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.

 

 

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.

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!!

]]> http://www.continentalvaluations.net/blog/?feed=rss2&p=50 0 http://www.continentalvaluations.net/blog/?p=46 http://www.continentalvaluations.net/blog/?p=46#comments Tue, 30 Aug 2011 15:00:36 +0000 Robert Domini http://www.continentalvaluations.net/blog/?p=46

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.

]]> http://www.continentalvaluations.net/blog/?feed=rss2&p=46 0 http://www.continentalvaluations.net/blog/?p=43 http://www.continentalvaluations.net/blog/?p=43#comments Mon, 17 Jan 2011 20:28:01 +0000 Robert Domini http://www.continentalvaluations.net/blog/?p=43

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 bobdomini@bex.net 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.     

                ]]> http://www.continentalvaluations.net/blog/?feed=rss2&p=43 0 http://www.continentalvaluations.net/blog/?p=40 http://www.continentalvaluations.net/blog/?p=40#comments Mon, 06 Dec 2010 20:05:16 +0000 Robert Domini http://www.continentalvaluations.net/blog/?p=40 God Bless America

As we close in on the end of 2010, we are thankful for all of the good news this past year. The Dow Jones Industrial Average and the S & P 500 Index are up about 10% for the year due largely to corporate profits which have been strong. Interest rates have stayed low throughout the year, but housing and commercial real estate have yet to recover. Worldwide economic news is throwing off mixed signals. The Dow lost ground in November, although it is off to the races thus far in December. Unemployment is still hanging at just under 10% with the “real” unemployment rate somewhere towards 17-18%. Global markets are reeling with the Euro dropping like a rock and European stock markets down at least 5% for the month of November. Ireland, Italy, Spain, Belgium and Portugal could be going the way of Greece. Germany is trying to hold up the entire continent single handedly. The dollar has risen 7% against the Euro since the beginning of November which may seem like a good thing, but it will have a dampening effect on exports. The Euro crisis does affect the U.S. directly because 19% of our exports are to the 27 countries in the European Union.

The U.S. economy is beginning to feel better about itself, having turned in a nice performance at the shopping malls during the holiday weekend. A full house of conservatives is anxious to have a crack at reducing the deficit this coming year. Taxes are another matter. If anything is to be done to extend the Bush tax cuts, it needs to happen during the lame-duck session prior to January 1, 2011. The problem is that the President is hoping to allow some of those tax cuts to expire. The delay in making this important decision has caused a great deal of uncertainty, and that’s why most of us are not hiring, nor are we willing to invest in new plant and equipment. The small-business community is already feeling the effects of all the turmoil in the medical insurance business. Some of us have already received premium notices with increases in excess of 40%.

Having said that, this Country was spilling red ink for at least twelve years up to the beginning of World War II, and then, as the war effort ramped up in 1941 and 1942, something miraculous happened. Despite the overwhelming debt from government spending for well over ten years, our economy took off and dug its way out of the Depression. I believe strongly that our U.S. Constitution is still the law of the land, although it’s being challenged on a daily basis. We must defend our Constitution at all cost, and we will weather this storm. America will rise again, and when it does, it will be with a strength and fury no one can possibly imagine! What Caused The Great Financial Meltdown of 2008?

The date was September 17, 2008, and the website of a company named, “Residential Home Funding Corporation” was offering a most interesting product. The website read, “A Government-regulated agency, Fannie Mae, has developed innovative mortgage products for borrowers who have difficulty raising adequate funds for their down payment. These mortgage programs will pay up to 97% of the purchase price and the other 3% can come from a wide variety of sources including loans from a 401-K or a credit union. No Doc Loans are available. One type is a NINA loan where no income or asset information is provided or verified. There is also a Stated Income Verified Assets loan where income is stated, but not proven. No proof is required. This flexible program allows foreign nationals with no income and no credit history in the United States to buy property.”

Fannie Mae and Freddy Mac were GSEs, government-sponsored enterprises. They were not only government sponsored, they were government controlled. They were a policy extension of the U.S. government. The U.S. Congress determined long before George W. Bush was President that it was their goal to make home ownership affordable to most American families.

The loans were originally packaged by Fannie Mae and sold off as securities. They were known as Mortgage Backed Securities. Later, the larger banks joined the fray. They purchased subprime loans from brokers and smaller banks, packaged them and sold them as MBS (mortgage-backed securities). Rotten loans were packaged into securities, bonds if you will, and sold with AAA Moody’s Ratings throughout the world. In fact, the bonds were even insured by such companies as AIG. It was a no-lose proposition.

