NOODLING AUGUST

Home Prices Rising

They are still going up, and according to one report – Everywhere! With pent up demand and a growing population this is not a shock. And considering little things like the number of college graduates every year, growing families, and a new term I want to invent, “Emerging Adults,” it's just demographics. Sure there are young adults living with mom and dad and the overall hot apartment market (and rising rents) to confuse the numbers and absorb these demographics, but demand is growing. As we climb out of this disaster look for substantial increases in both new home and existing home prices, and don’t be surprised by dramatic increases by 2014. Here are a couple of interesting articles:

• Rising HomePrices: Federal Reserve Atlanta
• US Housing – Surprising Numbers (for an absolutely different take)
• WSJ: Why Home Prices are Rising

Retail – Competition is a GOOD thing

The Shakespearean tragi/comedy that is General Growth Properties (GGP) continues. After the largest bankruptcy in financial history, the unceremonious dumping of the family that built the company, and the takeover (with 42% ownership) by Brookfield Asset Management, Inc., it is still a ship trying to find a port. The man who kicked this all into gear and helped resurrect it from the dead was Pershing Square’s Bill Ackman (10% ownership). There is too much history to go into (the following sites will help if interested), at least for now. But Ackman wants GGP to essentially sell itself to Simon Property Group or some other entity. If Simon absorbs GGP there will be a major shift in the retail firmament. My guess is that many national retailers are holding their collective breaths. The stock holders may be happy but the consumer may be in for another surprise.

Here are some interesting articles:

• Will Brookfield be able to hold off Pershing
• Ackman turns up heat on GGP after Brookfield bails

High-Speed Rail – I will never give up!

High-Speed Rail is like the strange aunt that lives in the basement, you know she’s there, she won’t leave, and you hope she doesn’t come upstairs when there are guests, especially in California. After November all sorts of things may happen. In one scenario HSR will be dead as a doornail, in another it could be like suddenly declaring the end of Prohibition. You choose since it will be based on your choice and your money. The old saw, “Throwing good money after bad,” comes to mind. In 1938 you could take a train (steam driven) from New York to Chicago (the 20th Century Limited) in 16 hours – exactly. And more often than not it ran exactly on schedule. This is the train that made famous the term “Red Carpet Service.” Elegance and style also made it famous – the scene in North by Northwest with Cary Grant and Eva Marie Saint was shot on that train. Today Amtrak (using the same route) takes from 18 to 27 hours (and the last is direct!). And I’ve heard you should safely double it. I give up; go build the dinosaurs, pad the union labor ranks, buy the trains and engines from China and France and who knows where else. The rails will probably be rolled in China, the only small bit of pleasure will be knowing the natural gas used to fuel the power plants will be American.

Here’s a great take:

• New Setbacks for the Beleaguered California Bullet Train

And lastly thanks, as always, to Aaron Renn (GO HERE) , for the following videos. Every city should market itself, brand itself. Here is Memphis, Tennessee’s shot, followed by Dubai. Just think about it.

 Memphis, Tennessee

and Dubai

Stay tuned . . . . .

I Wonder As I Wander

I have been wondering (a lot) about where growth and development will happen as we move from this cycle of collapse and retreat. I won't be pointing fingers or shaking my fist at the stars - too easy and accomplishes absolutely nothing. For this session let's just lay back on the couch and think a little about the future.

Obvious Trends:
Currently there are strong regional growth areas, such as Silicon Valley and other high tech areas that will continue to add jobs and more importantly entrepreneurial growth - from little acorns come huge oaks. While sadly I think that most tech manufacturing will still be outsourced overseas, the intellectual capital side will significantly support residential growth and the expansion of nearby existing research facilities. But housing will not be cheap, if anything, too expensive. I am also seeing sales of once high-tech land rezoned into residential use in these same markets - this is market driven as home prices continue to rise. The first builders in are the big regional players followed quickly by the national public companies.

Retail is in turmoil. After almost twenty years of building too much square footage there is a strong sense that this retrenchment (i.e. selling off malls for other uses, converting urban retail to multi-story residential) will have ongoing and serious effects on existing retail centers. The two major players, Simons and GGP are fighting it out in the marketplace with rumors of acquisitions and privatizations. There are too many big box retailers cannibalizing their own markets. Regardless of the "green mindset" people will drive to buy. Look for a return to and growth of well supported and "improved" older downtowns. Retail will continue to be more than loading up the SUV at Costco (but don't short their stock either).

