Weekly Summary of Posts

There are four sides to the economic story as: expressed by all forms of the media, published by government, presented by politicians, and interpreted by us. I am trying to understand our economic status and anticipate the future. If you are involved in the real estate industry, the economy significantly impacts our industry and we must plan for the worst and expect the best to happen. There are many industries and professions not as affected by the downturn as housing. Thus, as per the government and by definition, the economy is recovering. However, the real estate industry is not responding even with record low interest rates.

 

The administration has concluded that we are in a “jobless recovery”. The recovery is great news for some industries. However, this is not the best of news for the unemployed or the real estate industry. Let’s look at the government’s published projections:

 

OMB Mid-Session Review of the US Government Budget - FY 2011

 

Year (GDP)                 2010 (3.1)         2011 (4.0)         2012 (4.3)

Unemployment Rate          9.7                     9.2                     8.2

 

Deficit % of GDP              9.6                     8.0                     6.0

 

I am not confident of the above projections. However, the real estate climate will have improved by then. Simply, the presidential election will cause positive action over the next two years but the results will not be as positive as the OMB forecasts. However, we should NOW start to focus on the recovery in the real estate industry and plan your business to take advantage of the new norm!

My bold assumptions and projections:
1. Interest rates will rise – to what level by 2013? – let’s go out on a limb – 7%
2. Pent-up demand for housing will occur by 2013
3. Many of those that currently make a living in real estate may leave the industry causing a manpower problem by 2013
4. Housing prices, labor rates, and material pricing will gradually increase over the next two years

 

If you are in the real estate industry, what is your business plan for the next 2½ years? Consider the following points:

 

1. Concentrate on location, location, location

 

2. Target market industries

 

3. Expand your market

 

4. Increase your share of the market

 

5. Become an expert

 

6. Use technological change to your benefit

 

7. Explore new partnering opportunities

 

OK – so the economic picture is not so good now but it is now time to position ourselves for the future real estate recovery.

 

• Remember, we have to do what we do – differently
• There is and will be a new norm
• We need to adjust to the new norm by using our know-how, expertise, and desire to succeed
• Appreciate Life
• Live in a State of Gratitude
• Take Action

The bottom line is for you to define the new norm in your real estate market for 2013 business. Until then keep working at your business to adjust to the ever changing marketplace and position yourself to take advantage of the new norm business.

 

Charlotte Business Journal Reports

Despite record low mortgage rates, housing sales and builder confidence are pausing.

A separate report Thursday from the National Association of Realtors said sales of existing homes fell 5.1 percent in June, the second straight monthly decline.

Another report earlier this week from the National Association of Home Builders said its gauge of home-builder confidence fell to the lowest level since August 2009.

As previously reported, the Charlotte Regional Realtor Association said the number of home closings in the Charlotte area dropped in June from May, though they increased from June 2009. Pending sales also decreased.

The association said local June closings totaled 2,324, a drop of 8.4 percent from May’s total of 2,537. Last month’s total was 14.8 percent greater than the 2,024 homes sold in June 2009.

The average sales price last month for homes sold in the Charlotte area was $215,559. That’s down 1.4 percent from June 2009’s average sales price of $218,728. The average sales price in May was $212,454.

The local association said pending contracts in June totaled 1,880, down 13.2 percent from a year earlier and down 8.7 percent from May.

Read more: Mortgage rates fall to new lows - Charlotte Business Journal

This entire week, I have been posting information from a variety of sources outlining the current state of affairs for the real estate industry. Tomorrow, I will post my thoughts on what it all means to me.

Peak of the Week

Wednesday is the peak of the week when we can look back at what is and peek forward to the future!

Tax Rates to Change in 2011
The changes in the tax rates are significant. We should become engaged in the discussion about this change as our disposable income will change and thus affect our standard of living. This change will certainly impact the economy and not in a good way. Please verify the following with your accountant.

Current Tax Rates                2011 Tax Rates
10%                                                 --

15                                                    15%

25                                                    28

28                                                    31

33                                                    36

35                                                    39.6

15% Max. Long-term Capital Gains 20%

Please post any corrections or add your comments.