The other villain was the top management of the financial corporations. The really big players were the investment bankers such as Bear Stearns, Lehman Brothers, Merrill Lynch and Morgan Stanley. The CEOs of these firms made huge bonuses by taking obscene risks with their shareholder’s money. When they collapsed, guess who was left holding the bag?

Have no fear, the taxpayer will always step up and come to the rescue. In September 2008, the U.S. Government, Joe Taxpayer, took over complete ownership of the Fannie and Freddy. A War-Time Eminent-Domain Taking

Just four months following the bombing of Pearl Harbor by the Japanese, the U.S. Navy was busy building tank landing craft for the invasion of the European Continent. At the time, construction was underway on the Ohio River by Marietta Manufacturing Company, a company owned and controlled by the Navy. The Navy desired to acquire the neighboring 153 acres for assembly of prefabricated ship hulls and as a Naval Distribution Center. In a 3-page order, a District Judge from West Virginia declared that the United States was taking the property by eminent domain and that the price was to be $47,320. According to the order the price was determined by the Secretary of the Navy to be just compensation. This was a heavy-duty transaction because the order came directly from the Secretary of the Navy under the authority of the U.S. Attorney General and the U.S. Congress. That’s $309 per acre, and the deal was signed into law by Harry E. Watkins, District Judge, on April 28, 1942.

One month later an addendum was filed by the seller which was later attached to the deed. In it there was a very strange (offensive) deed restriction. The property was not to be sold or transferred to any person of African birth or descent for a period of 50 years.

Despite the U.S. Constitution and a Supreme Court Decision, the acquiring agency, the U.S. Navy, in time of war, acquired personal property by fiat with a local judge signing the order. The value, “just compensation” was determined by the Secretary of the Navy, the acquiring agency. The Fifth Amendment to the U.S. Constitution states that, “no person shall be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” In 1897, a U.S. Supreme Court decision affirmed the duty of the state to see to it that just compensation is paid for property taken by eminent domain. For a Property Tax Appeal, Should You Hire a Property Tax Consultant or an Appraisal Consultant?

A Real Property Consultant is not a real estate appraiser. A consultant is sometimes hired for property tax appeals of large commercial or industrial properties. The consultant will give advice to the property owner on all aspects of the appeal process. He/she can attend hearings with the owner and make arguments to help the client’s cause. However, the consultant cannot render an opinion of value as though he is an unbiased professional.

A Real Estate Appraisal Consultant can render an unbiased opinion of value. He/she can advise the owner as to the appeal process. The appraiser can attend hearings and speak on behalf of his appraisal, but he must be careful not to be an advocate for the client’s issues and causes. The appraiser must never accept a fee that is contingent on value or a particular result. The fee must be paid for services rendered, only. What Can The Real Estate Appraiser Do For You?

The real estate appraiser can check the records against the actual property to determine whether there are any factual errors in the Auditor’s appraisal. What kind of factual errors can be made? Your building could have a major roof leak and serious interior damage. The property could have been vandalized. The foundation may not be secure. Additionally, the square footage could be wrong. The site size could be incorrect as well.

The appraiser can take pictures of the damaged areas and secure estimates to repair damages which are usually a deduction from the value.

While the appraisal is being prepared, the appraiser often has enough data available to make a reasonable determination of value even before the written appraisal is completed. So long as the appraiser has file material available to support his opinions, he can verbally inform the property owner that his value is equal to or greater than the Auditor’s value and an appeal will likely be unsuccessful.

When the appraisal is complete and presuming that the appraiser’s value is less than the Auditor’s appraised value, then it can be used as evidence in the Board of Revision hearing. The appraiser will appear before the Board and present his appraisal. The property owner and/or his attorney must be present during the hearing. The Most Effective Appraisal for the Board of Revision Hearing

Most Boards hearing property tax appeals appreciate an appraisal and an appraiser which are both clear and concise. The Board will most appreciate a straight-forward sales comparison approach for smaller commercial properties. In cases of leased properties or properties where income is an important factor, an income approach is usually developed.

A brief and simplified explanation of the appraisal is always appreciated. If the Board requires greater detail, they will ask questions.

Some appraisals for tax appeal are for large and complex properties. Even appraisals of complex properties should be simplified as much as possible.

Continental Valuations can provide either a Real Estate Appraisal Consultant or a Real Estate Appraiser for your project. Who is John Galt?

By now many of you know the segments of the story that I have been telling from the book Atlas Shrugged. John Galt and his fellow business owners, investors, inventors and creative thinkers had largely given up the fight and abandoned their businesses. Each of them had come to a place they called Atlantis which was actually a valley in the mountains of Colorado which was not visible from the air and which had no roads leading to or from it. The group in this small village was relatively small, but its inhabitants were the inventors and the creators of their industries.

