While the government is spending trillions buying up debt and fixing failing companies balance sheets, they are doing precious little to solve the real problem - too big a supply of homes and too little demand for them.

There are estimates that if all things go well, housing supply and demand will be back in balance in 2012. I really don’t want to have to wait that long to get the economy at full speed again. Do you?

Well, I am a subscriber to John Mauldin’s Frontline Thoughts . It is an excellent, free weekly email on the economy. This week, John highlighted a plan put forth by Gary Shilling and Richard LeFrak that would dramatically increase the demand for housing and not cost the taxpayer a dime.

The plan is pretty simple. The U.S. lets in over a 1 million immigrants to this country a year. For the next few years, there needs to be the added requirement that each one of these immigrants purchase a median priced home or better. Upon doing so, they will immediately be granted temporary (5yr) green card status.

Let me be clear: The plan is not to open up the floodgates to immigrants. The plan is to require the already incoming immigrants to make an immediate impact on the economy.

You can read more about the plan here.

Personally, I would rather the government stop trying to manipulate market forces altogether. But since that obviously isn’t going to happen, I would much rather they do something that costs taxpayers nothing and cuts to the heart of the problem.

I urge you to contact your congressmen about this proposal. You can find out who is representing you here. (http://www.visi.com/juan/congress/)

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The county where my office is located, Brevard County, Florida just announced a moratorium on transportation impact fees. The reason – to help stimulate the local economy. Or in the official language of the new ordinance,

… the Brevard County Board of County Commissioners has determined that putting its citizens back to work is a high priority for every level of government, including county government; and …

… the County Commission has determined that the removal of certain regulatory and economic impediments to new commercial development is one way in which County government can join the State and Federal government in strategies designed to stimulate the local economy…

This is a big deal. My firm is often involved with property developers who are forced to pay transportation impact fees that exceed $1 million dollars.

Reducing the cost of a project by that amount is no laughing matter, and it would certainly make some projects financially feasible that weren’t doable without the savings.

If that is the case, maybe Brevard County will succeed in “putting its citizens back to work”.

Do you have land development projects in your area where the waiving of impact fees would make them profitable? If so, and even if not, you might want to let your local government agencies know about what other counties are doing to spur growth.

Cities and Counties are much more willing to adopt changes when they know others have done it as well. A simple letter or email linking them to Brevard Counties website may be enough to save your next project tens of thousands of dollars. (Here is the link, http://www.brevardcounty.us/landdevelopment/).

But please remember, just because it may make your property developments cheaper to build, that doesn’t mean there is now demand for what you are building. Do your research first.

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Found an interesting tool called Google Insights that gives a unique perspective on the real estate development industry. Google Insights graphs the searches in Google to see trends in people’s interests over time. It is a really neat tool for getting a feel of what is happening in the world.

I thought Insights might be able to tell me what kind of interest people have in land development right now and where the trend is headed.  Below are screen shots for the terms, “Real Estate Development”, “Property Development”, and “Land Development”.

Insights for Real Estate Development

Insights for Property Development

Insights for Land Development

As you can see, all three charts show that interest in property development bottomed out at the end of last year and interest has bounced off those lows so far in 2009. Granted the bounce isn’t huge, but it is certainly a change in the trend.

Now, does this mean the recession is over for property developers?

Well, I wouldn’t go to Vegas based on Google Insights, but the charts do offer some good news amid a plethora of “sky is falling” headlines right now.  We will have to follow the charts from Google Insights closely to see if the new trends continue.  Likewise only time will tell if the increased activity I am seeing with property development in my office will continue.  I will certainly let you know if it does.

Despite what the media seems to be telling us, the commercial and residential development market is not dead.

Here is a link to a story of a firm in England who made the right moves the last couple of years and is making 2009 their year to start some aggressive development projects.

http://www.propertywire.com/news/europe/uk-development-company-new-projects-200903112766.html

I think there is need for more real estate stories like this to combat the constant barrage of “end of the world” type stuff and I plan on bringing you more in the near future. If there is enough interest I might even make a permanent podcast out of the stories.

