Financial Management

Study Finds Social Security Numbers Vulnerable
There are security gaps when it comes to protecting Social Security Numbers. A congressional study found that credit bureaus, information resellers and health care companies routinely acquire SSNs from their customer, but have little regulations on using and keeping them. Information resellers often use public records databases to gather information about individuals. Many of these records contain social security numbers and there is little control over how that information is released. In addition, according to GAO findings, many of these information resellers do not attempt to verify that this information is being used for legitimate and legal purposes.
Information courtesy of the North County Times.

Beware Credit and Debit Card Cloning
Credit card fraud is by retail clerks and waiters is becoming more common. According to the Secret Services financial crimes division, the criminals are usually transient employees that are hired to work in the store temporarily. These perpetrators may victimize dozens and even possibly hundreds of patrons. The dishonest employee may have a pocket-sized scanner that he/she swipes the card on or may actually keep the card. The scanner is then used to download the information into a reader and encrypts the information into a blank card. The thief may then wait days or even months (making it harder to track who stole the information) to go on a spending spree with the card. While most banks and credit card companies offer fraud protection, it takes the victim 30 hours on average to sort out the problem. Consumers are advised to watch their cards being swiped - even if it means following the waiter to the register and to check account activity frequently.
Courtesy of the Wall Street Journal, January 11, 2004.

Poor Customer Service Can Be Costly
The quality of customer service your company delivers can be very important. Consider these findings by the American Productivity and Quality Center:

• Poor customer service is five times more likely than quality or cost to cause customers to leave.
• Sixty-eight percent of customers will stop doing business with you if they receive poor customer service.
• An unhappy customer will complain to nine to 20 other people. A happy customer will tell five others about your company.
• It cost five times the amount of the customer's annual account to lose a customer.
• Between 50 and 75 percent of customers who have had their complaints resolved with continue to do business with a company. If the complaint is solved very quickly, 95 percent of customers will return.

Credit Reporting Errors Common
Twenty-nine percent of consumers are plagued by incorrect information on their credit reports that can cause their credit rating to vary widely from one agency to another according to a 2002 study by the Consumer Federation of America. These mistakes can cost thousands of dollars in higher interest payments. According to Consumer Reports these reports can be much more difficult to correct than they are to make. The most common dispute involves account mix-ups. Calling the agency can be difficult because consumers can't always reach a live person and may be forced to navigate difficult calling systems. If a phone call or email doesn't solve the problem, try sending a certified letter. Document all contact with creditors. If the creditor is difficult about correcting an error, you can add a 100-word statement to your report so that anyone who views it knows the information is disputed. Consumers can also call their state's attorney general's consumer complaint hotline. The magazine recommends pulling your credit report at least 3 months before taking out or refinancing a mortgage to avoid any surprises.
Information courtesy of Consumer Reports, January 2004.

Congress Grants Three-Month Extension to Flood Insurance Program
The House and Senate voted to extend the National Flood Insurance Program for three months in order to allow time to come to an agreement on a new act. The original bill, S. 1768, was passed in 1968 and was originally scheduled to expire on March 31, 2004. The bills being considered would limit the number of claims that could be filed by a repetitive-loss property. NFIP covers 4.4 million policyholders. Repetitive loss properties cost about $200 million annually. Although they account for only about one percent of insured properties; they account for 25 to 30 percent of all claims filed. Under the new bills properties the qualify as severe repetitive loss properties would have to be elevated, relocated or demolished. If these measures are not taken, the policy holders would face up to a 150 percent premium increase.
Information courtesy of the Insurance Journal West, December 15, 2003.

Banks Blocked from Property Management & Brokerage
The House passed the fiscal year 2004 Transportation, Treasury Appropriations Bill that prevents the Treasury Department from allowing federal bank holding companies and national bank subsidiaries into real estate brokerage and property management during the next fiscal year. A provision using the same language was inserted in 2003.

Need Electric Work? Make Sure Your Contractor is Licensed
Be sure that a licensed electrical contractor does any electrical work at your community. Otherwise if a fire occurs because of faulty work, your insurance company may refuse to cover the claim. Most states require licensing for electrical work. The insurance companies often require that work be done by a licensed contractor. It may also deny coverage if the work was done in a way that violates local, state or federal law.