The outside world was crumbling. The captains of industry had just simply vanished into thin air, and each of them had not sold their businesses, they just abandoned them. As soon as they left, the looters fed on the carcasses until there was almost nothing left. A few of the business people made a valiant effort to hang on, but it was a losing battle. One of them, Dagny Taggart, who ran the Taggart Transcontinental Railroad, was trying to hang on. She followed John Galt into the valley and crashed her plane there. The business owners were all there to greet her when she recovered from the crash. They nursed her back to good health, but as soon as she recovered from her injuries, she was ready to return to the outside world to try to stop the madness before it destroyed everything. As she was about to leave the valley in John Galt’s plane, she said to him, “I started my life with a single absolute: that the world was mine to shape in the image of my highest values and never to be given up to a lesser standard, no matter how long or hard the struggle”.

Back in the outside world, the leaders were proudly developing what they called Project X which turned out to be a weapon based upon sound waves that could destroy almost anything within a range of 100 to 300 miles. The sponsors were Dr. Floyd Farris, Dr. Stadler, Wesley Mouch, Orren Boyle and Mr. Thompson. Together, they felt that this new weapon would give them unrestricted control and the ability to take over any and all businesses of their choosing.

Meanwhile, Dagny was once again walking on the streets of New York, and managed to find her way back to her office in the Taggart Transcontinental Railroad Building. When she arrived at her office she found that a Mr. Cuffy Meigs had assumed command. He was the Director of Unification, the Washington representative in charge of the Railroad Unification Plan. And, the story goes on from there. The parasites and the leaches were closing in for the kill and she, Dagny, was just now getting a good taste of the reality she had been denying now for a very long time. The story will continue in the next issue, but, again, if you would like to learn the “rest of the story”, you should read Atlas Shrugged, by Ayn Rand. This E-Newsletter Was Brought To You By . . . .Bob Domini, MAI. Continental Valuations is a full-service real estate appraisal company located in a historic building on Second Street in downtown Perrysburg, Ohio. We make our living doing real estate appraisals for businesses, banks and private individuals for a wide variety of uses ranging from tax appeals, estates, corporate acquisitions, bankruptcies, divorces and financing. Next time you need a real estate appraisal, give us a call.

Respectfully,

Robert D. Domini, MBA, MAI

Certified Appraiser in OH, MI and FL

CONTINENTAL VALUATIONS, INC. ]]> http://www.continentalvaluations.net/blog/?feed=rss2&p=40 0 http://www.continentalvaluations.net/blog/?p=38 http://www.continentalvaluations.net/blog/?p=38#comments Mon, 08 Nov 2010 20:27:45 +0000 Robert Domini http://www.continentalvaluations.net/blog/?p=38 WHO’S AFRAID OF THE BIG BAD QE2?

First, class, can anyone give me the definition of QE2? If you answered that it’s a really big cruise ship named after Queen Elizabeth, you’re right. If you answered that it’s the second phase of a Federal Reserve program of quantitative easing, it means you’ve been watching too much CNBC. Let me throw out a few buzz words and factoids and then we’ll talk about this whole sordid mess. Ok, here goes, printing money, monetizing the debt, and hyperinflation. In short, the Fed is either doing or approaching all of the above. Do they have a right to do this? Absolutely. On December 23, 1913, President Woodrow Wilson signed into law the Federal Reserve Act establishing the Federal Reserve System. In the original charter, one of the Fed’s tools for attempting to control the economy was monetary policy. What is monetary policy? This is coming directly from the book, The Federal Reserve System, 1963, page 35, wherein it states, “The system is continuously buying and selling securities in the open market as it accommodates seasonal demands for money and credit, attempt to offset cyclical economic swings, and supplies the bank reserves needed for long-term growth”. So, you can see that we learned about this in school way back when the Beatles were about to appear on the Ed Sullivan show. It is a mechanism for the Fed to tweak the flow of money. What is the Fed Doing? And Will it Work?

