A Look to the Future

Real Estate is a dynamic industry tied to many facets of our culture and economy.  There is no questions that what is happening in the news, both locally and globally, impacts the real estate market.  Being aware of trends and issues will allow a real estate professional, developer, or investor to make strong even cutting-edge decisions about how to best meet the changing demands in the real estate market.  Three current trends that seem to have a far-reaching impact on real estate are market recovery, technology, and sustainability. 

The recovery of both the real estate and debt markets are crucial to the recovery of our economy.  The breadth and depth of the problems created in the last several years has surprised even experts.  It has, in a very bad way, been a perfect storm. Regaining positive momentum and stability is only the first part of our problem.  The greater challenge is rebuilding trust - trust in our lending institutions, trust in our home builders, trust in investors and home buyers.  Trust is a difficult to build and the process requires the investment of time.  Identifying positive trends in the debt market will help signal improvement in both the commercial and residential real estate markets.



Technology is no longer a thing of the future, but rather a strong and growing element of virtually everything we do.  From social networking to automated maintenance of facilities, technology has the power to make us more connected and more efficient.  Unfortunately, it also has the power to make us lazy and ignorant if we defer all knowledge and responsibility to computer based systems.  Technology is already impacting real estate in numerous ways and this will continue and expand in the future.  Telecommuting may impact what office space and homes look like in the future.  The ever smaller size of technology may impact the size of residential and commercial buildings.  Knowing what the current trends are in technology may allow you to market of plan real estate developments in a creative and new way.  It has been said that to know what is coming up next in technology you need only look at what is not working, or working as well as we want it to and imagine a solution.



Sustainability is defined as the ability to endure and there is no doubt that this initiative will last.  While we have had green elements in many areas in the past, it is now becoming a real, tangible, measurable part of the world of real estate.  LEED certification has made great strides in creating a consistent and credible standard by which to measure the sustainaibilty of a building, extending into the ongoing maintenace and operations.  The real estate opportunities in the area of sustainability are vast and varied as it is a relatively new paradigm shift, but one that is gaining ground quickly.  Knowing what the current trends are within this initiative will allow a real estate professional to position themselves be very successful.



Truth AND Consequences

Financing is a huge part of the real estate market and right now is a barrier to entry for most people.  The actions and choices of the past several years created a lending climate virtually devoid of integrity.  The biggest question in the real estate lending market is how do we restore trust and activity - simple, we must require TRUTH and deliver CONSEQUENCES!  Fortunately, we are beginning to see a turn for the better.

Debt Markets, Lending, and Financing - The general feeling about financing in the real estate world is cautiously optimistic.  There is beginning to be some activity in the commercial lending world, but close scrutiny of borrower and property continue to pose some challenges.  There continue to be some concerns about whether or not lending institutions have really learned the necessary lessons from the  last several years.  One such issue is the slow return of "cov-lite" bank debt.  These loans minimize or even do away with the maintenance covenants that require the borrower to meet certain requirements or risk having their loan called.  While these terms do not always result in a higher default rate, they do make the loan "unsellable", resulting in many banks demanding the option to reinstate maintenance covenants is necessary.  One interesting trend in real estate financing is the acknowledgement of green financing as a potential high profit low risk investment.

Foreclosures, REOs and Workout Trends - One of the biggest challenges to the lending world is the high number of residential and commercial foreclosures.  MSNBC reported over 1 million homes were foreclosed on in 2010 and anticipated more in 2011.  These staggering numbers are based in large part to the slow down in the process after such findings as robo-signers led to more scrutiny and oversight in the process.  While certain areas of the US continue to see high foreclosures rates, DFW has seen a 28% decline in foreclosures showing the localized nature of this issue.  While banks are eager to sell their REO properties, they do not typically do so at fire sale prices.  Many banks are developing workout programs for lenders including principal reduction, reduces interest rates, and elongated payment periods.  Regardless of the approach, it will take time to work through the foreclosure inventory and the impact it has had on both the commercial and residential markets.

Virtual World, Modern Industrial, and Affordable Housing

Social Networking & Software  First Facebook (600 million + users) , then Twitter (100 million +), now LinkedIn (41 million +) and FourSquare (5 million +), and that doesn't include YouTube and Blogger and.... You get the idea - social media is having a huge impact on our culture. It has also begun to have an impact on real estate, being used as a way to connect with prospects and clients as well as the broader public.  Some commercial groups are using it to present their development plans directly to concerned citizens, finding that opening the virtual relationship allows them to build support within actual communities.  Determining what role it will play in your real estate business is important, because there is no question that it is here to stay. 
Among the newest form of software are the applications (apps) for smartphones.  These can be anything from a calendar to MLS search engine allowing real estate professionals and clients to have their technology with them at all times.  Software developments have also had a significant impact on how real estate transactions get done.  From zipform online forms to ARGUS, a valuation and cash flow software, new software and programs are prevalent in the world of real estate.

Alliance, TX

Industrial Real Estate  Industrial real estate is primarily properties used for warehouse and distribution and is seeing a surge in activity as logistics and global trade continue to rise.  One master planned, mixed-use community that has incorporated industrial space is the Hillwood development of Alliance, TX.  Alliance is a 17,000 acre development that includes a global logistics hub and industrial office park space.  The access to transportation including air, rail, and highway makes this an exceptional opportunity for companies looking for a southwest location. The Alliance corridor along I-35W just north of Fort Worth also is home to retail, residential, and medical properties.

