Commercial real estate services firm Cushman & Wakefield reports that rents for retail spaces on Causeway Bay rose 34.9 percent year-over-year, to $2,630 per sq. ft. In contrast, rents on Fifth Avenue rose only 11.1 percent, to $2,500 per sq. ft. That growth rate was below the average for the U.S. retail market overall, which posted a 16.3 percent year-over-year increase in rents.
Fifth Avenue remains the most expensive retail street in the Americas, however. It’s followed by Times Square, with average rents of $2,100 per sq. ft.; Madison Avenue, with average rents of $1,100 per sq. ft. and East 57th Street, with average rents of $1,100 per sq. ft. Rounding out the list is Rodeo Drive in Los Angeles; North Michigan Avenue in Chicago; Union Square in San Francisco; Iguatemi Shopping in Sao Paulo, Brazil; Post Street in San Francisco and Bloor Street in Toronto.
Meanwhile, commercial real estate services CBRE reports that U.S. cities that will see the greatest growth in retail rents over the next two years will include Denver, Colo.; Austin, Texas; Nashville, Tenn.; Pittsburgh, Pa.; New York and San Francisco. CBRE researchers estimate that retail rents stateside are currently 14 percent below their pre-recession level and won’t reach their previous highs for another five years.
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Hong Kong's Causeway Bay
Causeway Bay, Hong Kong Island is a heavily built-up area of Hong Kong, located on the northern shore of Hong Kong Island, and covering parts of Wan Chai and Eastern districts. The Chinese name is also Romanized as Tung Lo Wan as in Tung Lo Wan Road. The rent in the shopping areas of Causeway Bay is ranked as being one of the most expensive in the world, near that of London's Sloane Street and New York's Fifth Avenue.
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New York City's Fifth Avenue
Fifth Avenue is a major thoroughfare in the center of Manhattan Island in New York City, New York. The section of Fifth Avenue that crosses Midtown Manhattan, especially that between 49th Street and 60th Street, is lined with prestigious shops and is consistently ranked among the most expensive shopping streets in the world. Fifth Avenue, and adjoining streets, are home to Macy's, Lord & Taylor, Bloomingdale's, Bergdorf Bergman, Saks Fifth Avenue, Cartier's, Tiffany & Company, Prada, Louis Vuitton, Barney's of New York, and FAO Schwarz, just to name a few. For several years starting in the mid-1990s, the shopping district between 49th and 57th Streets was ranked as having the world's most expensive retail spaces on a cost per square foot basis. In 2008, Forbes magazine ranked Fifth Avenue as being the most expensive street in the world. Some of the most coveted real estate on Fifth Avenue are the penthouses perched atop the buildings.
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COMMENTARY: For my money, New York City's Fifth Avenue cannot be beat. I had the distinction of spending four days in Mid-Town during a business trip to The Big Apple, and stayed at a boutique hotel at the corner of 45th Street and 6th Avenue. Just down the block was the Museum of Modern Art, Fifth Avenue and the world famous Rockefeller Center was right across the street. I remember taking a leisurely stroll on Fifth Avenue and witnessing first-hand some of the best department stores and boutiques. I am not a shopper, but was very impressed.
I have not been to Hong Kong for a very long time, but it is definitely one of the greatest cities of the World. A lot has changed and Causeway Bay is one of those areas that has been developed into one of the top retailing areas of Hong Kong, with prices to match.
There are skinny houses. And then there is Jakub Szczęsny’s Keret House, which could make Calista Flockhart look like a fatty. At its most generous, the proposed place, in Warsaw, Poland, will clock in at 4 feet wide. At its narrowest, it’ll be just 28 inches wide -- thinner than the average doorway. And we complain about our sardine can in New York...
The empty space between those two buildings is where the proposed Keret House will be located
What the new Keret House would look like after construction
The house (officially an "art installation," because it doesn’t meet Polish building code) is slated to fill a crack between a pair of buildings in Warsaw’s Wola district. When construction's finished in December, it’ll be the thinnest house in Warsaw and possibly the whole world. We did a quick Google search and couldn’t find anything leaner.
Interior views of the Keret House
Szczęsny designed the house to be a work space and home for Israeli writer Etgar Keret. It’ll also be a “studio for invited guests -- young creators and intellectualists from all over the world.” If, that is, they're willing to drop half their body weight to fit inside.
Kidding, kidding. In all seriousness, though, the house is a pretty remarkable feat of architecture. If everything goes according to plan, Szczęsny will manage to squeeze in designated rooms for sleeping, eating, and working. The place will have off-grid plumbing inspired by boat sewage technology and electricity lifted from a neighbor. To save space, the entry stairs will fold up at the press of a button and become part of the first floor.
The Keret House blueprints
COMMENTARY: I love the Keret House. For someone on a tight budget and looking for new digs, this is killer, dude. All the comforts of home. All you have to do is look for a space between two buildings and hire Jakub Szczęsnyto design it for you.
From the look of things, the Keret House will be warm since it will be squeezed between two buildings keeping out the wind and cold. Come to link of it, you could build two Kerret Houses in that space. A sub-let perhaps. The Keret House is scheduled for completion sometime in December 2011.
Courtesy of an article dated July 25, 2011 appearing in Fast Company Designand an article dated September 2009 appearing in Arch Daly
The initial public offering of the world’s biggest social network, which raised $16 billion on May 17, is contributing to surging real estate demand in Silicon Valley’s tech enclaves and bolstering values amid scarce inventory. The median price of a home sold in Menlo Park jumped 8.5 percent to $1.19 million in the first quarter, according to research firm DataQuick.
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According to MLS Listing Inc, home listings in Menlo Park, California, had fallen 9 percent during the 12 months ending April 2012, the month prior to the huge Facebook IPO. After the Facebook IPO, there are insufficient homes for sale to meet the needs of the new crop of Facebook and other Silicon Valley millionaires.
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Jim Harrison, chief executive officer of MLS Listings, a Sunnyvale, California-based publisher of home listings for San Mateo and Santa Clara counties in the heart of the Valley said.
“The market was already hot, and now there’s more pent-up demand. Buyers are going nuts, but sellers are holding back.”
Facebook (NASDAQ:FB) stock, which has fallen over 26 percent since its IPO, is only one factor fueling wealth creation, said Michael Dreyfus, founder of Dreyfus Properties, a brokerage with offices in Menlo Park and the neighboring city of Palo Alto. Hiring at Apple Inc. and Google Inc., as well as law and finance firms, has yielded a “very broad-based and healthy” surge in real estate, he said on Bloomberg Television’s ’’Bottom Line’’ on May 23.
‘Savvy’ Sellers
A “savvy bunch of sellers” has purposely kept their homes off the market in desirable areas in anticipation of the IPO, Dreyfus said. Listings haven’t been this scarce at this time of year since 2005, when house prices neared peak values, said Theresa Dreike, an MLS Listings spokeswoman.