In simple terms, the Fed is embarking on a program of buying back our treasury bonds on the open market to the tune of $100 Billion per month for six months. This is standard monetary policy that’s been around since 1913, so why is it such a big deal? This morning’s WSJ, November 5, 2010, this big event warranted a page 6 story, above the fold no less. The Fed is responsible for price stability (inflation) and unemployment. Right now our unemployment rate is stuck at 9.6%, and is showing no signs of improving. President Obama’s party just a few days ago got “shellacked”, and you ask why? Unemployment is way too high and it isn’t budging. We all know that not all unemployed people are being counted. Some are no longer looking and some are working part time or under the table. The real number is more like 17% to 18% which is at Depression levels. That’s why we here in the backward Midwest where we “cling to our bibles and our guns”, things don’t feel so good. The voting public was screaming to the government to get their house in order. We all know that you can’t make it up in volume when you spend $1.5 trillion a year more than you bring in. It used to be simple. You run up a $1.5 trillion deficit , issue bonds (treasury bills) and sell them at auction to the Chinese, and all that’s left is the interest payments. Life goes on, and we resume the spending. The public is not happy with that. The public is not happy with their taxes being unsettled for the New Year when it’s already into November. They are extremely apprehensive about the health care plan, not knowing what the cost or the benefits will be.

Let’s go back to the QE2 $600 billion move. The Federal Government is buying our own debt with what? With nothing. The stock market is yipping away happy as can be with liquidity pouring into the market. Will our corporations do better? They’re already hoarding billions in cash, so this won’t help them. In fact, corporate profits are doing just fine. According to the WSJ, the Fed is lending enough money to the government to fund its operation for the next several months. Per the WSJ, that’s “monetizing the debt.”

As usual, everything I read stops dead without telling me where we’re going. I’ll take a position. I think this is a bad move. I don’t think it’s necessary. The American people spoke on November 2, and the message was that they want fiscal responsibility. They did not send the message to go on spending and borrowing binge three days after the election. Monetizing the debt and printing money or whatever you want to call it certainly is not a prudent thing to do. We are no longer in “emergency” territory as you will see in the next section. I don’t see the need for drastic measures at this time. Now is the time to bring our fiscal house into order by cutting spending across the board and reducing the deficit. What Does Stuart Hoffman Have to Say?

Stuart Hoffman, chief economist at PNC, spoke to a full house of business people in Toledo, Ohio about a week ago. He was a whole lot less bullish than he was a year ago. At the time Stuart believed, like most economists, that a little Keynsian stimulus was a good thing. Stuart characterized this recovery as a “half-speed” recovery. 22% of small business companies expect to add staff during the next twelve months. When it gets to 35% we’ll be in full recovery, he stated. In fact, the balance of the thoughts and ideas in this article are those of Stuart Hoffman. In Ohio 18% say they will hire and invest during the next twelve months. 40% expect sales to go up over the next twelve months in Ohio. The top challenge is government policy and the uncertainty that it causes. 34% said they expect weak sales while 21% say they are concerned about government policy. 71% said the stimulus bill did no good. While he felt that the stimulus was a good idea at the time, he also believed that there would be a handoff from the government to private industry. Jobs from private industry have been growing now for eight straight months, but the growth cannot keep pace with those newly unemployed. Stuart feels that the economy is headed in the right direction and that unemployment will come down to 9% in the next twelve months. But, that’s not enough. Consumer spending is up 2.5% this past month which is the best performance since 2006. Business investment in plant and equipment have also been strong, increasing by double digits, and remember that business investment represents 12-14% of the economy.

Other bright spots include improving exports and a growing global economy. The UK, Germany and Canada are growing. Although Canada is a close relative to the U.S., their budget deficit has not grown anywhere near what ours has. The foreclosure moratorium was not a good idea and did no good. Despite this, home prices appear to be stabilizing except in Florida and Arizona. As to the capital markets, money is available. GM and Chrysler both plan to issue an IPO in the coming months to pay back the TARP money. Credit availability is coming back. It sometimes comes down to mindset. Negativity breeds negativity which certainly is a true statement.

What can go wrong? We could get a deflationary double dip. Government policy needs to be changed and the tax situation needs to be clarified. He expected the Democrats and Republicans to compromise on that issue. Financial reform could cause problems, and commercial real estate is still weak. There is a problem worldwide with sovereign debt, and finally, job growth needs to materialize. As to the QE2, quantitative easing, he felt it would neither benefit nor hurt the economy. He did say that as a result, stocks would go up the next year or two.

In closing he said this past recession was caused by a collapse in the financial markets, and that there will be no quick fix for it. We need to fix taxes, reduce the deficit and get the government out of the way. Well done, Stuart. What Does History Say About Printing Money?

This whole business of printing money has been tried before. It happened in Germany in the 1920s. In fact, the king of government spending, John Maynard Keynes, said in his book The Economic Consequences of Peace that “The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.” CoStar Group Says Commercial Real Estate Prices May Have Bottomed Out

According to CoStar, investment-grade commercial real estate has increased in price both in August and September this year. In fact, in September they were up 5.48%. Also, they report, that for the first time since the second quarter of 2007, all four commercial real estate types have increased in price, that is apartments, offices, retail and industrial. And finally, in an e-newsletter publication dated November 3, 2010, it is reported that “all four categories of CRE have had their indexes increase this past quarter. The multi-family index moved up the most with a positive 8.98%, office increasing 6.08%, retail up 5.56% and industrial up just 0.49%.” What is in the Financial Reform Bill?

