http://bfkco.com/blog.php Ben F Kushner Blog en admin@bfkco.com Copyright 2009 Pivot TWS Site Administrator - 1.40.5 Tue, 15 Dec 2009 10:52:55 -0500 60 http://bfkco.com/pivot/entry.php?id=9 http://bfkco.com/pivot/entry.php?id=9#comm These are great times to be listening to books and music while getting vast amounts of exercise. With the financial markets for commercial real estate at a temporary standstill, I am returning to the basics. Making cold calls, doing research, trying to get a jump on the next market upswing, I am spending my days doing the ditch digging of primary business. I usually end the day with long walks with my dogs seeking inspiration from my IPod.We have returned to the basic of business in order to keep the Company successful during these trying times. We shore up our foundations of the company by securing our existing tenants of merit. We examine every cost to see if it is necessary. We ask our vendors for cutbacks in prices without putting them out of business. Selection of the investment is the most important decision we make when we expend our capital and risk our credit. Good management is key to maintaining the asset once it is acquired.


In difficult times like the depression of 2008 - the waves can be more important than the ships. We have to batten down the hatches to make it through the storm.


The $64 trillion question is where will the next great wave of commercial real estate financing come from. When the S&L’s failed in the 80s, mortgage backed securities filled the void. Sub primes loans and securities leveraging upwards 30-1 killed the MBS's in 2008.


I contemplate while walking who or what will be the next huge supplier of long term capital to developers and investors for real estate. My IPod buds are ringing forth tunes from playlists or audio books about success. I don’t like hearing about failure. About 10 years ago, Tom nWolfe wrote a novel about a failing Atlanta real estate developer, “A Man in Full.” I could not read it. The last thing I wanted to dwell on was a bankrupt Atlanta real estate developer.


The walk, dogs, scenery, books and music stimulate my thought processes. It is then I strategize and plan business tactics, solve problems and set agendas. I will write down my decisions when I return to my home or office then the implementation process begins.


Right now I am reading (listening) to Warren Buffet’s biography, “Snowball.” It's great. It is not a “how to get rich book.” It’s a story about a regular guy from a vanilla Midwest town with a crazy family who becomes the world’s greatest investor. Nobody could be Warren Buffet. His life proves that a combination of smarts, preparation, hard work and understanding of surroundings can result in success if one desires.


On the walks, in the car and sometimes by myself I listen to music. I have listened to music for as long as I can remember. My folks gave me a white table top RCA AM radio when I was about 6. I would listen to it all night. I could get Randy’s Record Hop from Nashville, the original Cousin Brucie WABC in New York and WLS in Chicago. My IPod has everything from Beethoven to Taylor Swift to oldies like Four Seasons and Johnny Cymbal (Hey Mr Bass Man) to Young Bloodz, Ludacris and Usher.


I have a lot of Roseanne and Johnny Cash. I have his last album box set, “Unearthed,” produced by Rick Rubin. Unearthed is an ironic title for an artist who died two months before the release date. Cash sings a lot of his songs and other very non country music like Bob Marley and Paul McCartney. His voice has the weakness of a dying man that shrouds the work in finality.


Sometimes, I am not sure why, I will be listening to another playlist instead of playing the next song on the playlist as the Ipod is suppose to do; it will unexplainably shuffle a Cash song. I will switch to another singer’s playlist. One song later it’s Johnny again. This repeats many times.


Maybe my Ipod is trying to tell me that in real estate, I walk the line. ]]> 9@http://bfkco.com/pivot/ Blog Mon, 16 Feb 2009 13:47:00 -0500 http://bfkco.com/pivot/entry.php?id=6 http://bfkco.com/pivot/entry.php?id=6#comm Stockbrokers and financial advisors worth their salt preach balance and diversity. Buy the best of breed in each sector. Make sure your investment capital is spread equally among the best stocks in technology, staples, financials, energy, retail, international, large cap and small cap etc.

But unfortunately for the nation and the world, the large Wall Street houses did not follow their own advice. During the 90’s and early 21st century, they shifted a disproportionate amount of their assets into securitized real estate loans.Mortgage purchases were great for about 16 years but the bubble got bigger and bigger until the beginning of 2008. But that boom that went off in Times Square at midnight 1 January 2008 was not the sound of popping Champaign bottles but the securitized mortgage bubble exploding leaving Bear Sterns, Merrell Lynch and Lehman remnants zooming across the globe.

Many if not most of the loans that were bought and sold were solid. Hundreds of billions of dollars were invested in credit backed shopping centers, office buildings, hotels and solid residential investments. These loans continue to be well performing for their note holders.

