Summer is supposed to be slow;
at least in Fort Myers. It's hot and humid and I can't even bend over and tie my shoes without dripping sweat on the laces. Floridians head to North Carolina or other places cooler up north, but the tourists head to the beach and are easily recognized by the locals by the way they are proud of their red color. For the past two weeks, however, Gail and I have been busy here in town. Today I want to tell you about North Star, High Point, Oasis, Hotel Indigo, and two historic homes for sales in Fort Myers.
Let's start with drinks and dinner at H2. Last week Gail and I joined the always vivacious Christina Boyhan, one of my most favored commercial lenders, now with Florida Community Banks, Inc.. Christina recently left First Horizon who had a residential and commercial loan production office at University Center on the corner of Summerlin and College Parkway in South Fort Myers. They recently closed the residential offices and left Jon Powell as the sole commercial loan officer in the office.
Christina wanted to introduce us to her new company and talk generally how Florida Community Banks can work with us and our developers. I asked Steve Jarvis, the developer of Brantley Commons to join us. We all enjoyed generous drinks, fine wine, and lots of tapas. H2 is one of the survivors in the downtown Fort Myers River District and Harold cooks the way I like to eat: he keeps the food coming in small portions, high quality, and always presents it well. Service is excellent. It's just plain fun eating there.
When Gail and I first arrived it took us about ten minutes to actually get to Christina; this was not because H2 was so crowded, but because we knew so many people there that evening. Near the door was Pat Riley, the project manager for Longwater Yacht Club, Longwater is being planned at the old Manatee World site on Palm Beach Blvd. and Route 75. He is also working on Caloosa Landing, across from Sweetwater on Rt. 31 and the Caloosahatchee River. Both of these projects I have been involved in for the past year or two: hotels, marinas, condos, and restaurants and perhaps timeshare vacation ownership. No links here yet folks: it's way too early. If you want more information, call me. (Developers only please; there are no presales here as the plans are still being gestated.)
North Star Yacht Club
On the other side of the bar were Jennifer Griffin from ISG and Kemp Demming of Continental Realty. Here was their news: Hypo Bank, the original lender on North Star Yacht Club, has taken over the project. Hypo had filed lis pen dens and then came to an agreement with Continental Realty to take over the project. Jennifer and Kemp are no longer involved with North Star. Hypo hired The Marketing Directors, Inc. to take over sales and marketing. Tweed Advertising was released and B-Squared has taken over the advertising. Laurie Hill, one of my favorite condo sales people (at least the most favorite not working for me!) will join the sales effort on Monday, June 23. Laurie was formally at Homes for America (Beau Rivage and St. Tropez). The sales manager at North Star is George Freelove. There have been some price changes but otherwise no other major changes yet. Call us if you want to learn more. 239-277-9309
Hotel Indigo
We also ran in to Phil Hugh. Phil is with DOC Development and has his office right around the corner from our Engel and Voelkers offices. Phil has two projects in town, the Hotel Indigo and an office building on Hendry, a few doors down from us. We are very excited about the new downtown hotel which should be open before the start of next season. The hotel will attract more nighttime visitors to The River District and with an intimate sense of class will be a welcome addition to town.
Oasis
Speaking of class, let's get to Oasis. Earlier this week Oasis had its grand opening and tour of the amenities and four furnished models. Many of you know my dear friend Kevin Manning of BBL passed away from cancer. The Oasis was one of Kevin's key projects and he was proud to be working on it and even more pleased to be involved with Jorge Perez, Micheal Klinger and The Related Group. Kevin's wife Terri and my wife, Gail, are best friends. We of course asked Terri to come to the opening with us. It was a proud moment for me to walk into the lobby of Oasis with both of these beautiful women on my arms. Micheal Klinger, project manager for The Oasis made a point to tell Terri how much Kevin was missed at the event. We also ran in to Mike Bette, owner of BBL and one of Kevin's mentors. It was a bitter sweet moment for those of us that knew Kevin.