This bill was passed sometime in mid-July and it directly impacts my business and I know absolutely nothing about it. I attribute this more to burnout than to a general case of apathy. We in small business have had so many obstacles thrown in our path these past two years I think some of us are just plain numb. We can’t take it anymore, so when two clowns like Frank and Dodd decide to pass a bill to regulate my business, just the thought of it makes me feel ill. Now that I’ve set the tone for this article and you know that I’m doing this out of a sense of obligation and not because I enjoy it, here goes. This article I’m writing comes directly out of the Washington Post, July 16, 2010, by Brady Dennis, so we’ll all have to read between the lines considering which side of the aisle those people usually reside in. Ole Brady starts off by saying what a wonderful legislative victory this is for President Obama since he pledged to rein in the reckless Wall Street culprits and tighten up those regulatory rules that allowed the financial collapse to happen in the first place. So, step one is that the collapse of our entire financial system occurred as a result of corporate greed and lax regulation. That’s nice. I’m still in the second paragraph and I’m starting to get all worked up which isn’t good for my blood pressure. I mean no offense by this, but Chris and Barney, aren’t you the same two guys who helped pass the Community Reinvestment Act during the Carter and Clinton Administrations. That Act had as its goal to make housing more affordable to everyone, and it created lax regulation which allowed people to get home loans without proving their income or their assets.

Our buddy Brady called this a massive bill which establishes an independent consumer bureau within the Federal Reserve to protect borrowers, et al. Of course there will be a massive agency to regulate those derivatives and other complex financial instruments. In another section Brady states that immediately upon passage, the Federal Insurance Office will have the authority to seize big, failing companies. Kind of brings a tingle up your leg, doesn’t it. I’m not sure how this impacts me as an appraiser, but I’m sure of one thing, it will employ a whole lot of federal union workers. Actually when you think about it, this is a job creation bill. This Update is Brought to You By

Yet another Continental Valuations Newsletter is in the can. I hope you’re all doing well. That was quite an earth-shattering election we had there a few days ago, wasn’t it. Time will tell what effect it will have on the economy, but those of us in small business are hoping and praying that things get better sooner rather than later. For your real estate appraisal needs, please call me at Continental Valuations in Perrysburg, Ohio. We can provide appraisals for a wide variety of purposes ranging from financing to litigation in any state in the U.S. We do right-of-way appraisals for highway takings – both for governmental agencies and for private owners. If you have a difficult appraisal problem or one involving possible litigation, give us a call.

Respectfully submitted,

CONTINENTAL VALUATIONS, INC.

Robert D. Domini, MBA, MAI

President

Certified Appraiser in OH, MI and FL ]]> http://www.continentalvaluations.net/blog/?feed=rss2&p=38 0 http://www.continentalvaluations.net/blog/?p=34 http://www.continentalvaluations.net/blog/?p=34#comments Fri, 08 Oct 2010 19:16:33 +0000 Robert Domini http://www.continentalvaluations.net/blog/?p=34

Paul Krugman and Tim Geithner are Wrong About 1937

According to a CBS News report, nearly all of the $862 billion in stimulus funds signed into law in February 2009, will have been awarded as of the end of September, 2010.  Yet, also according to CBS, the funds awarded have not yet found their way into the economy because most of it has been awarded to cities which have not been able to work through the processes such as bidding. Now, the Government is proposing a new $50 billion shovel-ready infrastructure plan, call it Stimulus II. 

In 1932, the U.S. was in the same boat as the rest of the world in terms of economic distress.  Our unemployment rate climbed to 24.9% as FDR was being elected but most of the world shared a similar predicament. Denmark led the way with 30.8% and Japan had the low of 6.8%.  Fast forward to 1937; the U.S. was registering a much-improved 13.2% unemployment rate, but that was after more than four full years of New Deal spending.  The rest of the world, in 1937, was generally at about the same place we were. Norway led the pack at 26.9% and Japan was still low with 3.7% unemployment. Our trading partners, such as Canada, were then at 12%, the UK was at 10.5%, Australia 9.3% and the World Index posted an unemployment rate of 10.1%.  Then in 1938, our unemployment numbers surged to 19.8% while the rest of the world was either standing pat or up only slightly.  No one was up by 50% like we were.  In fact, the average for 16 nations in the League of Nations was only 11.4% that year. 