More Housing Updates & News

Associated Press, July 15, 2010

Issued a news release and interview with Rick Sharga, a senior vice president at RealtyTrac. RealtyTrac, Inc. is a foreclosure listing service. Take note of several quotes from Mr. Sharga:

Over 500,000 homes were taken over by lenders in the first six months of 2010
In 2009, more than 900,000 homes were repossessed by lenders
Lenders have historically repossessed only about 100,000 homes a year
It will take lenders through 2013 to resolve the backlog of distressed properties

Another report from the Federal Reserve:

On Wednesday July 14, 2010, The Federal Reserve report reported the US economy will grow between 3% - 3.5%. They revised their previous projection from April which was for growth between 3.2% - 3.7%. Doesn’t sound like much of a change but the change is trending down.

              Oh by the way - There are over 17 million sole proprietorship's in the United States. Add in single owner LLC’s and there is a significant business segment which may be severely impacted by the economic downturn but not reported on. Sole proprietorship's account for over 70% of all businesses in the US. Take note of my previous post on the vicious cycle precipitated by foreclosures and the economic growth rate as it relates to lower unemployment.

An article on the current housing market – Housing: Right Back Where We Started?
By Robbie Whelan, Wall Street Journal http://bit.ly/c4H9Se

Trouble Ahead? Housing Inventory Rises in Many Markets in June
By Nick Timiraos, The Wall Street Journal

An excerpt from the July 15, 2010 article by Timiraos: “Meanwhile, demand appears to have fallen sharply in the months following the expiration of the tax credit. New home sales fell to a record low in May, while pending sales were down 30% from April. Mortgage rates remain near 60-year lows, and yet demand for home-purchase loans fell to a 14 year low last week, according to the Mortgage Bankers Association.”

“So goes Housing – So goes the Economy”

July 21, 2010

Ben Bernanke, Fed Chairman said in his report to congress: “The economic outlook remains unusually uncertain”

He also said “unemployment was likely to stay well above 7 percent at the end of 2012”

From my previous posts:

Economic growth would have to be about 5 percent for a full year just to drive the unemployment rate down 1 percentage point.


The Bureau of Economic Analysis will publish an advance estimate of the 2nd QT 2010 real GDP on July 30th.

Senate approved a bill extending the jobless benefits which retroactively covers unemployed workers that recently lost their benefits. The bill allows unemployed people to receive up to 99 weeks of unemployment benefits. Just 5 weeks shy of 2 YEARS of unemployment benefits. Only until November 2010

The President signs into law the financial overall bill.
       Not much in terms of reporting as yet since no one knows what is in the bill.
       Beginning Jan 1, 2012, you will have to issue a 1099 for all transactions $600 or above to the IRS.
       It is my understanding that this regulation was in the health care bill and not the financial reform bill.

For the balance of this week, I will post information intended not to be negative but to inform.

We have a new norm in real estate and we must find innovative ways to turn the negative into positive momentum.

As an example, maybe it is time to bring back the barter system. Anyone interested in trading their condo for my truck?

2010 State Rankings for Business

CNBC Special Report  "America's Top States for Business 2010"
http://bit.ly/9e0FHr

Using the following categories, CNBC ranked each state based on known government data and economic development marketing information.

Category                                                  #1 Ranked State in Category

Cost of Doing Business                             Iowa

Workforce                                               Florida

Quality of Life                                          Hawaii

Economy                                                 Texas

Transportation & Infrastructure                Texas

Technology & Innovation                         California

Education                                                Massachusetts

Business Friendliness                               Delaware

Access to Capital                                    California

Cost of Living                                          Tennessee


Note: California had two #1 ranked categories but was ranked #32.

Because California had the following rankings:               Cost of Doing Business #48

                                                                                    Business Friendly #49

                                                                                    Cost of Living #49

Top 5 States according to this CNBC analysis and its highest ranking:

State                                               Category with Highest Ranking

1. Texas                                          Economy and Transportation

2. Virginia                                       Business Friendly

3. Colorado                                    Quality of Life

4. North Carolina                            Workforce

5. Massachusetts                             Education

Maybe we should evaluate and rank states based on their sustainability?
Or at least add another category on housing affordability.

Vertical Mixed Use a LIVABLE COMMUNITY Concept?

