New Jersey Real Estate

By Ruth Simon

From The Wall Street Journal Online

Home buyers may now need to pull out their calculators when tackling a common dilemma: what to do if they don't have enough money for a 20% down payment.

In recent years, piggyback loans, low-cost and easy to get, have been the product of choice for many cash-strapped consumers eager to purchase homes. But with short-term interest rates now sharply higher -- currently above 8% -- piggyback loans are less appealing. Now, there are signs that some borrowers are giving traditional private mortgage insurance a second look.

New federal tax legislation expected to be signed by President Bush today gives some consumers even more reason to turn to mortgage insurance. The new law makes the insurance premiums tax deductible for some borrowers who take out new mortgage-insurance contracts in 2007. That is in addition to the tax deduction homeowners can already take on the mortgage interest they pay.

What's more, new guidelines issued recently by bank regulators could make it tougher for some borrowers to get piggyback loans, particularly if these are paired with exotic types of mortgages that may increase risk. Some lenders have already seen higher delinquencies on piggyback mortgages.

For borrowers, whether a piggyback loan or mortgage insurance makes more sense is likely to depend on interest rates as well as an individual's borrowing needs. "When rates were very low, there was no question that a...piggyback was more economical for consumers," says Doreen Woo Ho, who runs the home-equity business for Wells Fargo & Co. Now, she says, the two options are "more competitive."

As the cost difference narrows, Vanessa Meyer, a veterinary technician in Fort Morgan, Colo., opted for mortgage insurance when she and her husband refinanced their mortgage last month. Ms. Meyer says mortgage insurance was "a little bit more [expensive], but we wanted one payment."

With a piggyback loan, a borrower takes out a mortgage for 80% of the home's value and finances the balance of the debt with a fixed-rate home-equity loan or a home-equity line of credit, allowing consumers to borrow as much as 100% of a home's purchase price. Piggybacks were particularly attractive when short-term interest rates were at rock-bottom levels. As recently as 2004, borrowers could get home-equity lines of credit with rates as low as 4%, well below the rate on their main mortgage. In addition, interest on home-equity loans and lines is typically tax-deductible.

With mortgage insurance, a borrower with less than 20% to put down takes out a single loan and pays a mortgage-insurance premium that can vary based on the amount the borrower puts down, credit history and other factors. For a $225,000 mortgage, for example, the insurance premium could run $50 to $100 a month. (In some cases, the lender pays the mortgage-insurance premium and charges the borrower a slightly higher interest rate.) Lenders require mortgage insurance because borrowers who put little, if any, money down are more likely to default.

The popularity of piggyback mortgages has grown sharply. Some 49% of home purchases made in the first three quarters of this year that required financing included a piggyback mortgage, up from 24% in 2002, according to SMR Research Corp., a market-research firm.

But there are signs that this growth has stalled and that mortgage insurance may be making a comeback. SMR says piggybacks' share of the market was flat in 2006, following years of steady increases. Meanwhile, 6.3% of mortgages originated in the third quarter carried traditional private mortgage insurance, up from 5.9% a year earlier, according to Inside Mortgage Finance, an industry publication. The figures are based on the dollar value of loan originations and don't include mortgage insurance purchased by lenders on a bulk basis.

Mortgage-insurance providers are expecting business to pick up in the wake of the tax-law change, which they had lobbied for. The Mortgage Insurance Companies of America, a trade group, is spending $1.1 million on an advertising campaign aimed at mortgage brokers and real-estate agents. Genworth Financial Inc., a leading mortgage insurer, is running "webinars" to explain the implications of the new law. PMI Group Inc. is sending out 15,000 foam oranges with stickers saying mortgage insurance is now deductible.

Mortgage lenders are also rethinking their strategies. J.P. Morgan Chase & Co. is currently looking at how to help its loan officers understand the new rules and decide whether mortgage insurance or a piggyback is a better bet for borrowers. "There's a whole generation of mortgage brokers who have not seen or sold mortgage insurance," says Thomas Kelly, a J.P. Morgan Chase spokesman.

The new tax legislation makes premiums fully deductible for borrowers who take out a new mortgage-insurance contract in 2007, provided they have $100,000 or less of adjusted gross income ($50,000 if married and filing separate returns). The deduction phases out for borrowers with incomes between $100,000 and $109,000. The deduction applies to insurance on mortgages taken out to buy homes and on refinancings, provided the new loan isn't for more than the amount of mortgage debt being refinanced. To claim the deduction, borrowers must file an itemized tax return. Unless the law is extended, the tax break will expire at the end of 2007.

Borrowers who took out piggybacks in recent years have seen the rate on their home-equity line increase by as much as four percentage points. Now some borrowers whose adjustable-rate mortgages are resetting are opting for mortgage insurance instead of a piggyback when they refinance, says Michael Zimmerman, vice president of investor relations for mortgage insurer MGIC Corp.

Consumers should compare the monthly payments on a piggyback versus mortgage insurance. If the rate on the home-equity line is more than two percentage points above the rate on your primary mortgage, "you should be strongly considering a mortgage-insurance policy," says Keith Gumbinger, a mortgage analyst with HSH Associates. "But you need to run the numbers."

HSH offers a calculator (www.hsh.com) that helps borrowers determine how much they would pay with mortgage insurance. And mortgage-advice Web site www.mtgprofessor.com includes calculators that borrowers can use to compare the costs of a piggyback versus mortgage insurance.

The size of the piggyback loan can also make a difference. "If you are taking out a $400,000 first mortgage and a $30,000 or $40,000 [home-equity loan]...it still may make sense to pay a little higher rate on $30,000 or $40,000, rather than paying mortgage insurance on the whole $430,000," says Dan Arrigoni, president of U.S. Bank Home Mortgage, a unit of U.S. Bancorp. In an effort to keep loan volumes up, some lenders are offering special deals that make piggybacks attractive to borrowers with good credit even as short-term rates move higher.

Another factor to consider: how fast you expect to pay down your mortgage. Since 1999, mortgage insurers have been required to automatically cancel the premium when a homeowner has paid down the mortgage to 78% of the original purchase price. Also, homeowners can ask their lender to stop premium charges if rising home prices and monthly mortgage payments bring their loan amount to 80% or less of the home's value.

"It may involve springing for an appraisal, but that can quickly pay for itself," says Greg McBride, a senior financial analyst with Bankrate.com. Homeowners selecting this route should use an appraiser who has been approved by their lender, he adds.

Some caveats: Borrowers typically can't terminate their mortgage insurance in the first two years after they have taken out their loan, says Jack Guttentag, professor emeritus at the University of Pennsylvania's Wharton School. Borrowers may also be unable to cancel their mortgage insurance if they had a late or missed payment or if they took out a home-equity loan or line of credit.

 

 

 

 

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By Troy McMullen

From The Wall Street Journal Online

The state of the housing market in much of the country may be gloomy but in Manhattan, real-estate brokers are still celebrating -- and record Wall Street year-end bonuses are only part of the reason.