Stephanie Seeger, 39, a potential home buyer said.
“With so many people looking and so few homes available, the market is squeezed and sellers can get whatever they want.”
She and her husband bid $86,000 over the asking price to win a four-bedroom home with about 2,300 square feet (214 square meters) in Menlo Park’s Willows neighborhood. The $1.88 million purchase is scheduled to close today, she said.
Across the U.S., a scarcity of homes for sale is boosting property values, from foreclosure-stricken Florida and Arizona to more robust markets in Texas and coastal California. Home listings totaled 2.54 million in April, the lowest for the month since 2005, according to National Association of Realtors.
Waiting It Out
In hard-hit areas, people who owe more than their homes are worth, known as negative equity, are crimping supply by refusing to unload their property at a loss, said Stan Humphries, chief economist of Seattle-based real estate service Zillow Inc. Sellers in Silicon Valley, on the other hand, are motivated by maximizing price and can afford to wait as job growth and the economy improve, he said.
Home values in the U.S. should be “modestly stronger” by the end of the year, rising about 3 percent, Barclays Plc analysts in New York said in a May 23 note. All nine regions in a Federal Housing Finance Agency housing index showed price gains in March. The gauge climbed 2.7 percent from a year earlier, the biggest increase since November 2006.
Humphries said in an interview.
“You’ve got a lot of people with negative equity who want to sell but can’t, and people in affluent areas choosing not to sell. A pattern of materially stronger demand is emerging, but there’s a big constraint on supply.”
Cupertino, Palo Alto
In Cupertino, home to Apple (NASDAQ:AAPL), inventory this year through April fell 15 percent, and new listings dropped for the 10th time in 12 months, MLS Listings said. Prices climbed 2 percent in the first quarter from a year earlier to $1.1 million, according to San Diego-based DataQuick. In Facebook’s former home of Palo Alto, adjacent to Stanford University, new listings declined for the 11th month, and prices jumped 22 percent to $1.6 million.
Facebook announced in February 2011 that it would move to an empty Menlo Park office campus in a lease deal that was the area’s largest in 20 years. The 1 million-square-foot complex, dubbed 10 Hacker Way, was followed by a $250 million renovation that’s still under way. About 2,400 employees work there.
Summer Homes
Menlo Park, a favored locale for affluent San Francisco residents from the mid-19th century to build summer homes, retains a discrete, modest feel in the shadow of Palo Alto and Atherton, its wealthier neighbor to the north, said Captain Tom Calvert of the Menlo Park Fire Protection District.
The city has restrictions on renovations and remodels, said Penelope Huang, owner of RE/Max Distinctive Properties and an MLS Listings board member. It doesn’t allow non-retail signage for new businesses on Santa Cruz Avenue, the commercial corridor, and a 1979 Heritage Tree Ordinance protects any living tree with a diameter of 15 inches or more, she said. Cutting one down is against the law.
Purchases of Menlo Park’s most expensive properties, more than $2 million, rose 75 percent this year through May 8 compared with the same period in 2011, to 28 homes, said Mark Church, assessor and recorder for San Mateo County.
Demand in Menlo Park may be limited among Facebook employees who aren’t ready to purchase property or don’t want suburban homes, said Michelle Taser of Dreyfus Properties.
San Francisco
Taser, showing a four-bedroom house with 3,070 square feet on Sherman Avenue in West Menlo Park, where the original owners raised two children after acquiring the property in 1993 said.
“They’re kids and want to live in San Francisco. They want to buy cars and drink beer.”
About 47 percent of Facebook workers participate in its commuter program, taking bus shuttles, trains or ride-sharing cars to the campus from San Francisco and other cities in the region, said Tucker Bounds, a spokesman for the company.
Taser’s property, priced at $1.99 million, drew large crowds over two weekend days, with only a handful of 125 marketing flyers left over, she said after a Sunday open house. Low inventory in Menlo Park means the sellers plan fewer than two weeks of viewings, she said.
Facebook Chief Operating Officer Sheryl Sandberg, 42, who owns about 27 million Facebook shares and vested restricted stock units, is perhaps the most well-known employee who owns a home in the town. A trust controlled by Sandberg and David Goldberg bought property in Menlo Park in December 2009 that was valued at $2.9 million in its most recent tax assessment, according to public records.
Facebook founder and CEO Mark Zuckerberg, 28, bought a house in Palo Alto last year.
IPO Rules
Some Facebook shares by Facebook workers can’t be sold until six months after the IPO under U.S. Securities and Exchange Commission rules. In the meantime, the office campus will generate new commercial-property tax revenue, and retail sales are bound to increase as well, said Church, the county assessor.
Newly-rich Facebook workers seeking to live close to the office may ultimately see the appeal of Menlo Park, he said.
Church said.
“These new millionaires are waiting to receive their money. We expect that to occur, but we really won’t know the true benefits for another year or so.”
COMMENTARY: Could Facebook millionaires trigger the next real estate bubble? If enough of these young Facebook millionaires buy million dollar homes in Silicon Valley, and that's about what the median prices are in central Silicon Valley, this could produce an unsustainable spike in real estate prices (at least on the high-end). I compare such a scenario to what has happened to that piece of shit, over-hyped, over-valued Facebook stock that came out of the gate at $38.00, but by the end of trading today nose dived to under $27.00. If its any consellation, Facebook shares have since rallied to end the trading day at 29.63, +1.44 or +5.12% from the previous day. I can't explain why Facebook shares rallied so suddenly and so quickly. Could be that investors believe that FB shares had hit their low, and it was time for a rally, or it was Morgan Stanley and Goldman Sachs providing much needed support to the stock. As soon as I know, you will know.
Bolstered by a stronger-than-expected recovery in hiring, office fundamentals in New York City continue to recover rapidly, according to Cushman & Wakefield. In fact, by some metrics, the market is stronger than it’s ever been.
Asking rents for Manhattan office space reached $58.90 at the end of March, a 7.6 percent increase year-over-year. The three major submarkets—Midtown, Midtown South and Downtown—saw increases of 1.9 percent, 5.6 percent and 0.8 percent over the last quarter. Rents are up even though leasing activity slowed a bit in the first quarter. In all, 5.8 million sq. ft. in new leases were signed, 24 percent less than the 7.6 million sq. ft. in new leases signed in the first quarter of 2011. The drop comes following a year in which leasing volume overall reached 30.1 million sq. ft.—the highest total since 2000. But it is roughly in line with the 10-year quarterly average of 5.9 million sq. ft.
