Sunday, October 28, 2007

Housing Is Taking Down Department Stores

I posted an article in September regarding Commercial CAP rates were (or would be) on the rise as a result of the slow down in the housing market and ensuing "credit crunch". The New York Times has an article yesterday showing the effects of the home builder problems and the correlation with the decline in department store value, which translates to slower consumer spending.

Since April, when investors voiced optimism that the housing slide had been contained, shares of the country’s biggest department store chains have fallen by about 30 percent.

With the sagging prices, investors have rendered a harsh judgment on the coming holiday shopping season, predicting that consumers will severely cut back on spending.

The gloom since April 20 has been spread evenly across the big chains: shares of J. C. Penney are down 33 percent, Macy’s by 27 percent, Kohl’s by 28 percent and Sears by 28 percent.

Robert J. Barbera, the chief economist of the Investment Technology Group, said, “The conventional wisdom of a year ago was that we would have a soft landing in housing.” But today, he said, “the stock market message is a hard landing for housing, with clear damage to consumer discretionary spending.”

Thursday, October 25, 2007

Understanding The 2007 Federal Deficit Numbers

One of the more interesting articles today that made me step-back from all of the "doom and gloom" was from economist, Jeff Thredgold, and his weekly assessment of the economy. What was interesting was the fact that the 2007 federal budget deficit, ending September 30th, was $163 billion. So what? Well.. That number represents 1.2% of the GDP for the US, which is HALF the average deficit for the past 40 years. Jeff argues that the tax cuts have increased revenues (a point of contention for any Dem vs. Rep) into the Federal Gov't and significantly decreasing our budget deficit relative to the GDP:

Progress continues to be made in reducing the U.S. government’s income versus spending imbalance, commonly known as the annual budget deficit. Additional progress from this point, however, may be more difficult to come by.

The federal budget deficit for fiscal year 2007, which ended on September 30, registered $163 billion. The number resulted from government spending of a mind-boggling $2.73 trillion ($2,730,000,000,000) versus revenue of $2.57 trillion ($2,570,000,000,000).

One would think that having more than $2.5 trillion to spend over 12 months might be enough…

…not the case

Still, good news saw the deficit decline by 34% versus the $248 billion shortfall of the prior year, and down more sharply versus deficits of $318 billion and $413 billion of the two prior years.

More relevant is the deficit as it relates to the size of the U.S. economy. The $163 billion deficit represented 1.2% of GDP, roughly half the average deficit of the past 40 years.

One would also like to think that recent budget deficits have been declining because members of Congress and the Administration have taken a more responsible approach as to how they spend our money…

…also not the case

American voters removed Republicans from Congressional control last November because they saw too many spending excesses…too many pork barrel spending projects…too much waste.

Democrats took control with promises of greater spending (and pork) transparency…

…what a disappointment!

.. I argue that when you cut tax rates, especially on incomes, capital gains and on dividends, you simply generate more tax revenue. When you boost tax rates, you simply generate less revenue. History is replete with one example after another.

People are intelligent. They make rational decisions as to their investments. For example, they elect to recognize capital gains when tax rates are lower, and sit on possible capital gains when tax rates are higher. The government has never figured this out.

Overall tax revenues climbed by $785 billion since tax rates were cut in 2003, the largest four-year revenue gain ever. Individual tax receipts have jumped more than 46% over the past four years, with the wealthy paying most of the additional taxes.

Tuesday, October 23, 2007

Important Reminder for Mobile Professionals

I received this video from a family member in Florida. I thought it was a good idea to post as a reminder to mobile professionals (male and female) to protect you're personal identity when we're on the go and filling up at the gas station (albeit @ $3.10/gal).

Monday, October 22, 2007

CDO's Shutting Off Cash Payments to Investors

Some housing news from the New York Times that I thought was interesting given that the markets have rallied today:

“For all the pain in the mortgage market, investors who hold bonds backed by risky home loans have continued to receive their monthly interest payments — until now. Collateralized debt obligations — made up of bonds backed by thousands of subprime home loans — are starting to shut off cash payments to investors in lower-rated bonds as credit-rating agencies downgrade the securities they own, according to analysts and industry executives.”

“‘At this point, it’s fair to say that everybody expects this shoe will drop,’ said Mark Adelson, an independent mortgage securities consultant and analyst. ‘It’s a foregone conclusion. But when it happens, there will be a market reaction to it.’”

