August 08 CIAA Newsletter

8/14/2019 August 08 CIAA Newsletter

1/15

An Affiliate Of

OurProfit is

YourSuccessAugust 2008

Upcoming Events

General Membership

Meeting

Wednesday - August 13th

Airport Holiday Inn

How to Succeed at Business

and Still Have a Life

Registration Attached

Vendor Council

Date TBD

Chicken Coop, WDM

Trade Show

Luau at the Pool

October 23

Airport Holiday Inn

Winter Social

and

Maintenance

Olympics

December 10th

Airport Holiday Inn

Committee Updates

2008 CIAA Board Members

Letter from the President

June Meeting Highlights

New Members

Promotions, Positions, and

Postings

Vendor Spotlight - Tub Wrx

Vendor Listings

Golf Outing Pics

August Meeting Registration

NAA Connect

NAA Special Reports

Trade Show Preview

Inside Your Newsletter:

2nd Annual Golf Outing

The second annual CIAA Golf Tournament was held on Friday, July11. To the delight of themembers that participated and the vendors who sponsored the event, it was a huge success.There were 100 golfers, allowing Toad Valley Golf Course to shut down the course andmake it a private affair for our members. Over 25 vendors sponsored the event in some wayby either sponsoring golfers, hole sponsorships, beverage donations or just plain volunteer-ing their time.

The outing started at 12 noon and kept golfers amused and on their toes as they played thecourse. Unforgettable holes are not limited to, but certainly worth mentioning were: the drivethrough tunnel tent with Glen Waterhouse from State Farm, the big screen TV, music, videosand Lemonade served by ICS Advanced Technologies, and the Ring Toss game and hospi-tality at hole number one, hosted by the gals from Reliable Construction.

There were over 35 giveaways including $400.00 cashola from Stew Hansens. Cash prizeswere awarded to the top foursome in three flights. Top Prize went to the Stew Hansen teamanchored by Jeff Crawford. Curious though if all the tee-offs from the Dixie cup counted?Brad Janssen from AQ Pest managed a hole-in-one; unfortunately it wasnt on 16, so the newcar prize donated by Stew Hansens will have to wait yet another year.

Dinner was awesome with steaks done to perfection.

On behalf of Tom Newton and Mary Spain, Vendor Council co-chairs, thanks to everyonethat made this an awesome day. Special thanks to Furniture Options and AQ Allstate PestControl for managing the registration desk and raffle. Other vendor sponsors not already

mentioned include:

Apartment Finder, Dewitt Painting, Cort Furniture Rental , A+ Lawn and Landscaping, FirstAdvantage SafeRent, Gorman Roofing, Qwest, Sudzys Carpet Care, TubWrx, On The SpotCarpet Care, Des Moines Register/Apartments.com, Jetz Services, Stitzell Electric, Sherwin

Williams, and RealPage.

We look forward to the event next year.


2/15

Committee Announcements

Legislative Committee

Page 2

PresidentRick Koontz, Signature Place

Past PresidentMelissa Johnson, Olde English Village

Vice PresidentJennifer OBrien Konior, TAB Properties

TreasurerLori Young, BH Management

SecretaryHeather Benton, Bridlewood Apartments

Vendor Council Co-ChairsTom Newton, Gorman RoofingMary Spain, Apartment Finder

Education Committee Chair

Mary Spain, Apartment Finder

Legislative Committee Chair

Rick Koontz, Signature Place

Membership Committee ChairPosition currently vacant

Public Relations Committee Chair

Jennifer OBrien Konior, TAB Properties

Trade Show Committee Chair

Meredith Goodwin, Triple Crown

A positive attitude

may not solve all

your problems,

but it will annoy

enough people to

make it worth the

effort.

2008 Board Members and Committees

Vendor Council

Website: www.ciaahq.org

We will begin planning the Trade Show at the next Vendor Council meeting. Watch your email for the date

and please plan on attending this very important meeting.

Vendor Trade Show ~ October 23rd ~ Airport Holiday Inn

Winter Social and Maintenance Olympics ~ December 10th ~ Airport Holiday Inn

This issue contains two special reports from NAA. The first report outlines how the recently passed hous-

ing bill is a victory for the apartment sector. The second, Selected Economic Impacts on the Multifamily

Housing Industry, deals with current issues affecting our industry such as the housing market slump andsubprime mortgage crisis among other factors. It was authored by Scot Haislip, NAA State and Local Pol-

icy Advisor, Scot addressed the CIAA membership at a meeting earlier this year. Be sure to check out

these enlightening reports!

