Sarasota Real Estate

Great article on how investors who listen to the crowd typically miss their goals for fear of bucking the crowd. Look closely at what’s happening locally, there are opportunities that are going to be gone in 6 months and by the time the naysayers of commercial real estate have changed their tune, those Grade A opportunities will already be gone.

via IQR Investments: Why the Crowd Maybe Sheep Again.

(This article was later published on Seeking Alpha titled “Pessimistic Investors Are Missing the Boat in 2010, Again.”)

There is an abundance of pessimism in the investment crowd. Unemployment, foreclosure waves, federal deficits, enemic home sales, … there is little wonder why so many commentators dwell on the negative side of every piece of economic data. If you go with the wisdom of this crowd, you should be shorting the market in general.

Yet short sellers have been frustrated so far this year. Nothing seems to work. In particular, the home building sector has been one of the top performers of the year so far (simply check LEN, DRH, SPF, PHM, or XHB). It is truely frustrating for investors who just cannot see any light in the housing sector, and cannot accept the fact that government support is sometimes necessary.

After a disasterous 2008, investors pulled record amount of money out of equities, and put them into bond funds and/or cash. Despite a roaring “V-shape” recovery in the equity market in 2009, narrowed credit spreads and expected rise in the yield curve, investors continued to pour $89 billions into bond funds in the first quarter of 2010.

PIMCO has been the prime beneficiary of this inflow. Its “new normal” thesis has been well-argued and publicized which has also help draw money into bond funds. All this money however may make it extremely hard to keep up with the performance, given the potential inflation and potential rise in rates.

Finally, PIMCO warned that bond funds may have seen best days. They have even started to offer stock funds.

One clearly can see at least two different types of herds here: the avoid-equity-at-all-cost crowd that stampeded into bond funds and the pessimism-dwelling short-selling crowd. One would think that the second crowd may be more sophisticated and better informed, yet they may be just one-year behind the curve after investor like John Paulson has already made his killing in 2007-2008 and went long into financials.

The trait of the investment sheep makes them dwell on one direction for too long. Such sheep showed up in force in the last housing boom. And we may be seeing them again in the abundance of extreme pessimism in 2010.

http://jacksonville.com/opinion/editorials/2010-03-19/story/floridas_growth_a_better_way

Florida’s growth: A better way

FRIDAY, MAR. 19, 2010

There has to be a better way.

Advocates for smart growth say that Florida’s government is so broken that an election needs to be held every time a change to a comprehensive plan is approved by local government.

An amendment to the Florida Constitution, Amendment 4, will be on the ballot this fall.

In Jacksonville last year, 67 land use amendments were processed. Can you imagine 67 separate land use changes on a ballot?

That is like using a machine gun to kill a flea.

It is an extreme reaction to some clear abuses, the overuse of changes in comprehensive plans that have been dominated by insiders, leaving neighbors and the public too much out of the loop.

Something short of elections is needed every time an amendment comes up.

This is where the Florida Legislature should step in to provide a reasonable way for exceptions to be passed – real exceptions.

The proponents of Amendment 4 are banking that the public is so disgusted with unbridled growth that 60 percent of the voters will approve.

Dissatisfaction is probably greater in South Florida, the poster child of bad growth.

Marketing and apple pie

Proponents of the amendment have done a good job making their case, starting with their name – Florida Hometown Democracy.

Who could be against that? They could have called themselves Florida Motherhood and Apple Pie, too.

They make the point that citizens usually are overpowered and outgunned by developers and their skilled lawyers and lobbyists. They know the rules. They often support the politicians sitting in judgment. And they often have contributed to their campaigns.

Supporters say their amendment would not stop growth, that elections would only apply to changes that do not comply with existing land use plans, that there is plenty of room for growth without exceptions.

Only when a developer seeks to build a project that violates current land use plans and local officials approve of it would a local election take effect.

This does not relate to zoning matters, but to the broader changes in comprehensive plans.

This gives voters the final say, supporters say – direct democracy.

More practical

An irony is that this constitutional amendment is a byproduct of an era of rapid, sometimes uncontrolled growth.

