ULI Winter Institute 2009

On January 29, 2008 the Urban Land Institute hosted the 2009 Winter Institute and Pathfinder Awards in Naples, Florida. As the Vice-Chair of the Southwest Florida District Council part of my duties are to produce the Winter Institute program. This year's Winter Institute was the best one I have attended in the last 12 years. We were fortunate enough to have speakers such as the Chief Economist for SunTrust Bank Mr. Greg Miller, Ron Glass founder of workout firm GlassRatner, Florida CFO Ms. Alex Sink and former mayor of Pittsburg Mr. Tom Murphy. I spoke with many that attended the program and the unanimous consensus is the content was timely, informative and useful. Below are a few pictures from the event.

A link to the presentations as well as information on upcoming events can be found at: http://swflorida.uli.org/News/Event%20Presentations.aspx

Florida CFO Alex Sink and Ron Glass of GlassRatner Capital Group

Tom Murphy, former Mayor of Pittsburgh and Dave

Dave and Florida CFO Alex Sink

Ron Glass of GlassRatner and Dave

SunTrust Economist Greg Miller gives a 2009 prediction

Dave with previous Pathfinder Award winners and 2009 winner Nancy Payton of the Florida Wildlife Federation

Attendee's at the standing room only event

SunTrust Economist Greg Miller with Dave and a WI guest


Commissioner Jim Coletta, Dave Farmer and Collier County Planning Commissioner Dave Wolfley

This blog's for you

As usual I have been reading a lot about the real estate market and the stock market. I have accepted that I am a hard-core investor at heart. Part of the reason it has been a while since I have updated the blog is that every other writer seems to be writing about the same issues I would have written about. I generally sit down to write the blog when I am inspired by something. It is hard to be inspired when everything you read (books, newspapers, internet) you just shake your head up and down in agreement. It seems as though all has been said. Is there anything fresh to say? In the end, I write for you.

Locally here in SW Florida, privately owned land may be approaching a bottom. Bank owned land in many cases is still priced too high. On the housing side we have just the opposite occurring as privately owned homes are overpriced and banks are almost giving houses away. It has been reported the 825B Obama economic rescue package will focus a lot of money on infrastructure. I have even heard that Florida may get as much as 40B for infrastructure spending! I certainly think it is a better use of taxpayer money to build infrastructure than to bail out every company that has hit hard times (AIG, Citi, GM et al).

The new infrastructure plan, when fully implemented will (temporarily) create many jobs for those hit hardest by this recession - real working people. Don't get me wrong, I would love to make 40 million a year for mismanaging a company. Let's just say I am too worried by the newly unemployed CEO's that have helped to run the economy into the ground. I am very concerned about the good folks that need jobs to feed their families and make their house payments. Heck, I would hire them if I just had a project to put them on.

Alas, it is going to take more than you or I to turn the corner on this economic situation we find ourselves in. I believe we are planting the seeds today that will be our crop of success in the future. Just like any crop it will be a while before we are ready to harvest the fruit of our labor as a nation. Very few crops are able to be observed growing. From day to day, the field looks the same. As time marches on we will start to see changes that are positive. Sometimes a change is not something happening, rather it is the absence of something.

Take the nightly news. Last night it was reported that more than 30,000 layoffs were announced by a slew of companies. At some point companies will stop laying off workers; yet that will not make the news. The next notch of improvement will be companies of all sizes hiring new or laid off workers and that too will probably not make it into the news. Remember the saying; "believe nothing that you hear and only half of what you see" The saying can be applied today as well.

We hear all sorts of bad news and that makes us feel bad. But when you look around where you live, most of us are not in immediate danger of losing a job or house. One more comment on last night's news. It was reported the sale price of homes compared to a year ago was down some 15% in price. Okay, that is not exactly good news. What I think was under reported is the volume of home sales was actually up. I am sure a good reason for the volume up/price down was foreclosure selling. At least we know the buyers today actually have money to buy them (this is inferred since I do not know of many banks lending right now). Part of the problem we have right now is an enormous glut of existing homes for sale and the sooner we can get those homes sold and off of the market the better. This economy will improve. It will just take time before we see the seeds in our field sprout and even then you are going to have to look hard to see the new growth.

What is a Home Worth?

As long as the moon has been circling the globe the tide has come in and gone out. When the tide comes in it raises all boats. When home prices were going up all real estate went up just like boats in a harbor. Today as the proverbial tide is heading out, the question really is "How deep is the water"? That is, as the tide heads out, have we hit bottom or is there still a ways to go? From where I am standing there is no bottom in site. At the end of the day I think a house is worth what you can do with it.