Membership CommitteeDo you know a vendor or property that may be interested in joining the CIAA? We have prepared a welcome packet

that explains the benefits of CIAA and NAA membership. Contact any member of the Board of Directors if you are

interested in obtaining these materials to share with a non-member. All board members have committed to help in-

crease our membership and will gladly visit a community to present this information.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


3/15

Its a cruel, cruel summer

Well, perhaps not this one. Were finally starting to see the positive effects of the housing crisisin the rental market; a more level paying field if you will. Occupancy is up, concessions are down.

The soft rental market lasted so long that many professionals in our industry have settled into always hav-ing specials and offering concessions to keep occupancy up. Now is the time to really test your teeth bygetting rid of those concessions and specials and increasing your rents. I recently spoke to an independentowner who told me he had a long wait list for his houses. After some discussion, he concluded that he hasbeen keeping his rents low and now needs to raise them. In doing so he will be able to make necessary im-provements to assure the health of his investments. Weve had a rough ride for many years , but appearing,albeit slowly, is a light on the horizon. Our market seems stable compared to others across the country.Now may be the time to become a little more aggressive. Slow growth is the safest growth. Dont jumptoo hard, but dont hold back on the possibility of growing your own economy.

Believe in your product , believe in your people, and believe in your talent.

To quote Ralph Waldo Emerson - Do not go where the path may lead, go instead where there is no pathand leave a trail.

Happy Trails,

Rick Koontz, CIAA President

Signature Place Apartments

Page 3

Letter from the President

June General Membership Meeting

Over 80 members were in attendance to hear Scott Moore discuss Fair Housing from a different point ofview.

Scott enlightened us with cases regarding Fair Housing violations and how they can and should be de-

fended. Testing isnt always equitable and before caving to pressures from agencies regarding alleged vio-

lations, make sure your documentation is in order. Discrimination in any form is simply wrong, but many

companies have been wrongly accused and have been proven completely innocent. Although discrimina-

tion does occur, it is not prevalent. Making sure your employees are formally trained in Fair Housing laws

will protect you and your company against unfair and unfounded accusations. CIAA offers accredited Fair

Housing training; you can contact Mary Spain for more information on classes.

Scott is available for consultation on Fair Housing violations. His contact information is as follows:

Scott P. Moore, Baird Holm LLP, 1500 Woodmen Tower, Omaha, Nebraska 68102

Email: [email protected] 402.636.8268 Direct Dial Phone 402.344.0588 Direct Dial Fax

Make the most of your membershipJoin a Committee!


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Page 4 Email: [email protected]

Welcome New Members

Welcome to our new Members and Vendor Members. It is a honor to have you

join our growing organization.

New Vendor Members Shelton Painting

Hard Tops of Des Moines

New Property Members Metro Realty Advisors

Artisan Services, LLC

Promotions, Positions and Postings

Please send new hires, promotions, and job postings to [email protected] for inclusion in the newsletter

Knapp Properties welcomes back Janie Rich-

mond who is managing Brookside Condos, and

Pete Marks who is managing Park West I & II.

Sue Yates, currently managing Diamond Brooke

and Ashworth Apartments is now also managing

Woodland Place.

Doug Robison ofThe Peterson Companies has

earned the NATE certification from North Ameri-

can Technical Excellence for HVAC systems.

Congratulations Doug!

Michelle Maher joined Furniture Options inJune. If you were at the golf outing, you probably

met Michelle at the registration table. Michelle is

new to the apartment industry and the furniture

rental business, but she carries an extensive cus-

tomer service background. Please join Furniture

Options in welcoming Michelle aboard when you

see her visiting your properties.

TAB Properties would like to congratulate the fol-

lowing employees on their recent promotions:

Jenna Taylor and Melissa Bishop are now District

Managers, leading the leasing and management

teams for our properties in the Des Moines area.

Tom Birnbaumer and Denny Messenger are now

Maintenance Supervisors for the Des Moines prop-

erties. And last but certainly not least, Don

Stephens is our Maintenance Manager over allmaintenance activities in IA, NE and SD for TAB.

Huge congrats to everyone!

TAB Properties welcomes Missy Rude, Jessica

Jones and Nicole Gering as leasing consultants in

Des Moines.

Work (wrk):Employment, as in

some form of

industry, esp. as a

means of earning

ones livelihood

GROUNDSKEEPER

West Des Moines

The Peterson Companies are cur-rently hiring for a Groundskeeperfor their West Des Moines loca-tions. Apply in person at OldeEnglish Village, 1201 Office ParkRoad, West Des Moines.


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Page 5

Vendor SpotlightTubWrx

TubWrx specializes in bathtub resurfacing. Resurfacing a tub can cost as little as 20% of replacement. The coatings and tech-nology they use are the most advanced in the industry. While resurfacing has been done for decades, advancements in the last

few years have increased both the look and durability over older technologies.As a tub gets older, protective coatings wear off and pores are exposed, making the tub difficult to clean and dirty-looking. Infact, the harder you scrub, the more protective coating wears off. Our exclusive resin process fills in those pores, causing the

dirt to sit on the surface rather than in pores, making it simple to clean with a non-abrasive cleaner.

