Friday, August 29, 2008

End of the Innocence

Well, I’ve checked out all the commercial real estate news sites today and no one mentions the long weekend we’re having in the U.S. and Canada this weekend. But then again, they don’t usually. The news knows no holidays although summer, especially August is still a little slower than the rest of the year. I’ve found that a number of people in the U.S. have taken this week off (God forbid that they take two weeks off) which dovetails into this three day weekend. Those with school age children will probably return from their holiday over the weekend or at least on Sunday to get ready for the first day of school, which in many areas is September 2, but in others, especially the Sunbelt, have started already. The biggest story today is about a New York developer/owner who built up an $8mm square foot portfolio of office buildings in partnership with Richard Kalikow. When Kalikow and he split, Kalikow sued him for misrepresentation and fraud. Seems like young Adam Hochfelder has attracted more interest as he has been as been arrested and indicted by the Manhattan District Attorney for "stealing more than $17 million from a panoply of banks and individuals." But that’s more of the real estate tabloid news. The end of the summer is not like the end of the year when deals just have to close and perhaps we were all hoping that by the time the summer had ended that things would be better. Unfortunately, they’re not. It’s not that they’re bad (unless you’re trying to sell your home) it’s just that they’re not as good as they were and still no end in sight to the troubles that are stifling us.

When I read that Leroy had passed away recently I have to admit that I didn’t know who he was. (Leroy Sievers. A journalist for more than 25 years, Leroy has worked at CBS News and ABC News, where he was the executive producer at Nightline). But I read that he had been writing a blog and decided to bookmark it and go back and read/scan it sometime ( I did that last Sunday morning. The blog continues to be written by Leroy’s wife Laurie and it’s obvious that she gets some comfort out of both having that outlet and the dozens, sometimes hundreds of comments posted in response to each blog posting. It’s a beautiful, sad and sobering documentary but it’s also inspiring. If you have a few minutes, you may want to take a peek.

There’s a piece in this week’s The New Yorker magazine called “A Greenwich of the Mind: Old money and new, in the age of foreclosure.” This is Greenwich, Connecticut USA which is a relatively short commuter train ride into midtown Manhattan and which has become one of the wealthiest and from a real estate standpoint priciest towns in the nation. Greenwich, like Short Hills, NJ (where I used to live amongst the “MacMansions”, when perfectly good homes are torn down in favor of ginormous new houses, many on undersized lots) and a select number of other communities attracted the wealth and nouveau riche which for many years has included Wall Street, private equity and corporation C-suite people. This article focuses on some residential builders who did very well building spec mansions but have come on some difficult times, as have some of the homeowners themselves. But there was one section that caught my eye and it’s part of the narrative (vs. a direct quote). “In real estate, the only thing more important than location is optimism. Rosy projections create a kind of fog that can make it all but impossible to measure the prospects of a project, or of a privately held real-estate firm.” Well, it’s clear to me that the writer, Nick Paumgarten, is truly a novice at the real estate industry. Yes, those of us that have been around the block and some more than once have seen developers build things that just don’t seem to make sense and that’s because they don’t. The market sometimes bails out these developments, not necessarily in the negative sense of ‘bailout’ but because the momentum in the market is such that the greater fool theory works (a developer builds something and there’s a tenant (s) or a buyer who is ready to pony up). And, while I’m sure The New Yorker is read by a number of real estate types, it’s read by more who are not. Yet, those people may be investors, as the demographics of the readership of magazine suggests, who are possibly current and future investors in real estate funds. So, while the writer’s story can’t really be considered the type of “Headline News” that has required the management and maintenance of those of us in the institutional real estate community (which, if you want to last isn’t built on deals made in a fog, although over the past 10 years, some deals were made in a different, somewhat altered state of mind) it is a misnomer that professional real estate investment fund managers just don’t do. Anyway, the real story here is that it’s not just the sub prime market that is in dire straights; it’s the prime mortgages too and the economic conditions right now are showing deeper, wider and more far reaching negative impact on the U.S. than anyone wanted to believe in August 2008. In our move to Montreal we bought a house in June. We still feel that we got a fair deal, as do the sellers. We also got a very good mortgage rate, as our credit score is pretty good. But we also still own our home in California (Anyone want to buy a nice house in the Napa Valley?), which we have not put on the market. We have a friend/tenant living in the house and for the time being we’re going hold on to it. Prices in Napa have declined about 15-20% in the past 15 months or so. But, the real problem as I see it is that there are too many buyers who feel that every house for sale is a distressed sale and feel they can pick it up for a song. Sorry but while I may be a little stressed, I am not distressed and contrary to what some loud-mouthed authors of get rich in real estate espouse, I’ve got a pretty good asset in that house. However, we have no need for the Napa house and probably 1Q or 2Q09 it’ll be sold.

Last week I wrote about whether there’ll be a type of website, not unlike just for the commercial real estate industry. I have some inside knowledge that one is being built and will be launched very soon. But thanks to Scott Perkins of NAI Hanson ( I now know of CREOPOINT ( It’s fairly new but it’s looking to become “the meeting point where CRE professionals learn, share and connect better, further and faster.” I like how they’ve set it up and signed up as a member. But I still wish things were easier. Perhaps it’ll just take time, like when VHS and BETA were slugging it out or more recently when Blu-Ray and HD-TV battled to be the successor to the DVD (BTW, we don’t watch much TV but after selling our 19” TV at our garage sale we went for a state-of-the-art system including a Blu-Ray player. It is unbelievable! Now it’s just a matter of waiting for more of the movies that we’d like to see come out in that format. For now, there are a lot of action films).

People Stuff

1. There were rumors about this and now it’s official:
Joseph Azrack, the former president and CEO of Citi Property Investors, will join Leon Black’s new real estate arm, Apollo Global a separate entity from the veteran real estate firm named Apollo Real Estate. Apollo Global's operation will focus, initially, on distressed debt and recapitalizations. Joe was also former CEO of AEW.

2. Industry Mentors. I was looking at IIR’s list of Rising Stars: Real Estate for 2007. Included are each person’s mentors and a summary of the mentor list. The commercial/institutional real estate industry has sometimes been criticized for not providing enough mentoring but it’s rewarding for me to see that some of the mentors’ listed are people that I consider industry friends:
a. Charlie Lowery, Prudential; Terry Ahern, The Townsend Group; Greg Vorwaller, CBRE; Steve Quazzo, Transwestern Investment Company; Robert Duncan, Transwestern Commercial Services; Doug Abbey, AMB; Chuck Leitner, RREEF; Carl Schwartz, Herrick Feinstein. Giving something back to the industry via being a mentor is priceless.

Thanks again to everyone who has reached out to me to congratulate me on launching this blog. I sincerely appreciate hearing from you (

Where will I be?

Sept. 10: New York for RealShares Investment & Finance Conference ( where I’ll moderate a panel called “The Influence of Foreign Banks on Today’s Market.”

Sept. 10-11: New York to attend CityScape USA (

Sept. 11: New York for FIABCI-USA UN Luncheon ( where Bob White, Founder of Real Capital Analytics will be the keynote speaker (

Oct. 1-3: Chicago for PREA’s 18th Annual Plan Sponsor Real Estate Conference (

Oct. 6-8: Munich for Expo Real (

Oct. 31-Nov.3: Boston to attend the CRE Annual Convention (

Nov. 12-13: New York to attend The PERE Forum (Private Equity Real Estate). (

Feb. 19-20, 2009: Chapel Hill, NC to attend the Kenan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition. ( and if the weather cooperates play some golf.

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