Global Viewpoints

Red Fort Capital's Premium Residential Project in Delhi 80% Sold Out

Edited: Jennifer Brenner
Source: Red Fort Capital

Red Fort Capital, a private equity real estate firm focused on India, recently announced that its marquee Delhi residential project – Parsvnath's La Tropicana – is 80% sold out. Red Fort invested $25 million into the project as a preferred return equity financing in mid-2009. Due to such high sales volume over the past six months, Red Fort's investment and return are currently well supported by booked receivables.

Encompassing 17 acres in the high-end Civil Lines neighborhood of New Delhi, Parsvnath's La Tropicana is a premium residential development with over 500 condominiums exceeding two million square feet of built-up space. The project is one of the few FDI-compliant residential communities in New Delhi with all approvals in place.

In mid-2009, during the global credit crisis, Red Fort closed the transaction within 21 days in order to meet the funding requirements of the project. Mr. Subhash Bedi, managing director of Red Fort Capital, notes that "Our unique ability to provide speed capital was critical for this transaction, as we enabled our developer partner to meet a pressing project completion timeline."

According to Parsvnath's Chairman Mr. Pradeep Jain, "Not only was Red Fort one of the few investors active in the market at the time, but they were also the only investor who could close in a timely fashion. We are highly pleased they have shown confidence in our group, and also increased their stake in a subsequent round of funding."

Following Red Fort's entry, construction immediately commenced and foundation and slab work is currently underway. As a result, over $40 million of inventory was sold within four months due to increased buyer confidence in the project. Today, 80% of the inventory has been sold with a 67% end-user price increase recorded in less than six months.

Mr. Jain confirms that "As a result of Red Fort's involvement, we have been able to expedite construction timeframes, streamline systems and processes, improve product quality and thereby increase sales well beyond our initial expectations."

Mr. Bedi states that "Based on the project's success, and our attractive position in the capital stack, today our investment is secured."

Mr. Parry Singh, managing director of Red Fort Capital, concludes that "Given our success with La Tropicana, Red Fort will continue to provide speed capital for high quality projects in India that may have either liquidity constraints or immediate financing requirements."

NYPD Awards STV and Turner $656M Contract to Build New Academy

Edited: Jennifer Brenner
Source: STV and Turner Construction Company

STV and Turner Construction Company, in a joint venture, have been awarded a $656 million contract to provide construction management services for the new police academy for the New York City Police Department (NYPD) in College Point, Queens, N.Y.

STV/Turner will provide construction management services to the New York City Department of Design and Construction (DDC) on behalf of the NYPD. The joint venture will have full responsibility to procure, contract and manage the complete redevelopment of this 35-acre campus. The STV/Turner joint venture allows both companies to provide services in key areas, including campus development, public sector contract compliance, technical problem solving, financial management, contract administration and project controls.

Through the construction of this one million sq. ft. facility, the NYPD will be able to consolidate its recruit training into an all-inclusive location, the first phase of which will be complete by 2013. The scope of work for this phase includes a central utility plant and campus supply loop for all MEP services, a physical training building and an academic building. The physical training building includes a 1/8 mile running track and special tactical gymnasiums. The academic building will include classroom space for 30 to more than 300 cadets and mock environment rooms designed for immersion learning. Also included in the academic building are faculty offices and library.

The project is being designed by Perkins + Will Architects in association with Michael Fieldman Architects and is targeting a LEED Silver certification from the United States Green Building Council. Green features of the facility include daylight harvesting, green roofs atop the buildings, storm water harvesting and reuse and redevelopment of an existing tidal stream located within the site.

"This extremely important project will bring state-of-the-art training facilities to New York City's police academy's new cadets," said Milo E. Riverso, Ph.D., P.E., president of STV. "Both STV and Turner have worked extensively in the New York construction environment for many years. This partnership brings together years of construction, design and management experience to this project."

