On the Road

This is a little longer than usual but there’s a lot going on these days.

During the RTC days, Texas was ahead of the crowd in failed S&L’s and bankrupt real estate developers. As things worked themselves through, those in Texas came back with both humility and with pride that they survived. In reading the financial news today I wonder if this time won’t be similar in at least that way. So many companies reporting huge losses. So many people losing their jobs. So much due to greed. But what's going on is much bigger than the real estate industry and much wider than just the U.S. I wonder if those who were at the helm of companies that went under or were fired from top jobs because of this that or the other thing will be able to wear that “Badge of Courage” in the same way the real estate survivors of the early 90’s did. However, when it comes to humility, well I'm just not sure.

Thanks to the kind invitation of Scott Perkins and Bill Hanson of NAI Hanson in Hackensack, NJ I attended NAI’s Global Outlook Briefing yesterday in New York. The ubiquitous Dr. Peter Linneman, now NAI’s Global Chief Economist, gave the keynote. Here are some tidbits:
1. At the end of the day it’s all about the economy.
2. Why in 2005 did I project that there would be a recession in 2009? Because if you look historically we were believing our own bullshit.
3. Economists, who are mainly university professors believe that ‘if it starts to feel bad, it must be a recession.”
4. When you fly six hours from coast to coast there are people down there who make up the economy-not everything happens on in NY, LA or SF.
5. “The world is coming to end unless we save it this weekend.” When Hank Paulson said that, New York wasn’t in shock because it’s used to hearing bullshit from Wall Street.
6. It was a bi-partisan idiot effort.
7. 2.5-3.0 million jobs have been lost already; 500,000 still to come.
8. We ran the country as if it were a deal shop-it’s okay if you’re a Goldman Sachs but it’s not okay if you’re a government.

Wardrobe note: With wind-chill at minus 8 degrees in New York yesterday I noticed that a lot of New Yorkers made the mistake of thinking that ear buds act as earmuffs. Not!

Murray Shor, veteran shopping center industry publisher and raconteur said this in his blog last week: “We all know that the dismal holiday season, with a substantial drop in shopper traffic, retail sales and overall consumer buying—despite steep discounting--is forecasting major retail bankruptcies and store vacancies within the next few weeks; mavens involved in market research are predicting 200,000 store closings this year.” Wow. There’ll be a lot of room for go-carting in shopping center parking lots. My father took my brother and I to the E.J. Korvette’s lot in West Orange, NJ to go-cart on Sundays (when stores in NJ used to be closed).

Said by a private equity exec at a NYC conference:
"The current state of the private equity industry reminds me of the Warren Zevon song: Bring lawyers, guns and money."

I got a number of emails about my story about my Dad visiting the WWII captured Japanese bomber. I thought you’d enjoy this one sent to me by my long-time college friend “Silent” Kal:
10-12 yrs ago took the family to DC..of course planned to go to the Holocaust museum which opened earlier that year..Got up one morning and took the family over and the line was completely around the block 360 and it was a long block..went to the window and asked how long the wait was …minimum 5 hrs… as I was walking away I remembered my father gave me this card which apparently just identified him as some WWII veteran…but what the hell so I showed it to her as my family rolled their eyes..once she saw it we were escorted in given VIP treatment and treated like royalty..As it turns out my fathers’ battalion was one of the first to liberate the concentration camps and the museum had grainy color home like movies of the event and of course, I thought I recognized him..A special room was dedicated to his battalion…It was quite emotional as well as defining what our freedom really is ..That day is etched indelibly in my mind..It is the only thing I remember vividly about that trip to DC other than the traffic (late at night construction) going to DC moved about 1 mile in 2 hrs 100 degrees..The sacrifices and acts performed by our parents in defense of liberty can only be imagined by later generations..These indeed are trying times but pale in comparison to what was accomplished before us so we can experience the highs and lows of Democracy.

Congratulations to my friend Trevor Gay whose blog on Simplicity has been named one of the top 100 leadership blogs. This site is new to me but it seems like there’s some interesting topics for future reference.

I just finished reading Malcolm Gladwell’s “Outliers.” It’s a good read, which I highly recommend. Here are a few snippets that I highlighted:
• Three things: autonomy, complexity and a connection between effort and reward are, most people agree, the three qualities that work has to have if it is to be satisfying.
• It is not how much money we make that ultimately makes us happy between nine and five. It's whether our work fulfills us.
• Hard work is a prison sentence only if it does not have meaning. Once it does, it becomes the kind of thing that makes you grab your wife around the waist and dance a jig.
• If you work hard enough and assert yourself, and use your mind and imagination, you can shape the world to your desires.

