Green Buildings: Fewer Sick Days, Higher Rents

Environmentally-friendly construction practices have gotten a lot of hype over the past few years but do they really pay off as an investment? A new study found that tenants in green buildings experience increased productivity and fewer sick days. The research also found that that green buildings have lower vacancy rates and higher rents than non-green counterparts.

The study, conducted by the University of San Diego and commercial real estate broker CB Richard Ellis Group, found that tenants in green buildings such as the Behnisch Architekten-designed Unilever offices in Hamburg above are more productive based on two measures: the average number of tenant sick days and a productivity change. Respondents reported an average of 2.88 fewer sick days in their current green office versus their previous non-green office. About 55% of respondents indicated that employee productivity had improved.

Based on the average tenant salary, an office space of 250 square feet per worker and 250 workdays a year, the decrease in sick days translated into a net impact of nearly $5.00 per square foot per year. The increase in productivity translated into a net impact of about $20 per square foot. The study also showed that green buildings have 3.5% lower vacancy rates and 13% higher rental rates than the market.

The work was based on surveys of 154 buildings under CBRE’s management, totaling more than 51.6 million square feet and housing 3,000 tenants in ten markets across the U.S. The study defined a green building as those with LEED certification at any level or those that bear the EPA ENERGY STAR ® label.

Another report out in the past week concluded that constructing new green buildings or retrofitting existing structures with energy efficient air conditioning, solar panels and the like will support 7.9 million U.S. jobs and pump $554 billion into the American economy over the next four years. The study, by the U.S. Green Building Council and Booz Allen Hamilton, determined that green construction spending currently supports more than 2 million American jobs and generates more than $100 billion in gross domestic product and wages.

The economic impact of the total green construction market from 2000 to 2008, the study found, was $178 billion. It created or saved 2.4 million jobs and generated $123 billion in wages.

The U.S. Green Building Council certifies LEED buildings and obviously has an interest in the movement, but Rick Fedrizzi, chief exec of the group said something remarkably down to earth in releasing the report: “Our goal is for the phrase ‘green building’ to become obsolete, by making all building and retrofits green – and transforming every job in our industry into a green job.”

Can’t argue with that.

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Short Sales Higher, Prices Lower

Buyer traffic is strong, supply of homes for sale is low, and yet home prices continue to defy the usual formula, falling again in March. Prices usually rise as supply shrinks, but demand is still too low to make those historical “norms” compute, not to mention that the type of supply available is largely distressed.

Foreclosures and short sales (when the home is sold for less than the value of the mortgage) accounted for 47.7 percent of sales, in a three month running average measured by Campbell/Inside Mortgage Finance. That’s the 25th month in a row that distressed sales have topped 40 percent of the market.

“With nearly half of the market being distressed, we’re a long way from a return to a normal market,” said Thomas Popik, research director at Campbell Surveys. “Agents responding to our survey say that homeowners with well-maintained properties in good locations are very reluctant to list at today’s prices. That’s why inventory is low—and also why forced REO and short sales are such a big proportion of the remaining market.”

Home prices for non-distressed properties fell 5.7 percent in March year-over-year, according to the survey. Prices for “damaged” REO (bank-owned properties) fell 5.7 percent and for move-in ready REO fell 2.5 percent during the same period. The real sticker shock is in short sales. Prices of those homes fell 14.3 percent from March of 2011.

Short sales have been ramping up of late, as banks attempt to comply with the so-called “robo-signing” mortgage settlement. Those are part of the losses the banks are required to take in the $25 billion deal. Over the past six months, short sales have moved from 17.8 percent of all sales to 19.9 percent, according to the Campbell/IMF survey. They now represent the number one segment for distressed properties.

That share is likely to grow, as the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), last week announced it was directing the two mortgage giants to “develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.” It includes a requirement that mortgage servicers review and respond to short sale requests within thirty days.

Lengthy timelines have long been the biggest complaint in the short sale sector. Fannie Mae and Freddie Mac hold hundreds of thousands of distressed loans, and accelerating the process will surely move the numbers up quickly, although the rules don’t go into effect until June 1. The FHFA is requiring the two make final decisions on these sales within 60 days. Previously, short sales could take up to a year and even beyond, with buyers often dropping out in frustration.

“This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,” writes Jaret Seiberg, analyst at Guggenheim Partners. “That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.”

On the plus side, short sales tend to sell at higher prices than foreclosures. It appear, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise. The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.

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Higher Loan Limits for FHA, Amid Higher Risk?

Peter Gridley | Photographer's Choice | Getty Images

On the same day that independent auditors released a report showing the government mortgage insurer, the FHA, has even less cash reserves now than it did last year to cover potential losses, Congress is readying to vote on a measure that would increase the FHA's market share.