In many major metro areas, from Miami to San Diego, the number of homes listed for sale has soared over the past year or two as sales have plunged. Median home prices in the U.S. fell 3.5% in October compared with a year ago, the largest year-over-year drop on record, according to the National Association of Realtors. A new report from UBS AG predicts a continued decline and warns that the slump could "seriously impact the overall economy" in 2007.

Yet despite the national outlook, Manhattan has shown resilience, fueled by lower-than-average unemployment rates, a surging financial sector and a swelling population of millionaires (and billionaires) immune to the impact of a slowdown.

Manhattan's international credentials are unique in the U.S., says Andreas Hoeferp, chief global economist at UBS Wealth Management Research. A power center that attracts major players in fashion, art, media and finance, the island has more in common with other world capitals like London, Hong Kong or Paris. "Like other financial capitals, the real-estate market here is cushioned by a global demand for housing that's unmatched in the U.S.," Mr. Hoeferp says. Still, there could be clouds gathering, some analysts warn, including a glut of new condominiums and possible price declines.

Overall, the number of homes sold in Manhattan was up about 1% in November versus a year ago (compared to an 11.5% drop in sales nationwide in October), and prices continue to appreciate. Median home prices in the borough rose 17.5% during the same period and 26.8% since November 2004, according to Gregory Heym, chief economist for Realtor Brown Harris Stevens. Manhattan's strength is even more pronounced at the high end, where growing demand for trophy properties is propping up the luxury market. The number of $3 million-plus homes sold was up 6.5% year-on-year in November, according to Mr. Heym.

Among the big-ticket sales: the $27.5 million paid by New York Stock Exchange Chief Executive John Thain for a two-bedroom duplex apartment at 740 Park Ave., one of the city's most storied addresses. Formerly home to Rockefellers, Vanderbilts and Chryslers, the building's current residents include cosmetics executive Ronald Lauder and Blackstone Group chief Stephen A. Schwarzman.

In addition, 38 single-family townhouses priced at $10 million and over sold during the same period, up from 22 last year, says Kirk Henckels, an executive vice president of Stribling Private Brokerage. Those sales include the $53 million that investment banker J. Christopher Flowers paid in October for the century-old, five-story Harkness Mansion on East 75th Street, just off Fifth Avenue. The price for the 20-plus-room limestone mansion, which includes a ballroom, 11 fireplaces and a center atrium, is thought to be the highest paid for a Manhattan residence.

Ballooning Bonuses

The health of the New York real-estate sector is the result of lower unemployment rates than the national average, higher job growth rates and a Dow Jones Industrial Average in record territory. The financial industry, long a bellwether for New York's real-estate economy, is soaring. Through the first nine months of 2006, combined earnings at seven top global securities firms based in New York surged to $39 billion, according to David Trone, a banking analyst at Fox-Pitt, Kelton. Meanwhile, new federal data show the average weekly pay for finance jobs in Manhattan was about $8,300 in the first quarter of 2006, up more than $3,000 per week in three years. A projected $36 billion in bonuses will be doled out this year by the top five investment banks in New York, according to Options Group, an executive search firm, up from a record $21.5 billion in 2005 and nearly a fourfold increase from $8.6 billion in 2002.

"There's an incredible amount of money out there right now," says Jacky Teplitzky, an executive vice president at Prudential Douglas Elliman. "It's not clear if that funnels into real estate, but it certainly can't hurt."

Tatyana Dobryanskaya says she expected to wait until next year before looking for a new apartment. But the 30-year-old fixed income analyst says a bigger-than-expected bonus (she declined to disclose how much) from the investment bank she works for helped to change her plans. She is now in the hunt for something in the $1.5 million-to-$2 million range. "There was really no reason to put this off," she says.

Vincent Piazza, a 36-year old research analyst, has moved even faster. He just signed a contract for a new $1-million-plus loft condo in the Wall Street area. It features 10-foot-high ceilings and marble and limestone bathrooms. Mr. Piazza says his year-end bonus is only part of the reason he's buying now. "I waited a year for prices to come down a bit," he says. "They never did."

Traditionally, the upper end of the New York market tended to hold its own when the city's overall housing market slowed, largely because wealthy buyers were buffered from market gyrations. That was particularly true during the last boom-bust cycle in the late 1980s, economists say. Now, however, even as the national market cools, the entire Manhattan real-estate market is humming, fueled in part by rising income levels and interest from wealthy out-of-town buyers.

Ramesh Vangal, an Indian technology and health-care entrepreneur with homes in Bangalore and Singapore, paid nearly $7 million in October for an apartment on Central Park South. Mr. Vangal says he and his wife and business partner, Katharin, have always loved spending time in Manhattan, but that they bought here for business and financial reasons: "New York has always been an important place to do business, but it's also a good place to invest your money," he says.

Clouds Looming

Despite the robust New York scene, some real-estate observers see warning signs for Manhattan. More listings are crowding the market and the length of time homes are taking to sell is creeping up. Quarterly data show 7,243 units on the market, compared with 6,926 a year ago. The average time a home spent on the market in the third quarter of 2006 before selling was 92 days, a 28-day increase from a year ago.

And while the number of Manhattan sales rose slightly in November compared with the same period a year ago, some of that lift may be inflated. Condos make up only about one-third of Manhattan's housing stock, but they accounted for roughly 44% of sales last month, according to economist Mr. Heym. And much of that came from new buildings where buyers may have made down-payments months or even years ago. That means many of November's "sales" may have occurred when the overall market was still strong. (New condo sales are only registered when the building is completed and residents move in.)

A building boom in the past few years is likely to create a glut next year as new condos are completed. Between 2001 and 2005, there were 21,142 units completed in Manhattan, compared with 12,812 from 1996 to 2000, according to the Real Estate Board of New York. REBNY estimates that there are more than 20,000 new condominium units either under construction or being planned in Manhattan. "The real-estate market here simply cannot sustain that kind of growth," says Nouriel Roubini, a professor of economics at the Stern School of Business at New York University. "Prices will fall very hard."

And brokers shouldn't put too much stock in ballooning Wall Street bonuses. Appraiser Jonathan Miller has analyzed first-quarter sales data since 2003 (bonuses are typically handed out between December and February) and his numbers show no significant bounce in Manhattan home sales, with one year showing a slight decrease. "There's a significant amount of money on the sidelines" in this economy, says Mr. Miller.

The potential for a real-estate slowdown and the imminent glut of new units has done little to slow some developers. Hotelier André Balazs is erecting two new Manhattan condos and recently broke ground on a third -- a 47-story tower in the Wall Street area. Called William Beaver House, the high-rise will include three penthouses, an outdoor Jacuzzi, a hot tub and a 60-foot lap pool with lounge-deck and bar. "I see this as a place for hard-working, hard-playing Wall Streeters," he says.

 

 

 

 

 

 

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By Christina S.N. Lewis

From The Wall Street Journal Online

Sadia Bruce never studied natural history in school, but here's what she wants for Christmas: "Cabinet of Natural Curiosities," a $200 oversize book of plant, animal and insect illustrations from the collection of an 18th-century Dutch pharmacist. "It might give the idea that I was cerebral," says the 26-year-old standardized-tests tutor, who lives in Montclair, N.J.