As a result, the vacancy rate at the end of the first quarter was 9.1 percent, down from 10.0 percent a year ago. For class-A space, the vacancy rate stood at 10.1 percent with average asking rents of $67.30 per sq. ft. Vacancies declined 0.6 percent year-over-year.
Joe Harbart, COO of the New York Metro Region for Cushman & Wakefield says.
“We have a market that is close to equilibrium. We’re about at the spot where we are switching to a landlord’s market instead of tenant’s market.”
The most significant factor contributing to the results was the fact that, according to figures revised by the U.S. Labor Department, the city saw 71,900 in new jobs in 2011—nearly double the previous estimate of 37,400 jobs. In fact, the total employment numbers reached 3.84 million—a new high for the city beating the previous record of 3.83 million in 1969. Ken McCarthy, senior economist and senior managing director with Cushman & Wakefield sees that robust pace of growth continuing and is projecting that another 93,000 jobs will be added in 2012 and 77,300 in 2013.
In fact, New York is just one of three metros in the U.S.—Washington D.C. and Houston are the others—where employment has surpassed the pre-recession peaks. The strength comes in spite of the fact that the financial sector has not expanded of late. Instead, information/media firms and professional services firms are driving much of the growth.
Going forward, that will just make the race for space in the city even more heated given that the overall supply of office buildings is not changing much. Since 1990, the amount of office space in the city has moderated between 390 million sq. ft. and 400 million sq. ft. Even with the addition of the new World Trade Center, the market will stand at 400 million sq. ft. in 2014. In that context, Cushman & Wakefield expects the office vacancy rate to drop to about 8 percent in the next two years, which will push rents higher.
In terms of leasing activity, 2011 was marked by a record number of leases of 100,000 sq. ft. or more. In all, Cushman & Wakefield counted 51 such deals. Another 13 have been signed so far in 2012, although the firm expects the pace to drop some as the year progresses. But there remains robust activity on leases between 10,000 sq. ft. and 25,000 sq. ft. In 2011, deals of that size accounted for 21.1 percent of market activity. In 2012, so far, they have accounted for 32.7 percent.
PERFORMANCE ACROSS SUB-MARKETS
By sub-market, Midtown South led the way with a 5.9 percent vacancy rate. The vacancy rate downtown stood at 9.2 percent and for Midtown at 9.9 percent.
Midtown South boasts the lowest vacancy rate of any CBD in the country. Its class-A vacancy rate is 5.4 percent and rents have risen year-over-year from $57.44 per sq. ft. to $67.52 per sq. ft. The rent is just $4.56 per sq. ft. lower than class-A asking rents in Midtown—the tightest spread ever between the two sub-markets.
The numbers are evidence that “now people look at Manhattan as a single market,” Harbart says. “If a company is looking at space, they are not just looking at Midtown or Downtown. They now embrace the city as one market.”
Downtown, the vacancy rate fell from 9.5 percent in the fourth quarter. Asking rents increased to $40.37 per sq. ft., up 1.2 percent from the fourth quarter. In Midtown, meanwhile, asking rents ended the quarter at $66.70 per sq. ft., up 2 percent from the fourth quarter.
For the top space in the city, there are deals reaching more than $100 per sq. ft. in rent, according to Harbart, although the pace of those deals this year is a bit lower than last year so far. But there have been upticks in deals in the $80-to-$90-per-sq.-ft. and $90-to-$100-per-sq.-ft. ranges.
COMMENTARY: If you are looking for statistics on the commercial office space in Manhattan, checkout Optimal Spaces. They produce very comprehensive statistics on the three major sections of Manhattan: Midtown, Midtown South and Downtown Manhattan.
Souce: Optimal Spaces
Optimal Space's Manhattan Office Market Class A vacancy rates are still high overall .
Midtown South's vacancy rate was 3.00% at the end of March 2012, the lowest of the three sections of Manhattan.
Downtown ended March 2012 with a vacancy rate of about 7.5% or second highest.
Midtown ended March 2012 with a vacancy rate of about 19%, the highest of all three Manhattan sections.
Total Class A office space had a vacancy rate of 19.7% at the end of March 2012.
The overall vacancy rate for the total Manhattan office market declined from a high of 36% on March 2012 to 30.97% on March 2012.
As you can readily see, the Manhattan commercial office market is still in the doldrums particularly in Midtown where the vacancy rate of stood at 19% at the end of March 2012. Total Class A office space had an overall vacancy rate of 19%. That's a whole lot of empty office space. This compares favorably with parts of the Metropolitan Los Angeles Market. San Francisco's commercial real estate market has turned around completely, driven by the hot tech/internet sector.
According to Optimal Spaces, Manhattan's Class A office space available for rent will increase by 6 million square feet of new office inventory coming online the remainder of 2012. Within two years vacant Manhattan Class A direct and sublease office space will increase from 19.71 million square feet to 46.58 million square feet--an increase of 26.87 million square feet or 136.3%.
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As you can readily see from the above table, Manhattan Class A office vacant space will increase substantially over the next two years. Most of the increase in vacant Class A office space will be in Midtown and Downtown Manhattan. A lot of the new Class A office space will be from new building construction completions in 2012 and 2013.
Midtown Manhattan - The forecasted vacant space for Midtown Manhattan Class A office space will increase from 14.5 million square feet in March 2012 to 28.06 million square feet in March 2014, and the vacancy rate will increase from 8.4% to 12.4%.
Downtown Manhattan - The forecasted vacant space for Downtown Manhattan Class A office space will increase from 4.7 million square feet in March 2012 to 16.92 million square feet in March 2014, and the vacancy rate will increase from 7.7% to 14.04%.
Here's what Optimal Spaces says about the Manhattan Commercial Office Market:
"Tenants are continuing to be slow in making long term decisions, therefore leasing volumes have been quiet for the last few quarters. 6 million square feet of new office inventory wil be coming online this year. This will lead to interesting game of blink as to whether Landlords will lower their rents in order to get deals done."
"Manhattan’s slumping office market is about to be get worse, when 6 million square feet of new office space will be delivered to the market — the most since 1989."
"The unsteady economy and the compression of the financial services industry have lessened demand for office space recently. Developers point to the city’s growing tech, law and media sectors for relief, though those tenants tend to prefer using smaller space more efficiently to signing for extremely large blocks. The developers of the buildings, 1 World Trade Center, 4 World Trade Center and 51 Astor Place, say they aren’t worried because of the dearth of new construction in the years preceding the upcoming one. But the one high-profile property to be built recently, at 11 Times Square, has failed to land tenants for 60 percent of its 1.1 million square feet more than a year after opening. The success of these developments could determine how soon if other high-profile projects, like Hines Interests’ 7 Bryant Park and the Related Companies Hudson Yards, get off the ground."
The discrepancy between Cushman & Wakefield's numbers and those of Optimal Spaces are difficult to explain. Cushman & Wakefield offers a much rosier picture of the Manhattan office space market.