Characteristics of a Livable Community:
1. Full community participation in the decision-making process by residents, neighborhood organizations and the business community including small and minority businesses (1) (3)

2. Well planned and designed neighborhoods where housing, schools and parks are within easy walking distance of user-friendly transit and link residents to job opportunities and social services (1) (3)

3. Transit, pedestrian and bicycle access that is compatible with land use, zoning and urban design to reduce dependence on the automobile (1) (2) (3)

4. Mixed-use neighborhoods that complement residential areas with commercial, recreational, educational, health and other social services (1) (3)

5. Transit services and facilities which provide safety, security and accessibility for all passengers, including disabled persons and elderly members of the community.(1)

6. Sound environmental practices including careful parking and traffic management techniques to reduce auto trips, conserve space, encourage green areas, avoid gridlock and improve air quality. (3)

Are “Livable Communities” sustainable? How would you assign each sustainable criteria to each of the above livable community principles, for a vertical mixed use designed project? (1) social (2) environmental (3) economic

Vertical Integrated Mixed Use

In previous posts, I have defined, outlined and supported horizontal and vertical mixed use projects as the best planning principle for communities to grow and prosper in the future. This approach is a much better alternative than developing fragmented isolated land use projects. We must strive to achieve sustainability in our real estate development projects as long as the project adheres to the principles of maintaining environmental integrity, attaining social balance, and achieving economic feasibility.

Vertical integrated mixed use is a new phrase to define the historic planning approach of small town USA. This planning approach will define future development patterns where a vertical integrated mixed use project becomes the urban community core within a horizontal mixed use development. Building malls on the outskirts of communities doomed the town core – in most cases. The revitalization of the town core concept in an urban community setting will bring back a sense of community, live-work opportunities, charm, diversity, and a place to raise a family. The key is creating a development pattern with vision accommodating transportation, business, and quality of life factors meeting the diverse needs of the users by answering the question “is this project sustainable”.

As an example, Birkdale is a vertical mixed use project situated within a horizontal mixed use community. This project built in Huntersville, NC established a new way to address growth patterns. It created a destination for people to live, work and play in one area not designed for the car but for the residents. Every project is unique due to the unique characteristics of the land and its location but the vertical integrated mixed use concept has proven to be a successful planning concept.

Birkdale the facts:                       52 acres
                                                  325,000 sq. ft. of high-end retail & restaurants
                                                  75,000sq. ft. office space
                                                  300 apartments

Where is your Home?

Where you live now?
Where you were born and raised?
Where you lived the longest?
Where you raised your children?
Where you went to high school?
Where your family comes from?
Where you made the most money on your house?
Where your heart is?

In the ‘80’s, families moved about every 7 years.

Today, families move about every 4 years.

Why the change? The graph of home values answers the question. It seems from the data that families moved more often – locally! This would tell me people were trading up by “cashing” in on rapid appreciation in most markets. By moving up, these families stayed in their community but now maybe facing problems due to the economic downturn. If they have lost their jobs, they may be having difficulties in making their mortgage payments. Foreclosures are on the rise. I think the mobility of families is due to their thinking that housing is an investment first and a home to raise their family as a second priority.

The concept of considering housing as an investment was fueled by an artificial market launched by lenders, the media, home builders and appraisers. Once the housing market stabilizes, will families again want to establish roots in a community and consider their house a home? I vote YES. But the housing industry must change by developing new sustainable communities to reinforce the concept “a home is where your heart is”.

Do you Live in a Home or a House?

In the following lists, you can question the results but the premise in which the lists were created is the important component distinguishing between winners and losers. As a previous Judge for a NAHB and Better Homes and Garden national home/project design competition, I remember the winner of the most energy efficient home was awarded to a builder of a $1,500,000 home. No wonder this home won this category – the builder could afford to implement cutting edge energy solutions without regard to the other two components of sustainability – social goals and economic viability. The result however was a marketing advantage for the builder since they were immediately considered a national leader in residential energy conservation design and construction.

Magazines publish “Top Ten” lists for various marketing purposes and the results always seem to be questioned. However, the criteria established for the competition is important to note and compare against a true sustainable community.



