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Good news blared from the speakers of my clock radio, touting the importance of getting out on the street and selling your business, or in the words of John F. Herbst Jr., President of Wallingford’s I2S, LLC, go to where the fish are.  If customers or clients are no longer in your town, state or region, find them. 

Herbst found his clients in China and with a little government help from the U.S. Commerce department (more good news, those groups do work for us), landed contracts for $23M in product manufactured in CT and exported to China where I2S will build two steel mills.  Fifteen new jobs will be created in Connecticut.  An interesting aside is that fifteen jobs represent 40,000 hours in manpower.  

Portfolio.com from the BizJournals group published a story about a Kauffman Foundation for entrepreneurship study that stated “Start-Ups” are hiring fewer people in part due to technological advancements. Looking at the amount of man hours that go into a single job, one starts to understand how much work one needs to have in their log to create a job. With so many start-ups being technology companies, the good news for one Connecticut manufacturer starts to explain why making actual products is so important to the jobs picture in the U.S. 

http://www.portfolio.com/business-news/2011/07/11/kauffman-foundation-study-shows-startups-less-healthy-hiring-fewer-workers

http://www.myrecordjournal.com/wallingford/article_6d3a1e2c-ac34-11e0-9090-001cc4c002e0.html

http://articles.courant.com/2011-07-11/business/hc-china-trade-tenova-20110711_1_trade-mission-mill-wallingford

Related articles

• Wallingford Market Update for May 2011 (wallingfordwired.com)
• U.S. trade deficit swells (theglobeandmail.com)
• New Firms are Generating and Holding onto Substantially Fewer Jobs in the U.S.; Kauffman Foundation Study Finds that U.S. Jobs Problem Pre-dates Great Recession (kauffman.org)
• Oil imports drove May trade deficit to $50.2B (seattletimes.nwsource.com)

I knew how she felt. It took me hours to find information about the Dan Malloy’s State Budget for Connecticut and the outline of the state workers Union Agreement, as well as the union leader’s comments on the budget and concessions situation when I wanted to first: learn what it was all about, and second, record my own thoughts on the matter. 

I passionately needed to know about the Tax Increases in the budget and the union issues, but what do other people in Connecticut, or anywhere in the country for that matter, want and need to know.  Blogs are global but my business is in Connecticut, so I want to know what people here or people who are thinking about moving to Connecticut want to know.

What moves us?  What do we want to learn about? Google News New Haven has featured dog stabbing, college graduation, multiple crime stories and updates other than the Bulldog puppy, news in mayoral races, Yale tidbits and human interest stories over the past two days.  Google news Hartford cites the return of pro boxing, small towns and the budget, crime, the sick leave bill, the teacher who made students clean the bathroom, an August Wilson play and for fun BOMB Fest (Bring Our Music back, not pipe bombs: that would be Greenwich.)

So, I wonder, what do people want to know? I write about the economy and policy because I work in Commercial Real Estate. I love Connecticut, our hills and our beaches, our cities and their cultural events and I want to continue to make a living and my life here. But do people care about that?

Do they care that CEO Magazine ranks Connecticut the Forty-Sixth Best Place to Do Business in the country in 2011? (BTW, we were 44th in 2010)

Do they care that we should celebrate being the fourth-worst state in the union for business this year? Next year, we will see and feel what Malloy and the legislature did to our business climate by mandating sick leave and cutting tax incentives to business while raising energy prices will drop us closer to the bottom of the list.

Is anyone interested to know that the only other place in the United States to mandate sick leave  is San Francisco? Will anyone guess that California is the 50th worst place in the country to do business and remember that it is bankrupt?  Is anyone hoping that I will finish the list? Number 47 is New Jersey, Illinois is 48, and New York 49; Connecticut is a great place to live for its proximity to so much diversity.  That same diversity and access to everything *should* make us a brilliant place for business.

Maybe our lawmakers should stop trying to put us out of business but, all this information leaves me with the same questions.  What do people want to know about Connecticut, or New Haven, Hartford or Greenwich? 