The Boomer market is a head-scratcher. While there is a strong, albeit small, retirement community market - many of these are too remote to be effective. The days of the huge Del Webb communities are probably gone, they will be more modest and actually focused on one particular regional submarket such as south and west side of Chicago, affordable areas of New Jersey, the nearer suburbs of the San Francisco Bay Area. Most Boomers still want to be near their children and grandchildren but an international airport as well. The "urban" life is not for most of them, but think urbane. I also think there is a huge opportunity to develop dense and well amenitized senior neighborhoods with attention to great security and medical support. The things that scare most older people are being alone, ill, and forgotten. Senior and assisted living communities (at all economic levels) can provide these comforts. A good model is Sunrise - but costs are very expensive. This will be a big, big, political issue. Far more then even today's medicare debate, just wait and see.

Look for more and more assisted living communities - this doesn't take a genius to figure out. But they are still more often than not mom and pop operations. I see trends to larger and more resort oriented assisted living facilities. Not everyone is senile and bed ridden - at some time we will all need just a little more help.

What I also hope to see is more regional and sub-regional support for transit systems. This mania for high speed rail will pass as urban areas suddenly realize that the funds they desperately need are going to remote and underutilized areas. Look for expansions of systems such as BART and other Metro lines. One impact is the blowback form neighborhoods faced with freeway widening - they will not except it. The days of stacked freeways are a long time, if ever, away.

And lastly (as noted in last week's blog) look for renewed pushes into the regional edges. Land is cheaper (and way cheaper today than five years ago). This helps to support the primary reason for this edge growth - better and less expensive housing. It drives the enviros and pols crazy - but as always the marketplace will win out in the end. 

Stay Tuned . . . .

Sniffing the Air

Is that a change in the business climate I smell? While generally trying to survive my fourth economic decline and/or disaster, I begin to look for signs of recovery. Not the usual evening guesses and speculations on the evening news and CNBC. (Remember they have hours to fill and would as gladly change their minds from one day to the next as change their hair styles.) No, I look for the most important aspect of a change in the trend of business, speculation.

By this I simply mean when developers go outside the norm and look beyond the next six months. In land development (a business that can make you old before your time, as well as very rich or very bankrupt) it is speculation that drives the market. A large project, whether a high rise or master planned community, can take a minimum of five years from inception to development. Sure, smaller projects can move more quickly, but in today’s regulated environment, a master planned community or even a dramatic high rise, has to bridge many cycles. It is the mad rush to stay within the timing of a particular market or at least try to open the project during better times that claim's success.

Example: My planning firm was in the middle of master planning at least twenty communities within California in 2006 and we had at least ten others in early conceptual stage. These totaled at least 50,000 residential units along with retail and commercial support. Only one of these developments has moved glacially forward, all the others were pure speculation, none survived. If there is one aspect about land use speculation that separates the weak hearted and weak minded is knowing when to pull the plug and not renew that option; when to shut the doors, fire the consultants, pack, and go to Hawaii. Some did, some didn’t. Some survived, most didn’t. Land speculation is not for the faint of heart or those with a short term view. It is a world of fools with deep pockets and endless optimism. As I said they are a rare sub-species.

That scent on the wind is the return of the speculators. And I don’t mean the high-speed rail people and the giant water tunnels under the Sacramento Delta crowd, or even the extensions of mass transit systems all driven by bonds and politics. What I mean is that small office in the back with a couple guys sitting around and sniffing the same change in the climate and saying, “Why not!”

These are people that you won’t find on the monthly business reports published by the government and dutifully analyzed on CNBC and Bloomberg. These people are below the radar spending small sums to hopefully garner big returns. They may be still holding options on large tracts of land (held tightly during the last five years) or they may be knocking on a farmer’s door this afternoon. They are the ones that can connect the dots.

These people are a strange lot. They see the future differently. They seem to be more immune to the foibles of the short term market place and in fact may not even care about the next six months. Their story is out there three or four years from now when the market comes back. They will be ready with entitled land and paved streets. They rolled the dice and didn’t look. It was the roll of the dice that excites them, not the dots. That’s why some of the poster kids for this sub-species are men like today’s Donald Trump and in the past, Del Webb. One of my favorites and most inventive was James Rouse who developed Columbia in Maryland and Faneuil Hall in Boston (along with other iconic communities).

