Real Estate Issues ®

REAL ESTATE ISSUES ® Published by THE COUNSELORS OF REAL ESTATE Volume 35, Number 2, 2010 FEATURES AND PERSPECTIVES After the Recession: Florida, Nevada, Arizona, and the Next 5,000 Days Supply Constrained Markets The Valuation of Mortgage Security by Italian Banks A Corporate Guide to Implementing a Sustainable Real Estate Program Residential Energy Efficiency: A Model Methodology for Determining Performance Outcomes Are Condos Securities? How to Determine When You Have a Security Valuing Tax-Exempt Real Estate Bonds Reconsidering the Definition of Highest and Best Use: The Case for a Post-Disaster Highest and Best Use Ethics Versus Compliance CRE Global Outreach: The Kenyan Student Exchange Program www.cre.org REAL ESTATE ISSUES ® Published by THE COUNSELORS OF REAL ESTATE ® EDITORIAL BOARD EDITOR IN CHIEF Marc Louargand, CRE Peter C. Burley, CRE Saltash Partners, West Hartford, CT Larkspur, CO Timothy R. Lowe, CRE Waronzof Associates, Inc., El Segundo, CA ASSOCIATE EDITOR Mary C. Bujold, CRE David J. Lynn, Ph.D., CRE Maxfield Research, Inc., Minneapolis, MN ING Clarion, New York, NY Richard Marchitelli, CRE 2010 EDITORIAL BOARD Cushman & Wakefield of Washington, D.C., Inc., Charlotte, NC Owen M. Beitsch, Ph.D., CRE Real Estate Research Consultants, Orlando, FL Michael S. MaRous, CRE MaRous & Co., Park Ridge, IL Michael Y. Cannon, CRE Integra Realty Resources-Miami, Miami, FL William P.J. McCarthy, CRE W.P.J. McCarthy and Co., Ltd., Burnaby, BC, Canada Susanne Ethridge Cannon, Ph.D., CRE DePaul University, Chicago, IL Ed Morse, CRE Morse & Company, Coeur D’ Alene, ID Maura M. Cochran, CRE Bartram & Cochran, Inc., Hartford, CT Brent A. Palmer, CRE NewTower Trust Co., Seattle, WA John A. Dalkowski, III, CRE PHOENIX Real Estate Counselors, Inc., New York, NY Joe W. Parker, CRE Appraisal Research Co., Inc., Jackson, MS Karen G. Davidson, CRE Davidson & Associates, Anaheim, CA Martha S. Peyton, CRE TIAA-CREF, New York, NY P. Barton DeLacy, CRE Cushman & Wakefield, Inc., Chicago, IL Jeanette I. Rice, CRE Verde Realty, Fort Worth, TX Anthony Downs, CRE The Brookings Institution, Washington, DC James P. Ryan, CRE Griffin Realty Advisors, Atlanta, GA Jack P. Friedman, Ph.D., CRE Jack P. Friedman & Associates, Dallas, TX Roy J. Schneiderman, CRE Bard Consulting, San Francisco, CA Steven M. Friedman, CRE Ernst & Young LLP, Washington, DC Karl-Werner Schulte, CRE IREBS International Real Estate Academy, John L. Gadd, CRE Eltville, Germany Gadd Tibble & Associates, Inc., Wheaton, IL Daniel L. Swango, CRE Lewis M. Goodkin, CRE Swango International, Tucson, AZ Goodkin Consulting, Miami, FL F. Thomas Ustler, CRE Anthony M. Graziano, CRE Ustler Properties, Inc., Orlando, FL Integra Realty Resources, Toms River, NJ David R. Walden, CRE Tom Hamilton Ph.D., CRE National Property Valuation Advisors, Inc., Chicago, IL University of St. Thomas, Saint Paul, MN Robert M. White, Jr., CRE Peter L. Holland, CRE Real Capital Analytics, Inc., New York, NY Bartram & Cochran, Hartford, CT PRESIDENT AND CHIEF EXECUTIVE OFFICER Paul G. Johnson, CRE Mary Walker Fleischmann The Paul G. Johnson Company, Phoenix, AZ Steven Kaye, CRE MANAGING EDITOR CB Richard Ellis, Boston, MA Carol Scherf Mark Lee Levine, CRE DESIGN/PRODUCTION University of Denver, Denver, CO Dave Hunter Gerald M. Levy, CRE COVER PHOTO Gerald M. Levy & Co., LLC, New York, NY Dillon Gusmano, Chicago, IL The articles/submissions printed herein represent the opinions of the authors/contributors and not necessarily those of The Counselors of Real Estate or its members. The Counselors assumes no responsibility for the opinions expressed/citations and facts used by the contributors to this publication regardless of whether the articles/submissions are signed. Published by The Counselors of Real Estate, a not-for-profit organization of the National Association of REALTORS ®, 430 N. Michigan Ave., Chicago, IL 60611. Copyright 2010 by The Counselors of Real Estate of the National Association of REALTORS ®. All rights reserved. (Printed in USA.) Third class postage paid in Chicago. Real Estate Issues publishes three times annually. Subscription rates are: $48 for one year (3 issues); $80 for two years; $96 for three years; $42 per year to students and faculty; $54 foreign rate, submit in U.S. currency; single copy $15. Remittances may be made by credit card or personal check, payable to The Counselors of Real Estate. Remittances, change of address notices, undeliverable copies, orders for subscriptions and editorial material should be sent to Real Estate Issues, The Counselors of Real Estate, 430 N. Michigan Ave., Chicago, IL 60611. Phone: 312.329.8427; Fax: 312.329.8881; E-mail: [email protected]; Web site: www.cre.org. Library of Congress card number LC 76-55075 Real Estate Issues is a registered trademark of The Counselors of Real Estate, a not-for-profit organization. REAL ESTATE ISSUES 1 Volume 35, Number 2, 2010 REAL ESTATE ISSUES ® Published by THE COUNSELORS OF REAL ESTATE Volume 35, Number 2, 2010 CONTENTS 4 36 Editor‘s Note A Corporate