If all we want to know is why we don’t have a “Real Housewives” series, or where celebrities live, or why our public schools aren’t performing better, or how much our towns will receive in government funds, whether there are any haunted buildings in the state, how our hospitals rate or where the best beach to get a date or the best bar to pick up men or women is…I will gladly find out.  But, I have no idea what people want to know. 

Anyone? Anyone?

SEBAC (State Employees Bargaining Agent Coalition ) had posted a summary of the agreement on their website and reaction is strong.  Wage increase freezes and no furlough days are some of the hot button topics.

But, the most astonishing piece of this agreement, to me anyway, is a step toward healthy preventative medicine. Employees must sign a commitment to have annual check-ups and take lifestyle and medical steps to improve their health. If they don’t there will be a fine, and not a small one: $100 a month for those who refuse the commitment.  Whether a watchdog will be checking all the check-ups is another thing.  A new job as overseer doesn’t seem to fit the idea of cost-savings that the administration is touting.  But, the idea behind preventative health is sound, even if  all the implementation bugs haven’t been thought through.

The Governor was looking for $2 Billion in savings.  This agreement as it is summarized today offers $1.6 Billion in savings from union workers.  The private sector can expect the Governor to come back at them to make up the $400 Million difference.  Although additional cost cutting measures have been discussed, don’t lose sight of the fact that Governor Malloy, is increasing government spending 2% over the next two years, not cutting it.  While it may seem to private sector professionals that the union member’s resistance to this agreement is a point of view most heralded down the rabbit hole, the governor who is asking us all to sacrifice, public and private isn’t tightening the belt of state government too tightly.

For details of the agreement,  union spokesman Larry Dorman’s comments, the details of no layoffs for four years, and end to longevity payments and the rest, click the link to hit up SEBAC.  http://tinyurl.com/65wwwgb

This tax hike, the largest in the state’s history will cut everyone.  Across the board taxes that penalize us for purchasing essentials like food are regressive, hitting lower income individuals with a greater percentage of the burden.

 The State of CT has consistently been ranked between 48^th and 50^th best state to do business in the country over the last four years.  For the last TWENTY years, we have come in dead last, 50^th, the state with the least ability in the nation to create new business and expansions.  On the bright side, we do rank # 4 in taxed states.  How many people in CT realize that not all U.S. citizens work until May 2^nd to keep their first dollar of income.  Never mind the dollar, their first dime, first penny. Residents of Connecticut work more than 1/3 of the year before we can keep any of our income.  Somehow the fact that New York works its resident till May 26^th actually makes us feel better.

It’s ironic that Connecticut’s nickname is the Constitution State.  The idea of a Constitution was born of taxation. Taxation without representation: how many of us felt represented in this tax hike?

 Not me as a person, nor as a small business owner.  The increased gas tax, taxes on my business equipment, additional sales taxes on services, these might just put my 26-year-old, second generation, minority owned company out of business.  Yet, Malloy claims that this regressive tax hike is going to create jobs.  Where?  The government? What happens two years from now when more local businesses, small retailers who for the first time ever tax a baby onesie, close?  Where will those government jobs be then?  When the companies have been driven out, how will anyone keep their jobs?  If there is some other way that Malloy intended to create jobs through these hikes, I’d like to know.

 Dannel Malloy drove the specter of Osama Bin Laden, Al Qaeda, and The World Trade Center Deaths off the front pages of CT’s papers quickly and decisively.  The Connecticut State Legislature: Economic Terrorist.  Do the Legislators realize that they have family businesses, entrepreneurs and all those companies who have been asking themselves, is it time to move our headquarters south or offshore in their cross hairs? 

We hunted Osama for ten years because he destroyed thousands of American lives in the towers, yet we elected Malloy.  We voted for Malloy to go to Hartford and destroy our livelihoods.  The good news is that we can’t be lower than 50^th so taxing the struggling economy of the 50^th best state in the union to do business won’t be change our stats. 

Some of my favorite new taxes, in no particular order are: 10% increase in the cost of a ticket for concerts and sporting events.   Those sporting and concert venues that had been touted as economic drivers in their region, The Arena at Harbor Yard, The Mohegan Arena, and the rest, they’ll take multiple hits: First from a drop in ticket sales, then from a drop in acts who play the venue because the seats are always empty.   Malloy saved us from a $.03/gallon gas tax increase, but Diesel fuel? That’s a different matter.