Our impressions of Oasis: The pool area and amenities are unmatched in any other project here in Fort Myers. This is truly a resort style community. Think South Beach; think Hotel Delano. White "beds" with canopies (rumored to cost over $10,000 a piece) are scattered around the deck and are punctuated with white lounges, white tables, and fountains; No flapping curtains like the Delano, but white was everywhere and there are sweeping views of the river, downtown, and the bridges. All that is missing here is a restaurant and bar. We found the rooms also cutting edge in style; very urban, clean, and the views, oh the views! The kitchens are very Miami and more reminiscent of urban living than anything here in town.
The party was attended by many of my friends in the real estate business but also in attendance with local luminaries like Fran and John Fenning, renowned artist Darryl Pottorf, Mayor Jim Humphrey and many of vendors that made Oasis possible.
Closing will begin very soon at Oasis as Tower 2 is now complete. There, of course, will be many dropouts - perhaps 30% or more. These will be the people who will walk away from their deposits. Engel and Voelkers is working with many of the buyers and has begun marketing Oasis to the European Market.
High Point
Perhaps it is no surprise that some of the other downtown developers were in attendance. High Point marketing director, the lovely Cheryl Yano, High Point design consultant Laura Youmans and developer Nick Camerata were pleased to have another project like Oasis to bring prospects to the city. I have a few friends that have moved into Highpoint, and for full time living this is one of my favorite downtown. residences. If you have not visited this masterpiece, you need to. Please call 239-277-9309 for a tour.
Tour Downtown
For a tour of any of the downtown projects, Engel and Voelkers is the place to start. We are located at 1635 Hendry, directly across from the parking lot between Second and First Streets. We can give you or your buyers an overview of downtown and the advantages of city living.
Riverfront History
By the way, there are now two riverfront estates on the National Register of Historic Places for sale in Fort Myers. We have the 1925 Stribley Estate, next to the Edison Ford estates offered through our office. Sitting regally on 2.5 acres, this estate has been meticulously rebuilt to the most exacting standards and is now complete and ready for sale. Charles Stribley, a paper industrialist from Kaukauna, Wisconsin, built this winter retreat next his fellow industrialists Thomas Edison and Henry Ford. His home was very opulent, however, especially compared to the austere homes of his neighbors. This historic estate is offered at $5,400,000 fully furnished.
Also available downtown is the Heitman House. This 1908 riverfront masterpiece operates as a Wedding and special event center and is just a short distance from our office.
Call us for Your Real Estate Needs
Readers, we have a great deal going on in both our commercial division (Market America Realty and Investments) and our residential company: Engel And Voelkers. In the commercial arena we just closed on another Brantley Commons Building. (Market America sold four of the top twenty office transactions last year!). We have special retail opportunities now at Shoppes at Diplomat, and have just listed one the last large parcels of developable commercial properties in Cape Coral: 20+ acres - and at a price that makes developable sense. ( Link not ready yet - call me for details).
Ask me to call you
I have hinted in previous newsletters about large offerings of single family homes and condos at "blow away" prices. Be patient. We are making progress and expect some announcements soon. Condos, single family homes, and lots. If you want a phone call on these opportunities, please be so kind to email me at gregg.fous@engelvoelkers.com and make sure you are on my personal call list. Give me your full contact info in that email. When we have to offer what we have to offer, it will not be on the market long.
Thanks for your patronage. Gregg Fous 239-851-5464 Gregg.Fous@engelvoelkers.com
Archive Newsletters
Sunday, July 13, 2008
Land; What it is Good For?
Land; What it is Good For?
Today I want to focus on a trend. This trend has been evident to me since I have been in business, mostly in the manufacturing sector. In the business of real estate we have deviated from this trend in the United States in a major way a few times over the past 90 years. There has been, however, a pervasive tendency, a movement in a certain direction, which I have been witnessing and profiting from since I have been in business. This trend simply this: do more with less.
To do more with less has always been a goal in manufacturing. The deviations from this mantra were short lived and no more than fads (remember fins on automobiles?).This is because to do more with less; to value engineer; sometimes is contrary to current fashion, or emotional wants, and occasionally we will see extravagances outside of this trend: In houses, look at the McMansion; in automobiles, look to the Hummer.