Buying smart is taking on new meaning. From shadow boxes of beetles (pinned and labeled) to replicas of gibbon skulls, home-decor items and other gifts with an intellectual aesthetic are big sellers this season.

Aspiring eggheads sometimes want things they may not even understand. Nancy Bass Wyden -- co-owner of The Strand, a new, used and rare books emporium in New York, and director of its "books by the foot" division -- says sales of insta-libraries, including editions in French and German, are up 140% this year. "I'm not sure if those folks knew how to read those languages," says Ms. Wyden of some recent customers. Prices range from contemporary fiction for $50 a foot to leather-bound classics for $400 a foot. (On the whole, people don't seem all that interested in reading books: Bookstore sales nationwide fell 1.6% in the first nine months of 2006, according to the Census Bureau.) Other Strand clients include private-equity king (and board member of the New York Public Library) Stephen Schwarzman and his wife, Christine, who Ms. Wyden says spent $200,000 on books for their Park Avenue triplex, including pastel-colored books for a bedroom antechamber and movie-reference works and academic books for the family room. Through his spokesman, Mr. Schwarzman declined to comment.

Retailers and marketers say the interest in things that make people look smart is partly a reaction to the Internet, which has made hardcover encyclopedias, maps and models obsolete -- and hence more desirable. Baby boomers, in particular, are keen on items that make them seem well-educated, well-traveled or well-read.

"They aren't hesitant to try to communicate that," says Stephen Gordon, chief executive of the Sundance Catalog, which this season is selling refurbished manual typewriters from the 1940s, including the Royal Arrow ($695), "a steadfast companion during Hemingway's frequent stays in Havana."

At Assouline.com, "Le Questionnaire de Proust," a $295 leather-bound facsimile of the French writer's famous list of interview questions and his handwritten replies -- plus blank pages so contemporary questioners can live out their own Proustian impulses -- is temporarily sold out. Modern Library's six-book boxed set of "Remembrance of Things Past," meanwhile, is ranked 27,318 on the Amazon sales list.

The smart look is partly rooted in the sciences, both natural (astronomy, geology, zoology) and applied (architecture, forensics, medicine). Sales of minerals such as amethyst geodes and fool's gold at the American Museum of Natural History in New York have soared more than 130% this year. The museum store recently added provenance certificates to some of its gold and meteorite samples, attesting to where and when the rocks were mined or found. Several pages of Restoration Hardware's holiday catalog this season are devoted to astronomy-themed gifts. And "Cabinet of Natural Curiosities" is one of the most popular items from art-book publisher Taschen, which released a smaller, more affordable $60 edition last year. Its distinctive red coral cover made it an instant hit in design magazines and stylists frequently use it as a coffee table prop.

"People like science stuff that subconsciously has a lot of weight because it doesn't seem frivolous," says David Thompson, president of Vagabond Vintage Furnishings, an Atlanta-based wholesaler that sells to Williams-Sonoma Home and other companies. "They want things that seem sophisticated."

Some retailers are increasingly veering into the unusual or the macabre. A series of decoupage plates by John Derian ($880) depicts a 19th-century image of a skeleton. The Evolution Store in New York City, which sells replicas of skulls (a replica of the Australopithecus "Lucy" is a top seller) and other bones, has opened a new department devoted entirely to insects. Companies are also exploring funkier parts of the natural world, such as fungi, sea creatures and crustaceans. A stylized faux sea-urchin condiment bowl with a gilded interior and a silver spoon is the best-selling new item from Vagabond Vintage Furnishings.

Not everyone approves of decorating to look brainy. "Queer Eye" interior designer Thom Filicia compares it to wearing eyeglasses without a prescription. "It's creating a façade," he says. Literary and culture critic Harold Bloom is similarly unimpressed. "I find it too absurd to stimulate me to any comment," Mr. Bloom wrote in an email. Others object solely on visual grounds. "Personally, little bird skeletons frighten me," Mr. Gordon says.

 

 

 

 

 

 

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By Scott Patterson

From The Wall Street Journal Online

Investors, painfully aware that the housing market is in the doldrums, may be surprised to learn that some of this year's best stock performers have been real-estate companies.

Yes, home builders have been basement dwellers and some lenders look shaky. But real-estate investment trusts are up more than 30% year-to-date, and the real-estate mutual funds that invest in them are hitting home runs, according to fund-tracker Morningstar. REITs, as they are known, are tax-advantaged stocks that concentrate on the commercial side of the real-estate business and distribute the lion's share of profits to shareholders through dividends. They deal in office parks, shopping malls and apartment buildings -- rather than McMansions.

Commercial construction has been booming after a protracted slump earlier this decade. During the first half of the year, commercial building grew at a 15% annual rate, according to Commerce Department data. The sector contracted in 2001, 2002 and 2003, so likely isn't as overdone as the residential side. Overbuilding would be a big problem for REITs because that would drive down rents, their primary source of income.

Low interest rates help, and the private-equity boom has added steam to some REIT players, luring investors who want to bet on the next fat deal. REIT mergers and acquisitions have hit a record $117 billion in 2006, according to the National Association of Real Estate Investment Trusts, soaring from $30 billion for the past two years combined.

But has the REIT run gotten overdone? One recent event raises the question: industry icon Sam Zell's $20 billion sale of Equity Office Properties Trust, the REIT he took public in 1997, to Blackstone Group. If Mr. Zell is selling, perhaps that says something about the outlook for the sector as a whole.

REITs look pricey by other measures. Consider one metric of how much investors are paying for every dollar of the cash REITs produce -- called price-to-adjusted funds from operations. It stands at 26, well above the group's historic average of 15, according to Green Street Advisors, a real-estate research firm.

"REIT valuations are just so high relative to other assets that the sector as a whole is really susceptible to a shift in investor sentiment," says Christopher Mayer, a real-estate professor at Columbia University and a board member of Oak Hill REIT Management, a hedge fund.

"Everything has to work right in the wonderful world of real estate that we live in," says Sam Lieber, Alpine Mutual Funds president.

 

 

 

 

 

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By Jennifer S. Forsyth

From The Wall Street Journal Online

Scott Rechler, chief executive of Reckson Associates Realty Corp., is poised to run a new real-estate venture, but his new company won't have Reckson or Rechler in the name.

Under terms of an agreement announced by his family, Mr. Rechler is divesting himself of most of his stake in the family business, Rechler Equity Partners, and will agree to restrictions on the use of Reckson or Rechler in the company name, said Gregg Rechler, a Rechler Equity managing partner and Scott's brother.

The announcement doesn't reflect animosity toward Scott Rechler but a need for brand clarity in the Long Island, N.Y., market where the two sides of the family could compete head-on, added Mitchell Rechler, a Rechler Equity managing partner and Scott's cousin.

