Friday February 13 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Sam Zell’s Empire, Underwater in a Big Way - (www.nytimes.com) It was, for a brief shining moment, the real estate deal of the century. In 2007, Sam Zell, the billionaire Chicago investor, sold a portfolio of 573 properties he had assembled over three decades, Equity Office Properties Trust, to the Blackstone Group for $39 billion. It was the largest private equity deal in history, but Blackstone did not stop there: it immediately flipped hundreds of the buildings for $27 billion. Today, the wreckage of those purchases is strewn across the country, from Southern California to Austin, Tex., to Chicago to New York. Many of the 16 companies that bought Equity Office buildings are now stuck with punishing debt, properties whose values are plummeting and millions of feet of office space they cannot fill. Few deals better exemplify the excesses of the commercial real estate boom than the dismemberment of the Equity Office empire, and fewer still better underscore their bitter consequences. Buyers purchased buildings at what, in retrospect, were vastly inflated prices. Lenders provided lavish, even excessive, financing based on unrealistic expectations of rising rents. And now that values are tumbling, vacancy rates are rising and credit has become impossibly tight, many on both sides are struggling against default, foreclosure or bankruptcy. The impact could ripple beyond the companies that bought Equity Office buildings and the investment banks that financed them. If the owners cannot make their loan payments, it could create a financial crisis for the pension funds, hedge funds and insurance companies that hold securities based on Equity Office mortgages. The list of Equity Office buyers reads like a Who’s Who in American real estate. In Stamford, Conn., RFR Properties, a partnership headed by Michael Fuchs and Aby Rosen, who owns Manhattan landmarks like Lever House and the Seagram Building, spent $850 million to buy seven Equity Office buildings that analysts say are now worth less than their mortgages.

IMF Says Advanced Economies Already in Depression - (www.bloomberg.com) Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said. “The worst cannot be ruled out,” Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.” Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today. “All this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,” he said. “And today it’s not done.” The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macy’s Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.

Mortgage Rescue Plan May Involve Freddie, Fannie - (www.cnbc.com) The Obama administration is crafting a mortgage-rescue program that would see Fannie Mae and Freddie Mac ease payments for hundreds of thousands of borrowers and offer a model for Wall Street to do the same, sources familiar with the plan said. Late last week, officials from the Treasury Department and Department of Housing and Urban Development worked with the companies' regulator to agree on standards for who could get relief and how they might coax other finance companies to follow their lead, said two industry sources familiar with the deliberations. Those discussions were still going on over the weekend with Treasury officials trying to weigh the merits and costs of several possible approaches, said one source familiar with the talks. Washington's two largest foreclosure-prevention initiatives of the last 12 months have fallen flat with only a handful of borrowers having been helped despite promises that hundreds of thousands would qualify.

In Florida, Despair and Foreclosures - (www.cnbc.com) Desperation has moved into this once-middle-class exurb of Fort Myers, where hammers used to pound. Its straight-ahead stare was hidden amid the chatter of 221 families waiting for free bread at Faith Lutheran Church on a recent Friday morning; and it appeared a block away a few days earlier, as laid-off construction workers in flannel shirts scavenged through trash bags at a home foreclosure, grabbing wires, CDs, anything that could be sold. “I knew it was coming,” said Gloria Chilson, 56, the former owner of the house, as she watched strangers pick through her belongings. “You take what you can; you try not to care.” Welcome to the American dream in high reverse. Lehigh Acres is one of countless sprawling exurbs that the housing boom drastically reshaped, and now the bust is testing whether the experience of shared struggle will pull people together or tear them apart. The changes in these mostly unincorporated areas outside cities like Charlotte, N.C., Las Vegas and Sacramento have been swift and vivid. Their best economic times have been immediately followed by their worst, as they have generally been the last to crest and the first to crash. In Lehigh Acres, homes are selling at 80 percent off their peak prices. Only two years after there were more jobs than people to work them, fast-food restaurants are laying people off or closing. Crime is up, school enrollment is down, and one in four residents received food stamps in December, nearly a fourfold increase since 2006. President Obama is scheduled to visit Fort Myers on Tuesday to promote his economic stimulus plan. But residents here tend to view it as the equivalent of an herbal remedy — it can’t hurt but it probably won’t heal. Instead, in church groups and offices, people call for “industry” and repeat one telling question: “What do we want to be when we grow up?”