The biggest reason our customers come to us is to improve the look of their rentals. Since the cost of resurfacing is a fraction ofreplacement, you can typically resurface 5 tubs for the price of a single replace-

ment. And dont worry - scratches, nicks, dents and holes can all be repaired!

Most jobs can be done in less than a day; we typically reglaze two tubs in a day.

Give Rocky Sposato a call today!

TubWrx Office: 515.232.4453

2432 SW 9th Fax: 515.244.7661Des Moines, IA 50320 Email: [email protected]

Need a Vendor? Call a Member First!

A+ Lawn & Landscape

A.Q. Allstate Pest Control

American Family Insurance

Jared Frank Agency

Apartment Finder

Big Green Umbrella Media

Bragg Handywork

Carpet Pro by Baker Interi-

ors

Cort Furniture Rental

The Des Moines Register

DeWitt Painting

Diamond Vogel Paints

First Advantage SafeRent Furniture Options

Gallon, Inc.

Goalsetter Systems, Inc.

Gorman Roofing Services

Hard Tops of Des Moines

ICS Advanced Technologies

Jetz Service Co.

Johnstone Supply

Lawns Plus

Marsden Building Maintenance

Nationwide Office Care

On the Spot Carpet & Tile

Performance Leasing

Phillips Floors

Qwest

RealPage, Inc.

Reliable Construction

Shelton Painting

Sherwin Williams

Snider Lawn Care

State Farm Insurance

Glen Waterhouse III

Stew Hansens Dodge City-Jeep

Stitzell Electric Supply Co.

Sudzys Carpet Cleaning

Tenant Data

Tub Wrx

Waste Connections

Waste Management

All Vendor Member contactinformation can be found on

the CIAA website:

www.ciaahq.orgTo Become A Vendor Member Contact:

Tom Newton at 515-883-0838 [email protected]

If you would like featured in our Vendor Spotlight contact:

Rick Koontz at 515-226-2100 [email protected]

Tub Repair and Refinishing
http://www.ciaahq.org/mailto:[email protected]:[email protected]:[email protected]:[email protected]://www.ciaahq.org/


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Page 6

Golf Outing Fun


7/15

Registration Form:

Name: Name:

Name: Name:

Company / Property Name:

Address: City: Zip

Phone: Fax: Email:

Fax your reservations to Mary Spain at (515) 327-9104

No later than 12:00 pm on Monday, August 11th

Membership Meeting Registration

August 13th, 12 NoonAirport Holiday Inn, Fleur Drive

Cost: $17.75 for buffet lunch - Fajita BarLunch includes fajitas, rice, beans, chips & salsa, and churros

Bring checks payable to CIAA or exact change

This month we will be presenting an audio/slide showpresentation from the 2008 NAA Education Conference:

How to Succeed at Business and Still Have a LifeSpeaker: Larry Mersereau

Brace yourself for a swift kick in the cants! Yeah, its one dog-eat-dog world out there. But somebodysgoing to get ahead, and it might as well be you. In this session you will:

Apply Larrys Three Dimensions of Success to any and all endeavors: Projects, Marketing Programs,Exercise Programs, Career Growth, Familyits a simple outline to help you accomplish more, nomatter what youre after.

Identify key success factors for your career and life. There are always a few things that, if you dothem right, will make everything else fall into place. Youll be able to spot them and use them toyour advantage from now on.

Define what motivates people: Renters, employees, coworkers, familyyourself and how to getmaximum performance in any situation.

PLEASE REGISTER EARLY TO ASSURE ENOUGH SEATING FOR EVERYONE


8/15

GRIGIO Tempe Town Lake, by Gray

Development Group, received the2008 NAA PARAGON Award for

Community of the Year during a

ceremony June 28 in Orlando, Fla.

The luxury community in Tempe, Ariz.,

grabbed the top honors. It also was named

Best Mid/High Rise Community, Post 2000

Over 150 Units.

In recognition of the multifamily hous-

ing industrys top executives, employees,

affiliate programs and communities, NAAs

presented its annual PARAGON Awards

during the NAA Education Conference & Exposition held June 26-28at the Gaylord Palms Resort & Convention Center in Orlando, Fla.

GRIGIO Tempe Town Lake embodies a new luxury lifestyle expe-

rience known as contemporary living, inspired by the five-star

service of the worlds most celebrated resorts. GRIGIO, which means

gray in Italian, consists of 523 residential suites in five buildings

with climate-controlled interior corridors, located on eight acres of

lakefront property.

Greater details about each winner and the Community of the

Year will appear in the September 2008 issue ofunits magazine. I

encourage you to check the NAA Web site for details on how to enter

the 2009 PARAGON Awards competition.

