I don’t think I am cut out to be a developer.
While I get the hard work and analysis part, I’m missing the blind optimism part.
And no, I’m not blindly pessimistic either – during the boom years blog commenters periodically accused me of being a shill for the real estate industrial complex (I liked the phrase so much I bought the domain).
Blind optimism is what makes developers successful because everyone tells them they can’t do it. But it is also their downfall because builders build until they can’t build anymore.
Today’s New York Times article by Charles Bagli “Building a Tower of Luxury Apartments in Midtown as Brokers Cross Their Fingers” which announces Barnett’s 1,005 foot condo with a hotel at the base. The site is due south of the Essex House between West 57th Street, a retail corridor and West 58th Street, a service road for Central Park South (West 59th). I’ve got a “let’s consider reality” quote and graphic in the piece.
The project is the first major construction start in New York since the fall of Lehman Brothers in September 2008, and it is an ambitious, even risky undertaking. Unemployment still hovers at 10 percent in the city, which has only just begun to gain back some of the 150,000 jobs lost during the recession. Not so long ago, the real estate industry was right behind Wall Street and the nation’s automakers in crying for a federal bailout.
Access to financing determines when and how something gets built – in this case it was Abu Dhabi since US banks are not interested new luxury condo development given the excess inventory that needs to be absorbed first.
Barnett said “We think it’ll be the nicest project ever built in New York.” Given the proximity and the success of nearby 15 Central Park West – my vote for the best Manhattan condo ever built, I’m guessing that’s the comparison being made. Although recent sales there have topped $6,000 per square foot, the building fronts Central Park and straddles Midtown and the Upper West Side, I’m not so sure its a reasonable comparison to make but I do wish them well.
Remember I’m not cut out to be a developer.
(courtesy: CS Monitor)
Admittedly I am getting annoyed about the lack of closure on this credit crunch thing. Can’t we simply point fingers, have someone apologize but indirectly deny responsibility and then we can then get back to buying stuff and building extensions on our houses?
Make no mistake, the credit crunch is one big mistake. It’s called a systemic breakdown because so many in the economy played a role in our economic demise. Moral hazard, government backstops, bailouts, stimulus, bonuses, trillions, synthetic CDOs have been placed in the forefront of our thinking.
But no clear financial reform path is being taken – in fact it took an investment bank using swear words in an email to get Washington’s attention and break the political maneuvering. Each party is planning to oversteer the solution to their agenda which was part of the problem that lead to this crisis. While we all worry about “free markets” we have forgotten how important it is to create a level playing field. Without rules, free markets degrade to chaos and lack of investor participation. We are seeing this now within the secondary mortgage market, especially jumbos.
We can never remove the human factor from the problem since regulators were clearly asleep at the switch (since Clinton) compensation had perverse incentives favoring short term profits over long term viability, regulators were neutered by the prior administration (think prior SEC under Bush) so its dumb to have some sort of czar. It’s never one factor – it a combination of people, events, institutions and politics that light the fuse.
I am looking forward to some sort of meaningful financial reform. If neutrality isn’t baked into the system, then this is all a big waste of time. Regulators need authority and can not be influenced and investment banks can’t pick the regulator they want. Rating agencies should not be paid directly by the investment banks whose products they rate. Appraisers can not be fearful of their livelihood because they don;t hit the number, etc.
Here’s what it all boils down to now: blame and being sorry.
Another Jonathon Miller (no relation, but awesome name) and his wife are suing a large builder for not preventing flipping in their housing development which brought in “irreverent transients” who party loudly, park erratically and install unauthorized satellite dishes.
I’m not doubting those conditions exist and it appears to be a creative way to get your money back.
When the housing market collapsed, some contracted buyers abandoned deals. From the outset, the project exhibited “ghost-town-like” qualities, the suit says.
Looking back, the Millers say the developer should have worked harder to prevent so-called flippers from buying units. Buyers were supposed to stick around for at least 18 months.
Saying I’m Sorry
In particularly interesting Reuters Summit Notebook piece, People make mistakes, take Alan Greenspan and Captain of Titanic
Phil Angelides, Financial Crisis Inquiry Commission chairman, says he’d rather see some taking of responsibility than hear another “I’m sorry.”
“Personally I don’t see my role as … to obtain apologies. What I don’t hear is a sense of responsibility and self-assessment about what occurred. There seems to be a disconnect between the practices that people undertook and the financial collapse,” he said at the Reuters Global Financial Regulation Summit.
“I’m struck by the extent to which all fingers point away generally from the person testifying,” Angelides said.
When it gets to this point, its too late. Let’s try to be proactive with some sort of meaningful financial reform. Not more regulation, not fewer protections for neutral parties.
If we can’t do this as a country, well, don’t blame me.
I’m a big fan of Michael Lewis’ writings starting with Liar’s Poker (think onion cheeseburgers for breakfast and traders owning more speed boats than suits) and much of his other work including Money Ball, Panic (a collection of his favorite news accounts of the credit crisis) and The Blind Side (Academy Awards), but I am very much anticipating reading his new work “The Big Short: Inside the Doomsday Machine.“
Admittedly I am growing weary of Wall-Street-what-went-wrong books and I still need to read Andrew Ross Sorkin’s “Too Big Too Fail” compendium on my nightstand (worrying its becoming “Too Big To Read”) but I definitely will. But the Lewis book has got my attention for some reason. It’s weird to sound like I am recommending a book I haven’t purchased or read yet but I guess I am relying on past experience.
In the book acknowlegements, the WSJ Deal Journal blog points out that Lewis:
praises “A.K. Barnett-Hart, a Harvard undergraduate who had just written a thesis about the market for subprime mortgage-backed CDOs that remains more interesting than any single piece of Wall Street research on the subject.”
And my favorite quote referring to the idea of making the numbers say what you needed them to say.
“If you just randomly start regressing everything, you can end up doing an unlimited amount of regressions,” she said, rolling her eyes.
She was able to track down information and cover the looming CDO disaster completely on her own through basic research.
Perhaps most disturbing about these losses is that most of the securities being marked down were initially given a rating of AAA by one or more of the three nationally recognized credit rating agencies, essentially marking them as “safe” investments.
A lot can be said for taking a detached or neutral look at a complicated situation. Sometimes the collective mindset takes on blinders, or in this case, blind folds.
A couple of charts to peak your interest.
President Obama announced his intent to appoint several individuals to serve on the Recovery Independent Advisory Panel. One of them is Edward Tufte who has been my inspiration to look at the housing market with data in different ways. He’s taught me how to see through the BS in charts and tables we are spun with nearly every day – and no – I am not one of his PR people.
I will be serving on the Recovery Independent Advisory Panel. This Panel advises The Recovery Accountability and Transparency Board, whose job is to track and explain $787 billion in recovery stimulus funds.
Anyone who has been reading this blog since the early days (2005) knows I am a big fan of Edward Tufte, professor Emeritus of Political Science, Statistics, and Computer Science at Yale University. His self-published books are fascinating and cover the way we present information. I’ve attended one of his seminars when he came to New York.
Tags: Edward Tufte