Sunday, July 31, 2011

Real-estate expert sees disconnect in lending

Arizona State University professor and real-estate development veteran Mark Stapp sees a troubling disconnect between local efforts to build sustainable communities and the globalized mechanisms through which those efforts are funded.
The Phoenix-area commercial real-estate market's problems, which include but are not limited to $3.5 billion of securitized commercial mortgage loans currently in default, are largely the result of that disconnect, he said.

Stapp, still active as a developer, is executive director of the Master of Real Estate Development program at ASU's W. P. Carey School of Business.

He said communities need to get away from relying on massive, corporate lending institutions to fund the development of local real-estate projects. In other words, go back to the way things used to work: local investors funding local development.

Stapp explained the problem this way:

"Real estate is location-specific, unique and small, which makes it really hard to trade and value on a significant scale. Still, the financial world took properties with fundamental differences and bundled them together, in order to create a larger scale, offset transaction costs and trade a bunch of properties together (as commercial mortgage-backed securities)."

Each pool of disparate real-estate assets then was assigned a single investment rating, Stapp said.

"This overlooked the nuances of the individual properties," he said.

Stapp said it's not too late for areas such as metro Phoenix to turn back the clock by setting up local real-estate funds that would finance local development on a project-by-project basis. Everyone involved would benefit, he said, because investors would have more control over where their money was being spent, and developers would know that a project was being financed on its merits, not some financial algorithm devised hundreds of miles away.

by J. Craig Anderson The Arizona Republic Jul. 31, 2011 12:00 AM

Real-estate expert sees disconnect in lending

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