Krugman and Geithner would have you believe that FDR slacked off on the fiscal stimulus in 1937 which caused the economy to crash in 1938.  Well, let’s see.  After five years Roosevelt ratcheted up taxes to 79% for the top income earners, he raised corporate and excise taxes, he doubled the national debt, and federal spending tripled.  U. S. unemployment reached 19.8% in 1938 and hit 20.7% in April 1939. 

Geithner is no big fan of extending the Bush tax  cuts even though he never has been very fond of taxes in his personal life.    He was pushing the $50 billion shovel-ready program.   Krugman claims that FDR pulled back fiscal stimulus too soon in 1937, and this caused the nosedive in 1938.  Is this true?      

It’s true that the elections of 1938 did not go well for the Democrats.  They lost a lot of seats in both Houses and many Democrats who were opposed to the New Deal were reelected.  In the U.S. we hold our Congressional elections in November, and those elected do not take office till the following January which would be 1939.  The new Congress shut down the WPA, CCC, and other relief programs after they took office in 1939.  In 1937, Roosevelt refused to cut spending after extensive debates with then Treasury Secretary Morgenthau.  In fact between 1933 and 1939, federal expenditures tripled.  There is no evidence that Roosevelt cut back spending in 1937. 

If you’re wondering why the economy took a dive in 1938, consider this.  FDR ordered an FBI investigation to look into a criminal conspiracy by business to hold back capital spending.  Roosevelt’s anti-business tirade went so far as to levy a tax on retained earnings. (i.e.  a tax on money already taxed).  Imagine that.  FDR went on a tear against monopoly power.  He attacked Henry Ford and steelmaker Tom Girder and the sixty families that controlled most of the large businesses in those days.  It’s true that FDR talked about balancing the budget in 1937, but spending was never actually reduced.  When Roosevelt saw the economy fall into a tailspin early in 1938, he immediately went on a $5 billion spending spree.  In point of fact, the New Deal had engaged in deficit spending, right out of the chute in 1933.  In May 1939, his Treasury Secretary, Morgenthau, wrote in his diary, “We have tried spending money.  We are spending more than we have ever spent before and it does not work.  And I have just one interest, and now, if I am wrong somebody else can have my job.  I want to see this Country prosper.  I want to see people get a job.  I want to see people get enough to eat.  We have never made good on our promises.  I say after eight years of this administration, we have just as much unemployment as when we started, and an enormous debt to boot.” 

So, Paul and Tim, please don’t worry.  Your Government is not likely to slack off on its spending in the near future.  Even if the Republicans take both Houses of Congress next month, they will never be able to override a Presidential veto to cut back on spending.  Deficits are scheduled to exceed $1.5 trillion as far as the eye can see, and the national debt has now reached $13.5 trillion. 

The Depression ended on December 7, 1941, with the attack on Pearl Harbor.  Unemployment went from 14% in 1940 to less than 2% in 1943.  Spending for the war was incredible.  The total for 1946 was $62 billion or 30% of GNP.  It is truly amazing that this Country was able to spend so much money for so long, and eventually come out of it.  Why did war pull us out of the Depression when all of the “make work” spending of the New Deal was never quite able to do the job?  The reason is that people had something to work for that they could believe in.  Everyone was working, man, woman and child because the cause was to do or die.  Instead of business and the Government being constantly at odds with each other, they were arm in arm for the common cause.  It is amazing what the USA can do when we all finally decide to join the same team.  This will happen again someday and we will once again be united in a common cause.  Hopefully it won’t be another World War that unites us.

It’s getting to the point that most of the people who lived through the Depression are gone.  I had the wonderful opportunity a day or two ago to speak to my aunt about life for their family during that period.  My mother was part of a large family with eight children, but during a one-year period 1935 and into 1936, both parentd died suddenly.  I have somewhere the details, but as I recall pneumonia took one of them.  The three boys were older and they were off to WPA and the army leaving five teenaged and adolescent girl home alone to fend for themselves.  The eldest was 18.  My mother was 13 and the youngest was 10.  “Home Alone” is what it was.  I spoke to my Aunt Betty, the youngest, a day or two ago and asked her how they survived.  Her reply was, “I have no idea”.  I remember hearing stories about their picking up coal along the railroad tracks to heat their home.  My aunt told me their food was primarily from a garden their mother had left behind.  They ate the produce during the summer and canned it, I suppose, for the rest of the year.  The eldest kind of acted as the defacto parent to this literal hoard of little girls.  Oh yes, I heard many stories from old Aunt Aggie.  My aunt said that my mother made some money babysitting and when she was 15 she went to work for the May Coal Company just down the street.  When she was 17 she got a job as a receptionist at Toledo Riverside Hospital.  In those days the breadwinner was able to bring home only about $2.00 per week.  In the meantime the FDR Administration was spending billions on WPA, CCC, AAA, NIRA and what have you, a literal alphabet soup of programs to “make work” for people.  Billions of dollars found their way into political campaigns so that the powerful could stay in office.  Federal spending was tripled from 1933 to 1939 while the national debt doubled.  And back in this Hungarian neighborhood in the Industrial Midwest this family of five orphaned little girls were home alone, and they received not one cent from any governmental agency.

