Most builders nowadays eagerly tout their homes’ energy
efficiency.

Bragging about energy-saving features has become so pervasive, a
reporter’s eyes can glaze over and his mind can wander the moment
the word “green” enters the conversation.

But with new-home sales sluggish and foreclosures driving down
prices, builders looking to distinguish their product from the
large resale inventory have beefed up energy-saving features in
their homes.

So much so that their designs stand out even at a time when
calling something “green” has become a cliché.

When it comes to foreclosures, new-home builders can’t compete
on price, said Dan Hogan, supervisor of Tucson Electric Power Co.’s
residential energy-efficiency programs.

So to lure buyers, they have to show that there’s added value
with a new home. And for many builders, that means taking on
additional costs to make homes more efficient.

“To build an energy-efficient home, it costs more money,” Hogan
said. “You just have to put in better pieces.”

Meritage Homes – which has developments in Arizona, California,
Texas, Nevada and Florida – is one of those builders that has begun
aggressively promoting its homes as power savers.

At Solara, a development in Marana, Meritage has a deconstructed
model that shows off energy-saving features that would otherwise be
hidden by finished construction. Part of the goal of that model is
to show buyers the differences between a foreclosure or resale and
a newly built home, said Jeff Grobstein, Meritage Homes’
desert-region president.

“We feel at the end of the day, it’s so compelling to get a much
better-built home,” Grobstein said.

Homes built with the Meritage Green label have spray foam
insulation that creates a tight envelope, keeping cool in the
summer and warm in the winter. The homes have water-saving
plumbing, efficient appliances, drought-tolerant landscaping and,
of course, solar panels.

The energy-saving components do cost more, but Meritage Homes
says they offer the features at no additional costs to buyers.
Adding to the cost of a new home in a depressed market might make
for a tough sale.

According to Meritage Homes’ website, properties in Solara, near
West Moore and North Tangerine Farms roads, range between $142,900
and $186,900.

Hogan, of TEP’s residential energy program, said that while
Meritage isn’t the only builder to take considerable steps to make
homes more energy efficient, the company’s homes do have some
features that set them apart.

As it turns out, Hogan said, solar panels work less efficiently
when they’re hot. So the panels Meritage uses have a system that
moves cool air underneath, making them more effective. Then, the
hot air from under the solar panels is used to warm water, he
said.

So far, Meritage Homes has been showing it can build a very
energy-efficient home, Hogan said. Meritage Green homes have had an
average HERS Index of 28.4, he said. HERS, a national rating that
stands for Home Energy Rating System, gauges a home’s energy
consumption, giving a more efficient home a lower score.

Standard new homes generally have a HERS index of 100, while a
typical Energy Star home will have an index of about 80.

Meritage, with scores below 30, has homes more than 70 percent
more efficient than a standard new home.

Other builders are promoting energy efficiency, albeit to a
lesser extent than Meritage. Maracay Homes, which has several
new-home developments around Tucson, also uses spray insulation,
energy-efficient appliances and plumbing that saves water, said
James Attwood, the builder’s construction manager.

While energy efficiency generally has increased in new homes, in
today’s market, new-home builders aren’t necessarily even competing
with one another. They need to distinguish themselves from
financially distressed properties that can often be snatched up at
bargain prices.

Contact reporter Dale Quinn at dquinn@azstarnet.com or
573-4197.

In 2007 average home prices in the United States slipped from $221,900 to $219,000 which was then shortly followed by a massive 21% drop over the next two years. Chinese real estate, on the other hand, maintained its value through the Great Recession as property values tripled between 2004 and 2009. Fast forward another two years, and major cracks are beginning to surface within the Chinese real estate market as speculation about the collapse of the bubble has started to emerge. (To learn more about housing bubbles, check out Why Housing Market Bubbles Pop.)

TUTORIAL: Exploring Real Estate Investments

Standard Poor’s recently cut its outlook on Chinese developers from “stable” to “negative” in anticipation of a “sharp correction” for real estate prices. Analysts are forecasting that home prices will fall by 10% within the next year.

Oversupply
The primary concern for the sustainability of current prices is based on the oversupply of residential and commercial real estate in the country. In order to maintain GDP growth, the Chinese government has continued to overinvest in large infrastructure projects focused on real estate development.

At an average wage of $7,400 people are neither able to purchase the basic $100,000 apartments units nor invest into small businesses around the new developments. In cities like Hainan, residential apartment occupancy rates stand at only 30% while more industrialized cities such as Shanghai and Beijing also have substantial vacancy rates of approximately 50% and 35% respectively. Prior to deflation of the American real estate bubble, Michigan had the nation’s highest rental vacancy rate of 18.4%.