Money Magazine’s List of America’s Best Small Cities           BizJournals Top Smaller Cities to Live In

Criteria:         Jobs                                                                 Criteria:       Shorter commutes
                    Schools                                                                                Fresher air
                    Safe streets                                                                          Safer streets
                    Low crime                                                                           Stronger sense of community
                    Lots to do                                                                           Quality of Life Score

Top 5-Cities           Avg. Home Price                            Top 5-Cities             Avg. Commute (minutes)

1. Eden Prairie, MN         $430K                                  Torrington, Conn                  25.2

2. Columbia, MD             $487K                                  Bozeman, Mont                    20.6

3. Newton, MA                $989K                                 Lexington Park, MD             26.6

4. Bellevue, WA               $801K                                 Lebanon, NH                       20.3

5. McKinney, TX             $267K                                 Helena, Mont                        16.3


Ask the question: are the winners a great place to raise a family?

In my opinion, a significant reason for our housing problems is the primary change from buying a home and raising a family to buying a house as an investment. We have been indoctrinated by lenders, TV shows on how to “flip” houses to financial planners telling us that a house is not a home but a way to earn money on your investment.

It is time for us to rekindle our reasons to buy a home.

National Market versus Local Markets

If you think lists are useful in understanding the benefits of a specific market, then Forbes publishes all types of lists. Recently, on June 8th, they published the “Best Cities to Buy a Home” and on June 23rd, published the “Most Affordable Cities to Buy a Home”. The top ten markets according to Forbes:

Best Cities to Buy a Home                                   Most Affordable Cities to Buy a Home

1. Houston                                                          Pittsburgh

2. Austin                                                             Indianapolis

3. St. Louis                                                        Chattanooga

4. Philadelphia                                                    Louisville

5. San Antonio                                                   Oklahoma City

6. Dallas                                                             Syracuse

7. Charlotte                                                        Rochester

8. San Francisco                                                Columbia, SC

9. Jacksonville                                                    Dayton

10. Atlanta                                                         Cincinnati

Since I live in Huntersville, NC, only 15 miles from “Uptown” Charlotte which is downtown, I would agree Charlotte should be on the list of the best cities to buy a home.

Families are stilling buying homes, builders are still building – a new 6-unit townhouse cluster is under construction by Lennar Homes. And, adjacent to this project, there is a single family subdivision under construction. Yes, roads are being constructed, entry features being finished and model homes being opened! It is great to see the activity but it does make you wonder – why? What do these builders see on the horizon that I don’t? The townhouses will probably be priced so no one should refuse to buy! The single family homes have a marketed price point in the $400’s. (They started their campaign in the $700’s.) It has always been my housing philosophy that construction activity energizes the market. People want to see “sticks and bricks”. Buyers want to see the real thing. Are we seeing several builders proactively taking charge of their own destiny and charging forward when everyone else is on the sidelines waiting for the next shoe to drop?

Also, it is reported in the Business Journal that Michael Jordan is buying an entire condo floor and renovating the 7,000 sq. ft. area with a private elevator – in “Uptown” Charlotte! As the new owner of NBA’s Charlotte Bobcats, it seems his investment in the city will also include a place to live. Good move!

This is positive news. At least……..for the moment.

Charlotte’s Housing Market – A “New Norm”

It is important to understand the trends in the market and evaluate those trends against the economic “experts” offering their opinions on the future. It is possible that the adjustments in the market over the past several years will reset the marketplace and establish a “new norm”. In my opinion, there is a new norm in Charlotte’s real estate market. The economic “experts” have stated the economic environment in Charlotte will be lackluster and expand about the rate of the entire country. An expansion not sufficient to create enough jobs that would substantially bring down the unemployment rate over the next three years. Let’s consider the following statistics from the Charlotte MLS.

Month           # of Sold SF Units           Avg Sold Price (rounded)

June 2005           3589                           $214K

June 2006           4445                           $240K

June 2007           3852                           $248K

June 2008           2734                           $233K

June 2009           2024                           $218K

July 2009            2223                           $212K

August                2221                           $209K

September          1945                           $196K

October              2210                           $196K

November          2000                           $195K         (federal tax credit expired)

December           1527                          $211K

January 2010      1364                          $200K         (market bottom for Charlotte)

February             1397                          $191K

March                 1900                          $197K

April                    2220                         $201K

May                    2537                         $212K           (same avg. sales price as July 2009)

June 2010           2324                         $215K           (or is this trending back down?)

It would be reasonable to predict based on current economic “expert” opinions that a “new norm” for the monthly number of units sold in Charlotte will not return to 3,000+ units until 2014.
So bouncing along 2200 – 2800 units per month for the next three years could very well be the “new norm”. This prediction will be influenced by interest rates, tax changes, and all other federal policies. Why is this analysis important to me?

