Sliding Into Foreclosure: A Blueprint.

Posted: November 23, 2009 | Author: | Filed under: commercial real estate, investment, mortgage, real estate | Tags: , , , , , , , , | Leave a comment

Two weeks ago a local strip center went to auction, selling for fifty cents on the dollar.   Investment properties are valued almost entirely on the income that they produce.  Whether a Buyer is looking at Cap Rates, Return on Equity or more sophisticated equations looking at Internal Rates of Return and Future projections of value.  No matter what the method, the bottom line is profit. 

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.

Looking Back on 2009, Where Will We Be in 2010?

Posted: November 14, 2009 | Author: | Filed under: real estate | Tags: , , , , , , , , , , | Leave a comment

2009 was a year of false starts in Commercial Real Estate.  The sub-prime crash and falling housing market, caused trepidation in the Commercial Market.  It always follows housings trends.

Now housing is trending up.  Prices are rising and sales are happening.  Is it organic? Or is it the promise of $8,000 in free money from the government?  We’re not taking any chances.  The first Time Home Buyer tax credit has been extended to April 2010.  Any first time home buyer in contract by April 30, 2010 will receive an $8,000 tax credit. 

Lest starter home owners feel shunned, they’re receiving a break too.  Home owners pinned as “trading up” who have lived in their homes for 5 years will receive a $6,500 rebate.

Income caps apply to the credits, but home sales have risen.  Anecdotally, it’s working.  The statistics are yet to be charted.

Meanwhile, the media has warned of billions in Commercial Mortgage Loans coming due.  In a time when vacancies are increasing and rental rates falling, this is bad news for investors on the brink of refinance. 

However, Banks do not want to become Landlords.  It’s generally accepted wisdom that extensions and workouts will rule the day as banks and property owners try to work together to keep properties off the banks’ balance sheets.  

This is the national news.  The national news every day.  However, real estate has always been local.  Despite our ever growing global economy and the reduction of barriers between states and countries, real estate remains local.

In Connecticut, Stamford’s Central Business District has an office vacancy rate of 25%.  Much of the office vacancy was linked to the fall out of financial markets and firms in New York City and Greenwich, the Hedge Fund Capital of the world two years ago.  Hartford’s vacancy rates also rise to 18%.  But, New Haven, riding high on “Eds and Meds”  – Education and Medical care, has a vacancy rate of a little over 9%. 

Ranked 32nd in the country by the Brookings Institute as a recession resistant metro area, tying with Milford CT, New Haven, Milford and the suburbs are weathering the storm.  Connecticut is a state of micro markets.  New Haven is likely to remain strong as the economy bounces back.  The Hartford market, if it too takes advantage of its colleges and the knowledge base that they offer, the entrepreneurs that they are capable of grooming can also bounce back.

But the bottom line is: whether we’re looking at a CT market or a national market, deals will abound in 2010.  Whether it’s buying largely vacant buildings and repositioning them, or purchasing mortgage notes, 2010 will be the year of opportunity.  History proves that the most money in real estate is made by savvy investors who take risks at the bottom.  Think Warren Buffet and railroads, banking on the increasing importance of green.

REITs aren’t the only Commercial Real Estate Property

Posted: April 20, 2009 | Author: | Filed under: real estate | Tags: , , , , , , | 1 Comment

I just finished reading an article/blog entitled the top ten reasons commercial real estate won’t rebound.  The article talks almost exclusively about the REIT market, with the exception of  bullet #4.  Item 4 talks about the challenges that a smaller landlord will face.  Namely, tenant improvements and commission fees.  

I’m not sure where he did his homework but it is a bit incomplete as far as I’m concerned.  Tenant Improvements are certainly a cost, but the costs can be offset.  Longer term leases allow Landlord’s particularly smaller Landlords who own one or two properties to negotiate rental abatements in exchange for tenant improvement fit ups.  Sure, this still leaves a space “vacant” on the books but few smaller Landlords over leverage themselves that far.

In the New Haven market and other parts of Connecticut, Landlords didn’t buy properties on Cap Rates which can be manipulated in dozens of different ways.  Smaller investors buy on cash returns.  In other words the percentage return that they receive based on equity invested.  Even in this down market, perhaps especially in this market, real estate is more attractive than ever.  If actual cash on equity returns run at 7% guaranteed for the next five years, where else can that be made? 