Credit Card Insurance Scam
There is a scam currently circulating in which telemarketers contact consumers and offer to sell them "credit card" insurance to protect them from credit card fraud including protection against fraudulent online transactions. The telemarketer then requests things such as credit card numbers, mother's maiden name and other sensitive financial information so that they can "activate" the protection feature on your credit card. This "insurance" is unnecessary because most credit cards companies offer protection if a card is lost or stolen that limits a consumer's liability to $50 and this fee may be waived for good customers.

Greenbacks Become Multi-colored
Starting with the $20 bill in October 2003, new currency will be issued as part of the ongoing effort by the U.S. Government to combat counterfeiting. The new $20 bill has security features including a multicolored background, a plastic security thread that reads, "USA TWENTY," color-shifting ink and a watermark. To see a picture of the new $20, visit the U.S. Bureau of Engraving and Printings website http://www.moneyfactory.com/newmoney/.
Information courtesy of Apartment Professional, September/October 2003.

Golden State Tarnished for Some
High-taxes, overcrowding, living expenses, job losses and an unfavorable business climate has Californians leaving the state. Last year 108,500 more people left the state than arrived. Immigration and births kept the state from shrinking overall. California is an expensive place to live or run a business. Residents and businesses face rising energy costs, housing, insurance, transportation, worker's compensation and taxes. People are looking for a cheaper way to work and do business and that often means relocating. The Tax Foundation, a taxpayer's advocacy group, says that the state is the sixth highest in the nation when it comes to business expenses. Another survey of 400 businesses by the California Business roundtable found that 17 percent of the businesses planned to move or expand out of state. The state's economic woes are the primary focus of its recall election, although most candidates are vague or unclear about how the problem will be fixed.
Information courtesy of USA Today, "Exodus shows California not golden for all," August 25, 2003.

Credit-Reporting Reform Proposal in Congress
The House of Representatives is expected to approve a bill in September that would allow consumers to acquire a free credit report once a year from all three major credit-reporting agencies. The bill would also require consumers to be notified whenever their credit scores are being lowered whether through excessive "inquiries" by potential creditors or by delinquent information being posted. Consumers will also have the ability to have "rapid" rescoring done when they are offered a higher interest rate because or erroneous derogatory information.
Information courtesy of the San Diego Union Tribune, August 17, 2003

Don't Ask; Don't Tell for Homeowners
It may be better to keep your insurance company in the dark when it comes to minor repairs and problems. That's because many insurance companies count even informal inquiries about a problem as unpaid losses. This information can be recorded and used to determine the "risk factor" on new and rewritten policies for up to 5 years. Each insurance carrier has its own set of rules concerning how inquiry calls are handled. Here are a few tips you can take to protect your Clue (Comprehensive Loss Underwriting Exchange) report:

• Know the specifics of your policy and deductible.
• Don't make preliminary calls.
• If you need to call your insurance call - don't mention the damage unless you're actually filing a claim.
• Get an estimate from a professional maintenance technician before calling.
• Only report major damage.
• Check your Clue report.

New Home Purchases Strong
New single-family home sales rose 1.7 percent in April to a seasonally adjusted rate of 1.03 million units. Sales surpassed the one million mark for the third time this year according to the Department of Commerce. The reports on new and existing home sales are reassuring according to Kent Conine, president of the National Association of Home Builders (NAHB), because housing continues to be a pillar of strength in the nation's economy. It shows that buyers continue to have confidence in homes as investments he said. The remainder of the spring-home buying season is expected to be strong due to lower mortgage rates and increased consumer confidence. Home sales were above the first quarter averages in April. NAHB economist, David Seiders, said that he believes that "all systems are go for home sales" and that 2003 will surpass the record sales of 2002. The National Association of Home Builders is a Washington-based trade association that represents over 211,000 members involved in residential and light commercial construction.

Consumer Confidence Rises
The Consumer Confidence Index rose to 83.8 in May, up from 81 in April. Expectations of an improvement rose to 22.8 up from 18.9 percent. Fewer consumers expected conditions to worsen (9.7 percent down from 12.3 percent). In addition, more consumers are anticipating an increase in the number of jobs. The number of consumers anticipating an increase to their income shrank slightly (by 0.2 percent) to 17 percent. Lynn Franco, director of The Conference Board's Consumer Research Center said he believes that the increase last month due to the post-war euphoria has given way to refocusing on domestic economic concerns, but consumers still expect an economic turnaround in the next few months.
This information is based on a survey conducted by the NFO WorldGroup.

