Sunday, 15th September 2019.

Posted on Wednesday, 21st December 2016 by Robert Domini

VFW Post 4906 on Consaul Street

Peter Ujvagi was quoted in a front-page article by Tom Troy in the Sunday, December 11, 2016, Toledo Blade which brought back a flood of memories. First, it brought back the memory of Peter, his brothers and sisters along with other families such as the Takacs family when they arrived at St. Stephen’s School in 1956 following the Hungarian Revolution which was put down by the Soviet Union. The shocking violence in Budapest, caused large numbers of Hungarians to flee to the safety of the United States to neighborhoods such as Birmingham in East Toledo. In the article, Peter is quoted as saying that he “occasionally hangs out” at the club, and as a life-long Democrat and public servant, Peter was shocked to hear that many of the members were supporting Trump. Bear in mind that the Birmingham Hungarian neighborhood has always been a solid Democrat bastion. Bobby Kennedy visited Tony Packos and the Fritz Szollosi home when he was running for President. My father was a member of the club as well, and I can remember visiting there many times for social occasions. Yes, dad was a union worker as were all of my uncles and all of our neighbors. All were life-long Democrats, so it comes a shock that the old guard, what’s left of it, saw fit to shift their allegiance during this past election. Since this is principally a real estate newsletter, I would like to reflect on what Birmingham was when we were growing up. It was an amazing place and so much fun at Christmas time. The core of the old neighborhood was bounded by Consaul Street, Front Street, Whitmore Street and York Street although it extended about two blocks to the south of Consaul where we lived. There were several churches and a bar on every corner. There was a soda shop, a dress shop, barber shops, a bakery, a food store and many small stores which carried the basics for those who were willing to walk two blocks for a loaf of bread. Just about everything you could want could be found in Birmingham. 

On Christmas Eve, troops of young men, some who wore white gowns and cone-shaped red hats and others who wore scary furry masks and tails with cow bells attached roamed the neighborhood on behalf of two of the neighborhood churches. The players in the gowns and cone hats represented angels while the men in furry masks represented the shepherds. They were called “oregs”. The “oregs”, carried wooden axes which appeared to a ten-year old to be the real thing. They would perform a ceremony in the homes of parishioners, as well as every bar in the neighborhood, to celebrate Christmas. Along the way it was tradition that the oregs would be given a shot of whiskey to help keep them warm as they made the rounds. Then at the Midnight Mass on Christmas Eve, they performed their skit in church. The basic idea was that the angels tried to convince the oregs to go to Bethlehem to see baby Jesus. The custom was portrayed more for merriment purposes than for anything religious.

Dozens of kids would gather outside the school basement waiting on Christmas Eve for the scary creatures to come out and chase us, and that they did. Only one time one of them caught up to me and he gently hacked at my shins with the axe. We were totally terrified, but loving every minute of it. I’m sure Peter, Eddie and Louie were right there beside me as we enjoyed one of the wonderful Hungarian traditions.

One other observation I’d like to make. Many of the refugees were craftsmen in the old country, and they wanted nothing more than to continue their trade here in the United States. The Hungarian refugees took full advantage of their opportunities not long after their arrival, most starting small businesses. While my father and other neighborhood working men were contented with their full-time blue-collar jobs, the refugees nearly all struck out as entrepreneurs and many flourished. The Ujvagi brothers founded and operated for many years a manufacturing company on Miami Street in East Toledo while Louis Takacs started a butcher shop which still exists today. I remember another man starting his own tool and die business, which is what my father did for a living. In fairness to my dad, he was somewhat of an entrepreneur himself. When he came home from the Big War he had saved enough money to pay cash for two houses. One we lived in and the other became a rental. In addition to being a tool and die maker by day, he started a radio and tv repair business. In those days, he made house calls. In fact, he frequently took me along on his appointments.

Many of us still make our way to the old neighborhood to buy Takacs’ meats for our “Hunky” roasts in the summer where we roast jowl bacon on an open fire. It’s called, “sutni”. So, for all of my Hungarian friends and relatives, have a very Merry Christmas and never forget where you came from.

Great News for Toledo

In a December 14, 2016, story in the Blade, it was announced that Toledo rose 63 spots in the Milken Index which is a study that ranks cities in terms of their level of economic activity. Reasons given were strong auto sales and a strong housing market. Sales of the Jeep Cherokee and the Jeep Wrangler were cited as major factors in the improvement. The City now ranks 99th out of 200 large metro areas which may not sound very impressive, but surveys and reports prior to this had Toledo dead last in most categories. In fact, Toledo had the third largest gain of any of the 200 cities preceded only by Daytona and Richmond. The author of the survey, Ross DeVol, stated that it wasn’t just Jeep which propelled Toledo, it was the numerous auto parts suppliers in the area. Monroe, Michigan also benefitted from the same set of circumstances. It’s the old adage, when Detroit sneezes, Toledo catches pneumonia and vice versa. Other factors contributing to Toledo’s rise are the increased sales of residential housing as well as new construction. New Construction employment was up 11% in 2016. In yet another report, Headlight Data, Toledo’s GDP was found to have grown more than 25% in the last five years ranking #7 among medium-sized cities. Yet another area credited for Toledo’s growth is the health-care industry. So, Toledo is doing a whole lot better than most people realize. Part of the reason for a community such as Toledo showing big gains is that it is recovering from a very low level. The city’s unemployment rate has actually increased recently to 5.1% because more people are looking for work buoyed by a new optimism that they might find a job. A most encouraging movement is Toledo’s population loss has been slowing for the first time in decades. In 2015 Metro Toledo added 1,132 manufacturing jobs bringing the growth rate to 3% in 2015. Overall employment saw gains of 2.4%.

Toledo and other rust belt cities were hit particularly hard by the crash of 2008-09-10. Toledo and other similar cities have been battered by jobs moving to Mexico and elsewhere as President-Elect Trump has been saying, but a primary factor is that manufacturing has been changed dramatically by technology. The tool and die business, for example, was once done by hand by skilled craftsmen such as my dad. During the last 20-30 years, the same function is performed by computers and robots.

This report is in stark contrast to another just a few months ago in March where Toledo was ranked as the fourth most economically distressed city in the nation. At that time the study was based on economic conditions in the city between 2010 and 2013, but that was then and this is now. Toledo is being graded now on improvement since then which is indeed impressive.


What’s In Our Future?

Technology and the world’s knowledge base has grown more in the last 20 years than it has in the history of mankind, and the growth rate in knowledge and technology will accelerate at ever greater rates in the future. The rate of change typically experienced in ten years will occur in one or two years going forward. Some researchers believe that the supply and demand for tech goods will triple in the next ten years. Self-driving vehicles will become a reality. They already exist on an experimental basis. For example, Google has created a separate entity for development of the self-driving car. It is to be called Waymo LLC which is a part of a new overall Google entity called Alphabet, Inc. This week Waymo became the first company to test a self-driving car on public roads without a driver in the vehicle. In another experiment in Austin, Texas a legally blind man rode around in a car with no steering wheel or brake pedals.

The same holds true of our homes. New homes equipped with the latest in technology will be operated with a remote from within house and from half-way across the country. This is available and in existence now, but is not widely adopted thus far. Technology will enable cities, governments and corporations to safeguard their data much more effectively than they presently do. For example, in the near future, we will no longer be debating who stole the emails of a presidential candidate. Technology will be available to protect their data from hackers. On December 14, 2016, the CEOs of several technology companies including Apple, Microsoft, Amazon, Intel, Tesla Motors, Facebook, Google, Oracle, IBM, Cisco and others met with President-Elect Trump for a conference on ways technology can help move our economy forward. Also discussed were ways in which the Trump administration can make conditions more hospitable for the tech industry, not least of which is a way to bring dollars back to the U.S. which are currently being sheltered overseas to avoid our high corporate tax rate.


Promedica Has Had a Very Busy Year
Promedica definitely wins the award for the single most active and important entity in the Toledo area for real estate development during the past year or two. The most noteworthy project is their move to Downtown Toledo into the Toledo Edison Steam Plant, the building which once supplied electricity to the downtown area, but closed more than 30 years ago. The building was completely gutted, and the two brick chimneys were demolished and replaced with slightly smaller steel replicas. An entirely new roof structure was added. For the winter, the building is buttoned up to allow workers to focus on the interior which is expected to be completed for a Summer 2017 opening. The various Promedica projects completed or begun in 2016 will be outlined below.

  • Edison Steam Plant: Again, the exterior shell and the roof are now complete and work has moved to the interior. The Steam Plant renovation will cost a total of $46 million when all is said and done. It will house 500 employees when it opens in July next year. The roof is said to be of wood panels to mirror the original terracotta tiles which originally covered the building. The original brick façade will be maintained and the massive arched windows will also remain. The two original smokestacks had to be removed due to their condition, but they have been replaced with steel replicas which are slightly smaller than the original.
  • Key Bank Building: The Key Bank Building will house between 400 and 450 employees when finished this coming summer. It will feature a 5,500-square-foot YMCA on the ground floor and a coffee shop with an open-air feeling.
  • Toledo Edison Building: Promedica paid $6 million for the former Toledo Edison Building which will continue to be a multi-tenanted building with one of its tenants being Key Bank. It has an underground parking garage with 232 spaces. This building is expected to house up to 500 Promedica employees. It is and will continue to be connected to the Key Bank Building by an overhead walkway which will be upgraded. When the move is made this summer, approximately 1,500 Promedica employees will reside in the 3-building complex.
  • Fort Industry Square: Promedica has also purchased for $4 million 13 of the 16 parcels in Fort Industry Square bordered by Summit Street, Jefferson Avenue, Monroe Street and Water Street. It is comprised of several buildings mostly built about 125 years ago. Total usable size is 89,000 square feet. The future use of this building is as yet undermined.
  • Surface Parking behind Fort Industry Square: Promedica paid $2.75 million for the surface parking lot.
  • Starlight Plaza: The former Starlight Plaza has been razed and a new 3-story 230,000-square-foot building erected on Monroe Street. It’s all brick and glass and will house 130 physicians who will see 1,500 patients per day.
  • Toledo Hospital: Toledo Hospital is in the process of adding a $350 million replacement tower on North Cove Boulevard. It will be 13 stories and will contain 302 beds. A total of 1,000 construction jobs are being generated by this project.
  • Marina District: Promedica purchased the 69-acre Marina District along the river in East Toledo from Chinese investors Dashing Pacific for $3.8 million. The land will be sold to the Metroparks System for the same price. The parks system will invest an additional $6 million to turn it into a river-front park.
Dana Corporation Expands Headquarters Building and Builds New Axle Plant
Dana Corporation has completed a 40,000-square-foot expansion of its headquarters building in Monclova Township. The expansion was completed in order to bring 200 employees into the facility. Total costs were estimated to be $7 to $10 million.

Also, Dana is investing in a new $70 million axle plant on the former Jeep site on Overland Parkway in the Overland Parkway Industrial Park developed by the Toledo Lucas County Port Authority. The facility will total 300,000 square feet of manufacturing space when completed. The plant is reportedly being built to accommodate increasing production of the Jeep Wrangler at the Toledo Jeep Assembly Complex located just three miles away. Within the next few years, the plant is expected to employ up to 300. This is very good news for Toledo with manufacturing jobs coming back rather than leaving.


Toledo’s Jeep Assembly Plant Plans Expansion

An important announcement was made in July 2016, that FCA is planning to invest $700 million in the Toledo Assembly Complex to prepare for full production of the 2017 Wrangler and the Wrangler Pick-Up Truck. Approximately 700 jobs will be added. Earlier this year Sergio Marchionne said that employment would remain unchanged. The City of Toledo has invested $5 million to prepare land for expansion of FCA or its suppliers. The City also reportedly intends to provide an additional $825,000 for roadways near the plant. The plant has received awards for its work quality.


The Andersons
The Andersons has just recently moved into its new world headquarters building in Monclova Township built on land formerly part of Brandywine Country Club. The company invested $54 million to construct the building which sits on 63 acres. The Andersons is now a Fortune 500 company, ranked number 453 with annual sales of $4.2 billion. An estimated 550 employees now work in the new building which is visible from I-475 at Salisbury Road.

About the Author

This newsletter is brought to you by Robert Domini, MBA, MAI, president of Continental Valuations, Inc. located at 111 W. Second Street, Perrysburg. Continental Valuations has been serving your commercial appraising needs in Northwestern Ohio and throughout Ohio and Southern Michigan for 28 years. Our staff of highly qualified, certified appraisers stands ready to serve your appraisal needs. Please have a very happy holiday season whatever your religious affiliation and everyone please have a very Happy New Year.

Best regards,

Continental Valuations, Inc.

Robert D. Domini, MBA, MAI

Certified in Ohio, Michigan and Florida

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Posted on Friday, 9th October 2015 by Robert Domini

A Few Interesting Court Cases


In the City of Long Beach v. Sun NLF Limited Partnership, Supreme Court, Appellate Division, New York, January 14, 2015, wherein Sun owned three non-contiguous parcels. The City of Long Beach, New York began condemnation proceeding of Sun’s parcels in April 2006. Sun’s appraisal of parcel 1 was accepted by the City. Parcels 11 and 13 were non-contiguous and were separated by Parcel 12 which was owned by an unrelated third party. Sun’s appraiser put a value on parcels 11 and 13 with the assumption that they would be assembled along with parcel 12 to form a site for multifamily development. The problem arises that Sun did not own parcel 12. Also, parcel 12 had no value as an independent site. Sun’s appraiser put a value of $11.8 million on the assembled site with parcels 11, 12 and 13. The court ruled that there was a reasonable probability that the three parcels could and would be combined and awarded $11.8 million to Sun. I disagree. Sun had no purchase contract or letter of intent from the owner of parcel 12. As the Sun appraiser was working on this assignment, certainly his clients had ample time to make the owner of parcel 12 a reasonable offer for their mutual benefit. This was not done. As a result, Sun walked away with $11.8 million based on a speculative conclusion by the State Supreme Court of New York.

Montgomery County v. Lane, Court of Special Appeals of Maryland, April 2, 2015. Tax court may use subsequent sales of condominiums in same building, and of same age and condition, to assess value of condominium. The Assessor placed a value on a condominium of $2.13 million effective January 1, 2011, whereas the previous year it had been $1.92 million. Lane presented evidence of a lower value with sales from 2008 and 2009 while no sales occurred in 2010. The Assessor had the property re-appraised with sales from May 2011 which supported a value of $2.075 million. The May 2011 sales were in the same building and very similar units. The Court of Special Appeals ruled that the sales subsequent to the tax lien date were valid evidence of value even though they were subsequent to the date of value. This is in consideration of the code which clearly prohibited consideration of sales subsequent to the date of finality. The court ruled that the sales comparison approach was the most accurate method of appraising real property. The initial assessment of the Lane property was done by a computer-assisted mass appraisal technique. I agree. In fact, the “yellow book” which is the appraiser’s manual for federal appraisals allows sales subsequent to the date of value if there is evidence that the sales reflect value as of the date of value. Some appraisal reviewers draw a strict line and reject sales subsequent to the date of value in eminent domain cases. I disagree with them, but I do agree with this court decision.