I was talking to a capital raising friend of mine this week who had been fired (sorry, 'let go', 'downsized', 'made redundant' are just baloney words for being fired). He told me that the great thing about our industry is the people. He has received a number of calls from people who were former colleagues and former competitors asking how he was and was there anything they could do to help him. In a world where too many people tell me 'it's sad how few people are willing to take some time to try to help someone else', this is a great thing to hear. It signals some type of positive change in how we're dealing with each other and remember, it's not the end result of what happens when you reach out to someone, it's just that you took the time to reach out.

Always on the cutting edge, France Publications has launched InterFace Conference Group that is headed by a long time industry friend, Rich Kelley. France built this business from the ground up starting with Shopping Center Business magazine into a mega-publisher with 19 titles in real estate, maintenance, construction and operations and wealth management. The combination of Rich, Jerry and Scott France and Randy Shearin should result in some very interesting and worthwhile conferences. All the best you guys.

Cool new hotel: The Nines (as in “Dressing to the nines”) in Portland, OR. Part of Starwood Luxury Hotel Collection. 525 SW Morrison Portland, Oregon

Very cool place of the week: The Tea Zone & Camellia Lounge, 510 NW 11th Avenue, Portland, OR (503) 221 2130 (http://www.teazone.com/index2.html). While I only got to grab a fast, relaxing tea (is that an oxymoron?) it’s a place that I hope to get back to (or open one just like it somewhere!). They have a great selection of teas and tea paraphernalia which they’ll ship anywhere.

Where I'll be:

Feb. 9-16: New York
Feb. 17: Atlanta, GA
Feb. 18: Raleigh, NC
Feb. 19: Chapel Hill, NC to attend the Kennan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.
Feb. 22-29: Vacation in Mexico….totally offline!
Mar. 6: Montreal
Mar. 10-13: Cannes to attend MIPIM, host the second annual MIPIM Summit TV show (March 12-Invitation Only) and attend the INREV seminar and moderate a session with Finnish investors.
Mar. 16-18: London
Mar.24: New York to moderate a panel at the iGlobal Forum Real Estate Private Equity Summit
Mar. 25-26: Washington DC to attend PREA's Spring Conference
April 1: Champaign-Urbana, IL to attend my son’s DMA (Doctor of Musical Arts) recital.
April 23-25: Athens, Greece (not Georgia) for INREV’s Annual General Meeting and Conference



These are my personal views and not that of my employer.

On the Road

This past week was truly an “On the Road” one. I’ve been traveling with my colleagues Ed Casal and Russ Bates visiting anyone who’ll take a meeting with us (not really but sort of). We went through several climate changes (Chicago, IL; Madison, WI; San Francisco and Sacramento, CA) and it was nice to lose our winter coats in the unseasonably warm CA winter yesterday and today.

Everywhere we went things were slow: restaurant business down, restaurants closing, hotel business down, flights typically full now had space and noticeably less traffic on roads during rush hours. We are in bad times people and they seem to be getting worse. Most folks, even the wealthy are worried and watching their spending and believing and acting more like ‘Cash is King.’

I’m meeting with a broker tomorrow in Napa, CA to see what the market is like to sell my house there. I’ll let you know how it comes out as it may be a good microcosm, at least of that market. But I suspect that in general if you are not forced to sell, don’t. It’s the same thing with institutional LP interests. Until 4Q08 valuations are in we won’t know the full extent of the distress in the LP community in terms of their need to sell their interests. Right now it appears that the same phenomenon that impacted the commercial real estate transaction world (i.e. inability to match expectations of buyers and sellers) will also be a force in the secondary market but we’ll have to wait and see. “Rescue Capital” (as Bret Wilkerson, head of PPR is fond of calling it) is being raised to take advantage of opportunities that are likely to present themselves. Some people will need a life-preserver to save their deals, funds, etc. and but some may need a Coast Guard cutter. Anyway, this type of capital is likely to be very popular. But again, a lot of this stuff is evolving just now and we’ll have to wait a little longer to see exactly how it plays itself out.