Certainly not in the stock market, the days of the 11% guaranteed return are gone their return uncertain, CD’s at the bank at 3% or even 5% aren’t meeting the level of a slow growing real estate investment and savings accounts return little more than the mattress. 

So, in this market, while the monopolistic big box investors known as REITs  suffer, the individual entrepreneur can thrive. 

Not only in purchasing commercial real estate but in partnering with a Landlord who may be struggling under the perceived costs of tenant improvements (fit ups, build outs of walls and kitchenettes for a specific use).  The top ten story also speaks about real estate commissions. An investor is not going to crumble under the cost of a brokerage fee.  Commissions in Connecticut can be paid out of security deposits.  Contrasting a small percentage fee with the larger cost of vacancy and the commission argument goes out the window.  

So instead of lamenting the fall of commercial rents and valuations, now is the time to look for opportunities.  Return to the barter system, be the electrician who wires a building for a hi-tech use in exchange for a small stake in the property, the real estate broker who doesn’t take a commission and instead becomes a minority owner in a property, or follow the example of Normandy who bought the John Hancock Tower debt by debt until it owned it at half price.   

Contrary to the opinion of the author of the blog, the Commercial Real Estate market will bounce back and like any investment a little homework and preparedness is all that’s required to find success.

http://www.minyanville.com/articles/4/20/2009/index/a/22256

CNN talks about Commercial Real Estate Bust…gets it wrong.

Posted: April 18, 2009 | Author: | Filed under: real estate | Tags: , , , , , , , , , , , , , , | Leave a comment

CNN is reporting the widely known fact that  $700 Billion in commercial real estate loans that will mature in the next two years.  Surprise!  With rising vacancy, dropping rental rates and stricter underwriting standards, their pundit Don Peebles thinks that a lot of properties will go into foreclosure. 

What a soothsayer.

Commercial real estate cycles have followed residential cycles since Lords kept serfs to work their land.  Crops died off, tenant farmers couldn’t meet the price of their rented land plots, the overlord took their land back and home, they couldn’t work so stopped buying meat and fish, grocers went out of business, pubs couldn’t pay their rent and every one clung by their fingernails or fell until a better crop came in and harvests improved. 

Suddenly, the media seems to be catching on. 

Those of us in the industry knew that commercial real estate would suffer, the only questions were and remain, how long will the market be slow and how far will values drop?  As ever, the answer is yet to be seen.  If layoffs continue, businesses will shrink requiring less physical space, more space will come on the market with fewer companies growing or starting up (government bailout money is still elusive for business, CBIA loans are difficult to secure, taking longer than ever, banks are skittish about lending…funny when those businesses might employ more members of the families whose homes are in jeopardy if they could expand their product and service lines and grow through the recession),  and landlords will see more vacancy in their buildings, making it harder to meet existing mortgage payments, or refinancing terms.

Now, according to CNN’s pundit, this isn’t a big deal for the economy because someone else will pick up the property and people won’t lose jobs like they did in the financial industry.   It’ll just be one investor or group of investors trading property to another group, so only a small pocket of people will be hurt.  **Nice Spin if you can Get It.**

Conveniently, CNN’s real estate report left out an entire sector of commercial real estate owners.  The business owners who own their business property or those who own properties larger than they need so that they can live in their workspace for free.  As their debt management issues impact them and their business, it’ll be a sign that our economy and corporate health is still in jeopardy.  He also neatly side stepped the issues that underlie vacancy in commercial and industrial properties.  Empty spaces where companies once employed, once paid taxes to the towns and cities in which they are sited, dark buildings not being maintained.  Don’t let CNN fool you.  In painting commercial real estate owners as an army of Donald Trumps that deserve a little humility, they neglect to look at the issues that create and are created for and by a commercial real estate bust. 

When buildings go dark it won’t simply be because people bought investments that were upside down at the top of the market; their debt exceeding their income.  It will also be because companies failed, mortgages came due.  It will mean that not only are more people losing work, but town city and county tax based services will suffer.  Non-profits will suffer – fewer businesses, fewer sponsorships, fewer profits.  