Since the first development plans were drawn up by the Virginia Company in the early seventeenth century, speculation has driven the economy of the Colonies and the United States. It is found in the planning of Savannah, Georgia, the design of Llewellyn Park in West Orange, New Jersey, and in Riverside, Illinois.

They are picking up the dice and shaking them, the speculators are coming back.

By the way, in the upper left column is my thriller Toulouse 4 Death, is has been selected as a thriller finalist for the Global Ebook Awards. I will find out if I win tomorrow night in Santa Barbara, wish me luck - and buy the book, you'll love it!

Stay tuned . . . .

So Much, So Little Time

I have blogged a number of times during the past few years  about the impact of housing on the economy. Not just the final house sale but the flow-through impact as well, in fact this may be more important to the overall economy than the final act of the sale (GO HERE).

This article in Builder Magazine (GO HERE) has again pointed out the profound impact of the housing industry on the economy. This wide ranging review of the impacts of housing on regions, home improvement, and employment is a good read.

Less in More:

For some reason the press, especially in San Francisco and New York, has fallen in love with micro-apartments. These apartments, which are only 300 square feet, are the latest craze in urban development (GO HERE). Considering that a standard room at a Hampton Inn is about 330 s.f., what we really are talking about is a monthly hotel. And Hampton Inns serve breakfast. Remember, much of this is result of the number of high tech workers moving to these cities and the high cost of apartments. But, that aside, this trend is really to find a way to maximize the return on expensive urban land. Rents are expected to be in the $1,500 per month range. In the example sighted in the article, 23 units times 1,500 is $34,500 per month, or $2.92 per square foot, which is inline with the norm for larger apartments in the region. But the return for the lot under the building is $9.20/sf per month ($110.40/year), not bad.

But do you want to live in an apartment that is not much larger than your dorm room (even with the kitchen and bath included)? This kind of living will really make you pare down your stuff as our late great critic of society George Carlen said:

STUFF!

Foreclosures:

Couple of other short notes: We are finally getting to the last quarter on foreclosures, after this there will be clear sailing into the world of increasing homes prices and increasing interest rates. We have built so little new housing these last four years that it is inevitable that we will see prices increase, especially in those areas near high end jobs and better off urban districts (San Jose, New Jersey, Connecticut, high tech areas of the south, and of course Texas). I am of the opinion that this trend of increasing prices actually brings more buyers into the market, not less. It is the “not-to-be-left-behind” mentality. But remember what happen last time we had rampant price increases and a fast and loose banking system.

Banking in Today's World:

And having just recently refinanced through Wells Fargo I find this to be interesting:

Wells Fargo & Co.’s grip on the U.S. mortgage market has tripped alarms among regulators and lawmakers concerned that the bank’s control over one of every three new loans could hurt consumers and undermine markets.

Wells Fargo and its two largest rivals, JPMORGAN Chase & Co and U.S. Bancorp, made half of all U.S. home loans in the first half (of this year), according to Inside Mortgage Finance, an industry publication. Wells Fargo alone controlled 33.1 percent. In mortgage servicing, which involves billing and collections, four firms have 50 percent of the business, and Wells Fargo is No. 1 in that field, too, with 18.5 percent. (GO HERE) 

While I am one of the first to admit that the mortgage banking industry is a miasma of bizarre and strange rules, regulations, requirements, secret handshakes and looking over the fences. I always find it discomforting to think of such large chunks of any industry falling into the control of a just a few companies.

The Sergeant Shultz Defense: "I Know Nothing"

And lastly, as somewhat of a final candle on the cake, the Wall Street Journal reported today that the U.S. is not seeking charges against Goldman Sachs (GO HERE). After a yearlong investigation our Justice Department said Thursday that it won’t bring charges against Goldman Sachs Group, Inc. or any of its employees for financial fraud related to the mortgage crisis. Well that is fully expected and this will give you an idea why (GO HERE). Info Note: they did pay fines of a half a billion to end a mortgage fraud suit, but then again smoke doesn’t always mean there is a fire. BTW, Henry Paulson, past Treasury Secretary, was a former CEO of Goldman Sachs, just to throw that in. Side Note: memory in politics is long, the second highest contributor to the Obama campaign in 2008 was Goldman Sachs (GO HERE).