When That Unsolicited "Bill" isn't One
According to David Horowitz, a national consumer advocate, some companies are sending out itemized invoices with payment instructions. These are actually solicitations for business that lock the consumer into an annual contract once the "bill" is paid. This is legal because of a disclaimer that states that the solicitation is not a bill. The problem is that the "bill" is designed to look as if the consumer is being billed for a service that has already been provided. The disclaimer is usually in very small print and hard to find.
Some information courtesy of the Costco Connection.

Save $$$ by Setting Timers
If you manually set the timers at your community, it's important to have service technicians change the time clock every two weeks in order to correspond with sunrise, twilight and sunset. If this is done correctly the light will go on and off at optimal times. This will save your community money on electric bills and assist with safety concerns. If this in not done well the opposite holds true. Many service technicians are unaware of how often the timers should be reset. To get a sunrise/sunset calendar for your particular location go to http://www.mindspring.com/~cavu/sunset.html. Bookmark this site and print out new calendars at the beginning of every year. Print two copies (one for the manager and one to post in the maintenance room) and have them laminated. This could save your apartment community hundreds of dollars. Information courtesy of Tami Siewruk, "Too Great to Wait" update.

Dog-Bite Claims Costly
Dog bites now account for one-third of all homeowner's insurance claims. $310 million was paid out in 2001, $60 million more than five years earlier. The increase is due partly to increased public awareness and media attention. There has also been a sharp increase in the number of bites reported. In 2001, there were 4.7 million dog bites compared to 585,000 in 1986. Many insurance companies are finding ways to limit exposure such as requiring owners of certain breeds to sign waivers or charging larger premiums. Be aware that owners filing dog-bite claims may see their premiums increase, have their dog excluded be dropped by the insurance company.
Some information courtesy of the San Diego Real Estate Executive.

To Keep or Not to Keep?
Do you know how long to hold onto old records? The general rule of thumb is three years (the IRS normally has that length of time to audit a return) for business documents. A conservative approach is to keep any record that would help in an audit for seven years. After that length of time, it's okay to toss old business records, but the return should be kept permanently. It's also important to keep records dealing with business purchases of fixed assets or real property for at least three years. It's important to shred documents to prevent identity theft. For more information on what to keep and what to shred, visit www.irs.gov and enter "How long should I keep records?" in the search box.
Some information courtesy of the Costco Connection.

Charity Scams
After 9-11 Internet users were bombarded with solicitations from fake charities for money. Usually, all the recipient had to do was click on a link to a website where they could donate money which ended up enriching the spammer. With the conflict in Iraq, similar scams are very likely. The most common type may involve asking for money for "the troops" or "refugees." ScamBusters, an Internet organization dedicated to exposing fraud and hoaxes suggests that people wishing to donate money online go to the homepage of a legitimate organization.

Independent Contractors
The IRS is cracking down on the misclassification of independent contractors. Many employers use independent contractors order to save money on salary and employment taxes. Unfortunately, this can prove costly if the IRS decides your independent contractor is actually an employee. If the answer is yes to any of the following questions the IRS may consider your independent contractor an employee:

• Do you train the worker or require the worker's presence at meetings?
• Do you have the right to supervise the worker or require regular reports from the worker?
• Do you hire, supervise or pay for the worker's assistants?
• Do you establish work routines and schedules for the worker or set the sequence or job tasks for the worker?
• Do you set the worker's hours?
• Do you pay the worker by the hour, week or month?
• Do you reimburse the worker's travel and business expenses?
• Do you own the material, tools and equipment the worker uses for the job?
• Does the worker perform all of his/her work in your office or building?
• Is the worker paid the same regardless of how the job turns out?
• Does the worker work for you on a full-time basis or report exclusively to you?
• Did you rehire this employee after laying them off?
• Are the worker's services vital to your daily operations?
• Can you discharge this worker at will and without cause?
• Can the worker walk away from the job before it's done without suffering any damages or penalties?