Hopefully Connecticut residents don’t know that an increase in the cost of diesel will translate into increased costs for products on shelves. Nor will it occur to them that those few companies left manufacturing in Connecticut will become less competitive as Diesel driven distributed goods exported to other states and Canada rise in price due to transportation.  Look for Metro North fees to increase along with the Diesel Fuel Tax. 

Now that Malloy has taken away that under $50 apparel and shoes tax exemption, maybe you can save a little money by making your own clothes.  Nope. Fabric and yarn will be taxed now too.

Don’t forget our state’s health. Non-prescription medicine will also be taxed for the first time.

Don’t park in the cross walk, speed or renew your driver’s license cause all those fees rise too.  Of course, if you don’t renew your license you’ll get one of those nice new high-priced tickets, so you might want to do that.

The guys on Capitol Hill are glowing with achievement right now.  They are slapping each other on the back proud of their ability to make the sacrifice equal.  Yet, three Democrats in the Senate voted against this budget.  Be sure to remember them  July 1^st not only when you find yourself paying taxes on items that were never taxed before, but when you are paying that 6.35% sales tax. 

Tax hikes are pedaled to people by saying they only even the playing field.  The rich and big companies are the only ones who take the biggest hits and they barely feel it. With the exception of GE and a few others,  Connecticut isn’t made up of big companies.  We’re a state of entrepreneurs employing less than 50 people, less than 25 and by the end of the year; I expect we’ll have fewer of those companies because this tax increase could very well be a death knell for a hundred companies, including my own.

Of course, this whole budget does depend on unions making a $2B concession.  If they don’t and layoffs begin, does anyone expect that these tax hikes will go down?

LoopNet is less about research and more about marketing, so it was one of the better resources for my company to produce accurate information about market availability if not vacancy rates and absorption rates.

As it is planned now, LoopNet and CoStar will still function as they have traditionally when they were independent companies with CoStar providing information about leasing and sales and LoopNet providing marketing information to the masses.  The combination of the two entities will reach 15% of the total Commercial Real Estate world of Broker Professionals, Landlords, Tenants, Lawyers, Property Managers and the rest of us who move the Commercial Real Estate market.

CoStar has acquired ten other real estate information companies, but LoopNet is the feather in its cap.  As a user, I don’t expect big changes yet, just a lot more sales calls and ultimately, more fees.

The details, facts and figures of the transaction are detailed here on GlobeSt.com.   http://www.globenewswire.com/newsroom/news.html?d=220019

Investment in Industrial real estate began on the west coast industrial hubs at the end of 2010.  In the Northeast, Industrial real estate in the form of clear-span flex space remained desirable and hot throughout the second half of 2010. The trend continues in 2011 and beyond. 

Connecticut’s private sector is largely made up of small companies that employ less than 250 people. For smaller companies based in a state where casual dress rules the day, non-traditional office space that is easily adaptable from a cube farm to a lab to a distribution area rules the day when tenants or buyers are looking for new space.

In the Boston area, investor-Developers are picking up Retail Centers that hold promise for physical and construction expansion in future years.  The office market remains in a holding pattern but Lab space is being absorbed more rapidly than expected last year. 

In Connecticut and New Haven County in particular, leasing activity has picked up since our tough winter. Business activity throughout the state slowed, while roofs were shoveled and roads were cleared.  New Construction for uses other than educational facilities and medical facilities is still far below the levels those that herald growth in the market, but Privately owned companies who hesitated to purchase properties for their operations last year have their eyes open again.

Last fall, Washington D.C. was the hot office market. The government expanded into vacancies and took space while other offices throughout the country gave up space. But, NYC rents are back on the rise and vacancy is dropping. 

The Drake Hotel property, one of the most valuable pieces of city real estate, according to The Wall Street Journal, is on the brink of redevelopment.  The owners can exploit a number of potential uses on the site.  Hotel properties in Manhattan didn’t suffer the way those in Vegas, Miami, Los Angeles and other cities did in large part due to the devalued dollar and European tourists. The apartment market has bounced back nationally too.  Real Estate headlines for the past two months have touted the strength of the apartment market.

