Wednesday, October 22, 2008

Welcome Aboard the Real Estate Sag Wagon

Everybody knows residential real estate is going through a rough patch.  Mortgage applications are down to their lowest level since December 2000 (I guess people who've just seen their savings go "Poof" and whose jobs may do the same at any moment aren't interested in taking on 30-year obligations.).  Now the other shoe is dropping: commercial real estate.  Retail of course is a train wreck, with store after store going dark, and now Mervyn's announcing it will be liquidated by the end of the year.  Now developers are shocked, shocked to find that office space is overbuilt (Tenants can play musical chairs downtown at will, and 222 and City Creek aren't even built yet.  And Sandy and Cottonwood Heights are going great guns.  Some people are just easily surprised.)  (As an aside, Craig Mecham continues to use the downturn as an excuse for why there is still a hole in Sugarhouse.  Odd thing is, though, he claims he's going forward with the retail space and is just putting the condos on the back burner.  And Frank Gray, SLC'c community development director, is buying it and giving him more time to come into compliance.  Who says there's only one born every minute?).  The real estate market is a mess, it's getting messier, and it isn't suddenly going to pull out of this power dive any time soon.  Every fundamental (supply, demand, financing) is bad, and if you think the MOAB(Mother Of All Bailouts) is a magic wand, you need to sit down with a nice, big cuppa joe and wake up.

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Thursday, October 09, 2008

"Mr. Mecham, Fill Up This Hole"

Well, everyone's least favorite swimming hole in the making, the Mecham pit in Sugar House is back in the news. The City wants Mecham to fill that hole by Winter. Mecham's first line of defense is that he's being singled out when there are other projects out there that are out of compliance. His second line is that he's finding financing harder to get than he expected.

First, I can't think of a project out there that's as big a mess in as bad a location as Mecham's. It's prime real estate that two years ago was one of our prime, independent shopping districts, and it's been nothing but a chain link fence and a hole in the ground for months, including this entire construction season. So, no, he isn't being singled out. Even if he were being singled out, his argument is about like telling the cop who pulls you over for speeding, "Hey, you can't ticket me. Other people are speeding too." Good luck with that.

Second, financing is always a gamble on projects like this. Mecham isn't Don Trump; he can't snap his fingers and make it rain money. Even Trump can't do that any more. This problem was completely foreseeable a year ago when he knocked the block down, and even before then when he evicted all his tenants. This isn't even the first time he's made this excuse. He said the same thing back when the City was imposing some frankly reasonable restrictions on his demolition permit.

Sorry Mr. Mecham, I can't sympathize. Either clean up your mess, or sell that property to someone who can.

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Wednesday, October 08, 2008

The News from Sun Crest

Just in time for Winter, things are heating up on the ridge. Raddon Brothers Construction and Ball Ventures are willing to buy the development from Zions Bank if Draper will assure them they can build if a geologist greenlights it. Small problem with that: several geologists have already redlighted it. So how is it all to be sorted out among the duelling geological experts? Pistols at dawn?

This assurance demand is exactly backward and is the reason this mess happened to begin with. Draper should be demanding assurances that the project can be completed. At the top of the list should be geologic feasibility. The developers need to prove that land can support further development (and ultimately that they can support it). As I've said for over 20 years, high-slope developments don't need geologist/geotech studies; they need backing in the form of geologist/geotech liability insurance being on the line. Or serious bonding. Either way, someone is putting skin in the game. Someone other than Draper taxpayers and homebuyers who thought they were getting a properly approved piece of real estate.

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Friday, October 03, 2008


So Wachovia agrees to be taken over by Wells Fargo instead of Citi. And unlike Citi, Wells won't use FDIC assistance for the takeover (At least not yet. Watch for something down the road when all the dust has settled and it can slip under the radar.). And now Wachovia has put partial freezes on Commonfund's Short and Intermediate Term Funds.

How does all this tie together? 1) The FDIC can say, without needing Botox to maintain a straight face, "See, the system works. We aren't insolvent. (Yet.);" 2) Instead of three banks (JP Morgan Chase, Citigroup, and Bank of America) holding nearly one third of the deposits in the US and Citi weighing in at over 11%, you will have four (Add Wells.) at nearly 40% and none over 10% (Appearance is everything when looking at market concentrations.); 3) The presidents of the 1,000 or so colleges and universities with investments in Commonfund will be calling Congress today screaming, "Do something!"

All this just in time for the House revote on the bailout.


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Thursday, October 02, 2008

Love That Country Living

When I was prosecutor in rural Washington, one of our problems was suburbanites moving out to our corner of the sticks for the "country living," building their house on their 20-acre "ranch," and then incessantly bitching about the agricultural operations going on around them.  The most common beef was that livestock was wandering through the yard and tearing up the carefully manicured bluegrass.  I had one lady call me every day for two weeks screaming, "They're stepping on my Malibu lights!"

Jeff Hawn, CEO of Attachmate in Seattle, has found a solution for this at his "ranch" in Colorado: He invited some friends for a hunt and shot every head of livestock they found on the property.  He's facing criminal charges, and I hope they throw the book at him.

Most of the Western US is open range.  That means that livestock owners don't have to fence their animals in; you have to fence them out.  So fence them out!  If you want to move out to the country, show a little respect for the people who actually have to earn a living out there.  Don't be like Hawn and build a house that cost more than the neighbor's herd and then expect everyone to accommodate you regardless of what the law says just because you're more important than all those hicks.

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