In Re Bilmar Team Cleaners, Supreme Court of Vermont, January 16, 2015. Cost to cure pollution was sufficiently reliable to determine fair market value. The property was a gasoline station that was in operation from about 1940 to 1970. In 1987 Bilmar purchased the property for a place to operate their dry cleaning business. About 1993, it was discovered that the ground water was being contaminated by leaking from the property. It was undoubtedly coming from old underground storage tanks. Bilmar spent $20,000 for engineering studies and to set up ground-water monitoring. At that time it was learned that Bilmar could invest an additional $10,000 in order to tap into the Vermont Cleanup Fund which would provide an additional $990,000 for any future remediation. The property was assessed by the Board at $193,000 based on an appraisal of $225,000 less $10,000 for the cleanup and adjusting for equalization which brought the taxable value to $193,000. Both the taxpayer and the Board agreed that the value would be $225,000 were it clean. The taxpayer argued that the pollution created a stigma which damaged the property far beyond the cost to cure and the property had a value closer to zero. The Supreme Court ruled in favor of the Board with a value of $225,000 less $10,000 cost to cure and an equalized value of $193,000. I agree. Appraising contaminated properties can be a complex endeavor. Treating the problem like the Vermont Supreme Court did simplifies an otherwise complex problem. Logic tells us that a property is worth the value as though uncontaminated less the cost to cure (remediate). This is not to say that properties can’t be stigmatized. We know that houses such as those where a murder is committed can be stigmatized. Such is the case with some of the Jeffrey Dahmer murder scenes. In order to justify damages due to stigma, however, the appraiser must produce comparable sales data of properties which have been stigmatized.



An article by David Stockman, Ronald Reagan’s Budget Director says  that a Financial Crash is coming. “A major market correction is coming as the world’s debt bubble implodes. It will burst harder and faster than you think”. He predicts that it will obliterate $15 to $20 trillion of household net worth. He says that the printing presses of the Federal Reserve have injected $3.5 trillion of fiat liquidity into Wall Street since Lehman’s collapse in 2008. I really don’t understand this, but he says that the “Fed uses credits conjured out of thin air to acquire real government bonds that previously funded the purchase of such things as military equipment. The Fed is swapping nothing for something.” He explains that Wall Street investors buy, say, a ten-year Treasury yielding 2.2% and immediately put up the bond as collateral and borrow 95% of it in the repo market. The net result is that they collect 220 basis points from Uncle Sam and give back only 5 points to their repo lender. Stockman is predicting that we will soon be into a global period of deflation which will tip the U.S. economy into recession. Here’s what I can understand. If rates go up even a little bit, any and all new borrowing by the Fed to roll over existing and new bonds will be at a higher rate. With trillions of dollars in bonds out there, the Federal Government will be into a massive cash flow drain situation.



James R. DeLisle, PhD writes in The Appraisal Journal, Summer 2015, that Cautionary Signals are coming from Commercial Real Estate Markets and Consumers. He notes that there are many positives at the present time such as decent job growth, sedate inflation, low interest rates and fairly strong consumer sales. For Commercial real estate conditions have continued to improve during the last five years with vacancy rates declining, steady rental increases and declining cap rates. Overall he believes that the economy (GDP) is growing anemically, but steadily. Here’s what I don’t see coming. DeLisle sees problems in the capital markets, not in the real estate fundamentals. He cites a Wall Street Journal article August 12, with the headline, “Surge in Commercial Real Estate Prices Stirs Bubble Worries; Soaring demand for commercial properties has drawn comparisons to delirious boom of the mid-2000s.” Buyers are beginning to chase assets. We can all relate to that feeling of chasing assets. It’s called buying high and selling low. Not a good way to invest.

A recent Wall Street Journal article is predicting faster consumer spending which, if it comes to fruition, would certainly be incentive for a Fed rate increase. Ironically, more than half of the countries in the world feel we’re still in a recession. Despite the Greek crisis, most of Europe is experiencing improved consumer spending led by Russia, although Italy and France are still lagging. The Chinese economy as evidenced by recent stock market volatility is slowing down. The National Federation of Independent Business Small Business Optimism Index fell dramatically at the end of the second quarter. Small business is reporting lower sales and profits as a result of an economic slowdown. An upcoming drag on business and consumer optimism is sure to rear its head as politicians from both parties paint a negative and gloomy picture of the economy. Still, the PWC Third Quarter 2015 investor survey is reporting increasing rents, lowering vacancy and declining cap rates over the last five years at a fairly strong pace. What can or will happen to dampen this string of consecutive positive years? Perhaps it’s a financial collapse brought about by increasing interest rates. Certainly the U.S. Government will have difficulty dealing with higher rates to finance mountains of debt.





This is an amazing book because it delves into the seamy business of  the mortgage bond financing of subprime loans. When almost no one was paying attention, a very few analysts began to dissect and understand what was really behind these financial instruments. This is my summary of what the author had discovered and the story he told in this book and it is my hope that each and everyone who reads this review goes out to buy this fascinating book.

The characters in this book are real. The author digs into their lives and speaks as though he were there. Yet, this is a story about real people, Steve Eisman, Michael Burry, Greg Lippmann, Charlie Ledley, Jamie Mai, Vincent Daniel, Danny Moses, Porter Collins and Ben Hockett. Michael Lewis is author of The Blind Side among many other novels. This one is a true story, not fiction.

The story begins with Steve Eisman who had recently graduated from the University of Pennsylvania and Harvard Law School. He worked a brief stint as a lawyer and decided to take a job at Oppenheimer with his parents as a stock analyst at age 31. He first noticed the subprime mortgage market when Aames Financial went public, and soon thereafter Eisman became lead analyst for Aames. In short, the subprime market made mortgage loans to cash-strapped people. This goes back to the early 90s. The money for the subprime loans came from mortgage bonds. Each bond financed hundreds of subprime mortgage loans. Each bond consisted of tranches which were groupings of bonds ranging from those with greatest risk which had the highest interest rate to those with the lowest risk which had the lowest interest rate. The loans were not for people buying houses, they were for people who wanted to cash out their equity. Actually, the subprime mortgage bond market was built upon the second mortgage, not the first. The borrowers were trading their credit card debt for second-mortgage debt. Within short order the bonds were being sold by big houses such as Solomon Brothers.

As a result loans were being made to people with reckless abandon by mortgage originators who quickly cashed out on their loans as they collected their money from the sale of the mortgage bonds. We can all remember the saying, ‘oh well, they don’t have to worry about those loans, they are being sold on the secondary market’. At the time, however, they were required to keep a small portion of the loans on their books. This was the mortgage bond market which most of us knew very little about. Initially, Steve Eisman and a few others thought they were doing something good for people who were at a disadvantage in our economy. Enter Lewis’ second character Vinny Daniel who had a job as an auditor for Arthur Anderson auditing the books of Solomon Brothers. He bumped into a question almost immediately wondering why they owned those mortgage bonds, and no one could explain them to his satisfaction. About a year later he was hired by Eiseman and the two of them together shared a mutual skepticism about the mortgage bond industry. Vinny’s first assignment was to find out why Moody’s gave Mortgage-Backed Securities a AAA rating. Many of the loans were for manufactured housing and/or mobile homes which had an incredibly high default rate. He searched and investigated these pools of loans for a period of six months and what he found was that the subprime lending companies were “growing so rapidly and using such goofy accounting that they could mask the fact that they had no real earnings, just illusory, accounting-driven ones”. This was 1997, and Eisman published a scathing report on the subprime lenders. A year later the collapse of Long Term Capital caused a flight to safety and the subprime market evaporated.

By 2000 subprime lending was making a comeback with $55 billion in mortgage bonds only this time the subprime originators didn’t keep any of the loans on their books. They sold them all into the mortgage bond market. Actually what they did was to sell them to the big Wall Street investment banks which in turn packaged them into mortgage-backed securities and sold them to investors. So now the new model was originate and sell. Those Wall Street firms deep into the subprime business were Bear Stearns, Merrill Lynch, Goldman Sachs and Morgan Stanley.

In 2004 another investor, Michael Burry became interested in subprime loans and mortgage-backed securities. He learned that ARM interest-only mortgages were only 5.85% of the market in 2004, but by the summer 2005 they were up to 25.34% of the pool. The loans continued to deteriorate with the so-called liar loans where a borrower need not divulge his income or his assets. Burry knew that the subprime mortgage-backed securities were doomed, that was for sure. He just didn’t know how to profit from this knowledge. Burry was able to promote and establish a credit default swap mechanism for mortgage-backed securities. This is in essence, an insurance policy against the default of a bond. The price for the insurance was an annual 2% premium for a ten-year period. So, you could buy insurance on a million dollars of mortgage bonds for $2,000 per year. The most you could make was $1 million and the most you could lose was $20,000.

On May 19, 2005, Mike Bury bought his first credit default swaps for $60 million of mortgage bonds. The price was $10 million each for six bonds. He bought them directly from Deutsche Bank because he felt that Deutsche Bank was one of the investment banking houses which would be able to afford to pay off their debts in case the subprime market collapsed which he believed it would. At the time there was a flurry of ARMs sold into MBS (mortgage-backed securities) which started at 6% and in two years the borrowers’ rate was scheduled to increase to 11%. He was certain that they would default en masse some time in 2007. Also, remember that he was paying a premium of 2% per year for the insurance or a total of $1,200,000 per year for $60 million in MBS. In addition, the way the CDS (credit-default swaps) were designed, the insured would collect insurance benefits at regular intervals as the borrowers defaulted. The six bonds were handpicked because they were the worst loans he could find. The factors were loan-to-value ratios, liens on the homes, the location of the homes, the absence of loan documentation and proof of income of the borrower. He was surprised that the price of CDS were the same no matter how low the quality of the underlying loans. The price of the insurance was based on Moody’s and S&P’s ratings. The best tranches had a AAA rating while the BBB tranches were for the lowest-quality bonds. These tranches would be worth zero if the underlying mortgage pool had a loss of just 7%. The price for a AAA tranche was .20% while the price for a BBB tranche was 2% per year. By the end of July 2005 he owned $750 million in subprime mortgage bonds. With one billion invested in May-June, by November 2005 the loans were going bad at an alarming rate. A November 2005 story in the Wall Street Journal explained that the ARMs were going bad after only nine months, more than a full year prior to the rate adjustment.

So, Goldman Sachs, Deutsche Bank and the rest were selling the CDS (credit default swaps), but as it turned out, they were not taking the risk. They were just making money as the middleman and the company holding the entire bag of garbage was AIG. AIG was a AAA-rated company that could afford to back massive bets on mortgage-backed securities. It’s impossible to imagine how so many smart people within AIG including Hank Greenberg could have made a $100 billion wager on subprime mortgage loans.

In case you’re still flogging yourself for not seeing the subprime collapse coming, here is a recap of behind-the-scenes conversations occurring within AIG as their kingdom collapsed. A fellow named Gene Park was promoted to the job as ambassador to Wall Street’s bond trading desks. Upon being appointed to the job he decided to examine the loans which AIG was insuring and take a very close look at them. He discovered that these supposedly diversified pyramids of consumer loans were almost entirely comprised of subprime mortgages. He asked people who were involved in the decision to sell credit default swaps such as Gary Gorton, a Yale professor, who had built the model AIG used to price credit default swaps. When asked, Gorton guessed that the piles of mortgages in the tranches were no more than 10% subprime. Park asked a risk analyst in London who guessed 20%. None of them knew it was 95%. In fact, Allen Greenspan didn’t know. I suppose Moody’s and S&P who put BBB ratings on the lowest of tranches didn’t know either. The author of this book believes they were all making too much money. Here are a few direct quotes. “The AIG FP traders were shocked by how little thought or analysis seemed to underpin the subprime mortgage machine. It was simply a bet that home prices would never fall”. AIG had sold $100 billion in credit default swaps. Or, in other words, they insured $100 billion of mortgage-backed securities and agreed to pay that amount if the bonds defaulted.

Well, well, lo and behold on July 1, 2006, S&P announced plans to  change the model used to rate subprime mortgage bonds. The plot thickens and the collapse is on. In the summer of 2006, house prices peaked and for the entire year of 2006 they fell 2%. The investors in credit default swaps looked for the bonds with the most rotten loans. They looked for packages of loans with the highest concentration of no-doc loans which were loans to people who were not required to show evidence of income or employment. A second characteristic was loans originating in the sand states of California, Florida, Nevada and Arizona. House prices had risen fastest during the boom in those states and could be expected to crash the fastest. (By the way, I just read that houses in Florida have increased in value 40% since 2012.) Also, many of the dubious lenders were from those states such as Long Beach Savings and Washington Mutual. In fact, their favorite was Long Beach Savings which pushed loans to people with no proof of income on a floating basis with initial teaser rates. One example was a loan in California to a strawberry picker from Mexico was given a loan over $700,000.

At that same time in 2006, I did an appraisal south of Washington DC in Prince William County which was a fully-platted, proposed subdivision the U.S. Department of Interior was interested in acquiring. In appraising it, I researched neighboring subdivisions and was shocked to see what was occurring and what had occurred. The homes were very modest, probably in the 2,200-square-foot range. Prices started around $250,000 in 2004 and peaked in late 2005 at over $700,000 followed by re-sales coming back down the ladder to $250,000 within a two-year period. The names on the mortgages were clearly of people from other countries such as the Middle East, Central and South America. Many resales were to people of the same or similar nationality which I found curious. I’ve never verified this, but I have a feeling that a great many of the loans were being made to people from other countries, some here legally and some not.

The big Wall Street firms such as Bear Stearns, Lehman Brothers, Goldman Sachs and Citigroup had a goal to pay as little as possible for the home loans and charge as much as possible for their end product, the mortgage bonds. The price of the end product was driven by ratings assigned to the bonds by the ratings agencies such as Moody’s and S&P. It was the job of the bond traders making millions to coax the highest ratings for their MBS. The people at Moody’s and S&P didn’t actually evaluate individual home loans. In fact, they didn’t even look at them. The only thing they looked at were the FICO scores which could be rigged. In fact the Mexican strawberry picker making $14,000 a year could have had a high FICO score because he had no credit history. Moody’s and S&P didn’t care if they were loans with low teaser rates. They also had no idea if a package contained no-doc loans. To make a long story short, the millionaire bond traders were able to game the rating agencies for high ratings in order to beef up their sales prices of the bonds. One CDS investor sent his analysts to pay a visit to Moody’s and S&P to investigate how they came up with their ratings on MBS. What they learned from a Moody’s employee, whose job it was to evaluate subprime mortgage bonds, was that she wasn’t allowed to downgrade bonds that deserved to be downgraded. She was required to send a list of 100 bonds to her bosses that she thought should be downgraded, and, typically, they came back to her approving only 25 of the 100. It was as though they had a vested interest in keeping the bond ratings as high as possible. When the analysts asked the bond evaluator how she determined that a bond containing subprime mortgages could be rated AAA or even BBB, she couldn’t answer the question.