That competition became a likelihood last week after Reckson shareholders voted to approve a merger of the Uniondale, N.Y., real-estate investment trust with SL Green Realty Corp., another REIT, for about $4.1 billion, not including debt assumption. As part of the agreement, SL Green agreed to sell about one-third of the portfolio in a secondary transaction to a group of investors led by Scott Rechler for $2.1 billion -- a deal that became controversial because some shareholders considered the price too low. Mr. Rechler's group will own office properties in Long Island, New Jersey and Westchester County, N.Y., unless the deal fails to close.

Scott Rechler, in an interview yesterday, said the sale of his stake in Rechler Equity will allow him to use the proceeds toward the suburban portfolio acquisition. He said he hasn't decided on the name for his new real-estate company.

Rechler Equity's announcement essentially completes a split -- business-wise -- in the family that started three years earlier. After several years as a publicly traded company, Reckson came under pressure from analysts for having so many Rechlers involved in the company. As a result, in 2003, Scott Rechler moved up to sole chief executive from co-chief, and four other family members, including his father Roger and uncle Donald, left the company. As compensation, they bought the company's industrial portfolio from Reckson for $315 million.

At that time, Scott Rechler retained a small equity holding in the portfolio that became the core of Rechler Equity Partners. His family members substantially bought him out last week. Although Scott Rechler will retain a fractional interest in the company, he will no longer participate in business decisions. The family's buyout of Scott "demonstrates our commitment to the Long Island marketplace," Donald Rechler said in a statement. "We wish Scott all the best with his future endeavors."

 

 

 

 

 

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By Troy McMullen

From The Wall Street Journal Online

With once-hot condominium markets across the country in sharp decline and many real-estate professionals predicting a further weakening, some developers are facing more than a glut of unsold inventory. Angry condo buyers from Boca Raton, Fla., to San Diego are taking them to court, alleging everything from breach of contract to fraud.

Some of the lawsuits claim that the amenities featured in glossy marketing brochures and model apartments never made it into the final product. Others involve much-hyped projects that went bust, leaving hundreds of buyers with contracts for condos that will never materialize.

In Florida, 2,557 individual complaints against developers were filed in fiscal year 2006, ended June 30, up from 1,825 two years ago, according to the state's Department of Business and Professional Regulation. In Colorado, at least 18 lawsuits have been filed by attorneys representing condominium-owners' associations in the last two years. Most involve complaints of shoddy construction or faulty repairs in recently completed developments, according to research compiled by Denver property appraiser Steven Miller. And in Las Vegas, the Clark County District Court is hearing cases against more than a dozen developers. That includes one suit brought by more than 50 plaintiffs against the builders of Icon Las Vegas, a two-tower project that was scrapped in January, according to Will Kemp, the attorney representing the plaintiffs.

Legal professionals say that the increase in litigation isn't surprising, given the furious pace of new construction in the past few years, and that some suits may rely on dubious legal strategies that have little chance of prevailing in court. Several states, including California, Colorado and Nevada, have tightened construction-defect laws to help stem the tide. The laws, a result of intense lobbying by the building industry, make it tougher for homeowners to sue or require mediators to settle disputes out of court.

"These types of laws help weed out many complaints that, frankly, never should have ended up in court in the first place," says Chicago attorney Howard Swibel, president of the National Conference of Commissioners on Uniform State Laws, a nonpartisan advisory group.

Still, industry analysts say, the increase in litigation is shedding light on the problems facing many people who got caught up in the rush to buy during the recent run-up, particularly in the condo market, where record numbers purchased properties sight unseen.

Size Matters

In California, developer Crescent Heights is being sued by condo owners in three of its projects, including the Metropolitan, a recently completed 342-unit development in San Francisco's Rincon Hill district. That lawsuit, filed in state Superior Court in August, claims the developer misrepresented the size of the units and failed to repair various construction defects after the building was completed.

Ben Bedi, who filed the suit, says he put down a 5% deposit on a $1.7 million condo during preconstruction in 2004. He says floor plans, marketing materials and a partial model apartment led him to believe that his two-bedroom unit would look like a penthouse, with huge windows, hardwood floors, two large balconies and a view of San Francisco Bay.

In his complaint, the 41-year-old attorney alleges that when he moved in at the end of 2004, he found defects such as screen doors installed backwards and water pipes that leaked. The complaint also alleges that the developer misrepresented the size of the apartment. Mr. Bedi says an architect he hired found it to be about 220 square feet smaller than the approximately 1,684 square feet advertised in the offering plan.

"I paid a lot of money for what I thought would be a brand-new home," Mr. Bedi says. Instead, he says, he has spent thousands of dollars just on repairs and other labor.

Patrick E. Breen, an attorney representing the Metropolitan's developer, denies the claims in the lawsuit and says the square-footage figures, presented in purchasing agreements as approximates, were accurate. "We hired the proper outside engineers to measure units and are confident that our sales and square-footage representations were handled appropriately," he says. Mr. Breen also says that the developer looked at Mr. Bedi's other complaints and found them to be invalid. For example, the screen doors cited were installed correctly, Mr. Breen says.

Homeowners have long taken developers to court for leaky faucets and faulty construction. But real-estate professionals attribute this latest wave of legal actions to the surge in preconstruction purchases during the recent market surge. In Las Vegas, one hub of the condo boom, about 4,500 condos and townhouses, priced at $500,000 and above, were sold in preconstruction last year -- a fourfold increase over 2004, according to Hanley Wood Market Intelligence, a research firm in Costa Mesa, Calif.

Another new wrinkle is the number of high-end buildings currently involved in court actions -- a rarity in the past, industry analysts say.

"You've got buyers out there who paid one and two million dollars or more for a condominium and are now dealing with everyday construction defects," says Ross Feinberg, a California attorney who specializes in construction litigation.

Suits Up, Sales Down

The rise in litigation comes as the market for condos is slumping. Nationwide, sales of existing condominiums and cooperatives fell 16% in September compared with the same period a year earlier, one of the sharpest year-on-year declines in years, according to the National Association of Realtors.

The declines in some areas have been even more precipitous. Sales of existing condominiums in Miami fell 45% in September compared with the same 2005 period, the Florida Association of Realtors says. In San Diego, year-on-year sales of existing condos were down 41% in September, according to La Jolla, Calif.-based real-estate research firm DataQuick. A similar story is unfolding in Las Vegas, where condo and townhouse sales were off 45% in October compared with a year earlier, according to the Greater Las Vegas Association of Realtors.

"Right now, the condo market is a disaster," says Lewis Goodkin, a Miami economist and real-estate analyst. The crash in some areas was inevitable, he adds. "These markets were essentially propped up by speculators." Indeed, investors accounted for as much as 80% of the preconstruction purchases of luxury condos in Miami, according to a 2004 study by Esslinger-Wooten-Maxwell Realtors.

Dried-up demand and rising construction costs have forced many developers to stall or cancel projects, particularly in formerly hot markets that are now overbuilt. In Las Vegas, an estimated 6,900 condo units have been suspended in the sales process, while another 1,900 have been canceled officially, according to real-estate research firm Applied Analysis. Among those scrapped were projects co-developed by George Clooney and Ivana Trump.

