Suddenly, predicting the country's financial future is as scientific as reading tea leaves.

We are in uncharted territory. Never before has the government owned so much of the "private" banking industry. World stock markets continue to fall. Each small gain is corrected by a loss two times as deep. What began as bad lending practices in the United States mortgage industry has become a world wide economic downtown.

The government is attempting to intervene and control the markets, the same thing it did before the Black Tuesday in 1929. Only back then, the Federal Reserve raised interest rates to discourage the booming stock market, only to drop them rates from 6% to 4% four months after the crash. Interest rates are again falling.

Is this really a parallel? A harbinger? It's certainly being argued that it is.

The only thing that can be known for certain is that since the turn of this new century, Americans have been living in a "Minimum Payment Economy. Living on credit, planning for a future when income will outstrip personal spending by virtue of imagined wage increases. Though predatory lending practices were certainly widespread throughout the mortgage market, particularly in the subprime arena but elsewhere also, these practices could not have flourished without a consumerist "gratify today, figure out how to pay for it next year" mentality and economy.

After the 1974 recession, the worst since the great depression, the personal savings rate was 5.1% alarming at the time. In the early 80's it rose to 5.8% but after 85 it plummeted to 3%. Think Oliver Stone's Wall Street, Gordon Gecko declaring "Greed is Good" and the "Me" generation.

1990-1991 saw another recession, a recession that crippled New England closing banks, driving our manufacturing south and sending unemployment into double digits. In Connecticut, the recession began in 1989. We didn't recover until 1992.

Our state history mirrors the nation's recent off-shoring of manufacturing jobs. India and China are the New South. Technical jobs and skilled labor continue to dwindle.

One wonders what the new century has wrought. Personal savings in 2005 was negative 1%. Currently it hovers under 3%, but it is on the rise and in fact is touted as soaring. Soaring because the savings rate in 2006 hovered around 1% and dropped closer to zero in all four quarters of 2007.

So, in 2008 personal savings of 3% is a breakthrough, in 1987 a disaster. Yet this time around Americans aren't greedy the McMansion buyers and credit card shoppers are duped and hoodwinked. Same net result, only repackaged: self indulgence and instant gratification in a non-judgemental world.

Worldwide, demand is down for commodities. OPEC laments falling oil prices. The steel industry is down, indirectly signalling a slow down in China's construction market. Two years ago, China consumed 40% of the world's steel.

Domestically, there are warnings about hedge fund sell offs. Other warnings are the rising unemployment rate. It's at 7%. The crippled domestic auto industry. The energy industry. What will the ripple effect be hedge funds sell off their stocks and flood the market, if they flood the market? Will grocery stores suddenly be unable to stock shelves because their stock will drop to the floor? Will the big three car makers disappear altogether?

REIT's, Real Estate Investment Trusts, which own large portfolios of real estate paying out dividends and returns to shareholders have artificially driven market prices up over the past five years, intensifying in the past three. But, now, there aren't any checks in the mail heading into REIT headquarters. Promised returns are not being achieved. What happens when they sell off assets and large tracts of property, hundreds of thousands of square feet of distribution, office and warehouse space? The short answer is that local entrepreneurial investors will be able to buy property for its true value, but will there be a demand? Is their cash well enough in reserve to keep commercial real estate values from tumbling?

Doomsday predictions are in Vogue, but is there an upside? Yes. Maybe this is the wake up call that we as a country needed.

Maybe the government and citizenry will realize that the United States can not succeed as an economy that simply consumes. Now is the time for venture capitalists, hedge funds and cash holders to invest in those niche products that only we can sell.

We gave our old economy away. Industrial, manufacturing, sewing, call center operations are gone, but there are new frontiers in medicine, stem cell research, fuel cell technology, nanotechnology, gene therapy to be explored. While our political system may prevent us from taking advantage of these breakthroughs we can and should sell them.

Once again, we can sell to the world instead of eating everything it produces. After the Great Depression, the war machine and the war economy were heralded for righting the Great American Ship.