I will adjust my business plan and expectations accordingly. I need to find cutting edge ways to do what I do, differently.

We must focus on “new norms” not on the way it used to be!

Let’s Try Something New to Break “The Cycle”

An actual predatory lending case study to learn from and not repeat:
In 2006, a lender provided two mortgages for the purchase of a $650,000 house.

1st mortgage was a 10-yr. INTEREST ONLY loan with a 6½% interest rate and was an adjustable rate mortgage after 10-yrs.

2nd mortgage loan with a 9½% interest rate

The buyer only had to bring $15,000 to closing!!

In 2010, the owners lost their employment and needed to sell their house.
The appraisal was done on behalf of the lender working with a buyer. The appraisal for the home after 4-yrs. was $425,000, obviously, much less than the list price.
The appraisal was based on numerous foreclosed and short sales in the immediate neighborhood. This further depresses housing prices.

This is a “no win” for everyone involved. A foreclosure would result in this scenario. What happens?
The new appraisal and sales price sets a new benchmark for the neighborhood putting the remaining homes in a negative equity position – most likely. If the other homeowners do not need to sell, how long will it take for them to get their equity back?
So, the families in the neighborhood that purchased a similar home, employed, and making their payments will suffer due to the drop in price.

Owners proceeding toward foreclosure are essentially taken out of the housing market.

Municipalities will lose property tax revenues from lower assessed properties – but when will government change their property assessments? Or will they change or find another way to retain revenues?

A foreclosed house typically remains vacant for a period of time which causes further deterioration. In this case, the “sold” price would typically be less than the appraised value, again depressing prices.

I am certainly not privy to all of the actions taken by government nor smart enough to offer solutions. But, it just seems to me that the vicious cycle hasn’t been broken nor altered to any extent changing the dynamics of the cycle.

Without creating jobs, providing some sense of job security, or a robust economic recovery, this vicious cycle will continue. Anyone listening – anyone at all?

The Current Housing Market

Permission to use the following "toon" granted by Steve Sack and the Minneapolis Star Tribune.

Enough Said!

Did You Know or Want to Know the Following June 2010 Economic Status?

Since December 2007, the private-sector has lost over 7.9 million jobs.

• 14.6 million people were unemployed in June
• 11.2 million people have given up their search for a full-time job
• This is an underemployment rate of 16.5 percent.

 Each month the economy has to generate over 100,000 jobs to keep pace with the population starting their work careers or 3 percent growth to create enough jobs just to keep up with the population increase.

 

Bringing down the unemployment rate:

                     Generate over 200,000 jobs each month

 Bureau of Labor Statistics: For June 2010

                     Total nonfarm payroll employment declined by 125,000

                     Private-sector payroll employment edged up by 83,000

 Not keeping pace with population entering workforce

 

 At 5% economic growth, an 8% unemployment rate goal would not be achieved until 2013. How long before the underemployed rate is reduced in half?

                   Our economic growth is around 3% and trending down!

 

 Bureau of Economic Analysis:

                  In the fourth quarter of 2009, real GDP increased 5.6%

                 The first QT. 2010, real GDP increased 3.0%

  

Other Facts to consider:
The Labor Department indicated the nation's total payroll was actually reduced by 125,000 in June 2010

In June, for private workers, their workweek and earnings dropped. This is a sign that there is less work for the employed. No need to hire.

Consumer confidence fell in June, a significant drop since May.

Consumers are worried about their job

Businesses are worried about hiring

 

“Mortgage rates moved downward again last week as the economic recovery showed further signs of slowing. The respected ISM Manufacturing Index dropped last week. While the index does remain above 50, which indicates that manufacturing is growing, the dip is another sign that the manufacturing-led recovery is losing some of its momentum.” By: Don O’Dell, Allen Tate Mortgage

 

 Plan for the worst and hope for the best – the purpose of the above is to illustrate that the “numbers” do not distort the trends only politicians do. Planning for the worst means you should extend the difficult forecast planning beyond 2011. The economy doesn’t turn on a dime and the current trend is slower and downward.

 

The Bureau of Economic Analysis will publish an advance estimate of the 2nd QT 2010 real GDP on July 30th. Mark your calendars.