The NEW www.naahq.orgIts official. NAA has launched the redesigned member Web site

at www.naahq.org. With the help of NAA members, affiliate associa-

tion staff and volunteer leadership, NAA was able to determine what

information its members sought the most. After compiling results

from a member satisfaction survey, assembling a Web site working

group and soliciting members feedback via a Web usability survey,

NAA now proudly presents the industrys most comprehensive apart-

ment industry Web site.

Top 10 Reasons to Visit the NEW www.naahq.org

1. A New Look. The site has received a facelift! After some

pinching, pulling, lifting and tweaking, we are looking sleeker,

more colorful and more attractive overall. This improvement ismore than skin deepthe new site is easier to navigate, friendlier

to operate and full of cool new features.

2. Enhanced Search. Type a keyword into our new search

engine and get accurate, relevant results in seconds. Find units arti-

cles, government issues updates, e-newsletter archives, economic data,

NAA program information and moreall at the touch of a button.

3. Affiliate Web Site Links. Cant find it on our site? The

search box allows you to perform a search of NAA Affiliates Web sites

to expand your results and find exactly what you are looking for.

4. Tremendous Content. The new www.naahq.org features

more than 400 units magazine articles, 250 timely and relevant

government affairs issues, NAA Education Institute designationinformation and enrollment, career opportunities, online registra-

tions for all NAA events and so much more.

5. MemberExchange. Share your best practices, marketing

material examples and other documents with other members.

6. IROExchange. Share best practices, marketing material

examples and other documents with other independent rental

owners.

7. Alerts. Sign up to receive notification in your e-mail inbox

that new content has just been added to the Web site, the moment it

is posted!

8. RSS Feeds. Dont want more e-mails in your inbox? These

feeds allow you to see the newly added content at a glance, in one

place and on your own time.

9. Article Rating and Feedback. Let other membersand

NAAknow what you think of our information. Post comments

about any articles on the site and give them ratings, up to five stars

10. Log-In Help. Need help logging in? Your NAA User ID can

be found in the upper left corner of yourunits magazine address

label. Retrieve your password online, or contact NAA directly at

[email protected].

Web Editors Note: Each month in units magazine,

greater details will be provided on these and other features or

enhancements on the new www.naahq.org.

ConnectWith NAA

GRIGIO Tempe Town Lake

Named PARAGON Awards Community of the YearB y M i c h a e l T o m p k i n s , C A P S , C P M , C C I M

2 0 0 8 N a t i o n a l A p a r t m e n t A s s o c i a t i o n C h a i r m a n o f t h e B o a r d

J u l i a n L e C r a w & C o .


9/15

HOUSING BILL REPRESENTS VICTORY FOR APARTMENT SECTOR

The housing bill passed by Congress and signed into law by President Bush represents a tremendous victory forthe apartment industry and NAA/NMHCs Government Affairs program. The bill has been one of our top prioritiesthis year, and we are happy to report that as a result of our aggressive multi-month campaign, the final legislationrepresents a balanced approach to housing policy and includes several important victories for the apartmentindustry.

Homeownership Incentives TrimmedMost importantly, NAA/NMHC successfully convinced lawmakers to significantly trim a number of homeownershipincentives included in earlier versions of the legislation. Even where the bill does create new homeownershipincentives, such as a one-year standard deduction for property taxes paid by non-itemizers, it pays for it byeliminating some tax breaks currently allowed for owners of second houses.

FHA Zero Down Rejected. The final bill ends a multi-year effort by the Bush Administration to create afederally insured zero-downpayment program. Instead, the final bill actually raises the FHAdownpayment requirement from 3.0 percent to 3.5 percent.

Seller-Financed Charitable Downpayments Banned. The measure also bans seller-financeddownpayment programs, such as the ones offered by Nehemiah Corp. and AmeriDream NAA/NMHChave long opposed these programs because of abuses in the program. The FHA has twice attempted toban the programs through regulatory action, noting that they produce loans that are three times as likelyto go into foreclosure. Such seller-assisted loans now account for a third of the agencys portfolio.

Homebuyer Tax Credit Trimmed Significantly. Lawmakers also wisely rejected calls for a $15,000 taxcredit for people who buy foreclosed houses. NAA/NMHC joined critics from the right and the left arguingthat such a credit would have likely increased foreclosures, accelerated housing price declines and donenothing to increase housing demand. Instead, the final measure includes a temporary $7,500 tax creditfor first-time home buyers, which we believe will have a limited impact on the housing market orapartment demand because of the way it is structured; it is only available to households below certainincome levels, it must be repaid, and it expires July 1, 2009.

Miscellaneous Provisions. A controversial change to net operating loss (NOL) tax laws that was heavily

criticized as a giveaway to the home building industry was also dropped, and a $15 billion grant programto states to buy foreclosed properties and rent or sell them was trimmed to just $4 billion.