My father, who turns 92 on May 1 was the crew chief (for a crew of two) that brought a captured Japanese WWII plane back to the U.S. from the Pacific on a ship and then he and a pilot were given the assignment to fly that plane to Washington, DC. It was supposed to take three days but it took two weeks including a side trip so the pilot could have lunch with his parents, waiting out a hurricane, repairing a faulty oil gauge and my father getting his parachute on when the engine conked out and went into a dive (until they found the lever that opened the auxiliary gas tank). It’s a story that he has told many times and it was definitely one of the signature experiences in his life. I don’t know why I waited this long but a couple of months ago I emailed the Smithsonian, told them the story and asked them if by any chance they knew of the whereabouts of this plane. Shortly I received an email back saying, “We have that plane!” I couldn’t believe it but more than that my Dad really couldn’t. This past Wednesday I met my father and his wife in Washington and took them to a remote Smithsonian warehouse where Al Bachmeier, a 37-year museum veteran took us to see the plane. Although using a wheelchair fairly often now and not too mobile any longer my father climbed up a ladder on three separate occasions to have a closer look into the cockpit where he and the pilot shared this amazing excursion. I have to tell you how small this plane was and thinking of them flying across the country, well, it’s pretty unbelievable. After we confirmed that this was the actual plane and my father provided some color commentary, Al was kind enough to show us around another big building where they restore all kinds of aircraft. He and my Dad talked non-stop about aircraft, engines, etc. Al said that he’s had a number of WWII vets come down and he has learned a lot from their personal recollections. The following day they went to the Steven F. Udvar-Hazy Center Air and Space Museum near Dulles airport. I had been there for a client dinner a few years back and if you are into flight you need to go there.

I guess the reason I’m sharing this with you is that it’s incredible what we are able to do if we just try and believe we can. Taking a wild shot at finding that plane and getting lucky to have a cooperative person on the other end not only reply but forward the email to the right guy…well, it was very special. To be part of my fathers’ experience made me feel really good and I guess now I think about how truly little effort it took me and what ‘priceless’ results it had. All it meant was taking some time to do something for someone else. In a world going madder by the day maybe turning more inside and appreciating what we have instead of being angry about what we don’t have is the key to some peace of mind. Helping others is also healthy. Life is made up of lots of little experiences, some planned, some chance. Grabbing on to them as they present themselves can make all the difference in the world to you and to others.

Where I'll be:

Feb. 2: Portland, OR
Feb. 3-16: New York
Feb. 17: Atlanta, GA
Feb. 18: Raleigh, NC
Feb. 19: Chapel Hill, NC to attend the Kennan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.
Feb. 22-29: Vacation in Mexico….totally offline!
Mar. 6: Montreal
Mar. 10-13: Cannes to attend MIPIM, host the second annual MIPIM Summit TV show (March 12-Invitation Only) and attend the INREV seminar.
Mar.24: New York to moderate a panel at the IGlobal Forum Real Estate Private Equity Summit
Mar. 25-26: Washington DC to attend PREA's Spring Conference
April 1: Champaign-Urbana, IL to attend my son’s DMA (Doctor of Musical Arts) recital.
April 23-25: Athens, Greece (not Georgia) for INREV’s Annual General Meeting and Conference

Photo: State Capitol Building, Madison, WI


These are my personal views and not that of my employer.

These Days

Walking the streets of New York you might think it’s just a typical January with stores running sales like they do each year. But it’s not. Manhattan looks more like an outlet center than a retailing Mecca. Signs offering 10-80% off and there are few shops that don’t at least have a “Sale” sign in them. The “Anti-Starbucks” movement continues to be evident with more and more Dunkin’ Donuts visible. Taxi drivers who have their finger on the pulse better than most tell me that business is way down. “People are frightened. They don’t know what will happen next; whether they’ll lose their jobs. They are being very, very careful with their money. But, it’s going to get better. The things that President Obama has promised will take time but things will get better.”

With most Wall Street firms getting close to issuing their bonuses another chapter will be closed..we just don’t know the ending yet. It was many years before I learned that investment bankers generally get paid a modest base and ‘bank’ on their bonuses (which as we know from what we read have been humongous over the past so many years). And, as banks continue to show their contempt for both the government bailout money and the public, more and more people are losing their jobs. But, having lost my job several times in my career, there are different ways employers can handle what I believe is the most difficult thing for a manager to do: fire someone. Sadly, I’ve heard too many stories of companies ‘letting people go’ in unconscionable ways-showing no compassion but simply reacting to needing to protect and perhaps increase the bottom line (NOW) by one of only to ways: generate more revenue or cut expenses (and generating revenue is not so easy right now). It’s a shame that our work culture has come to this and while it is understandable from a corporate standpoint it isn’t, to me anyway, from a human standpoint.