 

Office Vacancy Rate Still Rising

From Blogging Stocks
Posted Jul 6th 2010 4:00PM by Connie Madon
Filed under: Money and Finance Today

Reis Inc. tracks office space. Reis reported that 1.8 million square feet of office space were lost in the recent quarter, increasing the office vacancy rate to 17.4%.
Here are some relevant data in the Reis study:

• Since 2008, occupied office space across 82 metropolitan areas has dropped by 133 million square feet - the size of 2,300 football fields.

• Landlords have been reducing rents for seven straight quarters. During the second quarter, rent space sold for $22.01 per square foot, down from $25.00 per square foot in the second quarter of 2008.

• Washington, DC has the lowest vacancy rate at 10%, while Las Vegas, Phoenix and Detroit are highest at 25%

• New York City, the largest office market, has a vacancy rate of 11.7%.

LoopNet provided the following graphs to illustrate the lease rates in several selected cities. As the economy continues to slowly recover and businesses contemplate more layoffs, businesses must also reduce their leased space requirements. There are positive signs for certain markets such as Dallas Tx. I have also included several graphs illustrating the retail lease rate trends for several states hit hard by the downturn.

On Monday, I will be post a summary of the economic activity for June 2010.

                                                    

Interest Rates – Lowest since 1950!

Most home buyers do not have a sense of urgency in today’s market. Those taking advantage of the federal tax credit did at least have a deadline if they wanted “free” money. Let’s put interest rates into perspective. The historical range is 7-8%. In the early 1980’s, interest rates where 18-20%. Each time the interest rate started to increase during the late ‘70’s, people would buy due to the fear of increased rates.

We moved from Baltimore to Miami during that time and we were able to sell our home because of an assumable mortgage. We had “credit card” rates and refinanced as the interest rates came down and new mortgage instruments were introduced – adjustable rate mortgages. As you can imagine, the economy was extremely slow during the period of high interest rates. However, People still moved, new homes were still constructed and buyers still purchased their new home.

What is the incentive for a first time home buyer to purchase a home today?

The housing market is reported every day: foreclosures, short sales, historically low interest rates, over supply of homes, high unemployment, and prices continue to decline. First time homebuyers do not have to move. They will buy their first home only if they want to.

The first time homebuyer doesn’t understand that buying a home is a place to raise a family and establish your sense of community. Most now think because of the national media coverage that buying a home is an investment. It is an investment because the long range appreciation of homes out paces other investment opportunities. However, buying a home as an investment seems to be the only reason to buy a home. Today’s buyer is thinking investment. Thus, they are trying to judge the bottom of the market.

If you were a first time homebuyer, would you buy today or wait?
What will be the reason for a buyer to jump off the fence?

If interest rates started to trend up and continued to the normal range, many first time homebuyers really would miss out on an opportunity because their purchasing power will be drastically reduced. What they could afford in a sales price will go down as their monthly costs go up.

The challenge today is that our economy is not improving with energy even with low interest rates. What will happen to our economy when interest rates start to trend up? Plan for the worst and expect the best!

Relief Well Video

The video provides an easy to understand explanation of the relief well operations currently underway in the gulf.

http://bit.ly/bnpe9e

The relief well is at 16,500 feet below sea level and the target is an 18-inch diameter pipe. This lengthy but informative overview gives us a glimmer of hope the relief well will "kill" the failed well. This effort will stop the flow of oil into the gulf. We should know shortly.

Home Buyer Statistics

Active home search (median):
      Number of weeks searched: 10
      Number of homes seen: 10

First-Time vs. Repeat Buyers:
      First-time buyers: 41%
      Repeat buyers: 59%
      Median age of first-time buyers: 30
      Median age of repeat buyers: 47

Buyers who definitely would use same agent again: 70%

Actions taken as result of Internet home search:
       Drove by/viewed a home: 77%
      Walked through a home viewed online: 63%
      Found agent used to search/buy home: 27%

Information sources used in home search:
       Internet: 87%
       Real estate agent: 85%
      Yard sign: 62%
      Open house: 48%
      Newspaper ad: 47%
      Home book or magazine: 30%

Source: 2008 National Association of REALTORS® Profile of Home Buyers and Sellers

As in the real estate, the use of the internet and specifically, social networking sites will be our source of information. Information and connection to others with mutual professional interests are expanded exponentially through consistent participation on LinkedIn. Regardless of your business or professional background, you must stay ahead of the technological wave.