In truth we were making and selling what the world needed and couldn't produce, so this time, instead of producing tanks, planes and bombs for the United States, and our old allies, it will be a reclamation of American ingenuity, technology, cutting edge software and medical techniques.

If only we heed the wake up call and trump doomsday.


October 21, 2008

There is already a new record. That record? Reverse Mortgage borrowing.

In 2008 the amount of reverse mortgages increased by 4.2% over last year. That may not sound like much but it's a good bet that there will be exponential growth in reverse mortgages next year.

Originally intended to give elderly homeowners without mortgages or with a lot of equity in their homes, a vehicle to liquidate some of that equity into cash for use in their twilight years, whether they use it for home health aides, hospice or dream trips.

In a reverse mortgage, 62 year old or older homeowners can tap into their home's equity by getting cash in a lump sum, or monthly income, a line of credit, or some form of all of the above, without having to sell or give up title to their houses. The money is tax free, and repayment is made only when the owner moves or dies.

Banks like them because they are front loaded with fees, meaning that they are profitable to write in the short term. The owner is charged points and closing costs upfront (this is on money that they've already paid interest on as they were paying down the original mortgage) which is profitable for the bank. Rather than dwell on the cost of each dollar that the homeowner is borrowing from themselves, there are more concrete cons to the reverse mortgage. The proceeds might actually prevent the homeowner from collecting medicaid since loan proceeds are counted as assets in certain states.

Also known as Home Equity Conversion Mortgages (HECMs), reverse mortgages are insured by the Federal Housing Administration, an arm of HUD.

In 2005 there were only 43,131 reverse mortgages completed in the US. Cut to the end of 2008 and 112,100 reverse mortgages. As part of the Homeownership and Economic Recovery Act of 2008, HUD approved a single national loan limit of $417,000 for federally insured HECM reverse mortgages that is expected to be effective around Nov. 1. Nearly 30 percent more seniors will be able to borrow through a reverse mortgage because of the higher loan limit.

Though there are pitfalls to the reverse mortgage, they are gaining in popularity and one can imagine that as the adult children of senior citizens suffer from credit spending, ARM backlash and bank bailout busts, borrowing from Mom, Dad and their home equity will be more than a little tempting. After all, you can't take it with you.

Another concern about reverse mortgages is scam artists. A bank won't have to hold a mortgage for a 77 year old for as many years, statistically speaking, as a 62 year old. But, who might influence the 77 year old to borrow in the first place? Unfortunately, there are plenty of people on the street looking to get paid for interacting with the lonely and fragile.

If that's not enough, make way for the next wave currently typified by Rex & Co. and their Rex Agreement. There aren't any points or interest as with the reverse mortgage, instead you are treated to a silent partner in your home ownership. The agreement lasts up to 50 years, depending on state of residence or until the home is sold. After paying cash for a portion of the home, Rex & Co. share in the profit, or loss at sale time. Rex & Co. are in it for the long haul. Even in a real estate slump, five, seven, ten years can cure price drops.

Watch the news, in eighteen, twenty four months, we will hear rumblings that Americans are again tottering on the edge of a borrowing precipice.

kristin

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October 15, 2008

The Dow came back today: almost a thousand points in a day. 936 points. Last Thursday the stock market had its biggest loss and today, five days later, it's biggest gain.

The rally was fueled by confidence. Confidence in the government working to improve economic policy and implement bank safe guards, such as guaranteeing bank to bank loans, as well as European governments working to shore up their banks fueled the bounce. Unlike the United States, the British government pumped their bailout money into banks within five days which added to the positive vibes on Wall Street. Investors rallied on confidence and short sellers, who did their part to submarine the stock market by betting against the market and banking on stock losses had to buy as the day went on. Today, everyone was buying.

Is this a one time bounce or the beginning of the end of the bear market. Chances are, tomorrow the market may not continue this rally. Investors may sell, now that they've made some money or made money back.

Good news for the stock market is good news for everyone. But, a thousand point gain in a day is not going to instill long term confidence in the investment world. Slow steady growth without drops will allay fears, rebuild consumer and investor confidence.