That era is gone now and it looks like it won’t be returning any time soon. An overreaction to past excesses is unwise.

Opponents say if local government officials are too tied to development interests, then vote them out at the ballot box. But don’t fill up elections with land use changes.

The Florida Legislature needs to provide a practical way to reduce the number of land use changes without direct elections and provide for more enforcement of citizen notice and input rules.

One way is to require a supermajority vote of the governing body, say 75 percent, for land use changes. On Jacksonville’s City Council of 19 members, that would mean 14 votes rather than 10. On a five-member county commission, it would require four votes.

That is more reasonable, and still would provide for exceptions.

The system is broken.

But don’t make the solution worse than the problem.

1. U.S. GDP has staged a huge rebound:

The U.S. GDP is growing. It jumped at a 5.9% annualized rate in the fourth quarter of 2009, which yes is expected to slow down, but most expect it to remain positive around the 3% level this year.

2. It’s not just the U.S., the entire world is rebounding:

Source: Goldman Sachs

3.Some think the GDP is an illusion, but we’ll show you that’s not the case:

4. The credit crunch has eased:

Source: Goldman Sachs

5. Bond default rates have peaked:

Source: Goldman Sachs

6. U.S. non-financials are now delevered and have very strong balance sheets:

Source: Citi

7.The U.S. manufacturing industry is expanding:

Source: ISM

8. Industrial production has posted a V-shaped recovery:

Source: Econompic

9. Services are rebounding as well:

For the Non Manufacturing Index below, anything over 50 indicates expansion.Source: ISM

10. Exports have surged back:

Source: DOC

11. U.S. exporters are now worrying that there aren’t enough ships:

Image: AP

“There are not enough ships or containers to handle the exports that the world wants to buy from us. This situation is becoming more dire by the day,” said Peter Friedmann, executive director of the Agriculture Transportation Coalition, a lobbying group. …

Some exporters facing delivery deadlines resort to air freight, despite a cost that might be 50% higher. “It’s a great opportunity for us,” said Jess Bunn, a spokesman for FedEx Corp. (FDX), which is doubling its fleet of planes serving U.S.-Asia routes. United Parcel Service Inc.’s (UPS) international air-shipping business rose 12% in the fourth quarter.

Source: WSJ

12. Around the world, idle ships are coming back online in response to a global recovery in trade:

“According to AXS-Alphaliner, the idle fleet has been further reduced over the last two weeks, from 495 vessels of 1.24m TEU to 474 vessels of 1.22m TEU (9.3% of fleet capacity) currently. AXS-Alphaliner expects lower idle count going forward, as new services will be launched on the Asia – Europe trade (capacity on this route expected up 7%) and there is also a pickup in demand for smaller ships to service intra-regional trades.”

Source: Fearnley Fonds via Business Insider

13. Air freight has come back strong:

“International cargo demand showed a 28.3% improvement with only a 3.7% increase in capacity (see green line in graph above). This pushed the cargo load factor to 49.6% which is a step-change from the 40.1% recorded in January 2009.”

Source: Carpe Diem

14. Oil demand is growing as well… and there’s a major recovery underway in U.S. drilling:

Domestic U.S. activity is surging:

“The optimistic outlook we highlighted late-last year may have actually been on the conservative side given the pace of the recovery so far. In fact, over the last four months, the U.S. land rig count has increased more rapidly on an absolute basis than in any other four-month period over the past decade. Furthermore, the rig count has only posted weekly decreases four times in the 37 weeks since bottoming. Frankly, the magnitude of the improvement in recent months has exceeded the expectations of many industry observers, ourselves included.”

The IEA and OPEC just hiked their demand forecasts as well.

Source: Rigzone, Business Insider

15. Corporate profits have spiked, and historically, employment has followed such spikes:

As shown here, since 1980, employment (in red) has fallen after corporate profits (in black) have risen, and vice versa. The relationship is pretty clear.Problem is, there’s about a one-year lag between the two trends.

Given the recent rebound in corporate profits the U.S. has already experienced, there is a reasonable chance that employment will get better over the coming twelve months.