Cocktails, Then Cancellations

As the number of scrapped projects increases, so too do the complaints. In Florida, many condo suits involve severely delayed, cancelled or recently completed projects in the southern part of the state, where more than 100 residential developments are in some stage of planning, from the permit stage to breaking ground, according to real-estate analysts.

Maritza Pena, a 33-year-old attorney in Miami, says she was surprised when she got a letter in February advising her that the development where she had agreed to purchase a two-bedroom apartment in 2004 for $579,980 had been cancelled. The developers of the proposed 49-story tower near Miami's Brickell Avenue had only seven months earlier hosted a cocktail party to celebrate the condominium's groundbreaking.

"They never hinted that something was wrong," says Ms. Pena, a first-time home buyer. "When I read the letter, it felt like I got punched in the stomach." Ms. Pena says the two-story unit she agreed to purchase on the 42nd floor was to have stainless-steel kitchen appliances, a marble bathtub and views of Biscayne Bay.

So she joined 58 fellow buyers who filed a lawsuit in April against the developer, South Bayshore Tower, in Miami-Dade Circuit Court, claiming breach of contract. The lawsuit seeks the gain they would have realized if the condos had been built plus the unconditional return of deposits with interest.

Lee Stapleton Milford, an attorney representing the developer, says it denies all of the claims cited in the lawsuit and says hurricane-related delays and rising construction costs led to the cancellation of the project, called 1390 Brickell Bay.

Some experts say the case may be tough to prove. Indeed, two of the three original claims in the lawsuit have been dismissed or withdrawn. And, as required in the purchasing agreement in the event that the project was canceled, the company has already returned buyers' deposits, in most cases 20% of the purchase price, with interest, according to Ms. Milford. The plaintiffs may also find it difficult proving future financial losses, because the condo wasn't built.

"The court looks for hard-and-fast evidence that you were harmed," says Georgette Chapman Phillips, chair of the real-estate department at the Wharton School of the University of Pennsylvania. "Lost profits are always hard to prove because they are speculative."







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By Robin Goldwyn Blumenthal

From Barron's Online

http://www.realestatejournal.com/

At the highest reaches of apartment heaven, where only the wealthiest of the wealthy can afford to perch, even the air has a different feel. There's something deliciously heady and almost unnatural in the new $5 million, $10 million and $20 million layouts that are proliferating in big cities across America. With their stately entryways, high ceilings and sweeping views of the world below, they exude a hushed grandeur.

Fittingly, these castles in the sky have been largely insulated from the harsh realities of the housing slowdown. The swelling ranks of millionaires and billionaires have been flocking to cities or trading up faster than developers can build the next gleaming, luxury apartment tower.

Empty-nest boomers are moving in from the suburbs in droves. Hedge-fund jockeys with city digs are on the prowl for still bigger and better ones. Newly minted magnates from overseas are snapping up second and third homes in U.S. metropolises, from Miami to San Francisco.

The result of all this: changing skylines, firmly rising prices and, for the well-funded buyer, a bewildering array of amenities. Would you care for a four-foot deep swimming pool in your apartment? How about a "mature pine forest" on the terrace? For the bookish apartment dweller, Manhattan's new 55 Wall Street comes with its own 20,000-volume private library.

Of course, regular old country estates aren't going begging. The market for houses of $5 million-plus also looks to be holding up better than most of the housing scene (see Luxury Addresses). Together, houses and apartments in this price range are among the few bright spots left on the national housing scene.

Just look at the numbers from Manhattan, America's apartment mecca. The average price per square foot for a condominium -- and most of the new buildings are condos -- continued a long climb in the third quarter of this year, to $1,171 per square foot, pushing the median price of a unit to more than $1 million. And that's just the median. It's increasingly common to see sales for $4,000, $5,000 and even $6,000 per square foot.

In the upper 10% of the New York market -- including cooperatives, long the city's mainstay -- the average sales price surged 18% in the third quarter from the level a year earlier, to $4.5 million, says Jonathan Miller, CEO of Miller Samuel, a New York real-estate appraisal firm.

With a dearth of available apartments in grand, prewar properties along Park and Fifth Avenues, buyers increasingly are clamoring to get into the many new steel-and-glass complexes going up all over the city. The $20 million-and-up segment is especially coveted -- "statement homes," as some call them. "Everyone is trying to find out where those are and 'How do I get my client into them,'" says Sharon Baum, director of the exclusive property division of the Corcoran property brokerage in New York.

Is it all getting out of hand? The luxury-apartment market may have become a tad -- dare we say it -- frothy. Brokers, developers and other pros suggest that price gains could start moderating around the country, as the supply of new buildings catches up with demand. By and large, however, the market is showing striking resilience and could continue to post healthy gains. It certainly doesn't look headed for the double-digit price declines some are expecting for the mainstream market in parts of the two coasts.

"From my vantage point the superluxury market is as strong as I've seen it," says developer William Zeckendorf, who, with his brother Arthur, is putting up one of the most sought-after luxury buildings in the city, 15 Central Park West. Nests in that 202-unit edifice are going for as much as $45 million -- to hedge-fund managers, Goldman Sachs honchos, the rock star Sting and others. (See Luxury Addresses.)

The reason for the market's health is simple: "There are very few great homes in this country, and an awful lot of people who've come into extraordinary wealth," Zeckendorf says. In fact, there are now some 35,000 people in North America whose net worth, excluding their primary residences, exceeds $30 million, according to a study by consultant Capgemini and Merrill Lynch.

The $5 million question is, what do you get for your $5 million? For that matter, is there really much difference between, say, a $15 million apartment and a $20 million model? In general, spreads in the $5 million-and-up category claim to have a sense of drama that normal apartments just can't match. Great light, distinctive architecture, and sprawling space are often part of the mix, brokers say. A striking Poggenpohl kitchen can only help the price, as can a good Japanese soaking tub.

To discover some finer distinctions, Barron's toured a group of recently built New York apartments ranging in price from $6.5 million to more than $20 million. Each had spectacular views, with even the least expensive, a three-bedroom loft on a lower floor at 165 Charles St., downtown, giving the sense of expansive space. It had floor-to-ceiling windows, an open kitchen and floor-to-ceiling glass doors in the master bathroom.

But other factors set the extremely expensive homes apart from the incredibly costly ones. As always in real estate, location was one. One East Side apartment, closer to midtown, comparable in size to the first one's 2,500 square feet, commands closer to $9 million.

That apartment, in a building called One Beacon Court, had some additional amenities, including a working fireplace. But what really stood out was the utter lack of noise. In the first apartment, you could discern the faint sound of -- gasp! -- cars whizzing by outside. Not so at the One Beacon Court unit. Thanks in large part to being on the 32nd floor, it was soundless. With its coffered 11-foot ceilings and expansive hallways, it hearkens back to an earlier age of civility and good breeding. But the neighbors in the building are thoroughly modern: The likes of singer Beyoncé Knowles and the Yankees' Johnny Damon can be spotted in the high-ceilinged elevator.