“Investment banks issued some $486 billion in debt obligations linked to mortgages in 2006 and the first half of 2007. In the last two weeks, leading investment banks have written down about $20 billion, much of it in collateralized debt obligations and mortgage-related securities.”

“Most mortgage securities have not yet had significant losses, which are only recorded when homes are foreclosed and sold. Up to two years can pass between a borrower’s falling behind on payments and an auction.”

“‘As far as the security is concerned, it’s only once the property is effectively sold that a loss is recorded,’ said Nicholas Weill, chief credit officer at Moody’s. ‘The process of foreclosure is a long process. It doesn’t just happen overnight.’”

Wednesday, October 17, 2007

Deflationary Abundance

I wrote an article for the BHB and discussed the four stages of any viable technology. I also posed the question as to its relevancy with real estate and the Redfin model. Here's the quote:

Stage One: Critical Price

The price of any new technology is stratospheric at first (the first DVD player was priced over $1,200 at first). Then, as the production increases and the acceptance from consumers takes hold, the price begins to decline to a “critical price” that opens the “flood gates” of demand. This critical price coincides with the efficiencies in production to meet the spike in demand for the product.

Stage Two: Critical Mass

The product was initially very costly to produce, but the increased demand has driven the production costs down to take advantage of economies of scale. The “critical mass” coincides with more efficient production avenues that help drive market share for the product.

Stage Three: Displacement

The product was originally conceived as an alternative to something else (something else that was too costly, too inefficient, too cumbersome, etc.) and that something else is losing market share to the new technology (product). The loss in market share will reach a point where the new product will “displace” the older, inefficient product in the minds (and hearts) of the consumer (i.e.: the DVD vs. the VHS).

Stage Four: Deflationary abundance

The product has displaced an older, inefficient product and its appeal has become ubiquitous throughout the market. The final stage of this “new” technology (product) is its mass appeal and the availability of cheap, mass production. The availability of the product will cause “deflationary abundance” and our $1,200 DVD player is now essentially a throw-away from WalMart @ $69.99.

Tuesday, October 16, 2007

Real Estate Journal: Be Careful What You Wish For

Real Estate Journal: Be Careful What You Wish For

Links for a couple of questions on LinkedIn and the article written - Is Barack Obama in your network?



October 16, 2007


Additional Comments Sought on a Revised Loan Limit Guidance

New Mortgage Market Note on Historical Trends in

Conforming Loan Limit

Washington, DC – The Office of Federal Housing Enterprise Oversight (OFHEO) announced today three actions regarding the calculation of the conforming loan limit, which establishes the maximum mortgage loan value eligible for purchase by Fannie Mae and Freddie Mac.

OFHEO Director James Lockhart announced that, based on provisions in the proposed guidance, the current conforming loan limit will not be reduced for 2008. If the index used to calculate the maximum loan level should increase, the amount of the increase in 2008 would be reduced by the decline calculated in 2006 of 0.16%. Under no circumstance, however, would the maximum loan level for 2008 drop below the 2006 and 2007 limit of $417,000.

OFHEO Director Lockhart also announced that OFHEO has transmitted to the Federal Register a revised Examination Guidance for procedures relating to the calculation of the conforming loan limit and implementation of increases or decreases in the limit. A proposed guidance was subject to public comment earlier this year and OFHEO has made changes to the proposed guidance in several areas. OFHEO is seeking additional comment on the revised guidance within 30 days of its publication in the Federal Register.

Key provisions of the revised Examination Guidance entitled Conforming Loan Limit Calculations proposed for public comment are the following:

-- As previously proposed, any decreases in the limit would be deferred one year.

-- Decreases would have to total cumulatively more than three percent before a decrease would be implemented, a change from the proposed one percent de minimis amount.

-- As proposed and clarified, if a loan is conforming at the time of origination, it remains conforming regardless of declines in the conforming loan limit, providing greater certainty for markets and asset securitization.

-- As proposed, for simplification, the conforming loan limit will be rounded down to the nearest $100.

The Guidance, as transmitted to the Federal Register for publication, may be found on OFHEO’s website at The notice for the Federal Register contains a summary of the proposed and final guidances, the revised guidance as well as an Appendix setting forth various scenarios relating to possible loan limit decreases.