Low Income Housing  The need for affordable housing is on the rise.  An increasing number of Americans are finding themselves burdened with living expenses well over the 30% of income mark.  Many are paying close to 50% of their monthly income toward rent, leaving little room for error or emergencies.  The challenge comes in that while the demand for affordable housing is increasing, the rental market is seeing a boom due to the large number of 20-somethings and the mounting number of foreclosures and short sales.  This translates into higher rents at a time when fewer people can afford them.  While programs such as Section 8 allow apartments to designate units for low income residents, the requirements do not always address those in the most need.  It is essential that the real estate and business community partner with area government to develop efficient and affordable housing to help meet this growing demand.

Social networking allows "next-door" to be half way around the world and as a result expands our focus to a global perspective.  While cyber-living is intriguing, we must never let is keep us from an awareness of the needs of people in our actual communities.  From the growing need for jobs in the industrial sector to affordable housing options, we must use the strength of the virtual world to help problem solve issues in the real world.  Real estate is, at the end of the day, a local commodity and needs to maintain and understanding of the needs of the local community.

School, Jobs, and Office Space

Education:  One of the major trends in education is online learning.  From Kindergarten through Graduate School there is an emerging movement toward all or part our our instructional time being done online.  From elementary and high school through college and graduate school, the number of online options is growing.  The Sloan Survey of Online Learning states that online students in 2010 were up by 1,000,000 students from the year before with over 5.6  million students enrolled in at least one one line courses in Fall 2009.  While there are people on the both sides of the issue when it comes to the quality of academics, how does movement this impact educational use real estate?  The obvious answer is the reduction of need for bricks and mortar classrooms and schools.  Will this lead to vacant school buildings and fewer actual campuses? Will it require a revisiting of what our schools look like allowing for technology to become a focal point of our schools?  Whether it is blogging in kindergarten or attending a virtual classroom in graduate school, there is no doubt that this trend in education will impact the real estate needs of schools.

Employment:  Unemployment in the US continues to hover around 9% and has been an issue in our economy for several years.  Job growth is an economic necessity and has continued to be slow.  The greatest gains have been in the professional and business services, health care, and mining jobs according to the June 3rd release from the Bureau of Labor Statistics.  This coupled with the need for businesses to reduce expenses has led to an increase in telecommuting.  Employees that are able to work at home are often encouraged by employers to do so several days a eek - reducing their commuting expense as well as the company's operating expenses.  As renters are on the rise  there might be a niche for apartments that offer "home office" space in their units.

Office Trends: The rise of technology has also impacted the office market.  Technology access is an essential part of all office space, but as harware becomes smaller and more mobile tennants need less and less office space.  Open space with flexible areas for group meetings is also on the rise as there is a turn toward more office collaboration.   Office suites offer a less expensive alternative for businesses.   Short term furnished office space - sometimes for time periods as short as one or two days - has also seen a rise particularlyin dense urban areas.  This allows the telecommuter to have credible office space when they are travelling.  The biggest impact on real estate is most likely in the physical structure of the workplace as tenant look for flexible space with flexible leasing structures.

The influence of education and jobs on real estate is not limited to the physical building in which these activities take place.  While technology may impact the size and location of schools and office buildings, there is also a less tangible impact.  The reputation of school districts and the availability of alternation education options (private, faith-based, pre-school) plays a significant role in where people choose to live and therefore where business choose to locate.  The availability of jobs has also become a major factor in the general real estate market.

Fast Trains and Super Highways

"Nothing endures but change." - Heraclitus 

We began our UTA Trends & Issues in Real Estate class with a look back at the changes that have impacted real estate in the last 50-60 years.  From technology to transportation, changes within our culture have impacted the type, form, and location of development.  By looking for trends in the current market we may be able to predict some of the issues that will impact future real estate markets and options.

The 1950's saw dramatic growth in the American auto industry and a cultural change that resulted in a move away from urban living and mass transit to life in the suburbs.  Along with this growing mobility came the need for roads and the expansion of interstate highways.  These two developments had a huge impact on real estate as they established a high demand for previously rural land.  Along with subdivisions came the need for shopping and services, increasing the value of land in these outlying areas.  Interstate highways lead to the rise of travel services such as motels and fast-food restaurants, again impacting real estate values.  The locations of the roads often led to the boom or bust of small towns much in the same way that trains did in the 1800's. 

As gas prices continue to rise and traffic grows within urban areas, there is an emerging trend back to "city" living.  The central business districts, many of which were abandoned with the growth of the suburbs, are starting to see businesses return.  As a result, people are choosing to live in the city or the closer lying areas just outside of town.  The need for mass transit is growing as people are looking for ways to get too and from work in a simple and economical manner.   As people look for ways to commute between city centers, the need for fast and sustainable transportation increases.  The proposition of high speed train seems to be one solution.  While many parts of the world already have high speed trains in place, the US is still predominately in the planning process.  Proposals of these high speed train systems tout urban revitalization and sustainability as two of the major benefits.  The impact on land values both at stops and along the track is another consideration.  From California to Texas, both public and private partners are exploring the viability of this high speed travel. 

It is clear that transportation patterns have historically impacted the real estate market and present trends are no exception.  The question is to what extent.  Are we facing an exodus from the suburbs back to urban living?  Will we continue to look for ways to have our "country life" using the increase of technological connectivity to reduce our commute?  The one certainty is that change is inevitable and that these considerations will play a role in the future real estate market.