As the defaults became epidemic during the first half of 2007, and when the bonds were in full default, small players such as Burry and even Eiseman were having a hard time cashing in on their credit default swaps. The total losses to Morgan Stanley, Bear Stearns, Merrill Lynch and the rest were $1 trillion dollars. In the end the small players were able to cash in, but they had to negotiate settlements piecemeal. The collapse resulted in a near collapse of the world economy in late 2008. It was all because of subprime lending and the packaging of them into mortgage-backed securities. One big player actually made money, Deutsche Bank.

By the way, AIG was insuring the subprime bonds until the end of 2005, and gave up on it after that. Moody’s and S&P continued to rate the MBS the same, AAA and BBB. Here’s another question. What is a CDO? It means “collateralized debt obligation”. Yes, we know that. After AIG exited the insurance of subprime paper, Wall Street turned to using the CDOs to turn crappy BBB-rated subprime bonds into AAA bonds. From the end of 2005 through mid-2007, Wall Street firms created upwards to $400 billion in subprime-backed CDOs. This means that after it was widely known that the mortgage-backed securities were rotten through and through the Wall Street firms continued to sell them newly packaged as CDOs. As the crash began, Bear Stearns was sold to J.P. Morgan for $2.00 a share. On September 28, 2008, Lehman Brothers filed for bankruptcy. Merrill Lynch with $55.2 billion in subprime losses sold itself to Bank of America. The Federal Reserve loaned $85 billion to AIG.

Is it any wonder our real estate values collapsed. For those of us who had property in Florida, the collapse was painful.

In more recent news, as of December 2014, Fannie Mae is offering a 97% loan-to-value. FHA loans are being offered with 3.5% down. VA loans are being offered with 100% financing and no mortgage insurance. Both rates are offered at either .25% or .375% below conventional loan rates. The program can be used by either first-time buyers or repeat buyers. The loan terms must be 30-year amortization. No ARMs are available nor are 15-year loans. The size of the loan can’t exceed $417,000.



I hope you enjoyed reading this newsletter. This is the first issue in two years and it’s because I’ve heard from several people who’ve said they really enjoyed them. Please remember that Continental Valuations is a commercial real estate appraisal company. We can provide residential appraisals through our sister company, Coastal Appraisal, which is located within our building. Our commercial appraisal offerings include the full range of commercial properties ranging from offices to retail and industrial types of properties. In addition we’ve had experience with unusual types of properties through the years including dairy farms, churches, enclosed shopping centers, medical facilities and marinas, just to name a few. We also do appraisals for eminent domain purposes both for the acquiring agency and for the property owner. If you’re considering litigation, this is something I personally enjoy. Give us a call. If we do not have experience with a particular property type, we’ll either recommend someone else or find a qualified appraiser to form a team.

Best regards,

Continental Valuations, Inc.

Robert D. Domini, MBA, MAI

Certified in Ohio, Michigan and Florida

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Posted on Monday, 23rd December 2013 by Robert Domini

Fed Begins Tapering

Wall Street Journal, December 19, 2013. Despite the worldwide slowdown in the rate of inflation, the Federal Reserve has announced a tapering of $10 billion per month in their bond buying program which began in 2008. The move was met with a surging stock market and an increase in the 10-year Treasury bill rate of interest which is the basis of mortgage rates. Reasons given for the move include a strong economic reports for October and November and reduced political uncertainty. The budget accord was an important factor. The bond-buying will now be divided with $35 billion of mortgage securities and $40 billion of treasury securities. The Fed intends to gradually reduce bond buying in 2014 if inflation doesn’t fall further, and if the rate of unemployment continues to improve.

PNC Economist , Mekael Teshome, Speaks to the Ohio Chapter of the Appraisal Institute December 9

The primary message about the U.S. economy continues to be slow, steady growth with consumer spending holding up surprisingly well despite what appeared to be a sluggish Thanksgiving. In fact, with the government shutdown, most were looking for a weak fourth quarter. Manufacturing is also doing well, although auto manufacturers had gotten ahead of themselves and had to absorb excess inventory towards the end of the year. Stocks, overall, have continued to surge with support from the $85 billion monthly Fed stimulus. Most importantly, stocks have continued their strong performance primarily because corporate profits continue to turn in double-digit increases. Housing has also turned in double-digit increases in both prices and sales. Overall construction is up and the price of gas is down about 10 to 15 cents from last year. This puts money in the pockets of consumers.

Ohio has had a volatile year in 2013. Job growth has been up while manufacturing has cooled. Utica shale has slowed its torrid pace of 2012 while steel production is down. The bright light is ok auto sales in Ohio. Health care has continued its slow growth pattern despite Medicare and Medicaid cutting back. In the end, Ohio has had slow and steady growth, although it’s been volatile. Ohio’s labor market has stabilized giving confidence to consumers in the economic recovery.

For 2014, Teshome expects persistent and moderate growth despite the threat of a reduction in Fed stimulus. He believes that the Fed will reduce the stimulus gradually while most investors believe that the market has already priced the Fed tightening into the pricing of stocks and future market performance of corporations. For 2012 real GDP growth was 2.8% while 2013 is expected to come in at 1.7% due to budget cuts and the shutdown. For 2014 he is looking for 2.5% growth. Again, home sales are definitely on the upswing. More people are now saving money and paying off debt. Low interest rates and an improving residential sales market have resulted in fewer foreclosures and delinquencies. Business profits have been advancing with a US after-tax margin of close to 20%. In recent years corporate profits have been advancing at closer to 10%. Businesses have invested heavily in equipment and software and have paid off debt. Why is growth only 2.5% during this 4-year economic recovery?

Teshome pointed out that income growth has been weak and unemployment has been high with little or no increases in pay this year. I believe that only Government workers get a cost of living adjustment each year. 70% of the economy comes from private consumption. We’ve experienced slow wage growth and low entrepreneurial activity. Why? Startups are down. Why? The average startup results in about 10 new jobs. Large firms add little to employment. We are not creating new startups. Reasons given are the aging population. Startups are usually generated by the young and the young in this country are under financial pressure due to overhanging student debt. They are delaying marriage and they are less likely to buy a home. Today, 35% of all housing is rented, and the average renter is spending 30% of their income on housing. Overall, home equity for everyone has been severely reduced for at least the last five or six years. These are traditional sources for seed capital for business startups. Typically, empty nesters pursue entrepreneurial opportunities, especially those who can take early retirement from government jobs. Today, many are under pressure from having co-signed for college tuition. Add this to dwindling home equity and this segment is not in the game.

As to the global economy, the U.S. is expected to grow at 2.5% while Europe has stopped the bleeding and is expected to grow moderately. Japan is finally growing after decades of stagnation. China is experiencing a soft landing with growth moderating to about 7.5%. U.S. monetary policy has been on an expansionary tear for the last five years without igniting inflation. Instead we have almost no inflation, high unemployment and moderate commodity prices. In fact, the worldwide economy is coming perilously close to slipping into a deflationary period. There’s only one thing worse than inflation and that’s deflation. The Fed’s target is 2% inflation for a healthy economy and right now inflation is below that level. This is yet another consideration the Fed is facing in its decision to taper its bond buying program.

Teshome, at the time, was predicting correctly that the Fed would begin tapering soon, and that by the end of 2014, the stimulus would be phased out completely. He believes that short-term rates will hold steady during 2014 with long-term rates and mortgage interest rates rising, although he does not expect rate increases to be steep enough to seriously affect the housing market. He was predicting correctly that Sequestration would be tapered and the debt ceiling would be resolved peacefully. The Debt-to-GDP ratio is typically 60% while now it is 70%. This is not good.

He sees big problems in 2020 with the aging population, but for now there will be higher taxes and spending cuts. The balance will be 60% spending cuts and 40% tax increases. There will be no immediate crisis. 2014 will be a better year with 1.6% growth rate in payrolls. Ohio will have a better year due to exports. All in all corporate profits are very high and as long as earnings and corporate profits are doing better the economy should be strong. Some firms are re-shoring, that is, bringing jobs back home. America is becoming much more competitive. Our product quality is improving due primarily to cutting-edge technology. The labor force participation rate will continue to decline. Younger people are dropping out of the labor force, but older people are still working. That is, the 55 and over crowd is still working because of their dwindling home equity and the student loan load of their children. The U.S. will continue to be the reserve currency of the world, although China is beginning to challenge on that front. The primary advantage of being the reserve currency is that the U.S. has been able to print money with impunity. Thanks to shale oil, however, America is becoming less dependent on foreign oil and hopes to become a major exporter of natural gas


  • U.S. industrial output in November surpassed its prerecession peak
  • Industrial output surged 1.1% from October to November
  • Industrial output 21% above June 2009 low
  • Manufacturing expanded 0.6% in November
  • Rising auto output led the increase
  • Manufacturers added 27,000 jobs during November
  • Fed officials will meet later this week
  • Utility output increased 3.9% in November
  • Mining output rose 1.7% for the month

Farmers Hoard Corn as Prices Drop

This is the headline of a recent news story in the Wall Street Journal. Farmers think they can beat a decline in corn prices by hoarding their crops and, hopefully, reducing overall supply and forcing prices higher. Can it work? In school we learned that corn and other agricultural products were on an inelastic demand curve. That is, the individual farmer can’t raise his prices above market because if he does, he will sell nothing. If prices are reduced below market, the amount sold will not increase. However, when an entire nation of growers decides in unison to salt away the majority of corn crops, this can have a major effect. The big problem for growers who have invested much of their recent windfall on building ever larger silos (at great expense) is whether this move will pay off in the next year or two.

The WSJ story lays it out for us in black and white. Thus far this year corn futures have dropped 39% bringing a bushel of corn to $4.28 from a high of over $7.00. Why have prices plummeted 39% in a single year? The answer has to be gross overproduction. Despite the outsized demand for corn and other grains, the supply simply exceeded the demand.

The stockpiling has succeeded in pushing prices up 4% from a 38-month low set November 18. U.S. farmers have boosted their storage capacity by 10% this past year. Essentially, they’ve salted away most of this year’s harvest. There are a few problems with storing grain, according to the article. Brazil and Argentina are having a bumper crop year adding to the downward pressure on prices. Grain in storage does have a shelf life. It can deteriorate over time. Also if the grain in storage continues to pile up it will overhang the market.

The intent is to put a squeeze on ethanol producers and livestock feeders which have an immediate need for grain. In the short term there will be some panic buying on the spot market which will be at higher prices than those on the futures market.

Ethanol Can Be Harmful to Your Environment

Let me start out by saying that we all want clean air and water, but we also want to do what makes overall economic sense. In a story by Dina Cappiello and Matt Apuzzo distributed by AP on November 12, 2013, the harmful effects of ethanol are presented. The greatest unintended consequence is that farmers have been acquiring land at a torrid pace. “Five million acres of land set aside for conservation—more than Yellowstone, Everglades and Yosemite National Park, combined,–have vanished.” All of this has occurred during the last five or six years while the Government action was on the side of continuing the ethanol requirements in the formulation of gasoline.

Reportedly 15 million more acres of corn was planted last year than before the ethanol boom. The story goes on to say that the EPA is expected to reduce the amount of ethanol required to be added to the gasoline supply. If they do this the demand for corn could be seriously affected. The article says that historically most of the corn crop went to livestock feed. This past year 43% of corn went to ethanol production and 45% went to livestock feed. The remaining 12% went to food production.

Here’s a scary quote, “using government satellite data, the best tool available, the AP identified a conservative estimate of 1.2 million acres of grassland in Nebraska and the Dakotas alone that have been converted to fields of corn and soybeans since 2006, the last year before the ethanol mandate was passed.” The really scary stuff I will leave to you to find and read yourself. The intent of this newsletter is to analyze and evaluate the real estate markets.


I am anxious to see sales figures for agricultural land in the coming months. During the last few years we’ve seen soaring agricultural land prices. I can remember not that many years ago when land was holding steady at about $2,200 per acre. Now, it’s not uncommon to see land at $8,500 per acre. If corn prices hold relatively firm in spite of the hoarding, farmers could be forced to dump their crops on to an oversupplied market. Remember, futures prices dropped from over $7.00 a bushel of corn to nearly $4.00 a bushel in just a few months. That’s a drop which occurred with ethanol requirements at full force. Clearly, there has been a glut of corn on the market.

As to the future of agricultural land, it will be interesting to see if prices begin to fall in the coming months. Unless supply and demand can somehow be brought into balance, agricultural land prices can’t help but fall.


According to the Blade story from the December 11, 2013, edition, just in case you didn’t see it, the story is about Toledo rising 49 spots on the index to become ranked 131st among the country’s 200 largest metro areas. That makes Toledo the most improved city in America as far as economic performance. The primary reason given is the automotive sector. Remember the old adage, when Detroit catches a cold, Toledo catches pneumonia. It’s still true. There has reportedly been a big improvement in auto parts manufacturing as well as the manufacturing industry in general. Don’t forget, we still have the Jeep plant with all of their suppliers on site. The Toledo Transmission plant has been going great guns now for some time and even the Chrysler machining plant in Perrysburg Township is reportedly running strong.

In a related news story from the radio on December 11, GM is planning to invest $1.2 billion in at least two of its plants. Most of the money, about $700 billion is going to Flint, Michigan. It would be a great time to run up to Flint and snap up a few of those foreclosure properties. The other was in Romulus, Michigan, near Metro Airport.


This is a mixed-bag story. The number of sales in Wood and Lucas Counties has fallen from 368 last November to 353 this year. However, the average price for Lucas and Wood has risen 5% to $114,785 from last year. For the entire MLS the average home price has risen 6%. Homes are also selling faster. The average days on the market have fallen from 131 to 125. According to local realtors there simply wasn’t enough inventory during the spring and summer. John Mangas of the Toledo Board of Realtors is quoted as saying that 2013 was a great year and he would be happy if 2014 would be that good and would be very happy if it would be a little better. He said that at a national seminar economists were predicting a strong 2014 for Cleveland and Detroit. Our being right between should be a strong indication that we are in for another good year next selling season. Get your houses all spruced up for the spring sales market.