More Later . . . .

(I need a drink)

State Bureaucracy and Our Money

Assume the Mattress is a State Agency

With all the embarrassing comments in the press these last few days about the State of California finding millions of dollars in the secret and some not too secret accounts, it begins to make you wonder. Almost two years ago I ran across a list of all the state agencies at the time. (The following is a reprint of a portion of that blog.)

From October 22, 2010

Currently the State of California has over 520 caucuses, commissions, associations, departments, divisions, boards, bureaus, agencies, networks, councils, courts, and authorities as well as universities, and the senate and assembly. Within each of these there are innumerable programs and sub-committees. Without expanding or stretching the imagination at least 75 of these agencies have a direct involvement with housing and development within the state. Some have almost veto-like control through the morass of approvals. For your entertainment listed below are these agencies, be advised: each has a director, staff, programs, and attendant consultants in the private side (you can skip it unless you need to take a nap).

California Air Resources Board (CARB) ** California Architects Board ** California Arts Council ** California Attorney General ** California Bay Conservation and Development Commission ** California Bay-Delta Authority ** California Bay-Delta Office ** California Biodiversity Council ** California Board for Geologists and Geophysicists ** California Board for Professional Engineers and Land Surveyors ** California Building Standards Commission ** California Bureau of Home Furnishings and Thermal Insulation** California Business, Transportation and Housing Agency ** California Coastal Commission ** California Coastal Conservancy ** California Cultural Resources Division** California Delta Protection Commission ** California Department of Community Services and Development ** California Department of Conservation ** California Department of Fair Employment and Housing ** California Department of Housing and Community Development ** California Department of Public Health ** California Department of Real Estate ** California Department of Toxic Substances Control ** California Department of Transportation (Caltrans) ** California Department of Water Resources ** California Division of Codes and Standards ** California Division of Engineering ** California Division of Housing Policy Development ** California Division of Land and Right of Way ** California Division of Land Resource Protection ** California Division of Occupational Safety and Health (Cal/OSHA) ** California Division of Planning and Local Assistance ** California Division of the State Architect ** California Electricity Oversight Board ** California Energy Commission ** California Environment and Natural Resources Agency ** California Environmental Protection Agency (Cal/EPA) ** California Environmental Resources Evaluation System (CERES) ** California Fish and Game Commission ** California Floodplain Management ** California Governor’s Office of Planning and Research ** California Grant and Enterprise Zone Programs HCD Loan ** California High-Speed Rail Authority ** California History and Culture Agency ** California Housing Finance Agency ** California Indoor Air Quality Program ** California Industrial Development Financing Advisory Commission ** California Integrated Waste Management Board ** California Land Use Planning Information Network (LUPIN) ** California Lands Commission ** California Landscape Architects Technical Committee ** California Office of Historic Preservation ** California Park and Recreation Commission ** California Public Utilities Commission (PUC) ** California Real Estate Services Division ** California Regional Water Quality Control Boards ** California Registered Veterinary Technician Committee ** California San Francisco Bay Conservation and Development Commission ** California San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy ** California San Joaquin River Conservancy ** California Seismic Safety Commission ** California State Assembly ** California State Lands Commission ** California State Park and Recreation Commission ** California Tahoe Conservancy ** California Transportation Commission ** California Water Resources Control Board ** California Wetlands Information System ** California Wildlife and Habitat Data Analysis Branch ** California Wildlife Conservation Board ** California Wildlife Programs Branch

Without a doubt some of these are necessary for the future of the state and well managed growth. Some continue to meddle and offer ordinances, controls and “guidelines” that contribute nothing to the efficient course of development in the state. The market does as good a job of determining the quality of a project more than a staffer in some small cubicle in Sacramento. 

Now I ask you, is all this necessary Mr. Brown? How many have rainy day funds, office supply funds, just in case funds, and forgotten mattress funds that have hidden away our taxes? How can you be serious about a tax increase when many of these agencies continue to be funded and survive?

And with the looming specter of High-Speed Rail and its numerous subcommittees and associated commissions, are we in for even more shell games in the future?

Stay Tuned . . . . .