Rental Housing Provisions IncludedIn addition to trimming back the homeownership incentives originally proposed, the bill also expands andimproves the Low-Income Housing Tax Credit program (LIHTC) and temporarily increases the tax-exempt private-activity bond cap for multifamily and mortgage revenue bonds by $11 billion for 2008.

The package also includes comprehensive GSE reform, an NAA/NMHC priority for more than six years that tookon new urgency as investor fears over the financial health of the GSEs forced legislators to expedite passage ofthe measure and add new provisions to the measure to provide a federal backstop for the enterprises. Thanks toNAA/NMHCs efforts the bill does not contain onerous provisions included in earlier versions that would haveseverely restricted the GSEs ability to purchase multifamily loans.

Finally, the package also incorporates language from the REIT Investment Diversification and Empowerment Actof 2007 (H.R. 1147), which is designed to change tax law to allow REITs to better compete with other real estatecompanies in domestic and international markets.

A detailed summary of the final measure is posted at http://tinyurl.com/5myq7d. Throughout our lobbying effort onthis bill, NAA/NMHC urged Congress to rethink our housing policy in light of the foreseeable and preventablesingle family meltdown and to adopt a more balanced housing policy that encourages a vibrant rental marketalong with a functioning ownership market. We will continue to work with Congress to enact a more balancedhousing policy that better meets our evolving housing needs and preferences.
http://tinyurl.com/5myq7dhttp://tinyurl.com/5myq7d


10/15

Selected Economic Impacts on the Multifamily Housing Industry

Authored by: Scot Haislip, NAA State and Local Policy ManagerJuly 30, 2008

Alan Greenspan, ex-Chairman of the Federal Reserve, stated his belief that the current financial crisis occurring in theUnited States is likely to be judged as the most wrenching economic event since the end of World War II. On the otherhand, Mark Zandi, chief economist at Moody's, and other eminent economists have stated policymakers will act in aconcerted and aggressive way, stabilizing the financial markets over the next several months, allowing for a briefeconomic downturn, but that a long and harsh recession will not take place.

Numerous factors have been cited for influencing the current economic situation including record gasoline, natural gas,and electricity prices, the historic weakness of the U.S. dollar, the sub-prime mortgage crisis, the stock market downturn,among others. The bursting of the housing market bubble and ensuing sub-prime mortgage crisis have caused panic inworldwide financial markets and encouraged investors to withdraw their investments in high risk mortgage securities andequities which they have replaced with investments in commodities as "stores of value." This movement of capital hastriggered a liquidity crisis in the world financial markets which in turn has created a continuously cascading downwardeffect on other sectors of the national economy. A liquidity crisis places downward pressure on economic growth becausefewer or more expensive loans cause a decrease in investment by businesses and lower consumer spending. Thereforethe purpose of this document is to give a snap shot of the current situation in certain sectors of the U.S. economy and inturn, how developments in those economic sectors may affect the multifamily housing industry both economically andpolitically.

Housing Market Slump

The U.S. homeownership rate peaked in 2004 at an all time high of 69.2 percent; this was up from 64 % in 1994, whichwas approximately where the rate had been since 1980. In a corresponding trend between 1997 and 2006, the averageAmerican home price increased by 124 percent. This large expansion of homeownership and escalation in home priceswas due in part to the creation of the sub-prime loan market and record low interest rates resulting from loose fiscal policyat the Federal Reserve. Fueled by these low interest rates, homeowners used increased property value to refinance homeswith even lower interest rates and take out second mortgages which were used to fund consumer spending. Thisexpanding housing bubble abruptly burst in several U.S. markets during late summer 2005, and as of summer 2006several markets were facing the issues of ballooning inventories, falling prices and sharply reduced sales volumesOverbuilding during the boom period, increasing foreclosure rates and unwillingness of many homeowners to sell theirhomes at reduced market prices have significantly increased the supply of owner-occupied housing inventory available

As of January 2008, the average inventory of unsold new homes stands at a 9.8 month supply across the country based onDecember 2007 sales volume, the highest level since 1981. Further, a record of nearly four million unsold existing homesare available for sale. The bursting of the housing bubble and the resulting increase in home foreclosures were key factorsin bringing about the sub-prime mortgage crisis discussed in the below section.