Recession Brewing In California
UCLA's quarterly forecast predicated that the Bay Area would be in a recession within the next few months with the rest of California to follow. It cited power shortages, a slowing tech sector, mass lay-offs, declining retail sales and home purchases and the increasing possibility of a national recession as factors. San Francisco and the Silicon Valley are predicted to be the hardest hit areas. The recession is expected to help ease the state's housing crunch.
Courtesy of The San Diego Union Tribune 4-5-01

Proper Insurance
A property management company should have four types of insurance to meet its liability needs. General liability protects against claims resulting from accidents and injuries in any of the buildings it manages. Employee dishonesty or third-party fidelity insurance protects against theft of property or receivables in the management company's care. Professional liability covers employee mistakes such as misleading statements to tenants. The fourth is worker's compensation.
*Courtesy of Professional Office Building Management, May 2001

Wall Street
The April 11 Wall Street Journal cites a Grubb & Ellis study noting that "of all property types, apartment investment sales are the most stable year in and year out.... They are viewed as a defensive investment during economic downturns, so they will be in demand this year."
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update April 20, 2001

Bankruptcy Reform
The U.S. Senate voted 70-28 last week to approve the final compromise bankruptcy reform legislation (H.R. 2415). Thanks to NAA/NMHC's efforts, the compromise bill included provisions to prevent residents from abusing the current system in order to live rent-free. The bill passed the House on October 12, but a Presidential veto is expected. Although the bill has broad bipartisan support, it is unclear whether Congress will have the votes or the time to override the veto before adjourning for the year. If the measure is vetoed, NAA/NMHC will continue to advocate for bankruptcy reform in the new 107th Congress.
*Courtesy of National Multi Housing Council/National Apartment Association Financial Update December 15, 2000

Estate Tax
For several years now repeal of the federal estate and gift taxes has been a high priority for both Congress and investors, including real estate owners. The 107th Congress is expected to take up the issue, using, as a starting point, one of the bills (H.R. 8) passed by the 106th Congress but vetoed by President Clinton. As originally crafted, H.R. 8 could create problems for some real estate owners because, in addition to eliminating the estate and gift taxes, it also eliminates the use of "stepped up basis" for assets acquired by heirs. Specifically, any assets eventually transferred to heirs would be subject to capital gains tax on the difference between selling proceeds and carryover basis when the asset is subsequently sold. Most taxpayers would trade the loss of step-up in basis for elimination of estate and gift taxes if both became law simultaneously. However, some property holders might find themselves in a disadvantaged position depending upon the appreciated value of the property and basis at time of death. Additionally, some proposals have called for an immediate end to the use of stepped-up basis, even though the elimination of the estate and gift taxes is phased in over a 10-year period. NAA/NMHC will be meeting with policymakers in the coming months to discuss these matters in detail before endorsing specific legislation.
*Courtesy of National Multi Housing Council/National Apartment Association Tax Update January 5, 2001

e-Real Estate
Arthur Andersen has released a study on the sweeping implications the Internet will have on the real estate industry. The report, e-Real estate companies: The impact of e-Business and the Internet in the new economy, notes that basis of value creation is shifting to favor intangible assets (customer, supplier and organization assets) over tangible physical and financial assets. As evidence, the firm says that for U.S. publicly traded companies, the percent of market value that is accounted for by book value fell from 95 percent in 1978 to 20 percent today. The report reviews specific strategic implications of such shifts for REITs, REOC, and developers. Both REITs and REOCs will be able to benefit by capturing more income from customer and supplier assets. For builder/developers, the Internet will both enable and require more efficiency. Builders will be able to leverage their employee, organization and physical assets to complete tasks more efficiently. They will also be able to use the Internet to contract with local labor, establish new partners, reach new customers and begin to go through the entitlement and permitting processes online. Copies of the report are available for purchase by calling 800-872-2454.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update December 1, 2000

REITs
Equity investors looking to "recession-proof" their portfolios should consider real estate investment trusts (REIT), according to Forbes magazine (November 27, 2000). Forbes says REITs "earn remarkable returns in the wake of anemic economies," noting that the total return on REITs over the past two decades has averaged 11.5 percent. REITs outperformed, averaging 17.6 percent, during the seven years when the overall economy was weak. The article is available at www.forbes.com/forbes/2000/1127/6614323a.html.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update December 1, 2000