Mekael Teshome left behind the PNC Economic Outlook for Toledo and mostly it isn’t pretty. As to the job situation, it says we hit a speed bump during the first quarter of 2013, but soon picked up steam as a result of a boost from the service industry including leisure, hospitality and business services. It states that manufacturing isn’t as strong as 2012, but is still a major contributor. On the bright side, exports have been strong in the area of transportation equipment. The jobless rate has risen to 8% which is very contradictory. The reason we have much higher unemployment at 8% is that we have 16,000 more people who have re-entered the job market because they think they might now have a chance to get a job. This is good news despite the punch in the nose you feel when you hear 8% unemployment. It’s really good news.

Overall the job growth has been in lower-paying jobs. Higher-paying jobs have gone by the wayside during the downturn and have not yet significantly recovered. Housing has been good according to the Blade, but this report doesn’t agree. It says that we had a brief improvement in 2012, but will lag the nation this year and the next couple of years. It reports that we are still suffering from the foreclosure glut of houses on the market. This is a far cry from what John Mangas, of the Toledo Board of Realtors, was saying and from what I am hearing. I think they are wrong here. I hope so.

The report also says that we do not have an educated workforce. Yet, we have the University of Toledo, Owens Community College, Lourdes College and BGSU pumping out graduates on an annual basis. Plus we have Penta County schools providing vocational training. In addition, there are several private colleges such as Davis and Stautzenberger. If the jobs materialize in Toledo, I have no doubt that we have the educated workforce to do those jobs.


A Message From the Editor

We wish you a very happy holiday season whatever your customs and faith may be. From all of us at Continental Valuations, Inc., we wish you a very Merry Christmas and a Happy New Year. Let’s hope that 2014 brings peace on earth and let us all pray to bring home our troops safely in the coming year. I would like to take this opportunity to thank our amazing and wonderful staff here at Continental Valuations for all their hard work in making this a very good year. We have just completed our 25th year in business. The late John Savage told me, “the key to success in business is being too damned dumb to quit”. I think John was a very wise man.

Next year promises to be a pretty good year according to the prognosticators. Please keep us in mind for all of your appraisal needs, be it a purchase or sale of real estate, estate planning or tax appeals.


Best regards,

Continental Valuations, Inc.    

Robert D. Domini, MBA, MAI


Certified in OH, MI & FL

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Posted on Thursday, 9th May 2013 by Robert Domini

Economic Developments

In an article by James R. DeLisle, PhD, in the “Appraisal Journal”, Winter 2013, he writes that it’s the same thing all over again, or in the words of Yogi Berra, it’s Déjà vu all over again. We seem to be caught in a holding pattern brought on by extraordinary Fed action. DeLeslie cautioned that the recent euphoria brought about by the surging stock market and commercial/residential real estate might not last. In order to become a sustainable bull market some hard choices will have to be made and implemented. He believes that when the “tide of low-risk capital flows back out as it will inevitably do” the market may be in for a significant correction. He has observed that some players are already cashing out and others are taking on a more defensive position and that an inflection point may be on the horizon. What does all this mean? He really doesn’t explain the details behind his broad warning that there may be storm clouds on the horizon. He may be referring to that day of reckoning when the Fed reverses its position. For sure when that day arrives we will see an immediate reaction in the stock market. The real estate markets will take much longer to respond, of course. The question now is how much longer the Fed can go on printing money. The age-old bugaboo of inflation is certainly tame. Why is that? The entire world appears to be in a bit of a slowdown which is causing commodities to fall in price. Inflation is very subdued despite years of non-stop fiscal and monetary stimulus. Some feel this is a sure-fire formula for economic success. I joked recently with a friend who was teasing me because I have been a doomsayer warning of the next coming of the Weimar Republic. He asked me how that Weimar Republic business is working out for me. I told him he should write a book on economic policy for future generations featuring a new revolutionary formula for long-term economic success, namely to run trillion-dollar deficits and print about a trillion dollars annually. No doubt, the formula is a big winner for the stock market and it certainly doesn’t hurt residential real estate to have $40 billion pumped into mortgages each and every month. I say, “let the good times roll”.

Bill Gross, chief investment officer of Pimco, has doubled his forecast from 1.50% to 3.0% GDP growth for 2013. He went on to say that U.S. GDP is improving because of the housing revival. Lawrence Fink of Black Rock, Inc. also said he’s bullish on the U.S. economy because of the strong banking system, improving housing and large supply of natural gas. He also cited an improving stock market as well as a falling unemployment rate. The unemployment rate fell to 7.6% in March because of a dramatic reduction in the labor participation rate. Nearly 300,000 people left the workforce while only about 90,000 jobs were added. Then in April the figures improved to 7.5% and 165,000 jobs added.

An April 5, 2013, Marcus & Millichap report stated that the most recent job-growth figures indicate that only 95,000 jobs were added in March. That’s down from February’s 268,000 jobs. They laid the blame on the sequester, increased payroll taxes and the Affordable Care Act.

USA Today, May 7, 2013, reported that only four out of 37 economists surveyed felt that the April jobs report was enough to assuage their fears of a slowdown in the U.S. economy in the second and third quarters of this year. The March report has been revised upward to 138,000 jobs. Bank of America Merrill Lynch economist Ethan Harris reportedly believes that the tax increases and the spending cuts are the culprits. Notice how few ever mention the ever-increasing regulation and the new healthcare law having an effect on the economy. Still, most economists feel that the year will finish at about the 2.5% rate of growth with unemployment sinking to 7.3%.


Residential Real Estate

What about housing? When utilizing residential housing as an investment vehicle, we don’t have the luxury of instant selling. Let’s say you are a fool who still owns Florida condos. They appear to have finally bounced off the mushy bottom. Florida had been drowning in foreclosures until very recently. The glut of foreclosure sales is finally coming to an end. In fact, the inventory is finally just about gone and some buyers are finding themselves in that familiar position where delaying a day and can lose the deal. With most boomers now able to sell their residences, the retirement markets are sure to benefit.

There are two sides to the housing coin. Housing prices have risen 8% year over year, but some caution is warranted because the increase in housing prices is being driven by artificially low mortgage rates, not by market fundamentals such as rising real incomes. The fact is that the Federal Government is guaranteeing nearly 90% of all new mortgages. There is even a push for relaxed lending standards. For now, however, with the Federal Reserve pumping $40 billion per month into mortgage-backed securities, the rates will stay low and housing should continue to surge. In fact, most markets are currently reporting a shortage of housing which is driving competition among buyers which is a formula for rapidly rising prices due to the interaction of supply and demand. A surging housing market, while it lasts, bodes well for household wealth formation, consumer confidence and the overall level of economic activity.

According to the Council on Foreign Relations, the U.S. economic recovery officially started in June 2009. According to the report, this economic recovery has been anemic compared to any and all in the post World-War II period. In a WSJ story on April 24, it was reported that the demand for raw materials is declining because of slowing manufacturing activity in China, the U.S. and Germany. Copper, cotton and oil are falling in price. The article says that commodities are a barometer of worldwide economic health. China is leading the way demanding less copper and cotton. They have also been a big consumer of steel, lead and tin. Germany’s manufacturing sector is slowing as well as is the U.S. which is not contracting, but growing at a slower rate. This could partially explain the persistently low level of inflation in the U.S.


Is Miami the Barometer for Florida Condos?

Way back in aught six, while I was sitting on my balcony enjoying the formerly great view of the open bay complete with beautiful mangroves, then lined with construction cranes, I sipped my tea and enjoyed the morning issue of the Miami Herald. The featured story was about the overbuilding in Miami, not just condos, everything. Being the shrewd investor that I am I surmised that the condos on the horizon and the 10,000 overbuilt homes/condos in Miami would and could not affect me because my holdings were at a lower price point than those other units. A rising tide does lift all boats and a receding tide drops them just as fast. We now know that the receding tide did eventually sink all boats.

Here we are again. It’s the Miami Herald, the harbinger of all that is right and just. The housing boom we find ourselves in is the result of government action, make no mistake about it, and as  soon as that government action comes to a close, the bubble is likely to burst. Yet, the Miami Herald is once again trumpeting Florida Condos. They report that 45 new condo towers are in various stages of development. Sunny Isles Beach has 1,200 under construction. Three of the Miami projects are 97% sold out while two haven’t even broken ground yet. Remember the last time we reached this type of hysteria? It was before the crash, but how much before the crash. The peak was hit in 2006, and by 2010, the crash was going full bore. So, it did take a few years. Condos were being sold out of aluminum trailers during the boom times. Entire residential subdivisions were selling out in a day. By the way, last time they were “selling” condos and houses, for the most part, many never closed and “buyers” merely lost their deposits leaving developers holding the bag.

The Herald is now trumpeting the Florida recovery with the same words which were spoken in 2006, except there has been very little new construction compared to 2006. The baby boomers are that much further along. The leading edge is just 67, still in prime Florida real estate buying territory. In addition the boomers haven’t been able to sell their homes these last six or seven years. Few were willing to take the plunge into a Florida property until the old homestead was sold. As an indication, in Perrysburg, Ohio, there have been three mansion-type properties on the Maumee River which have sold in the last few months. The Herald is saying that the current boom could last up to ten years, which seems a bit optimistic.

In Southern Florida the highest highs and the lowest lows are in Miami. Check out the website Also check out The Villages just off I-75 near Ocala, and only about  one hour from Disney. This is a 55 and over community, and currently homes are selling at a rate of 500 per month. In fact, construction on the third downtown area is well underway and listings are lasting only a few days in the more desirable areas. Check out the Lake Sumter area next time you’re driving down I-75. This community is known for its golf carts. Every residence is within a short distance of golf courses, recreation centers and a central downtown area. Gentlemen, start your golf carts.


Don’t Let Politics Influence Your Investment Decisions

I shamelessly borrowed the following line of reasoning from my good friend, Denny Kersten and his two fine young boys who do an investment radio show on Saturday mornings. Let’s say you are a conservative. You probably feel that the sky is falling right now with national debt at $17 trillion and with money printing having gone wild these last five years. You probably feel that all investments right now carry significant risk. If you’re a liberal, you believe we are on the right course and have taken all the right steps these last five years. The Kerstens, however, have injected some common sense into our thought process. The stock market is once again reaching all-time highs and Miami, Florida is experiencing a real surge in residential sales and building not seen since 2006. There was a budget surplus in 1969, the first year of the Nixon Administration. The next time there was a surplus was 1998 through 2001 starting with Clinton and into the Bush Administration. Let’s look at 1969. If you invested in the stock market that year you would have experienced a nearly 20-year period of time when the Dow went no higher than about 1,000 where it started in 1969.

The years following the 1998-2001 Clinton-Bush surpluses were largely flat with a substantial dip in 2003. The market then surged to an all-time record high in 2008 to about 1,400 right before the crash in 2009 when stocks fell to the 650 level. The years preceding the market top in 2008 were deficit years. Thus, if the government is running big deficits, it is generally beneficial to stocks. In the period from 2009 to the present the government has been on an unprecedented deficit spending spree accompanied by the Fed printing trillions of dollars. This has been highly beneficial to stocks which have once again surged past the historic 2008 highs of 1,400 to a new high of 1,500.


And Now for the Good News

It is baffling that interest rates and inflation have remained relatively tame. The Fed has promised to keep rates low until the unemployment the rate dips below 6.5%. Do you really think they will stop printing money as soon as the unemployment rate hits 6.5%? I think not. It’s that inertia thing. The Fed is not likely to turn off the spigot until confronted by incontrovertible evidence that inflation is heating up. There is a lot more riding on this fiscal and monetary expansion, particularly the fiscal one. The national debt is $17 trillion and counting. The annual interest on the debt is about $700 billion. If rates go up one or two  percent, the interest on the national debt will rise substantially. There is also a fear that the economy is addicted to the stimulus. This economy has been under extraordinary stimulus now for five years and still, growth is very modest. Even very small efforts to rein in the deficit have been met with criticism from most economists.

There has been much written about the surge in disability income claims, that is, successful disability income claims. There has also been much written about the deluge of food stamp recipients. It is postulated now that the income is so great from these sources that low-wage workers can no longer afford to work. Numerous business people are complaining that finding good people to take jobs is becoming increasingly more difficult. How is it possible to break that cycle? Clinton/Gingrich did it somehow. When Clinton swung to the right for the ’96’ election he and Gingrich ended welfare as we knew it. Subsequently, to everyone’s amazement, the policy was very successful in substantially trimming the welfare rolls. Imagine that.

James DeLisle believes that the inflation and interest rate outlook will remain subdued into the short and intermediate term. As he says, natural forces will bring them back in line with historical averages. He warns that if that process is abrupt it could create a lot of unexpected waves.


Why is Government Suing S&P, the Only Ratings Agency to Downgrade U.S. Debt?

In a February 5, article, Jason Hamlin wrote that each of the Big Three rating agencies, S&P, Moody’s and Fitch were handing out AAA ratings for MBS and CMBS, all types of mortgage-backed securities in the run-up to the financial collapse. So now, the Justice Department is clamping down on just one of the ratings agencies, S&P. Several articles have been written pointing out that S&P’s ratings were not significantly different from those of the other agencies. Yet, it appears they have been singled out. This question appears not to be addressed by anyone but Mr. Hamlin, to our knowledge. The news media seems to be dancing around the fact that the Justice Department has apparently decided to hammer just one of the three rating agencies, the very one which lowered the U.S. bond rating to AA+ from AAA back in 2011. You don’t think the Administration would clobber S&P just because they lowered the U.S. bond rating, do you? I wouldn’t look for any further lowering of the U.S. bond rating in the near future, let’s put it that way.

By the way, the reason S&P lowered the U.S. bond rating was that they neglected to get spending under control after the last debt-ceiling increase. This author does not know the answer, but Mr. Hamlin does offer a compelling argument. Prior to the downgrading the talk on the street was that Moody’s was expected to downgrade U.S. debt. Is it unusual or unheard-of that the U.S would retaliate against a business for unfriendly action towards the government? It probably isn’t. Politicians play hardball most of the time.


What Were Teddy Roosevelt’s Political Views?

At dinner one evening I blurted out that Teddy Roosevelt was a left-wing president. The lady across the table, who is a Ph.D., told me I was wrong. Of course, the next day I did a little research and found the following.