Courtesy of an article dated April 4, 2012 appearing in National Real Estate Investorand The New York Real Estate Report and Graphs and Statistics for March 2012 by Optimal Spaces
High Line at the Rail Yard - the High Line will cut through another new development. Here, the park passes under a skyscraper that's expected to be nearly as tall as the Empire State Building. (Click Image To Enlarge)
WITH EACH ADDITION, THE DESIGN ELEMENTS OF THE HIGH LINE HAVE GROWN BETTER. THIS THIRD PHASE SHOULD BE THE BEST BY FAR.
Initial details of the third and final leg of the High Line were released at a community meeting yesterday evening. Slated to open in 2014, the estimated $90 million extension of Manhattan’s madly popular railroad-turned-elevated park includes easy access to public transportation, breathtaking views of the Hudson River, and a climbing structure designed explicitly for kids.
Aerial view of High Line at the Rail Yard (Click Images To Enlarge)
But the most noticeable feature will be the one that’s missing: the 360-degree panorama of gritty old New York that provides a cinematic backdrop to the High Line’s lush first and second stretches. The third leg starts at 30th Street and cuts west toward the Hudson River, then north to 34th Street, around Hudson Yards, the proposed commercial development of a massive rail yard. Today, the yard is a no man’s land--just a lot cross-hatched by train tracks and sleepy LIRR cars. In a few years, it’ll be the new end point of the expanded seven-subway line. Ten years from now, it could be covered in towers, one of which might nearly rival the mind-boggling height of the Empire State Building. In other words, the designers are planning for an urban environment that doesn’t exist yet. But when it does, it’ll be huge.
More views of High Line at the Rail Yard (Click Images To Enlarge)
“The context is very different. The existing High Line mainly runs mid-block, north-south along historic buildings and some new buildings. Here, the High Line is running east-west mostly on 30th Street. On one side there’s the street; on the other, 21st-century development. We had to ask, how do we respond to the new conditions?”
High Line at the Rail Yards children's playground and walkway (Click Images To Enlarge)
The answer: Maintain the design DNA of the High Line that’s already there, while embracing the unique western orientation and the ginormous scale of the proposed Hudson Yards development. In the “DNA” camp, there will be additional “peel up” benches--seats that look like they grow out of the ground elsewhere on the High Line--only they’ll be more elaborate. There will be peel-up planters, peel-up picnic tables, peel-up water fountains, and even peel-up desks (so you can whip out your laptop and toil away to the soundtrack of urban mayhem?).
In the “embrace the surroundings” camp, there’s a proposed elevated lookout point around 11th Avenue for gajillion-dollar views of the Hudson River. (Prediction: Many, many wedding photographs will be taken here.) There will also be lounge chairs in a 70-foot-tall tunnel, where one of the proposed Hudson Yards towers passes over the High Line. Lie back, and you’ll get a dizzying view of the mammoth skyscraper above--an effect that’s all the more exhilarating (or frightening, depending on how you feel about heights) because the chairs cantilever over the street below.
The design scheme is limited by the complexities of building a park and a large mixed-use development at the same time. Most notably, the designers have proposed a temporary walkway (“a simple path through the existing landscape,” according to press materials) that’ll serve as a placeholder until nearby construction on Hudson Yards lets up. Switkin says, so you can’t build a permanent park right away.
“That area will be a construction site. Instead, we’ll create a walkway over the landscape, and people will get to see the High Line the way that it was [before the new development].”
Other design moves were informed, at least in part, by public feedback. People demanded play space for kids. In response, the designers came up with the idea to rip out concrete planks just west of 11th Avenue, then cover the beams underneath in thick rubber, creating a climbing structure that lets kids literally play inside the old railroad. Diller Scofidio + Renfro’s Matthew Johnson says.
“That’ll be really the first design feature truly designated for kids."
People also asked,
“Can we continue to embrace the historical components of the High Line?”
So the designers plan to develop a “rail walk” where visitors can traipse around on train tracks. The walk might even incorporate old switchgear. “Whether it will be fully operational remains to be seen,” Johnson says.
Another big request: more open space. One of the primary complaints about the second leg of the High Line is that it’s too narrow and jams up with wide-eyed tourists fast. The designers hope to turn a large swath of section three--a platform freight trains used to carry mail to and from the post office loading docks--into either an amphitheater or an open gathering space. Along the park’s narrower tracts, they’ll sacrifice dense plantings for wider paths. Johnson says.
“People wanted relief from heavy traffic, especially on the weekends. The section between 11th and 10th avenues has a lot more hardscape than previous areas.”
In some ways, Part III is shaping up to be the toughest installation in the HL trilogy yet. Switkin says.
“Section three has posed some of the more complex problems. Not only do you have to live up to the success of the first two sections, but also there’s a desire to do something different that’s about the new New York. Sections one and two were partially about responding to the historic Meatpacking District and Chelsea. This is a gesture toward a historic relic, but it’s also moving into the future.”
[Images courtesy of Friends of the High Line]
COMMENTARY: Love how New York City has redeveloped the Rail Yard into a modern, high-tech and beautiful development for business use and the people of New York to enjoy the outer fringes of the city from an era past.
Courtesy of an article dated March 19, 2012 appearing in Fast Company Design
Unemployment Rate and Non-Farm Payroll (NFP) Jobs Created
One July 8, 2011, the Bureau of Labor Statistics released the Employment Situation Report - June 2011, and reported that the US Unemployment Rate increased from 9.1% to 9.2% between May and June 2011. The June Non-Farm Payroll (NFP) payroll employment was essentially unchanged in June (+18,000). The second half of this year is likely to show only marginal growth. The numbers were bad, but they could've been much worse. I am no economist, but the report is more clear evidence that the economy is slowind down.
Source: Bureau of Labor Statistics
What most American's don't understand is that the Bureau of Labor Statistics measures the unemployment rate six different ways (U-1 through U-6). The unemployment rate that is reported in the news is U-3 (total unemployed or regular unemployment rate). However, U-3 is just the tip of the iceberg. U-3 DOES NOT present the true unemployment rate because it does not include the following categories of workers:
Discouraged workers - Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.
Marginally attached workers - Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.
Employed part-time for economic reasons - Persons who work less than 35 hours per week.
When you include the above three classes of workers into the regular unemployment rate (U-3), the result is U-6 (Total unemployed, polus all marginally attached workers, plus total employed part-time for economic reasons). At the end of June 2011, U-6 was nearly 17.5%. This is nearly twice the regular unemployment rate of 9.2% reported by the BLS at the end of June 2011.
Source: Bureau of Labor Statistics
Not only has the unemployment rate remained high for a long period of time, but the average duration of unemployment is skyrocketing without any hint of slowing down. This truly scary chart shows this quite clearly.