Apartment Outlook
After a seven-year hiatus from the number one spot, apartments are expected to offer the best investment and development potential next year, according to Emerging Trends in Real Estate 2001. The report, published by Lend Lease Real Estate Investments and PricewaterhouseCoopers, notes that thanks to favorable demographic trends, "not only are multifamily investments well positioned for near-term returns, but their longer-term prospects look even more solid." Specific investment recommendations include buying or holding B/B plus properties in prime East and West Coast markets in anticipation of the emerging wave of Echo Boomers who will create tremendous demand for this product. Meanwhile, owners of B minus and C quality properties are advised to cash out while investor demand is still high. The best markets will continue to be the major 24-hour cities. For the fourth consecutive year, San Francisco was named the best major U.S. market, followed by New York; Boston; Los Angeles; and Washington, DC. The complete report is available at www.lendleaserei.com.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update November 17, 2000

Apartment Returns
The apartment sector has generated the highest average annual total return (8.9 percent) while showing the least volatility among all property types, according to statistics cited in a new report by Lend Lease Real Estate Investments. The report notes that investment-grade apartments have delivered record performance despite rising homeownership rates, and they predict that the sector will continue to provide superior risk-adjusted, unleveraged annual returns - in the low double digits - over the next five years. As a result, the authors suggest that institutional investors consider increasing their stake in the multifamily housing sector. The complete report, Multifamily Viewpoint: 2000 and Beyond, is a compendium of seven articles addressing market fundamentals, demographics, renter characteristics and multifamily investment opportunities. It can be found online at www.lendleaserei.com.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update October 13, 2000

REITs
For the first time since Prudential Real Estate Investors (PREI) began tracking such trends in 1995, the share of apartments owned by real estate investment trusts (REIT) dropped between 1998 and 1999, from 8.3 percent to 7.9 percent. In contrast, REIT ownership of other commercial property types continued to increase. The report, Tracking Public Market Commercial Real Estate Penetration from 1995 to 1999, is available by calling PREI at 973-734-1300.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update October 13, 2000

Affordable Housing/Good Investment
Refuting stereotypes about the condition of assisted housing, HUD's first-ever nationwide inspection of the country's 29,000 privately owned, but HUD-assisted, properties reports that the housing is a "good investment" for owners, residents and taxpayers. Fully 87 percent of the properties were found to be in excellent or good condition. Only 1.6 percent, about 530 properties, had to be referred to HUD's Enforcement Center for remedial action.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update September 8, 2000

Party Platforms Thanks to NAA/NMHC outreach, the Republican party platform specifically recognizes the importance of apartments. Last month, NAA/NMHC staff met with the platform committees of both political parties to educate them on the important contributions apartments make to livable communities and to strongly urge them to include a balanced housing policy message in their documents. As a result, the Republican platform notes that while homeownership is desirable, "at the same time, a balanced national housing policy must recognize that decent housing includes apartments, and addresses the needs of all citizens, including renters." Similar efforts are planned for later this month for the Democratic National Convention later this month, when that party's platform will be released.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update August 4, 2000

Smart Growth Quality of life issues have become the top priority for the nation's governors, according to a new report by the National Governors' Association (NGA). The year-long study details the smart growth strategies many states are beginning to implement. The governors say they are in a key position to address growth planning, because the federal government is too far removed and local governments lack the resources and legal powers to effectively address growth problems that cross-governmental boundaries.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update August 4, 2000

Apartment Upgrading
Growing consumer demand, shifts in public policy and an aging apartment stock should cause the pace of rental apartment upgrades to increase over the next decade, according to new research produced by NMHC and funded through a grant from Fannie Mae. The paper, Capital Improvements to Apartments, is designed to fill a critical gap in information about the $5 billion spent each year on apartment upgrading. Not only does it provide valuable estimates for each state and the 25 largest metro areas of the number of apartments upgraded each year, the types of jobs and the amount spent on improvements, it also updates 1990 estimates of the current apartment stock for these geographic areas two full years before the 2000 Census figures are expected to be available.