America, the land of opportunity, has also become a land where we don’t look out for each other like some other places in the world; countries where there is a respect for the individual, both as a worker and as a person ages. There will be more firings and more bankruptcies (I was involved in making the first Circuit City Superstore deal in Hampton, VA in the mid-80’s and now they’re going out of business, closing more than 500 stores, as will more and more retailers in February). These are difficult times. Oh, btw, have you heard or seen the Hyundai commercial where they say that if you buy a car now and lose your income they’ll take the car back? I know there are probably oodles of legal language in the purchase agreement but even the concept of this is….well, amazing.

Don't forget to vote: The Global PERE Awards is near the deadline. Some of the nominated firms and individuals are neck and neck. Your vote counts! P.S. There's a great feature piece on their website. If you haven't subscribed you can for free.

I offer you the following ‘management tip’ from the blog written my friend in the UK, Trevor Gay, who is a consultant and author on ‘Simplicity.’
“I am often asked to give practical tips that managers can follow to implement Simplicity. It's a brilliant question that challenges me because I guess anyone can say ‘lets simplify things’ but busy managers are looking for practical tips about what they can do personally to simplify the workplace.

Based on my own management experience there are numerous things managers can do and here are 9 for starters.

1. When you have written your next report ask two people who are paid significantly less than you to tell you if they understood it.

2. Make time in your diary every week to ask a customer to tell you in their own words about their recent experience with your company

3. At your team meeting every week or every month depending on the frequency of meetings, ask someone to do a five minute presentation called “My big simplicity idea for our team is …..” (PowerPoint not allowed)

4. Invite a customer to read three e-mails or letters you have sent in the previous week and ask them to give you feedback about the language you used

5. Invite two 16-year old students to attend your team meeting and ask them to give the team members honest feedback at the end of the meeting about the language used

6. Find a report about absolutely anything of two sides of 8.5 x 11 paper. Send the report to a colleague and ask him/her to return it to you reduced to one side of 8.5x11. Judge for yourself whether one side is adequate to get the message across

7 Ask one of your team members to write a story on one side of 8.5x11 about a complicated problem in your department/team. The language must be aimed at an audience of secondary school students (11-16 year olds). Send the story to a local schoolteacher and ask for feedback from the students at his/her school

8. In your next written report of more than 200 words do not use any acronyms

9. Send a report you have written to 2 cleaners and 2 junior Clerical staff. Ask the four of them to rate your report on a scale of 0 to 10.

0=I didn't understand it at all
10=I understood it completely

Think about how you can improve your score in your next report. By the way, if you score 40 points congratulations you are a Simplicity guru."


Happy Birthday Jay and Deb.


Steve

Restaurant of the week: Hill Country BBQ, 30 W. 26th Street, New York. A fun place with live music. Best to go with a group of 6-10.


Where I'll be:

Jan. 26: Chicago, IL
Jan. 27: Madison, WI
Jan. 28: Washington, DC
Jan. 29: San Francisco, CA
Jan. 30: Sacramento, CA
Feb. 2: Portland, OR
Feb. 17: Atlanta, GA
Feb. 18: Raleigh, NC
Feb. 19: Chapel Hill, NC to attend the Kennan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.
Feb. 22-29: Vacation in Mexico….totally offline!
Mar. 10-13: Cannes to attend MIPIM, host the second annual MIPIM Summit TV show (March 12-Invitation Only) and attend the INREV seminar.
Mar.24: New York to moderate a panel at the IGlobal Forum Real Estate Private Equity Summit
Mar. 25-26: Washington DC to attend PREA's Spring Conference
April 1: Champaign-Urbana, IL to attend my son’s DMA (Doctor of Musical Arts) recital.
April 23-25: Athens, Greece (not Georgia) for INREV’s Annual General Meeting and Conference

Photo: Downtown Cleveland, Ohio


These are my personal views and not that of my employer.

Flight 1549, Violinist in the Metro

<<<<<Who knows where this is?

Sunset from my office>>>>>

The photos of the passengers on the wings of US Airways plane that landed gently on the Hudson River were surreal. Maybe for most who fly, the thought of a water landing is pretty remote-or at least we want to believe that it's remote. But today, those on that plane found out that it can happen and that under certain circumstances everything can turn out fine. It's too soon to really know exactly what happened but what is known is that the veteran pilot coolly and calmly set the craft down and the crew and passengers handled the situation in an orderly way. It's good to see something that could have been a terrible disaster (imagine if this had happened after sundown or if the pilot couldn't control the plane and it hit a building in New York-anything could have happened) ended happily. Tomorrow, when I board the plane for Florida, I wonder if I'll feel any differently.