Source: Business Insider, Citi

16. U.S. small businesses just started creating jobs again:

“Although overall employment has declined since December 2007, the most recent monthly change in the Intuit Small Business Employment Index is positive. While this month-over-month change is small, up 0.2 percent on a seasonally adjusted basis, it continues an upward trend that began around the middle of 2009. Employment grew nearly 0.8 percent over the past eight months, which is 1.1 percent at an annual rate. This translates into nearly 40,000 new jobs for February 2010 and nearly 150,000 new jobs since June 2009.”

Source: Intuit

17. Most manufacturers are now planning to hire:

On the jobs front, while U.S. manufacturing employment isn’t expected to return to 2007 levels until 2011 or 2012, 82% of manufacturing companies are already planning to hire new staff in 2010, according to a survey by manufacturing industry firm Prime Advantage.

In a U.S. manufacturing survey from the American Machine Tool Distributors’ Association (AMTDA), “67 percent of respondents reported feeling more optimistic about the economy compared to 2009, and that 64 percent were more optimistic about the financial prospects for their own companies. In addition, in ranking their own companies’ financial prospects for 2010 on a scale of 1-10, with 10 being most optimistic, 51 percent ranked themselves at 7 or greater.”

Source: Business Insider, Automation World

18. The monthly unemployment rate might have already peaked:

Source: Business Insider

19. Long-term unemployment is falling:

Source

20. Unemployment claims are falling:

Source

21. Even the TrimTabs guy stopped complaining:

Image: CNBC

TrimTabs is the research firm that always comes out and slams the BLS reports for being too rosy in their assumptions.Well, maybe they realize that they have to throw some curveballs from time to time just to keep us guessing, because today they actually are singing a different tune.

“In an unusual occurrence, TrimTabs February employment estimate, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, was nearly equal to the Bureau of Labor Statistics (BLS) estimate. While TrimTabs estimated the U.S. economy shed 30,000 jobs in February, the BLS reported the U.S. economy lost 36,000 jobs. February’s job losses demonstrate that while the labor market is still weak, monthly job losses are steadily declining. In fact, we believe the U.S. economy will add jobs in March as the U.S. government begins to hire an estimated 1.2 million temporary census workers in the next three months.”

Source: Joe Weisenthal @ Business Insider

22. Finally, on the housing front, same store sales are rising at Home Depot (HD), for all regions:

Deborah Weinswig @ Citi:

State of the Housing Market and Sales Performance

Regional Sales Performance. Out of HD’s top 40 markets in the U.S., all but two markets experienced SSS [same store sales] improvement in 4Q09. Every HD region experienced SSS improvement in the quarter YOY. The Northern division (HD’s largest division with eight regions), had positive SSS for the quarter. There was also sequential improvement in CA and FL, with a return to positive comps in some of these markets.

Source

“People thought it was good news a few years back when housing starts – the supply side of the picture – were running about two million annually. But household formations – the demand side – only amounted to about 1.2 million. After a few years of such imbalances, the country unsurprisingly ended up with far too many houses.

There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.

Our country has wisely selected the third option, which means that within a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious.

Prices will remain far below “bubble” levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst.”

Good commercial real estate investment advice from a Florida Commercial real estate blogger about how single tenant properties are a good safe harbor.

Full story here: Hitting a Solid Single « Commercial Grove.

Florida commercial real estate is full of investment opportunities. Now that more properties are becoming affordable, plenty of investors are looking into the state’s commercial real estate for possible investment properties. If you are curious as to how to approach commercial real estate investing, here are two popular ways.

Passively

Passive investors in Florida commercial real estate, or any other real estate investing location, don’t participate in the entire investing process. Instead, they are less active investors that mainly focus on liquidity and ROI.

Unlike their active counterparts, Florida commercial real estate passive investors only buy an interest in either an REIT or Real Estate Investment Trust or Limited Partnerships (LPs). Among these two, the REIT is more popular since it provides liquidity while LPs don’t. REIT and LP typically manage operational decisions without the need for any input from the investors. If you become a passive investor, your main concern is the financial data and other associated remarks.