Teddy Roosevelt ran for a third term in 1912, but was defeated in the primary by Ohioan William Howard Taft who subsequently broke up U.S. Steel with the Sherman Anti Trust Act. Roosevelt  founded the Progressive Party, a third party, and ran against Taft in the general election of 1912. His election platform included the following:  
  • National Health Insurance
  • Social Insurance for the elderly
  • Minimum wage for women
  • An 8-hour work day
  • Worker’s Comp
  • Inheritance tax
  • A Federal Income Tax
His beliefs and positions in the 1912 campaign and during his presidency were that he;

  • Regarded commercialism (e.g. capitalism) as “mean and sordid”.
  • Pushed for government control of industry through antitrust prosecutions and government regulations.
  • Presided over birth of the conservation movement.
  • Was strong on defense, the navy.
  • Tried to find ways to go around Congress.
  • Pushed for increased government regulation of insurance, drugs, child labor, railroad shipping rates.
  • Avoided the Constitution to justify his actions.
Some of his other beliefs were as follows: 
  • He did not believe in American Exceptionalism.
  • He challenged property rights.
  • He believed in redistribution of wealth.
  • He believed that government should bring social justice through redistribution.
  • He believed in referendums to overturn court decisions.
  • He believed in direct democracy, direct vote by the people, rather than through their elected representatives.
Our founders were very much opposed to direct democracy which is a system where majorities force their will on minorities. The danger is that there are no checks and balances as laid out in the U.S. Constitution.
A Message From the Editor

I hope you enjoyed this wide-ranging newsletter. It’s a compilation of recent news stories sprinkled with a few of my candid opinions. I hope I have not offended anyone. This is not intended to be a political newsletter, but remember, economics is political. The intent is to share information and a few opinions on the economy and the real estate market.

Continental Valuations, Inc. is a commercial and right-of-way appraisal firm. We are not in the residential appraisal business as far as doing mortgage work for financial institutions. We do, however, provide residential appraisals for our clients for specific needs such as for estates, divorce or other legal disputes. In addition we do write residential appraisals for our right-of-way projects. Our business is primarily providing commercial appraisals for mortgage financing; however, we routinely provide commercial appraisals for a wide variety of purposes. Continental is also in the right-of-way appraisal business. We do appraisals for the acquisition of right of way. Our V.P., Pam Casper, is a right-of-way appraisal-review specialist. I am very blessed to have Pam and a group of great appraisers and fine human beings. They are all very much appreciated.

In short, we can and do provide real estate appraisals for a wide variety of purposes and uses across a wide spectrum of property types. In our twenty-five years of experience, we have tackled nearly all property types with the exception of a nuclear power plant. Believe it or not, one of our good friends, Larry Golicz, Ph.D, MAI, is currently working on one of those down in Florida. So, if you need your nuclear power plant appraised, give us a call and we’ll bring Larry up to work on it with us.


Best regards,

Continental Valuations, Inc.    Robert D. Domini, MBA, MAI


Certified in OH, MI & FL

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Posted on Thursday, 3rd January 2013 by Robert Domini

The Residential Real Estate Outlook

First, let’s have a look at the good news. Locally, Northwestern Ohio home sales are up 21% in November from 2011. “17 straight months of gains reported” reads the headline in the Toledo Blade on Friday, December 21, 2012. The average sale price is up 9% over last year and so far this year sales are up 10% and sale prices are up 4%. The state of Ohio is faring much better with sales up 23% and the average price up 5% over last year. Sales of existing homes are the best they’ve been in five years.

Nationally, sales of existing homes are at the highest pace in years. 14.5% more homes sold this November compared to last. The best news of all is that the inventory of homes for sale has fallen to 2.03 million which is the lowest level since 2001. At the current pace there is only 4.8 months of inventory. Presumably at that point we’ll be all out of houses on the market, and buyers will have to come begging. Best of all, condominium sales are up 33% from a year ago. In one Bonita Springs, Florida condominium building there were three sales in November, all cash deals. In fact, according to a WSJ story on 12/21/12, condo sales are being driven by higher sales in places such as Washington, Georgia and Florida. Of course, prices are still at bargain basement lows.

Inventories have been declining because there are 11 million homeowners who are under water with nowhere to go. As prices creep upward, they will begin offering their properties for sale. A second factor in favor of a recovery, aside from near-zero interest rates, is that home building has been at a relative standstill now for at least four years. Overall, nationally, prices are up 5.6% over a year ago. And finally, sales of distressed homes are declining. They accounted for 22% of all home sales last month as compared to 29% a year ago.

According to the “PWC 2013 Emerging Trends in Real Estate”,  “down for so long in an excruciating bump-along-the-bottom trough, housing finally advances and markets gain some real traction, although struggling along the way.” The upper end is leading the way with some institutional interest in larger packages of properties. They also say that, “accelerating prices for condominiums in better markets like south Florida could be a leading indicator for recovery”. They go on say that many of the problem loans have been washed through the system, although as stated above, there are still 11 million home owners “under water”. Even with the low mortgage rates, lenders are now requiring more rigorous underwriting and more up-front cash, but still, mortgage money is out there and should be available to many homeowners and prospective buyers.


Why is Residential Real Estate Beginning to Improve?

Fannie and Freddie have recently issued $207 billion in mortgage-backed securities, for the year 2012, they have sold $1.6 trillion, and guess who is buying those bonds, the Federal Reserve. In the meantime, Fannie and Freddie have raised their fees 10 basis points which could put slight upward pressure on rates, but only a small uptick. Otherwise, the QE Fed policy to buy $40 billion in MBS (mortgage-backed securities) per month is putting money directly into mortgage-financing sources for housing. The Fed is buying $1.3 billion of MBS per day until the job market improves. The reasoning is that if the Fed can stimulate housing, this will bring down unemployment because the home-building industry will recover, people will feel more comfortable with some of their net worth returning and investment will increase overall in the economy.

The MBS being issued by the GSEs (government sponsored enterprises) are FNMA (Fannie Mae), FHLMC (Freddie Mac) and GNMA (Ginnie Mae). Non-agency or private RMBS (Residential Mortgage-Backed Securities), are issued by private sources. Some of these are what used to be the sub-prime bonds which were sold by banks to finance the loans which caused all or most of the trouble in late 2008. Those essentially have been gone since 2007. Therefore, the Fed bond buying, money printing, whatever you want to call it is going directly into mortgage money, and the faucet is wide open.

What does this mean for residential real estate? Unless something awful happens such as inflation rearing its ugly head and forcing rates to go up, the Fed apparently will continue to pump money into housing. So, check this out for yourselves, but the way it looks to me, we might be seeing these ultra-low mortgage rates for some time.


The Commercial Real Estate Outlook

Investor sentiment is soaring according to a Marcus & Millichap report. They say investors are gaining confidence in both the economic and commercial real estate recovery. The index is the highest it’s been since 2004. Since hitting a low point in 2008, investor sentiment has been making steady gains. Sentiment started turning negative in 2005, long before the market actually declined. Reasons given for the recent surge include the EU being able to avoid economic collapse and the QE III Fed action. In short, the real estate investment community sees the endless Fed stimulus as a good thing, and it has been for real estate and the stock market. They are cautious about the upbeat mood, however, when it comes to the fiscal cliff, which we know now has been averted. Bear in mind that many if not most of the buyers in their survey are seeking Class A investments. They say that 62% of the survey respondents are planning to increase their CRE portfolios in 2013. Most expect their portfolios to grow by somewhere approaching 25%. The report goes on to say that there is some movement towards Class B and B- properties.



Again, the investment of choice continues to be apartments. We’re seeing evidence of this in our apartment appraisals with some rent surveys indicating occupancies nearing 100%. Several demographic factors favor this sector including the young adults who lack the resources to purchase a home and baby boomers who are downsizing. Also, there are those who lost their homes in the housing crash. Demand has been so strong in some sectors for apartment properties that the cap rates have fallen through the floor. The only scenario which could put an end to the run would be a full-blown housing rally. That’s the idea behind the Fed and the President’s push for lower-cost mortgages. It could be quite some time before rising home sales begin to affect apartments.



The industrial sector is expected to have a good year in 2013 with at least half of the investors sending out buy signals. Most investors believe that their industrial portfolios will either stay the same or increase in 2013. The primary source of activity is coming from warehousing and distribution centers. This sector tanked in 2010, and has been on a steep upward trend since. Again, activity is strongest on the coasts due to international trade. Toledo and Wood County may be a beneficiary of this phenomena in 2013, with the North Baltimore, Wood County, OH, CSX transportation hub connecting the area to the Port of Baltimore.



Retail, on the other hand, is expected to continue to have its challenges. Office investors believe we have reached a bottom in the market and should see some improvement this year. The net lease market appears to be doing well. This is the market for name brands locating in small centers with fewer than four units. In many cases there are only two, and sometimes only one retailer on a lot. We have examples of this in Perrysburg, OH on U.S. 20 and in Bowling Green, OH on East Wooster Street near to the new Stroh Center Arena on the Bowling Green campus. We’ve seen more building of this type the last year than in the last five.



Hotels continue to turn in strong results. Hotels have been on a tear now for at least two years. Again, hotels mirror the overall economy. The hotel industry hit bottom in 2010, and is now at 2005-2006 levels. Still, investment in this sector is for the professionals.


Commercial Real Estate, Continued

PWC Real Estate Investor Survey for the Third Quarter, 2012, had a less-bullish opinion overall for commercial real estate. They talk of investors who were very positive about the economy during the first half only to see the momentum dwindle in the second half. They feel that “an air of uncertainty has returned, leaving many investors feeling discouraged and rethinking investment strategies”. They cite strong leasing activities in top CBDs during the first half weakening in the second. Instead they are moving their funds to the industrial sector because they feel the industrial sector can better weather choppy seas in the months ahead. As has been the case now for several quarters, everyone is still bullish on apartments. The reason, of course, is that since the crash in housing very few new entrants to the housing market are choosing to buy as an option. Renting has been the option of choice for the 20-somethings with a good job since the sub-prime crash. All things considered, they feel much the same as Marcus & Millichap that we are on the “cusp of a resurgence that provides vast and diverse investment opportunities relating to buying, selling, and developing”. The recommended course of action is to stay diversified.


Paul Krugman says, “Don’t Worry, Be Happy”

Like the song, Nobel laureate in Economics, Paul Krugman believes we are on a sustainable course towards a strong economy. He likens those of us who worry about annual $1 trillion deficits to Dr. Evil in  the Austin Powers movies. What’s the big problem? The deficit in 2012 is only $1.089 trillion and it will surely be lower in 2013. The buffoon, Dr. Evil, is a fool who thinks that $1 trillion deficits are not sustainable. But, yet, we have been crying chicken little now for four years and nothing bad has happened yet. He says our borrowing costs are near historic lows.

The truth is that the Fed has been on an expansionary monetary policy of unprecedented proportions now for four years. Rates on all financial instruments are at historic, all-time lows, but most importantly, it has kept interest on the national debt artificially low now for the last four years. Interest on the national debt is $454 billion annually, which is a net interest rate of about 2.8%. Prime rate has been 3.25% for years while the 10-year treasury is 1.75%, which is the rate most long-term rates are based upon. Interest rates on short-term Treasuries are very low, such as .015% for a four-week Treasury. Libor, an international rate, is 0.31%. The U.S. has the highest prime rate in the industrialized world. Canada and Australia are 3.0%, but the rest are near 1% or lower.

Recently, there have been rumblings from countries such as Japan, which is getting tired of being the odd man out when it comes to having cheap currency. Their incoming prime minister, Shinzo Abe, is complaining that “central banks around the world are printing money, supporting their economies and increasing exports. America is the prime example”. If the whole world is into bond buying as we euphemistically call it in this country, upward pressure on prices and wages could be the result.

Paul goes on to say that our deficits are high because the economy is not performing up to speed. “It’s not that we’re spending too much, it’s that we just aren’t growing enough.” Paul believes that we don’t have any problems that a good, robust economy would not cure. He believes that the prospects for a recovery are looking pretty good right now, but the political bickering could derail the recovery.

He’s right. There are many good signs such as improved housing and commercial real estate. There is a difference of opinion regarding employment. Job growth has been limping along well below almost any other “recovery”. We still have a big unemployment problem in this country which is masked by the method of determining the rate of unemployment. It does not count those who are no longer looking for work. Admittedly, however, this method of counting the rate has been around since the 1990s and should not be changed in the middle of the stream.

Paul Krugman actually stated that we in an “economic depression“. His solution is that we should leave the deficit alone. “A war on the deficit would only scare and bully those in need of our help, the poor and the middle class.”


Ken Mayland, Clearview Economics, With A Different Opinion

From the Toledo Business Journal, December 2012, in a presentation in Toledo, Ohio, Ken Mayland reported that “we have experienced a period of poor economic performance with continued high deficits.” He went on to say that “for nine of the last ten quarters GDP growth has been below 3%.” He also said that recovery from this recession is severely underperforming previous recoveries, and that this is the worst recovery in modern times. He gave a variety of reasons for the poor performance which included poor leadership from the President and Washington, poor utilization of U.S. energy resources, paying too many people to not work, paying for everyone’s health care, not being able to fire poor teachers and over-regulation. Mr. Mayland went on to say that our economy should be creating 300 to 400,000 jobs per month. As it is, our average is between 100,000 and 150,000 per month. The anemic job growth has resulted in static wage growth of under 2%, he said, and wage growth is not covering inflation. He lays the blame squarely on Washington for a variety of “wrong policies”.


Good News for the Energy Sector

The U.S. has the potential to generate tremendous economic activity in the coming few years. This is old news by now, but it bears repeating. We all know about the Utica Shale boom in eastern Ohio and western Pennsylvania and elsewhere. In 2007, production of natural gas in the U.S. was bouncing along at about 20 trillion cubic feet per year, but in 2011, it reached nearly 30 trillion cubic feet due almost exclusively to the shale revolution brought about by horizontal drilling and hydraulic fracturing (fracking) technique which is a process for removing natural gas and oil from shale rock. Prices of natural gas have fallen steeply so much so that investors are hoping to begin exporting it. The problem is that typically natural gas cannot be transported other than in pipelines. It appears that there could be a pot of gold out there in LNG, Liquified Natural Gas. The price in the U.S. of LNG is 3.70 per million BTUs, but it is $17 in Japan. In addition the Department of Energy recently completed a study suggesting that exports of LNG would produce net economic benefits for this country. In addition, the fracking also produces quantities of liquefied gas such as propane and butane. This gas can be exported and apparently there is plenty of it. Get ready for your propane bills to start falling.

Meanwhile, opposition groups are beginning to lodge protests. One is the EPA and the other is industrial users of natural gas such as Dow Chemical. At the present time there is only one terminal in the U.S. capable of converting natural gas to LNG and loading it on ships for export. The key is in the licensing, which is controlled by the Executive Branch. Approximately 20 firms have applied for licenses to build terminals with similar facilities to facilitate the exportation of LNG, but none have been approved yet. The Executive Branch holds the key to approving more terminals.


A Message From the Author

This report is brought to you by Robert D. Domini, MBA, MAI, real estate appraiser. We specialize in appraisals from both the public and the private sector. At this time of year we always remind our readers to check your property tax valuations. The time for filing begins now and will run through March 2013, but the value is based on what it was on January 1, 2012. Now is the time to take a good look at your tax value. We can give you an idea whether you have a potential case. Last year and the year before, we were able to achieve some very significant reductions for many property owners.