I believe we are now entering a more resolute period where the United States residential and commercial real estate markets will rejoin the trend to economize land, resources, infrastructure, and construction materials. In order to understand the affects of this trend, we need to understand the inner workings of the commercial developer.
How do Commercial Developers Buy Land?
The price per acre or per square foot means nothing to a developer of a commercial shopping center, an office building, or indeed a residential development until there is a definition of yield. Yield in a shopping center will give the developer an idea of how many square feet of rentable space he will end up with when he is done developing. After he balances parking requirements, city set back requirements, height restrictions, common area needs, and water retention and rights of way, he will come up with a total rentable (or salable) square feet he can build on this property. In order to maximize his profits he must maximize the number of square feet he can build and sell. What he winds up with is a yield number that is expressed as a land load number. Every square foot of building will have a land load. The property may have been sold to him for $28 per square foot; but his land load may be $80 per square foot. Every square foot of salable building has a load factor of $80. This is before he goes vertical.
This load factor is treated differently by different types of developers. The hotel developer want to know his cost per "key"; the hospital developer the cost per "bed"; the residential developers talks of developable units (du's). The higher the yield is, the more that the developer can pay in total for the land.
The land comes with other burdens, however, that will come into consideration. Internal infrastructure is expensive as are county and city concurrency issues. The developer must add to the cost of the load factor such items as impact fees, road construction, utility hook ups, and municipal set-offs such as fire and emergency medical surcharges.
High Density Versus Sprawl
In the spirit of doing more with less, the developer must optimize his yield. This optimization leads him to higher density projects and less suburban sprawl. This optimization will, logically, lead him to where the infrastructure like roads and utilities exist, and where the allowable density is already approved.
Environmentalist and some ill advised county commissioners think that high density is not good for the city or for the environment. They are wrong.
Consider these two alternatives:
1. Big Boy Developers can take 100 acres of green space and build a gated single family home community and build these homes on half acre lots. With roads and other amenities needed, Big Boy winds up with 100 acres of land supporting perhaps 60 homes. Big Boy needs to run sewer, electric, water and phone lines to each home. He needs fire department services for this community and a roving security car and a gate attendant.
2. Smart Guy Developers, on the other hand, buys the same 100 acres. He builds three story buildings on thirty of the acres and has 300 living units. Under some of the buildings there are retail stores, others have offices. Seventy of the acres are left untouched and natural. Smart Guy must build fewer utility lines, less roads, needs no security cars or gate, and because of the mixed use, even the residents need fewer cars.
Infill Option
In the boundaries of the city there are parcels of land that we can infill. Infill developers look for parcels of land surrounded by homes. These infill parcels already have the sewer, water, and other infrastructure needed like roads and fire services. I wonderful example of this is the 22 plus acres in Cape Coral at the corner of Aqualinda and Beach Parkway. Property like this is generally a bargain because many of he costs associated with what is called "green field" developments have loads on them for infrastructure that make them cost prohibitive. Furthermore, parcels of property like this already have the entitlements (Zoning, etc) that "Green field" projects do not. This saves money as well as time. (To see another example of an infill project, look at another project we have in Zephyrhills). The Shoppes at Diplomat are yet another example of infill - smart development by doing more with less. Certainly the high density projects IN THE CITY OF FORT MYERS are infill projects that make great economic and environmental sense - but were fought by some of the city officials. (See last week's column posted HERE). Some of the densities of these projects in the city are as high as 125 du's per acre. This is smart growth and should be supported.
Because of the attractiveness of infill economics, you will begin to see tear down developments: developers buying old, rundown areas and rebuilding them. You saw this in East Fort Myers with Oasis and there are other projects in the same area that are being evaluated for redevelopment.
Land, What is it Good For?
Land; wars have been fought for it, nations built with it, and blood shed on it. Land gives us fuel, food, water, shelter, and security. With the return of World War II veterans and their insatiable need for housing, the United States began its long love affair with suburbia. Furthermore, with the decline in agricultural business and the emergence of the automobile as the major source of transportation; living in the suburbs became the American ideal. For the United States, at least, this was a reversal of the long term trend of urban growth. The decline of the small farmer and the increase in manufacturing headquartered in the cities brought urban growth in the past, but since mid last century we have seen urban populations decline.