A commercial real estate money collapse will be felt in every pocket of America to some degree.  It looks as though the crash will not be stopped with $250 Billion in commercial loans coming due this year.   As with every bust, some areas will be hit harder than others and this time, Connecticut’s barriers to business, though keeping us out of the hunt for desirable corporate headquarters and regional satellite business centers for the past ten years, will help us through the recession.  Since we haven’t grown like the rest of the country for the past twenty years, there isn’t far for us to fall.   Unless of course, our state government chooses to enforce more regressive corporate and sales taxes, in which case we’ll only have our legislators to blame.  Then again we’re already 49th best state in the union to do business, how much farther can we fall?

National Trends Hitting Home

Posted: April 15, 2009 | Author: | Filed under: commercial real estate, investment, real estate | Tags: , , , , , , , , | Leave a comment

Since the start of the Commercial Real Estate crash of 2009, Connecticut Commercial Real Estate owners have been  living in the eye of the real estate storm.  Landlords in CT read the news as REIT stocks tumbled on the heels of hedge fund implosions.  They worried as the end of 2008 and the credit crisis hit retail property owners with rising vacancies and rent renegotiations. But, they did not feel the earth shift under their feet the way  REITs world wide and commercial property owners in Florida, Texas, Vegas and the Inland Empire east of Los Angeles hit by the subprime crash, over building, and the crash of our retail economy did.  

Now the storm is gaining speed and no one is safe in the eye. The market in Connecticut is shifting, assets and equity are for sale. 

In Plainville, Connecticut Commons, 556,000 square feet of retail space is on the block.  It is part of a 52 property portfolio being sold by Macquarie DDR Trust throughout 20 states.  The property had been valued by the ownership for $91 million.  But that counts Linens and Things on the balance sheet.  An open air big box center, one wonders what the vacancy rate will be in six months or two years.  How many people will buy fishing rods at Dick’s Sporting Goods for opening day of trout season this year?

A year from now, the sale of the John Hancock Tower will be hailed as the shot heard round the commercial real estate world.  The building sold at auction in 60 seconds for $660.6 million. 

In 2006, its sale price was $1.3 billion. 

In 2009, a roomful of investors stood with their arms at their sides while a single bidder raised his hand.  The Tarantino twist in the story?  This was not a sixty second sale. 

Normandy Real Estate Partners bought enough of the debt through second and third mortgage leans on the tower to force its troubled owners into foreclosure on the first mortgage.  More twists: the roomful of prospects were only there to see what would happen and how low the price would go. 

The unknown subplot realized after multiple calculations? Not only was the sale price a fifty percent discount off the purchase price of two years ago, Normandy bought the building for an even lower price in real dollars.  They bought the Boston landmark at a cost of money far below that which is available to buyers with today’s underwriting and increasing vacancy.  The real cost of the tower is closer to $400 million. 

Investors watched.  Fire sales won’t sweep the market traditionally, savvy investors are going to look for similar over leveraged properties.  In fact they already are, in Colorado and  Southeastern states where money ran like water for the past seven years. 

In Connecticut those properties will be harder to find, vacancy rates being an underwriting issue since the early 90’s when the state last sunk.  But 1031 money flowed freely from New York City for several years, so there will be distressed properties to cherry pick.

Though Prologis, Kimco Realty and Simon Property have successfully sold equity, REITs are over leveraged and stocks are falling.  Mergers and acquisitions are on the horizon.  Of the 130 public REITs, 30% are trading at below $5 a share.  REITs have stakes in CT.  Through mergers and acquisitions, properties will continue to be dropped from portfolios and will be opportunities for CT investors who have been waiting for prices to fall. 

While there isn’t much land left in our state, existing properties will be prime for redevelopment, green development, transit oriented development and available at lower prices than we’ve seen in ten years if they are sold off as under-performing REIT assets. 

Toxic, the catch phrase of self help books for a decade is the commercial real estate catch phrase of the next several quarters.  Keep an eye out for toxic assets and opportunity.

TALF Launched. Will Commercial Real Estate Investment Bounce Back?

Posted: March 8, 2009 | Author: | Filed under: real estate | Tags: , , , , , , , , , , , , | Leave a comment

The TALF (Term Asset-Backed Securities Loan Facility) funds rollout began on March 5th, will it spur commercial real estate investment as promised? Commercial property values are falling nation wide. Construction and Development are at a dead stop around the country because no one can get financing.

In ailing Detroit, 8 of 13 approved developments are on hold.

In California, the tax rolls of many counties are negative.   The national economic downturn and falling commercial real estate values throughout the state are at the heart of tax revenue loss.  While homeowners are getting relief through government programs, most commercial real estate owners are not.  The mortgage crisis hit people where they live but the ramifications of a devalued commercial real estate market are rippling across the state. County programs are being slashed. The Inland Empire, boom-towns east of Los Angeles for the last decade, is crashing.