Remember, the property owner can file for a review or appeal as well as an attorney acting on behalf of the property owner. Attorneys and property owners, please keep us in mind when you decide to have a look at your tax values.

Continental Valuations, Inc.

Robert D. Domini, MBA, MAI

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Posted on Friday, 31st August 2012 by Robert Domini


To understand where we are today with our markets it’s important to look back on our economy to late 2008. At that time our financial markets were in free fall. Lehman and numerous other financial institutions failed or were failing at a frightening pace in the September-October time frame which, it just so happens, was almost exactly four years ago. As the 2008 election was in its final stretch the economy was in wholesale collapse. To avoid disaster the Federal Reserve stepped in and became the lender of last resort offering a wide variety of loan opportunities for financial institutions and business. It was not until November 2008 that the Fed began printing money, or as it is euphemistically called, bond buying, to stimulate the economy. In its first move called QE, they bought $600 billion of mortgage-backed securities issued by Fannie, Freddie and Ginnie. When the Fed buys bonds, they simply write a check to a bank for the bonds, although there is no money in the checking account. The next Fed move, QE1, in March 2009 was in the amount of $1.75 trillion. As QE1 was being completed in March 2010, the stock market began a sideways movement. Then in November 2010 the Fed instituted QE2 for $600 billion. In September 2011 they sold $400 billion of short-term securities and bought the same amount of long-term securities, a process known as Operation Twist.



The Dow Jones Industrial Average was 14,000 in late 2007, but fell to 7,000 by January 2009. With the Fed pumping printed money into the economy late in 2008 and early 2009 the stock market soared from 7,000 to 11,000. The market dropped during mid-2010 to 10,000, so in late 2010 the QE2 was implemented taking the market to 13,000 in early 2011. With no monetary stimulus the markets dropped to 11,000 in August 2011. At this point the Fed vowed to keep rates low till mid-2013 and began Operation Twist which took the market to where it is today at 13,000.

Thus, if you were a stock trader during these times, each time the Fed infused money the stock market surged. The 08-09 infusion resulted in a 57% increase. The 2010 action resulted in a 30% increase and the 2011 efforts caused an 18% increase. Obviously, there were numerous other governmental and market forces at work during these times, but the end result was a surge in stock prices each time the Fed increased the money supply. The results have been profound these last four years.

At the same time the stock market is reacting, there are three other measures of economic activity at work which are also very important, namely the unemployment rate, the GDP growth rate and inflation. Thus far inflation has remained tame due to the anemic economic recovery. If inflation were to increase dramatically the interest rates would be forced to increase and a market collapse would probably ensue. As to the unemployment rate, national unemployment reached a peak of 10% in early 2009 and began a very slow and steady decrease to it’s current level of 8.3% where it has been now for nearly two years. The rate was 8.5% at the beginning of 2011. An important fact to keep in mind is that the method of calculating the unemployment rate has changed over the last ten or twenty years. Those no longer seeking work are not counted as unemployed.  Conventional wisdom is that the unemployment rate would be 16% if it were calculated as it was during the Depression. Thus, with all of the stimulus of the Fed’s printing presses, this rate has remained stubbornly high by historical standards.  


The GDP Growth Rate is illustrated in the chart above. The economy was in a deep slump during early 2009 with a -6.7% rate of decline at the low point. With the massive Fed stimulus and with dramatically increased Federal Government spending, the economy quickly emerged from the recession by the end of 2009. Yet, as the stimulus has been moderated somewhat, the GDP has taken on a slow-growth pace the last several quarters. A low growth rate such as this has not stimulated inflation to any great extent, but it has also not lead to lower unemployment.
At the present time as we approach September 2012, our economy is at a precarious point. The stock market has been addicted to the Fed liquidity these last four years as has the general market. The Fed has just about run out of bullets with a national debt soaring to nearly $16 trillion. The annual budget deficits have averaged somewhere in the range of $1.2 to $1.4 trillion during most of these years, and we are fast approaching a crisis point where we may no longer be able to print our way to prosperity. In the not-too-distant future the debt will undoubtedly overrun our ability to make principal and interest payments. The need for government borrowing has been reduced by $3.35 trillion as a result of the money creation.  To illustrate, in the last 4 years our borrowing needs have gone from 5 trillion to 1.65 trillion as a result.  It is unlikely the global markets would demand that level of U.S. Treasuries.  The U.S. has already experienced one credit downgrade and others are sure to follow if we continue on this pace.

Although there are some signs of recovery at the present time such as an increase in housing prices and building, these improvements are from a very low level. At the same time the Government is facing several extremely important issues which are sure to be delayed until after the election, not the least which is the Bush tax cuts which are set to expire at the end of this year. Additionally, there is yet another debt-ceiling increase on the horizon in addition to mandatory cuts in spending unless Congress and the President find a solution which is not going to happen until after the election. Bear in mind that the extraordinary stimulus spending of 2009 has been locked into the budget since that time. In fact, with the growing appetite of the entitlement programs and other “mandatory” spending, the prospects for fiscal responsibility are not very promising. Yet, on a smaller scale, several states have brought large spending deficits under control in as short as a two-year period and have actually increased tax receipts and balanced budgets. The solution to our problems is to somehow come up with a formula to get the economy moving again. During the 1920s a treasury secretary with the name Mellon came up with the ideal amount of tax to supply the government and still allow the economy to flourish. Such a balance will need to be found once again.

This Report Has Been Brought to You by:

Robert D. Domini, MBA, MAI

Certified in Ohio, Michigan and Florida 

p.s. This is property-tax-appeal season.  I will consult with you for a very modest fee to help to determine if you have a good case for tax appeal.  Give me a call!  Please visit our website at

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Posted on Thursday, 15th March 2012 by Robert Domini

Continental Valuations Launches New Website

Continental Valuations is proud to announce the launch of our new website. Just click the image below to visit us and take a look.



How is the Economy Doing?

According to GlobeSt.Com in an article by Hassam Nadji, the outlook for 2012 is rapidly improving. Total private-sector employment growth for the last 12 months is 2.3 million. First-time unemployment applications are at a four-year low. Part-time workers hold only 9% of jobs added now, compared to about a third a year or two ago. Still, according to the Bureau of Labor Statistics, total unemployment is still stubbornly high at 12.8 million. It was at 11.1 million in January 2009 after the jobs market had crashed during the previous twelve months. Exports are doing well with a 5.1% year over year increase and accounted for 13% of total economic output. The increasing exports bode well for manufacturing employment which has reversed its downward spiral.

On the international front, it appears that Greece is being bailed out once again. Relations with Iran are at a boiling point, which bodes ill for oil prices. Still, all indications right now, barring a world war or a financial collapse, are that 2012 is looking like it will be a good year.

As to commercial real estate, the improving corporate outlook will be a boost. Apartments will continue their upward march until housing begins to recover. Reports from SE Florida are that residential sales are up dramatically and the inventory is down substantially. Hopefully, Florida will lead the rest of the country out of the housing depression. Retail should turn in a respectable year with positive net absorption. Again, most positive activity is at the higher end of the spectrum. The office sector is still in a wait-and-see mode with job gains not yet strong enough to boost office absorption.

Banks Returning to Commercial Real Estate Lending

According to a report, overall loan balances on the books of banks, have shown the first real increases in four years. The gains, however, are coming from multi-family and owner-occupied sectors. On the flip side, there has been a marked decrease in multi-tenant lending and construction / development lending. In fact, construction-development loan balances have declined 25% year over year. On the positive side, business loans are up 5%. In the Cleveland Federal Reserve District demand for business credit is increasing slightly overall.

Reliance Financial Services Economic Forecast

The stock market took a major dive mid-year 2011 due to the S&P downgrade. The money supply is increasing more rapidly than in any period since 2008 due to the Fed’s money-printing and easy credit spree. Our debt/GDP ratio is almost highest in the world. Consumer sentiment and the personal savings rate are on the increase. Corporate debt is way down and profits are way up. Leading economic indicators are pointing up. Last year the top ten stocks in the S&P drove the entire 500 while the other 490 were down. Stock investors are not coming back from the 08-09 drubbing like they did in the early 90s. Interest rates are down and globalization is resulting in cheaper corporate labor. However, the cheap labor is coming to an end as developing countries join the developed world. Baby boomers are past their earnings peak. Easy credit for housing is gone, although rates are historically low.

They believe excess government spending is at an end. I would disagree with that. Consumers are getting healthier due to lower debt levels. Small business confidence is improving as inflation is beginning to go up.

Wood County Ohio Has Two Major Jobs Ready Sites

According to the NB Press, the Wood County Economic Development Commission is marketing over 1,000 acres of land directly across from the new Northwest Ohio Intermodal Hub recently completed by CSXTransportation. The $175 million hub is an integral part of the $842 million National Gateway project being developed by CSX. The project will enable CSX trains, carrying double-stacked containers from maritime ports on both U.S. coasts (western ones bypassing Chicago) to be unloaded by Hans Kuenz ultra-efficient cranes at the facility near North Baltimore, in Henry Township, Wood County, Ohio. Continental Valuations had the great honor of doing the appraisals for the CSX acquisitions and for the S.R. 18 bypass.


From this hub goods will be shipped via rail to eastern rail destinations and via truck to locations in the Midwest via I-75 and I-80/90.

This site can be designated as a foreign trade zone. Primary interest at the present time is for a major agribusiness company to locate here to ship soy beans to Asia and other locations around the globe.

The Eastwood Commerce Center

This site is located just south of the I-280 and the I-80/90 interchange, and it consists of 446 acres. This site has heavy electric capacity, heavy natural gas capacity, heavy water capacity and heavy wastewater capacity. This site has it all; excellent highway transportation access via the extension of I-280 and a new interchange with U.S. Route 20. To top it off, this site has direct access to the CSX mainline. It also has copper fiber optic access through Century Link.

Continental Valuations was the appraiser for this new interchange highway project.

Toledo and Wood County Hurt by Solar Downturn

In three separate news stories, Toledo and Wood County’s solar fortunes have been dampened significantly. Perrysburg, OH company, Willard and Kelsey, has announced the layoff of 40 employees. Other than “some technical people” manufacturing is shut down.

Meanwhile, First Solar, a firm founded in Perrysburg, OH with headquarters in Arizona, is reporting the “strong possibility” of a layoff of 1,200 of its employees. This is definitely not good news for the region. First Solar has been our rock star these last few years.

In other bad news, Toledo-based Xunlight has lost the services of its founder, Zunming Deng. This plant is essentially shut down and the company appears to be well on its way to being out of business.

All of this is a startling turnaround in our alternative-energy fortunes. Toledo was becoming known as a hub for solar energy. We expect these developments to have significant political ramifications in this election year.

This Report Has Been Brought to You by:

Robert D. Domini, MBA, MAI

Certified in Ohio, Michigan and Florida

p.s. This is property-tax-appeal season. I will consult with you for a very modest fee to help to determine if you have a good case for tax appeal. Give me a call!

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Posted on Wednesday, 4th January 2012 by Robert Domini

Happy New Year


The Wall Street Journal trumpeted the good news. The Dow Jones is up 6% for the year. The S & P 500 came in dead even, same as it ended last year. Not that I’m any expert, but the Fed has been on an expansionary policy of unprecedented proportions. We’ve had QE1,  QE2 sprees of print money. And there are those who are saying that our U.S.A. Fed is spreading money around the globe to the tune of $24 trillion. That’s funny money, of course. The U.S. credit rating has been downgraded and our Government refuses to even consider bringing spending under control. The second half of the year was marked by incredible volatility.  The average swing on a daily basis during October and November was 270 points. There were some clear winners. If you held 30-year Government bonds you made 35%. Those holding McDonald’s stock earned 31%. Everyone, and I mean everyone says that a major problem during 2011 was the squabbling of Congress over the budget. Would they rather the Republican House had just rolled over and played dead? Some of us would have wanted them to go to the wall and not give in when they were having their debt-ceiling battle. The end result of all the fighting was a very meager “cut”, which wasn’t a cut at all. This will be illustrated later in this newsletter. All things considered, we weathered 2011 a lot better than many of us thought we would. If you predicted volatility, you were right on target.

Just recently, we received some wonderful news. The unemployment rate had fallen to 8.6%, a 2 ½-year low. This was a big headline in the Toledo Blade. The Blade said it was seen as welcome relief. Private-sector employers added 140,000 jobs, but the Government shed 20,000 jobs during the same period. I thought that employment growth at this rate was insufficient to reduce the overall unemployment rate. Then way down on page 2, after Mark Zandi of Moody’s Analytics bestowed his blessing, it was surreptitiously reported that 315,000 unemployed workers had stopped applying for jobs in November. What a shame, you decide to take a holiday breather from your arduous and depressing ordeal of applying for jobs, and they decide to drop you from the rolls of the unemployed. Doesn’t seem fair, does it?

Way down on page 2, the real truth came out. Having given the President his election-season headline boost, it’s time for truth telling. “Serious concerns remain about the economy’s ability to weather the financial and economic turmoil from abroad.”   “The public sector continues to shed workers.”   “Excluding hundreds of thousands who have left the labor force, the country has a backlog of more than 13 million unemployed workers, whose average period of unemployment is at an all-time high of 40.9 weeks.”   Doesn’t sound that much like good news does it?

At the same time, however, we are beginning to see glimmers of an improving jobs market. Initial claims for unemployment insurance fell by 19,000 to 366,000. This figure has stood stubbornly at 400,000 or higher for many months. Small business added workers in November after shedding jobs for five consecutive months.

From The Appraisal Institute Economic Seminar, Columbus, Ohio

  • Interest rates are the lowest of the post-WWII period.
  • Monetary policy is expansionary.
  • Inflation is low.
  • Uncertainty is high.
  • Export growth is good.
  • Business spending is solid.
  • Inventories are low.
  • Ohio has had a “v-shaped” recovery.
  • The price of energy is going up.
  • State and local finances are going down.

Honeywell CEO Speaks Up

The chairman and CEO of Honeywell, David Cote, told CNBC that major corporations are hoarding cash due to economic uncertainty. He said that regulation is proliferating while the overhanging national debt is holding down business investment. Cote ventured that if we could begin to get control of our Federal Government debt, the economy would take off like a rocket.

George Mokrzam, Huntington Chief Economist and Bob Bach, Chief Economist for Grubb & Ellis

………reported that Japan is getting back to business. The earthquake seriously disrupted the supply chain. George said that our GDP has now recovered to its pre-recession level. That’s called recovery. The next stage is expansion which is a lot tougher. GDP growth is expected to be slow, at a rate of 1.5% to 2% per year. There is a ton of liquidity in the marketplace right now. Bank reserves are high, which is a good thing considering the threat of a meltdown in Europe. Money supply growth is beginning to accelerate. Capital goods orders are up and consumers are spending. However, housing is flat. Disposable income is rising somewhat and affordability is historically high. Again, corporations are sitting on a ton of cash.