This decline is reversing with the approach of $5.00 per gallon gasoline, the high cost of infrastructure for development, and the increasing desire by Americans to preserve land while being close to medical and other services.
What Does all this Mean?
Look for the trend back to urban living. Look for smaller homes on less land. (Look for bargains, by the way, that buck this trend as sellers turn to the cities and higher density living). There will be more infill projects and more homes closer to services like medical facilities, schools, jobs, and mass transportation. Developers and residents alike will be "doing more with less".
Look for more fractional vacation ownership like Dock Of the Bay as buyers buy vacation homes in shares, not he entire pie.
Look for projects that paid a '"high load factor". The infill projects that overpaid for their land will not come out of the ground; certainly not if the developers bought the land un-entitled for high density and were counting on changing the density to achieve their economics.
Prices on multi family and single family projects continue to drop. Many land parcels were purchased when exit strategies included sale prices that no longer exist. Load factors of $30,000/du for multifamily are unrealistic except in the most prime of locations.
The exit strategy for any developer is THE primary consideration. They make their money when they buy, not when they sell, and many developers already blew it with their buy PLUS their exit strategy is out the window. Furthermore they are clobbered by misguided environmentalists that think high density is bad for Florida, undercutting their economics of scale.
We are in a time of constriction and economizing. But remember, unlike the rust belt states, Florida is still in a net growth mode. Lee County will still have 800 new residents a month.
The Baby Boomers are coming.
Today I want to focus on a trend. This trend has been evident to me since I have been in business, mostly in the manufacturing sector. In the business of real estate we have deviated from this trend in the United States in a major way a few times over the past 90 years. There has been, however, a pervasive tendency, a movement in a certain direction, which I have been witnessing and profiting from since I have been in business. This trend simply this: do more with less.
To do more with less has always been a goal in manufacturing. The deviations from this mantra were short lived and no more than fads (remember fins on automobiles?).This is because to do more with less; to value engineer; sometimes is contrary to current fashion, or emotional wants, and occasionally we will see extravagances outside of this trend: In houses, look at the McMansion; in automobiles, look to the Hummer.
I believe we are now entering a more resolute period where the United States residential and commercial real estate markets will rejoin the trend to economize land, resources, infrastructure, and construction materials. In order to understand the affects of this trend, we need to understand the inner workings of the commercial developer.
How do Commercial Developers Buy Land?
The price per acre or per square foot means nothing to a developer of a commercial shopping center, an office building, or indeed a residential development until there is a definition of yield. Yield in a shopping center will give the developer an idea of how many square feet of rentable space he will end up with when he is done developing. After he balances parking requirements, city set back requirements, height restrictions, common area needs, and water retention and rights of way, he will come up with a total rentable (or salable) square feet he can build on this property. In order to maximize his profits he must maximize the number of square feet he can build and sell. What he winds up with is a yield number that is expressed as a land load number. Every square foot of building will have a land load. The property may have been sold to him for $28 per square foot; but his land load may be $80 per square foot. Every square foot of salable building has a load factor of $80. This is before he goes vertical.
This load factor is treated differently by different types of developers. The hotel developer want to know his cost per "key"; the hospital developer the cost per "bed"; the residential developers talks of developable units (du's). The higher the yield is, the more that the developer can pay in total for the land.
The land comes with other burdens, however, that will come into consideration. Internal infrastructure is expensive as are county and city concurrency issues. The developer must add to the cost of the load factor such items as impact fees, road construction, utility hook ups, and municipal set-offs such as fire and emergency medical surcharges.
High Density Versus Sprawl
In the spirit of doing more with less, the developer must optimize his yield. This optimization leads him to higher density projects and less suburban sprawl. This optimization will, logically, lead him to where the infrastructure like roads and utilities exist, and where the allowable density is already approved.
Environmentalist and some ill advised county commissioners think that high density is not good for the city or for the environment. They are wrong.
Consider these two alternatives:
1. Big Boy Developers can take 100 acres of green space and build a gated single family home community and build these homes on half acre lots. With roads and other amenities needed, Big Boy winds up with 100 acres of land supporting perhaps 60 homes. Big Boy needs to run sewer, electric, water and phone lines to each home. He needs fire department services for this community and a roving security car and a gate attendant.