The Council's analysis indicates that one out of every three apartments is upgraded each year, and 70 percent are improved over a 10-year period. Between 2000 and 2010, an estimated five million apartments are likely to be upgraded annually. Half of these upgrades, whether measured by the number of apartments improved or the aggregate spending on those improvements, will occur in just six states: California, New York, Texas, Florida, Illinois and Ohio. Owners tend to undertake different types of upgrade jobs simultaneously when upgrading their properties, with an average of two job types per upgrade. Kitchen improvements and bathroom renovations are the most common upgrades, especially in older properties, followed by heating and then plumbing improvements. A copy of the report is available on NMHC's Web site at www.nmhc.org/publicat/recent.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update July 21, 2000

Rent Control
Further supporting NAA/NMHC's historical opposition to rent control is a recent ruling by the Supreme Court of Colorado. In Town of Telluride v. Lot Thirty-Four Venture (2000 WL 713741, June 5, 2000), the court invalidated a town ordinance requiring property owners to create affordable housing for 40 percent of the employees generated by the new development. In a unique application of the state's rent control preemption statute advocated by NAA/NMHC and enacted into law in 1981, the court ruled the requirements were tantamount to rent control and used the preemption as the basis for striking down the city ordinance.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update July 21, 2000

Apartment Performance
With occupancy rates hovering around 95 percent, apartments appear largely unaffected by the record high 67.1 percent home ownership rate reached in the first quarter of 2000, according to Legg Mason Wood Walker, Inc.'s Apartment REIT Quarterly (May 26, 2000). The firm reports that occupancies for multifamily real estate investment trusts (REIT) increased 0.3 percentage points to 94.7 percent, while rental rates increased 3.3 percent over levels one year prior. Construction permits for new apartment properties were down 12 percent compared to a year ago and almost 15 percent lower than the 20-year average. Permitting should continue to slow this year says the firm. The top five apartment markets in the first quarter, based on occupancy and rental rates, were: New York; San Francisco, Boston, Orange County, CA; and Washington, DC. Contact Tamra Wiley at tjwiley@leggmason.com for the report.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update June 30, 2000

Apartment Forecast
The real estate industry will remain quite healthy and earn steady profits over the coming year, according to the Urban Land Institute's 2000 Real Estate Forecast: A Mid-Year Outlook by Sector, Area and Enterprise. The report notes that construction levels are at their peak and should decline in nearly every sector, reducing the risk of future overbuilding. The consensus of participants in ULI's survey said the multifamily sector should remain a top performer, with rising rents and steady vacancies. Of the 12 income-producing sectors covered, middle- and high-income rental properties ranked first and second, respectively, for expected property performance. Multifamily construction starts will be up modestly in 2000 then will begin to fall in 2001. High-income apartments will slightly exceed demand in 2000 and roughly meet demand in 2001. Middle-income completions will track below demand during 2000 and 2001. The report can be purchased from ULI by calling 800-321-5011.

Apartment fundamentals are improving, according to reports by several Wall Street analysts. Salomon Smith Barney (Multifamily Supply & Demand, May 17, 2000) says that apartment demand remains solid, due in part to the fact that the population most likely to rent (the 19 to 29 year old segment) is increasing for the first time since 1984. Continued immigration and the rising costs of homeownership also contribute to the expanding renter population. The strong demand picture and recent reduction in new construction should yield lower vacancy rates and rising rents over the coming 12 months. The firm reports that the greatest returns are being seen in high-barrier markets such as New York, San Francisco and Boston. Eight of the firm's top 10 "strongest fundamentals" markets are in California. The National Real Estate Index's most recent list of highest potential markets (MarketScore, Vol. 29) concurs, placing California cities in six of its top 10 slots.

A May 23 report by Merrill Lynch (Tracking the Apartment Cycle) affirms the generally positive outlook for the multifamily sector. Multifamily permits in the 42 metro areas it tracks declined markedly (16 percent) in the first quarter of 2000 compared to the same period a year ago. As a result of less construction and strong employment growth forecasts, far more metro areas now appear to have a favorable supply/demand balance looking toward next year.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update June 9, 2000

Real Estate Strategies
A new report from Deloitte & Touche Real Estate Services says it is time to reexamine real estate strategies. Millennium Top 10: Guide to Global Real Estate Capital Markets Industry Outlook examines what the firm says are the most important strategic issues currently faced by investors. Real estate appreciation rates will slow in 2000 as the market enters a "positive plateau," according to the report. This will require real estate players to review their products, services, technologies, personnel, cost structures, capital sources and lending criteria. As upside potential shrinks, deal structure will become more complex and those who craft "creative deal structures" will lead the pack. The real estate industry is also facing a host of new regulatory requirements designed to increase financial transparency. A more stringent regulatory climate will have a profound effect on the industry's ability to raise debt and equity. Finally, the report says that the traditional approach to information technology "simply isn't good enough anymore." Today's markets are too complex and volatile to rely on experience and instinct for investment decisions. The complete report is available at www.us.deloitte.com/PUB/RealEstate/RETopten.htm.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update May 19, 2000