Bach told us that long-term rates can be expected to rise along with economic growth. The U.S. is suffering from a hangover from QE 1-2, aka printing of money. This will cause inflation. The rate on a ten-year Treasury is way down, but can be expected to rise along with inflation. So, overall, job growth can be expected to just keep pace with the labor force, leaving the unemployment rate flat at least for the next twelve months. Most of our job growth will be in health care and the Federal Government. Construction will remain very slow. A major plus is that the freight business is way up.

Other Year-End Economic News from John Kasarda and Kurt Rankin, PNC

In terms of cash in the hands of American corporations, they are sitting on $2.1 trillion while Japanese firms have amassed $2.7 trillion. Corporate balance sheets are very good. Corporations can afford to pay high dividends if they choose to do so. Stock values, however, are pessimistic. Stocks are trading at a 10 PE ratio while the rate was more like 20 at the beginning of 2010.

There will be no double-dip recession, but we can expect slow growth. It will be a half-speed recovery. Europe is a risk to the U.S. economy, but it is not what’s holding back the U.S. economy. Looking back to the last three recessions, after one year the economy had recovered what it had lost. This time around we are just now getting back after four years.

People feel 81% confident about their own economic health, but feel about 40% confident about the U.S. prospects. Consumers have a very negative attitude about the U.S. economy. Consumer sentiment is down, although the savings rate is up and so is unemployment since 2008. Consumers have been hit with a lowering of their disposable income. In all, Toledo has lost 15% of home values and 10% of its jobs. The U.S. has lost 5% of its jobs and 30% of home values.

Business lending is picking up just at the right time. Business is interested in borrowing right now in order to expand. Productivity growth is slowing, and as productivity slows, firms begin to hire. In the 3rd Quarter, the GDP improved. As a result, employment can be expected to ramp up.

What are the Prospects for Commercial Real Estate?

Commercial real estate prices increased 2.2% in October. This is the first increase since the CRE recession began in 2008. The reason is that investment-grade property has made a strong recovery and the overhang of distressed properties and foreclosures has declined. Of course, investment grade properties are the newer buildings in good locations. For the rest of the market, the performance has not been quite as stellar.

Reports are that the lodging industry has turned in a strong performance this past year. Again, the best performance has been in the upper-tier properties. They call these the luxury and the up-scale properties. Occupancies in these segments are topping 70%. Conversely, occupancies in the lower-tier segments will lag behind. The same holds true for markets. The top-tier cities are performing strongly while the opposite is true of lower-tier cities.

Meanwhile, investor sentiment remains at a very high level. The index is at 152 which is the highest level since 2004, other than the second quarter when it reached 164. This is despite headwinds such as the European debt crisis, Washington’s inability to get control of the budget and the downgrade of the U.S. credit rating. Still, jobs actually grew in August, September and October at a 241,000 jobs per month pace. Retail sales beat expectations with a year-over-year increase of 6.1%. Many, if not most, investors are extremely wary of micro and macro economic circumstances. They clearly see a great deal of risk in the economy, primarily due to the incredible mounting debt both in the U.S. and abroad.

In real estate, apartments are a safe haven. 45% of real estate investors believe the CRE values have not yet hit bottom, but apartments are another story.  Vacancy rates have fallen to 5.6% while rents have risen 2.4% to an average of $975 per month. Most apartment investors believe that now is the time to buy.

What’s in the News as the Year Comes to a Close?

According to the WSJ, Christmas came early for the U.S. steel industry. Rising sales of cars, farm gear and oil-drilling equipment are boosting the demand for U.S. steel. Prices are rising amidst increasing production which is a welcome change from earlier this year when demand for domestic steel was weak. There is good news near NW Ohio. Gerdau SA, Monroe, Michigan, will invest $67 million to expand production. They make steel for the aero-space and defense industries. Russian steelmaker, OAO Severstall doubled the size of their Columbus, Mississippi plant last month to the tune of $550 million adding 1.7 million tons to annual production. AK Steel with plants in Ohio is raising prices on benchmark hot and cold rolled steel used by the auto industry. Steel prices are up 25% since November 2. Hot rolled steel is now selling for $750 a ton compared to $600 previously. Total shipments by U.S. steel plants were 76.4 million tons the first ten months compared to 69.7 million tons over the same period in 2010. This year U.S. auto makers are expected to churn out 13.4 million vehicles as compared to 10.4 million in 2009. All of this is very good news if it continues, especially for NW Ohio. In fact, GM Transmission in Toledo just announced 150 new jobs at their Jackman Road plant. It’s been a long, long time since we’ve heard that kind of news.

Baseline Budgeting

For at least the last 20 years the Federal Government, aka the U.S. Congress and the President have engaged in a fiasco called baseline budgeting. This is a slight of hand trick wherein each and every Federal department is budgeted to increase about 10% per year no matter what. Let’s say that the Department of Education or the Department of Agriculture or Transportation is slated for a 10% increase and the politicians are calling for a 4% cut in the Transportation budget. The other party then screams bloody murder for the “cruel” , “brutal” cuts. No one argues that this is not actually a cut at all. Neither the politicians, nor the CBO will admit to the ruse. It’s like a giant conspiracy with everyone acting like they believe the cuts are real. The truth is that the horrible, draconian cut was actually a 6% increase. The last time the Congress decided to make a cut in the budget it amounted to $38,500,000,000, which sounds like a lot of money, but with baseline budgeting it wasn’t a cut at all. The budget was scheduled to increase and everyone knew it. We all know that Social Security and Medicare are going up like crazy every year, especially now that the baby boomers are reaching retirement age in large numbers. Ask yourself why the Department of Transportation or Education go up 10% every year when the states run these two sectors lock, stock and barrel. The Department of Transportation builds no roads and the Department of Education runs no schools. The figures below will illustrate:

Why the U.S. was downgraded:

  • U.S. tax revenue: $2,170,000,000,000
  • Federal budget: $3,820,000,000,000
  • New debt: $1,650,000,000,000
  • National debt: $14,271,000,000,000
  • Recent budget cuts: $38,500,000,000

Let’s now remove 8 zeroes and pretend it’s a household budget:

  • Annual family income: $21,700
  • Money the family spent: $38,200
  • New debt on the credit card: $16,500
  • Outstanding balance on the credit card: $142,710
  • Total budget cuts: $385

But remember, the family is budgeted to spend $3,820 more next year no matter what, so a cut of $385 only puts a very small dent in what they will actually spend. They will actually spend $41,635 next year and go into the hole $19,935. Their debt will be almost equal to their income next year. Pretty soon, you’ve got to figure that the credit card company will get tired of loaning them money, right?? Another way of putting it, “a trillion here and a trillion there, pretty soon, you’re talking real money”.

Were TARP and the Auto Bailouts a Success or a Failure?

Conventional conservative wisdom is that both of these programs were unqualified failures. In fact, in conservative circles, if you were in

favor of these programs you were the object of scorn and derision. Let’s take a look at the postmortems. TARP was a 2008 program where billions were loaned to banks whether they wanted it or not. More than 99% of the federal funds loaned out have been paid back. The Federal Government has recouped more than $244 billion of the $245 billion it loaned to these banks. In fact, the Government is expecting to make at least a $20 billion profit on the deal. Ohio’s own Fifth Third Bank has paid back $3.4 billion, the entire amount borrowed.

As to the auto bailouts, approximately one-half of the amount loaned has been paid back. The Government is expecting to lose about $14 billion on the deal eventually. It is also fair to say that many, many jobs were saved by the bailouts. Some estimates on jobs saved are as high as one million. Speaking on behalf of the Toledo Metro economy, I must say that were it not for the auto bailouts I hate to think what kind of shape we would be in here in Toledo. Would we be expecting 150 new jobs at the Jackman Transmission Plant? Would we be talking about a Jeep expansion on Willys Parkway? I think not.

This Report Has Been Brought to You by:

Robert D. Domini, MBA, MAI

Ohio Certified Appraiser, also Certified in MI and FL

We are a full-service real estate appraisal firm. Give us a call next time you need a real estate, equipment or a business appraisal. Remember we do appraisals for eminent domain takings and tax appeals.

Have a Wonderful Holiday Season, Happy Hanukah, Merry Christmas and a Happy New Year!!

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Posted on Tuesday, 30th August 2011 by Robert Domini

My Head is Spinning

Remember the old guns versus butter argument? The Nazi war machine used the metaphor to promote the buildup of the German Army. Joseph Goebbles and Hermann Goring popularized the argument stating that guns would make them powerful while butter would make them fat. Our government, in effect, debates the issue non-stop. Do we spend our money (as a percentage of GDP), on the military or on the production of goods? Or, to give it a sharper edge, do we spend our money, more on defense or on domestic programs, (otherwise known as social spending)? While attempting to build the Great Society, President Lyndon Johnson was frustrated that he was forced to spend on the Vietnam War and the Cold War instead of on social programs. Ultimately he fulfilled his social agenda by establishing long term programs that would be paid for by future generations. Today we have a class of big spenders who don’t really care what the dollars are being spent for, just so they get to spend. The taxpayer’s dollar is being used to buy a vote. The old butter versus guns argument is of no consequence.

There are those who argue there is a multiplier effect to social spending. The big spenders are making the argument today that for every dollar spent on social programs there is a multiplier effect of $1.85. But remember, that dollar has to come from one of two places. Sixty cents of it comes from someone else, an endangered species known as a taxpayer. The other forty cents comes from borrowed funds, likely the Chinese. The 60 cents that comes from another person is a “transfer payment”. It has a net effect of zero on the economy because it is taken out of the hands of one person and is put into the hands of another. This concept is also known as redistribution of the wealth. The borrowed forty cents is even more onerous. It has to be repaid, with interest.

Or, wait a minute, if we need more money, why not just print it? That’s a tool which has been available to the Fed now for many decades, traditionally used to regulate the economy. The idea was to use it to speed up the economy by “buying” securities, and vice versa. As a tool for fine tuning the economy, monetary policy has performed admirably. But, during the last two years, the Fed’s monetary policy has been elevated to an entirely new level. The Government has spent $3.2 trillion more than it has taken in. $2.3 trillion of the shortfall has been paid with printed money. You might ask where our Fed has gotten the money since they really don’t have any money of their own. The answer is that they have diluted the equity of the dollar.

“Government Spending Cuts Have Hurt the Economy”

It’s being said now. It was said after the economy took a nosedive in 1936 costing FDR his Congressional support. The reason given then and ever since was that the Republicans forced spending cuts which killed the Golden Goose, aka the economy. Not true. Spending during the New Deal period was never cut. Fast forward to 2011. The Congress and the Administration just signed an agreement to cut spending… some time down the road. No cuts have been enacted yet. In fact, the Federal Budget rises about 7% per year on its own. It’s called Baseline Spending. Per yesterday’s WSJ, Federal spending has risen from $1.7 trillion in 2007 to $3.5 trillion in 2009 when the emergency stimulus bill was passed to pull us out of this recession. It is the famous $787 billion. But spending has stayed at that same “emergency” level ever since. In fact, it’s been at $3.6 trillion the last two years. So, Congress has avoided passing a budget these last two years why? So they could just keep spending at the same “emergency” level. So, folks, we have a permanent $787 billion stimulus plan in our budget whether we like it or not.

How’s this Impacting the Financial Markets?

About two weeks ago Congress and the President made an agreement to raise the debt ceiling by $2.5 trillion, thereby taking that issue off the table until after the elections late in 2012. In effect, the President does have a blank check to spend that money as he sees fit between now and the next time it comes up. This is why the S+P lowered the U.S. credit rating. The spending cuts are down the road, just like everyone thought they would be. As a result of the downgrade, investors are becoming more risk averse. Investors are flocking to the ten-year T-bill, bringing that rate down. The 10-year T-bill rate is the rate most often used to help set mortgage interest rates. Yet, foreclosures are surging. One out every three residential sales is a foreclosure.

For commercial real estate the market has a split personality. Some investors feel that with real estate at least you’re getting a hard asset, not a piece of paper. Yet, the negative news is piling up for the first two quarters of this year. Growth is averaging just 0.5%. There is now a much greater risk premium in the investment markets. Capital is going to be even more difficult to raise. Consumer spending is sure to become weaker and the ripple effect will follow on down the line to commercial real estate. Shoppers staying home will reduce retail spending, thereby increasing vacancies. Demand for goods and services will decline, reducing factory utilization and the demand for office space. Despite the negativity, compared to the alternatives, CRE, commercial real estate, is still a hard asset. Solid properties with good leases are still a commodity in demand. Cap rates had been falling the last year to eighteen months, and we don’t expect them to turn around and go the other way.

The markets are complaining about political gridlock. What do you suppose they mean by that? The left staked out a position where they did not want to cut any spending, but rather to raise taxes. The right refused to raise taxes and insisted on cutting spending. The agreement made laid out plans to cut spending very gradually. The national debt will not be coming down any time soon, so I wonder what they mean by gridlock, and what they really wanted Washington to accomplish.

Investors are lamenting that Washington had a scuffle over raising the debt ceiling which caused, they say, a decline in consumer confidence. They feel that the economy was just picking up a head of steam when old Washington started going at it. The problem is the economy had a head of steam based on printed money and that didn’t even goose it up enough to lower unemployment. Now that we are no longer printing money, the economy is left to survive on its own, and the road is pretty rough.

Could it Be The End for Gold?

On Wednesday, August 24, the price of gold declined a stunning 5.6% following a 1.6% drop on Tuesday. The price of gold has been on a non-stop run now for several months and almost literally for years. Glenn Beck says in commercials that he started buying gold at $300 and started recommending it at $900. I can remember Dock Treece, Sylvania, Ohio, recommending gold four or five years ago. A few months ago he mentioned to me that he wasn’t feeling as bullish about gold any longer. That was about $400 ago. Just remember, no one can perfectly predict the future, though many of us try, don’t we?

Investors Betting on QE3

As insane as it would be, there is actually talk of more printing of money. If they do it, buy, buy, buy stocks, that is. Regardless the fundamentals, the stock market just seems to love printed money.

Florida Real Estate

Notice I haven’t been talking about that much the last couple of years? Of course I’m licking my wounds. There went my retirement nest egg; at least for now! Who would have ever imagined that the downturn would go this long and this deep? Not I. Well, we’ve got a real deal for you in Bonita Springs right on an inlet of the Gulf in a building for which I am on the Board of Directors. A penthouse is coming up for foreclosure sale soon, and it could be really soon, like next week. Let me know if you’re interested and I can let you know the details.

