REAL ESTATE

Real estate is land and all that is either on or under it, including water, trees, buildings, minerals, and oil. "Real estate," also called "real property," is a term that developed in medieval times. When contests were held over the title of a piece of land, the person judged as rightful owner received the real (actual) property as the settlement of the dispute.

The term "real estate" is used today to refer to land and the property on it, and to the real estate industry—including the sale and leasing of both domestic and commercial land, appurtenant property, and the financing of and investment in real properties.

In the selling and renting of both domestic and commercial real estate, brokers buy and sell and appraisers fix value. Property managers and a host of others arrange rentals. Another set of persons is involved with the financing of real estate purchases or rentals and mortgage issues for purchase.

Because of the many facets of the industry, determining which are the largest firms requires asking further questions. What part of the industry? By what measure? Volume of sales? Number of brokers? Number of offices? The industry itself is at odds on ranking issues. Regardless of the ranking system used, Century 21 and ReMax are indisputably the two largest players in the domestic residential real estate market.

Residential real estate sales were strong throughout the mid-to-late 1990s, but profits for real estate brokers fell during the same period. In response to market and business pressures, real estate companies adopted measures to increase agent productivity and streamline operations through reducing listings. Smaller firms also tended to consolidate during the period, and firms of all sizes became more willing to share information to boost overall sales in the residential real estate market.

Century 21 is one of the largest franchise real estate brokers in the United States, with Weichart Realtors operating nationally as one of the largest independent realtors. Although its parent company, Cendant Corp., was found guilty in 1998 of fraudulent accounting that falsely inflated corporate revenues to raise stock prices, Century 21 retained its standing in the market, in part by focusing its efforts on the growing Spanish-speaking market in the United States. Trends in 20th-century realty brokerage include the development of mortgage financing companies that handle financing and refinancing for domestic real estate sales, the increased training and professionalism of real estate broker, and the use of the term "realtor," developed by the National Association of Realtors.

Real estate sales grew consistently and capital markets became increasingly lucrative during the mid-to-late 1990s, producing a boom in the real estate debt financing industry. Real estate debt financing also became increasingly competitive during the period, and insurance companies, long the main providers of mortgages, began to withdraw from the market. A variety of firms, including community banks and independent credit companies, emerged to replace insurance companies as providers of real estate debt financing. This proliferation of credit providers resulted in increased reliance on title insurance by mortgage finance underwriters, leading to creation of a national rating of title insurance firms by Fannie Mae in spring 1998. Not all insurance companies abandoned the real estate debt financing industry, however, as Prudential Insurance Co. created the Prudential Mortgage Capital Co. in August 1997 to serve as a conduit for the provision of commercial real estate loans.

As a force in the economy, the real estate industry holds power in its own right. Real estate brokers and managers form the seventh-largest industry by receipts (nearly $75 billion in 1992) in the nation among nonmanufacturing and service industries. Investment in real estate development by individuals and businesses, for their own use or as a speculative venture, grew to be a significant force in the 1990s. Real estate investment trusts (REITs) are, according to the Standard & Poor's Industry Survey of November 3, 1994, a "formidable economic force." After a short downturn during the second half of 1995, REITs rebounded and by spring 1998 total market capitalization of REITs reached $1.3 trillion, and the number of REITs in the United States grew to 216. Some of the major players in the REIT market are Starwood Lodging Trust, Equity Office Properties Trust, Crescent Real Estate Equities Inc., Rouse Company, and the Simon DeBartolo Group.

The two largest foreign investors in U.S. real estate are Canada and Japan, although the Japanese recession of the. late 1990s drastically reduced participation by Japanese investors. The outlook for the future of real estate—both commercial and domestic—is tied to the fate of interest rates, to changes in tax laws that make investment trusts easier to set up, and to the activities of REITs both in the stability of their investments and their activity in the stock market. Capital gains rates, which applied to real estate, were reduced from 28 to 20 percent in 1997; this, along with the increased use of REITs to facilitate mergers and acquisitions, seems likely to spur real estate sales and keep prices high for some time.