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Articles
Where Is the Economy Headed? NY Observer Oped
The headline measures belie the complexity of the economy's underlying growth drivers. In fact, each of the major domestic contributors to activity expanded in the second quarter. Personal consumption was relatively strong, slowing only slightly from the first to second quarters. It could have slowed more dramatically given mediocre income growth, constrained credit and the buffeting of job security by persistent unemployment. While consumer spending increased, a wide range of investment spending, in areas as varied as business equipment and housing, actually picked up over this period.
Across the country, economists are being invited back to cocktail parties and summer barbecues. Even the dullest and most pedantic of my kind are finding themselves at the center of conversation. The pressing question to which we owe our elevated social status: Will we double dip? Reinforcing the importance of this inquiry, major stock indices fell sharply last week, sliding back from their recent highs as macroeconomic data dominated corporate earnings.Investors of all stripes have cashed out recent gains in response to evidence that the economic recovery-in the United States and in the world's other major economies-is losing its initial momentum. Driving the market's swings, the unevenness of the recovery has required investors to internalize myriad conflicting signals from both data and from policy makers. In turn, this has fomented volatility in the prices of stocks, bonds, commodities and currencies, as well as in confidence that we will avoid falling back into recession...The retreat from risky assets is not limited to the world of high finance. It has a parallel in the bricks-and-mortar world of commercial real estate, even if market imperfections limit our ability to observe these behaviors in the moment or with the same transparency. Just as persistent concerns about the growth outlook have pushed investors into treasuries and other government-backed securities, capital earmarked for real property has flowed into the most liquid markets, driving stronger pricing trends in a handful of coastal cities.
By Sam Chandan, August 19, 2010 New York Observer
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More Developers Are Building on ‘Spec’, NYT
"Land values have come down and the cost of building materials has softened a bit."
Fort Salonga, Long Island NY - Walter Morris, a developer in Huntington, is a perpetual optimist. Through what has been largely a moribund market over the last two years, he has kept building homes on speculation — without a buyer’s contract. He has built 10 to 15 a year, from a $700,000 house in Huntington to a $3 million spread in Oyster Bay Cove.“Regardless of the economy, people always want a new home,” said Mr. Morris, the owner of Morgan Creek Development.While he may be the exception rather than the rule, builders who stuck largely to custom building during the downturn are starting to follow his lead and give the “spec” market a try again.
By Marcelle S. Fischler, August 13, 2010 NYT
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Sea Island: Glittering Coastal Luxury Resort Goes for Cheap Price, WSJ
"One of the mistakes we made is we overshot our market," said Bill Jones III, the company's CEO and the fourth generation of his family to lead Sea Island said. "Given all the facts that we had at the time, it was not a mistake to borrow. It was our belief that slowing the construction process would have resulted in a multiyear disruption."The economic turndown "hit everything we had," Mr. Jones added. "They are not buying homes, they're not buying resort residential products that we were developing...." In 2009, Cloister revenue was just $34.8 million, down 31% from $50.5 million in 2007.
Sea Island, Ga. - Sea Island Co., a genteel luxury resort for wealthy vacationers that has fallen on hard times, is selling its assets to two investment funds in a deal that is causing creditors to walk away from $340 million in debt.Sea Island Co.'s Cloister Hotel on Sea Island, Ga., is being sold for a spectacularly low price to financiers. .As part of a pact expected to be announced on Wednesday, funds managed by Oaktree Capital Management LP of Los Angeles and Avenue Capital Group in New York have agreed to pay $197.5 million in cash for Sea Island. Under the deal, Sea Island also is expected to seek bankruptcy protection on Wednesday.The 84-year-old resort is famed for its Cloister hotel, four golf courses, exclusive clubs, a private development called Ocean Forest Golf Club, and hosting a Group of Eight summit in 2004. Sea Island hit a financial wall when it couldn't repay debt taken on by Bill
Jones III, the company's CEO and the fourth generation of his family to lead Sea Island, as part of a $395 million renovation and
expansion in 2006 and 2007. The deal shows how some banks are increasingly willing to get rid of distressed assets at a steep loss as they slog through their commercial real-estate problems. Many financial institutions have been reluctant to sell troubled loans and foreclosed property to preserve capital while values have plunged.
By Carrick Mollenkamp and Lingling Wei, August 11, 2010 WSJ
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Fed Sees Recovery Slowing, WSJ
The Fed noted that high unemployment, modest income growth, lower housing wealth and tight credit were holding back household spending. Meanwhile, lending by banks "has continued to contract," the Fed said, while construction remains weak and employers remain reluctant to increase payrolls.
The Federal Reserve, facing an economic recovery that it termed "more modest" than anticipated, said Tuesday it will stop shrinking its huge portfolio of securities by reinvesting the proceeds of maturing mortgages in U.S. Treasury debt. The Fed move is largely symbolic and is unlikely to stimulate the economy significantly. But the shift in the management of its portfolio—and an accompanying statement—underscored Fed officials' concern about the vigor of the economic recovery. It also opens the door for bigger purchases of Treasurys or other securities should the economy falter or the risk of deflation grow, though the hurdle for such action remains high. Downgrading its assessment of the economy, the policy-making Federal Open Market Committee said the recovery "has slowed in recent months," and that the "pace of economic recovery is likely to be more modest in the near term than had been anticipated." The committee repeated its commitment to keep its target for the federal funds rate, at which banks lend to each other overnight, at "exceptionally low levels" for an "extended period."
By Sudeep Reddy, August 11, 2010 WSJ
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The Shrinking Second Home, WSJ
Real-Estate Resorts Pitch Cabins, Cottages as 'Affordable Housing for the Affluent'...In some ways, the luxury resorts are acting more like typical planned communities. Some developers are making sample floor plans for the first time instead of having buyers design their own homes—often a more expensive proposition. Others are decreasing lot sizes. Developers say they're also responding to what post-boom buyers want: value and convenience, rather than supersized lots and homes.
Even in the up-and-down world of real estate, this pitch may sound a little funny: "Affordable housing for the affluent."It's the strategy developers of high-end vacation homes are devising as home sales slump in major markets across the country and inventories of unsold homes rise. They are building smaller, less expensive houses in resort communities. As a result, from Turks and Caicos in the West Indies to the Colorado Rockies, some vacation communities are getting just a bit less exclusive.The goal is to avoid lowering the sales prices on existing homes and upsetting homeowners who paid more for their homes. The communities typically cater to people seeking a second, or third, or even fourth home as well as amenities like a clubhouse, beach access, or golf courses.
By Juliet Chung, August 11, 2010 WSJ
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