So, the news is good almost across the board. The apartment market has come bounding back.  The Industrial market, especially in cities with good port access and solid distribution access (rail and road infrastructure) keeps the 2010 roll going and investors are putting their money back into real estate across the country. Warehouses are moving product.  D.C. grew 43,700 new jobs in the last 12 months filling empty apartments.  Lab space outside Boston, especially in East Cambridge is filling. Over the last ten years a quarter million square feet a year, on average has been leased up.  

But the news is not all sunshine and unicorns.  Chicago’s industrial market continues to endure a dearth of transactions and a lot of empty space.  And perhaps, more importantly, the larger economic indicators nationally remain in flux. 

The banking industry remains under fire with some headlines claiming that smaller banks, mutual and community banks the sweethearts of the recession years are in danger of failing, whether those dire predictions are fulfilled remains to be seen, as is the future of Bank of America’s bottom line.  The refinancing of commercial mortgages, had the pundits screaming at this time last year as the second falling shoe in the real estate market, seem to be all but forgotten, whether they stall the recovery that even USA Today is now touting also remains to be seen.  Employment figures, the rising price of oil, and re-employment of Americans, especially in Connecticut along with rising tax burdens will play a role in the resurgence of the market. 

Overall, this bolstering of the market and its positive trajectory may continue strong and healthy, but it’s more likely that there will be bumps in the road as the market finds its steady normal.

*****on another note, it seems that USA Today and I had the same idea today.  Here’s their take…….. http://tiny.cc/e5aw0

She goes on to detail more scary facts. ” Nearly 3,000 community banks — 40 percent of the banking system — have a high proportion of commercial real estate loans relative to their capital. ” And these are scary facts, however, I ask why we are sucking tax dollars out of our own pockets to have an oversight committee produce and out dated report? 

The Commercial Real Estate market, like the rest of the economy is teetering.  Over the past ten years, we got drunk on retail booms.  Built office towers outstripping demand and mothballed factory after factory. 

In the eighties, there was a book: Future Shock.  I think we’re up to Future Shock IV or something now.  But, back then, the author predicted the death of the Industrial Age and the rise of the Information Age.  The economy and the country followed his blue print.  But should we still be following it?  A new Industrial Age is upon is.  We should take advantage of it before our competitors do and we’re left to struggle in the mire of an economy fueled by Insurance Agents, Lawyers, Shrinks, and Big Box Stores that sell foreign goods. 

Repurpose the factories, office spaces and vacant Best Buys.  The way out of any crisis is through, but no where is it written that we should take the path as it’s drawn.  If nothing changes, community banks and all the commercial real estate debt that is due to be refinanced over the next year could cripple the economy again.  Or, it could be the opportunity of a lifetime for buyers and entrepreneurs who are visionaries. The world needs goods.  The United States can produce goods.  We always have, it’s time to go back.

In New Haven County  “Eds & Meds”  keep our buildings full.  But speaking to an educator from Wilbur Cross H.S. the other night, I got an earful about the cutting of trade classes from the curriculum.  There is nothing wrong with studying plumbing in high school, or heating and air conditioning, particularly if green technologies are part of the course work.  Education and economy go hand in hand.  The economy needs skilled laborers to keep technology working.  Perhaps Washington needs to look at the whole picture.  What is the future generation learning as a worker?  With jobs less secure than ever, college is also less of a guarantee.  There is no reason why we shouldn’t be able to employ high school graduates in a trade. 

It’s the circle of life, learn a skill at the secondary level, get a job, fill a cubicle in a building , out grow the position, start your own company, rent or buy your own building. service the machines that make the products that your buddy sells to France or China and the economy grows.  Rather than study where we were, maybe Washington ought to be looking at where we can go without employing more people with big brother cause these things are happening on his watch.

Uncertain times make for difficult negotiating in part because even more than usual, everyone thinks that they have the upper hand.  Landlords always want tenants in good times or difficult, and even in bad times, there are tenants in the market.  Unfortunately, for our economy, it may because companies are downsizing but they are still out there.  Tenants aim high, sometimes, too high.  Landlords can’t meet the prices.  Tenants walk away frustrated and there are bad feelings all around, 

While still trying to puzzle out how to  best keep negotiations from growing hostile, the best way is education.  These days, transparency is more important to transactions than ever. 

