Response to the Pessimism

I felt like my last post was too pessimistic and I wanted to do another post with an idea I think would be good to stimulate the economy.

In this current economic environment there is no good reason to spend money.  People are still afraid of losing their jobs, and even if you are confident in your job stability most are trying saving more.  I always heard that the best time to invest is when no one else wants to.  The only problem with this is that if you don’t have a job or are worried about losing your job you may not have the cash to invest.   Especially when it comes to investing in your house.

With all the excitement over sustainability myself and other people out there will tell you that you should put money into your house and make it more efficient so that it saves money.  However, if you’ve ever walked through the steps to actually upgrade your home, it is a large investment of time and money to make your home more efficient.

I believe this is why we need government stimulus tailored to energy efficiency.  The government can help increase the returns of sustainable investments and offer guarantees to help investments in your home more rewarding.  The first bailout was to the banks to stabilize our economy.  The next must be an investment in our future to make the U.S. more efficient.  These could be providing loans to homeowners to make energy improvements, giving financing to sustainable building manufacturers to produce more product or making the investment in its own buildings to stimulate demand.

When this recession started everyone was already predicting the “V” recovery and how great things were going to be in just 6 months or a year or worried about a “W” recovery with a lot of ups and downs.  I never imagined the recession would be so long or deep but I always imagined it would be more like a slightly tilted “L”.  A decline followed by leveling off or a slight increase.  Assuming this is correct or even close to right, the only thing to jump-start our economy and get it producing its own jobs is spending money on something that is going to save us money in the future.  Investing in sustainable building, mass transportation and new sustainable technologies will do this.

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2011 Pessimistic Predictions

I sat down with a client this week and discussed the current real estate climate, economy, and world politics and even through out some predictions for 2011.  We had a great conversation that got my mind stirring so I thought I’d share some thoughts, comments and predictions that developed because of the meeting.

My client is looking to invest in a multi family property.  He’s been looking on and off for about a year and is debating whether to get serious again.  He asked me if it was a good time to buy as many investors do when we sit down to talk about the market and in the past year I usually give the same answer.  It’s a good time to buy for someone who has enough capital, good income and doesn’t want to sell for at least 5 years.

Last year at this time I was foolishly thinking that spring 2010 was going to get New York City real estate back in gear.  The 2009 market was so terrible because of Lehman Brothers and the precipitous drop in the stock market in 2008.  Why would anyone want to buy or sell such a valuable asset in a market that was unpredictable at best?  I assumed that everyone who had to sell in 2009 did.  Those properties that were still on the market, or coming on the market, would be priced to sell. With the supply adjusted if the demand was stimulated Spring 2010 would bounce back. This would give the market some momentum and lead to a year with price improvements and inventory getting back toward normal levels.  I wasn’t expecting a 20 or 30 percent increase in sales or decrease in inventory but I was expecting things to improve.

The pace of sales this year has been stagnant at best due to continued unemployment, foreclosures, lack of financing available, and the debt crisis in Europe.  I underestimated the continued uncertainties in the market and I do not see many resolutions coming in time to create an improved Spring 2011.  There are also so many properties waiting for an uptick in demand to go on the market that any increase in demand would be met or exceeded by an increase in supply.

Unfortunately I believe this is probably the best case scenario – demand picks up enough to clear out some of the shadow inventory and hopefully in 2012 we return to a market equilibrium where sellers actually have more than one offer to consider that is at or close to asking with the ability to get financing.  I hope that I am wrong again this year and that gains in the economy will stir hiring which will bring new buyers in to the market to clear out the excess inventory, but I don’t see that happening.

What are your thoughts? Am I being too pessimistic?

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Green Wall Pics

We finished the green wall last week! AENA provided the design and installation with help from Blondie’s Tree House, who chose the plants, developed the layout, and sourced all the plants..  I’ll provide a link to the AENA update when it’s finished. Below are pictures of the installation with some notes.

We started by putting water proofing on top of the existing wall and then framing it out with aluminum tubing.