So if you have a development that is moving forward (or know of one), I would love to know about it. I’d like to interview you about the project, find out why you are moving forward right now and maybe get some advice for other readers. (It is also a great way to get some free publicity for your property development.)

Shoot me an email if you are interested.

I am afraid you are going to be hearing the term “Cramdown” a lot in the near future.  It is one of the tools available to help ease the foreclosure free fall that is occurring in the real estate world.

Cramdowns can have some positive impacts on the market, but there is also some negatives as well.  I will elaborate but first watch this great video explaining what a cramdown is.

This video below is done by Marketplace.org Whiteboard Series.  I highly recommend it.


Cramdowns from Marketplace on Vimeo.

Now as the video explains there is some good and bad that comes out of a cramdown. Primarily good for the homeowner, and good and bad for the lender.

What is left out of this video is what happens to the $250,000 the was removed from Fred’s primary mortgage. Does the bank just eat it? Will they be reimbursed for this loss from the Federal Government? If the house is eventually sold for more than $750,000 who gets the extra income?

To be honest, I don’t know the answer, but it is important because it will determine whether this cramdowns actually have an impact on the foreclosure market or not.

More to come….

Obama has pushed his “stimulus bill” through and it looks like he will sign it into action in a few days time.

But what is really in it and how is it going to impact real estate developers?

Well, there are many lists of what is actually in the package and all seem to have “overlap” that creates confusion.  For example, most lists shows about $40 billion slated for infrastructure improvements (primarily roads) but there is also listed $10 billion for improving a handfull of government buildings.   It is unclear, if that $10 billion is part of the $40 billion or in addition to it.  Examples of this are everywhere so it is unclear how much really is slated for development.

(By the way, if you want to see how the goverment can spend $10 billion dollars on a handful of buildings, go here, “800 Billion Reasons to Worry“.)

Whatever the final number is, most developers I talk with are asking how fast is it going to happen.

But maybe that isn’t the right question.

The question I am asking is “What impact is this going to have on the cost of construction?”

You see, I am working with several developers who would love to pull the trigger on projects but the financials just don’t work - primarily because construction costs are still high.  (Yes, construction costs have come down some - but not nearly at pace with the other variables involved.)

So these developers are content to sit and wait until costs catch up with everything else, supply and demand come back into balance, and these projects become financially feasible.

That is going to take much longer because of the stimulus package.  The stimulus package that Obama is about to sign will create billions of dollars worth of demand for construction materials and the effects of that demand will impact material prices all across the country.

The stimulas package will keep material costs from coming down and keep many real estate development projects from actually happening.   

Sure, the localized areas where the goverment construction actually occurs might see a bump in there local economies - but that is going to be extremely local.  Meanwhile the rest of the country where these government funded project are not located will be far worse off.   

Laws of demand and supply will continue to remain out of balance, keeping growth from happening for a much longer period of time.

I hope I am wrong on this one.  But I haven’t seen or read anything to prove to me I am not. 

 

Over the past week, I have watched, read, and listened to as many so called experts as I can bear explain the financial crisis we are in – including the presidential candidates.

Nearly all of them say the same thing,

“Nobody wants to bailout the banks, but the problem is so bad that we have to do it.”

It is impressive how much detail these experts are able to go into explaining exactly why the crisis happened and who is to blame. But what’s really amazing, is how little detail these experts are able to provide on how the $700 billion dollars will solve the problem and why $700 billion is the right amount to do the job.

“Just trust us (with your money).” is the common answer we are provided.

(And for the few that do attempt to explain the solution, they all leave out the real danger this solution creates – which I will explain in a moment)

So how will the bailout impact real estate developers and the property development industry as a whole?

Well to start you need to understand the problem. I am not going to rehash it here but I will give you a snippet from a particular doomsday email I received from John Mauldin’s Thoughts of the Frontlines service. (John Mauldin is a best selling author and financial expert. His weekly economic e-letter goes out to over 1 million subscribers. You can subscribe here, http://www.frontlinethoughts.com/learnmore )

“Banks can lend to consumers and investors about 12 times their capital base. If they have to write off 20% of their capital because of losses, that means they either have to sell more equity or reduce their loan portfolios. … Because banks and investors and institutions are having to deleverage, that means they need to sell assets at whatever prices they can get in order to create capital to keep their loan-to-capital ratios within the regulatory limits.”