The following are some of the latest opinions on the Commercial Real Estate market’s recovery cycle.  *Spoiler Alert*!  No one knows.

“The recession is over!” wrote Peter Linneman, chief economist for NAI Global, in the most recent Linneman Letter.  “For all intents and purposes the recession is over,” said Christopher Thornberg, principal of Beacon Economics, while speaking at a joint program of the Los Angeles chapters of CCIM, CREW, the Counselors of Real Estate and American Society of Appraisers.

But Linneman, Thornberg and others point to a host of risks on the horizon that could slow the pace of the economic recovery or possibly cause the U.S. to dip back into recession.

The outlook is even more divergent for commercial real estate.
For example, NAREIT reported that real estate investment trusts bested the Dow Jones Industrial Average, Russell 2000 and S&P 500 in 2009 with total returns of nearly 28 percent. That’s noteworthy considering the run-up in the stock markets last year, but in line with long-term trends where REIT returns have dominated the other major indexes the past 35 years.
Yet, the fundamentals that underpin REIT performance are eroding.

According to the latest data from Property and Portfolio Research, average real estate vacancy rates for all property types have reached levels not seen since the early 1990s and rents are following course. Meanwhile, Real Capital Analytics data shows quarterly sales of properties $5 million and greater remain the lowest since the beginning of last decade, while capitalization rates are still rising.

The finance world’s outlook is also rocky. In December the first non government-supported CMBS deal in 18 months was completed, offering hope for conduit financing’s future, while the CMBS delinquency rate passed 6 percent for the first time. With outstanding commercial and multifamily mortgage debt remaining near record levels, according to the Mortgage Bankers Association, it is hard to expect anything other than severely constrained lending in 2010, especially as interest rate risk increases.
While speaking at Jones Lang LaSalle’s recent 2010 forecast event, Colin Dyer, JLL’s global chief executive officer, anticipated that sales volume would increase 30 to 50 percent in 2010 and noted that in some global markets like London the window for acquiring assets at significant discounts has closed. But that outlook had to be framed against the reality that in the first quarter of 2007 U.S. commercial real estate investment sales were equal to the combined sales from the rest of the world. Today, the Asian investment market, which boasted the largest sale of 2009, is equal to the rest of the world combined.

City National Bank Chief Investment Officer Richard Weiss said the recovery is underway, while noting that seven out of 10 of the nation’s worst cities for unemployment are in California. This too is relative, however, since Thornberg notes that California “enjoys the best of the booms and the worst of the busts.” 

Investment advice at the conclusion of this meeting?  Go with your gut, your informed and educated gut.  Isn’t that always the way?

I went out and worked. 

Based on the latest news so did the rest of the country.  We’ll ignore those AIG bonuses (AGAIN!) and concentrate on small business investment in software and other office systems, a concrete sign of business returning to a new normal.  Concentrate on the news that private equity firms are making residential construction loans as reported in The Wall Street Journal yesterday,( at the low, low interest rates of 15-20%) and though home prices still remain depressed, sales volumes did rise in throughout the fall before leveling off in December.

New Haven the city and the county were spared some of the larger  moments of recession, layoffs and vacancies that other cities like Denver, Chicago, Atlanta, Phoenix and of course, Los Angeles experienced for the last eighteen months.  But, contrary to what the headlines say, money and lending are still tight.  And when no money is being lent, there is little growth.  New restrictions on banks that the government, in a reactionary response (government’s normal stance on crises) to the banking crisis will hamstring banks if all the regulations are put in place, or put another way to paraphrase the President of the American Banking Association, the regulations will hurt banks that are struggling but honest and maintaining, will be like walking onto a battlefield and shooting the wounded.

The next few months will be interesting.  The exciting thing is that the New Haven market is seeing activity.  The former Neurogen complex in Branford , more than 150,000 s.f. of biotech lab space sold for $22.00 s.f.  I can’t do the math to figure out what percent of a cent that is on the dollar that the build/retrofit cost.  Before the ink was dry, the investor who bought the buildings sold one to a local company at a profit.  It’s not bad in New Haven county.  Investors have cash.  Building owners looking to put their money somewhere less temperamental are putting good properties on the market.  More on that tomorrow.