Well the depression has even hit Dubai so it must be really real. Construction of the world’s tallest tower has been delayed as the developer who is readjusting their plans “to better reflect the current market trends and match supply with demand.” It’s a novel idea, matching supply with demand, don’t you think? It’s something that for a long time drove the real estate industry up until the “Wall of Capital” movie started showing at “A Theatre Near You.”

Private Equity International has just published a 300-page book called “Investing in Infrastructure, which offers detailed analyses from 55 industry professionals who are shaping the global infrastructure fund investment world. It also examines investment techniques & strategies, asset management, legal developments and timely financing know-how. Without wanting to insert a link here the url is (http://www.peimedia.com).

While I have some friends (and one brother) that are attorneys, I couldn’t pass this up. In New York Magazine’s Year-End Double Issue there’s a special section “The New York Area’s Best Lawyers.” It’s an advertising supplement and I want to share some of the lines that come directly from the ads (Note: These are trial, not real estate, lawyers):

1. “We are aggressive with our adversaries, but compassionate with our clients.”
2. “We never back up, we never back down.”
3. “It’s my obligation to do everything I can do get my client their piece of justice.”
4. “The firm’s calling card is its ability to handle high-stakes advocacy.”
5. “When we take clients on, it’s a life and death situation for them. What’s died is their hope for quality of life and we get that back.”
6. “The relief that you can give someone in the courtroom is more than satisfying.”
7. “You pay your fair share, or you go to trial.”
8. “The privilege of representing seriously injured claimants and helping them lead a life of dignity and financial independence is the highest reward a trial lawyer can receive.”
9. “Solving our clients’ legal problems efficiently and with our eye on their business needs is our number one priority.”
10. “I’m proud of the people I represent.”
11. “The best way we can act as truly effective advocates for our clients is to mix a mastery of the medical issues with a passion and empathy for the clients’ plight.”
12. “What we do is a constant reminder to ourselves and our staff of just how privileged we are to live in this society.”
13.
I’ll stop with that one and will not comment, or show you, any of the photos in the ads. They too are something to behold.

I wonder if law schools now teach a advertising/promotion and one-liner course? “Everything is marketing.”


Thanks to a good friend of mine for sharing this with me. I wanted to share it with you.

Violinist in the Metro
A man sat at a metro station in Washington DC and started to play the violin; it was a cold January morning. He played six Bach pieces for about 45 minutes. During that time, since it was rush hour, it was calculated that thousand of people went through the station, most of them on their way to work.
Three minutes went by and a middle-aged man noticed there was musician playing. He slowed his pace and stopped for a few seconds and then hurried up to meet his schedule. A minute later, the violinist received his first dollar tip: a woman threw the money in the till and without stopping continued to walk.
A few minutes later, someone leaned against the wall to listen to him, but the man looked at his watch and started to walk again. Clearly he was late for work. The one who paid the most attention was a 3-year old boy. His mother tagged him along, hurried but the kid stopped to look at the violinist. Finally the mother pushed hard and the child continued to walk turning his head all the time. This action was repeated by several other children. All the parents, without exception, forced them to move on. In the 45 minutes the musician played, only 6 people stopped and stayed for a while. About 20 gave him money but continued to walk their normal pace. He collected $32. When he finished playing and silence took over, no one noticed it. No one applauded, nor was there any recognition. No one knew this but the violinist was Joshua Bell, one of the best musicians in the world. He played one of the most intricate pieces ever written with a violin worth 3.5 million dollars. Two days before his playing in the subway, Joshua Bell sold out at a theater in Boston and the seats average $100. Joshua Bell playing incognito in the metro station was organized by the Washington Post as part of a social experiment about perception, taste and priorities of people. The outlines were: in a commonplace environment at an inappropriate hour: Do we perceive beauty? Do we stop to appreciate it? Do we recognize the talent in an unexpected context? One of the possible conclusions from this experience could be:
If we do not have a moment to stop and listen to one of the best musicians in the world playing the best music ever written, how many other things are we missing?