Source: Bureau of Labor Statistics
The problem has become so acute, that the Obama Administration has had to extend unemployment benefits from 26 weeks to 52 weeks and now 99 weeks, coining the term "Ninety-Niner's" for those individuals out of work two years.
According to the BLS, there are now 6.289 million workers (see graph below) who have been unemployed for more than 26 weeks and still want a job. This was up from 6.2 million in May. This is very high, and long term unemployment is one of the defining features of this recession.
Source: Bureau of Labor Statistics
Percentage of Jobs Lost During The Great Recession
After the miserable Bureau of Labor Statistics Employment Situation Report - June 2011 (see above), the pace of the recovery is really starting to look dimmer.
If you are like me, you are probably asking yourself a series of questions:
"Why does the regular unemployment rate remain so high?"
"Why do unemployed workers remain out-of-work so long?"
"Where did the jobs go?"
"Is there any hope for the future?"
In order to answer the above questions, it is important to understand the emensity of the job situation. The chart that follows shows the job losses from the start of the Great Recession of 2007, in percentage terms - this time aligned at the start of the recession. In terms of lost payroll jobs, the Great Recession is by far the worst since WWII. As a percentage of the US work force, we have lost 6.6% of the total jobs. Making things worse was the effect of the financial meltdown of September 2008 on business owners who reacted to the fear and uncertainty by laying off employees in extraordinary numbers, far greater than in past recessions. Job losses were so deep during the Great Recession that it's no wonder the unemployment remains high.
Source: calculatedriskblog.com
The American Recovery and Reinvestment Act of 2009 or Stimulus Plan which was enacted in early January 2009, poured $787 billion in to the economy and lifted employment by roughly 2.5 million jobs, outside analyses have found, but that has not been enough to reduce the unemployment rate substantially. Nor are there signs that business investment or consumer demand will do so soon.
Where Did All The Jobs Go?
This is a question that has haunted many economists. There is no single reason, but it appears that job losses began to accelerate after the year 2000. Several reasons for the incredible loss in jobs have been given, including job destruction forces from computerization (faster computers, the internet, software productivity tools and applications) and globalization (outsourcing jobs, especially NAFTA).
Outsourcing of jobs to foreign countries is one of the great hidden economic issues of recent years. It is big business, with multinational corporations actively shifting jobs out of the United States and around the globe in search of the cheapest possible labor. But, following popular outcry against the practice in 2004, corporations have done their best to hide the details even as they expand their offshoring activities. As a result, outsourcing has by and large fallen out of the headlines.
Collapse of Manufacturing Jobs - US manufacturing jobs dropped high of 19.5 million workers in June 1979 to 11.5 workers in December 2009, a drop of 8 million workers over 30 years. Between August 2000 and February 2004, manufacturing jobs were lost for a stunning 43 consecutive months—the longest such stretch since the Great Depression. During the Great Recession, which began December 2007 and ended November 2010, an estimated 2.5 million manufacturing jobs were lost. According to the Alliance for American Manufacturing (AAM, the US lost 5.5 million jobs and at least $245 billion in manufacturing wages since the start of 2000.
Destruction of Manufacturing Sector - The number of manufacturing firms has declined sharply since 1999, after growing steadily earlier in the decade. The total number of manufacturing establishments of all sizes grew by nearly 26,000 between 1990 and 1998 but shrank by more than 51,000 (12.5 percent) between 1998 and 2008. An additional 5,730 establishments disappeared in 2009, bringing the total net decline to more than 57,000 since 1998.
Jobs Outsourced Overseas Skyrocket - Since 2000, the United States has lost more than 5 million manufacturing jobs and 850,000 information sector jobs, many of which have been shipped overseas. Faulty trade and tax policies continue to lead to outsourcing as corporate executives boast record-breaking profits and salaries.
Job Outsourcing Is Big Business - Plunkett’s Outsourcing & Offshoring Industry Almanac 2010, estimates that job outsourcing was a $500 billion global industry in 2009 that involved more than 350 prominent organizations operating in 61 distinct industry groups.
Corporate Profits Soar - While 26.1 million Americans were unemployed, underemployed, marginally attached to the labor market or involuntarily working at part-time jobs as of Labor Day 2010, according to the Economic Policy Institute, corporate profits increased (at an annualized rate) to $1.64 trillion dollars during the second quarter of 2010.
The study determined that since 2000 the US has lost more than 5 million manufacturing jobs and 850,000 information sector jobs, many of which have been shipped overseas. Faulty trade and tax policies continue to lead to outsourcing as corporate executives boast record-breaking profits and salaries.
Manufacturing isn't the only sector hurt by outsourcing. A 2002 study conducted by the Forrester Research concluded that 3.3 million white-collar U.S. jobs—including 500,000 information technology jobs—will shift offshore to countries by 2015 at a cost of over $136 billion in wages.
There are several arguments for and against the outsourcing of American jobs. Corporations claim this is the only way they can compete in the global economy. Labor and environmental experts say American manufacturer's go overseas because foreign countries have less restrictive employment and environmental laws and regulations.
By the way, Working America's Job Tracker tracks the hiring, layoffs and outsourcing activities of over 400,000 American companies. You can access the Job Tracker HERE.
However, this is not the complete answer to this job loss puzzle.
According to Barry Lynn and Phillip Longman, two research writers for theWashington Monthly, blame jobs losses not on job destruction forces, but a lack of job creation. And the engine of job creation is small businesses.
Msrrs Lynn and Longman, propose a third job destruction force: CONSOLIDATION. Starting in the early 80s, the Reagan administration began deregulating many industries and decided to quit enforcing antitrust laws. Big companies began merging in earnest, and by the early 2000's it was common for three or four firms to control upwards of half or more of entire sectors. It happened in banking, retail, transportation, pharmaceuticals, medical and health, broadcasting and automobile industries, accounting, and advertising, just to name a few. And not only do big firms innovate less than small firms, they also prevent innovative small firms from ever getting a chance to grow in the first place by hiring the smartest and the brightest, controlling channels of distribution, generating economies of scale, litigation to prevent small company innovation, and exercising monopoly power.
The job growth of the 80s and 90s, Lynn and Longman suggest, was largely powered by companies that were founded in the 70s — companies like Apple, Microsoft, Oracle, and Genentech. By the time the 2000's rolled around, consolidation was largely complete and the pipeline of small, innovative companies was drier than it had been in decades. The following chart shows just how rapidly we began to lose jobs during the 2000's.
To see just how widespread the job losses have been across the country, Tip Strategies, Inc, an economic development consulting firm in Austin, Texas, has designed an online animated map showing how jobs have come and gone, on a rolling 12-month from January 2004 to July 2009. If you thought the above graphs were scary, wait till you see this one.