"Turner is proud to serve as part of the building team on this important project to benefit the NYPD and the residents served and protected by the police department," said Charles Murphy, senior vice president and general manager of Turner's New York office.

USC Lusk Center’s Stan Ross Sees an Upside to the Real Estate Downturn -- Stronger Real Estate Firms

Edited: Jennifer Brenner
Source: University of Southern California Lusk Center for Real Estate

Stan Ross, chair of the University of Southern California Lusk Center for Real Estate, has been through 10 real estate cycles in his career and says there are many benefits to be gained from the current downturn if companies take the right steps to stay in business. In fact, he believes the survivors will become highly productive, more efficient, stronger teams operating with increased transparency for the good of the industry.

“We’re going to wind up with some really solid companies by the end of 2010,” forecasts Ross, who helped create the federal government’s Resolution Trust Corporation 20 years ago to sell off non-performing real estate loans owned by troubled savings and loans.

Among the advice he gives to developers, homebuilders, property managers, investors and lenders:

• Centralize to gain control - Successful managements understand what is happening everywhere in their organization. Reorganize, restructure and flatten your organization and take a hands-on approach to decision-making.
  
• Rely more on technology and less on people - Use information technology, software and automation to better understand and control your business. Learn how to handle activities with fewer people.
  
• Talk with your lenders and investors - They do not want to own your buildings. Work with them to modify existing financing or refinance if possible.
  
• Cash is king - Liquidity is the primary goal. Sell assets to create a cash cushion. Market your unsold inventory more aggressively. Centralize your accounts payable to strictly manage your cash outflows. Understand your receivables. Set up direct deposit accounts for tenants. Know who owes you money and deal with delinquencies quickly. Monitor your cash flow daily.
  
• Control your costs - Go through every expense line item and find savings. Re-bid everything. Evaluate your pass-through costs. Become a more efficient organization.
  
• Evaluate your outsourcing - Now is a good time to consider outsourcing accounting, legal and marketing services since professional service firms are cutting fees.
  
• Know your tenants - Be proactive with your tenant customer relationships. Do whatever you can to enhance them. No one should understand your tenants and their needs better than you do, especially your competitors. Retention is critical.
  
• Communicate as never before - Increase communication and transparency with your employees, tenants, lenders and investors. Encourage more team approaches to problem solving. Support teams managing struggling assets so they know they are not alone.
  
• Share your energy and commitment - The energy from the top has to be at a high level. You need optimism backed by a real belief that you will survive and succeed.

None of this is easy, but with the right strategies and the right team Ross believes real estate industry professionals can look back on 2010 with satisfaction, knowing they transformed their organizations in time to benefit from a more prosperous future.

Foreign Investors in Real Estate Pledge Allegiance to U.S.

Edited: Jennifer Brenner
Source: AFIRE

Despite a lack of placement opportunities in 2009, foreign investors in real estate say they remain committed to the U.S. as their preferred real estate investment opportunity. The sentiment is underscored by a dramatic increase in the number of respondents identifying the U.S. as the country providing the best opportunity for real estate capital appreciation, according to the results of the recently released 18th annual survey conducted among the members of the Association of Foreign Investors in Real Estate (AFIRE).

The survey was conducted in the fourth quarter of 2009 among the association's nearly 200 members. Survey respondents own more than $842 billion of real estate globally including $304 billion in the U.S. The survey was conducted by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.

In this year's survey:

• 51 percent of respondents identify the U.S. as providing the best opportunity for capital appreciation;
  
• this compares to 37 percent in 2008, 26 percent in 2007, and 23 percent in 2006;
  
• the last time respondents' perceptions for U.S. real estate were this strong was in 2003, when the percentage once again reached 51 percent;
  
• the U.K. emerges as the second-best country for capital appreciation, receiving 30 percent of respondents' votes;
  
• in third place, China receives 10 percent of respondents' votes.