You Try to Live on 500K in This Town - (www.nytimes.com) The president's Wall Street salary cap threatens life as some know it in Manhattan. You Try to Live on 500K in This Town. Mortgage: $96,000 a year. Co-op maintenance fee: $96,000 a year. Nanny: $45,000 a year. We are already at $269,000, and we haven’t even gotten to taxes yet. Five hundred thousand dollars — the amount President Obama wants to set as the top pay for banking executives whose firms accept government bailout money — seems like a lot, and it is a lot. To many people in many places, it is a princely sum to live on. But in the neighborhoods of New York City and its suburban enclaves where successful bankers live, half a million a year can go very fast. “As hard as it is to believe, bankers who are living on the Upper East Side making $2 or $3 million a year have set up a life for themselves in which they are also at zero at the end of the year with credit cards and mortgage bills that are inescapable,” said Holly Peterson, the author of an Upper East Side novel of manners, “The Manny,” and the daughter of Peter G. Peterson, a founder of the equity firm the Blackstone Group. “Five hundred thousand dollars means taking their kids out of private school and selling their home in a fire sale.” Sure, the solution may seem simple: move to Brooklyn or Hoboken, put the children in public schools and buy a MetroCard. But more than a few of the New York-based financial executives who would have their pay limited are men (and they are almost invariably men) whose identities are entwined with living a certain way in a certain neighborhood west of Third Avenue: a life of private schools, summer houses and charity galas that only a seven-figure income can stretch to cover.

Feeling Scorched by a ‘Sure Thing’ - (www.nytimes.com) Federal authorities accuse a Long Island entrepreneur of operating a Ponzi scheme into which $380 million from some 1,500 investors has vanished. IN December, Nicholas Cosmo, the Long Island entrepreneur now accused by federal authorities of operating a $380 million Ponzi scheme from his company here, Agape World Inc., assured his loyal investors, mainly an unsuspecting army of blue-collar workers and civil servants who entrusted their nest eggs to him, that he wouldn’t dream of pulling a Bernie Madoff-style scam on them. He lied, according to the authorities. Guys with a gambling addiction and a federal rap sheet for fraud, like Mr. Cosmo, who served time for his conviction in 1999, tend to do that. They also may prey on people like Jeanine C. Haufe, 46, a receptionist from Mineola who is the divorced mother of two sons, one a captain in the Marines, the other a teenager recently rendered penniless. They blame Mr. Cosmo. Ms. Haufe said she not only invested her entire life savings of $28,000 in Agape, excitedly reinvesting her interest checks and watching her investment balloon to what she was told was $51,000 over four years, but she also, shrewdly she thought, invested her 15-year-old son’s confirmation and graduation savings account, around $5,000. According to the last statement she received from Agape, his account was worth nearly $7,500.