[Click The Map To View An Animated Map]
The above map shows that JOBS GAINED rapidly turned into JOBS LOST beginning in the third quarter 2007, began to accelerate in 2008, and exploded after the Financial Meltdown of September 2009. In mid-2005, Hurricane Katrina hit New Orleans with a vengence and that part of the country was immediately hit with job losses. Job losses finally began to subside after Barack Obama came into office and enacted the Stimulus Bill in 2009. During this tumultous period, the biggest job losses occurred in California, Arizona, Nevada, Florida, Illinois, Michigan, Georgia, New York and Pennsylvannia.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged in June at 8.6 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.
The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) increased slightly to 8.552 million in June.
These workers are included in the alternate measure of labor underutilization (U-6) that increased to 16.2% in June from 15.8% in May. This is the highest level this year (highest since December 2010).
In a blog article dated April 8, 2011, I commented on the huge number of part-time workers (see graph below) which began trending upwards in January 2002, and really began to accelerate with the beginning of the Great Recession in December 2007. As of January 2011, the number of part-time workers is now over 9 million, continuing the trend that began in 2002.
Note that there is no category that was not under street expectations. Things are much worse in employment land than anyone thought.
Source: Bureau of Labor Statistics
Labor Force Participation (LFP)
The LFP is now at levels not seen in a decade. The LFP rate is the percentage of working-age persons in an economy who:
Are employed.
Are unemployed but looking for a job.
Typically "working-age persons" is defined as people between the ages of 16-64. People in those age groups who are not counted as participating in the labor force are typically students, homemakers, and persons under the age of 64 who are retired. In the United States the labor force participation rate is usually around 67-68%.
A look at the below chart confirms that as of Friday, July 8, 2011, the labor force participation hit a new record low of 64.1%. The previous high LFP rate was 66.4% at the end of December 2006.
Source: Bureau of Labor Statistics
A LOOK AT WHAT'S INSTORE FOR THE U.S. ECONOMY
The manufacturing sector has always been the engine for the U.S. economy, creating stable employment and good paying jobs so that America can maintain its high standard of living and maintain a strong middle class. The loss of millions of jobs due to computerization, outsourcing and industry consolidation, may have permanently damaged the structure of the U.S. economy, resulting in continuing high rates of unemployment, lower manufacturing activity, a stagnant and unstable economy unable to create sufficient jobs, and lower GDP growth rates. Economists have already warned of the potential for a "double dip" recession. The fragile nature of the U.S. economy makes it especially susceptible to inflation, high interest rates, bubbles (real estate, technology, etc.), wars, natural disasters and sovereign debt problems like those in Europe.
The following charts make these points abundantly clear.
ISM Purchasing Managers Index (PMI)
Unemployment rates remain high becase we have become a nation of consumers not makers of things. The graph below charts the Institute of Supply Management's (ISM) Purchasing Managers Index (PMI) which measures the economic activity in the U.S. manufacturing sector. The graph also includes several regional PMI's for different regions of the U.S.
Economic activity in the manufacturing sector expanded in June for the 23rd consecutive month, with a PMI of 55.3%, and the overall economy grew grew for the 25th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®
Source: Institute of Supply Management
The best single gauge of manufacturing comes from the ISM. The PMI rate on June 30, 2011 was 55.3%. A fall below 50% (PMI at the end of July 2008), which occurred just prior to the financial meltdown, would signal a contraction. Are we headed in that direction? This chart suggests we might:
The Conference Board Leading Economic Index (LEI)
On June 17, 2011, The Conference Board released its Leading Economic Index (LEI) (see below) for the United States, and the LEI increased to 114.7 (2004=100) in May 2011, an increase of 0.4 percent, following no change in April (113.3), and a 1.4 percent rise in March (113.1). The Conference Board Leading Economic Index is an American economic leading indicator intended to forecast future economic activity.
The LEI has been trending upwards for 26 straight months since the March 2009 when it was at 98, just three months before the Great Recession ended (June 2009 - See above GDP graph). The US GDP managed to grow in Q3/2009 (+1.6% annualized), reversing a trend that had been in place since the start of the "Great Recession" (December 2007). Things started to accelerate in future quarters - Q4/2009 saw the economy grow at a 5% pace (annualized), while Q1/2010 clocked in at 3.7%. It seemed, for a time, that the economy was on the mend.
Since the first quarter of 2010, the wheels have come off and the US economy is seemingly running in place.
Bart van Ark, chief economist of The Conference Board said.
“The index points to continued, though slower, U.S. growth for the rest of this year. The LEI for the United States has been rising since April 2009, and though its growth rate has slowed in 2010, it is well above its most recent peak in December 2006.”
Source: The Conference Board
Source: The Conference Board
Note: The ten components of The Conference Board Leading Economic Index® for the U.S. include: 1) Average weekly hours, manufacturing, 2) Average weekly initial claims for unemployment insurance, 3) Manufacturers’ new orders, consumer goods and materials, 4) Index of supplier deliveries – vendor performance, 5) Manufacturers' new orders, nondefense capital goods, 6) Building permits, new private housing units, 7) Stock prices, 500 common stocks, 8) Money supply (M2), 9) Interest rate spread, 10-year Treasury bonds less federal funds, and 10) Index of consumer expectations
The Gross Domestic Product (GDP)
The United States economy grew for the 7th straight quarter, although the rate of growth was disappointing.
The United States economy grew up 2.9 percent in 2010. Real GDP in the U.S. increased due to positive contributions from inventories, exports, consumer spending, business investment, and federal government spending. The overall contributions from these areas was offset by an increase in imports.
The economy grew by 1.8% in the first quarter of 2011, compared to a 3.1% growth the previous quarter, the United States Department of Commerce reported. The slowdown in the growth of real GDP in the first quarter of 2011 showed that the economy is not gaining momentum, dampening prospects for a meaningful reduction in unemployment in the near future.
The Housing Crisis and Construction Industry
The US is one of the few western industrialized nations where the dream of home ownership has become a reality for many Americans. The era of cheap money (2003 through 2005), low or no down payment mortgages, real estate speculation, and reckless lending practices of banks and mortgage companies, resulted in highly inflated real estate prices. A real estate bubble was eminent and it hit with a vengence beginning in 2006.
The resulting collapse of the US housing industry has resulted in levels of bank foreclosures that are unprecedented since the Great Depression. The result was a catastrophic decline in real estate prices and massive buildup of unsold properties and bank REO's (properties held by banks). In a blog article dated December 10, 2010, at the end of August 2010, the inventory of visible and "shadow inventory" (see blog article for explanation) of unsold homes totaled 6.1 million units--a two year supply.
