Last month, the New York Times Magazine, which has in the past, devoted entire supplements to men's spring fashion or luxury travel, dedicated an entire issue to real estate. Selected topics included the global expansion of the Yellowstone Club, the world's only private golf and ski resort, and a photo montage featuring Manhattan's most stylish brokers. But one of the most interesting stories was much less glamorous: government regulation in the US housing market.
Harvard economist Edward Glaeser posits that high apartment prices in metropolitan cities such as Boston, New York and San Francisco are not the result of normal supply and demand forces, but rather of regulatory interference—local boards restricting new developments, for example, or the number of floors in a building. Artificially low supply leads to artificially higher prices.
Dealing with difficult or Byzantine legal regimes is nothing new for private equity real estate investors. As opportunity funds search the globe for new investments— and new sources of capital—the regulatory challenges multiply. Our special report on the current state of private equity real estate law—ranging from the current hot-button issues in limited partnership agreements to the legal difficulties of investing in Asia—begins on p. 25.
Speaking of regulations, perhaps no business in the world is as highly regulated—or as rapidly growing—as the gaming industry. Lately, however, private equity real estate firms have been willing to tread the bureaucratic waters. Our story on these risk-takers begins on p. 38.
Changing laws and new regulations are having an impact in the public real estate markets as well. The additional costs associated with Sarbanes-Oxley might not be the only reason public REITs are falling into the arms of eager private equity firms, but it is certainly one factor. Beginning on p. 42, we analyze the other issues involved.
Of course, legal issues can affect real estate pros even outside of business hours. Check out p. 14 for our one-page report on MIPIM, the annual palm-pressing fest in Cannes, where local authorities limit the number of yachts in the harbor. If you thought competition was fierce in the global property markets, imagine trying to secure a coveted slip when 20,000 real estate revelers come to the South of France.
Happy hunting and enjoy the issue,
Paul Fruchbom
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