Because multifamily housing rents have not fallen as much as home prices, perhaps the most direct economic effect theapartment industry has seen as a result of the housing bubble burst is the emergence of a shadow rental market. Withinthis market, single-family and condo units that were formerly owner-occupied are now being occupied by renters. Thisadditional competition not only affects the apartment industry in terms of direct competition for occupancy, but also dueto the fact that as residents now have additional rental options, many U.S. markets simply will not bear rent increases

1


11/15

2

Taking into account the shadow market effect, analysts have predicted a low 2.2 percent average rent increase for 2008However, in several areas such as Las Vegas, Phoenix and Miami where there is an overabundant amount of rentableshadow market property, rents can be expected to decline 2 to 3 percent. Due to the negative effects the shadow rentalmarket is having on the multifamily housing industry, one may expect that the industry would support the housingstimulus package President Bush signed into law July 30th. However, that package could turn out to be a double-edgedsword for the apartment industry. The housing stimulus package as enacted includes tax credits for the purchase of owner-occupied housing; this will hurt the industry as some renters will chose to purchase a house, however, some of the unitspurchased will be shadow market properties, thereby benefiting the industry. Therefore, the degree to which this stimuluspackage may benefit the multifamily housing industry will partially depend on the exact magnitude of the number of

current renters who shift from apartment renting to single-family home ownership. Additionally, the industry may benefifrom the following provisions of the package: expansion and improvement of the Low-Income Housing Tax Crediprogram, temporary increases to the tax-exempt private-activity bond cap for multifamily and mortgage revenue bonds,raising the FHA down payment requirement from 3.0 percent to 3.5 percent and comprehensive GSE reform.

At the state and local government level the housing slump and general economic slowdown has had a major impact on thegeneral revenue streams of 38 states, due to lower real estate transfer and sales tax receipts. Eighteen of these states haveannounced anticipated budgetary deficits in 2008, while twenty three states have announced anticipated shortfalls for FY2009. This lost revenue will need to be replaced through other revenue streams. While lawmakers traditionally are loatheto raise taxes, it is unlikely that this fiscal situation can be resolved without some form of tax increase or restructuring.States and localities may choose to follow the examples of Ohio, Michigan and others who have increased or implementednew sales taxes. Of particular interest to the industry are taxes on previously untaxed services such as leasing apartments

and apartment management services. In addition to the problems caused by the housing bust, states are also trying to findfunding sources for infrastructure and transportation costs. Local governments may seek more taxing authority from thestate governments to pay for such things.

Sub-prime Mortgage Crisis

During the housing boom many homebuyers, primarily those with sub-prime credit ratings, took out adjustable-ratemortgages (ARMs) which allowed buyers to purchase owner-occupied housing with low interest rate introductory periodsAs the Federal Reserve Bank exercised a monetary contraction policy in 2005, many homeowners were stunned whentheir ARMs began to reset to much higher rates. As interest rates reset higher many homeowners monthly mortgagepayments jumped far above what they were able to pay. Some homeowners began to default on their mortgages and thecracks in the U.S. housing financial markets began to appear. In March 2007, the United States' sub-prime mortgageindustry collapsed due to higher-than-expected home foreclosure rates which had been mounting since 2005. The U.S.

mortgage crisis has seen at least 100 mortgage companies shut down, suspend operations or sell off assets since the startof 2007. As of May 2008, financial institutions have recognized sub-prime-related losses or write-downs exceeding $387billion. Profits at the 8,533 U.S. banks insured by the FDIC declined from $35.2 billion in the fourth quarter of 2006 to$646 million (89 percent) during the fourth quarter of 2007. Because of the global economy, and the huge sub-prime"pool" of mortgages that was bought by investors world wide, the International Monetary Fund (IMF) anticipates that theworldwide losses stemming from the US sub-prime mortgage crisis could run to $945 billion.

In the period leading up to the sub-prime crisis many mortgage lenders had passed the rights to mortgage payments andrelated default risk to third-party investors via mortgage-backed securities (MBS). As the housing market slowedcorporate, individual and institutional investors holding MBS faced significant losses as the value of the underlyingmortgage assets declined. As a result, investors began moving capital from riskier MBSs and stocks to safer investments,not as likely to lose their value, such as commodities. This mass exodus of capital from the world financial markets is

consistent with a credit crunch, when combined with the massive monetary losses of financial institutions this has causedlenders to reduce lending activity or to make loans at higher interest rates. Similarly, the ability of corporations, inparticular real estate companies, to obtain funds through the issuance of commercial paper has been affected. For thisreason the multifamily housing industry should expect it to be harder and costlier to obtain both short and long termfinancing at least for the next several months. For some firms this may mean delaying planned projects.

On the political front the government has responded to the sub-prime crisis in several ways. The Treasury Department andthe Federal Reserve have implemented several new regulations on the banking industry that require the raising of lendingstandards. Further, for the first time in its history the Federal Reserve has directly bailed out a Wall Street firm as itfinanced the buyout of the struggling Bear Stearns. Additionally, many policymakers are touting the housing stimulus


12/15

3

package mentioned above as a means of stemming more home foreclosures. A large piece of the stimulus package is alsodirectly aimed at assisting and reforming Fannie Mae and Freddie Mac, the Government Sponsored Enterprises (GSE)that have seen their finances crash as a result of the subprime crisis. As a positive to our industry, the GSE piece of thelegislation does not contain onerous provisions that were included in earlier versions that would have severely restrictedthe GSEs ability to purchase multifamily loans.