While stock market investors, hedge fund managers, day traders and retirement account holders rejoice over the gains, real estate investors may not be jumping yet. Investing in real estate, traditionally is a long term hold proposition.

While home values doubled and tripled in record time, the manic market is not the arena of the commercial real estate investor buying office, industrial and retail properties looking for a steady return over 10 or 20 years. But, individual investors also keep their money in stocks and every time the Dow dropped over the past few weeks, investors' money became less valuable. So, there is a hesitancy in the real estate investment market.

Meanwhile, no matter what the politicians and pundits predict, americans need to keep working. Companies need to keep the lights on, call centers need to keep operators busy, hospitals, universities, research labs need to keep looking for ways to beat cancer and other disease. And governments need to keep serving the community. All these institutions need a place for their businesses to live.

That means that, despite the blips, despite the hurdles and the questions, real estate is still the place to put your equity.

The returns may not be as large as Wall Street when it's in a boom, but the losses aren't going to happen over night, or in a month either. Owning real estate is a safe bet, still a marketable entity and still the place where 7,8,9 and 10% returns on equity can be realized every day of the week. The savvy investor will watch the trends, consider what investment markets world wide are doing and take their cues from those markets, investing where they see gains for the next 10 years.

The United States will always be a consumer market, retail space though out of favor now, will be a bet for the future, especially ten years from now. Today, it's great to be a "flex" space Landlord. Whether an office moves from the central business district to the suburbs as a cost saving measure, or a distributor lands a new contract, the "Flex" landlord will have the space to lease. Office space needs will continue to evolve with technology and a backlash against executives, corner offices, perks and parachutes, but office landlords who can easily refit their space, flexible duct work, sprinkler systems and demising walls, will earn their best returns.

Mixed use property owners and residential property owners will continue to have tenants, though nerves are running high now as rent checks come in late. Still real estate, commercial, residential, industrial is a good bet. The investor with the right consultant and guidance will find plenty of returns as the stock market drops and rockets. -kristin


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October 13, 2008

The stock market is a roller coaster. Freefalls followed by slow climbs up a lift hill. In the midst of the panic, some investors are asking where they would put their money if they pull it out of the market on the next run up.

Treasury Bills are down, the fed is talking about depression era adjustments to interest rates and the buy back of commercial paper. But, landlords who have owned property, bricks and mortar for the long term aren't in a panic. They don't want to see their tenant companies lose business whether they are office building owners or light industrial building owners. Retail strip owners and mall owners are having an attic of nerves. Tightening credit markets means less non-essential spending at Sephora, Bed Bath and Beyond and Auto Zone. The retail market and it's investors will have a rough ride ahead. It's likely to be a slow Holiday shopping season. Cash is king and when cash is king, impulse buys drop.

But savvy investors will see opportunity in this market. At the Colliers International Conference in Miami, members of the land advisory board were hot on land acquisition. They cited everything from states like New York and New Jersey with rising population demographics as targets for buying. Areas where international trade rule are hot and even bankrupted partially developed tracts will appear to the right investor who can work within the strictures of a bankruptcy.

As REITs continue to face troubling times with underperforming portfolios, private equity firms will step in, filling the whole left by hedge funds. Capitalized buyers will have opportunities that they have not had in years. Conservative investors, satisfied with 10-20 years of steady returns are on top and it's time that they turn their attention back to owning a piece of earth.

kristin


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October 7, 2008

The Dow rose Tuesday, regaining nearly half of Monday's record losses. Bank stocks were up as was confidence that a solution to the economic crisis might be at hand. Connecticut Banking Commissioner reported that Connecticut's banks are stable but community banks will likely report third quarter losses due to Fannie Mae and Freddie Mac.

But there is good news around the state. In New Haven, development of the former New Haven Coliseum site was awarded to Northland Investment Corp. Northland was one of six bidders on the 4.5 acre redevelopment project. In addition to having experience in secondary and tertiary commercial real estate markets like New Haven, Northland was chosen due to its experience with green design and has a track record in Connecticut. Northland is the largest landlord in the city of Hartford and built Hartford 21, an apartment tower that is part of the Hartford Civic Center's redevelopment.