I was speaking at a ULI program recently and I made a statement there that I will repeat here; just because a home on your street was sold for $25,000 does not mean your home or all of the homes on your street are now worth $25,000. I also stated that I am seeing a correlation between 2005 selling prices (not listing prices mind you) and selling prices today. That correlation is the value today is about 1/3 of the 2005 selling prices. It is not a perfect relationship but I keep seeing it over and over again.
With that said, if you have a home with a mold issue and it cannot be lived in then that home is not worth much. If I can rent out a home for $1,000 net per month then that home is worth considerably more.

A friend of mine was driving though Georgia a few months ago and ran across a home in a remote area that appeared to have been built with expensive materials. My friend shared with me that he thought the house was a terrible waste of money. So what is the value of a remote "expensive" home? Maybe zero. Maybe some. Probably not what was spent to build it. My point is some houses will never be worth their construction cost and no minimum price exists. The bottom line is if a home has utility, it's forward value will be based on that utility.

A Couple of Cartoons

I've been traveling and am currently preparing my next blog entry.

In the meantime, here are some cartoons that I found funny. I hope you enjoy them.

Happy Holidays to you and yours.

What is Land Development Consulting?

Many people ask what I do for a living when I meet them as I am sure happens to you. I tell them I am a land development consultant which results in a puzzled look followed by a "huh?".

I briefly explain my background in civil engineering, planning and development to them and I tell them that I use my experience to help those less familiar with the development process. This leads to a sigh of relief from my new friend and a comment such as "oh, so you are a builder?" or "oh, so you are an engineer?".

Okay, yes, I have done both of those things but I offer so much more! More time with your family, more money in the bank and more neighbors happy to see you. Let me explain it this way; my son loves to turn all of the lights on in our house but cannot remember to turn them off. We are trying to teach him to turn lights off when you are not in the room. Much of the time he forgets to turn the lights off even though we remind him all of the time. We have implemented a new strategy in our house to help him remember to turn the lights off - we charge him a quarter for every light he leaves on! We explained to him that electricity costs money and since we are getting charged, he is going to get charged. A few nights ago we took two crisp dollar bills from his piggy bank to pay for the eight lights he had left on up stairs. To say he was upset would be an understatement. He did not want to see his money leave his bank. I am sure it will happen again since he is only six years old, but let's just say he has not left a light on since then and he has even reminded us to shape up!

The purpose of sharing a personal story with you is to convey the point that until something costs YOU money, it really is not very important. A developer will hire an attorney, an engineer and a planner and assume these professionals will tell them all they need to know for a successful project. You have to admit it makes sense. The problem is there are many ways to spend money when developing a project. There are many ways to lose money on a project. Who does it hurt in the long run? The attorney? The engineer? The planner? NO! It is the developer that pays.

What is the incentive for any of these professionals to learn how to not cost you money? A very good (and rare) professional may advise you on a subject within their specific area of expertise such as a title issue, a drainage issue or a zoning issue, but which one is going to warn you (before it is to late) the neighbors will fight the project if you do or don't do something? Which one will tell you why you should avoid asking for too much density in a rezone case? Which one will explain how the timing of a project can mean huge savings?

A land development consultant has been "there" and has spent their own money on unnecessary issues at the direction of a "professional" They have had situations where they were told "don't worry about it" and it cost months of delay at a cost of $25,000 per month. A land development consultant has watched as one professional after another has said "they have to approve this" and then seen the project denied approval.

Can you imagine a football team without a quarterback? There is a lot of talent on the field but without a leader, someone to call the shots, the talent is misused or underutilized. At worst, a land development consultant is an extra layer of review and additional costs. What is so bad about an extra layer of review from within the team? While money is always tight, is an extra $30,000 in land development consulting fees on a $12 million project significant? If that $30,000 in "extra fees" saved you three months of interest carry would it be worth it? You bet. I am here to help those in the development industry and those serving the industry such as banks and investors. Are you unsure if you need my help? Give me a call or email and tell me what you are thinking of doing and I will give you an answer on the spot - no strings attached.

Why make mistakes that can be avoided?

Back in the saddle again

I just got back from the Urban Land Institute Fall Meeting in Miami Beach. It was a very informative week with just about every real estate topic covered in multiple programs.

The three items I found most interesting are:
1) The new stimulus package being talked about in congress will be different this time with no checks going to taxpayers. Instead a hundred or so billion dollars will be offered to the states to speed up the funding of new infrastructure projects. The catch is in order for states to get the money, they will have to match all or a portion of the funds. No match, no funds!

2) It does not matter who is elected President, taxes will have to go up to repay all of the spending our country has been doing since the beginning of the Iraq war.

3) The bad news is the recession will last 12-18 months. The good news is we are about a year into the recession and improvements in our economy's outlook should be clear around next fall.