2. Smart Guy Developers, on the other hand, buys the same 100 acres. He builds three story buildings on thirty of the acres and has 300 living units. Under some of the buildings there are retail stores, others have offices. Seventy of the acres are left untouched and natural. Smart Guy must build fewer utility lines, less roads, needs no security cars or gate, and because of the mixed use, even the residents need fewer cars.
Infill Option
In the boundaries of the city there are parcels of land that we can infill. Infill developers look for parcels of land surrounded by homes. These infill parcels already have the sewer, water, and other infrastructure needed like roads and fire services. I wonderful example of this is the 22 plus acres in Cape Coral at the corner of Aqualinda and Beach Parkway. Property like this is generally a bargain because many of he costs associated with what is called "green field" developments have loads on them for infrastructure that make them cost prohibitive. Furthermore, parcels of property like this already have the entitlements (Zoning, etc) that "Green field" projects do not. This saves money as well as time. (To see another example of an infill project, look at another project we have in Zephyrhills). The Shoppes at Diplomat are yet another example of infill - smart development by doing more with less. Certainly the high density projects IN THE CITY OF FORT MYERS are infill projects that make great economic and environmental sense - but were fought by some of the city officials. (See last week's column posted HERE). Some of the densities of these projects in the city are as high as 125 du's per acre. This is smart growth and should be supported.
Because of the attractiveness of infill economics, you will begin to see tear down developments: developers buying old, rundown areas and rebuilding them. You saw this in East Fort Myers with Oasis and there are other projects in the same area that are being evaluated for redevelopment.
Land, What is it Good For?
Land; wars have been fought for it, nations built with it, and blood shed on it. Land gives us fuel, food, water, shelter, and security. With the return of World War II veterans and their insatiable need for housing, the United States began its long love affair with suburbia. Furthermore, with the decline in agricultural business and the emergence of the automobile as the major source of transportation; living in the suburbs became the American ideal. For the United States, at least, this was a reversal of the long term trend of urban growth. The decline of the small farmer and the increase in manufacturing headquartered in the cities brought urban growth in the past, but since mid last century we have seen urban populations decline.
This decline is reversing with the approach of $5.00 per gallon gasoline, the high cost of infrastructure for development, and the increasing desire by Americans to preserve land while being close to medical and other services.
What Does all this Mean?
Look for the trend back to urban living. Look for smaller homes on less land. (Look for bargains, by the way, that buck this trend as sellers turn to the cities and higher density living). There will be more infill projects and more homes closer to services like medical facilities, schools, jobs, and mass transportation. Developers and residents alike will be "doing more with less".
Look for more fractional vacation ownership like Dock Of the Bay as buyers buy vacation homes in shares, not he entire pie.
Look for projects that paid a '"high load factor". The infill projects that overpaid for their land will not come out of the ground; certainly not if the developers bought the land un-entitled for high density and were counting on changing the density to achieve their economics.
Prices on multi family and single family projects continue to drop. Many land parcels were purchased when exit strategies included sale prices that no longer exist. Load factors of $30,000/du for multifamily are unrealistic except in the most prime of locations.
The exit strategy for any developer is THE primary consideration. They make their money when they buy, not when they sell, and many developers already blew it with their buy PLUS their exit strategy is out the window. Furthermore they are clobbered by misguided environmentalists that think high density is bad for Florida, undercutting their economics of scale.
We are in a time of constriction and economizing. But remember, unlike the rust belt states, Florida is still in a net growth mode. Lee County will still have 800 new residents a month.
The Baby Boomers are coming.
Perspectives in Real Estate; “And the Good News is….”
Perspectives in Real Estate; “And the Good News is….”
Commentary by Gregg Fous
Oh how short our memories are; or how young we are: Back in the 1980’s almost every major bank in the US was in big trouble and would have had to file for bankruptcy had not the government given them time to write off their loses. The S and L crisis was devastatingly real. In the 1980 the prime rate was 21% and inflation was 13.5%. (See 1980 news flashback). I remember buying a few investment properties back then and being thrilled to be able to buy two REO properties and getting a five year fixed rate at 12% (The paper was held by the bank that wanted to unload the property)!
