This week I discuss in a interview with Melissa Dehncke Mcgill from the Real Deal on the forclosure frenzy in New York. Please have a look.

The newly revised Home Valuation Code of Conduct goes into effect on May 1st, but it remains to be seen whether the new provisions will resolve troubles that became apparent last year. The revisions require lenders to obtain appraisals through a third party, so-called Appraisal Management Companies, rather than order the appraisals directly through their own sourcing. The goal here is to create a firewall between the lenders making loans for properties and the appraisers, who are valuing the properties, thus eliminating any kind of pressure to influence the outcome of the appraisal.

I completely agree that there needs to be a way to prevent lenders from putting pressure on appraisers to produce favorable property valuations and am in favor of a firewall between the lending industry and appraisals. But the provision to require a third party to order appraisals is problematic.

Appraisal Management Companies (AMC’s) add another layer of fees to the process, which will either be passed on to buyers or will force appraisers to operate as such reduced margins that it will become too difficult to attract and retain appraisal professionals of high quality and experience. Appraisals these days are more complicated than they were  a couple years ago, when the market was constantly rising. A thorough, professional appraisal is a complex process, and it would be an unfortunate development if the appraisal industry was forced to raise fees in order to stay in the business.

Further, there are bound to be loopholes in the new provisions that still allow lenders to work directly with appraisers, defeating the purpose of the revisions to the code.

I’m curious to know what lenders and mortgage brokers think about the changes in the code, and how this will pan out for all professionals involved in the industry. Please feel free to share in the comments section below.

With 2008 gone by now, all we can only say Good Riddance!  Beginning with the stock market having its worst year since the 1930’s.  What started as we know it with a sub prime crisis, quickly deteriorated to a total mess in the mortgage industry. Not to mention the high gas prices reaching almost $4.00 a gallon and Crude oil reaching nearly $140.00. With the major banks like Lehman Brothers and Bear Sterns going out of business or being bailed out. People losing their life savings or their pension plans which were wiped out together with these big icons. Then we saw the the real estate values plummeting across the country by 12% up to 30% in some cities. In a society where people looked at their home as an ATM machine the results were devastating. Soon eateries and retailers started feeling the pinch. With retailers and eateries going out of business along with banks shutting down, that put back on the market thousands of square feet of office and retail space.  The Real Estate market in Manhattan which has thus far defied the national trend of declining markets suddenly didn’t look so invincible. Next came the auto crisis with Ford, GM and Chrysler begging Uncle Sam for a bailout. If in the beginning of the year people weren’t sure if we are in a slow down economy or that the markets are just correcting themselves….. At the time the ball dropped in Times Square on New Years Eve, everyone admitted the unfortunate truth that we are in the midst of a Recession, with some making the argument that we are in the midst of a depression or heading there.

Ok, enough with that, now I’m going to give you some good reasons to be optimistic. First of all the economy is a cycle with ups and downs. After each up market comes a down market and vice versa. The new administration is reportedly proposing a very aggressive stimulus plan over the next two years which could be as large as $775 billion and include infrastructure investments and up to $300 billion in tax cuts.  Currently interest rates are at a all time low. The Real Estate Market will hopefully bottom out by mid year which at that point property values will hopefully start going up. The government already approved loans for the auto industry which means that auto loans will be available for consumers. Most of the Mortgage junk has been flushed out already along with the government bailout plans. With all said we can expect the economy to grow and be more prosperous in the second half of 2009. Lets hope.

So over the weekend we were subjected to the news of the latest employment numbers (or unemployment for that matter) which came out and were even worse than most analysts could have projected. 

As reported in The New York Times some 533,000 people lost their jobs in recent weeks making it the most costly month for employment in 34 years.  These numbers, which were higher than what were previously expected, are sure to have devastating implications for a wide variety of economic sectors, including the retails markets and undoubtedly real estate of all types. 

When we see these devastating numbers, the natural inclination is to ask just how much worse can it possibly get.  And perhaps herein we can find some rays of optimism because if it things aren’t going further downhill…they have to begin to get better.

Maybe it’s a stretch to say that this approach can be a source of real hope but perhaps history is on our side.  In efforts to find those rays of sunshine in this ever darkening storm of depression, I came across an article from the Israel daily, Maariv that essentially says that when such awful employment numbers have been produce it would indicate that things have to start reversing themselves. 

Among the various commentators this Hebrew language article quotes is Jim Cramer of CNBC who believes that there might be some silver linings that could come out of the holiday season.  Pointing to things like the low cost of oil, Cramer says this will translate to more driving and lower home heating bills.  Shrinking interest rates hope to entice homebuyers as well. 