Because, in the midst of this economic turmoil, I’m breaking up with my web site and email hosting company.   How could The Design People and Agent Image let me down like this.  Three and a half days without email?  More so, they didn’t tell their clients what was going on.  They invited me to follow them on facebook or twitter for updates.  Why the h*ll would I want to do that?  Do I want to follow or friend the company who is throwing a monkey wrench into my daily communications without apology or explanation?  I don’t think so.  If the Design People had just come clean and said “yes we got hacked.  Yes, for the second time in six months our email servers were hacked.”  Imagine how much better I would have felt.  Instead they ignored me.  So, since they left me in the dark, crying on the doorstep like an unwitting and ditched prom date, I’m going to let them find out we broke up through the grapevine.  It’s sad.  I’ve been with them for nine years.  Having good tech support is like having a good car mechanic or plumber.  Unfortunately, the Design People and their web design arm Agent Image, aren’t nearly as good as my plumber or mechanic. 

The sage of my journey with the little start up that could”  continues tomorrow.  Right now, I once again must call the Manila office and inquire about the email servers.  Yes, the Design People and Agent Image started in Los Angeles with a handful of staff, but they’ve grown.  They’ve grown so much that they no longer have to provide customer support to their small customers.  I bet “Chad” of Million Dollar Listing and Hilton Hyland doesn’t have to call them and ask where his email is, all the while threatening the design consultants ability to have children.  But then again, my company is not Hilton Hyland.  It’s small.  And it’s on the East Coast, the uptight prep school educated step child of what has become The Design People’s kingdom of the web.

The New Haven County strip center which recently sold at auction had been languishing for years.  It is a case study in foreclosure, a road map to failure.

1.  The owners bought at the height of the market.  They paid more than the property was worth.  The value of the property should have been calculated solely on the income the rents were delivering at the time of purchase, however, the buyers paid for projected rental income, in addition to the actual rental income.

2.  The projected rental income did not deliver.  Spaces that were empty at the time of purchase remained empty. 

3. Throughout the course of their ownership, the sellers, who found themselves in foreclosure did virtually no maintenance on the property.  Roof leaks and broken seals in plate glass windows multiplied.  Parking lot lines faded, winter sand built up and outdoor lighting failed.

4. Deferred maintenance contributed to the vacant “look” of the center.  Foot traffic dwindled.  Less foot traffic and fewer cars in the lot drove potential tenants away.  The vacant spaces had missing ceiling tiles, stained carpets, different shades of paint on the walls, which caused prospects to wonder what exactly the Landlords planned to do to maintain their spaces after they moved in.

5.  As retail sales nationally dried up and store fronts became empty, this center found itself in competition with newer centers, better located centers and centers with better co-tenants.

6.  The busiest tenants in this center are a breakfast/luncheonette, pizza place, and the post office.  Tenant mix is critical to the livelihood of a center and vacancy filling.

7.  The Center was on the market for two years asking a price nearly twice its value.  The broker who advised the sellers to price the property at a number two times higher than what the Net Operating Income (Income after expenses – profit) justified was not doing the sellers any favors.   The asking price was $8 Million dollars.  The numbers indicated that it should have sold at $4.2M at the most. The deferred maintenance meant that the value was even lower at $3.8 or $3.9M.  But, the auction only brought $2.5M.  The broker who over priced the property hurt the sellers more than they hurt themselves.  Prior to the auction, the property was put under contract at $4M but the contract was contingent on the town upgrading roads. This was another blow to the property. 

At the time of the Bank Sale, the center was 56% vacant and asking rents were 30% of the market.  But, given the vacancy, deferred maintenance and previous over pricing of the rents it was almost a surprise.

The demise of the ownership of this property is a step by step manual to foreclosure action.  Overpay for an investment property; pay for the opportunity to fill vacancies that remain vacant; defer maintenance, create an unwelcome ambiance and lose more tenants; overprice the rent for location and condition of the property; and finally, overprice the asking purchase price for the property until the market ignores it.