Thursday, November 19, 2009

You can’t have a “Fire Sale” with out a fire


by: Mark Subervielle

In the real estate world, “discount” is the “new black”. If a buyer or investor

cannot get a substantial, deep discount, there is no other incentive to buy. Pure

speculation in today’s market has to have a very compelling reason to buy other

than “it’s a good deal”. It has to be a great deal, once in a life-time, fire-sale


But with out the motivation of a “fire sale”, there are no motivated fire sale

buyers. And without motivated sellers, you don’t have the discounted pricing and

a standoff is created. This “wait till the market recovers” mentality may work in

certain situations, like a well leased property with a decent tenant mix.

But vacant, partially renovated, and poorly leased or managed properties

are subject to the slightest winds of change in the market and can be

economically damaged virtually overnight.

So far there has been no accelerant to start the fire that would create a fire

sale and help this market recover. 

There is no RTC disposition type of activity where the auction of bank assets caused such a frenzy that

buyers were driving up the prices over and above what they could pay on the open market.

That type of buyer frenzy is not happening in this downturn. The economic spin

off from new purchases is what helps the recovery. And that is what is missing.

So as buyers and sellers stare at each other waiting for the other to blink, we

stand by watch the coals in the fire slowly burn out.

Thursday, October 22, 2009

New Orleans, Proud to call it.....uh?

I can remember bragging to friends in my younger years, about how ass-backwards we are here in the Big Easy and south LA. I was proud to have this "unique" way of doing things. A business environment that required a Ruth's Chris "meeting" to get a deal done. A voting constituency that pollsters measured by it skin color rather than actual polls. And the complete shut down of the city during the wonderful holiday season....of course I am referring to Mardi Gras.

It was a source of pride when clients or visitors would come to town and the first thing we discuss, before we even leave the airport, was "What's for lunch?" I can remember giving seafood eating lessons to a client from CA, saying that its OK to spit out the crab shells from the crabmeat au gratin. She was a little put off by me and the advice, not to mention the shells.

We send out mixed signals that are difficult for the rest of the country to decipher. First we tout our strength and resolve to rebuild, we show a strong community banding together, helping each other out. Then the comment about the "big hole in the ground" when our leader travels to NYC and is interviewed on national TV.

As you know, the gaffs are endless. the book should be out soon.

As we, the normals, try to cover up gaffs and goofs and explain what a chocolate city is, he gets re-elected. So the nation sees crazy comments, and feels some empathy for us, and him, but the damage is done. What was once real concern, care, interest and attention to our cause, slowly has turned into disinterest, and even worse, fodder for the political humorist.

Our leaders, mayors, council members along with business men and others are dropping out of office and into the pen. Again, this was another source of dysfunctional humor I used quite often in the past. Watching Edwards go to jail was a happy day for some, but a sad day for most. How f'd up is that. We can't win. We put criminals in jail, and there is public remorse.

Its only more sad that we spend millions putting white collar criminals in jail, yet the criminals that are really slowing down our recovery are running the streets, laughing at the cops, blatantly rubbing our noses in it. And what a beautiful welcome home i had last week coming back from the airport. As i merged on to I-10 from the airport service road, the traffic was stalled. Why? Well the cops were arresting someone on the side of the interstate. They didn't pull him over at an exit. No, lets make a show out of it. Cuff 'em and let them sit on the curb so everyone coming in for the Jets game can see. How about that slogan: "Welcome to New Orleans......our crime rate is the lowest since Pre-K."

We still have no leadership. This is the problem with our city. We have leaders, just not a unified leadership that is on the same page as, well, us the citizens. Everyone has their own agenda. If we had industry come here, the line with hands held out, would be so long it would stretch from the airport leading the way straight to city hall.

Com' on man. Let's elect people with brains. They probably will not be well liked, probably will be despised by some and will certain go against the grain. But its time to get over it and put people who actually give a #@&! in office and let them make some real changes.

Monday, July 27, 2009

Starting a recovery in a recession

Are we in a recovery?.....this is July 2009, the beginning of the slow season for real estate. How can we be in a recovery during the almost certain summer slow down.

Obviously the peak of the residential home sales season revolves around the end of school so that the old homestead can be sold in time to move into and get settled in the new homestead. But once that wave of sales is over, in some markets, the activity ends. Of course, this being New Orleans, we don't follow trends like the rest of the world. But will this time be different?

First, if you believe that we are in a recovery, you must believe that real estate drives the recovery, or is at least reflective of it. You also realize the economic benefit of a real estate transaction. Each one being a mini-development that creates sales at retailers, employs contractors, a/c repair men, movers and lawn maintenance crews. It an appreciating market, a transaction increases tax revenue by automatically reassessing property values. Therefore real estate sales act as an economic stimulus. What a concept.

So if the real estate market is soft and its a buyer's market and deals abound, then where is the recovery? Where is the boon? Where are the bottom fishers? Where is the money sitting on the sidelines waiting for the bottom?

Maybe this is not the bottom. If you can recall the S&L crisis(that means your old), the core of that recovery was not just good deals on real estate, it was GREAT deals on real estate. Deals that brought out not only the bottom fishers, but the sideline money and young whippersnappers such as myself who saw more than just a bargain, they saw real upside potential. That is whats missing from this premature call on recovery.

Sure, you can get a good price on a rental or development project, but where is the end user? Where are the tenants? Are the new and renovated apartment complexes full or at 60% capacity? Maybe 60% is a good thing.

And if commercial follows residential, where are the retailers? They may be out there if they are selling drugs(the prescription kind that is). But other than drug stores or a fill-in fast food store or a discounter providing the only lighted store at night, there is little demand for new space. I think you can find a few vacant Circuit City or Linens and Things spaces around town. My favorite is a brand new shiny shopping center with for lease signs symmetrically placed in each window like guards standing watch waiting for that car to drive in and write down the leasing phone number.

This isn't painting the picture too bleak. Its simply is a broader view of what is happening on the ground versus what is happening on Wall Street.

The trickle down of the mortgage/financial bailout has started flowing back up the hill. The trickle down would work if it did what it was designed to do, which is cover the loss to the lender when a toxic asset(real estate) was sold at a loss. And its sold at a loss when a buyer gets a GREAT deal. Except the lenders are not giving anything away this go around, no S&L fire sales to clear the assets off of an insolvent banks balance sheet. Nope, this time they are trying to get market value so that they aren't the ones going back to Uncle Sam hat in hand. The public outcry of the bail out is having an effect on lenders this time. And now they choose to be responsible and not give anything away. Great, just when we need them to open up and lend and make deals, they shut the door making it exponentially more difficult to get a loan or a good deal on a foreclosed home. Its like watching a movie in reverse.

So since the GREAT deals aren't out there, and few can borrow, no one is knocking the door down to buy real estate. No real estate sales, no economic churn and a very, very slow recovery.

But at some point, a recovery has to start, even if we don't see it. And what better time than in a recession. Oh, I guess that's the point.