Madison, Connecticut met Hollywood in Harvest an indie film shooting in Madison for three weeks in September. Crews have been shooting on the post road and town green. The film centers on multiple generations of a Jewish Italian family summering in Madison and mourning.

In Waterbury, Indoor water park Coco Key will open October 3rd. The $23 million dollar park is a new addition to the Holiday Inn. Formerly a parking lot, the 55,000 square foot space will host up to 700 people at one time and features a 45 foot high water slide, as well as a wave pool, water cannons and an arcade. The park has already hired more than 150 employees. Other Coco Key parks are thriving in Boston, Cincinatti, Chicago, Columbus.

But it's not all good news, Foxwoods Resort Casino and MGM Grand at Foxwoods announced today that 700 employees, about 6% of its workforce will be laid off in the coming weeks. This is the third round of layoffs since May bringing the total to about a thousand employees.

The Mashantucket Pequots aren't alone in scaling back due to the economic crisis. The Mohegan Sun Casino has tabled its plans for an expansion. A month after opening the 64,000 square foot Casino of the Wind, The Mohegan sun has put a spa, 39-story hotel tower, House of Blues and retail and restaurant space on hold indefinitely or until the economy rebounds substantially.

September 30, 2008

The House didn't pass the bailout, but take the Government's advice - Don't Panic. In the immortal words of Woody Boyd "Noooo, sudden movements" If you're not a Cheers fan you'll have no idea what I'm talking about, but it's a lot more fun than a free falling stock market......

WAMU; LEHMAN; AIG; BAILOUT; FORTIS; BRADFORD & BINGLEY; and WACHOVIA rumblings.

Washington Mutual (Wamu) sold to JP Morgan Chase. Bank of America bought Countrywide and then Merrill Lynch. Lehman Brothers failed while the United States Government staked AIG.

$700 Billion is now headed to the US banking industry. Senator Chris Dodd (D) of Connecticut, Senate banking committee chairman announced that the bailout plan is going to a vote. Chairman of House Financial Services Committee Barney Frank hedged slightly saying that the house was expected to debate the bailout plan and then vote, but both agreed that a vote could come as soon as Monday afternoon or Tuesday with a Senate vote to follow quickly.

When the government announced its stake in insurance giant AIG, the claim was that the failure of AIG could destabilize world financial markets. Still it wasn't enough and the bailout plan was hatched. In the meantime, Fortis, the largest Belgian financial services firm received a bailout from Belgium, The Netherlands and Luxembourg. Like American banking institutions Fortis, crumbled under credit write-downs from the consumer-banking group ABN Amro, that it bought just as the sub prime credit crisis hit the states last year.

Bradford & Bingley Plc, the largest lender to Landlords in Britain is also laboring under the threat of nationalization or purchase by another bank in a plan to protect customer deposits.

It seems that the world financial markets are destabilizing no matter whom the U.S. government decides to bailout. Meanwhile, Wachovia may get bids from Wells Fargo & Co. and Citigroup Inc. Wachovia's stock has fallen 80% in the last 12 months, so no matter who bids, shares of Wachovia will sell for pennies on the dollar. So far, the federal government has not announced any plans to take a stake in Wachovia or structure a Wamu style sale where federal regulators seized operations and then sold them off. Wachovia's troubles seem to stem from a 2006 purchase of Golden West Financial Group, a California firm that specialized in Options-ARM loans.

There is no telling how long it will take for all the dominoes to fall and where consumers will find themselves. The instability is too wide spread for safe predictions about where the financial shake out will ultimately hit Main Street.

Between 3:00 a.m. Monday Morning and 10:00 a.m. Monday Morning, Wachovia stock dropped to $.91 a share from its close on Friday at $10.00 already down 74% from its high. Then, they took Wachovia off the board and it became Citibank.

