Impact of Immigration Reform
on Central Oklahoma's Population
The
population statistics for the Central Oklahoma
area suggest there has been a significant impact
resulting from the Oklahoma's 2007 Immigration
Reform Law (HB 1804). Provisions implemented
by State agencies became effective November 1,
2007 (see Fall 2007 Newsletter)
and more recently the US District Court for the
Western District of Oklahoma granted a preliminary injunction
(PDF) blocking enforcement of employer-related
provisions.
While
there is only antidotial evidence linking the
Immigration Reform Law to population changes, the
Metro's decrease in unemployment since January is
significant.
As
reported in the Fall 2007 newsletter, Hispanic
leaders estimated that 25,000 Hispanics left the
metro during the fourth quarter of 2007.
Data from the US Bureau of Labor
Statistics (as shown in the above graphs)
seem to support the observations.
Will Oil Prices Remain
High?
Since the civil war, US
crude oil prices, adjusted for inflation in 2006
dollars, have averaged $21.05 per barrel, with
world oil prices averaging $21.66 per
barrel. When only looking at post-1970 data,
US crude oil prices averages $29.06 per barrel,
with world oil prices averaging $32.23 per
barrel.
Two
significant things have happened in the past few
years that may have upset the pricing
structure. First, some OPEC countries have
started accepting Euros in addition to Dollars for
payments of their oil. With the significant
reduction in the current value of the dollar
caused by the housing credit crunch (few
international funds are purchasing mortgage backed
securities, etc.) it is probable that the reduced
value of the dollar is putting upward pressure on
the dollar valued price of oil.
Second,
World oil consumption is currently around 80
million barrels of oil per day and worldwide
demand has surged, chiefly driven by strong growth
in China, India and the Middle East.
To
the extent that production is not keeping up with
demand, there will be an inevitable increase in
price.
The
discrepancy between supply and demand is further
exacerbated to the extent that a significant
percentage of world oil production is controlled
by unstable authoritarian governments.
In
this regard, the amount of excess production
capacity seems to be a good predictor of increases
in the price of oil. The less excess
production capacity, the greater the upward
pressure on oil. Historically, it is
generally accepted that the control of excess
capacity, first by the Texas Rail Road
Commission and later by OPEC/Saudi Arabia, is
what stabilized oil prices. &;It is when
US domestic oil demand exceeded supply that the
power to control oil prices passed from the Texas
Rail Road Commission to OPEC.
In
Mid 2002, there was over 6 million barrels per day
of excess production capacity. By mid 2003
the excess was below 2 million. During much
of 2004 and 2005 the excess capacity was under 1
million per day. There is
political uncertainty in countries
representing 35% of current world
production.
Currently, Saudi
Arabia is producing at near capacity, however,
they are currently developing the Khurais field,
their last undeveloped giant field. It
is reported that their state-owned
oil company Aramco, is currently spending $10
billion to build the infrastructure to pump 1.2
million barrels of oil per day by June
2009.
It
is unlikely that demand will decrease in the long
term, although because of high prices will see a
decrease in the rate of growth in demand
for oil. Until there is excess capacity in
the system caused by increased production
capabilities (drilling to open new fields), prices
will at best fluctuate, and at worst continue to
increase. With the Khurais field as well as
full production from Iraq expected in the
second or third quarter of 2009, it
is probable that oil prices
will increase until new excess capacity
can moderate prices.
Given
increasing demand, how long this new excess
capacity will be able moderate future oil prices,
and at what rate new giant oil fields will be
discovered remains a question that will add
uncertainty to the oil industry. Best guess is
that oil prices will not see previous averages
until systemic changes in the world economy are
made that will structurally decrease demand for
oil.
Impact of High Energy Costs - the LEED
Building
The Leadership in Energy and Environmental Design (LEED) Green Building Rating System has been developed by the
US Green Building
Council (USGBC) to provide
standards for environmentally sustainable construction. Since its introduction in 1998, LEED
has been applied to over 14,000 projects in 50 US
States and 30 countries covering 1.062 billion
square feet of development area.
LEED buildings tend to have lower operating costs,
in addition to being environmentally friendly.