There’s no doubt that in pretty much every business sector, whether you’re looking to travel, purchase new appliances, move or any of hundreds of other places buyers put their money nowadays, things are on the side of the purchaser- assuming he or she has the cash to afford those lower prices. 

I would contend that a large factor in these downward spirals is how it’s all driven by fear- even if it’s legitimate fear.  People stop spending because the media and other public institutions are telling them to conserve and that the period ahead requires us all to save.  That sentiment, while to a large degree accurate, needs to be reassessed at some point when we’re convinced that things can’t get any worse. 

Once we’re told and reassured that we’ve hit rock bottom, people will work to seize the day and perhaps begin injecting the necessary capital back into the economy and start the spiral heading in the other-more positive- direction.

Perhaps it’s naive to think we’re at that point…perhaps not.  Only time will tell.

When the holiday season approaches each year, what most executives get to thinking about his how they’ll be spending their bonuses.  In recent years, top execs from places like Goldman Sachs were earning bonuses in the tens of millions of dollars, fueling spending booms that benefited a wide variety of business sectors, including the luxury real estate market.

This year, as we know all too well, many executives will be lucky if they get any bonuses at all.  President Elect Obama was reported by Reuters to be encouraging top company heads to forego any types of additional payments because of the economic climate.  “I think that if you are already worth tens of millions of dollars, and you are  having to lay off workers, the least you can do is say, I’m willing to make some sacrifice as well,” Obama said.  Regardless of what one might have thought about Obama during the campaign, it’s hard to disagree with a statement like that.
AIG for one may seem to be heading the call When the holiday season approaches each year, what most executives get to thinking about his how they’ll be.  However, this seems to be somewhat an issue of semantics with bonuses being replaced with “retention” payments sometimes amounting to as much as $3,000,000 for some of the bigger names in the firm.  AIG is trying to defend this move saying that they need to provide these incentives in order to hold onto their top people so that company’s value stays up for potential buyers or AIG affiliates many or which are on the market.  But truth be told, this is a shallow argument which leaves a bitter taste in the mouths of all those for whom even a modest bonus won’t be coming anytime soon.

I was quoted in an article in the Real Deal that  discusses the effect the shortage of bonuses will have on luxury home sales and there’s no doubt that it’s gonna be a depressing reality for owners and brokers.  As the article details, potential buyers are more likely to be potential renters in luxury areas like Midtown Manhattan.  Just another dark note on what is usually a cheery time of year.  But let’s be optimists and point out that we still have a couple weeks to go before Christmas and Chanukah for some points of light to emerge.

A lot is certainly going on these days yet most of the talk is on massive bailouts and huge banks going under and oil prices.  What we sometimes forget (although looking at our portfolios we are soon reminded) is that beneath those trillion dollars of losses are the little people- namely us.

So let’s take a look at a more concise breakdown of where things stand at the moment from the various angles of where things are going for the “you and me consumer”:

The dust hasn’t yet settled on the auto bailout and we are already hearing of another possible bailout this time it is the giant Citigroup which have lost 60% of their value recently as a result of anxious investors.

The unemployment rate is expected  to hit 7.5% by the end of the new year.  That’s a full percent higher than the October 2008 6.5%.

Restaurants are having trouble as well as people are either seeking out inexpensive eateries or they’re ordering less at the up scale places.

Supermarkets are reporting a 100% increase in Credit card payments and at the same time they have seen a 10% decrease in sales.

To see how far consumers are cutting back on spending see the CNBC report on how bad the shopping season has been thus far for the larger retail stores. They are reporting a decrease of more then 20% in sales which is forcing the retailers to reduce their prices sharply.

Retail vacancies are up and many retail tenants are behind with more then 3 months of rent.

The Holiday season is around the corner and there are lots of gifts and toys tied up in China, not being released due the credit crisis. The banks are not giving the LC’s.

As the conventional financing disappeared hard money loans started to fill in the gap and became very popular. Hard money loans also known as private mortgages can be very expensive money as rates range from 11% - 17% in addition to some points paid upfront. These type of loans are generally intended for short term as a bridge loan until the investors can arrange long term financing or a construction loan. With the freeze of the credit markets a lot of these hard money loans are about to expire and we may see an increase in defaults as the borrowers can’t get other means of finance for their projects.

For all the bad news swirling around us, let’s take a look at the positive for a moment:

President elect Obama came up with a plan to create 2.5 million jobs over the next two years.