In other words, because of regulations, banks are forced to sell their loans at a time when nobody is buying which is fueling the economic downward spiral for these banks. And until the banks get to the bottom of the spiral, they can’t make any new loans. Its new loans (i.e. the supply of capital) that fuels the growth of the economy.

So, if the government can buy all these loans from the banks, the banks can get back to doing what they need to be doing – supply the cash for the country to grow.

Or at least that is what we are told. And to sweeten the deal, most of the pundits finish off by saying “…the government will most likely make a profit on these loans because they get to buy so cheap now and they can sell them for higher prices later on.”

So as a real estate developer, the bailout sounds great right?

I mean you need financing to get your project developed and the bailout will increase the availability of that financing.

Uhmm, no.

Or at least under the current plan, that is extremely unlikely to happen.

One of the best explanations of why this is the case was presented by Ken Courtis, former vice chairman of Goldman Sachs, Asia and George Magnus, senior economic adviser at UBS during an interview on the BBC Worldservice. This interview is by far the best discussion on the problems and potential solutions I have heard to date. (I recommend you listen to the entire interview here - http://www.bbc.co.uk/worldservice/specials/1512_debates/page24.shtml )

In the interview, Ken Courtis and George Magnus explain that under the bailout plans that are proposed the government will be buying the bank’s loans, but not actually increasing the amount of capital reserves with which to make new loans. And in fact, the new banking rules implemented as a part of the bailout will actually make it more difficult for banks to lend money.

The bailout will actually reduce the availability of financing for real estate developers making the depression worse.

This is one of the biggest reasons the bailout is bad for real estate developers – but not the only one.

There is another reason – a reason that is actually more important and the ramifications are far more serious than what all the experts are talking about at the moment.

You see everyone is focused on problems with supply – but no one seems concerned about the problems with demand.

The banks ability to loan capital to businesses is the SUPPLY. The DEMAND is business’s need for loan capital to meet the publics growing demand for their products.

Unfortunately, taxing the public to the tune of $700 billion dollars (actually it is closer to $2 trillion) will create a massive drop in DEMAND - sending us into a deeper and longer recession. Ken Courtis attempted to point this out in the BBC interview and was cutoff because nobody wants to hear it.

Nobody wants to face the fact that whether the drop in DEMAND happens immediately or is put off by financing the bailout with overseas loans – the drop in DEMAND is going to happen. And it will most likely be severe. Gross National Product will go down and could stay down for a long time.

The structure of the bailout;
• solely focusing on buying loans,
• no attempt to increase bank’s capital reserves while further restricting their ability to make loans,
• and no serious concern for the devastating impact the financial burden of the bailout will have on DEMAND and GNP –

creates a high probability that we are facing a decade long recession similar to the one Japan is only now coming out of.

When faced with the real result of the bailout, one has to wonder why any real estate developer would be in favor of it. Yes the lumps we are taking now are not easy to swallow. But I would rather take one bad beating and get it over with than face a long drawn out tortuous series of beatings in the future.

What’s holding your Real Estate Development Success back?

Most likely, you are in the same boat as developers I deal with all the time.

You’re as close as you’ve ever been to a successful project…You can see it right there, just a few inches from your grasp…

You can practically TOUCH it…

Except for one thing.

There’s a wall between you and your well-deserved achievements. And that wall has been plaguing your real estate business since you first decided to venture into this arena.

You know what I’m talking about. Every time you seem to spot an opportunity…every time you get just a little taste of what could be…

That wall pops up and says, “Hello there–it’s me again, ready to find a problem that will stop this deal dead.”Sound familiar?

Yeah, me too. I’ve wrestled with my own roadblocks in the past–more than I care to remember.

And each time, it seemed to get harder and harder to overcome those barriers and move to the next level.

But I wanted to tell you about a resource that can help you get past that.

It’s a free report written by a guy named Rich Schefren.  Now Rich isn’t a real estate developer.  He is a successful businessman that started out in retail clothing and now is considered one of the best in the world of online marketing and business management.
 