"Although foreign investors expressed every intent to resume investing in 2009, like everyone else, their plans were sidelined by a paralyzed marketplace with no precedent and limited investment opportunities," said Werner Sohier, senior portfolio manager real estate, PGGM and AFIRE's newly elected chairman. "However, new money is becoming available and the AFIRE survey points to an increased focus and interest in a few select markets for 2010, especially London and in the US, where prospects appear to be brightening."

Plans and Actualities

According to survey results:

• two thirds of respondents plan to increase their investment in the U.S. in 2010 compared to 2009;
  
• investors say they plan to increase U.S. allocations above 2009 levels by 62 percent for equity and 83 percent for debt; at least half the survey respondents report a stronger appetite for both debt and equity investments in the U.S. than in other countries;
  
• plans for global equity investment in 2010 exceed plans for 2009 by 46 percent; 2010 plans for global debt are 20 percent lower than planned for 2009;
  
• by the middle of the fourth quarter of 2009, foreign investors placed only 62 percent of planned debt allocations and 43 percent of planned equity allocations globally; in the U.S. they placed only 35 percent of planned debt allocations and 23 percent of planned equity allocations;
  
• as a portion of global real estate, U.S. 2010 allocations for debt represent 80 percent of the global pool; allocations for equity represent 49 percent.

Other U.S. Trends

Among U.S. cities representing the best investment opportunities, survey respondents firmly select Washington, D.C. and New York, receiving much stronger scores than third-place San Francisco. This year, Boston makes a significant climb into fourth place, and Los Angeles falls one spot into fifth place. As they did last year, survey respondents also express a firm interest in multi-family as their preferred property type followed by office, industrial, retail and hotel properties.

"This is the second year in a row in which multi-family topped investors' product preference," said James A. Fetgatter, chief executive, AFIRE. "More notably, the gap between the top preference and the least-favored product, hotels, has not been this wide since 2000."

Survey respondents have also pushed their projections for the recovery of the U.S. commercial real estate market back by six months:

• in the June 2009 mid-year survey, half the respondents said they expected recovery by or before the second quarter of 2010;
  
• in the 2010 annual survey, half the respondents say they expect the recovery by or before the fourth quarter of 2010.

But, optimism about the state of the U.S. real estate market remains strong:

• 33 percent of survey respondents say they are more optimistic about the U.S. real estate market than they were in June 2009;
  
• 63 percent say their perspective has not changed;
  
• 6 percent say they are more pessimistic.

Global Trends

Globally three cities emerge as clear targets for investors' real estate dollars:

• London surges into first place with a significant lead over both Washington and New York in second and third places respectively; Paris and Tokyo place as distant fourth- and fifth-place cities;
  
• London's 2010 score is 31 points higher than second-place Washington, and 40 points higher than third-place New York. In the 2009 survey, London was in second place, separated from first-place Washington by only four points and third-place New York by a mere two points.

The United States remains the country selected as the "most stable and secure real estate investment environment," although with a declining lead:

• The U.S. receives 44 percent of the vote;
  
• Germany receives 21 percent;
  
• Canada receives 14 percent.

This year, the percentage of respondents selecting the U.S. as the most "stable and secure country" falls from 53 percent in 2008 and 57 percent in 2007. This is the first time that the U.S. has fallen below 50 percent in the survey's history.

"The financial crisis of the past year has obviously affected investors' perceptions of U.S. real estate as 'stable and secure,'" explains Mr. Fetgatter. "However, it is also apparent that opportunity lies within this instability since the U.S., along with the UK, show substantially higher scoring for expected capital appreciation.

"One half of the respondents ranked the U.S. as the number one country for capital appreciation compared to only 25 percent in 2006. The UK showed even greater movement; in 2006 only 2 percent of respondents named the UK as the best country for capital appreciation compared to 30 percent this year.

According to survey respondents, the top five emerging markets are China, Brazil, India, Mexico, and Turkey. Brazil and India, which were the first- and second-ranked emerging markets in the 2009 survey, each receive only half the votes that China receives as top emerging market. And, investors indicate intent to place almost all of their "emerging market" capital into China at the expense of other emerging markets.