Steve


Where I'll be:

Jan. 16-18: Ormond Beach, FL for the first Felix Family Annual Birthday Celebration
Jan. 26: Chicago
Jan. 27: Madison, WI
Jan. 28: Washington, DC
Feb. 17: Atlanta, GA
Feb. 18: Raleigh, NC
Feb. 19: Chapel Hill, NC to attend the Kennan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.
Feb. 22-29: Vacation in Mexico….totally offline!
Mar. 10-13: Cannes to attend MIPIM, host the second annual MIPIM Summit TV show and attend INREV's Annual General Meeting.
Mar.24: New York to moderate a panel at the IGlobal Forum Real Estate Private Equity Summit
Mar. 25-26: Washington DC to attend PREA's Spring Conference
April 1: Champaign-Urbana, IL to attend my son’s DMA (Doctor of Musical Arts) recital.

The End of the Holidays

While I’d like to be known as a man of few words, I don’t think that’s me. But in the Dec/Jan issue of PERE magazine, Executive Editor David Snow’s succinct opening paragraph struck me: “The good news is that investors in private equity real estate are now better equipped than ever to benchmark the performance of their general partners. The bad news is that much of the capital put to work in recent years is going to perform relatively poorly.” From David’s non-practitioner perch he couldn’t be more right and we all know and are going to see more and more proof of this. And while performance and thus returns are and will be down, opportunity in certain sectors may abound. Witness the launch by some veteran real estate guys, Gallin Glick Sullivan O’Keefe, of a consultancy probably born out of opportunity but my guess is to some degree out of boredom. I know Henry Gallin and Mike Glick personally and am reaching out to them today for the first time since seeing the announcement this morning. But as I speak to more and more people, the word “Experience” (not to be confused with grey hair [although as we know while women have similar experience most choose to not let the grey hair show] is more and more important (Disclaimer: This is not a sexist comment; just reality!). I can related to this perfectly as I’ve also been through a number of real estate cycles and a several times in my life made my living on workouts, distressed situations and, to steal a line from my friend Bob Barclay’s firm, North American Realty Advisors, “turning a sow’s ear into a silk purse.” But even for those with experience, and while some issues and conditions resemble past downturns to some degree, this time it’s different. Very!

Working to work this morning I realized that the holiday season is truly over as I watched the now brittle Christmas trees being dragged out to the sidewalks of New York for pickup and, I assume, recycling. But that’s not the only sign. People have come back from their holidays with vengeance. I sense a more than normal energy in business; a feeling that if we work harder we will not only keep our jobs but somehow can make things happen where some say ‘we need to wait this thing out.’ Tim Scott, a good friend and active residential real estate broker in Manhattan was telling me recently of some startling deals that have fallen apart, with substantial ‘cash money’ (as my grandfather used to call it) left on the table. But, he also reports that there’s a lot of activity with people looking at apartments and buildings although there is a sense that there are ‘deals to be had.’ But whether it be an apartment, a working loft or a building to me it all boils down to how motivated either the seller or the buyer is. On March 24th (my mothers birthday) I’m going to be moderating a panel at the iGlobalForum 2nd annual real estate private equity summit in New York. My panel is titled: VALUATION AND PRICING STRATEGIES FOR DISTRESSED ASSETS: The RTC Redux? I’m now seeking out a representative from each of the buy/sell/hold contingents to join me in a dialogue (or debate) on this very subject, which I expect will be supported by someone from the valuation community as well. It should be a lively exchange of ideas. So now, to conclude with another quote from David Snow at PERE: “…as the years go by, expect to see the 2005, 2006 and 2007 vintage years put blemishes on the overall track record of private equity real estate. As is the case with most long-term asset classes, vintage years directly before recessions tend to perform poorly, while vintage years during and directly after recessions tend to be great. Given the depth of the current crisis, astute LPs are right to be eager about the 2009 and 2010 vintage years, even though the capital has yet to be deployed. (SF Note: Not only not yet deployed but in many cases not even raised yet…another challenge we are curious to see play out).

Have a good weekend!

Steve


Where I'll be:

Jan. 13-14: Cleveland, OH
Jan. 16-18: Ormond Beach, FL for the first 'annual' Felix Family Birthday Celebration
Jan. 28: Washington, DC
Feb. 17: Atlanta, GA
Feb. 18: Raleigh, NC
Feb. 19: Chapel Hill, NC to attend the Kennan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.
Mar. 10-13: Cannes to attend MIPIM, host the second annual MIPIM Summit TV show and attend INREV's Annual General Meeting.
Mar.24: New York to moderate a panel at the IGlobal Forum Real Estate Private Equity Summit
Mar. 25-26: Washington DC to attend PREA's Spring Conference
April 1: Champaign-Urbana, IL to attend a very special music recital
Apr. 24: New York, Madison Square Garden to watch Syracuse beat St. Johns (College Basketball).