Today I can’t turn on the news without hearing about Countrywide, Indymac, Freddy Mac, Fannie Mae and the troubled banking industry. Foreclosure tours, people out of work, and the largest bank crash in recent history are water cooler talk of the day.
The Indymac news is not good (Click here) or is it? For instance, do you realize the bank will actually reopen on Monday as Indymac Federal bank? The Feds will begin to market the bank to get it back into the private sector starting next week. In my mind that fact that this bank has been “rescued” by the Feds so quickly is good news.
The economic run we had since the 1980’s and it’s near banking collapse is staggering, but who would of thunk it back then? Sometimes we can’t see past the end of our empty wallet, or our short order backlog, or our bleak short sighted forecast.
Folks, when I get up in the morning I choose to be optimistic and I challenge you to do the same. Sure times are tough: Oil prices, food prices, impact fees, and job losses are all taking their toll. But amidst all this there is good news, sometimes very hard to see from your own perspective, but there are ways for us all to benefit, in the long term, from how we all respond to the current economic crisis. The good news is how we as Americans ultimately respond to the current economic crisis.
On the Indymac situation: the depositors succumbed to fears about the bank collapsing and caused the bank to collapse. The collapse, in turn, elicited a swift and decisive response from the Feds. They took over the bank, assuring the safety of the deposits. Furthermore, I believe the government will not allow the collapse of Freddie Mac and Fannie Mae. The storm will be tough, but we will weather it. We may see a few more failures but the resultant belt tightening and restructuring of the banking industry and its loan practices will have long lasting, positive effects.
Indeed it is how we respond and react to these tough economic times that is the most important thing. We will evolve into a stronger, more stable economic base, where logical growth will prevail over irrational exuberance.
So what’s the good news in all this? The banking debacle should not have been a surprise, and the good news is that we are already in the correction, the fix, and the appropriate response. I will say that I believe that we have perhaps over corrected in the short term in the banking industry. We have over tightened lending requirements and shut down profitable segments of the business along with the unprofitable ones. But this over correction will swing back around and the end result will be good, sound banking. It hurts us now, but we needed it.
Our responses to other bad news is, well, good.
I have referred you to this link before but the law of supply and demand is worth revisiting. The law predicts that the price level will move towards the point that equalizes quantities supplied and demanded. This law is the reason we will never run out of oil. This law is also the reason that all the vacant homes in Cape Coral and Lehigh will be purchased.
Here are some of our good responses:
• Belt tightening. Doing more with less. Economizing where possible.
• Price adjustments. Move prices down to meet demand.
• Protect the core. Protect the family, shelter, provide food. Move down to Maslow’s base needs.
• Fix what broke us. Lax lending; overleveraging; irrational purchases; and poor long term planning.
• Go back to basics. Offer sound service; take no short cuts; and take all the steps needed on the path to success.
• New Business models are developed based on the above. New opportunities like virtual offices, urban living, economical transportation and housing, and in-fill projects. Look for changes where manufacturing facilities are placed, how houses are constructed and their size Look for a “New Conservatism”
• Investing in property now at prices that are below replacement costs. Buying distressed land and development opportunities for a mid-term hold.
Less than good responses
• Opportunistic flash in the pans. Taking advantage of short lived opportunities and building a long term strategy on them is wrong. Just as building a long term strategy on making money by flipping rapidly appreciating homes was wrong yesterday, so is it wrong to build a strategy on short lived businesses like foreclosure tours, buying and selling REO’s, and selling bank paper.
• The Ostrich approach. Don’t hide your head in the sand. Take remedial action now. Talk it out. You are not in an exclusive club right now. Get out and find solutions with your network of business and social networks.
Let me mention just a few of our “problems” and comment on the good news:
Too many houses on the market. What we really need to look at is the number of vacant homes on the market; these are the “overage: we need to fill. Prices have now dropped to a low of around $80/sf. At these prices the houses are selling. As the selection gets “slimmer” the prices will climb again. After all, builders cannot duplicate these homes at these prices. These homes are bargains in today’s market. Housing is now affordable. Lee County is now attractive to retirees again. This is good news.