OFHEO also announced the publication of a new Mortgage Market Note on the conforming loan limit. The Note provides background information on the history of the conforming loan limit. It traces the growth in the loan limit relative to other key economic variables, such as household income. The Note also describes how the national loan limit has changed as compared with regional and state-level measurements of home price appreciation. The Mortgage Market Note is available on OFHEO’s website at


Link to PR:

OFHEO's mission is to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae and Freddie Mac.

Monday, October 15, 2007

Fashon Valley Mall v. NLRB

One of the more interesting articles that I found this weekend is the ongoing legal struggle between property owners (more specifically large shopping mall owners) and the advocates for ‘free speech’. There is a current case in front of the California Supreme Court that attempts to limit the private property rights of owners that their ability to control business practices on their properties. The tenants (and we’re talking about tenants like Target, Macy’s, etc.) have a right to conduct business on the properties that they lease from large shopping center owners. When someone attempts to pass out a flyer on private property or protest an "unfair" trade practice, the landlords argue that they (and their tenants) have a right to conduct business on private property.

This latest case, Fashion Valley Mall v. NLRB, stems from a 1998 incident in which a Teamsters Union affiliate involved in a dispute with the San Diego Union-Tribune newspaper was distributing leaflets outside a Robinsons-May store, urging shoppers to telephone the paper's owner. But the store was a Union-Tribune advertiser. The mall ejected the union representatives, saying that they had failed to complete a permit application agreeing to abide by mall rules — one of which forbids advocating boycotts. The case is now before California's Supreme Court, which last week heard amicus curiae testimony on behalf of ICSC and the California Business Properties Association delivered by Thomas Leanse, of the Chicago-based Katten Muchin Rosenman law firm. Leanse argued that shopping centers are private property and shopping center owners should be allowed to protect their business interests.

“This isn't Speaker's Corner in Hyde Park, it's not Pershing Square in Los Angeles,” said Leanse. “These are privately owned shopping centers and the protestors directly interfere with business.” The court is scheduled to deliver its verdict within 90 days. What makes the case important, Leanse says, is a 1979 ruling in California, Robins v. PruneYard Shopping Center, in which the court extended the right of free expression to large shopping centers, likening them to town squares. Leanse says there is a chance that this ruling will be overturned, though it is a small one. “It is unlikely the 1979 precedent will be overturned,” he said. “But we argue that the shopping center has rules, and they are rules we can enforce, like the no-boycott rule.”

Be Careful What You Wish For

A funny thing happened on the way to writing this entry over the weekend. I received a blast email from the President of Rice University to all alumni about the status of new construction plans on campus (and a request for continued Alumni financial support). So, I decided to write back. As I replied to the president, I commented about the absence of a group affiliation with the university on the LinkedIn professional social networking site. Then I received an email from the President and the Alumni Director asking me to take it upon myself to get this “ball rolling”. So I did. One of the best features of LinkedIn is the ‘grab’ button in the Outlook Toolbar (see my article in the Real Estate Journal). Over the last five days we’re over 200+ alumnus in the group.

Wednesday, October 10, 2007

Want To See Where The Delinquencies Are?

I must say that the Wall Street Journal has done a great job in allowing us spectators (and participants, whatever the case may be) to visually see the progression of the subprime delinquencies around the country. The interactive map allows you to scroll over a county and see the delinquency rate for that quarter. The map will go back in time to Q1 2005 until Q2 2007.

One interesting note is the "light" shaded areas on the West Coast (delinquencies from 0% - 1%) in 2005 will then turn more shaded thru 2007, while the Central Valley turns to a bright shade of crimson (I'll let you figure out what that one means - affectionately coined as "blood alley") during the same time period.

The map really shows the extent of the problem as it permeates across the nation.

Tuesday, October 9, 2007

CLTA Debuts California Title Website

Sacramento Business Journal reports that the CLTA and the California Insurance Commissioner's office has debuted a Title insurance website, TitleWizard, to allow consumers to compare title insurance rates. My first run was a residential refinance on my home and Old Republic Title was about $500 cheaper than 1st American. Then I ran a purchase of my house and the rates were $700 cheaper across the board than for a refinance (assuming that I was the Seller, of course).

Too bad for commercial brokers and agents, the website doesn't factor in rates on commercial deals (I thought I was on to something).

Anyway, worth the look..

Sunday, October 7, 2007

Google Basewide? One Step Away in California

This is one of those "outlandish and inconceivable" notions that occurred to me as I was scanning a few news sites this weekend. Hey, if Jim Cramer can speak in generalities and sound bites on CNBC and induce the Fed to drop rates, then here's my two cents as I see a couple of dots that could be connected some time soon.