These are my personal views and not that of my employer.

Staying Connected, Troubled Assets

Photo: Somewhere in Las Vegas recently. Thanks BF.

Last summer, I decided to experiment with Linkedin.com. Prior to that I had signed up and accepted invitations from people I knew but I never really spent the time figuring out how to use it or what good it really was. So I invited a number of people that I knew to sign up as well but still didn’t spend much time using the service, just watching it being used around my connections. Last week, after having to literally battle with Linkedin to cancel my account, I dropped out and disconnected. Something I read encouraged me to rethink whether I wanted to share my network with others and I decided that I had not needed before, nor do I need now, any third party social network to help me stay in touch with the people I know and that know me. (However, I am staying with Facebook as it's fun!).

The more things change….I was reading a NY Times article this past Monday on how those who were closely connected to the RTC (Resolution Trust Corporation) are now resurfacing to either take advantage of themselves or help their clients access opportunities today. I also was close to the RTC process and as things have deteriorated in the U.S. have thought about whether this is the time for me to leverage what and who I know. I’ve chosen not to and after reading this article I feel even better with my decision. Why? First of all, while things may look similar to 1990-1995, they aren’t. That time was unique, just like this time is and there’s no guarantee that past performance or actions are any indicator of future results. I believe that those who will be able to benefit from buying distressed assets today are those with very deep pockets and very patient money and those two characteristics are not always seen at the same movie. If we look at history as a model we have to be careful that we take all factors into consideration and not blindly dive into pools where the water is deeper than we first thought.

Having said that, I offer this excerpt from the premier issue of RCA’s Troubled Asset Radar:
“ The inventory already tops $106b and is growing rapidly. Truly distressed situations, where the mortgage is in default, the owner is bankrupt or the property has already been foreclosed, total approximately $25.7b, encompassing well over 1,000 significant assets. Of this total, approximately 200 properties valued at $4.5b have reverted back to the lender to become Real Estate Owned (REO). Thus, the majority of the distressed assets have only recently fallen into default and a foreclosure process commenced. The analysis also ignores approximately $11b of distressed situations that have emerged and already been resolved over the past year. The volume of properties that are potentially troubled is even more significant totaling $80.9b in volume and 3,736 individual properties. Potentially Troubled assets are largely those with an upcoming mortgage maturity in 2009 or those where the owner is in some financial duress, often caused by maturing loans. In these situations, the properties involved may be free of problems or issues. However, certain property issues, such as a major tenant bankruptcy or a development that has stalled or failed to live up to expectations, will qualify it to fall into the Potentially Troubled category. Distressed Assets.”

I clearly think they’re right (and the data is what supports any editorial commentary). And, there will be another generation of Barry Sternlichts, Russ Appels, Joe Roberts, Lou Ranieris and others who have made good money by buying troubled assets. But, we’re all in for some tough sledding and I wonder whether the marquee names that we already know or new ones will step up to the counter and place their orders. It's going to be an interesting year.

First time for everything: At Midway (Chicago) airport I experienced this (but took the description from a website): “New signs, color coded like those at ski resorts that warn of the difficulty level of slopes, will direct passengers to one of three lines – a green circle for beginners, a blue square for intermediate travelers and a black diamond for advanced passengers. Travelers will pick the line that fits their experience level, or security workers will direct them to the appropriate one. The goal is to reduce tension and frustration at security checkpoints and speed up the process for at least the experienced travelers who know to whip off their shoes and remove laptops from carrying cases without being told.” Recently, when I went through, the ‘experienced’ line was very light (I guess it was too intimidating for most holiday travelers ☺). But…..excuse me….what a great idea!

An article in the New York Times on Tony Bennett last week included this; “poise in the wind of uncertainty is a very old idea in American pop.” I liked the phrase and thought it had much broader relevance than just the world of American pop (that’s not ‘soda’ they’re referring to!). Poise is a characteristic I’ve always looked up to and with things being so uncertain it’s going to be an even more admirable quality to maintain.