Energy Crisis

An energy crisis is any bottleneck in the supply of energy resources to an economy. A crisis can develop due to industrialactions like union organized strikes, government embargoes, supply shortages and ageing infrastructure. In terms ofenergy economics, the single largest factor currently driving high prices is the global supply for such goods as oil, naturalgas and electricity in no way matches the current global demand. This is due to the increasing industrialization ofpreviously undeveloped economies such as China, India and Brazil which are consuming massive amounts of energyresources that were previously available for use in the United States. This trend is expected to continue for the foreseeablefuture until alternative energy sources and green-friendly technology become more readily available. With regards to theenergy crisis, the apartment industry is most directly affected by prices in the natural gas and electricity markets.

Many figures in North America have spoken publicly about a North American natural gas crisis including formerSecretary of Energy Spencer Abraham and Alan Greenspan. The natural gas crisis is typically described by the increasingprice of natural gas in North America over the last few years, because of the decline in indigenous supply, the increase indemand for electricity generation and increased demand in overseas markets. Indigenous supply in the U.S. fell from20,570,295 MMcf (one million cubic feet) in 2001 to 18,950,734 MMcf in 2005, this caused prices to peak that year at15.37 per million British Thermal Units, however, prices still remain high when compared to historical data and continueto spike in reaction to changes in global supply and demand. Several policymakers have suggested that a solution to thenatural gas crisis is the import of liquid natural gas. However, the recent record low exchange rate for the U.S. dollar hasmade it relatively expensive to buy foreign natural gas in bulk. For this reason, natural gas prices rose 19 percent in 2007.Further, increased demand from overseas markets such as China and Japan are expected to continue to drive prices higherfor the foreseeable future.

In a process parallel to the deregulation of natural gas markets, a retail electric market has developed as a result of end-usecustomers being able to choose their supplier from competing electricity retailers (utilities traditionally are regarded asproviders of last resort.) However, notwithstanding the favorable light in which market solutions are viewed

conceptually, if electricity prices were to move to the levels needed to incentivize new merchant (i.e., market-based)transmission and generation, the costs to consumers would be politically difficult. A separate issue effecting electricitymarkets is whether consumers face real-time pricing, prices based on the variable wholesale price, or a price that is set insome other way, such as average annual costs. In many markets, consumers do not pay based on the real-time price, andhence have no incentive to reduce demand at times of high (wholesale) prices or to shift their demand to other periods.Thus, the experience with the introduction of wholesale and retail competition has been mixed. Many regional marketshave achieved some success and the ongoing trend continues to be towards deregulation and introduction of competitionHowever, major failures such as the California electricity crisis and the Enron scandal have caused a slow down in thepace of change and in some regions a move towards re-regulation and reduction in competition. This trend is widelyregarded as a temporary one against the longer term trend toward more open and competitive markets.

As demand for energy resources continues to soar worldwide and supply of those commodities remains stagnant or

declines, the multifamily housing industry should expect energy prices to continue to rise, at least in the short runProperty managers/owners should expect higher energy bills for maintenance of common areas and those firms who donot sub-meter utilities to residents units will see profit losses due to spikes in utility costs not figured into establishedrents. Additionally, as energy prices persistently increase, property owners should expect this escalation to exertinflationary pressures on the prices of goods and services throughout the economy in general. This inflationary effect maylead to added expenses for such wide ranging basic apartment industry supplies as paint and landscape maintenance, justto name a few.

Politically, in response to the energy crisis, the principles of alternative energy and sustainable living movements havebeen gaining popularity. The apartment industry can expect governments to continue to respond to the energy crisis byimplementing green/sustainable building standards (possibly requiring the retrofit of green technology), mandating sub-


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metering of utilities and imposing energy consumption taxes such as carbon taxes. Even as the green building movemenis nearing a tipping point, the movement and its associated techniques and technologies are still largely in their infancyThis being the case, green technology is still relatively expensive to implement when compared to methods currentlybeing used. Green technologies are likely to remain more costly than standard building technologies for the foreseeablefuture, and therefore largely unemployed in apartment communities, and will remain so until the concerns of themultifamily housing industry regarding their use are addressed. First and fore most of these concerns is, that many facetsof green policy and technology, such as retrofitting, remain impractical to implement from a business perspective or haveunexpected negative consequences when the technologies are employed, thereby negating their practical usefulness inapartment communities. Only when these practicality issues are addressed and green technologies become more apartmen

industry friendly, will multifamily properties begin purchasing green goods in large enough quantities to draw largeramounts of investment capital to their makers to allow for economies of scale to take place in the field thereby loweringprices. Therefore, as more governments begin to adopt mandatory green building policies, the prudent multifamilyhousing firm will want to budget for these extra expenses until such time as green technology prices drop.