The best news this week is that both Gray's Anatomy and Desperate Housewives premiered, even if their first episodes were not all that great. Paris Hilton will be televising her search for a new BFF (best friend forever) and on the Hills, Lauren is back from her Italy trip. The election is a month away. The presidential debate focused heavily on the economy and the bailout instead of foreign policy as planned and still most Americans aren't sure where they stand on the convoluted economic crisis. Maybe we all should turn on Dancing with the Stars, root for Cloris Leachman and hope for the best in the worldwide banking system -kristin


September 29, 2008

At least there is today at 11:30 in the morning. One the scariest facts of the financial crisis might be how hard banking executives and government officials are working on weekends. If that isn't an apocalyptic sign, nothing else might be.

It was just two Sundays ago that all of Lehman Brothers options dried up and Monday morning it declared bankruptcy. Last Friday, the bailout was announced and congress immediately began working out the details. They worked on it all weekend so that by Monday they could announce uncertainty and send stock markets around the world into another week of uncertainty

The framework of a bailout is in place. Subject to change, but not affected by politics of congressmen who'd like to be reelected into their next terms. The general election, the stock market, foreign perception or American panic calls, this bailout is to save the economy from the worst disaster since The Great Depression.

This framework of bailout will save us. The highlights seem to be that everyone will hold onto their money, except the tax payer, whether they are in over their heads on a mortgage or not. The government will renegotiate mortgage payments with banks to reduce the strain on homeowners in trouble. The government will insure these loans so that it doesn't have to buy them out right today, saving money. (Don't say it, if you're thinking, but what if the mortgages still aren't being paid and the government is forced to pay out on insurance? Don't ask that question. Don't muddy the waters with those kinds of questions.)

For banks who bought mortgage backed securities as an investment and that investment failed, mortgage defaults, Surprise! The government will buy those up so that banks will be burdened by less debt free up capital and make new loans! This seems logical because their underwriting standards worked so well for the past five years, get in early while the modified Ponzi scheme is still hot.

The best news which really brought the two parties together on the bailout package was the news that legislation place "reasonable" limits on executive severance packages. These are the retirement packages for the guys who encouraged predatory lending, knew that the bottom could fall out as interest rates rose and salaries didn't and had their homes featured as set pieces in movies, their parties reported on page six, their "Scores" bills reported on The Smoking Gun. Congress, a hard working legislative body that reports to work on the Congressional Floor 150 days a year, 5 months, is going to determine a reasonable severance package.

So what have we learned? The government is going to have a stake in our banks. The government also has a stake in our Trade Deficit, so that's reassuring, the banks will still be able to make loans and they should make loans because businesses need loans to operate. Construction companies need loans to build and employ union labor and down it trickles (shades of Reagan).

But are Americans buying their first home still going to believe that they deserve a 4 bedroom with a bonus room simply because they want it? Senators and Representatives are going to impose reasonable restraint on the retirement packages of bank executives. While their packages are outrageous, isn't that the job of each individual bank's board? Where were they?

So now we're going to have men and women who have held elected offices for ten, twenty, thirty years, and go to meetings five months a year decide what's reasonable for the guys who while spoiled at least made the money that taxpayers paid so that the government had something to spend. It?s a little like the Elected homecoming queen telling the football captain that he has to behave while the booky is in the corner telling his hold customers that they can't bet on games any more, they've got to find fresh bettors first.

Meanwhile as government plans to spend more than it has on the entire Iraq War, one still has to wonder is it really necessary? If this crisis happened two years ago, instead of thirty days before the election, how would the pressure change? Finally, now that we?ve taken a big pile of monopoly money and shuffled it around the table, why hasn't anyone mentioned that America still doesn't manufacture anything any more? That the economy of this country was built on selling products? Why wasn't any of this money, so readily available now, invested into industry and new technology that the world would buy years ago? Because as congress sits there trying to figure out how to quell the panic that pollsters, pundits and headline makers created, The United States? Biggest exports are Hollywood and Prescription Drugs *there's a joke there.*

How much longer can a country of our size thrive on that? India, China, they'll beat us in the biotech game and if they are lucky they will continue to sell products to economies built on bankers and lawyers and CPA's and Restaurateurs and real estate brokers and hoteliers, sellers of bullshit, dreams, and lawsuit money. But if we're smart, our government will learn its lesson and invest in new technology.