Should Connecticut see Commercial Real Estate values fall in a similar manner, a city like New Haven, which has already begun laying off city employees would be devastated by negative tax income. 124,000 residents: more than 160 non-profit organizations.

Around Chicago, luxury condominium developments have stopped mid-construction as have mixed-use developments.

Nationally, heirs of Howard Hughes may soon own a mall portfolio by default. Mall giant General Growth Properties, bought Rouse in 2004 and inherited its commitment to pay half the appraised value of property related to The Hughes family’s master planned community outside Las Vegas, Summerlin. The only problem? General Growth Properties’ stock has dropped 98%. To make the payment, GGP would effectively give all their stock to the Hughes heirs.

The government used the “Domino Effect” to justify entry into the Vietnam War, but leaders couldn’t see that building an economy on consumerism wasn’t going to splinter when people stopped spending? Talk about a real domino effect. Buying ceases. Stores are shuttered, clerks are laid off, logisitics workers are laid off, no new mall construction, trades people are laid off, call center workers for catalogue workers are laid off, truckers move less product. It’s a Domino Effect that looks like one of those Guinness Book attempts dominos falling one after the other in circles, up and down stairs, on ramps, off ramps and ends in an explosion of falling real estate values.

Meanwhile in Connecticut and New England as a whole commercial values hold steady. New England Manufacturers will outpace the rest of the country in revenues. In a contrarian move, they project revenue. Our Commercial Real Estate Market is not imploding. We’ve been here before, 1989-1992. It was a blip on national radar but devastating to Connecticut and the rest of the colonies.

We learned.

Exponential growth has not been the norm over the past ten years. Still, nerves are on edge and the question remains: Will TALF funds, which are available for three years while most commercial mortgages packaged into bonds run seven to ten years, really spur investment and lending?

The disconnect in the years between fund monies and traditional commercial mortgage terms of ten years has not gone unnoticed.

News of Opportunity echoes

Posted: November 3, 2008 | Author: | Filed under: investment, real estate | Tags: , , , , , | Leave a comment

At a recent Jones Lang LaSalle meeting in Miami.  JLL released their thoughts on 2009 and the commercial real estate market.  They echoed the same news released by the Urban Land Institute two weeks ago and the opinions of brokers, developers and other real estate professionals at the World Conference of the Society of Industrial Office Realtors in Minneapolis.

In Florida, JLL’s Cross Sector Survey revealed that respondents, predicted a drop in Commercial Real Estate values in 2009.  It’s another voice in the choir.  Similarly, they also predicted a rise in cap rates and therefore a drop in real estate values.  Rising cap rates mean that investors are going to demand better returns on their investments for a number of reasons, including rising interest rates and uncertainty in the tenant markets and business. 

Interestingly, according to Moody’s commercial real estate prices peaked in January 2007 and have dropped 12% off their high.  That’s not exactly the sky is falling scenario that one might expect after hearing all the bad news about the residential market and the repercussions of the sub prime mortgage crisis. But, 2009 may well see a rise in distressed properties as tenants fall behind in payments, so those investors with cash should start looking around for a place to put it.

Connecticut investors would be well advised to look outside our state to the areas of the country where the residential markets took deeper cuts in home values.  Connecticut has gone through one major recession and realignment of expectations.  National Developer Landlords have largely taken a “by” on our state for the past twenty years, but working with a broker who is well connected across the country through their affiliation with professionals through the SIOR network, can find opportunities in markets that they may not have previously considered.  Commercial real estate investment will likely be frowned upon by Wall Street for some time, but those who are fearless and stand tall in the face of panic will benefit in the long run.   Real Estate cycles traditionally run in seven year cycles.  We’ve just moved out of thirteen years of rising values, that doesn’t mean that we are going to have seven or thirteen years down, but it does mean that smart investors are going to look at good quality bricks in mortar to hold.  The opportunity and the profits will be in the rent rolls, the tenancy and the sites.  Remember, cash is king.

Time to Buy

Posted: November 3, 2008 | Author: | Filed under: real estate | Tags: , , , | Leave a comment

No one can agree on how long the recession will last or how deep it will go.  But the one thing that real estate professionals DO agree on is that it’s time to invest in real estate.  According to Herb Krumsick, SIOR of Wichita, KS., the most money was made in real estate between 1989 and 1993.  1991-1992 are largely referred to as the last big real estate recession years. 