When Nest Eggs Crack - (www.nytimes.com) Of course the shameless NY Times has to get the cancer angle into the story. Many baby boomers are having to cope with having their financial cushion yanked away in an instant. THERE were some mornings in that awful year of 2008, when she lay half awake in bed, trying to keep track of all the Caroline Jacobsons she would need to be that day: mother to her 4-year-old, Sonya; wife to her architect husband, Jeff; daughter to her 79-year-old dad, dying of cancer; stepdaughter to his distraught second wife; set decorator for whatever TV commercial was being shot that week — Mr. Clean, Verizon Wireless, Bayer aspirin, Giant Eagle supermarkets. And that was before she’d been Madoffed. Some days, the 50-year-old Ms. Jacobson handed off her daughter to the baby sitter at 7:30 a.m., raced from their Brooklyn co-op to a production studio in Queens, put in a 12-hour day, then headed to the hospital in Manhattan to see her father. No matter how fast she ran, she worried she was neglecting someone. Her father had been a highly successful Madison Avenue ad executive. He had lived well — he loved opera, museums, the racetrack — but had also saved and invested his money and was generous with his two daughters, Ms. Jacobson and her twin sister, Louise Crawford, as well as their families. Still, like many of his generation, her father had a prudent streak, preferred the subway to car services. When he grew thin from colon cancer, Ms. Jacobson tried to persuade him to hire a food-delivery service. When he wouldn’t, she and her sister would stop by his apartment with the minestrone or tongue sandwiches he loved. She tried getting him to take a car service to his chemo sessions, but he was stubborn. And then, in mid-August, he called her saying he’d collapsed on the subway and two big men had to carry him up to the street. Not long after, on Sept. 7, 2008, he died. Watching his slow, painful end was hard. And while Ms. Jacobson was aware he had left a substantial estate, she didn’t talk to her stepmother about the details for weeks. “We were so devastated,” she said. “I was in shock.” In October, she received a copy of the will in the mail, indicating that the estate would be divided, with half going to her stepmother and the other half to be split between Ms. Jacobson and her twin. “I asked my stepmother how much,” Ms. Jacobson recalled. “She said: ‘I don’t know. It changes month to month.’ ” By November, Ms. Jacobson said she knew there was an investment portfolio worth about $2 million, and despite the stock market crash, it hadn’t lost value. The name of the investment firm, which had offices in New York and London, didn’t mean anything to her, but she was impressed. “Obviously, this guy had to be a genius, if we hadn’t lost any money in the last six months,” she said. SHE did worry that the money was invested all in one place.




OTHER STORIES:

Without huge salaries, financial leaders won't try hard? - (www.latimes.com) Wall Street could learn a thing or two from 24-year-old video-store clerk Beatriz Corrales.
Opposing forces tug on banks - (www.latimes.com) Customers get the squeeze as lenders that took federal money try to balance...
Weighing the Employee Free Choice Act - (www.latimes.com) For big business, democracy in the workplace is generally compared to a horrific disease, like herpes...
CalPERS to seek improved corporate governance, stricter Wall Street rules - (www.latimes.com) The huge state pension fund also plans a thorough review of its investments in...

Wall Street to Watch Washington in Week Ahead - (www.cnbc.com) From action on the economic stimulus plan to details of a financial stability plan, Wall Street will be taking cues from Washington.
Stimulus Is Full of 'Pork Barrel Politics' - (www.cnbc.com)
China's Ping An to Vote Against Fortis Sale - (www.cnbc.com)
Rio's Leng Quits, Not to Become Next Chairman - (www.cnbc.com)
White House Seeks Final Passage of Rescue Plan - (www.cnbc.com)
For Bank of America and Merrill, Love Was Blind - (www.cnbc.com)

Do Markets Really Think Stimulus Plan Will Work? - (www.cnbc.com)
In Geithner's Overhaul, Aggressive Use of All Available Tools Expected - (www.washingtonpost.com)
U.S. Plans New Bank-Capital Injections, Expanded Fed Program - (www.bloomberg.com)
New Plan to Help Banks Sell Bad Assets - (www.nytimes.com)
U.S. linking bank aid to loan changes: sources - (www.reuters.com)
New economic figures rattle Brazilians - (www.ft.com)
Canada’s Employers Cut Record 129,000 Jobs in January - (www.bloomberg.com)
Japan’s 10-Year Bonds Post Biggest Loss in a Month on Stocks - (www.bloomberg.com)
Congress Is Divided Over Competing Stimulus Bills - (www.nytimes.com)
Obama's economic recovery plan on track in Senate - (news.yahoo.com/s/ap)
In Florida, Despair and Foreclosures - (www.nytimes.com)

Breaking Down The Stimulus Bill - (www.cnbc.com)
Furloughs in California Close Many Agencies - (www.nytimes.com)
For Bank of America and Merrill Lynch, Love Was Blind - (www.nytimes.com)
Bailout Needs Some Strings Attached to Limit Pay - (www.nytimes.com)
Gauging Uncle Sam's credit risk - (www.latimes.com)
The rise and (almost) fall of America's banks - (finance.yahoo.com)