Americans can still make products that people will buy.

We still have brilliant inventors and scientists and researchers in this country and the world is poised to make a shift in what it will consider energy, why doesn?t congress ensure that this will never happen again by investing in something that will grow and prosper over time instead of more bullshit and dreams? Cause when it comes to those sales America, lookout Abu Dabhi is hot on our heels. After all have any of our developers thought to name a skyscraper after Pamela Anderson? -kristin

***Over the weekend Connecticut lost one of its favorite nearly native sons when Paul Newman passed away at the age of 83. Paul Newman and his wife Joanne Woodward moved to Westport Connecticut 55 years ago. He attended Yale Drama School and proceeds from his Newman's Own brand of salad dressings and everything else even pet food have been given to charity since the start. Even in New England you become a native after about 20 years and Paul Newman and Joanne Woodward did much to benefit the state, their stalwart support of the Westport Playhouse, his opening of the Hole in the Wall Gang camp in Ashford CT twenty years ago was a boon to kids and one of the quieter corners of our state. Many more camps have since the opening of Ashford's camp. Read the words of any hole in the wall camper to learn how the camp changed their lives. If we're lucky we'll still see Joanne Woodward on the Long Wharf Stage and Westport Playhouse Stage but Connecticut and Hollywood have lost a class act.


September 28, 2008

In the biggest government intervention in history to stop the biggest potential financial collapse in history, the Federal Government stepped in at the eleventh hour to save American International Group, A.I.G. from bankruptcy. Why AIG and not Bear Stearns or JP Morgan or Lehman?

Because an AIG collapse would have impacted the world and no one knew or could even predict how far the ripples would flow, how badly world financial investors would be hit.

Either that or the government had done such a good job with its previous Freddie Mae and Fannie Mac oversight that it needed an 80% stake in a company that is crumbling under the threat of loan defaults.

The bailout calls for AIG to pay back the $85 Billion loan at the end of two years, whether through asset sales which aren?t required, earnings or restructuring. And if AIG doesn't pay the loan back, then will it simply fold after two years of strategic planning to prepare the world markets for the eventual collapse of the company? That is a cynic's view.

The only thing that we can predict definitively is that in two weeks, everyone will think that he or she knows what a Credit Default Swap is. What Credit Default Swaps (get used to that phrase you're going to hear it a lot) mean to the financial markets and how they should be regulated. When, in truth, a company who lost $24.7 Billion in 16 months on Credit Default Swaps doesn't seem to know what they are or how risky they are.

Betting on people and investors and groups of investors and companies who were all riding a precarious real estate rocket based in aspirations and loans that were going to skyrocket after five years of fixed payments not to default seems a little like betting on the Lucy to, finally, let Charlie Brown kick that football.

Nevertheless, everyone was betting the same way because, apparently, AIG sold Credit Default Swaps to every significant financial institution on the planet and sold them in large quantities.

Stock markets around the world rose on the news of the government bailout and AIG's insurance business does make so much money that they could pay the loan back in a few years, so maybe the fallout will hit the street like rainbows instead of shrapnel, time will tell.

In the meantime, Wall Street can say Commercial Real Estate is a dirty word all it wants, but a Main Street Investor does not buy real estate like a Wall Street Investor. Main Street Investors buy positive cash flow or upside potential or short-term negative cash flow with black ink on the balance sheet in the short term. They are not going to pull a Lehman and invest in a REIT like Archstone-Smith that owned 85,000 negative cash flowing apartment units from day one and hang on while the losses grow bigger and bigger. Prices may come down. Vultures may circle but Commercial Real Estate is going to be a buy for anyone with cash in their pockets because the United States still needs people to go to work and do business every day. - kristin




September 16, 2008

To say it was a tough weekend on Wall Street would be an understatement. The face of Wall Street has changed again. The phrase New Financial World Order is being spoken and not lightly. Merrill Lynch and Lehman Brothers Holdings are suddenly gone, headed for extinction. After 94 years in Merrill's case and 158 years for Lehman, it feels like they disappeared overnight. Intense negotiations began Friday evening and raged through the weekend but the dust settled and Monday morning the financial industry is reshaped.