On top of the aluminum tubing we installed pvc panels. We also installed the copper drainage basin.

After the pvc panels we installed the first layer of growing medium. This almost felt like carpet padding and a second layer went directly on top of this.

This shows the wall, basically completed. We installed a teak wood trim to cover to copper drainage basin and ran water lines on top of the first layer of growing medium.

This is the wall with the second layer of the growing medium and the plant layout on the wall.
The first planting!  This also shows the pockets that were cut in the growing medium.  The plants are put in the pockets with just a bit of potting soil.
The finished product!  It looks great and the client is really happy with the results.  I’m excited to see how it effects the work space.  I’ll check back in every once in a while with updates.
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Blog Catch up

I haven’t had a chance to read all my favorite blogs for a couple of days and I feel like I missed a lot. I was going to tweet some of them until I realized how many I had.

From A Student of the Real Estate Game

http://www.astudentoftherealestategame.com/2010/12/03/peter-linneman-where-is-real-estate-at-where-is-it-headed-take-2/

From Jetson Green

http://www.jetsongreen.com/2010/12/living-owning-certified-passive-house.html

From Housing Crisis

http://www.housingcrisis.com/home-builders/horton-hatches-daddy-flourish-2010/

From Sudden Debt

http://suddendebt.blogspot.com/2010/12/energy-tale-of-four-nations.html

From Harlem + Bespoke

http://harlembespoke.blogspot.com/2010/12/read-latest-census-2010-update.html

From the Apple Peeled

http://theapplepeeled.com/buyers/november-survey-results-despite-downturn-survey-shows-sellers-are-sitting-pretty/

I’d also like to mention Calculated Risk Blog –  http://www.calculatedriskblog.com/ and The Big Picture – http://www.ritholtz.com/blog/.  These both have a ton of great stories everyday.

I’m always looking for new blogs, so please let me know any I missed.

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Costs of Going Green

Quick rant for this fine cold Tuesday. I was just reading about a new report released detailing the costs of going green (link).  My first reaction was wow, what a great idea and I wonder how they figured that out.

I looked at some of the sample pages and the sample I saw was roofing. The standard black roof is the constant or 100% of the cost. Paint the same roof white adds 20% to the cost so that is 120%. Adding a green roof is something like 300% of the cost of a standard roof.

This works out great for the cost side but it gets a little more difficult when you begin to factor in the sales and marketing side. If you choose to go with something not green over something green what effect is that going to have on marketing of the project. In the same way; what if you chose the cheaper less efficient equipment?  The long run cost of the cheaper equipment is actually more expensive. Also if you incorporate some aspect of green building in to the project how much return will you get by the added investment into the property so it is certified as green?

No matter how good your financial models are you can never truly predict how a unique property in a unique sales environment is going to sell out at. That is why it is so important for the person doing the investing to believe in building sustainably. If the owner/developer/money man doesn’t believe that building a sustainable project is the right way to go it doesn’t matter how many studies I show you that say green building rent and sell faster and for more money. You are only going to see the added up front costs.

While I love financial modeling and researching costs of construction as much as the next guy it’s more important to know what you want to build, trust your own instincts and do it your way.

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Trump’s The Art of the Deal

I just finished Donald Trump’s The Art of the Deal. I’ve been looking for good business/finance/real estate books for the past couple months (and would love to hear about more) and while I didn’t know much about Donald Trump before reading the book, I knew he had done a lot of large developments and I thought it would be an interesting read. I was correct.

The book starts out with a week in the life of Trump, kind of fun to read, but nothing life changing. The second chapter was the most interesting to me. After this he walks through his life of deals starting in Queens with his father going to Ohio for his first big deal, coming to Manhattan for his big deals in the city, and finally to Atlantic City for his Casino deals. After reading about the Casino deals the book gets bogged down in some deals that I didn’t find interesting; his investment in the United States Football League and his work on the Wollman Rink. These last couple chapters are the only ones where I thought Trump became a little self righteous. Before this the book was a breeze to read through and I was amazed at how humble he was and I really learned a lot from the book.