And he’s whispering 2 words in your ear:

“Swing away”.

https://schefren.infusionsoft.com/go/sept08/Bart/

Rich’s new report, “The Uncertainty Syndrome,” takes on the biggest problem marketers and business builders have: overcoming adversity and explains how and why you need to just go for it.

Now this report is geared toward online business people, but I just read it and virtually everything in it can be applied directly to real estate development.

It is amazing how much setting up a successful online business is similar to completing a profitable real estate project.  After all, the web is literally virtual real estate that you develop to its maximum potential.

Every website is a piece of property and a successful online venture requires you to;

• Reasearch and Determine Demand,
• Conduct Due Diligence and Assess Feasibility,
• Design and Construct the Project
• Market and Monetize the End Product

Sounds familiar doesn’t it?

Well, for the past year, Rich has been researching like a madman, trying to find the secrets of getting past the roadblocks that online real estate developers have.

And in this report, he’ll outline key strategies and tactics you can use RIGHT NOW to virtually obliterate whatever’s holding you back–and advance your business to where it should be.

How does that sound? 

https://schefren.infusionsoft.com/go/sept08/Bart/
 

Rich’s reports are legendary in the online marketplace for delivering outstanding content that’s straightforward, to-the-point, and leaves nothing behind.

And while, they aren’t focused on real estate development, they easily cross over and are worth your time to check out.
 

Bart

 

For those of you who don’t know, our office is located in Melbourne, Brevard County Florida. 

This is the exact location where Tropical Storm Fay decided to take a bit of a rest and dump massive amounts of rain down onto the homes and businesses in this area.

Tropical Storm Fay was an extremely rare occurence.  The rainwater that was seen in some areas most likely will not be seen again in my lifetime.  And even though, this was such a major event, the majority of homes in the area were not damaged by the storm.

In fact, I have only heard of one location where new subdivisions received flooding damage.  And the rumor is this was caused by a blocked culvert from an offsite canal and not from poor design of the stormwater system in the subdivisions.

So, how does this impact your future developments?

Well, common sense would tell you it shouldn’t.  But reality often doesn’t involve common sense.

Do not be surprised when government agencies create new requirements and stricter design parameters for your developments in the future.  Cities, Counties and Water Management Districts will use Fay as an opportunity to put more restrictions on development.

This will most likely result in larger stormwater treatment areas for your real estate developments.  Meaning your land will have less developable area. 

Less developable area means less profits. 

So if you are purchasing land in the near future in Florida, be aware of any new stormwater requirements that you may need to meet.  

You may want to offer less for that property.   

This implementation of new requirements is not restricted to Florida.  Practically every location has natural weather conditions that can create drastic changes in property development requirements. 

Most likely these are issued through the building code, but as in the case of Tropical Storm Fay, these requirements will be felt in the site design.

 

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We get emails of development questions nearly everyday here at PropertyDevelopmentSource.com.

The questions come from all over the country, and it is clear after having read so many of them, that many of these questions are actually stopping potential development projects dead in there tracks.

Many people are simply stuck, unable to take the next step because they lack the information they need to take action.

That’s a big deal. And so we do our best to get these people the answers they need. But as much as we try to answer them, it has become obvious that many of the questions are the same. So we put together a report that covers the TOP 6 questions we received.

The result is:

 

“The Big 6:

Answers to Developer’s Top

Questions that Hinder Success”

This extensive report gives detailed, from the trenches, answers
  to questions like;

• How do I get good cost estimates for evaluating potential
    projects?
• How do I get financing for my project?
• How do I hire the right team for my project and how do I
    manage them
• What percentage profit should a project provide to make it
    worth doing?
• What development fee should I charge my partners or investors?
• And finally, how do I get a reasonably accurate feasibility study without
    spending thousands on consultants and reports?

And we don’t stop there. After putting together the report, we realized that unless we include the tools you need to properly answer these questions, the report is incomplete.

So we included valuable spreadsheets and checklists to help you keep making progress and taking action.

If any of these questions, or something similar is stalling your real estate development plans, please check out THE BIG 6, here

 

THE BIG 6: Answers to Developer’s Top Questions the Hinder Success

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