Buying investments may look different now than it did two years ago or even last year.  Equity, cash for purchases will be more important than ever.  Banks aren’t lending.  They are still holding tight to government bail out money so buyers with cash and an interest in distressed properties, or properties owned by a distressed seller will find a wealth of opportunity in the market. 

Whether money is raised through venture capitalists or syndicates alternatives to conventional lending will play a big roll in the financial success of investors.  In addition to banks hesitancy to lend, non-recourse loans are, at the moment, a thing of the past.  Interest rates are likely to rise as will cap rates.  While rising interest rates may not be great news, the cost of money rising with more hoops for borrowers to jump through, rising cap rates may not be terrible news.  They indicate falling values for properties, which is another sign of opportunity. 

But, these are times for entrepreneurial investors, single investors, tight knit partnerships and smaller purchasing syndicates, Tenant-In-Common and Real Estate Investment Trust investing are no longer favored forms of getting into the market.  TIC’s are more or less dead and REIT’s have suffered in the wake of the credit crisis and the collapse of Lehman Brothers.

Sinking Dow & Real Estate Prices, good news?

Posted: October 25, 2008 | Author: | Filed under: investment, real estate, Uncategorized | Tags: , , , , , , , , , | Leave a comment

ULI, The Urban Land Institute and Price Waterhouse released their annual emerging trends report last week, predicting tough times for the Commercial Real Estate market in 2009.  It will likely last through the first half of 2010.

Last year ULI predicted 2008 would be a year of uncertainty and that investors operating on debt would be the hardest hit by tougher underwriting standards and companies giving back space.  Lehman proved them right by folding largely due to a REIT protfolio laden with underperforming over leveraged apartment properties. 

So when the ULI predicts that 2009 will be the toughest year in Commercial Real Estate Markets (CRE) since 1991-1992, and may eclipse 1991-92 in pain, attention must be paid to the report.  The report warns of unemployment, projecting an unemployment rate of 9%, massive layoffs in the auto industry, hedge funds (obviously) and across the financial services industry, yet focuses on potential layoffs at Pepsi as the true harbinger of trouble. 

However, it is not all doom and gloom despite one of the Emerging Trends authors claiming that the report may not be dark enough.  There will be opportunities. 

Soon enough, United States entrepreneurs and, possibly, more likely entrepreneurs from Eastern Europe, Asia, and the BRIC nations will retool the basics of the world economy.  Eighteen months of constriction in office manufacturing and distribution space is likely.  Then new business concepts will emerge, driving up demand for office, industrial and other commercial space. Strong foreign currency may fuel a drive for more American outlets of foreign companies also.  This restructuring of the economy happened on a micro level in Connecticut fifteen, sixteen years ago as we slowly climbed out of the last recession.   

Eighteen months of constriction in office manufacturing and distribution space is likely.  However, there will be investment opportunities in real estate as slow adapting institutional investors previously operating in faulty investment strategies shed property to raise capital.  Individual investors with cash; leveraging less debt will have buying opportunities as will tenants in properties.

DDR, Developers Diversified Realty Corp.  is jumping the trend with its retail centers now, looking to sell large tenant anchored retail centers to its anchor tenants such as Walmart.

Other opportunities will appear as well in the form of banks looking to remove debt from their balance sheet.  Property owners with equity in their properties and additional cash in their pockets may be able to buy out of their mortgages, renegotiate balances down and other wise take advantage of lenders need to work their way out of unbalanced profit and loss statements and balance sheets.

In Connecticut and much of the Northeast, property ownership isn’t likely to change as greatly as in places like California’s Inland Empire or large distribution centers like Memphis or New Jersey. To quote one of my commercial broker friends, “we haven’t grown in the last 20 years, how far can we fall?”  A point well taken.  Port cities and business centers across the country according to ULI will be less affected by a slowing Commercial Real Estate market as well.  So opportunities are there, but we’ll have to go out and knock it won’t be pounding down our doors.

Warnings: deflation, steel demand down, the Dow down, China down

Posted: October 21, 2008 | Author: | Filed under: investment, real estate, Uncategorized | Tags: , , , , , , , , , , , , , , , , , | Leave a comment

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.

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