Posts Tagged ‘Huffington Post’

Could Wall Street Save the Housing Market: Part 2

Thursday, August 2nd, 2012

My recent column on the Huffington Post reported on the advent on Wall Street into the housing market as companies like Blackstone and Colony Capital commit billions of dollars to bulk buying bank-owned (REO) single-family homes.

I agree that there are pros and cons to this program. The clear source of popular resentment is that the equity lost by homeowners as their home values plummet will be recaptured by large investors when they go to flip the assets once asset prices start to stabilize. Given the low cost of leverage and the low acquisition prices, the large-cap investor wouldn’t have to wait for prices to get back to par in order to make their targeted returns. So, is there another way? Well, yes. Homeowners could stay in their homes. That’s why the Obama administration created the Home Affordable Modification Program (HAMP) which has saved approximately 802,000 U.S. homeowners from foreclosure as of April 2012 – a worthy achievement but far from the 4 million expected and not enough to make a dent in the housing problem. HAMP was tempered by the lack of lender participation in the program. Of HAMP’s $30 billion budget, thus far it has only spent $3.23 billion.

To go back to the investment firms, remember that part of the strategy is to avoid evicting people from their homes. In the best of circumstances, these homes would be rented to their former owners who would also have an opportunity to acquire the home as the exit strategy. Each of these firms has their own strategy but I’ve spoken personally to private equity firms that are making a good faith attempt to prevent people being ejected from their homes for a simple reason – it’s preferable and cheaper than having to re-lease these homes. What are the alternatives? We could let the bad loans sit on the books of financial institutions which can cripple the credit system for years or decades (that’s what happened to Japan in the 1990s); or foreclosed homes can end up being acquired piecemeal in one-off or small auctions which isn’t efficacious in bringing back an enormous market. The argument to be made is that the Wall Street may be that critical intermediary step before the consumer sector is ready to take back the housing market.

A good analogy is what happened in commercial real estate. In 1989, the market hit bottom because of the Savings & Loan crisis.  S&L’s made hundreds of billions of dollars worth of loans on commercial real estate and saw asset prices freefall after Black Monday. Between 1989 and mid-1995, the government stepped in under the guise of the Resolution Trust Corporation which closed or otherwise resolved 747 thrifts with total assets of $394 billion. At the peak in early 1990 there were 350 failed savings and loan institutions under the agency’s control. Just like the GSEs today, they organized bulk sales of commercial buildings and loans.  Who bought them? Large Wall Street firms. It was an enormous transfer of wealth, no question,  but it also brought a new professionalism to the industry – portfolio-level strategy, transparency in pricing and underwriting, a new skill in operations, managing supply and demand, and accurate reporting. Our industry was transformed.  By the late 90s, asset prices shot back up and reached record levels. In 2007, when the recession hit, the industry was affected but far less than it would have been had it not been for how it had evolved. We simply didn’t have the levels of overbuilding that we did in previous recessions. And, incidentally, Wall Street allowed the person on the street into the industry.  The level of public ownership of commercial real estate today is unprecedented. For the first time, your 401K and stock broker could invest on your behalf in commercial buildings. And REIT stocks remain one of the strongest in all of the equity markets today. So, there will be struggles but the housing market will certainly benefit from this — the rigor and reporting that Wall Street will bring to the single family sector which will help make it much better prepared to face future recessions.

Kansas Governor Does a 180 – Restores Arts Funding

Tuesday, June 12th, 2012

Last year, Kansas Governor Sam Brownback stunned the national arts community by vetoing funding for the Kansas Arts Commission.  Brownback recently changed his mind and approved a state budget that includes $700,000 for a newly created Creative Arts Industries Commission.

“It’s a big win for Kansas,” said Sarah Fizell of Kansas Citizens for the Arts.  Brownback rebelled against legislators by vetoing a $689,000 appropriation for the Arts Commission, claiming that public tax dollars should not go to the arts.  The veto made Kansas the first state to defund the arts; as a result, the state sacrificed $1.3 million in federal and regional matching funds.  The veto led to a chorus of disapproval and reports that many arts initiatives, especially in rural areas, had to cut back on their activities.