I’d say that’s pretty good news.  Perhaps he can turn this whole country around.  We are in desperate need of some change.

I wanted to call your attention to a fascinating article from the New York Times that uses the case study of one particular building in midtown to demonstrate how the current crisis is affecting the local market.  It includes a nice graphic (if nice is the proper word to describe such a depressing topic) that illustrates what we’re dealing with. 

On the more optimistic front, an MSNBC report did describe New York as having the ability to remain strong overall,  and that falling rents could actually make the city a more livable place to live.  Of course this might benefit the overall living situation, but landlords are unlikely to be overly happy with this assessment.  Interestingly the piece pointed to Seattle as the leading city for real estate investment at the moment. 

As a locale that has an international feel and the presence of some major corporations like Boeing and Microsoft, it does have a lot to offer.  New York made it into the top five and in terms of the bigger picture of what a city can offer, beyond just bottom line considerations, you could argue that we should retain the advantage of pretty much any other place in the US and certainly on the East Coast.

Going from the serious to the more ridiculous for just a moment, I’ll point you in the direction of The New York Observer where a column comically argues that high end divorces could be the rescue that the local real estate market needs.  Referencing settlements like that of Heather Mills, the ex-wife of Paul McCartney, that resulted in a $5million midtown home purchase, this piece is just one more possible source of optimism.  Writing only slightly tongue in cheek, the author concludes, “This is all very encouraging, really. After all, even as the real estate market collapses, there will always be divorces, and therefore angry ex-wives eager to spend their settlements on amazing New York real estate.”

So now we’re looking at the potential for another government bailout this time of the auto industry.  Now there can be no disputing the central role that automobiles play both in our national and cultural psyche as well as the obvious economic importance of the industry.  The question however is just how much do we as a nation need to do to protect the interests of our private industries?

In this posting I’ll take a look at some items that take various positions on this issue and I urge you to share your thoughts by sending in your comments. This Central Blog has views from two bloggers who present various different perspectives that range from the bailout being futile to necessary but makes clear that there’s little consensus amongst politicians, economists or even us the consumer as to what will work best for our long term economic health.

I also found this Business Report a helpful analysis of the bigger picture and working to give an understanding of how this issue can affect the broader economic outlook.  Political obstacles also stand in the way of getting this bailout approved with Democrats on the one hand willing to do a whole lot to help the auto industry and the Republicans looking at the situation far more conservatively so it’s far from a done deal- at least not in the current climate.

The question that we all need to think about is what precedent are we creating by approving all these bailouts.  Are we stating that private industry deserves the protection of Big Brother, the federal government, regardless of whose fault it is for getting them into that mess?  Or to we favor truly free market economies where companies need to be held responsible for their failures and won’t be able to rely on us the taxpayer to bail them out.  It’s an extremely difficult question that is being asked on ways like never before in our nation’s history but the decision the country makes is certain to have ramifications not just in the short term but for many years to come.

It’s been a couple of days now and things only seem to be getting worse…Although some might choose to put an optimistic spin when recognizing that the Dow closed down ONLY less then 400 points when at one point in the day it hovered below 800 down.  Crossing below the 10,000 marker was equally painful to watch and we’re truly living in historic- if not unprecedented- times.

The fact that Congress succeeded to vote in favor of the bailout is a positive from this perspective and we again can only hope.  On that note, I figured we’d turn our attention to the upcoming elections which is an equally fascinating topic.

Let’s begin with the local scene and Mayor Bloomberg’s announcement that he will try to convince city council to amend the current term limits and allow him to run for another term.  I look at this with some degree of ambivalence.  On the one hand he’s working to undermine a system that was democratically chosen and reflects the will of the people. I’ve even heard it described as an outrage or an insult.  On the other hand, Mike Bloomberg is the type of character who should be at the helm of NYC at a time of crisis like the one which is currently taking place.
Having managed one of the world’s largest media companies, his business savvy and resolve can be critical in looking out for the best interests of the city in bettering our financial situation.  He seem to be getting support to his idea from people in the business sector while the working class people oppose  the idea because they feel that he will raise taxes and fines to raise money for the city.  A most recent poll showed that the people in the city are strongly divided on the idea of letting Bloomberg seek a third term.

It’s a tough call for all the reasons outlined above but at the end of the day we need to look out for the interests of the city and its citizens.  Mayor Bloomberg has proven himself as a stronger leader that most of us could have ever expected so perhaps he deserves the chance to be our own local “maverick” and take on that third term.  Time will tell but it promises to be as an exciting time as ever for New York politics.