Go up a step to a 5,300-square-foot manse, on the 71st floor of the Time Warner Center, and the sense of drama only heightens. The entrance to this four-bedroom palace gives way to an 80-foot living room whose floor-to-ceiling vistas of Central Park, the Upper East Side and the George Washington Bridge stop you at every turn. And, spacious as the layout may be, a bathroom is never far away: There are five full bathrooms and two half-bathrooms -- well outnumbering the bedrooms.

In this sprawling condo, you are completely removed from the cares of the outside world. It only requires money: $21 million, plus a monthly carrying charge of $21,000.

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By Janet Morrissey

From The Wall Street Journal Online

Home builder D.R. Horton Inc. on Tuesday posted lower profit for its fiscal fourth quarter amid land-related writedowns of $199.2 million, but the results exceeded Wall Street's expectations.

The Fort Worth, Texas, company reported no signs of a rebound in the troubled housing market and offered no outlook for fiscal 2007. Market conditions remain "challenging" in the home-building industry, Donald Horton, the company's chairman, said in a statement. The company's orders fell 25%, which is better than many of its rivals.

Net income sank to $277.7 million, or 88 cents a share, in the three months ended Sept. 30, from $563.8 million, or $1.77 a share, a year earlier. Revenue fell 3.9% to $4.9 billion from $5.1 billion. The most recent quarter's results included a charge of 39 cents a share, related to writedowns on land, land options and land reacquisition costs. Still, the results exceeded Thomson First Call's estimate of 69 cents a share on revenue of $3.93 billion

The land writedowns were D.R. Horton's first. Other builders have been taking charges related to land for the past couple of quarters as deteriorating housing conditions and values have made certain land parcels no longer financially viable to build homes on.

Banc of America analyst Dan Oppenheim expects D.R. Horton to take more land-related writedowns in future quarters. He said D.R. Horton's results were better than expected because home closings held up relatively well and "represented 26 cents a share of upside." In the quarter, closings fell 7.3% to 17,261.

The higher-than-expected closings appeared to indicate that D.R. Horton was slightly more successful than other builders at stemming the tide of cancellations. This was partly offset by the company's gross profit margins, which came in about seven cents a share lighter than expected, he said.

Mr. Oppenheim said he wasn't surprised that the company didn't offer guidance for fiscal 2007, given the uncertain market conditions. "We expect that they will wait as long as possible before providing it due to the lack of visibility," he said. Mr. Oppenheim doesn't hold shares in D.R. Horton, but his firm has had an investment-banking relationship with the company in the past 12 months.

For all of fiscal 2006, earnings fell 16% to $1.23 billion, or $3.90 a share, from $1.47 billion, or $4.62 a share, for fiscal 2005. Revenue grew 8.6% to $15.1 billion from $13.9 billion.

In early trading, shares of D.R. Horton were up $1.31, or 5.9%, at $23.69 on the New York Stock Exchange.

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By Aaron Lucchetti

From The Wall Street Journal Online

Few businesses have installed as many visible security measures since the 2001 terrorist attacks as the New York Stock Exchange. The Big Board keeps several nearby streets closed to traffic and erected steel pylons around its perimeter. Visitors have to go through a gantlet of security measures to get into the building.

Now, one of its landlords says things have gotten out of hand.

NYSE Group Inc., the exchange's parent company, said in a regulatory filing this week that the landlord for one of its buildings is arguing the NYSE is in default of certain lease covenants because of its massive security effort. The security has made it difficult for tenants of Vornado Realty Trust, the landlord, and visitors to get into the building, according to people familiar with the matter. This could drive down the value of office space in the building, hurting Vornado.

New York-based Vornado, which leases the land under the building from an NYSE unit, is demanding the Big Board fix the situation by Dec. 15. NYSE said in the filing that it believes the claims are without merit. Vornado wouldn't comment on the terms of the lease.

The dispute illustrates the balancing act that firms face when juggling commerce with protecting employees. The NYSE, as one of the most well-known symbols of capitalism, has good reasons to be vigilant. The World Trade Center site is just blocks from its headquarters and after a terror scare in 2004, the Department of Homeland Security raised the terror-threat level for the New York financial sector, citing NYSE as one of a handful of possible terror targets. The exchange was also forced to close its popular visitors' gallery.

The NYSE beefed up security in 1993 when terrorists detonated a bomb in the World Trade Center, killing six and injuring more than 1,000. These days getting inside the NYSE makes airline security look downright easy.

The streets closest to the NYSE are closed to traffic, and steel blocks have been erected around its perimeter. The building is patrolled by gun-toting guards. NYSE guests have to wait outside until an escort from the building brings them in. Visitors are photographed, their bags searched and many guests are required to give personal information including Social Security numbers. Then, visitors are forced to walk through metal detectors. On rainy days, guests at the exchange's south entrance have been encouraged to stay dry in a local bank branch while waiting to get inside. One big issue for Vornado, according to a person familiar with the matter, is that guests are forced to wait outside, often for some time, something that is unusual at other buildings.

The added security has kept the exchange safe. At the same time, the bigger security footprint has caused some local businesses to suffer. In 2004, Wall Street Garage Parking Corp. sued the exchange over its decision with the city to block traffic near the exchange, scaring potential customers away from his operation. The NYSE prevailed in court, and the streets remain blocked.

Other local businesses have felt the hit. At Champs Gourmet Deli near the exchange, revenues are down 40% since 2001, according to Greg Signorile, who founded the place with his father and two brothers 17 years ago. He says the NYSE's security policies are "strict, but I don't blame them." The deli used to deliver Italian heroes and roast-beef sandwiches by the dozen to a holding room in the exchange, but that ended in 2001. Now traders come to him.

The issue at dispute with Vornado concerns 20 Broad Street, one of the four major buildings that the NYSE occupies in Lower Manhattan. The white-brick tower is next to the famous landmark building that the exchange moved into in 1903. It contains an annex to the Big Board's original trading floor and has office space above that primarily houses NYSE officials and private financial firms, many of whom rent from Vornado and do business at the NYSE. It is unknown if any firms have left because of the security issue.

It's not the first time that the intense security has caused issues for the NYSE. In 2003, several NYSE employees were fired for previous crimes when a new terror-inspired fingerprinting policy uncovered previously undisclosed crimes.

In April, the well-known Stock Exchange Luncheon Club, located above the trading floor shut down, in part because stepped-up security discouraged patrons.

And on a competitive note, the Big Board's electronic rivals often point to the security issue, saying it is just another reason why their system is better. In fact, the NYSE said this week it is planning to close 20% of its trading space by 2008, though it isn't in the Vornado building.

As for the NYSE, it still considers the floor an asset because its traders are often able to step into trading in dicey situations and bring order to the market.

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By Rex Nutting

From The Wall Street Journal Online

The housing market correction has further to run, with new-home construction expected to fall another 12% next year, a real estate industry group said Friday in an updated forecast for 2007.

