Trends: Hospitality, International Property and Debt Markets

We compacted two class discussions into yesterday’s discussion since we don’t have class on Fridays but do have writing assignments.

The full list of topics assigned for Friday and Monday were hospitality, travel, resorts, international property, debt markets, lending, financing, foreclosures, REOs and workouts.

We started off talking about all the resources available at the Texas Real Estate Center:

It’s worth checking out if you have any interest in Texas real estate.

We were also shown the Wall Street Journal’s real estate section.

From the prior class we started off with picking back up on affordable housing. One example we looked at was:

It’s a non-profit in Houston that’s building SROs – single room occupancy units. The rent is around $415 a month all bills paid. They are very small apartments but they’re renting out like hot cakes.

The most surprising feature we saw was that they do not allow couples, children or pets – only on person per unit. That doesn’t sound like what we typically think of when it comes to affordable housing but it probably makes production of additional inventory easier. There’s probably less management required and an endless supply of tenants that fit that demographic.

One conversation that we started what the ethics behind affordable and especially subsidized housing. My point was that if you’re just going to have the city pay the person’s rent, why not instead lower property taxes and cut out all the bureaucracy? The arguments went from improving schools (it doesn’t) to redeveloping blighted areas.

While we were advised that we were getting into policy issues rather than real estate per se, my argument for developers was whether you’d want to base your business model on government funding. No doubt the trend is that government funding is taking a larger role in just about everything but that can’t last forever. At some point we need producers instead of simply redistributors.

I see it as a win-win if you hone your business skills to survive without government support. That way you can thrive with government support and make it just fine when it runs out. There’s also a perverse loss of sense of things when you exclude normal market feedback such as supply and demand and price.

Take education for example which we also mentioned. When government funded education fails miserably, we think we need to give it more money. When a company (without inside political ties) fails, the capital is reallocated to something that’s more appropriate as evidenced by profitability. Without profitability we can’t know if anything the government does benefits the consumers more than what they would choose for themselves.

Then we got to hospitality. We watched a video on an ice hotel in Sweden. That’s not a trend but trying to be more unique is. Capsule hotels in airports seem to be catching on. I can guarantee you they beat sleeping in the waiting area which I’ve done before.

Other hotel/travel trends we discussed were couch surfing, house swapping, and hostels. We briefly touched on convention center and attraction hotels, kid free establishments and dog hotels.

Another big trend are all inclusive hotels and online pricing channels. Mobile is playing a big part not only in finding hotels but in check-in, ordering room service and even acting as keys.

We finished up talking about the debt markets. The big news yesterday was that the White House is working up a deal to sell off government REO in massive lots of 50-500 houses at a time to investors to be used as rentals. The big issue with that (policy ethics aside) is the management of those properties. It will be a massive undertaking to locally manage property that’s spread across the country.

We briefly talked about foreclosures and short sales. Of note was that last year foreclosures decreased. Not because the market was improving though. It was due to slow processing from “robo-signing” paperwork. That automation led to missing documents and fraudulent foreclosures. Servicers backed off until they could revamp the process and experts are anticipating foreclosures to increase again this year.

The situation some owners are finding themselves in is that their properties aren’t worth the remaining value of the mortgage. It’s becoming more popular to simply walk away from the house and let the bank take it back. That’s called “strategic default” and it’s on the rise. Thirty percent of foreclosures were strategic defaults in 2011 up from 22% in 2010. That trend will probably increase this year too as property values across the US decreased by 7.5% in the third quarter last year.

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