Sprinkler-Based Fire Suppression System Retrofitting

The general downturn in the U.S. economy has been accompanied by a marked slowing in new building constructionThis construction slowdown has considerably cut into the number of available job contracts for many local constructionunions. One reaction to this decrease in the number of employment opportunities has been the recently resurgent, and welfunded, efforts of the United Association of Plumbers and Pipefitters Union and sprinkler system manufacturers topersuade state and local government agencies to mandate sprinkler system retrofits in apartment communities. Statisticsprove apartment communities are already safe places to live, however, if the union is successful in getting these mandates

passed, the outcome will be costly for the multifamily housing industry. Safe estimates from within the industry place thecost of completing a sprinkler retrofit project for a multi-floor apartment community in the area of $30 or more per linearfoot installed. In 2007, the industry witnessed the Pipefitters Union press for a statewide sprinkler retrofit regulation inNew Jersey. The New Jersey Apartment Association estimated that in order to complete the required retrofitting the costto the industry in that state alone was approximately $2.5 billion. Very few rental markets could bear the rent increasesnecessary to cover the cost of such a program. Thus, the effect of such retrofit policies in many areas would be acontraction in affordable housing levels as apartment communities would go out of business due to no return oninvestment. The apartment industry should anticipate that the union will continue to push its retrofit agenda wherever andwhenever it senses the opportunity to do so until new construction project starts have returned to normalcy. However, itshould be noted that even a return to normal new construction start standards may not guarantee an end to the unionspush for retrofitting, as it knows government mandated sprinkler retrofitting will result in more jobs and clear economicgain for its members.

Conclusion

The apartment industry at this time is stable, with the exception of a few markets scattered across the country; but due tothe factors discussed above and the general slowing of the U.S. economy, multifamily housing properties couldexperience operational difficulties and lower profits while both the government and the market work through currentissues. While these conditions will cause short term industry financials to not be as bright as we would like, all is not losas long-term projections for the industry are very good. Assuming there are no further shocks to the financial system,analysts predict that the credit crunch may begin to ease as early as the end of the summer. This return of liquidity to themarket will benefit the multifamily housing industry by allowing consumers and investors to once again begin purchasingthe excess supply of owner-occupied housing that is currently comprising the shadow rental market, thereby relievingpressure to keep rents low, as well as lowering interest rates, making it once again more affordable to finance plannedprojects. All things remaining the same, optimistic analysts are predicting the industry could see a return to normalcy

within 9 to 12 months, while others are using an 18 to 24 month timetable. On an even longer timetable the multifamilyhousing industry may be in the best position it has ever been, as new resident markets could open in the next 5 to 10 yearsSuch markets will include student and privatized military housing, as well as the retiring Baby Boomer generation as theylook to downsize from single-family homes to smaller more easily maintained living spaces. However, it is important forthe multifamily housing industry to keep in mind that it only becomes economically feasible for us as an industry tobridge the time gap between the present and the profits of those emerging markets if we are continually able to mobilizeour strength in numbers to guarantee that the issues addressed here within are resolved in our favor.


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Selected Resources:

The Federal Reserve Board of Governors- www.federalreserve.gov

Federal Energy Regulatory Commission- www.ferc.gov

Energy Information Administration- www.eia.doe.gov

Natural Gas Supply Association- www.naturalgas.org

Census Bureau Reports on Residential Vacancies and Homeownership, U.S. Census Bureau, 26 October 2007

Housing woes take bigger toll on economy than expected, AFP, 17 October 2007

Fed, Blamed for Asset-Price Inaction, Is Told `Tide Is Turning', Bloomberg, 4 September 2007

Ultra-low Fed rates stoked US housing boom, Reuters, 4 September 2007

Putting a freeze to mortgage meltdown, Marketplace, 6 December 2007

H&R Block struck by subprime loss, Financial Times, 21 June 2007

Rate Rise Pushes Housing, Economy to `Blood Bath'", Bloomberg, 20 June 2007

Egg Cracks Differ In Housing, Finance Shells", Wall Street Journal, 24 December 2007

Subprime mortgage woes infect commercial paper market, MarketWatch, 15 August 2007

Understanding the Subprime Mortgage Crisis, Yuliya Demyanyk (FRB St. Louis) and Otto Van Hemert (NYU Stern)December 10, 2007

Surge in Natural Gas Price Stoked by Global Trade, Wall Street Journal, 18 April 2008

The Trouble with Electricity Markets and Some Solutions, Severin Borenstein, January, 2001

2008 Tipping Point or Turning Point, Units, March 2008


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Documents

August 08 CIAA Newsletter