While the market for existing homes will probably flatten out, the new-home market will probably continue to slow through next year, said David Lereah, chief economist for the National Association of Realtors.

Sales prices are expected to rise slightly. "Given the huge gains in home values during the housing boom, and this year's rise in housing inventory, overall price gains this year and next will be modest," Lereah said. Median existing-home prices are expected to rise 1.7% next year, while new-home prices are expected to rise 1.3%.

Housing starts will probably fall about 12% next year to 1.63 million after falling 11% this year, he said. Starts totaled 2.07 million in 2005.

The NAR forecast for housing starts for 2007 is close to the Blue Chip consensus forecast of 1.62 million. The Blue Chip forecast is derived from the forecasts of 54 economists surveyed by the publication Blue Chip Economic Indicators.

New-home sales will probably fall 8.7% next year to 975,000 after plunging about 17% this year, the realtors said.

Existing-home sales will probably fall 0.6% to 6.43 million next year after sinking 8.6% this year, he said, adding that sellers are becoming more realistic.

"We now have the most favorable market for home buyers in several years," Lereah said.

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By Brian Blackstone

From The Wall Street Journal Online

U.S. housing prices may decline "a little" within the next year, but any such drop is likely to be mild and inconsistent with a bursting housing bubble, according to a paper written by a Federal Reserve economist.

Based on an analysis of housing futures and options and derivatives of housing-related company shares, "market participants expect home prices to decelerate sharply or actually decline a little within the next year," wrote J. Benson Durham, an economist with the Fed's monetary affairs division. However, the anticipated drop in prices "is mild compared to some estimates of the purported overvaluation of the housing market," he added. The paper, dated September, was posted on the Fed's Web site Thursday.

Mr. Durham cautioned that deep and liquid markets needed to signal future home-price trends don't fully exist and that housing futures and options have only been trading on the Chicago Mercantile Exchange since May 22. Still, implied volatility on CME housing options are greater than the historical average, "which suggests that investors see more risks to home prices going forward," he wrote. That higher uncertainty, however, is "generally inconsistent with the perception of a "bubble,'" he added.

Mr. Durham also examined options on shares of certain homebuilders to gauge whether investors see upside or downside risks to home prices. Those options "are only marginally negatively skewed at the present time," he wrote. "This suggests that market participants do not, in fact, view the risks to home prices or, perhaps more accurately, to the broader housing sector as especially tilted to the downside," Mr. Durham concluded.

The paper's conclusions seem in line with the thinking of Fed officials that the sector will slow substantially through the rest of 2006 and into 2007 but is unlikely to derail the economic expansion.

In the minutes of the Sept. 20 Federal Open Market Committee meeting, the Fed said housing "seemed to be cooling considerably" but that the overall economy should strengthen next year "as the housing correction abated." Officials also continue to remark that higher inflation poses a greater risk than a slower economy.

Housing data had declined markedly in recent months, raising fears of a housing-induced slowdown severe enough that it would eventually require Fed rate cuts. But there have been tentative signs of stabilization of late. The National Association of Home Builders index rose in October, albeit by only one point, but nevertheless breaking a string of eight straight declines. And housing starts unexpectedly rose in September, breaking a string of three straight declines.

 

 

 

 

 

 

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By Zachary M. Seward

From The Wall Street Journal Online

A court-appointed receiver examining the books of Pinnacle Development Partners LLC has found evidence that the shuttered real-estate investment firm raised more than $60 million in the past year, higher than initial indications, a person familiar with the matter said.

Earlier, in a complaint filed on Wednesday, the Securities and Exchange Commission accused Pinnacle of operating a Ponzi scheme, and said the firm had raised "at least $30 million" from more than 2,000 investors in 33 states. The U.S. District Court in Atlanta shut down Pinnacle's investment operations and put the firm under receivership. The court also froze the assets of Pinnacle and its owner, Gene A. O'Neal.

The SEC said Pinnacle, which promised 25% returns in as little as 45 days from deals in foreclosed real estate, had misled and defrauded its investors. The commission also accused Pinnacle of offering an unregistered security in a national advertising campaign and on its Web site.

Mr. O'Neal's attorney, Michael J. O'Leary, said, "We emphatically deny that Mr. O'Neal or anybody else at Pinnacle was involved in any kind of an effort to defraud the individuals who entered into partnerships with Pinnacle."

Pinnacle investors fretted about whether they would ever receive their money back. "I barely could sleep last night," said Marvin Reyes, an information-technology specialist in Floral Park, N.Y., who invested $25,000 with Pinnacle on Aug. 31. Others, identified as investors in Pinnacle, gathered on an Internet message board and argued over who should get their money back first.

Those decisions -- if any money is recovered -- will be guided by the receiver, S. Gregory Hays, of Atlanta-based Hays Financial Consulting LLC. He was at Pinnacle's offices yesterday, according to an SEC lawyer, and couldn't be reached for comment.

William Hicks, an SEC lawyer in Atlanta, said that Pinnacle appeared to own property but he couldn't say what it might be worth. "Any property or assets that the receiver can collect, I think, would be used after expenses to compensate investors," Mr. Hicks said.

Pinnacle had told investors that it purchased foreclosed properties from banks in Atlanta, performed minor refurbishments and sold them at a profit. But the SEC said that in reality, Pinnacle had transferred the properties from one of its investor partnerships to another, without ever selling to an independent third party.

 

 

 

 

 

 

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By Ryan Chittum

From The Wall Street Journal Online

The commercial real-estate cycle appears to have reached its peak and will begin pulling back in 2007, according to a new survey of industry executives.

The Urban Land Institute, a Washington-based nonprofit planning and research group, and PricewaterhouseCoopers surveyed more than 600 developers, investors, brokers, consultants and lenders this summer for an annual report on the industry, dubbed Emerging Trends in Real Estate 2007.

The survey suggests commercial real estate is beginning a return to its norm as an income-producing investment rather than the wildly appreciating asset class it has been this decade. The easy lending of the past several years will tighten next year in part because of worries about the economy, surveyed executives said. Investors will have to turn to asset management and operating performance to raise returns as investment inflows slow because of lower return expectations, respondents added.

"I think it's a clear mandate from people that you're going to have to make money the old-fashioned way," says Stephen Blank, an Urban Land Institute senior fellow who specializes in real-estate capital markets. "You're going to have to earn it" through leasing, cost control and other asset management.

The report also says real-estate investment trust stock prices "appear to have more downside risk than upside potential over the short term."

Still, those surveyed expect commercial real-estate cash flow to continue to grow as factors such as reduced vacancies and higher rents keep improving across most property types. One reason: High construction costs are putting a damper on new construction.

While the commercial real-estate market has exhibited some signs of a bubble in recent years -- driven by low interest rates and an influx of investment -- it has differed from the residential market. A key difference is that supply and demand have been more tied to vacancies and rents and not as closely linked to the rising interest rates that have cooled the housing market.