Question: If Jason McCarthy, who is the Development Manager of Real Estate for Google (Google Base), were to make a Redfin-type deal with Countrywide in California, what would be the impact?

Scenario: Google Base is attempting to deliver relevant real estate content to the consumer in a format most potential buyers are familiar with and aiming to be the prominent provider of property information aggregation; a new MLS system, if you will, with inventory provided by the agents and owners themselves at no charge.

Redfin is a new brokerage concept that hires in-house (employee) agents to oversee the listing transaction of an owners' home for a one (1%) percent fee, which effectively saves the owner between 2% and 5% of the purchase price in terms of a sales commission represented through traditional real estate brokerage. Redfin is VC funded and attempting to turn a profit through volume, which means that the jury is still out as to whether this type of brokerage business model will be profitable in the long run.

Countrywide is the largest lender in the country and quickly becoming the largest residential land owner in California. Using the chart, the amount of REO properties owned by Countrywide as of Sept. 1, 2007 is $995M in aggregate value, which is most likely going to grow month-to-month another 20% in October.

In the 1990's, the government established a quasi-public institution (Resolution Trust Corporation) to inventory, rehab and sell those REO properties taken back as a result of the Savings and Loan bailout. This time around, is that entity going to be the likes of a Google or Redfin. Is it inconceivable that Basewide or RedfinRTC would be established at a .5% listing commission rate on a Countrywide portfolio that is going to exceed $1B by the end of the year (if not the end of this month)?

I remember those days in the late '80s and early '90s in Houston when entire neighborhoods of 4,000 SF homes were abandoned, with the keys still stuck in the front doors for the RTC officials to pick up when they had time. But, this time around with the Google Van roaming the neighborhoods creating the little "Street View" guy for our viewing pleasure on Google Maps, it might not be that must of a stretch to contract with Google Base to inventory the entire Countrywide portfolio for a transaction fee and reduced listing commission.

Once Google Basewide has its California Broker's license, such a scenario would put Google on the Real Estate map in a hurry. Such a move would certainly get NAR's attention in Chicago (as well as CAR's in Sacramento). The 800 lbs. real estate gorilla (NAR, that is) will be forced to wake up and confront a growing threat to this industry; technology and its endless bank accounts.

Saturday, October 6, 2007

Technology... A Terrible Thing To Waste

Below is my first article for BloodhoundBlog..

Hopefully as a new contributor to the forum I will be able to provide some insight on the commercial side of the business. Without going into the history of the Site To Do Business and its involvement with the CCIM Institute (I’ll save that one for a later date), I wanted to point out that one of the most helpful, most talked about (at least within the inner circles of the Institute) and worth every penny of this designee’s annual dues is the Site To Do Business (“STDBonline”) website.

Simply, STDBonline is an information resource site geared towards the commercial real estate professional with over 20,000 subscribers to date. It is offered as a subscription service for non-CCIM designees, but included as an exclusive membership “perk” once you become a CCIM candidate “on the way to the pin” ( another topic to be discussed later). For those in Silicon Valley and Bellevue pushing the residential side of the real estate technology chase (,,, et al.) in order to attract numerous eye balls searching for homes to justify venture capital dollars looking for advertising payback, the informational aspect of the commercial side of the technology chase is left to a select few (providers, that is). As a CCIM, this invaluable tool continues to add features and data that meet the demands of sophisticated owners, investors and potential clients. For many of my CCIM colleagues, STDBonline is always open in one browser on the taskbar.

For example, the October 2007 news blog on the STDBonline website highlights the following valuable data resources for its subscriber base:

