Real Estate Post

Two of Dubai’s biggest property finance companies, Amlak AMLK.DU and Tamweel TAML.DU, got the government green light to merge into a single bank in a move to build confidence as the emirate’s property woes mount.

The merger of the Islamic-compliant lenders will take place under government supervision to ensure fair valuation and to protect shareholders, state news agency WAM reported. The combined market value of the firms is 2.5 billion dirhams ($680.6 million).

Amlak, whose shares have fallen 80 percent this year, last week said it had stopped issuing new mortgages while Tamweel, whose shares have fallen 85 percent, said it continued to operate despite deteriorating conditions in the property markets.

Lenders and developers in the United Arab Emirates have been battered by the credit crisis after market financing evaporated, property values plunged and buyers fled a market where land values have ballooned during a five-year boom.

The companies will be combined as the UAE Real Estate Bank to create the largest real estate finance institution in the country, WAM said.

Amlak Finance is already the largest publicly held Islamic finance company in the UAE. The two companies first said they intended to merge in October.

Historic Real Estate Inc. Gets Aggressive Despite National Slowdown in Real Estate Development

Research and Markets ( http://www.researchandmarkets.com/research/3beb0e/the_meandering_pat) has announced the addition of the “THE MEANDERING PATH: Investment Regime for Indian Real Estate Sector” report to their offering.
The pull factors embedded in the booming economy of India seem to offer great succour to the global investor scathed by the economies of the western world especially the sub-prime crisis in the US. Just as water seeks its own level, global investment, too, is gushing into real estate in India; its meandering path is revealed in detail in the following write-up. The various routes permissible within the Indian legal framework and the sluice gates that have been set up to channelise the barrage of foreign investments flowing into the real estate sector in India have been exposed threadbare. An exit after securing good returns after a period of time through the labyrinths of tax structure is the dream target of every global investor parking his money in the Indian realty mart.
Capturing the Indian Market Dynamics
Global investment is gushing into real estate in India and its meandering path is revealed in detail by a leading real estate investment structuring expert in India.
Target Audience
Its readership base could comprise developers, capital market players, consultants to investors, from the VC/PE communities, merchant bankers and managers of the evolving REITs and REMFs.
Towards Optimal Solutions
– The pull factors embedded in the economy of India, growing at 8%-9%, are offering a great succour to the global investor scathed by the downturn in the economies of the West, especially the sub- prime crisis in the US.
– The expanding industrial sector in India coupled with the liberalisation of the Foreign Direct Investment (FDI) by the Government of India have caught the fancy of some of the biggest names including Goldman Sachs, Morgan Stanley, JP Morgan, Grand Vision, Citigroup, Emmar and so on.

Key Topics Covered:
The Growth Story of Real Estate Sector in India
Regulatory Snapshot
Investment Framework
Investment in Real Estate through Foreign Direct Investment (FDI)
Route
Investment in Real Estate through Foreign Venture Capital Investors
(FVCI) Route
Investment in Real Estate Sector through Non Resident Investment
(NRI) Route
Regulatory Concerns
Other Regulations
Tax Incentives
Direct Investment Standard Structure
Investment through Intermediary Holding Company
Investment through Multiple Holding Companies
Investment Instruments
Fund Structuring
Exit Strategy
Tax Planning Solutions
Key Direct Tax Issues
Key Indirect Tax Issues
Some Challenges

Companies Mentioned:
– Goldman Sachs
– Morgan Stanley
– J P Morgan
– Grandvision
– Citigroup
– Emmar
– Milestone Capital Advisors Private Limited
– Vodafone
– RSM & Co
– PriceWaterhouseCoopers
– Vision Express
For more information visit http://www.researchandmarkets.com/research/3beb0e/the_meandering_pat

After seven years of nonstop construction, skyrocketing rents and sales prices, and a seemingly endless appetite for luxury housing that transformed gritty and glamorous neighborhoods alike, the credit crisis and the turmoil on Wall Street are bringing New York’s real estate boom to an end.

Developers are complaining that lenders are now refusing to finance projects that were all but certain months or even weeks ago. Landlords bewail their inability to refinance skyscrapers with blue-chip tenants. And corporations are afraid to relocate within Manhattan for fear of making the wrong move if rents fall or a flagging economy forces layoffs.