What had Stuart and others neglected to put into their formulas?  Was it the exact nature of the stimulus spending?  Where did that money actually go?  I’m not certain of this fact, but the last I heard the stimulus money was stilll not half spent.  What we do know is that the stimulus money went to the pet projects of influential Congressmen and Senators.  What else has transpired?  Businesses are already writing down profits in anticipation of the Health Care Plan.  Taxes are going up dramatically after the first of the year, and investors and business are gearing up to avoid paying as much of it as possible.  I have not read any of the Financial Regulation bill, but you can rest assured that some of its provisions are onerous to business.  I’ve seen bits and pieces of commentary from the Appraisal Institute which is feeling pretty positive about it. 

All things considered, the economy is in for a battering in the coming months from all of these sources.  So, Humpty Dumpty Sat on the Wall.  Humpty Dumpty Had a Great Fall.  All the Kings Horses and All the Kings Men Couldn’t Put Humpty Together Again.  We had the Bush Hope Now program, the Barney Frank Hope for Homeowners and the Obama HAMP Program.  And still, housing is in a free fall.  After well over  One Trillion Dollars in stimulus spending all we have to show for it is a declining economy, high unemployment and a mounting debt that will rival Greece in the not-too-distant future. 

So where am I going with this you ask?  Good question.  The WSJ Editorial Page today suggested that the forces of supply and demand are finally being left alone for a little while to “do their thing”.  Perhaps there is a wipeout period underway where a real bottom is being made up.  Hopefully, soon we’ll all be able to do a big exhale from that wonderful sense of relief that this Congress can do no more harm than they have already done.  With the elections looming, perhaps they will go to an early recess and stay out of Washington till the first of next year.  There’s always hope. 

If you’ve been reading my earlier blogs you’ll notice that this is my first posting of a simple message.  All of the previous blog postings have been my E-Newsletter which goes out to about 1,000 people who I hope might some day order an appraisal from me.  My internet consulting firm, Kinetica Media, suggested one day that they post my newsletter to a blog and see what the reaction might be.  Today I finally took the time to look at the comments and there were amazingly a lot of them.  A lot of people have been reading my newsletter.  This is not a newsletter, but I will be writing one in the next week or two, so stand by.  Keep your cards and letters coming and the very best to each of you. 

Regards,

Bob Domini, MAI

Now is the time to have a checkup to see whether your property value is lagging behind the assessor’s tax value.  Why?  It is because commercial real estate has suffered from the same maladies as the rest of the economy, persistent unemployment and a lackluster level of economic
activity.  In Ohio we have just entered a new triennium, a three-year period with all-new tax values.  If you are able to successfully lower your
tax value this year, you will be able to enjoy that reduction for at least a
couple of more years.   The timing couldn’t be better than now to have
your commercial property value checked. Assessment officials tell me they will do an informal appeal almost anytime.  That would be for the 2010 taxes.  In Lucas County they like to have those wrapped up by October.   A formal tax appeal needs to be filed any time from the first of the year till the end of March.  For 2010 taxes, the formal appeal process begins January 1, 2011.  Your appraised
value needs to be as of January 1, 2010. If you’re going to file a formal appeal, there’s no time like the present to (a) determine that you have a good case and (b) have an appraisal ready to go with a date of value of January 1, 2010.

For the 2009 tax year, some of those Board of Revision hearings are taking place right now.  If
you have filed a notice of appeal and your hearing date is coming up, an appraisal would be a good idea.  After the appraisal is complete, we will attend the Board hearing with you to present
the appraisal, and answer any questions they may have.

Lebron, Why did you leave us? Lebron James along with his team of MBAs, CPAs and Doctors of Jurisprudence have collectively decided the best place to do business is on the pristine shores of Miami Beach in the shadows of the Fountainbleu, not Ohio.  I believe he was being represented by the legendary firm, Wade & Bosh, LLP.  Why did he leave us?  His 14,000-square-foot mansion happens to be located in Bath, Ohio,with an income tax rate of about 7%, while in Miami it is zero.  According to a WSJ story on Saturday, Ohio has lost almost half of its Fortune 500 companies since 1990, due presumably to higher taxes. We all know that it’s all John Elway’s fault.