The report advises investors to sell marginal properties and hold on to well-performing ones, with an eye to improving their performance in advance of a potential economic downturn. It advises developers to "hunker down," saying most property markets don't need much new space.

A pullback in the galloping commercial real-estate market will raise capitalization rates -- the initial return on investment in the first year -- by as much as 0.7 percentage point in some property types and restrain the increase in property values, the report says. Falling cap rates mean investors are willing to take a lower return for their money. Cap rates are already rising in some areas, especially in lower-quality properties, after dropping between 2.5 and three percentage points to record lows over the past five years. Cap rates vary by property type, but high-income apartments, for instance, averaged a 5.66% cap rate in July, while limited-service hotels brought a 7.93% cap rate.

The property sectors with a "buy" in the report are warehouse, which the executives interviewed said will boom on the East and Gulf Coasts because of overflow import traffic from the West Coast, and moderate-income apartments, especially on the coasts. Retail property fared worse, with executives suggesting consumer spending will be "middling" and advising investors to sell weak properties while holding strong ones.

Those surveyed said Seattle is the best office market to invest in right now, with office rents set to rise and supply tight. The city is also sitting in a prime position to benefit from explosive growth in Asia and has the best potential of any American city to become the next "24-hour" hub like New York or San Francisco, according to the report. The report lists five U.S. cities as "global pathways" with bright futures for real-estate investment: New York, Seattle, San Francisco, Los Angeles and Washington.

Philadelphia and Chicago are ranked among the worst markets for investment in all property types in the survey. Chicago is being dragged down by economic problems, the "Midwest malaise," the report says, while investors question Philadelphia's future as a global city since it lies between New York and Washington.

 

 

 

 

 

 

 

 

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By Rebecca Smith

From The Wall Street Journal Online

America is facing a crisis when it comes to electricity. But also a tremendous opportunity.

The forces that put us here look grim. Energy prices are high, supplies are increasingly tight, and anxiety is growing about climate change. But that dark outlook is driving consumers, utilities and public officials to finally take advantage of innovations that could radically reshape the nation's power consumption without lowering the standard of living.

Some are technological fixes, from more-efficient light bulbs to variable-speed motors that use less energy when the load on them isn't as heavy. Others involve public policy. States are rewriting their building codes with an eye on conservation, and Washington is trying to lay down efficiency standards for more household appliances and electronic goods. Utilities are joining the effort as well, offering consumers rebates for buying efficient appliances and urging customers to use electricity more wisely.

The good news is, "we haven't found a major use of electricity for which there aren't great opportunities for savings," says David B. Goldstein, director of energy programs at the Natural Resources Defense Council and a recipient of a MacArthur Foundation award for his work on appliance-efficiency standards.

Of course, we've all heard revolutionary promises like these before. But the promises seem to fade as each crisis recedes. So what makes this time different? Forces are converging to make the prospect of big change much more achievable.

Most urgent, of course, is the skyrocketing demand for electricity -- and the tightening supply. Many parts of the country set new records for electricity use in July and August, which sent a warning signal to officials that they have little time to act. Conservation seems a much more feasible solution than quickly building dozens of new power plants to add generating capacity -- especially if reducing emissions is a goal. The fact that the nation's energy bill totaled $296 billion last year, up nearly 50% from 1993, also provides impetus.

We've also gotten smarter about saving energy. New technology makes it possible to build more-efficient hardware without breaking the bank. And public officials now have much better data to draw on when they plan conservation efforts. They know what's worked in the past and can build on that success.

Some experts expect a transformation more profound than any since the 1973-74 Arab oil embargo. As a result of that six-month crisis, U.S. electric utilities largely weaned themselves off oil and shifted to coal and nuclear fuel for their power plants. The federal government set efficiency standards for automobiles and appliances, and building codes were revised. But much is left to be done. After all, 80% of U.S. buildings were built before 1980.

At the very least, the current push should produce considerable savings for consumers and unmistakable environmental benefits. "If you consume a lot less energy, it solves a lot of other problems," says Peter Darbee, chief executive of PG&E Corp., the San Francisco utility that serves one in 20 Americans.

Indeed, James E. Rogers Jr., chief executive of Duke Energy Corp. and president of the utility industry's leading trade group, the Edison Electric Institute, calls energy efficiency the "fifth fuel." By that he means that it's an alternative to coal, natural gas, hydropower and nuclear fuel.

Here's a look at 10 innovations capable of making a big difference immediately and in coming years:

1. Let the Light Shine

Lighting was the first market for electricity, and it's still one of the costliest. But because lighting is ubiquitous, it tends to get less attention than other big power burners like air conditioners. And that means some tremendous improvements in lighting have gotten overlooked.

Technology has improved conventional lighting systems, making them much more efficient. Take compact fluorescent bulbs, which have bases so small they can fit inside a standard screw socket. These bulbs can often cut lighting costs by 75%, and they last at least eight times as long as regular incandescent bulbs. Many even offer a soft white light that mimics incandescent light.

The bulbs are readily available in stores, and prices have dropped substantially recently. Sales volume has increased, and many utilities are offering rebates that cut the cost of 24-watt fluorescent bulbs that produce as much light as 100-watt incandescent bulbs to $1 or $2 apiece.

If each U.S. household replaced one regular bulb with a compact fluorescent, according to the Environmental Protection Agency, consumers would collectively save more than $600 million a year. The energy saved, meanwhile, would be enough to light seven million homes, and the greenhouse-gas reductions from power plants would be equivalent to taking one million cars off the road.

Then there's LED, or light-emitting-diode, technology, which is based on semiconductors. This method already has slashed power use dramatically for many cities as a replacement for conventional traffic lights. Typically, an 11-watt LED unit in a traffic light replaces a 140-watt incandescent unit, producing a 92% energy saving.

Now LEDs are poised to sweep into more industrial applications, such as supermarket refrigeration cases. For now, white LED light is more difficult to make, and thus far more costly, than colored LEDs. But lighting experts say they expect the price to drop enough in the next couple of years to permit broader use of white LEDs.

Meanwhile, a host of new methods are being adopted by consumers and companies, such as systems that "harvest" daylight, concentrating it and shooting it indoors so that buildings don't need to use as much artificial light. Nature's Lighting, of Park City, Utah, manufactures solar dishes, lined with mirrors, that sit on flat roofs and project sunlight through skylights into buildings. Diffusers distribute the bright light.

Mike Basch, a founder of Federal Express who's now chief executive of Nature's Lighting, says warehouses, auto makers and big-box retailers have been especially keen on the systems, which employees like because of the full-spectrum light.

At Wal-Mart Stores Inc., electricity is the leading expense after labor costs, exceeding $1 billion a year. So the retailer has been perfecting harvesting techniques to channel daylight into stores through prismatic skylights that concentrate the light without radiating heat. Sensors automatically adjust the store's fluorescent lights up and down in response to the amount of natural illumination available.

Wal-Mart now uses the system at nearly all of its stores, representing 330 million square feet of floor space. The systems cost about $200,000 per location and pay for themselves in two to three years