Commercial real estate is displaying a similar trend where construction is outpacing demand. What was once expected to be the largest retail mall in the world, the New South China Mall in Dongguan is practically empty as over 95% of its stores remain unleased since its construction in 2005. Although the “Great Mall of China” contains 9.6 million square feet of floor space, less than a dozen active shops remain in the mall. Also, due to the lack of customers the few active shops claim that they can go for days without making a single sale. (For more information on real estate prices, see The Truth About Real Estate Prices.)

Why Build?
Over the last 21 years China has maintained an average quarterly GDP growth of 9.3%, which is becoming increasingly dependent on the real estate market. According to The Atlantic, residential housing investments contributes to 6% of GDP, the same level as U.S. real estate at the peak of the housing bubble. Jonathan Anderson, an economist with UBS, estimates that 2010 property construction accounted for 13% of GDP. Investing in large infrastructure projects which provide no long term economic value has become a notable method of creating growth. By overbuilding to preserve the image of rapid growth, the Chinese government is applying Keynesian economic policies at wasteful rates.

Of note, the overall GDP data coming out of China is highly questionable. The Wall Street Journal states that every province in China reports a higher growth rate than the nation. Building ghost towns is just another way to artificially inflate this uncertain GDP figure.

Current Prices Are Too High
In contrast to the empty ghost towns, property prices in major metropolitan areas have risen to unsustainable levels. At the peak of the American housing bubble, the average new home price to annual disposable income ratio topped out at slightly over five, meaning that it would take five years of savings to fully purchase a home. The current corresponding metric for Shanghai is … 57. Property values in some of China’s major cities have already started to slowly fall. (For more information in identifying a bubble, check out 5 Steps Of A Bubble.)

Original story – China’s Real Estate Bubble

Copyright (c) 2011 Investopedia US. All rights reserved. Investopedia.com is a division of ValueClick, Inc.

A man cycles past the Tokyo Stock Exchange building in Tokyo. Heiwa Fudosan Co., which owns some land and six buildings including the Tokyo Stock Exchange in the historic Nihonbashi district, trades at a 51 percent discount to the value of its net assets, the cheapest of any Japanese real estate developer, according to data compiled by Bloomberg. Photographer: Tomohiro Ohsumi/Bloomberg

Mitsubishi Estate Co., whose $1.4
billion Rockefeller Center investment ended in default, may find
buying Heiwa Real Estate Co. the cheapest way to profit from the
rebirth of Tokyo’s oldest neighborhood as a financial center.

Mitsubishi Estate, which currently holds an 11 percent
stake in Heiwa, will pursue acquisitions to help it overtake
Mitsui Fudosan Co. as the biggest developer in Japan, President
Hirotaka Sugiyama said last month. Heiwa, which owns some land
and six buildings including the Tokyo Stock Exchange in the
historic Nihonbashi district, trades at a 51 percent discount to
the value of its net assets, the cheapest of any Japanese real
estate developer, according to data compiled by Bloomberg.

A takeover of Heiwa would give Mitsubishi Estate, which has
turned Marunouchi into Tokyo’s most expensive business district,
a foothold in Nihonbashi, a center of commercial life in Japan’s
Edo period from 1603 to 1867. The former owner of Manhattan’s
Rockefeller Center, which projects profit will decline after it
missed three-year sales and earnings targets, would be making
inroads into Mitsui Fudosan’s most important district as tax
breaks accelerate construction in Nihonbashi.

“Buying Heiwa would open a door for them there and will
probably help boost their profit target in the long run,” said
Hideyuki Shinkai, a fund manager in Tokyo for Norinchukin Trust
Banking Co., which has $149 billion in assets. “Mitsubishi
Estate is probably aiming for participation in redevelopment of
the area around the Tokyo Stock Exchange as an international
financial center by entering Mitsui Fudosan’s territory.”

‘The Time Being’

Mitsubishi Estate’s Sugiyama said in an interview on June
22 that the company doesn’t have a plan to boost the stake,
“for the time being.” Company spokesman Ryuichiro Funo said
the stance toward Heiwa has not changed since then.

Naoto Kato, a spokesman for Heiwa, said there is no plan
for Mitsubishi Estate to raise its stake.

“We are not in the position to comment on a plan by
Mitsubishi Estate and Heiwa,” said Hideaki Yamakawa, a
spokesman at Mitsui Fudosan. The company, along with Mitsubishi
Estate and Heiwa, is based in Tokyo.