“Lenders are now taking a very hard look at each particular project to assess its viability in the context of a softening of demand,” said Scott A. Singer, executive vice president of Singer & Bassuk, a real estate finance and brokerage firm. “There’s no question that there’ll be a significant slowdown in new construction starts, immediately.”

Examples of aborted deals and troubled developments abound. Last Friday, HSBC, the big London-based bank, quietly tore up an agreement to move its American headquarters to 7 World Trade Center after bids for its existing home at 452 Fifth Avenue, between 39th and 40th Streets, came in 30 percent lower than the $600 million it wanted for the property.

A 40-story office tower under construction by SJP Properties at 42nd Street and Eighth Avenue for the past 18 months still does not have a tenant.

And the law firm of Orrick, Herrington & Sutcliffe last week suddenly pulled out of what had been an all-but-certain lease of 300,000 square feet of space at Citigroup Center, deciding instead to extend its lease at 666 Fifth Avenue for five years, in part because they hope rents will fall.

“Everything’s frozen in place,” said Steven Spinola, president of the Real Estate Board of New York, the industry’s lobbying association, shortly after the stock market closed on Monday.

Barry M. Gosin, chief executive of Newmark Knight Frank, a national real estate firm based in New York, said: “Today, the entire financial system needs a lubricant. It’s kind of like driving your car after running out of oil and the engine seizes up. If there’s no liquidity and no financing, everything seizes up.”

It is hard to say exactly what the long-term impact will be, but real estate experts, economists and city and state officials say it is likely there will be far fewer new construction projects in the future, as well as tens of thousands of layoffs on Wall Street, fewer construction jobs and a huge loss of tax revenue for both the state and the city.

Few trends have defined the city more than the development boom, from the omnipresent tower cranes to the explosion of high-priced condominiums in neighborhoods outside Manhattan, from Bedford-Stuyvesant and Fort Greene to Williamsburg and Long Island City. Some developers who are currently erecting condominiums are trying to convert to rentals, while others are looking to sell the projects.

After imposing double-digit rent increases in recent years, landlords say rents are falling somewhat, which could hurt highly leveraged projects, but also slow gentrification in what real estate brokers like to call “emerging neighborhoods” like Harlem, the Lower East Side and Fort Greene.

At the same time, some of Mayor Michael R. Bloomberg’s most ambitious large-scale projects — the West Side railyards, Pennsylvania Station, ground zero, Coney Island and Willets Point — are going to take longer than expected to start and to complete, real estate experts say.

“Most transactions in commercial real estate are on hold,” said Mary Ann Tighe, regional chief executive for CB Richard Ellis, the real estate brokerage firm, “because nobody can be sure what the economy will look like, not only in the near term, but in the long term.”

Although the real estate market in New York is in better shape than in most other major cities, a recent report by Newmark Knight Frank shows that there are “clear signs of weakness,” with the overall vacancy rate at 9 percent, up from 8.2 percent a year ago. Rents are also falling when landlord concessions are taken into account.

The real estate boom has been fueled by a robust economy, a steady demand for housing and an abundance of foreign and domestic investors willing to spend tens of billions of dollars on New York real estate. It helped that lenders were only too happy to finance as much as 90 percent of the cost on the assumption that the mortgages could be resold to investors as securities.

But that ended with the subprime mortgage crisis, which has since spilled over to all the credit markets, which have come to a standstill. As a result, real estate executives estimate that the value of commercial buildings has fallen by at least 20 percent, though the decline is hard to gauge when there is little mortgage money available to buy the buildings and therefore few sales.

Long after the crisis began in 2007, many investors and real estate executives expected a “correction” to the rapid escalation in property values. But after Lehman Brothers, the venerable firm that had provided billions of dollars of loans for New York real estate deals, collapsed two weeks ago, it was clear that something more profound was afoot.

And there was an immediate reaction in the real estate world: Tishman Speyer Properties, which controls Rockefeller Center, the Chrysler Building and scores of other properties, abruptly pulled out of a deal to buy the former Mobil Building, a 1.6 million-square-foot tower on 42nd Street, near Grand Central Terminal, for $400 million, two executives involved in the transaction said.