  • Business Lists - Once you establish a project and create a study area, you are able to generate lists of businesses to use for market analysis, competitive analysis, marketing, or prospecting. Business lists are available on study areas using radii, donuts, and hand drawn shapes or a standard geography, which receives the closest 2,000 to your center point. Currently, there are 16,000,000 businesses in this database. After creating/selecting a qualifying study area you want to use to create a business list, go to the deck entitled “Choose Reports and Maps.” Step one asks you to choose a report package from the drop down list of categories. There are two possible choices, the Business Extract or the Business Locator. The Business Extract provides you with an Excel spreadsheet of businesses that you can manipulate, upload onto a map, or use mail merge to create a mailing list. The Business Locator generates the same information but in a PDF;
  • Flood Maps - FloodSource has 100% up-to-date coverage of the entire U.S. and 100,000 plus flood maps online. The data and the maps come directly from the actual up-to-date, official FEMA flood maps. If you’re an appraiser, surveyor, or other real estate professional and you simply need a “snapshot look” at a property’s location relative to the nearest floodplain, FloodScapes are what you need. They are ideal for inserting into reports or as a pictorial tool for illustrating a property’s likelihood of incurring flood damage. The concept is simple: enter any street address or any latitude/longitude in the U.S., and FloodSource automatically creates a custom map report, containing only the portion of the FEMA map you need with the property’s location indicated right on the map. You can save, import, or print your FloodScape report. Enter an address and get an official FEMA map;
  • Environmental Reports - The First American Environmental Risk Determination Report is used for evaluating and completing due diligence on a commercial real estate loan or for a property transaction. The report also provides extremely valuable environmental information for assisting in your financial decisions. It not only provides all governmental listed environmental action sites within a one-mile radii of the subject site, but also ranks the RISK from these sites and provides next step actions; and,
  • Business Information Summary - Now you can determine the number of businesses and employees in your area and compare its daytime population to its residential population. The Business Information Summary identifies the number of businesses and the number of employees by SIC and NAICS classifications in a market. The Business Information Summary also compares daytime population of the area to the residential population. Knowing where people live and work in your market is vital to deciding where to locate businesses and services such as new bank branches, ATMs, restaurants and hotels.

These are just a few of the features incorporated into the website, which has a separate sitemap as a promotions list of the available tools, but here are a couple of my favorites and why:

  • GlobeXplorer – Online aerial mapping site that won’t replace Google Maps, but it will provide the latest aerials in the industry. And the most useful tool (at least with my clients) is a dropdown menu bar to show the previous aerials taken over the property. Need an aerial from 10 years ago to compare the growth patterns for your residential developer clients, you won’t find that information from Google Maps;
  • LenderCheck – Online reports emailed to you for a specific property that will help you stay ahead of many “surprises” on your way down the Closing Checklist. Need to know if the property in escrow will require a Phase II, this tool will help you identify problems before they become surprises weeks before closing (as we all know, any deal has its "problems", but what you try to eliminate are the "surprises" that kill or delay a deal to death);
  • Consumer Expenditures – Online consumer expenditure demographic reports emailed to you based upon radii, donuts, customized grid or drive-time analysis. Here's what I like to do with a drive-time analysis in a cold call example: “I know that the market is slow right now on the other side of town and you may be interested in looking for alternative retail space, I wanted to email you an excel spreadsheet of the business customers within a 20 minute drive time of our center so you can see your potential customer base from our location. Can I get your email address?”Which agent do you think a potential retail client is going to remember after you email him/her a list (in excel format – along with a graphical representation) of all the businesses in a 20 minute drive-time from their potential new retail location? With practice, the report takes less than 5 minutes once you input your location.

Many, if not the majority, of the new clients we pursue in the commercial real estate industry test our “proximity to opportunity” to help them make money. This “proximity to opportunity” might be the first step in the process, but the information, technology and resources (along with the speed in which we provide it) helps solidify a foundation of trust to maintain a lasting relationship with any client. STDBonline is our information staple in the commercial side of the business. Thanks again for the opportunity to contribute to the forum.

Friday, October 5, 2007

BloodhoundBlog Contributor

Thanks again to Greg Swann @ BloodhoundBlog for allowing me to become a contributor to their forum. Now it's time to get to work.

Tuesday, October 2, 2007

Tuesday Top 10 List

After several busy days of appointments and follow-up (one of the keys in any business), I wanted to post a top ten list of interesting articles this Tuesday evening as I attempt to catch-up:

  1. 3 Things Your Customers Won't Tell You.. Unless You Ask (good topic);
  2. Real Estate Gambling In Nevada (1 of every 4 loans was stated - gamble responsibly);
  3. The Worst Recession in 25 Years (to come and why);
  4. 10 Lessons to Teach Your Kids About Money (good information);
  5. Google Docs Rocks (didn't know that Google housed doc sharing);
  6. US Scrap Metal Prices (good to know when you're evaluating Industrial property);
  7. An Essential Management Checklist for Real Estate Companies (always good info at NetGain);
  8. Financial Models for Underachievers (always good info from Guy Kawasaki);
  9. How to Help Your Company Focus on Risk (good topic); and,
  10. Alan Haft's 10 Commandments of Investing (good information).