High Gas Prices. The response from most Americans is to drive less (consume less gas) but I am sure we will get accustomed to these prices and this response will be tempered somewhat. The good news is that Americans now need to live closer to work and more of the infill housing will sell and get occupied. Some other good news: Look for more local distribution centers, more manufacturing near consumption, and more mass transit. Look for the long term response in automobile design. TIP: It is easier to drive 20% less than sell your gas guzzler to save $100/month on gas by paying another $5000 for an “economical” car.
Hard to borrow money. The banks are in an over corrective mode now, but this over correction has brought more logic and sound investing. This is good news.
Food prices High. Most of these price increases are related to high energy costs and high corn prices. (See ethanol production and food costs article) It is hard to see the good in high food prices, but I believe the good you will see will come out of how we respond to these high food prices. The law of supply and demand will curtail some of these increases and now Americans are adjusting their shopping habits and food consumption patterns.
Jobs hard to find. This is tough one to see any good in, but again, the response we have to this is what will be the positive spin. Lower wages attract more employers. Loss of jobs encourages more entrepreneurism. It hard to tell you that your job loss is good for the economy, just as it is hard to tell the tree that burned down that the fire was good for the forest. But macro economics will prevail.
I am optimistic about the responses we will have in Lee County to the current economic situation. But, will Lee County Commissioners implement a stimulus package by waiving impact fees? Why not waive them for all infill projects where the infrastructure already exists? How about mass transit, will we promote this? Will the Airport Tech Park get an added economic boost for completion? How about removing some of the red tape for new businesses?
In the final analysis, it is how we respond to adversity that is more important than the adversity. It is in our repose that we will see the solutions. We need to be proactive in our own destiny. We need to take action, look at the long term results and look for the good news in everything.
Gregg
Commentary by Gregg Fous
Oh how short our memories are; or how young we are: Back in the 1980’s almost every major bank in the US was in big trouble and would have had to file for bankruptcy had not the government given them time to write off their loses. The S and L crisis was devastatingly real. In the 1980 the prime rate was 21% and inflation was 13.5%. (See 1980 news flashback). I remember buying a few investment properties back then and being thrilled to be able to buy two REO properties and getting a five year fixed rate at 12% (The paper was held by the bank that wanted to unload the property)!
Today I can’t turn on the news without hearing about Countrywide, Indymac, Freddy Mac, Fannie Mae and the troubled banking industry. Foreclosure tours, people out of work, and the largest bank crash in recent history are water cooler talk of the day.
The Indymac news is not good (Click here) or is it? For instance, do you realize the bank will actually reopen on Monday as Indymac Federal bank? The Feds will begin to market the bank to get it back into the private sector starting next week. In my mind that fact that this bank has been “rescued” by the Feds so quickly is good news.
The economic run we had since the 1980’s and it’s near banking collapse is staggering, but who would of thunk it back then? Sometimes we can’t see past the end of our empty wallet, or our short order backlog, or our bleak short sighted forecast.
Folks, when I get up in the morning I choose to be optimistic and I challenge you to do the same. Sure times are tough: Oil prices, food prices, impact fees, and job losses are all taking their toll. But amidst all this there is good news, sometimes very hard to see from your own perspective, but there are ways for us all to benefit, in the long term, from how we all respond to the current economic crisis. The good news is how we as Americans ultimately respond to the current economic crisis.
On the Indymac situation: the depositors succumbed to fears about the bank collapsing and caused the bank to collapse. The collapse, in turn, elicited a swift and decisive response from the Feds. They took over the bank, assuring the safety of the deposits. Furthermore, I believe the government will not allow the collapse of Freddie Mac and Fannie Mae. The storm will be tough, but we will weather it. We may see a few more failures but the resultant belt tightening and restructuring of the banking industry and its loan practices will have long lasting, positive effects.
Indeed it is how we respond and react to these tough economic times that is the most important thing. We will evolve into a stronger, more stable economic base, where logical growth will prevail over irrational exuberance.