All in all, passive investing offers plenty of perks. For starters, if you hail from another state, you don’t need to travel all the time, therefore lessening travel expenses usually required during the initial stage of the real-estate investing process. If you choose an REIT legal entity, you don’t need a team of accountants or attorneys as long as you know what you are doing and knowledgeable in reviewing the financial data. But, on the other hand, this type of investing also offers a prominent disadvantage: You don’t have any involvement in the daily operations of the investment.

Actively

Active investors’ involvement in the investment property or venture extends to more than just reviewing the financial documents. From the inception up to the operations, active investors are involved in the entire process. There are two ways of becoming an active investor: hiring a property management company or managing the investment personally.

When you opt not to retain a property management company, you are basically going to be involved in the entire daily operation of the property. Aside from asset management, you are responsible in maintaining the entire investment property.

On the other hand, if you choose to become an advanced active investor, or somebody who hires a property management company, you need to shell out more money to support the people who will manage your property. As an advanced active investor, you need to focus more in managing your assets, which include monitoring, budgeting and selecting the people or company who are going to manage your Florida commercial real estate property.

Commercial-Property Sales Jump via WSJ.com

By CHRISTINA S.N. LEWIS

The number of commercial real-estate sales rose sharply in December, triggering fresh debate about whether the sector has reached bottom.

Property sales, a gauge of market health, rose 75% in December from the prior month, according to Real Capital Analytics. The end of the year traditionally sees an increase in volume. But the recent increase is significant even after adjusting for that, says Neal Elkin, president of REAL, a research firm that analyzed the data.

The Moody’s/REAL All Commercial Property Price Indices, or CPPI, which track values, measured a 4.1% increase in December. This followed an increase of 1% in November, which was the first time since 2007 that there were two consecutive months of rising values.

But Moody’s and REAL agreed that it is too soon to conclude that the market has hit bottom.

“It makes me feel very confident that the dramatic violent price movement that we saw in the first part of 2009 is over,” says Mr. Elkin of REAL. “But I would never be so bold to say that we are going straight up from here.”

There were 716 transactions in December, according to the CPPI. That compares with more than 1,600 deals in December 2007.

Sales activity has been in the doldrums for months because of a dearth of financings and sellers’ unwillingness to put property on the block when prices are down sharply from a few years ago. That means competition can be fierce when prime buildings are put up for sale.

Earlier this month, an institutional real-estate fund run by J.P. Morgan Asset Management bid on a large $100 million-plus rental-apartment property in Washington. Seventeen other buyers submitted offers, says Kevin Faxon, head of U.S. Real Estate for J.P. Morgan Asset Management.

“We are actively in the market seeking to acquire properties,” Mr. Faxon says. “We are not on the sidelines. We’re not taking a view that prices are going to be cheaper tomorrow than they are today.”

Also, some healthy properties are still commanding decent prices. In Boston, a nearly 200,000-square-foot office and retail property called One Brigham Circle is in contract to sell for $97 million to AEW Capital Management, according to a person with knowledge of the deal. Brokers for Cushman & Wakefield are representing the seller, the Rappaport family’s New Boston Fund.

The cap rate, an industry term for the buyer’s nonleveraged yield on the property at current net rents, is less than 6.5%, a return that is comparable to property prices in 2005 and 2006, according to local brokers. The building is fully leased.

The conflicting market signals come at a time when the commercial real-estate sector faces significant challenges. The economic fundamentals, such as anemic hiring, mean that office rents are likely to continue falling while vacancies continue to rise. Meanwhile, apartment rents also are low, driven down by record low home prices and increased supply from investors stuck with unsold properties who have put them on the rental market.

In addition, many top-of-the-market real-estate deals are still expected to go bad, like Peter Cooper Village and Stuyvesant Town, a sprawling Manhattan residential complex that is in default on $4.4 billion in debt.

Market bulls agree that the sector continues to perform badly. But they argue it is doing better than people thought it would. Therefore, real-estate assets are undervalued and prices are going up, they say.

“No one believed me that values were going to go up so soon,” says Dan Fasulo, head of research for Real Capital Analytics. “But there’s enough anecdotal evidence now that we’ve come well up off the bottom already.”

Top 10 taxpayers in Manatee County in 2009 – Tampa Bay Business Journal

This was an interesting way to look at who’s footing the bill for

Tampa Bay ranks among poorest performing economies – St. Petersburg Times.

