Fall - Winter 2010 News

Smeal Team Takes Second Place in Cornell Real Estate Competition

exn119 — 2011-04-04T17:45:00Z

UNIVERSITY PARK, PA (December 2, 2010) – A team of Smeal College of Business undergraduate students finished in second place in the second annual Cornell Real Estate Case Competition, held Nov. 10-11 in New York.
Smeal’s team, Prestige Worldwide, LLC, took home $3,000 as the runner up, narrowly missing out on first place to a team from New York University. Teams from Cornell University, Guelph University, Indiana University, the University of Connecticut, and the University of Texas at Austin also took part in the competition, which was held at TIAA-CREF corporate headquarters in Manhattan.

After receiving the case, which was based on four actual commercial real estate transactions, each team had about four days to complete their analysis, create an investment strategy, and craft a PowerPoint presentation. They had 20 minutes to present their analysis to a panel of judges comprised of senior real estate professionals.
Following each presentation, team members answered questions from the judges for approximately another 20 minutes. The teams were judged on their investment recommendations, approach to the problem, and presentation skills, in addition to their ability to answer and respond to the judges’ questions.
Each member of the Smeal team was selected from the college’s real estate case studies course (R EST 497) led by Richard Button, assistant director of the Institute for Real Estate Studies, who served as the team’s faculty adviser. The team consisted of Greg Hiban, Andrew MacDonald, Adam Michalski, Corinne Penksa, Dan Sonnentag, and Joe Stunja.

For more information on the competition, including a complete list of the distinguished panel of judges and sponsors, visit www.hotelschool.cornell.edu/industry/centers/cref/education/competition.

Are you on LinkedIn?

exn119 — 2011-04-04T17:45:00Z

Have you joined the Penn State Real Estate Group?

If not, join today to connect with Penn State Alums in the real estate industry!

Penn State Real Estate Group Link: http://www.linkedin.com/groups?gid=143434

Also, the IRES has compiled a resume portfolio of students interested in real estate seeking internship and full time opportunities. If you would like a copy to review please contact Richard Button at rjb366@psu.edu

Featured Board Member – David Welsh

exn119 — 2011-04-04T17:45:00Z

David Welsh is a managing principal and founder of Normandy Real Estate Partners in Morristown, N.J. Prior to forming Normandy in 2002, David worked at Morgan Stanley where he managed U.S. debt financing activities for the Morgan Stanley Real Estate Funds (MSREF). Prior to Morgan Stanley, David directed acquisitions for Gale & Wentworth, a nationally recognized investment and development firm that assembled a multi-billion dollar property portfolio.

David has more than fourteen years of expertise in the real estate industry, including overseeing all aspects of corporate operations and management, acquisitions, development, financing, and asset management. He is a Phi Beta Kappa graduate of Penn State and earned a master’s degree in Real Estate Finance from New York University, where he was also an adjunct professor. He devotes time to a number of professional and civic activities, including service on the board of managers for Family Service of Morris County.

Featured Student – Corinne Penksa, ‘11

admin — 2011-04-04T17:45:00Z

Corinne Penksa is currently pursuing a Bachelor of Science degree in Finance at the Pennsylvania State University’s Smeal College of Business with a minor in Psychology.

She has concentrated her studies and involvement in real estate related courses and activities. In 2009, Penksa became a member of the Penn State Student Chapter of the National Association of Home Builders (NAHB), an on campus organization that allows students from engineering and business backgrounds to learn about the residential construction industry. She is currently the chapter’s Vice President and served as Project Manager for the Residential Construction Management Competition Team, which the chapter participates in annually. The competition allows students the opportunity to apply skills learned in the classroom to a real construction project by completing a management proposal. Penksa has participated in the competition for two years. In her first year, she analyzed the financial feasibility of an 88 home residential subdivision located in Corsicana, Texas. This past fall, she conducted a market analysis in order to determine the feasibility of a design center for an “On-Your-Lot Homebuilder” in Hamptonville, North Carolina. In addition to producing a proposal book, the team presented their plan to a group of industry professionals at the International Builders Show in Orlando, Florida in January 2011.

Other competitions Penksa has participated in include commercial based projects such as Villanova’s Real Estate Case Competition held in April 2010 as well as the above referenced Cornell’s Case Competition held in November 2010.

Penksa is presently working for the Institute for Real Estate Studies as an Intern and is responsible for quarterly newsletters and supporting alumni relations. During the summer of 2010, she held an internship with Deloitte Consulting, LLP and in the summer prior, worked at a golf & country club near her hometown in central New Jersey. Upon graduation in May, Penksa has accepted a position in the Real Estate Business Advisory Services Practice at PricewaterhouseCoopers in New York City.

The Second Annual Real Estate Tailgate

admin — 2011-04-04T17:45:00Z

The Institute for Real Estate Studies second annual Real Estate Tailgate was held on October 30, 2010 following the IRES Advisory Board Meeting. The event allowed board members, Penn State Alumni in the real estate industry, and students to network and celebrate the Michigan game together!

Wall Street Journal: Ten reasons to buy a home

admin — 2011-04-04T17:45:00Z

The Wall Street Journal watched Time Magazine go from a June 2005 cover (“Home $weet Home”) asking “Will your house make you rich?” to the recent cover story, “Rethinking Homeownership.”
But the Journal came up with ten reasons why it’s good to buy a home now or in the near future. Let’s look at a few of the arguments:

Now is a good time to make a deal. “This is a buyer’s market.” No one can predict the future (at least not well enough to predict the turning points of markets) but the argument here is that in the long run, it is not necessary to buy at the very bottom of the market. Note, however, that with so many houses available and a weak economy, prices are not likely to rise for some time. Thus, the deal should focus on housing as a consumption decision for years to come.