Bank of America agreed to buy Merrill Lynch for $50 Billion in an all stock purchase. After buying Country Wide Mortgage, the poster child for subprime mortgage disaster, in January, B of A is snapping up Merrill another firm mired in the toxic mortgage related debt. Debt that is roiling the financial markets and consumer confidence across the board. Last year it wrote down $40 Billion. But, Kenneth Lewis has made his reputation on risky acquisitions and growth.

The acquisition adds another dimension to Bank of America and cements Lewis?s dream of being the leader in the brokerage business. With the purchase Bank of America will be the biggest wealth management player on the map. B of A is on track to have the best and largest retail brokerage in the country one of the top investment banks in the world, and a large stake in one of the best investment managers in the world. When it bought Countrywide, a collective eyebrow was raised. Now there are rumblings that, that purchase, much like the one of MBNA in 2005, is a brilliant strategic move. The purchase of Merrill may well ultimately be a success but the stock market and B of A stocks aren?t expected to jump with joy and climb immediately. Chaos will likely rule the stock market on the news of this shotgun merger as well as what looks like the end for Lehman.

Lehman. The name itself inspired, if not awe, at least confidence. In 2007 it posted record high net revenues. Now the Number Four Investment Bank in the country is going Chapter 11. Lehman brothers filed for bankruptcy protection today. Both suitors and the government walked away from the storied firm. Bank of America looked like the buyer on Friday but by Saturday had all but walked away. Barclay?s of London took a pass on Sunday.

Lehman?s failure is the highest profile bankruptcy since 1990?s failure of Drexel Burhnam, Lambert home of the junk bond king Michael Milken who, not so ironically, has been repeatedly blamed by talking heads and pundits for the present credit crisis. Claims that might be fun but don?t really have any merit.

The implications of both Merrill Lynch?s buyout by Bank of America and Lehman?s failure begin to hit home when the numbers hit the page. Lehman employs about 25,000 people; Merrill, 60,000.

But the disappearance of Lehman could change the real estate landscape of Manhattan as quickly as it changed the financial markets flooding the office market with space. Lehman owns its one million square foot headquarters, but leases nearly one and a half million square feet of additional space. It?s been quietly marketing 400,000sf of space for sublet at Rockefeller Center for several months now. The official marketing of that space and Lehman?s other leases will have a big impact on the New York office market. Generally about one third of office space is occupied by financial industries. It remains to be seen whether Merrill Lynch will contribute to a sublet glut as it moves forward with its B of A merger.


-kristin

September 15, 2008

In May, Connecticut?s Labor Force Grew. The new casino: The MGM Grand at Foxwoods began hiring for June?s grand opening and the bottom did not fall out of the home sales market as it has in other parts of the country. Robert DeNiro was in Connecticut filming movies twice this year, Indiana Jones spent a week at Yale, Wes Craven stalked the Litchfield Hills last month and the majority of Greenwich?s hedge funds have not gone under as pundits predicted. Still, check out almost any newspaper, blog, podcast or nightly news program and it?s 1974 or 1989 all over again.

Fuel prices have risen nationwide. In Connecticut, a city ruled by cars and lacking in quality mass transport high fuel prices are a true burden and the state is affected by fallout from the sub prime mortgage debacle. Even Senator Chris Dodd(D) who is stumping for a $300 billion mortgage bailout bill is under fire for securing loans from Countrywide, one of the biggest dogs in the dog eat dog world of sub prime mortgage financing.