Read My Lips, No New Taxes Beginning on January 1, 2011, your taxes are going up across the board.  That includes not only income taxes on just about everyone, but it also includes capital gains and the death tax which were set to disappear. The top tax rate will go to 39.6% from 35%.  The estate tax rate will top out at 55%.  Long-term capital gains go from 15% to 20%.  As everyone knows, raising taxes is a great way to raise tax revenue. Stock dividends will no longer be taxed at the 15% capital gains rate, but as ordinary income.  Charitable contributions will no longer be deductible to certain individuals.    Medicare taxes will rise 62% for some.  There will be a 3.8% surtax for investment income.  Medical Savings Accounts will be limited to $2,500.  For those who are paying more than $10,200 for health insurance, a 40% tax will be levied.  This should be a great benefit to those who have a loved one who badly needs specialized care. Generally speaking, business people have an aversion to higher taxes, especially when they perceive them to be unfair or onerous.  They sometimes go to extremes to avoid them.  Imagine that.

Did the $787 Billion Stimulus Work? The $787,000,000,000 stimulus bill was passed into law during February 2009.  The legislation passed through Congress in record time with the idea being that it would be deployed immediately on shovel-ready infrastructure projects for maximum effect.  In January 2009, our economy had already shed 2% of its jobs since the beginning of the recession January 2008.  Most countries in the world were either holding their own or losing jobs at that point.  Chile and Brazil had lost 2-3% of their jobs as they entered the starting gate.   At this time, after eighteen months, how are the various countries doing with regard to employment?    Chile is up 7%.  Brazil +5%, Australia +3%, S. Korea +2%,  Taiwan +2%, and Canada +1%.  Germany and Hungary were down big, but are now back to even.  Japan and UK are -2%,  and the U.S.  at  -3% is lagging the rest of the industrialized world.

Stock Market Up Big The week ended July 9, a holiday week with just four days when most people were still cleaning up the fireworks wrappers from their yards, the market decided to rise 5.3% on the Dow.  Why? Big multinational corporations are taking advantage of global growth.  The foregoing article should illustrate  why.  In many parts of the world a genuine recovery is underway, and in some countries, a vigorous one.    Big-corporation earnings are leading the way with Alcoa and Caterpillar up over 9% for the week.  What does the smart money know that we don’t know?  That’s an interesting question.  Our office is beginning to see a slight increase in transaction volume. In some locales building permits are beginning to lead the way. It’s always darkest before the dawn.  When you’re down and feeling low, cheer up, things are usually not as bad as they seem. Within a few months, the whole world could change from where it is now.  Taxes and spending could be brought under control.  The smart money will see this coming from miles away.

Scuttlebutt Off the Web Surfing the web I came across an interesting article by Dan Weil.  In it he said Sam Zell, who became a billionaire betting on down-and-out real estate, sees a similar scenario developing right now.  He believes that commercial real estate was never in a gross oversupply situation like some sectors of residential real estate were. The bottom dropped out of the demand side for commercial, and he believes that as we see somewhat of a recovery there will be a shortage of commercial real estate.  Nothing has been built since July 2007.  What about Florida condos I say?  My prediction is that with Lebron moving to Miami, there will be a big surge in demand for South Beach condos.  There was a ten-year supply of those before the bubble burst. Perhaps the law firm Wade & Bosh, LLP, can earn some commissions on all those condo deals.

Class A Properties On the Move Oh yes, for investment-grade properties the market is booming.  Class A properties in Boston, New York, Washington, DC, San Fransisco and Southern California are alive and doing well.  The buyers?  It’s REITs, pension funds, insurance companies, and private equity funds.  Below the Class A level, it’s not nearly as busy.

This Update Brought to You by Robert Domini, MBA, MAI This review is brought to you by Bob Domini.  Please call our office for your appraisal needs.   We are especially interested in working with you to help determine the value of your assessed real property to make sure it’s not above market.  We also have been working with a wide variety of lending institutions and governmental agencies to provide numerous real estate appraisal, research and analytical services.   Yours truly and our company also enjoy working with private individuals and business entities to provide appraisals for a variety of purposes ranging from litigation, divorces, corporate mergers and dissolutions and eminent domain takings.  Our licensed and certified appraisers are at your disposal.  Give us a call. Respectfully, CONTINENTAL VALUATIONS, INC. Robert D. Domini, MBA, MAI President Certified in OH, MI, FL and PA (pending)

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