Commercial properties are not the only ones facing problems. On Friday, Standard & Poor’s dropped its rating on the bonds used in Tishman’s $5.4 billion purchase of the Stuyvesant Town and Peter Cooper Village apartment complexes in 2006, the biggest real estate deal in modern history. Standard & Poor’s said it cut the rating, in part, because of an estimated 10 percent decline in the properties’ value and the rapid depletion of reserve funds.

The rating reduction shows the growing nervousness of lenders and investors about such deals, which have often involved aggressive — critics say unrealistic — projections of future income.

“Any continued impediment to the credit markets is awful for the national economy, but it’s more awful for New York,” said Richard Lefrak, patriarch of a fourth-generation real estate family that owns office buildings and apartment houses in New York and New Jersey.

“This is the company town for money,” he said. “If there’s no liquidity in the system, it exacerbates the problems. It’s going to have a serious effect on the local economy and real estate values.”

Recently we considered a situation where a buyer, who had executed a buyer-broker agreement with his agent, backed out of a purchase transaction. In that case, the buyer owed a commission to his agent because the agreement stipulated that the commission was earned when the buyer entered into the purchase agreement.

That case raises questions about sellers and their agents. Is a listing agent’s commission earned when a purchase agreement is entered into, or only upon the closing of the transaction? Of course the answer to this question will depend upon the particular listing agreement that is used. Listing contracts vary from state to state and within states. In California the form that is probably most commonly used would be the Exclusive Authorization and Right to Sell listing agreement produced by the California Association of Realtors® (CAR). Under the terms of that agreement there are three distinct sets of circumstances in which a commission may be owed by the seller to the listing agent.

(1) If a buyer is procured (not necessarily by the listing agent directly) “who offers to purchase the Property on the [stipulated] price and terms, or on any price and terms acceptable to Seller.” This is similar to the buyer-broker agreement. If the seller enters into a purchase contract during the term of the listing, the commission has been earned.

Indeed, if an offer is made that matches the price and terms set forth, the commission is earned. Although we acknowledge that there could be disputes as to whether an offer really matched the price and terms.

(2) “If, without Broker’s prior written consent, the Property is withdrawn from sale, conveyed, leased, rented, otherwise transferred, or made unmarketable by a voluntary act of Seller during the listing period, or any extension.” A listing contract does not obligate a seller to sell; but if the seller changes his mind or in some way refuses to sell, a commission is owed.

(3) This is known as a “safety clause” provision. It is negotiable at the time the listing agreement is drawn up. It provides that a commission will be due the listing agent if, within a specified time period after the end of the listing period, a purchase agreement is entered into with some prospective buyer who had been shown the property, or who had made an offer, during the listing period. For this to apply, the listing agent must supply the seller with the names of all applicable prospective buyers within 3 days after the end of the listing period.

There is one scenario that hasn’t been considered yet. Suppose the buyer backs out of the transaction. Is the listing agent still owed a commission? After all, the commission was earned when buyer and seller entered into the purchase agreement. In this situation the listing agreement seeks both to balance equities and to confront reality. It would typically be unlikely that the seller would have the funds to pay a commission if the transaction fails, and, besides, the failure is due to the buyer’s action, not the seller’s.

Thus the listing agreement provides that, in the case of buyer default, a commission is due the listing agent “only if and when Seller collects damages by suit, arbitration, settlement or otherwise.” Moreover, the amount of commission due the listing agent is limited by the amount of the settlement. It can never be more than the commission would have been, but it could be less. It is to be the lesser of one-half the net damages recovered (i.e. after any expenses are taken out) up to what would have been full compensation.

Suppose the listing commission was to have been 4% of a $500,000 transaction (i.e. $20,000), but the buyer has defaulted. If the seller was able to recover $10,000 (net) in damages, the commission owed the listing agent would be $5,000.

Typically, commissions are paid when a transaction closes; but a closing is not always necessary for a commission to have been earned.

Single-family home prices dropped 7.7% in the first quarter in the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982.

The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007.

Lawrence Yun, the chief economist of NAR, attributed much of the record decline to liquidity problems dragging down high-priced markets.

“These are highly unusual results because there were very few jumbo loan originations in the latest quarter,” he said. “So sales are much slower in high-cost areas.”