But in Connecticut, home sales are still healthy, difficult but healthy. In fact, according to the Clerk of the Court for Hartford County, the number of foreclosures reported by all judicial districts in Connecticut between March 2007 and March 2008 were actually fewer than the than the number reported for 2006-2007.

While the number of home sales has dropped state wide, the pricing has only come down 10% from this period last year. We are experiencing a correction, not a disintegrating market. Homes now stay on the market from two weeks to two months instead of two days and bidding wars are fewer and farther between but expanding families and Connecticut?s quality of life are still moving property sales.

Signs point to New Haven County pulling out of the housing slump after seven months. This past May home price were only down 5% from May of last year. While the number of sale transactions is lower at 14%, we do not have 28 months of inventory on the market as portions of the country like Florida, Arizona and Nevada do.

In the late eighties and early nineties, Connecticut led the way in the recession. We went into the recession earlier and came out later. We spent the early part of the decade as leaders in poor lending practices, houses being built on speculation and in some cases with poor materials, pressure treated lumber that was used before being properly cured and more. After the speculative building boom and an explosion in the condominium market, demand outstripped demand, our economy crashed.

The biggest residential real estate developer in the state was exposed for corruption and bad practices, local banks that over lent with little or no collateral went out of business, manufacturing jobs were sent out of state. Nerves were on edge and fear was palpable.

Those who stuck it out and modified their businesses, manufactured small niche high end items, turned their printing companies into graphic design firms, traded their corner offices in for cubicles and bull pens, came out the other side more resilient than ever. They saw an economy that completely shifted from a manufacturing base to an information and technology base and banks pulled back on lending. The evolution continues.

Anyone who lived through those times could look at cities around the country that were adding population and homes exponentially over the last five years and know that the party has to end sometime whether you live in New Haven or Las Vegas.

But a stalled housing market in Las Vegas or Orlando does not mean that Connecticut or the rest of the country is going to fall. The good news is that adaptation and perseverance will translate into success. Rising fuel prices are a breeding ground for new technologies, as is an economy that nationally is shifting from a manufacturing base to a knowledge and service base just like Connecticut did. Early adapters will thrive. Let?s hope more than a few people look to the past for a healthy economic future.


July 2, 2008

Despite News of a Recession, Inflation, Food Shortages, Gas Hikes and an end to the United States? National Spending Spree of the last 10 years, Disney is Booming! Its stock has risen 3% and the parks are full. Affordable hotels and an influx of European travelers aren?t the only reason that the parks continued to thrive in the first quarter of 2008. Americans are still traveling but staying home.

There is a lesson to be learned from Disney. In 1991, the last major real estate recession year, 55% of Disney?s hotel rooms were considered premium priced. This time around 75% of the rooms are moderately priced. Disney re-adapted its business plan to better suit its clientele. Adaptability is the key in uncertain economic times.

Uncertain is also the word. The Stock market despite all the bad news climbed over 13,000 yesterday as UBS scaled back its plans to be one of the world?s largest investment banks, Robert Verrone announced that he?d leave Wachovia within the week and oil prices continued to rise.

There is flux in every sector of the market. Every time one of the Presidential Candidates promises to cut the gas tax, the Pigou Club is in an uproar, touting an increase in gas taxes to ultimately cut down on demand and lower oil prices. Legg Mason has reportedly ?stumbled? with a $255 million loss. They will raise more capital by selling $1 billion in mandatory convertible securities.

With every sector of the financial markets in flux, consumers, which include Real Estate Investors, are whirling too. REIT?s are still reporting strong and improved returns, especially REITS that own self storage units. Apartment REITs remain almost as strong. Shopping Center REITs and Mall REITs are still holding their own. So, the lesson for the local investor, following the REIT market is to invest in self storage. Apartment rentals are likely to stay strong and be a good investment as long as the job market in CT doesn?t dwindle completely.

As one real estate pundit pontificated, the Profit in Real Estate is made on the Buy. If you?ve been building a rainy day investment nest egg, now is the time to buy. Buy smart. Buy where national trends are pointing.



May 7, 2008

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