So what’s the good news in all this? The banking debacle should not have been a surprise, and the good news is that we are already in the correction, the fix, and the appropriate response. I will say that I believe that we have perhaps over corrected in the short term in the banking industry. We have over tightened lending requirements and shut down profitable segments of the business along with the unprofitable ones. But this over correction will swing back around and the end result will be good, sound banking. It hurts us now, but we needed it.
Our responses to other bad news is, well, good.
I have referred you to this link before but the law of supply and demand is worth revisiting. The law predicts that the price level will move towards the point that equalizes quantities supplied and demanded. This law is the reason we will never run out of oil. This law is also the reason that all the vacant homes in Cape Coral and Lehigh will be purchased.
Here are some of our good responses:
• Belt tightening. Doing more with less. Economizing where possible.
• Price adjustments. Move prices down to meet demand.
• Protect the core. Protect the family, shelter, provide food. Move down to Maslow’s base needs.
• Fix what broke us. Lax lending; overleveraging; irrational purchases; and poor long term planning.
• Go back to basics. Offer sound service; take no short cuts; and take all the steps needed on the path to success.
• New Business models are developed based on the above. New opportunities like virtual offices, urban living, economical transportation and housing, and in-fill projects. Look for changes where manufacturing facilities are placed, how houses are constructed and their size Look for a “New Conservatism”
• Investing in property now at prices that are below replacement costs. Buying distressed land and development opportunities for a mid-term hold.
Less than good responses
• Opportunistic flash in the pans. Taking advantage of short lived opportunities and building a long term strategy on them is wrong. Just as building a long term strategy on making money by flipping rapidly appreciating homes was wrong yesterday, so is it wrong to build a strategy on short lived businesses like foreclosure tours, buying and selling REO’s, and selling bank paper.
• The Ostrich approach. Don’t hide your head in the sand. Take remedial action now. Talk it out. You are not in an exclusive club right now. Get out and find solutions with your network of business and social networks.
Let me mention just a few of our “problems” and comment on the good news:
Too many houses on the market. What we really need to look at is the number of vacant homes on the market; these are the “overage: we need to fill. Prices have now dropped to a low of around $80/sf. At these prices the houses are selling. As the selection gets “slimmer” the prices will climb again. After all, builders cannot duplicate these homes at these prices. These homes are bargains in today’s market. Housing is now affordable. Lee County is now attractive to retirees again. This is good news.
High Gas Prices. The response from most Americans is to drive less (consume less gas) but I am sure we will get accustomed to these prices and this response will be tempered somewhat. The good news is that Americans now need to live closer to work and more of the infill housing will sell and get occupied. Some other good news: Look for more local distribution centers, more manufacturing near consumption, and more mass transit. Look for the long term response in automobile design. TIP: It is easier to drive 20% less than sell your gas guzzler to save $100/month on gas by paying another $5000 for an “economical” car.
Hard to borrow money. The banks are in an over corrective mode now, but this over correction has brought more logic and sound investing. This is good news.
Food prices High. Most of these price increases are related to high energy costs and high corn prices. (See ethanol production and food costs article) It is hard to see the good in high food prices, but I believe the good you will see will come out of how we respond to these high food prices. The law of supply and demand will curtail some of these increases and now Americans are adjusting their shopping habits and food consumption patterns.
Jobs hard to find. This is tough one to see any good in, but again, the response we have to this is what will be the positive spin. Lower wages attract more employers. Loss of jobs encourages more entrepreneurism. It hard to tell you that your job loss is good for the economy, just as it is hard to tell the tree that burned down that the fire was good for the forest. But macro economics will prevail.
I am optimistic about the responses we will have in Lee County to the current economic situation. But, will Lee County Commissioners implement a stimulus package by waiving impact fees? Why not waive them for all infill projects where the infrastructure already exists? How about mass transit, will we promote this? Will the Airport Tech Park get an added economic boost for completion? How about removing some of the red tape for new businesses?
In the final analysis, it is how we respond to adversity that is more important than the adversity. It is in our repose that we will see the solutions. We need to be proactive in our own destiny. We need to take action, look at the long term results and look for the good news in everything.
Gregg
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