Mortgage money is cheap. Yes it is, since inflation is nowhere in sight (not yet at least). Be reassured that the option to repay at fixed rates for the life of your loan is probably cheaper now than ever (this option is built into your fixed rate mortgage rate). Inevitably mortgage rates will rise in the future, although it is unclear when — but whenever it is, you will be covered.

An owner is likely to treat a house differently than a tenant (or even a landlord). Not only does homeownership give owners a bigger bundle of rights compared with tenancies, owners are also likely to treat the asset as their own.
Amortizing a fixed-rate mortgage enables wealth to be accumulated by the household sector, even if it is a slow process. This “forced savings” enabled generations of homeowners to build equity with loan repayments. If one is able to service the debt with household income, over time these repayments will mean accumulated household wealth. Note, however, this is different than saying that equity build-up in the reason to buy. Since the amortization portion of the payment is the owner’s own money, this is merely a savings plan.

The Wall Street Journal believes that sooner or later, demographics, inventory adjustments and economic growth will get the American housing market back to equilibrium in the years ahead. This is especially likely if one lives outside the hardest hit markets. As long as one does not expect high rates of appreciation in the future, things might work out just fine for new home buyers.

There is a strong case for acquiring real property to live in now, even as the post-bubble market continues. Note that the financial myths about homeownership are largely absent in these arguments. We need not appeal to these tales of fame and fortune in order to restore interest in housing. Buying a home will remain an important decision for many households in future years for several rational reasons. No doubt the concept of the transaction will be different but markets will remain viable and active, enabling individuals, couples and families to consume elaborate packages of housing services superior to those anywhere else in the world..

Posted By Austin Jaffe, Ph.D. On November 24, 2010 in the Economics Blog at parjustlisted.com

The Foreclosure Crisis

admin — 2011-04-04T17:45:00Z

February 3rd, 2011

The U.S. housing market bubble burst in the latter half of 2007 and three years later, the housing industry is still recovering. Lenders across the country are foreclosing on mortgaged homes and according to Brent Ambrose, Smeal Professor of Real Estate and director of the Institute for Real Estate Studies, it’s going to take a long time to get ourselves out of this mess.

“In order to stabilize the housing market, we need to work through the mortgage foreclosure process as quickly as possible to get the houses out from the banks, let them clear, and let the market set the price,” he says.

He and his coauthors Sumit Agarwal of the Federal Reserve Bank of Chicago, Souphala Chomsisengphet of the Office of the Comptroller of the Currency, and Anthony Sanders of George Mason University, are exploring the crisis on a micro-level.

They examine whether negative spillover effects from subprime mortgage originations result in higher default rates in the surrounding area.

Their study, “Thy Neighbor’s Mortgage: Does Living in a Subprime Neighborhood Affect One’s Probability of Default,” forthcoming in Real Estate Economics, takes this notion into account and analyzes the local housing market in Arizona’s Maricopa County. With Phoenix being one of the epicenters of the subprime crisis, Maricopa County was natural setting for the study.

A Cascade Effect

Ambrose and his coauthors note that there was an increase in the use of alternative, or hybrid, mortgages around the same time the housing bubble burst. These mortgages were given to people will low credit histories and because of it, became known as subprime mortgages.

They observed that subprime mortgages tend to be clustered in metropolitan areas where there was also an increase in home prices.

This clustering led them to think that there may be a cascade effect in the neighborhoods with high rates of foreclosures, assuming that a foreclosure sale acts as a public signal of a declining property market.

“One homeowner’s decision to default may start a default cascade by causing the remaining homeowners to reevaluate their property values downward,” they write.

But after controlling for individual borrower risk characteristics and foreclosures in the area, the researchers find that the concentration of subprime lending in the neighborhood does not increase the risk of borrower default. In fact, they found the opposite.

However, they find that higher concentrations of the more aggressive mortgage products, like hybrid-ARMS (adjustable-rate mortgages) and no- or low-documentation loans, did increase the probability of borrower default.

Ambrose explains that a popular hybrid-ARM is the 2/28, which is what led to many defaults. The 2/28 is a two-year fixed-rate mortgage that converts to an adjustable-rate mortgage for the next 28 years. When the payment resets after two years, it is known as payment shock.

“When the payment shock hit, the borrowers couldn’t make the new payments,” says Ambrose. “Couple that with a decline in house prices and the fact that they didn’t show documentation of any income to support the payments to begin with, you have a recipe for a problem.”

He hopes the findings are going to help policy-makers identify whether or not there needs to be more regulation in the market.

“You don’t want to make blanket rules and say no subprime loans because they have helped people get homes. Some of these people are still making their mortgage payments,” says Ambrose, who adds that the no-documentation loans or the interest-only, no-documentation loans are really damaging. “Now we can target regulations toward the really bad products.”

Ambrose admits that we have a long way to go to get things back on track.

“We’re in for an extended period of very low to negative price appreciation in housing,” he says. “We have to let the market take its course and set prices. As long as we’re intervening through policies that are trying to keep prices propped up, it’s just going to prolong the agony.”

- Brent Ambrose

Are you on LinkedIn?

exn119 — 2011-04-04T17:45:00Z

Have you joined the Penn State Real Estate Group?

If not, join today to connect with Penn State Alums in the real estate industry!

Penn State Real Estate Group Link: http://www.linkedin.com/groups?gid=143434