Mitsubishi Estate, Japan’s second-biggest real estate
company by sales, forecast in May that profits will drop 14
percent in the fiscal year ending in March as demand for office
space and new homes weakens after Japan’s biggest earthquake on
March 11 spurred the worst nuclear disaster since Chernobyl 25
years ago. By market capitalization, Mitsubishi Estate is
Japan’s largest developer, with a value of 2.01 trillion yen
($25 billion). Mitsui Fudosan is valued at 1.27 trillion yen.

Office Rents

Mitsubishi Estate fell short of its three-year profit
target in the year ended in March, after the global credit
crisis halted a recovery in Japan’s real estate market. It
posted net income of 64 billion yen last fiscal year, about half
of the 115 billion-yen goal it had set in 2008.

The company still announced plans last month to invest
about 600 billion yen over the next three years, 53 percent more
than the previous three-year period, to redevelop buildings in
central Tokyo in anticipation of a recovery in rents. About half
of the funds will be spent outside the Marunouchi area.

Tokyo’s office vacancy rate fell to 8.88 percent in May,
after reaching a record of 9.19 percent in March, while rents in
the city’s five main business districts slid to an all-time low
in May, according to Miki Shoji Co., a privately held office
brokerage company.

Mitsubishi Estate is still aiming to double operating
profit for its residential business to 26 billion yen by the
year ending March 2014.

‘Difficult to Neglect’

“Without purchasing a company, I don’t think the company
can achieve double profit growth,” said Masahiro Mochizuki, a
Tokyo-based analyst at Credit Suisse Group AG who has a
“neutral” rating on Mitsubishi Estate. “It’s difficult to
neglect the possibility that it may acquire Heiwa.”

Mitsubishi Estate’s largest deal outside Japan was a $1.4
billion investment in the owner of Manhattan’s Rockefeller
Center two decades ago.

The move was part of a buying spree by Japanese investors
that included California’s Pebble Beach golf course and Vincent Van Gogh’s Sunflowers painting as the Nikkei 225 (NKY) Stock Average
reached a record close of 38,915.87 in December 1989. Many of
the purchases were later sold at a fraction of their cost as the
country’s asset bubble burst.

Rockefeller Group

Mitsubishi Estate purchased 80 percent of The Rockefeller
Group in three stages in 1990 and 1991. It lost Rockefeller
Center to creditors in 1996 and booked 150 billion yen in losses
and writedowns, according to the company. Mitsubishi Estate
bought the remaining 20 percent of Rockefeller Group, which
invests in and manages commercial real-estate, in 1997.

Now, Mitsubishi Estate’s 53 billion yen ($656 million)
acquisition of Towa Real Estate Development Co. could serve as a
guide for future deals, Sugiyama said in the June 22 interview.
The developer first announced the partnership with Towa in 2004,
buying one-third of the Tokyo-based company three months later.
It increased its ownership to 100 percent by April 2009.

The acquisition of Towa, which develops apartments in
western Japan, enabled Mitsubishi Estate to sell apartments in
areas where it didn’t have a strong presence, Sugiyama said.

“We would like to look at deals that will boost business
feasibility,” said Sugiyama, 62, citing Towa as an example.

Mitsubishi Estate bought its Heiwa stake in a deal that
closed on March 7. The magnitude-9 earthquake four days later
and crisis at the Fukushima nuclear plant sent the Nikkei
average down 18 percent in three days through March 15.

Stock Market Slump

Heiwa has lost 22 percent to 178 yen since the earthquake,
double Mitsubishi Estate’s 11 percent drop to 1,447 yen and
about five times the 4.5 percent retreat in the Nikkei. That
means Mitsubishi Estate could buy the rest of Heiwa for 23
percent less than the 230 yen it paid for the March stake,
excluding a possible premium, data compiled by Bloomberg show.

Heiwa currently trades at the cheapest valuation relative
to net assets of the 22 Japanese real estate developers with a
market value greater than $250 million, data compiled by
Bloomberg show. Heiwa, with a market capitalization of $441
million, trades at 0.49 times book value, or assets minus
liabilities. That compares with a median multiple for the group
of 0.98. Mitsubishi Estate fetches 1.67 times, and Mitsui
Fudosan 1.24 times, the data show.

The quality of office buildings Heiwa controls and lower
sales for the Tokyo Stock Exchange may account for Heiwa’s
cheaper valuations, according to Satoshi Yuzaki, a Tokyo-based
analyst at Takagi Securities Co. Revenue for the TSE, Heiwa’s
main tenant, may be curbed by a weaker stock market, he said.