This financial mess we find ourselves in will lead to structural changes in lending for any type of real estate transaction. What has not changed is our country and the world is getting older. The world is also growing in terms of population. More people means more demand for rooftops. Here in the U.S. I learned we built about 1.2 million too many homes from 2004-2007. Based upon customary absorption models, the U.S. should fill those homes with new immigrants, college graduates and other new households over the next 12-18 months. Keep in mind the absorption rate I just mentioned will be an average across the nation so in some places like Lee County, Florida there is more like a 3 or 4 year supply of vacant homes while in other places (say Texas) there is a shortage of homes.

I do agree with both presidential candidates, our best days are still in front of us. Things will get better, is just not be better by tomorrow.

So that leaves us with a real estate market that appears to be on life support. Going forward, everything old will be new again.

Remember due diligence? Hey knowing what you are buying is cool again! Fundamentals matter! It feels good to be back in the saddle again. My comfort zone is to look at a deal without rushing, crunch the numbers, lower my expected selling price and raise my carry costs then crunch the numbers again. When the analysis shows my conservative numbers still make sense I feel like I am back my horse and riding high. The bucking bull is more exciting, but also much more dangerous.

I personally prefer the old fashioned way of real estate investing where fundamentals are everything and just like a horse, if I take care of it, it will take care of me. Happy Trails to you my friend!

Repost: Recession: What it is and what it is not

I decided to repost an oldie but goodie from several months ago considering our current market and my new subscribers.
Enjoy. -Dave

Recession: What it is and what it is not
Recently a reader of this blog asked me what causes a recession.
The definition is pretty easy; namely a recession is when our economic growth is negative for six consecutive months. The actual cause of a recession is, in my opinion, fear.

Many people and companies are fearful right now. They are afraid of losing their jobs, they are afraid of losing customers and they are afraid things will not get better. Deep inside, we know things are constantly changing. Why it was just yesterday things were booming and many thought that would never end too.

Something I want to point out is the word "recession" is associated with "bad" economic times; yet, the definition is simply our growth has slowed down or declined slightly. That does not sound so bad does it? Here is where I think I may be able to shed some light on why the reader asked the original question. On a personal level things do not look good right now. Many have lost jobs or have more than one friend that has lot a job. Everyday we hear about a friend or friend of a friend that has lost their house to foreclosure. Gas costs more. Food costs more. Heck almost everything costs more but we are not making more money. Budgets are squeezed and folks are learning to get by with far less than we are accustomed to having.

When 25% of our population are experiencing what I just described they stop spending on anything but the necessities (the money they used to spend is called discretionary money). When they stop spending on crazy indulgences like eating out (at McDonalds), buying clothes (at Target) and entertainment (going to the movies twice a year) our economy feels it in terms of reduced earnings on Wall Street. When that happens we start to hear on the nightly news about how our economy is slipping into a decline. The news of a decline reinforces the notion that we are in economic trouble and even more of the population cuts back on spending. This reduced spending trickles down to wait staff at restaurants, car dealerships, movie theaters and even Wal-Mart.When will it end??

It is going to take some time for people to feel better about their lives and begin spending again. As I have mentioned in a previous blog, listen to your friends and neighbors. When they are eating out again, going to the movies and buying new cars you will see light at the end of the tunnel. One important fact I left out is in order to spend more you not only have to feel better but you need more money to spend. So we do need jobs to be more plentiful and such for incomes to rise to provide the additional cash needed to spend in our economy.

Have you heard the US dollar has lost value against most foreign currencies? While that is bad for people who save (and buy oil from foreign countries) it is good in that Europeans are encouraged to visit our country and spend money as everything here is literally on sale, everything. The infusion of outside spending may be just the shot in the arm we need. On the other hand, I hate simple solutions and so that will not be the only thing needed to push our economic growth into positive territory.

If that explanation helps you understand and feel better I am very happy to be of service. If you are happy right now, you may want to stop reading.For those of you still with me, I have a confession to make; I don't think we are in a recession, but not because I think like the US government idiots who claim inflation is nil and everything is fine.

I think where I live in SW Florida, we are in a depression. And that folks, is a whole lot worse than a recession. When I was a kid (late 70's) there was talk of the country in a recession and I asked my parents what a recession was. I cannot remember the answer but I do remember my follow-up question which is what is the difference between a recession and depression.

My parents told me about two people; one guy did not get a raise and was concerned about losing his job the other guy had lost his job and was about to run out of savings. The first guy was in a recession and the second was in a depression. The funny thing is the two guys were neighbors. My point is this, forget about labels on the economy as they are meaningless. The important thing is how are YOU doing? Are you in a depression? Do whatever you have to to get by. Things will get better in time. You may have to move or change careers. But things will change