Guide to Implementing Peter C. Burley, CRE a Sustainable Real Estate Program Colette M. Temmink, CRE Sustainability is no longer thought of as a passing fad but rather 8 a business imperative across the globe. As a result of changing energy prices, anticipated carbon regulation, stricter future Contributors building codes, cost containment, limited natural resources, or increasing pressure from stakeholders, the question has clearly changed from whether sustainable design should be considered 9 to why one would choose not to consider it. This article looks at a seven-step program that can help in implementing a sustain - After the Recession: able real estate program. Florida, Nevada, Arizona, and the Next 5,000 Days Owen Beitsch, Ph.D., CRE, FAICP With the recession now deemed to have ended in 2009, it will 41 have exceeded, by many months, those that occurred in the Residential Energy Efficiency: A Model Methodology 1970s and 1980s, with extraordinary disruptions to the housing for Determining Performance Outcomes market. In this article the author discusses emerging trends in Pierce Jones, Ph.D.; Ujjval K. Vyas, Ph.D., J.D.; Nicholas Taylor, M.S.; three states that may point to future changes in the needs of the and M. Jennison Kipp, M.S. housing market moving forward. The current climate of opinion in both the residential and commercial sectors for new and existing building stock gives a 20 prominent role to energy efficiency as a policy tool. Executive and legislative branches of government at both the state and Supply Constrained Markets federal levels are considering and adopting policy options to David Lynn, Ph.D., CRE; Bohdy Hedgcock; and Jeff Organisciak valorize energy efficiency in the service of everything from Constraints on new supply in a given market reduce an owner’s national security to curbing global warming to creating a green competition for tenants, which typically leads to higher economy. While the authors support this activity, it should be occupancy, higher rent levels and faster rent growth. Supply noted that actual evidence regarding the benefits or outcomes of constraints can stem from several sources and vary across both most funding initiatives or policy activity in this area remains markets and time. This article discusses several aspects of difficult to assess meaningfully. In this article, the authors stress supply constraints, including their origin and economics, and the need for validation of post-occupancy performance and introduces a way of measuring this feature across property demonstration of persistence of energy efficiency benefits attrib - sectors and metropolitan areas. utable to energy efficiency initiatives and policy activities, and suggest a methodology to assess actual performance using a well-known green building rating system for homes. 28 The Valuation of Mortgage Security by Italian Banks Massimo Biasin; and Halbert C. Smith, CRE Emeritus 48 This case study takes a looks at four Italian banks and the Are Condos Securities? methods and procedures implemented by them in valuing real How to Determine When You Have a Security estate used as collateral for loans both in the loan origination Patricia S. Wall, J.D., CPA, MBA, Ed.D.; and Lee Sarver, Ph.D. and credit monitoring process. Impetus for the study was gener - Can real estate ever be a security? Can disgruntled buyers void ated by the “disastrous results” of the holdings of mortgages and purchases by claiming securities fraud? This article reviews case mortgage derivatives in U.S. banks, and this article takes a look law regarding related real estate transactions and addresses what at whether the same risk factors could be at work in Italian buyers and sellers should know. For example, if the real estate banks, which hold an even greater percentage of assets in venture in question is a security, a purchaser can claim that the residential mortgage loans. The authors provide recommenda - seller should have registered it as such under state or federal tions which may be helpful in evaluating an institution’s own securities law, unless an exemption applies. If the seller did not policies and procedures related to mortgage lending and, do so, the purchaser may be able to void a now-undesirable deal ultimately, in avoiding disastrous bank failures. by claiming securities fraud. Moreover, the person controlling the selling company and those involved in the sale may be personally liable. Read more beginning on page 48. REAL ESTATE ISSUES 2 Volume 35, Number 2, 2010 53 74 Valuing Tax-Exempt Real Estate Bonds CRE Global Outreach: Devon W. Olson, CRE, MAI The Kenyan Student Exchange Program In today’s constrained lending environment, tax-exempt real Maura Cochran, CRE, SIOR estate bonds are a viable apartment financing option because of The Counselors of Real Estate (CRE) recently established a their low “all-in” costs (interest rates), extended maturity terms small-scale student exchange program in one of the last and potential assumption features.

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