Operating Margins

Still, Heiwa has generated more operating income per dollar
of sales than Mitsubishi Estate and Mitsui Fudosan. Heiwa’s
operating margin almost doubled to 28 percent last fiscal year,
compared with 16 percent for Mitsubishi Estate and Mitsui
Fudosan’s 8.6 percent, data compiled by Bloomberg show.

An acquisition of Heiwa would intensify a century-old
competition between Mitsubishi Estate and Mitsui Fudosan, which
are each part of two of Japan’s largest so-called keiretsu, or
groups of companies that often share business relationships and
own shares in each other.

About 43 percent of the floor space Mitsui Fudosan holds in
central Tokyo is in the ward that includes Nihonbashi, according
to the company. Besides the TSE, the area is home to one of the
flagship stores of Isetan Mitsukoshi Holdings Ltd., Japan’s
biggest department store operator, and the headquarters of
Nomura Holdings Inc., Japan’s largest brokerage.

Edo Period

The revival of Nihonbashi, which includes plans to bury a
highway and resurrect a river-cruise route that hasn’t been used
since the Edo era, could boost the area’s economy by as much as
3.1 trillion yen through higher property values and revenue
generated by more visitors, according to Nihonbashi Michikaigi,
a group of academics that advocates for the redevelopment.

Fueling the development are tax breaks on property
acquisitions as well as financial assistance offered by the
government for specific zones including Nihonbashi. The latest
of these were established on June 22 by Japan’s Cabinet Office.

Office rents in Marunouchi are still the highest in Japan
at 24,200 yen per tsubo, according to Los Angeles-based CB
Richard Ellis Group Inc. (CBG) One tsubo, a measure of property area
in Japan, is 3.3 square meters, or 35.5 square feet.

“Mitsubishi Estate continues to create an entire portfolio
of relatively new buildings in Marunouchi, but they also know
that pretty soon there are going to be much younger crop of
buildings in Nihonbashi,” said James Fink, senior managing
director at Colliers International in Tokyo. “They will want to
have some participation in that.”

To contact the reporters on this story:
Kathleen Chu in Tokyo at
kchu2@bloomberg.net;
Katsuyo Kuwako in Tokyo at
kkuwako@bloomberg.net

To contact the editors responsible for this story:
Daniel Hauck at dhauck1@bloomberg.net;
Katherine Snyder at ksnyder@bloomberg.net;
Andreea Papuc at apapuc1@bloomberg.net.

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NEW YORK CITY-A strike that would have jeopardized $10 billion in New York City unionized construction was averted late Thursday night. As the dust settles, many parties tell GlobeSt.com that they’re waiting to see exactly what work rule concessions were included in the deal.

Operating Engineers Locals 14 and 15 reached the deal in the run-up to the June 30 expiration of their contracts. Hope Cohen, co-author of a Regional Plan Association report critical of non-productive construction work rules, tells GlobeSt.com that she is surprised that a deal was reached by the deadline. Like others involved, she’s waiting to hear the specifics concerning work rule concessions.

“Everything I had heard indicated that they were not going to settle by the deadline,” Cohen says. “What I’m hearing, though in vague terms, is that there was significant progress on work rules in the mason tenders, the carpenters and the operating engineers.” Cohen’s RPA study found that the percentage of non-union work on New York City construction work had increased to 40%.

Richard Anderson, president of the New York Building Congress, says that he had heard an agreement had been reached and was waiting to hear the details.

“The real test of these settlements is twofold,” Anderson says. “The first is whether they will improve the competitiveness of the New York City construction market in the national and global environment and the second is whether they will have a positive impact on the growth of non-union activity in the City of New York.”

The work rules, in particular, have been a contentious issue in the negotiations toward a deal. At an RPA event last month, Steven Spinola, president of the Real Estate Board of New York, commented on the issue of non-productive construction workers. “Over a three year period, the estimate is that there is $100 million that will be spent on non-productive work–in effect, workers, who if it were up to the contractor would not be there,” Spinola said.

A strike could have halted work on several high-profile projects, including the redevelopment of the World Trade Center site. Cohen and others are awaiting the details of the agreement, which were not immediately available, but they remain hopeful that they will mean a positive change for the future.

“It’s going to take a while–it’s like turning the Titanic,” Cohen says. “But I think there is some hopefulness that the industry is evolving.”

Categories:

Northeast,
Development,
New York

Carl Gaines Carl Gaines, East Coast Editor for GlobeSt.com and Real Estate Forum, manages the coverage of commercial real estate along the east coast. His work has appeared in Crain’s New York Business, Utne Reader, the NYTimes.com’s the Local, the National Law Journal, the Village Voice and City Arts.

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