According to First American CoreLogic, at the end of September 2009, the proportion of U.S. homeowners who owed more on their mortgages than the properties were worth swelled to about 23% or 10.9 million homes (click to view interactive map by state). Not much has changed since that time. At the end of December 2010, there were 11.1 million mortgage properties underwater. At the end of March 2011 the number declined to 10.9 million.
Since January 2009, new housing starts are stuck at an all-time low of about 500,000 annualized units, compared to 2.250 million units in January 2006. At the end of May 2011, new housing starts remain stuck at 500,00 annualized units, and there is no relief in sight.
By every real estate construction and construction employment economic measurement used to determine the condition of real estate construction and employment, the only bit of good news are interest rates, which for a 30-year fixed mortgage have remained under 5.50% over the last two years. The interest rate for a 30-year fixed mortgage in California as of today is 4.75%.
The collapse of the US housing industry has devastated the construction industry employment. The unemployment rate for experienced workers in construction was 24.7 percent in January 2010. Total construction payroll employment has dropped by 2.1 million jobs since 2006, with residential construction down by 1.3 million, or 38 percent. The following charts put things into perspective:
Conclusion
If you are unemployed, I know this has been painful to read, as it was painful for me to research and write. If you are lucky to be employed, this material should give you a lot to think about. 65% of American's live paycheck-to-paycheck. Having said this, it is my honest opinion that today's unemployment situation is structural in nature due to the three job destruction forces mentioned previously, a shift from full-time to part-time workers, a lack of sufficient job creation businesses, and practice of employer's not to hire workers's over 50 years of age, and high unemployment among minorities and college graduates. The new Digital Economy has also played a key role in the shift from blue collar to white collar jobs.
Political infighting, the federal deficit, federal debt ceiling and state budget deficits have compounded the unemployment problem, resulting in additional layoffs among government sector workers. Solving the job problem is not going to be an easy task. Jobs outsourced to other countries are not coming back and corporations are content to operate with less employees while relying on part-time workers and temporary workers, instead of hiring new full-time workers.
Nicolas Cage's $9.5 million mansion in Las Vegas went into bank foreclosure in 2010 and sold for $4.2 million
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No one believes that men and women are the same. And a fascinating data set reveals how they might approach real estate deals differently.
We all know that men and women approach most everything in life slightly differently--and sometimes, wildly differently. How does this affect the way they each do business?
Rarely do you get a data set that reveals much about that question, but here's a remarkable one from the data-viz wizards over at Trulia, the real estate listings website. They took a look at the gender balance between real estate agents across the country, and the results are pretty remarkable.
The first thing to note is that real estate, in general, is a woman-dominated field; on average, in every state in the country, the ration of men to women approaches 2:1. Now, you can hypothesize about all sorts of reasons why that is; for example, perhaps women come off as more trustworthy to women and less threatening to men, each of which can make all the difference in a life-defining purchase such as a home. Or perhaps women, with their edge in intuition and empathy, simply make better sales people. Or perhaps the dominance of women is about sociological pressures: Real estate, historically, might have been a more amendable profession to the demands of balancing worklife and child rearing, and one avenue where women never had their career advancement limited by their sex, since the profession is filled with free agents.
All of these are worth keeping in mind as we get into the data. Because the fascinating thing is that while women dominate the field, men tend to put up a greater number of houses for sale, while women put more expensive houses for sale. Here is what the state-by-state breakdown looks like for numbers of houses put up by men vs. women:
Click To View Interactive Map
As the chart shows, in most states across the U.S., the average male real estate agent puts up at least 5-14% more houses for sale than his female counterpart; in many states, such as Nevada, Oregon, and Minnesota, male real estate agents usually put over 25% more houses on the market.
Meanwhile, here is what the chart looks like when you look at the average prices of homes listed by women vs. men:
Click To View Interactive Map
The relationship is totally flipped. Women tend to sell houses that are markedly more expensive than those sold by men, and the trend is, in fact, even more intense across all states.
This is amazing data, and it's fun to think about what's driving it. Perhaps it takes a "high-touch" selling approach to sell more expensive homes--one which suits women more. And perhaps men adjust to their lower commissions simply by increasing the volume of their sales. Men may be great in increasing the volume of sales simply because they sell differently: Emphasizing relative prices and the market and data, perhaps. A more analytical approach, of course, would probably yield a quicker sale, since it's less about getting people to stretch a little for a more perfect home and more about a very straightforward comparison of data. (For anyone who wants to accuse me of sexism or gender stereotyping, I can list many, many studies that show that men, for example, make more buying decisions based on data while women emphasize personal connections.)
At the very least, you can surmise that the differences you see above are unlikely to be accidents. Whatever is driving them, they're more likely a function of men and women using their different strengths to approach sales differently.
COMMENTARY: Its not too difficult why female real estate brokers would book listings with higher prices than males. First, they outnumber the males. Second, they know how to flirt with more affluent male sellers to get that listing. Female sellers, are more likely to trust a female broker than a male. Still, you need the interpersonal skills and knowledge of real estate to close a new listing and sell the home.
Courtesy of an article dated October 25, 2011 appearing in Fast Company Design
Energy-efficient home improvements cost a lot up front, but eventually pay themselves off. Exactly how long does it take? Consult this handy chart.
The idea of the home of the future--equipped with all sorts of fancy, clean energy features--is an appealing vision. Sadly, many of us have houses that are already stuck squarely in the present. To do something like add solar panels, or even just insulate better, requires what can be an extreme cash outlay. But there's an upside: If you're improving your house to be more energy efficient, you're going to start saving money. Are you going to save enough to make your expenditures worthwhile?
That's the question that the latest infographic from solar provider One Block Off The Grid attempts to answer. Should you throw down for that retrofit? The truth is, it depends on what you want to do, and--more importantly--how long you're going to stay in your house.
If you're just passing through, consider efficient shower heads (paid off in less than a year with it's $300 of savings) or a programmable thermostat (just a hair over six months). For the more sedentary among us, there are projects that will take longer, like solar panels (11 years to recoup investment) or radiant floors that distribute heat and reduce costs (7 years).
But what's good to remember is that once you make it past the break-even point, you're saving money every year, money that goes right into your wallet. In the case of solar power, you might even start making money, as you can feed energy back into the grid. Over 20 years, you're going to save $60,000 in electricity costs with solar panels; $11,000 with radiant floors. Think long-term, and these improvements start seeming better and better.
Because it's easier to read in pictures, here's the full infographic:
Click Image To Enlarge
Courtesy of an article dated October 24, 2011 appearing in Fast Company
A Los Angeles real-estate company founded by two former Israeli paratroopers and a Drexel Burnham Lambert executive has emerged as one of the country's most active property buyers. Now it is poised to unveil plans for its main showpiece: New York's tallest residential tower.