Tomorrow, we’ll take a look at the national election which is certainly no less fascinating…

As we all know by now, the last few days were ones that none of us could have ever predicted.  After the meltdown of four major U.S. financial institutions, the American people now shift their focus onto the stock market.  Following the House Republican leader John Boehner’s opposition last friday to the Bush Administration’s proposed $700 billion rescue plan, Boehner created a compromise plan which was rejected.  This in turn caused a catastrophic drop in the stock market, as sell-offs took place within minutes.  The Dow Jones industrial average lost 777 points that making it the largest single-day drop ever.  Boehner expected flack from the Democrats, but he is even facing doubt from within his own party.  Earlier the U.S. Senate passed an updated version of the bill, which holds incentives for the House, thus hoping they will authorize it.  With the titanic dive of the Dow resulting from past opposition, the Government is putting all bets on this bill’s approval, for the economic situation is in desperate need of stability. 

For those of us who celebrated the Jewish New Year over the last two days, we could pray and hope that by next year at this time things will have improved considerably.  There are many variables that will contribute to whether we see any significant type of recovery during this period.  Who occupies the Oval Office combined with what support we get from foreign markets and a whole bunch of other factors that we’ll continue to analyze in this blog.

Returning our focus for a moment to the issue of real estate, I would also like to turn your attention to a article I wrote for the New York Real Estate Journal on the related topic of the Brooklyn residential market.

Last week will likely be known as the 9/11 of the financial markets.  Monday brought the biggest plunge of the stock market since September 11, 2001, with the numbers dropping 504 points in a single day alone.  With the painful collapse of Lehman Brothers, to the buyout of Merrill Lynch and bailout for AIG, there was no upside.  It was a week that certainly changed history.

In an effort to help stabilize the ailing market, the government temporarily blocked short-selling in financial securities.   (Short selling is a trading method that bets the stocks will go down.)  It is rumored that short selling caused the collapse of Lehman, as well as other financial institutions.  While short selling is perfectly legal, spreading false reports about stocks is most definitely not.  Attorney General Cuomo has launched an immediate investigation into the short selling practices of today.   

Additionally, the federal government announced that it will advance a plan to buy mortgage-backed securities, which have been badly hurt by the housing and credit crisis.  This news was well received.  A 400 point surge in the stock market as well as in financial markets around the globe resulted. 

But, with the financial crises still not under control people are standing on the sidelines and wary of buying homes.  With many not acting until they see the full picture on Wall Street, we may see a significant price drop in the housing market in NYC.

The financial mess we’re in right now is going to have a negative impact on the New York City and New York State economy.  Huge losses are expected on Wall Street firms and Hedge funds.  Not to mention, the Lehman Brother employees.  The buyout of Merrill Lynch by Bank of America is sure to result in job cuts as well.  It is yet to be seen what AIG is planning after their government bailout.  But, the new CEO of AIG already stated that they are going to hold onto their good assets and will likely become a smaller company.  These job losses will cost the state and city major losses in tax revenue.  In addition, it will have a detrimental affect on the real estate market, as office vacancy rates increase, we can expect to see a drop in price per square foot.  This brings me to the aching high end residential market due to the loss of the Wall Street big boys spending their money on luxury apartment’s kin the city.

We’ve witnessed the largest government intervention in the financial market since the Great Depression.  Some criticize the government’s bold actions as Communism.  Many are concerned, and rightfully so, that these moves by the government can cost taxpayers hundreds of billions of dollars.  Even with all the uneasiness of the situation though, I believe the government did the right thing. For the short term at least, it will help stabilize the market and prevent the collapse of more financial institutions.  As President Bush noted in a special address to the nation: we must act now to protect our nation’s economic health from serious risk.  There will be ample opportunity to debate the origins of this problem later.  Now is the time to solve it.

Click for a related article, or for a related video.

These past few days have shown the continued uncertainty of the office market in Manhattan.  I’m particularly worried about all the job cuts and financial institutions going out of business.  There are many vacancies that will be put on the market as a result of the financial mess.  One such is the 12 floors that Lehman Brothers subleased from the Time Building back in the good old days of 2006.  I’m unsure of how exactly this will affect Time, but it should be interesting to follow. 

Another thing to consider during these troubling times is the high end residential market which was largely driven by huge Wall Street Bonuses.  Again, I cannot yet foresee how all these actions will play out, but it is something worth keeping track of. This report that the government’s proposed relief plan may make more mortgages available is good news to this real estate professional.  Let’s hope it works.