Lawmakers, under heavy pressure from housing lobbies, want to reinstate higher loan limits at the FHA, although not at mortgage giants Fannie Mae and Freddie Mac, which are currently under government conservatorship.

The loan limits fell from a maximum $729,750 to $625,000 on October first. This affected 600 US counties for FHA, but less than half of that for Fannie and Freddie. FHA is not a mortgage originator but an insurer. It is currently the only low down payment game in town, with a minimum 3.5 percent home buyer investment. It is therefore supposed to be a small share of the mortgage market, but given today's tight underwriting, it's about a third of the market.

Now the FHA's share could get even larger because it would have a hold on a small segment of the market from which Fannie and Freddie would be excluded. So how would that affect FHA's bottom line?

"This is a situation that has never occurred before where FHA has the higher limits and Fannie and Freddie would not," said acting FHA commissioner Carol Galante on a conference call this morning. It could increase FHA volume by ten percent, according to mortgage analyst Brian Chappelle at Potomac Partners.

"The higher limits will help improve FHA's finances. Every recent audit has said higher balance loans perform better than lower balance loans," says Chappelle. "If it wasn't for the FHA loans insured in 2009-2011 (including higher balance loans), FHA would already be needing taxpayer assistance."

But not everyone agrees. The highly influential, Tea Party-conservative Club for Growth slammed the Congressional action: "Including higher FHA loan limits on the heels of this [FHA] audit report is beyond ridiculous...One year ago, Americans sent a message that they wanted to end the subsidies and the bailouts that have crippled our economy. Raising the FHA loan limits again is a step in the exact opposite direction."

Joseph Gyourko, Professor of Real Estate Finance at the Wharton School, says the FHA is in line for a massive government bailout regardless. "Unless the economy makes a swift recovery, my research shows that FHA will need a massive taxpayer bailout--between $50 and $100 billion," he wrote in an article. He cites, among other things, the fact that FHA's low down payment requirement, in the midst of still-falling home prices, makes well over half of its insurance portfolio, based on mortgages taken out by borrowers with negative equity in their homes."

Gyourko argues that the FHA is undercapitalized for its risk and that it overestimates the value of its main insurance fund.

The FHA was originally supposed to help lower income borrowers with lower credit scores, but today it's mandate seems entirely different. Acting Director Galante even touted the fact that credit scores for FHA borrowers this year averaged over 700. FHA is no longer helping low income borrowers, it is supporting a tattered mortgage market that has tightened so dramatically to the point of excluding many credit-worthy borrowers. Now it is going to support even more higher cost markets? How exactly is that decreasing the government's role in the mortgage market?

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

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Green Buildings: Fewer Sick Days, Higher Rents

Environmentally-friendly construction practices have gotten a lot of hype over the past few years but do they really pay off as an investment? A new study found that tenants in green buildings experience increased productivity and fewer sick days. The research also found that that green buildings have lower vacancy rates and higher rents than non-green counterparts.

The study, conducted by the University of San Diego and commercial real estate broker CB Richard Ellis Group, found that tenants in green buildings such as the Behnisch Architekten-designed Unilever offices in Hamburg above are more productive based on two measures: the average number of tenant sick days and a productivity change. Respondents reported an average of 2.88 fewer sick days in their current green office versus their previous non-green office. About 55% of respondents indicated that employee productivity had improved.

Based on the average tenant salary, an office space of 250 square feet per worker and 250 workdays a year, the decrease in sick days translated into a net impact of nearly $5.00 per square foot per year. The increase in productivity translated into a net impact of about $20 per square foot. The study also showed that green buildings have 3.5% lower vacancy rates and 13% higher rental rates than the market.

The work was based on surveys of 154 buildings under CBRE’s management, totaling more than 51.6 million square feet and housing 3,000 tenants in ten markets across the U.S. The study defined a green building as those with LEED certification at any level or those that bear the EPA ENERGY STAR ® label.

Another report out in the past week concluded that constructing new green buildings or retrofitting existing structures with energy efficient air conditioning, solar panels and the like will support 7.9 million U.S. jobs and pump $554 billion into the American economy over the next four years. The study, by the U.S. Green Building Council and Booz Allen Hamilton, determined that green construction spending currently supports more than 2 million American jobs and generates more than $100 billion in gross domestic product and wages.

The economic impact of the total green construction market from 2000 to 2008, the study found, was $178 billion. It created or saved 2.4 million jobs and generated $123 billion in wages.

The U.S. Green Building Council certifies LEED buildings and obviously has an interest in the movement, but Rick Fedrizzi, chief exec of the group said something remarkably down to earth in releasing the report: “Our goal is for the phrase ‘green building’ to become obsolete, by making all building and retrofits green – and transforming every job in our industry into a green job.”

Can’t argue with that.

View the original article here