CoStar says the era of “Extend and Pretend” is Coming to an End

This is good news, they say, for investors because for so long, investors in prime properties have not been able to find many foreclosure opportunities. Well, now the banks are finally facing up to the reality of their credits. This is really big. They are expecting between $40 and $60 billion in distressed transactions in 2011. They are forecasting $850 billion in loan maturities this year. Remember a few years ago we learned that investors were paying premiums for commercial real estate based on cap rates calculated from interest-only loans. When banks stopped making interest-only loans, the cap rates immediately increased a couple of hundred basis points. They have since come down, but today CRE values are considerably down from the highs of a few years ago, specifically 2005-2007. With values down, investors are being forced to come up with more cash or face foreclosure.

And Now for the Good News

Jones Lang LaSalle is saying, “Overall net absorption is positive, leasing volume is steady, oversupply is gradually disappearing and prime rents are pushing up as the supply gap for prime assets deepens in many core markets.”

Believe it or not, second quarter 2011 commercial and multifamily mortgage loans were up over 100%. They say that lending was way down in 2009 and 2010, but this year the markets have been much better. Those performing strongest are health care, hotels, retail, multifamily and offices. The office recovery has been uneven, performing admirably in what are known as gateway cities. The rest of us, well, we’re not so good. The U.S. CBD office vacancy rate is down from 14.6% to 13.7%. Apartments have actually been on a tear now for some time.

From the Author

This update has been brought to you by yours truly,

Robert D. Domini, MBA, MAI

President, Continental Valuations, Inc.

Remember us for your real estate appraisal needs; purchase, refinance, tax appeals, business planning, estate and trust, eminent domain, etc.  We can handle your property appraisals most anywhere in the U.S.

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Posted on Monday, 17th January 2011 by Robert Domini

File Property Tax Appeal Now


Attention Commercial Real Estate Owners, the time has come to take a hard look at your commercial real estate value as it compares to your tax value.  Many, if not most, properties have experienced a decline in value the last two to three years.  For most properties nationwide, the decline was at least 18% combined for 2008 and 2009.  For prime properties there was a slight improvement during 2010, but for tax-appeal purposes the appraised value must be as of January 1, 2010.  Most counties will mail out the appeal forms to you or they are available on their website.  The county auditor’s offices throughout NW Ohio I have called on the phone are most helpful without exception.  The property owner or an “interested” party such as the president of a company can fill out the form, or your lawyer can do it.  It’s a simple one-page form, but be prepared; they ask you to state your opinion of value for the property. 


Question, 1:  Do I need to file an appraisal at the time I file for the appeal?  No, but the county auditors do prefer that your appraisal accompany the appeal form.  Question, 2:  Will I need an appraisal when I have my hearing before the Board of Revision?  Not really, but having an appraisal done by a professional appraiser is highly recommended, especially for commercial property.  Question 3:  Do I need to appear in front of the Board of Revision?  Yes, either you or your lawyer needs to be there to argue your case.  It’s also very beneficial to have your appraiser there as well. 


Conclusion:  Give Bob Domini a call at (419) 873-0412, or send an email to so we can give you an idea if you have a case worth pursuing. 



Financial and Economic News as of mid-January


Let’s start with the good news.  The Dow Jones is now at 11755 which is pretty good since it was at about 11000 last October.  At a recent meeting of the National Association of Home Builders, as reported in the WSJ, the consensus opinion was that the market was still extremely weak and prices were still falling.  Still, optimism among builders is starting to grow as they see gains in retail sales and the sale of cars.  Employment is holding pat for now.  Yet, the builders will start construction on 575,000 single-family homes this year, up 21% from last year.  The 2005 peak for housing starts was 1.7 million, so we have a ways to go to reach that level.  It’s the same with the Dow.  It was 14164 in October 2007. 


Meanwhile, oil prices have reached a two-year high at $90 a barrel, the highest level since the October 2008 crash.  Meanwhile, gold is selling near $1,400 an ounce.  The 10-year Treasury bill is at 3.35%, up from about 2.4% last October.  The 15-year mortgage rate is 4.2%, also up from a low last November of 3.71%.  Some brokers were quoting as low at 3.5% at the time.  Yet, the CPI change since November 2009, is only 1.1%.  Am I missing something here?  Is it fair to say that skyrocketing oil prices can wreck havoc with a nascent economic recovery?  Just asking. 


Oh, and I don’t mean to be negative, but what’s this news about food prices?  Global harvests are down.  Prices of corn and soybeans were up 4% yesterday.  Corn futures are up a mere 94% from their June lows and our government continues to mandate that we use corn for our auto fuel.  It isn’t like we didn’t see that one coming.  Prices for finished goods are holding pat while prices of industrial materials are up 12% for 2010.  Hmm, so why are consumer prices flat while manufacturing costs are skyrocketing?  Because the sellers of consumer goods simply can’t sell their goods if they raise prices, that’s why.  Tame inflation can’t possibly last forever. 


Here’s one for you.  Illinois is raising their state income taxes 67% and their corporate taxes 45%.  Now, that makes a lot of sense.  Wisconsin is licking their chops.  The U.S. continues to buy its own Treasuries with IOUs, flooding the system in liquidity.  Always remember, when the Fed floods the system with liquidity, stocks will go up.  Lesson Number 482.  In the face of all this, many “experts” such as those at Goldman Sacs, believe that we will have a year or two of recovery with tame inflation.   I hope they’re right. 



What’s Happening in Commercial Real Estate?


In this section I will be “borrowing” liberally off the web.  According to those who track CRE (commercial real estate) sales, the third and fourth quarter deal volume had returned to pre-recession levels.  CRE sales volume rose from $22 b. the first quarter to $36 b. the fourth quarter.  Sales for 2011 are expected to rise another $9 b.  Total volume was 80% greater in 2010 than it was in 2009.  CMBS (commercial mortgage-backed securities) sales for 2009 had nearly disappeared, but did reappear in 2010.  CMBS volume for 2010 reached $16.1 b. after a paltry $5 b. in 2009.  We thought those had died and weren’t coming back.  Those are the bugaboos that helped take the housing market down, only they were the commercial version.  For $16 billion of those to be sold after the losses sustained during 2008-09, the market must have a renewed appetite for risk.  Either that or the securities were being loaded with a much better quality of properties. 


Bloomberg is reporting that  the U.S. office market has logged in its first gain in occupied space since 2007.  Office buildings added 2.5 million square feet of occupied space during the fourth quarter.  According to Reuters, office rents rose and vacancies fell during the fourth quarter.  This represents the first improvements in these categories since 2008. 


I read somewhere that the sale of resort properties is on the rise.  The locations mentioned included both northern and southern locales.  The article was about houses on the water for the most part, although there was a mention of the Poconos.  Also mentioned was Hilton Head and West Palm Beach.  There was no mention of Fort Myers Beach or Bonita Springs, FL, and particularly no mention was made of condo properties.  A great many baby boomers now set to retire and begin collecting on Social Security will soon be scrambling for their place in the sun, or so we would presume. 


Here’s one for you.  What’s happening in the Chicago industrial market, the land of the astoundingly increasing taxes?  The word in the industrial leasing market is that during the last six weeks deals are actually getting done, whereas during 2009 and most of 2010, there was a lot of tire kicking and not much on the substance side.  Deals actually getting signed are in the 200,000 sf+ range.  And what about Detroit, the land of Kwame Kilpatrick?  Let me just say that the last time I worked north of the city in the suburban industrial market, I think I was out on 23-Mile Rd. at SR 53 in Shelby Township.  This was an area where upscale warehouse-distribution and light manufacturing with great highway access was booming during the good times.  It was absolutely dead about 18 months ago.  We don’t have any specifics, but word is that the Big Three are on the move.  We’ve been hearing this in the Toledo, OH market area as well.  Chrysler is throwing out more than hints that there will be some major manufacturing initiatives in Toledo which will begin very soon.  We can only imagine what the impact of a recovering auto industry will have on Detroit.  This time the gains will be consolidated for the good of the overall community under the leadership of Dave Bing. 


Dr. George Mokrzan, Senior Economist with Huntington Bank


Dr. Mokrzan spoke to a group of appraisers back in December, and he was expecting a big dose of inflation this year from the QE2 move of the Fed back then.  He was also afraid of the sovereign debt crisis, the expiration of the Bush tax cuts, higher taxes and continuing deficit spending.  Sounds like one of those uncivil conservative Republicans.  He was also afraid of Medicare, Medicaid and Social Security, not necessarily in that order.  By 2035, he believes that the two Meds will swamp us under.  Back then he said the industrial Midwest was having an industrial recovery.  Total payrolls in the Midwest took a big dive about equal to the early 1970s and 80s.  There was a double-dip in the early 1980s.   2010 was a good year for employment growth in Indiana and for Ohio to a lesser extent.  Exports for the region had a V-shaped recovery.  Exports from January 2009 to September 2010 were up 57% in the Midwest region.  Ohio is the #4 exporting state of machinery and #7 overall.  Most of Ohio’s exporting business goes to S.E. Asia, the Middle East and South America.  Commercial construction has hit bottom.  The three Cs manufacturing level has recovered to pre-recession levels.  Cleveland and Cincinnati have had the strongest manufacturing growth.  Columbus is more of a service economy. 


Bob Bach, Chief Economist with Grubb & Ellis


Bob said he thought rates would stay low for a while.  We still have excess capacity which should keep inflation low.  Someone asked if we could possibly go the way of Greece, and Bob said we possibly could, but the U.S. debt was still in demand worldwide.  The Fed says long term unemployment will remain in the 5%-6% range.  Low interest rates should stimulate sales of commercial real estate.  The last economic recovery in 2005-6 was in housing.  In 2000 it was technology.  What will it be this time?  Ohio is down 423,000 jobs or 8% since the recession began.  We have had a nice rebound, but it’s up only about 10% of the loss.  National office vacancy peaked in the second quarter of 2010 at 17.9%.  It was 18% in 1992.  It would be 22% if you count all the shadow space, which is space under lease but not being used.  We will have a half-speed recovery in the office market.  In 2011 the recovery will be mostly absorption of shadow space.  Offices close to mass transit will do the best.  Some cities have light rail throughout their business district.  Class A rents will be very slow to increase.  The Midwest office market depends upon employment growth.  Big cities have greater demand.  Examples are San Francisco, Austin and New York.  Supply dictates vacancy rates right now. 


Medical office demand should be on the upswing considering the increasing demand by baby boomers.  Industrial vacancy peaked at 10.9%, and this rate is coming down gradually as rents increase gradually as well.  Retail sales are starting to come back.  The savings rate is now 6%.  Retail vacancy is about 11% right now.  REIS says it is not coming down while CoStar says it is.   Apartments are doing well.  Home ownership peaked at 69%.  It’s down to 66% now.  Vacancy is way down from 7.8% to 5%.  For industrial, global trade is very strong right now.  Commercial real estate volume has almost doubled in absolute dollars from recession lows.  Class A properties are up 30% in some markets.  For commercial real estate, we need CMBS, commercial mortgage-backed securities, to come back and they are.  Good companies can’t get financing.  Private equity coffers are full with $300 billion sitting on the sidelines.  One borrower recently had a $2.4 million apartment deal he wanted to get financed.  He had a $60 million net worth and $40 million in liquid assets and it was very difficult to get him financed.  Bob said CMBS sales were going very well for the seven big investment banks like Citi, Goldman, JP, Chase, Morgan Stanley and UBS.  Freddie Mac sold 4 securitizations this past year and they’ve all been oversubscribed.  There’s lots of money out there which is a big change since the beginning of 2010. 


Kevin Blakely, Chief Risk Officer, Huntington  National Bank


Investment banks got started in 1998.  They do not take deposits.  They borrow money and make deals for a quick profit.  They do not keep debt or assets on their books.  In 2003-04 the Fed raised interest rates, but 10-30 year Treasuries would not go up.  Why?  China bought up our debt and kept them up.  Commercial banks offered teaser rates.  Lots of liquidity was out there with low rates.  Values went up, up, up.  In 2007 subprime mortgages began to go south.  The question is, “how do you create AAA securities with junk?”  How do you make chicken salad out of chicken shit?  In May 2007 at the first signs of cracks in the foundation, the subprime market was dead.  The banks got caught with lots of the junk they were waiting to sell off as securities.  Banks were holding securities in their investment portfolios.  When we say “securities” we’re referring to MBS, mortgage-backed securities.  Rotten loans were packaged as securities and received AAA Moody’s ratings and were sold off throughout  the world.  Problem is our banks were holding the rotten securities when they crashed.  Money market funds were also holding the securities. 


In May-June 2008, investment bankers convened for a meeting in Frankfurt, Germany.  It was then that the banks realized what was happening and they lost trust in one another.  They immediately froze up lending, hoarded liquidity.  The economy seized up.  Then on September 15, 2008, Lehman collapsed.  At first the Government was going to buy debt, but they couldn’t price it.  they just handed money out to the banks.  National City collapsed.  They were big players in the subprime.  There was a run on the banks.  Corporations were calling their money.  TARP said “NO” to Nat City.  Wachovia had too much subprime as well.  They were also cut off. 


The Treasury and the Government “gave” money to the banks.  TARP did work.  TARP money is being repaid.  The Government is getting repaid and they have warrants they are selling.  Thank God, Barney Frank and Congress rode in on their white horses to the rescue. 


Dodd-Frank is the national full-employment act for Federal Government employees who usually join certain organizations who usually vote a certain way.  Get it?  (Some of the foregoing thoughts were those of the author, not Mr. Blakely) 


Dodd-Frank will generate 243 new regulations in the next two years, all directed at the banking industry.  80 new regulations per year for three years will be a big drain on the banking industry.  It will be a tremendous expense to the lending industry forcing them to hold 9-10% in reserves, up from 6%.  This will really crimp bank earnings.  “How are banks ever going sell stock?”, Blakely asked. 


There are now four mega-banks.  The government is trying to keep them from growing, to force them to hold more capital.  They hold $2-$3 trillion in assets.  They will take the economy down if they fail.  Dodd-Frank might be right.


The Ireland banks got bigger than the country.  Ireland can not bail them out, so the EU has to. 


Blakely feels commercial banks should be split from investment banks. 


Cyber attacks on banks could take them down.  Bank failures are now the small banks.  The FDIC problem bank list was 180 as of mid-December.  Barney received $106,000 from the banks and real estate firms.  He received $265,000 from the securities industry.  Small mortgage brokers are being swamped under by regulation. They are beginning to fear for their survival. 


The home ownership decline has contributed to a rise in apartment demand.  Employment growth should also stimulate apartment demand.  Unemployment among the college educated is only 4%.  There is a big demand right now for student housing.  The U.S. population is growing, but the rate is slowing.  China is about 75% of our rate.  China’s birth rate will slow greatly in the future.  The populations in Europe and Japan are shrinking mightily.  We are the only country which is holding its own.   Our birth rate is two per couple.  Japan’s is 1.37. 


This update was brought to you by Robert D. Domini, MBA, MAI, Continental Valuations, Inc., state certified appraiser in OH, MI, FL and IN.     



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