CIM Group last year snapped up a prized Park Avenue development site in Midtown Manhattan for $305 million, well below the land's value during the boom years. Developers have considered it one of the most attractive sites in the world because of its location at the heart of New York City.
Click Image To Enlarge
The firm and its partner, New York developer Harry Macklowe, have been quiet about their intentions. But plans show a more than 1,300-foot tall, slender condo and retail complex designed by Rafael Vinoly, the Uruguayan-born architect best known in New York for designing Jazz at Lincoln Center inside Time Warner Center.
Click Image To Enlarge
The plans for the project, named 432 Park Ave., call for 128 condos with more than 12-foot high ceilings; a 5,000 square foot, partially covered, driveway to ensure privacy; and amenities like golf training facilities and private dining and screening rooms. The total price tag: more than $1 billion.
Click Image To Enlarge
There is no scheduled completion date, and the project still faces challenges amid an uncertain economic and market environment. Crucially, CIM needs a construction loan of as much as $700 million. That isn't an easy type of financing to obtain these days, with European banks cutting back because of their debt problems and only a small handful of U.S. banks willing to lend.
Avi Shemesh, a CIM founding principal, said the firm is confident it will get a loan. "We have longstanding relationships with lenders," Mr. Shemesh said. "We anticipate our construction financing to be in place well in advance of any sort of deadline."
Click Image To Enlarge
CIM's purchase of the Park Avenue site took advantage of the collapse of Mr. Macklowe's real-estate empire. Mr. Macklowe acquired the site, which then housed the Drake Hotel, in 2006. But before he finalized his plans he defaulted on the debt.
Mr. Macklowe is still working on the project, although he no longer has an equity stake, according to people familiar with the matter.
A spokesman for Mr. Macklowe declined to comment.
Mr. Macklowe is "involved with the thought process and decision making," Mr. Shemesh said, "but the final decision is ours."
CIM's increasingly high-profile investments are shining new light on a firm that is little-known outside property circles even though it has been around for nearly two decades. New York developers have debated what the three initials represent; CIM says the letters don't stand for anything.
The unusual combination of partners dates back to the late 1980s, when Mr. Shemesh and his childhood friend Shaul Kuba immigrated to the U.S. from Israel and launched a landscaping and design business in Los Angeles. Richard Ressler, a former investment banker at the now-defunct junk bond shop Drexel Burnham Lambert run by Michael Milken, met them after hiring the pair to landscape his garden.
At the time, Messrs. Shemesh and Kuba were beginning to invest profits from their business in West Los Angeles apartments and retail and office buildings. Mr. Ressler, who had recently left Drexel, also was interested in real estate, and the three decided to join forces.
CIM operates like a private-equity firm in that it mostly invests through funds it raises from institutional investors. The firm currently has $9.5 billion under management. Its largest single investor is Calpers, the giant California pension fund, which has about $1.7 billion invested with the firm.
Over the past five years, CIM's Urban Real Estate Fund has an annual return of 7.4%, compared with a 20% annual decline for the universe of 19 high-risk, high-return funds that invest in urban property, tracked by Calpers.
The firm's acquisition of the Park Avenue site kicked off a CIM cross-country shopping spree of apartment buildings in Dallas, a South Beach hotel, a loan backed by the Trump SoHo Hotel and a stake in the Art Deco office building that is home to Credit Suisse Group AG. The firm's total investment since the end of 2009 has been about $1.7 billion.
CIM was able to do this because it pulled out of the market before it hit the wall in 2008. Ted Eliopoulos, head of real estate for Calpers said.
"CIM chose not to invest meaningful amounts during 2006 to 2008. That discipline allowed CIM to invest meaningfully over the past 24 months following the Lehman collapse."
Six of its deals, including the Park Avenue site, are still in the development stage. These bets could pay off if the economic recovery begins to gain traction.
If the economy continues to sputter, CIM may have difficulty lining up financing to complete the Park Avenue condo and other developments—or the finished projects could encounter a weak economy.
Christian Busken, head of real estate research for the consulting firm Fund Evaluation Group said.
"There's a lot higher risk when you're buying something that's not up and running and producing some cash flow."
Even with financing, CIM's tower of Park Avenue trails a competing 1,000-foot residential project on West 57th street from Extell Development Co. That skyscraper is nearly 30 stories above ground and counts an Abu Dhabi fund as a partner.
Most private-equity firms don't act as a ground-up developer, buying raw land and building on it. But Messrs. Shemesh and Kuba, got their start as developers, so they don't shy away from it.
Until recently, CIM has focused on under-served urban areas, resulting in sometimes complex deals. One of its most successful investments was the acquisition of Hollywood & Highland, a retail and hotel complex in a part of Hollywood that had become pockmarked by pawn shops and adult video stores.
CIM aimed to make the tourist destination more appealing to locals. It upgraded an aging office building, renovated the shopping center and remodeled the Kodak Theater so that it could be used for events year-round, not just for the Academy Awards. CIM's $201 million initial investment was valued in December at more than $500 million, according to an independent appraisal.
COMMENTARY: I look forward to seeing that 1,300 foot condo and commercial tower begin construction. It should be a doozey once completed. With only 128 condo's I would think there are more than sufficient deep-pocket millionaires capable of affording a condo in the planned tower. Financing such a behemoth is not going to be easy. I would assume that $700 million will probably be financed through the issuance of bonds or split between several commercial lenders.
Credit Sesame offers a global perspective on America's (relatively affordable) real estate market.
Surprisingly, not New York. In fact, compared with select cities in Europe and Asia, Manhattan’s downright cheap.
According to a chart by Credit Sesame, the average cost per square foot in Manhattan is $1,068. That’s a pretty good deal when compared to other world destinations:
The point that Credit Sesame, a money management company, wants to make is that, for all the talk about housing inflation in the United States, the global market offers some humbling perspective. Yes, New York is expensive by American standards. In Houston, the cheapest of the American cities surveyed here, you can buy a place for just $54 a square foot. But it isn’t particularly outlandish compared with other major urban centers like:
London - $1,590
Hong Kong - $1,118
Beirut - $1448
Real estate in Al-Kūt, Iraq--a city southeast of Baghdad that's arguably not the world’s most desirable place to live--costs three times that of property in Phoenix (to be fair, also not the world’s most desirable place to live).
A word on the methodology: Meticulous science, this is not. Credit Sesame gathered data covering three years and 14 sources, ranging from Factiva and Trulia to the New York Times and the Iraq Daily Times. Real estate prices, of course, fluctuate year to year and probably weren't calculated the same way across all 14 sources, so what you have here is an imperfect comparison. Still, the lesson abides: Be glad you don’t live in Paris.
COMMENTARY: $54,000 is the median price in Houston? Geez. I think I would live in something more upscale like
Courtesy of an article dated October 5, 2011 appearing in Fast Company Design
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