There are significant
reasons why the Commercial property owner should
be familiar with LEED certifications. Three
of these reasons were
originally described in the Spring 2008 issue of the
Urban Land Institute's magazine:
1. From December 2010
onward, the Energy Independence and
Security Act
require that all federal agency leases executed be
in
Energy Star - Certified buildings, or that the
building will be retrofitted
to meet the standards
within a year of executing a federal lease.
2. on a national
basis, LEED-Certified Green Properties out perform
Conventional properties in multiple
areas:
|
|
LEED
Certified |
Conventional |
|
Vacancy, All Property
Types |
6.1% |
8.6% |
|
Vacancy,
Office |
6.9% |
11.2% |
|
Vacancy, Class A
Office |
7.4% |
11.6% |
|
Average Vacancy in
Months |
20.4 |
22.3 |
|
Rent per square
foot |
$37 |
$29 |
|
Source: Urban Land Green,
Spring 2008, Urban Land Institute, p 73 as sited
from (Andrew J Nelson, RREEF, "The Greening of
US Investment Real Estate" November 2007 p
24-25) |
3. More than 75% of
corporate users surveyed in the spring of 2007
were willing to pay premiums for green
offices
|
Corporate
Users Rent Premium for Green
Offices |
|
Would
pay more that 10% premium
|
3% |
|
Would
pay 5-10% premium |
22% |
|
Would
pay 1-5% premium |
52% |
|
Would
pay no premium |
22% |
|
Would
pay less |
1% |
|
Source:
Urban Land Green, Spring 2008, Urban Land
Institute, p 74 as sited from (Jones Lang
LaSalle, CoreNet.) |
Because
Oklahoma's energy costs are traditionally the some
of the lowest in the nation, energy conservation
has traditionally been less than cost
effective. With the higher cost of energy
expected to remain a factor at least
during the near term, building maintenance
should be conducted with energy costs in
mind. Those things that used to be done for
Marketing/PR now may be the economical thing to
do.
Housing Remains Strong in Central
Oklahoma
The Oklahoma City Metro
housing market, while showing signs of weakening,
remains fundamentally strong. The number of
days on market for a single family home has been
decreasing since the first of the year while there
has been an increase in the number of homes on the
market.
In
spite of the decreased availability of credit, the
number of homes closed has been increasing since
the first of the year and effective interest rates
have been decreasing.
While
the average single family sales price has been
slightly decreasing since January, we are now
seeing an upward trend and are tracking pricing of
2007.
Data
Source: Oklahoma City Metropolitan Association of Realtors are based on
information provided to and compiled by MLSGateway.com, Inc., which
does not guarantee or is in any way responsible for its accuracy.
FDIC's New Procedures for Interest-
Reserves for Loans
The Wall Street
Journal, in this year's June 25 issue,
reported that the FDIC had instructed its
bank supervisors to watch for loans
that put money aside as an "interest
reserve." An interest reserve occurs when the bank
calculates the interest that would be paid
during the first year of the loan and then adds
that amount to the loan principal.
In effect, the banks pay themselves from the loan
until the loan becomes due or the project
generates cash flow.
Regulators
fear that this practice can be used to mask under
performing loans on failing real estate
projects. &;ANB Financial of Bentonville,
AR., is reported to have failed for this
reason.
According
to the Journal, FDIC Bank supervisors have been
instructed to closely review the credit
fundamentals of a project. While the
practice has not been outlawed, expect some banks
to stop using interest reserves on loans for
land purchases as well as projects that have been
delayed or abandoned. Other banks may stop
using the feature.
Latest
News Affecting the Oklahoma City Real
Estate
Market (ISSN: 1934-6573)
is published 4 times a year.
Editor/Publisher: Bart Binning,
Ed.D. The periodical is
distributed over the Internet by e-mail using
software provided by Prudential Real Estate
Brokerage Services. Subscription information and
past issues are archived at www.bartbinning.com/newsletter.
Dr.
Binning is a licensed Realtor® in the state of
Oklahoma and employed by Prudential Alliance
Realty, Neither Prudential Real Estate Brokerage
Services nor its franchisee Prudential Alliance
Realty or Detrich Realty or any of their
affiliates are responsible for the content of this
periodical.
Comments
received on this issue are posted with the
newsletter archived at www.bartbinning.com/newsletter.