Where I'll be:

Jan. 5-12: New York
Jan. 13-14: Cleveland, OH
Jan. 16-18: Ormond Beach, FL for the first 'annual' Felix Family Birthday Celebration
Jan. 28: Washington, DC
Feb. 17: Atlanta, GA
Feb. 18: Raleigh, NC
Feb. 19: Chapel Hill, NC to attend the Kennan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.
Mar. 10-13: Cannes to attend MIPIM, host the second annual MIPIM Summit TV show and attend INREV's Annual General Meeting.
Mar.24: New York to moderate a panel at the IGlobal Forum Real Estate Private Equity Summit
Mar. 25-26: Washington DC to attend PREA's Spring Conference
April 1: Champaign-Urbana, IL to attend a very special music recital
Apr. 24: New York, Madison Square Garden to watch Syracuse beat St. Johns (College Basketball).



These are my personal views and not that of my employer.

Year-End: 2008

Paul Summer of J.P. Morgan Asset Management Global Real Assets is one of the most creative guys I know. The holiday card, which Paul created for their group this season is something special. It’s digital, short and, well,let me share the text with you. Picture a leather-bound book……

Cover: 2008-2009: Turning the Page by Hedda Nuff and Gladys Over
Page One: It was the best of times, it was the worst of times.
Page Two: OK, so it wasn’t the best of times…But as we turn the page on a dickens of a year, let's get down on our knees and give thanks we're still on our feet.
Page Three: Every end brings forth a new beginning. Wishing you a healthy, happy
and prosperous new year. May your troubles only last as long as your resolutions

Well said Paul, well said.

I woke up this morning and felt the need to write to you as we start a new year. I thought about how my 2008 went and what is going on in our industry right now with people losing their jobs, whole business units being cut and more people fearful that they may be fired early in the new year. And I went to Wikipedia, a resource that I rarely rely on and found typed in the word ‘friend’ to their search engine.

“Friendship is a term used to denote co-operative and supportive behavior between two or more people. In this sense, the term connotes a relationship, which involves mutual knowledge, esteem, and affection and respect along with a degree of rendering service to friends in times of need or crisis. Friends will welcome each other's company and exhibit loyalty towards each other, often to the point of altruism. They will also engage in mutually helping behavior, such as exchange of advice and the sharing of hardship. A friend is someone who may often demonstrate reciprocating and reflective behaviors. Yet for many, friendship is nothing more than the trust that someone or something will not harm them.

Value that is found in friendships is often the result of a friend demonstrating the following on a consistent basis:

* the tendency to desire what is best for the other,
* sympathy and empathy,
* honesty, perhaps in situations where it may be difficult for others to speak the truth, especially in terms of pointing out the perceived faults of one's counterpart
* mutual understanding."

I’ve always been good at helping others and up until recent years it has been difficult for me to let others help me. But I’ve learned over the past few years in particular that it’s okay to accept help as the balance of giving and receiving is the healthiest approach to life. After all these years in the real estate industry I’ve developed a pretty good ‘sixth sense’ about people and my instinct is pretty darn good. I am grateful for having so many ‘friends’ but also ‘connected acquaintances’ in my life. In 2007-2008 I’ve learned who my true friends are and to them I am forever grateful. I’ve also learned that when you have an instinctive sense that you can’t trust someone, don’t ever doubt it because sooner or later they will prove to be who you think they are.

Anyway, what I’m trying to say is this: a lot of our industry friends and acquaintances are and will be going through difficult times. I would guess that all of us have gone through career challenges at one time or another in our own lives. And while we may not have an answer or be able to pick up a phone and find someone a suitable position, what we can do is spend some time talking with people, listening to what they’re thinking about and, well, being a friend. In 1995, as I was working my way out of a job doing workouts for a large commercial bank in New Jersey, someone in that bank, who I didn’t know very well, turned me on to the phrase ‘transferable skills.’ Given what is going on right now I think that we need to help coach our industry colleagues to think about how to transfer their skills and look in directions where there may be opportunities that they might not have thought of. We can all be coaches, nay, friends to each other and it pretty much starts with just being willing to take some time to meet with someone. It’s a small world and getting smaller. Not only will you feel good about trying to help someone, they will not forget you.

My band, “Everyone” used to have the song “Carry On” (Crosby, Stills & Nash, written by Stephen Stills) on our setlist every night we played. It was a song that was written about a broken relationship but I thought of it just his morning and while I recommend listening to the whole song (I’m going to do it as well) I offer this simple phrase:

Rejoice, rejoice, we have no choice but
To carry on

Let’s let 2008 be a reminder of what’s really important in life and as we ‘carry on’ never forget that we’re fortunate to have each other.

Happy New Year!