Nearly 200 local arts organizations and artists lost critical support for local arts programs, operational funding and professional development.  “In difficult fiscal times such as these, the state must prioritize how to spend its limited resources and focus its attention on providing core services,” Brownback told legislators.  In the words of Robert Lynch, CEO of Washington-based lobbyist group, Americans for the Arts, “Kansas has now become a huge outlier.  It’s the only such decision made this year or in the past 50 years.”  Strong support for eliminating the Kansas Arts Commission came from the local branch of Americans for Prosperity (AFP), an anti-tax group founded by billionaire oilman David Koch, whose Koch Industries is based in Wichita.

In a June 22, 2011, blog for the Huffington Post, I wrote “Why publicly support the arts when the debt’s hitting its head against a $14 trillion ceiling and unemployment’s at nine percent?  Well, for one thing, America’s non-profit arts and culture industry generates $166.2 billion in economic activity every year, according to a 2007 study by Americans for the Arts.  This includes $63.1 billion in spending by organizations (that’s twice as much as aerospace) and an additional $103.1 billion in event-related spending by audiences.  The national impact of this activity is significant, supporting 5.7 million jobs and generating $29.6 billion in government revenue.  Overall, the for-profit and non-profit culture industry generate nearly $30 billion in revenue to local, state and federal governments every year.  By comparison, the three levels of government collectively spend less than $4 billion annually to support arts and culture — a spectacular 7:1 return on investment; try getting that in mutual funds.  Want to get America working?  The non-profit arts and culture organizations support more jobs than there are accountants, auditors, public safety officers, even lawyers and just slightly fewer jobs than the elementary school teacher sector.  Simply put, artists are workers — real jobs that generate real value to our society.”

One year later, Brownback appears to have changed his mind on public funding for the arts.  At the start of the 2012 legislative session, he proposed merging the unfunded Arts Commission and the Kansas Film Commission into a single entity overseen by the Kansas Department of Commerce.  Additionally, he proposed granting $200,000 from the Economic Development Initiatives Fund, which comes from gaming revenue.  Legislators raised that allocation to $700,000, which is what was ultimately approved.  Another bill created a check-off where Kansans can donate to the arts on their state income tax form.

The use of gaming revenues will count as public funds as a way to attract grants from the National Endowment for the Arts (NEA).  According to Fizell, several other states use a similar funding model.  If Kansas finalizes and submits its arts plan, it could start receiving matching funds in July, 2013.  Fizell is relieved that the battle over arts funding seems to have ended.  “It was solved in a way that was very collaborative.  I think publicly funded art is important for the state of Kansas, and this was an enormous effort by the advocates across the state who made this happen,” she said.

Save the Planet; Prevent Commercial Mortgage Meltdown

Thursday, November 4th, 2010

The “CRE Solution” could create green jobs while averting commercial building foreclosures.  A total of $1.4 trillion worth of commercial real estate loans are coming due between now and 2014, with the majority on small- and medium-sized buildings that are either under water or very nearly there.  Writing for the Huffington Post, Daphne Wysham says that “crisis breeds opportunity. It turns out that buildings are responsible for about half of America’s emissions of greenhouse gases.”  Wysham, a fellow and board member of the Institute for Policy Studies, is founder and co-director of the Sustainable Energy and Economy Network, as well as founder and co-host of Earthbeat Radio, which airs on 54 stations in the United States and Canada.

According to Wysham, “Here’s the crazy truth:  With a national effort to boost energy efficiency, we could actually meet the building sector’s greenhouse gas emissions target set by the Obama administration for the next few years, put 1,300,000 million workers – 600,000 of them construction workers, 20 percent of whom are unemployed – back to work and dodge the next wave of mortgage meltdowns.  We could make a painless downpayment on our emissions reductions goals, while giving some of our beleaguered businesses a tax break and saving money we’re now squandering on wasted energy.”

Architects and researchers from Architecture 2020 have devised what they call the “CRE Solution”, which would allow small business and business owners in danger of default a multi-year tax break if they retrofit to improve energy efficiency.  “The more energy efficient the building becomes, the greater the tax break,” Wysham said.  “Commercial building owners could trade or sell these tax deductions to investors, who would be invested in putting our highly skilled construction workers back on the job, retrofitting these properties.  For the $6 billion in tax breaks the federal government would provide for this purpose, Uncle Sam would receive $10 billion back in net federal tax revenue, while state and local governments netted $5.25 billion.”