As I said the second chapter spoke the most to me. This is where Trump lays out the elements of the deal.

1. Go big – this is a little easier for Trump because he has more money then most. But it is amazing to learn about his courage to put his money into these deals, his skill at getting his money out, and his proficiency at turning poorly run unprofitable properties into money makers.

A good example of this is when he and his father bought a housing development in Cincinnati, Ohio. He found this deal in the listings of FHA foreclosures and got his father to invest with him into this 1,200 unit building with about 2/3 of the apartments vacant. The were able to get a financing for the property which gave them their money back plus renovation costs. After renovating the place they were able to increase occupancy, income, and reduce costs so that the property was performing well quickly.

2. Protect downside and upside will take care of itself – this is the advice that everyone gives, but is important. Constantly look out for how the deal could go bad. Also, never get so attached to a deal so that you can’t walk away from it. “If you can live with the worst-the good will always take care of itself.”

3. Maxmize your options – be flexible. Go in to a deal thinking about a number of options. You have your first, best case scenarios. If something happens so that you can’t do your first idea, move to the second and so on.

4. Know your market – I think presently all the blogs, magazines, podcasts, and newspapers help with this a lot, and something I enjoy studying. Trump reminds us that the oldest ways are still probably the best – taking your own surveys by asking neighbors in the area, and following your instincts.

5. Use your leverage – sometimes difficult, but obviously, do not seem desperate.

6. Enhance your location – doesn’t apply to everyone, but since Trump usually does a large development he can create a development that has the retail, residential, or commercial or the mix that he believes that area needs. For smaller developers, you want to create a space that you’re proud of. Trump talks a lot about keeping his places clean and how much this resonates. I think this is a great point.

7. Get the word out – Trump is great at self promotion/site promotion. He knows any promotion is only going to help his developments and his brand.

8. Fight back – fight for what you believe in. He gives the example of a time he didn’t take a tax break, and he didn’t give up and fought for it. I’d like to take this a different direction and say that most things don’t come easy so if you’re not confident enough in a property or an idea, or anything to fight long and hard for it, don’t do it.

9. Deliver the goods – it’s funny that this is so far down the list. Trump reminds us that you can have the best property, do the best promotion and it all be worthless if you’re not building a property that has value and is what your customers want.

10. Contain the costs – another obvious point, but something I learn more everyday how important it is. Be attentive to every cost. If you’re not, they project is going to be out of control before you know it.

11. Have fun – this is a great one to end on. If you don’t enjoy what you’re doing, you’re not going to be good at it. This is especially true, now. I feel that if you’re not constantly investing in yourself and your specialty, someone who enjoys it more and knows it better is going to pass you by.

The most important thing I took from Trump’s books, was that he was so confident in his abilities, that he wasn’t afraid to be the first one to invest time or money in a deal. I say time or money, because he gives a number of great examples of when he got a contract signed on a deal, but didn’t put any money down until he had an approval, or financing or any number of things. Second most important thing that I took out of the book was that he also was the first to try to get his money out of the deal. I realize that he wrote the book so he can put whatever spin on it he wanted, but in almost every deal detailed in his book, Trump gave up some profit or incurred some extra expense to get a partner, be it a bank or an investor to get as much of his money out of the deal as possible and wait to get his profit.

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Voting with your Dollar$

I just received my copy of The Better World Shopping Guide by Ellis Jones from Jetson Green.  This handbook is a great guide to flip through, especially in the Holiday Season when most are doing a little more shopping than normal.  This book follows a principle that I love – voting with your dollars. Purchasing items that are sustainably produced is the single best way to influence the market.  The book gives a grade to a number of companies in a variety of categories.  Grades go from A-F and the companies are rated on Human Rights, the Environment, Animal Protection, Community Involvement, and Social Justice.

It is important to realize that buying green is more than the product’s environmental impact.  Every product you buy is a vote for that company, and as consumers we need to be educated as to which products and companies are worthy of our vote.

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