Green Continues to Grow

An increasing number of survey respondents say that "green" attributes influence their property purchases. This year:

• 14 percent indicate that green attributes "significantly" influence their decision-making when considering a property; 70 percent say green attributes are "somewhat" of an influence. In the 2009 survey, the numbers were 12 percent and 60 percent respectively.
  
• In the 2010 Survey, 17 percent of respondents say that "green" attributes are of no influence at all compared to 28 percent in the 2009 survey.

AFIRE members have a common interest in preserving and promoting investment in cross-border real estate.

News From the Road: OSCRE’S First Global Board Meeting in London

Written By: Bruce A. Kellogg, MAI, FRICS

The first board meeting of the newly merged OSCRE – Global Standards for Real Estate was held on January 13-14, 2010 in London. OSCRE is the acronym for Open Standards Consortium for Real Estate, which brings together the two respected and recognized data standards bodies of OSCRE Americas and PISCES (Property Information Systems Common Exchange Standards). Established in the early 1990s, PISCES helped birth OSCRE Americas less than a decade later to offer all real estate organizations an opportunity to be more efficient, transparent and consistent in the way business is electronically communicated. Today, OSCRE stands at the pinnacle of the interoperability movement, signaling the way data will be transferred in the future. Pictured: Board Member Andrew Lloyd, Staff Members Monika Horner and Alan Edgar

The Board of Directors of OSCRE is comprised of representatives of the two legacy organizations, with members located throughout the U.K. and the U.S., and in the Netherlands and Canada. Staff members were also present from the U.K. and the U.S. The current board chair, Stephen Spooner, represents the Royal Institution of Chartered Surveyors (RICS), with the current chief executive (CEO) being Catherine Williams from Newcastle, U.K. Aside from RICS, organizations represented vary within the industry and include both commercial and residential, and there are several major international organizations represented, including IPD, RealFoundations, ING, IREM, Cushman & Wakefield, Trace, TM Property, MDA Searchflow, ARGUS Software and, most recently, Public Works Government Services of Canada.

It is a very experienced group of real estate professionals who have dedicated many years of service to improving our industry. At the moment, OSCRE is comprised of 113 members, with approximately 30 percent of these in the executive category. The largest industry (or domain) category is comprised of software organizations, followed by those focused on investments.

The meetings had a full agenda that included a summary of our past and a vision for our future. The OSCRE Vision was agreed upon as follows: To enable the real estate industry to work more effectively through the use of cost-effective, standardized and automated electronic information exchange. We acknowledged that, to accomplish this, we must focus our attention on the creation of workgroups that will produce new standards, leading to adoption by all real estate participants. We recognized the urgency of moving forward with these mandates, with the result being a commitment to work hard and deliver! A number of standards were discussed that need our attention, including the reXML initiative that ARGUS Software has offered. Pictured: Members Bob Toothaker, Craig Cuyar and Andrew Lloyd and Staff Member Monika Horner

The Board also structured OSCRE to be efficient and productive. With this in mind, committees and domains were formed, led by board members and ultimately populated by other members and/or industry leaders. Marketing, strategic alignment/business development, membership, technical and operations committees were established. Domains consisted of investments, facilities management and residential, with a government domain being strongly considered. Marketing, as one of the committees, was given much attention near the end of the agenda to focus once again on our commitment for adoption of standards and the education of the industry to understand the benefits that OSCRE offers to all segments (or domains) of real estate. To enable this, we are providing more input to our members and there will be more access to current activities of OSCRE.

In summary, OSCRE is off and running as a new organization that will change the face of the real estate industry. Rather than the use of a buggy whip, we are introducing a brand new way of getting that horse to move us forward more effectively through the use of cost-effective, standardized and automated electronic information exchange. If you haven’t jumped on board, please do so before it leaves the barn without you!