation.
This entire area of law remains subject to many procedural complexities, ranging from what evidence the court may consider to how much deference the court should give each city’s views. Even in Koontz, in fact, the U.S. Supreme Court sent procedural issues back to the Florida courts. However, applying “nexus” laws to money will make it much easier to challenge conditions imposed on development.
Richard Schulman, Esq., specializes in land use and municipal law and litigation, representing mostly developers.
On July 25, members of the Real Estate Alumni Association (REAA) met at Counterpoint, located in Golden Hill, for a Casual Thursday real estate networking event. USD alumni working in the real estate industry attended the event to visit with their classmates, make connections and to take a tour of FoundationForForm Architecture and Development’s mixed-use project, which was formerly a Texaco gas station. Mike Burnett, the architect of the project, highlighted the 22 new residences, each with unique floor plans. The ground floor offers commercial space which may be leased to a restaurant, hair salon or local artists. To learn more about the REAA, go here.
|(From left to right) Burnham-Moores Center’s Brittany Conway and REAA members Rammy Cortez ’09 (MSRE), Sunny Patel ’10 (MSRE) and Nick Walsh ’10 (MSRE), listen to architect Mike Burnett during the mixed-use project tour at the July 25 Casual Thursday event.
The Real Estate Alumni Association co-hosted the Alumni Day at the Races with USD’s Alumni Association and the School of Business Administration’s Alumni Association Aug. 4 in the il Palio restaurant at the Del Mar Racetrack. The event was sold out with over 160 USD alumni and their guests. The third race was particularly special as it was named “University of San Diego Alumni.” Two USD alums, Heather Manly ’02 (BA), ’06 (MA) and Andres Melgar ’02 (BBA), won the opportunity to go down to the winner’s circle after the race.
|Real Estate alums watched the races from il Palio restaurant at USD’s Alumni Day at the Races on Aug. 4.
|Mark Riedy, PhD
Mark J. Riedy, PhD, executive director of the Burnham-Moores Center for Real Estate, was recently selected for the 2014 edition of “Who’s Who in the World” due to his outstanding achievements in the real estate and banking industries. Riedy has been listed in “Who’s Who in America” since 1982 and “Who’s Who in the World” since 2005.
In the News
Professor Norm Miller, PhD, and associate professor Alan Gin, PhD, were included in the July 12, July 26 and Aug. 2 editions of U-T San Diego’s weekly “EconoMeter.”
Norm Miller, PhD, was quoted in a July 18 U-T San Diego article on the local housing market.
Norm Miller’s paper “Correcting for the Effects of Seasonality on Home Prices,” was referenced in FoxBusiness.com and HSH.com articles on seasonality and home buying correlations.
Alan Gin, PhD, was featured in The Daily Transcript, the San Diego Business Journal and RanchoBernardoPatch.com following his most recent release of the USD Index of Leading Economic Indicators for San Diego County, which he compiles for the Burnham-Moores Center.
Norm Miller, PhD, was quoted in a recent Monster.com article on office space productivity.