No matter how you slice it, the Tampa Bay area is having a tougher time slogging through the Great Recession than most of the country.

Exhibit A comes courtesy of a Brookings Institution analysis being released today that compares economic indicators for the top 100 U.S. metro areas.

The Tampa-St. Petersburg-Clearwater region ranks toward the bottom in several key measures: 89th in drop in employment from its pre-recession peak; 89th in drop in economic output from its peak; 89th in drop in housing prices over one year; 93rd in rise in unemployment over the past year.

Brookings didn’t rate metro areas overall from 1 to 100.

But Tampa Bay, along with seven other Florida metro areas, made its cluster of 19 weakest performing economies. On the flip side, Texas accounts for five spots among the 20 strongest-performing metros.

David Denslow of the University of Florida’s Bureau of Economic and Business Research found the report disheartening, but not surprising.

“The reason for it is pretty clear,” he said. “It’s where you had the combination of the big jump in housing prices and a lot of construction. You had both.”

The Brookings report comes on the heels of an FDIC quarterly analysis showing past-due bank loan levels in Florida are as high as last year. Roughly a fourth of Florida’s community banks are considered in troubled financial condition, many of them susceptible to growing problems with commercial real estate loans.

Meanwhile, personal bankruptcies statewide are still running at a relatively high rate. Single-family housing permits have rebounded, up 12.5 percent compared with a year ago, but multifamily permits are down 35 percent for the fourth quarter and 62 percent for all of 2009.

Put together, the latest figures underscore two concerns: recovery from the Great Recession is still very tenuous, and high unemployment isn’t the only problem holding us back.

“There are plenty of issues here. … It’s not just jobs,” said Scott Brown, chief economist with Raymond James Financial in St. Petersburg.

He noted, for instance, that cities are still grappling with high property insurance rates driving up the cost of living. And gas prices are headed to $3 again.

With that backdrop, Brown isn’t surprised that Florida metros are lagging behind much of the country. “We thought all along that the state that has the biggest housing bubble would have the biggest pop,” he said, “and that seems to be playing out as anticipated.”

Researchers at the Brookings think tank started out with a simple premise: examine the country’s top 100 metro areas to get a clearer sense of how the economy is faring.

Their dissection indicates this recession is unlike any downturn since at least 1981, which is as far back as the analysis went.

Typically, job growth resumes within two years after a recession has begun. This time, most metro areas are still waiting for employers to start hiring again.

“The country is recovering much more slowly from this recession than it did from others over the past three decades,” said Howard Wial, a fellow with the Metropolitan Policy Program at Brookings and report co-author.

The job purge has been so deep and prolonged, in fact, that the nation as a whole gained almost no jobs during the last decade.

Yet, as the Brookings report points out, nationwide averages “mask huge differences in job growth rates among the 100 largest metropolitan areas” in the last 10 years. Consider:

• Seventeen metro areas, including Cape Coral, Lakeland and Orlando, posted double-digit job growth from late 1999 to late 2009.

• On the flip side, Detroit, Youngstown, Dayton and Cleveland ended 2009 with lower employment levels than they had seen in more than 20 years.

Like its fellow Florida housing boom towns, Tampa Bay is still up in its job count compared with a decade ago. But the Great Recession has wiped away 61/2 years of job gains here.

The report is pegged to December 2009, when the Tampa Bay area’s unemployment rate was 12.4 percent. In January, the rate rose to 13.1 percent.

Florida’s unemployment rate is now 11.9 percent, matching a 1975 high, and it’s widely projected to peak above 12 percent.

Where does it go from here?

Put Denslow of UF in the camp of optimists.

He maintains that predictions of high unemployment in the bay area lasting until at least 2018 are overblown. “I think they’re too pessimistic, and once people realize that we’re not going to have 9 percent unemployment in 2014, there’s going to be a boom for commercial real estate and that will help the residential.

“That’s not to say there aren’t problems. The improvement will be gradual,” he added. “But I think we’ve kind of bottomed out.”

Of course, you have to ask if there were any incentives… right?

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