Happy 4th of July

LeBron James & Economic Impact ?

There are high profile NBA stars in the free agent pool this season which will alter the landscape of the NBA. The best player in this pool besides Wade is LeBron James.

He is expected to max out the NBA contract at $130,000,000 for 6-years -playing a game very well. Add endorsements and LeBron is now not just a basketball player. He is now a major company that will boost a city economy. It is estimated that Ney York City would gain over $1B during his career while Chicago would gain over $0.5B to its economy.

If he took the NY Knicks to Game 7 of the NBA finals – in NYC, the boost to the economy is estimated at $58,000,000 for 1-event!

If you were a “city” and your finances are upside down, no economic energy and the future dim, you would go after the economic boost (LeBron James) with everything you can muster. LeBron James is a company being courted by cities wanting his operation in their city. Not much different from any other city trying to convince a company to move their operations by providing tax incentives, “free” land, and grants to build their infrastructure.

Why did Boeing move one of their manufacturing lines to South Carolina?
Why does a local town condemn property so a shopping center can be built?

NYC would be well served to parcel off a section of Central Park and build LeBron James a castle – after all he is “The King”.

The problem is what happens to Cleveland’s economy if LeBron moves?
What happens to the people displaced by politicians abusing eminent domain?
What happens to the manufacturing facilities or office buildings that become vacated by companies moving to “greener” pastures?

Economic survival of our communities will be played out just like the free agency lottery of LeBron James, Wade, Bosh, Joe Johnson and all the others. Let’s watch and see what happens.

Construction Projects – Level of Activity?

Let’s take a look at the generators of construction projects which will typically include some level of horizontal infrastructure improvement. Construction projects span from a small parking lot to service a new building, a local road or an interstate highway. This past weekend, we traveled (by car) 1,000 miles through PA, DEL, MD, VA, DC, and NC. Although primarily on interstate highways, the only projects under construction were in Washington DC. Not just a few but several mega-projects. New sewer lines, expanded treatment plants, schools, fire stations, new local roads, etc. are all vulnerable due to budget cutbacks. Let alone discuss the financial strength of our state and local governments. Let’s take a look at the generator of construction projects:

Private Sector: The residential and non-residential sectors are at work. The level of work is the lowest on record but work is underway – somewhere. There are several small sites under construction for single user stand alone buildings. Also,

I have been watching a new housing subdivision get started in Cornelius, NC. It is my understanding that the land was owned by government so the builder/developer does not have to carry the land. The price point for the homes is $400K - $500K. They have 6-homes under construction. Absorption rate will be? I will keep you posted! Do you have any new housing or non-residential projects underway in your market?

Federal Government – all of the projects currently under construction were designed and on the shelf ready for construction prior to the recession. It takes years to obtain funding approval for a project, start design, seek public input, complete bid process, and mobilize for construction. My guess is that limited or no funding has been allocated for new projects. The backlog of projects will be seriously depleted.

There are 90,000 State and Local Governments, Cities, Counties, School Districts, Universities, and Utility Companies. Most of these entities have slashed construction budgets and have shelved improvement projects. In most areas, School Districts have been laying off teachers not starting new school projects. The following statistics and comments are from USA Today:

Airport spending is up 12% and mass transit work up 17% due to the stimulus bill.

Columbus, Ohio had nine resurfacing projects completed last year paid by the stimulus bill. Other than these nine projects, Columbus, Ohio did not resurface any other road last year. Have you noticed any resurfacing projects underway in your market?

Las Vegas and Clark County, NV shelved $7,000,000,000 of new school construction. When will they start a new school?

Local construction is typically funded through a bond issue approved by voters at the ballot box. Statistics by The Bond Buyer:        Voter approval in 2008 - 82%
                                  Voter approval in 2009 - 66%
                                  Voter approval in 2010 - 59%

Private construction is at its lowest level since 2001 and local governments are spending at 2007 levels.

My point? There is construction work out there but not enough to spark an economic recovery. The stimulus bill caused some projects to be accelerated and the pipeline will not be replenished anytime soon. Pre-construction industry professionals need to rebrand and reinvent their business through partnering and proactive business development practices. Plan for the worst and expect the best.