REITs
Thanks to strong demand, favorable rental demographics and a modestly counter cyclical nature, apartment REITs have developed into an attractive investment opportunity, according to Bear Stearns managing director and REIT analyst Ross Smotrich. People in their mid-20s and empty nesters in their 50s are the greatest users of rental housing and will be the fastest growing age groups over the next 10 years, which should "result in solid gains" for rental properties, says Smotrich. Rising interest rates are also aiding the apartment sector by making people less likely to purchase homes. He expects the growing use of Web-based technology to enhance operating profits for apartment REITs, as "companies figure out how to generate operating efficiencies and incremental revenue from e-commerce." For more information, contact Smotrich at 212-272-8046.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update April 7, 2000

Federal Reserve Briefing
Apartment leaders, including NMHC's Executive Committee, NAA President Jim Hepfner, NAA President-Elect Phil Carlock and NAA Executive Vice President Doug Culkin, met with Federal Reserve Chairman Alan Greenspan last week. NMHC Chairman Leonard Wood began the wide-ranging discussion, held in the Fed's boardroom, by briefing Chairman Greenspan on current conditions in the apartment market. Other issues discussed during the hour-long meeting included: rising oil prices, the impact of mergers and acquisitions within the financial services industry; and loan underwriting and capital adequacy standards. In his comments, Greenspan stressed the dramatic changes underway in the economy and the growing disconnect between the old (low-tech) economy and the new (high-tech) economy.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update March 24, 2000

Apartment Performance
Apartment sector fundamentals remain healthy, and oversupply is not an issue except in select local markets, according to Legg Mason Wood Walker's Apartment REIT Quarterly (February 28, 2000). The firm reports that 1999 appears to have been the peak for new construction, with 2000 starts forecasted at 50,000 lower than 1999's 330,000 level. Rent increases in 2000 are expected to move closer to the estimated three percent inflation rate. Apartment REITs generated a strong 5.9 percent net operating income growth in the fourth quarter of 1999, which led to an average 9.0 percent growth in funds from operation (FFO). The firm forecasts a 7.6 percent FFO growth rate in 2000, lower than the 10.9 percent projected S&P 500 earnings growth. The complete report can be requested by e-mailing Tamra Wiley at tjwiley@leggmason.com.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update March 24, 2000

Apartment Performance
Morgan Stanley Dean Witter forecasted a positive outlook for the apartment industry in its Industry Report (January 18, 2000). According to the report, fundamentals remain firm at the national level. The recent upward movement in interest rates should slow single-family housing purchases and keep apartment construction in check without pushing the economy into recession. Barring a national recession, the report says, there is "no reason that the cycle cannot continue in its current state."
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update January 28, 2000

Low-Income Housing Credit Following a year-long comment and public hearing period, on January 14 the Internal Revenue Service (IRS) released final regulations on compliance monitoring for LIHTC properties (65 FR 2323). Among other things, the new rule extends by a year the time limit for inspecting new LIHTC properties. The regulations retain the proposed rule's requirement that on-site inspections be conducted at least once every three years. However, rather than mandating the HUD inspection protocol, the final rule merely suggests that the HUD standard serves as a guideline for approving decent, safe, sanitary housing. It states that for approval, a project may simply meet local health, safety and building codes. Finally, the rule states that no tax credits will be awarded unless an extended low-income housing commitment is in effect and the commitment includes language prohibiting the refusal to lease to a Section 8 voucher holder because of the prospective resident's status as a voucher holder.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update January 28, 2000

Repositioning
According to Marcus and Millichap's 2000 forecast, Class B and Class C apartment properties offer the biggest upside for value added and income growth potential because most of the new construction has been in the luxury, Class A market. Urban revitalization in a number of markets is also creating an incentive for developers to retrofit, upgrade or convert properties into modern apartments. The firm anticipates that the apartment market will experience another strong year in 2000 with moderate weakness emerging in only a few markets, such as Portland, Dallas, Atlanta, Denver, Phoenix, Charlotte, Orlando and Tampa. For more information, contact Lisa Goens at Marcus and Millichap at 415-391-9220.
*Courtesy of National Multi Housing Council/National Apartment Association Washington Update January 7, 2000

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