Jumbo mortgages skew results

That sales slowdown changed the mix of houses sold.

In California, according to Yun, homes bought with jumbo mortgages - more than $417,000 - accounted for 40% of all sales before liquidity for these loans dried up during the summer of 2007. Since then only 10% of sales in California involved jumbo loans.

In February, Freddie Mac and Fannie Mae, the government sponsored enterprises that guarantee a market for conforming loans, have raised the $417,000 cap to include mortgages of up to $729,750, but lenders were still charging much higher rates for these “conforming jumbos,” between 1% and 1.5% more than ordinary conforming loans. The higher rates are discouraging sales in higher price ranges and so skewed NAR’s median price results.

Many of these same markets were also among the hardest hit by the subprime implosion, which forced many lower priced homes back on the markets, again dragging down NAR’s results.

That helped put many California and other Sun Belt cities, with their toxic combinations of both high prices and heavy proportions of subprime mortgages, among the biggest losers.

In California, Sacramento prices plummeted 29.2% to $258,500 compared with last year and Riverside prices fell 27.7% to $287,100. Prices in Las Vegas fell 20.2% to $247,600 and those in Phoenix dropped 15.4% to $222,200.

Some Midwestern cities, hard hit by factory closings, also suffered huge losses with Lansing, Mich., prices falling 26.9%. Saginaw, Mich., had the lowest median prices of any of the 150 markets studied; a median house in Saginaw sold for just $65,400.

“You have two themes: the weak industrial economies under increasing pressure by struggles of the Big Three automakers and the deflating of what were once the most prominent bubble markets,” said Michael Youngblood, an analyst with FBR Investment Management.

About of a third of the markets did show gains. The best performer in the nation was Binghamton, N.Y., where prices rose 11.8% to $109,700. Then came Peoria, Ill., up 10.4% to $119,000 and Spartanburg, S.C., where prices rose 10.2% to $130,300.

Regionally, in the Northeast, single-family home prices rose slightly, 3.2% to $280,000. But prices in the South dropped 7.5% to $164,200, in the Midwest they fell 7.9% to $142,700 and in the West they plunged 12.3% to $296,300.

Foreclosures put more homes in play

Hurting home prices were big rises in foreclosure rates over the past 12 months, which threaten to get even worse. Delinquencies more than doubled over that time and more than 155,000 lost their homes in bank repossessions during the first three months of the year. With many adjustable rate mortgages (ARMs) poised to reset this year to higher interest rates, defaults could go even higher.

“Yes, but I hasten to say it’s not merely the ARMs,” said Youngblood. “Fixed rate loans are performing poorly as well.”

All that foreclosure activity added to the glut of homes on the market. The total inventory has risen to an average of 10 months worth of unsold homes. In addition, a record number - 2.9 million - of vacant homes are up for sale, according to the Census Bureau.

The big inventory has led to aggressive price slashing and increased incentives by builders looking to sell homes. They’ve also cut way back on housing starts, which are at a 17-year low.

The pace of existing home sales, at about 492,000 a month, is about a third less than its peak during the summer of 2005.

Condo prices fared a bit better than single-family homes. The median price fell just 3% since early 2007. The worst hit market was the Sarasota area, where condos dropped 35% over the past 12 months to $268,500. Sacramento condo price cratered 33.4% to $147,200. In Miami, prices fell 26.4% to $176,100.

The best performing condo market was about as far from the madding crowds of South Beach as one can get: Bismarck, N.D., condo prices soared 36.4% compared with 12 months ago, to $124,900.

The price declines in falling markets may not have run their course. Some analysts point to low home prices in many Midwestern cities and assert there’s not much room for prices to fall but Youngblood disagrees.

“If we’d had this discussion a year ago, we would have said the same thing - how much further can they fall?” he said. “But jobs are declining and people are moving out and you’re getting sharper home price declines than you ordinarily would.”

Also, according to Youngblood, the sheer volume of foreclosures takes a toll. “Recent studies report that foreclosed properties sell for an average of 20% less than comparable properties that have not been foreclosed on,” he said.

As for the bubble markets that have already lost 30% of their values, Youngblood thinks their declines are not over. He expects some to drop another 20% or so through February 2009.