By Jack Woodcock
Las Vegas has awaited the return of a vibrant real estate market, one following the time-tested, proven concepts of supply and demand. Those in this business for decades have experienced numerous cycles; either supply is dramatically decreased, interest rates exceed a borrower’s ability to pay, or an abundance of supply can’t get absorbed due to job loss or a change in employment status, reducing a borrower’s income. Until the most recent cycle, emphasis has always been on jump-starting the economy. In spite of constant changes in the rules for qualifying borrowers, residential real estate has made an impressive rebound. Enough time has passed, and with optimism from the predictability of this economic increase, many buyers are seeking thought out and creative ways to make a purchase. Lenders, especially since the start of the year, face tightened guidelines until we see revisions of the Qualified Residential Mortgage (QRM), or the Dodd-Frank legislation. This is having a severe impact on the appraisal and lending processes, driving prices down in both residential and commercial real estate. The commercial real estate sector lags behind the residential- a result of the Dodd-Frank legislation and a mark-to-market rule, which requires lenders to perform an annual appraisal on each loan in their portfolio. If there is a threat of a decrease of value of underlying collateral securing a loan, the borrower either commits to make up the difference on an annual basis, or the lender is forced to reserve for that decrease, thereby taking funds out of circulation. In the eyes of a lender, this is unacceptable. You either over-collateralize a loan, you tie this loan to other resources owned by the borrower the bank has control over, or you just do not make the loan. It is unlikely these rules will loosen until Dodd-Frank is fully implemented, sometime in 2015. Needless to say, this will further impact the recovery of the commercial real estate sector until there is a review of these policies, now that sufficient time has passed to evaluate their negative impact. The mark-tomarket rule not only applies to new financing, but also when an existing loan has matured and there is need for a renewal of that loan. Fewer landlords are coping with this new set of lending guidelines and, as a result, forced to sell their properties at a discount. Real estate plays a dominant role when it comes to hedging against inflation, controlling your occupancy expense (if you own a business), and developing an exit strategy for that day in the future when you decide to either sell or transfer ownership to your heirs. We believe the economy’s resiliency is a good reason to be optimistic about where we are and where we are heading. Yes, it is a good time to buy a home. There have been year-over-year increases in home prices- between 25 and 30 percent and predictions indicate residential real estate will see continued increases for 2014. In commercial real estate, more individuals are willing to enter into leases and landlords are more willing to make tenant improvements, thereby investing in someone’s business and, ultimately, their success. We are seeing apartments built in greater numbers and homebuilders preparing for an increase in building by obtaining entitlements, developing lots, and assembling contractors. Las Vegas has always rebounded from every cycle. It is believed the optimism is present, and positive action will follow.