But as the supply of good properties dwindled, the thirst was unquenched for profit from the sale of these loans. They then moved into what became known as the sub prime market. Sub prime is a synonym for “uncollectible”. Loans made to borrowers who have no business buying a house they cannot afford and lenders making loans that all underwriting criteria point to a default.

So why would they make them? Simple. They could sell them for a profit. All these loans, the good, the bad, and the ugly were placed in bundles called traunches to be sold at auction to the financial outfits from around the globe including Wall Street firms and  banks. If the loans were made at an interest rate of 6%, they would be sold to the highest bidder willing to accept the lowest return on what they bought. If a huge volume of loans were made on a 6% rate and sold at 5.5%, the resulting 50 basis point profit can equal a multi-million dollar profit at a single auction.

The buyers of these ultimately non-performing assets were money market funds or banks that were paying their depositors sub 2% interest on their liquid deposits while investing them at the risk of the financial institution in the 5.5% sub primes. Great profit if it works. It did not. But your local bank along with the Merrells, the Lehman’s et al had to pony up the money when their depositors came calling for their money out of their checking and savings accounts.

When the land boom in Atlanta in the early 1970’s was causing raw land with little short term potential to double and triple in sales in a matter of a few months, an older fellow told this story: a guy bought a can sardines for one dollar; he sold the same can for $2 who then sold it for $4. Ultimately the same can of sardines was sold to a buyer for $10. This buyer wanted to eat the sardines. He opened the tin only to find worms and rotten sardines. When he complained to the guy from whom he bought the can, his seller commented, “These sardines aren’t for eating, they are for selling!”

Sub primes were not for collecting, they were for selling. ]]> 6@http://bfkco.com/pivot/ Blog Fri, 19 Sep 2008 09:21:00 -0500 http://bfkco.com/pivot/entry.php?id=8 http://bfkco.com/pivot/entry.php?id=8#comm Today we don’t call them Panics but we are in one.

The failure of Bear Sterns and the slide of Lehman Brothers shook confidence in the financial sector but the rush to unload shares in Fannie Mae and Freddie Mac is an electronic rush to the bank window to redeem specie.The first major panic in the United States was the Panic of 1819. Some economists say this was just the first bust the new nation experienced. It occurred after the boom following the War of 1812. The nation has gone through boom/bust cycles ever since. Our current situation is merely a momentary bust after the long boom that began in 1992, it is said.

However the Panic of 1819 has more to reflect on than only the first dissonant wave in our economic history. It came as a result of failed or stalled monetary expansion. As the nation pushed west, regional banks opened rapidly in new developments. Each printed its own paper money. Because more paper money was produced, the value of the notes declined causing prices of goods to increase: Inflation. Fear ensued. People rushed to the banks to get their money out. Banks failed. Loans were called, foreclosures occurred and the amount of land not being farmed increased dramatically.

Lenders, led by Wall Street Institutions, in 2008 are reaping the returns from expanded secondary financial markets. The commercial and residential boom of the past 18 years prompted new lenders to enter the market. Wall Street became a major lender in the 1990’s and first seven years of this century. The desire to feed on the profits from selling these loans to the investment sector has put them where they are today: the toilet.

Freddie Mac and Fannie Mae are the foundation of the home loan market in the US. Backed by the US Government they have guaranteed around $6 Trillion in home loans originated by banks and other lenders. They have sold these loans across the world. Based on a cautionary report by the struggling Lehman Brothers on July 7, 2008 shareholders have panicked. They are rushing to the window to unload their shares. Values of the FM’s have plummeted. Of course, nothing dramatic has happened to either company.

By 1822 the first panic was over. The Second National Bank bailed out the regional banks and began to consolidate the currency. Today folks who believe in no government are praying for the Fed to promise to protect Freddie and Fannie. If the market would leave them alone they would not need it. ]]> 8@http://bfkco.com/pivot/ Blog Fri, 25 Jul 2008 13:36:00 -0500 http://bfkco.com/pivot/entry.php?id=10 http://bfkco.com/pivot/entry.php?id=10#comm
While the United States can not lessen its intensity in the war against terrorism, we can not continue to import 70% of our transportation energy at an annual cost of $700 billion from countries who in fact sponsor or condone terrorist acts against the West.Oil reached $140 per barrel this summer taking gasoline to over $4.00/gal. Aviation fuel reached as high as $9/gal in specific locales. Every time a strike occurs in Nigeria or a growl in Iran, Americans suffer an escalation in the cost of living. We can not live at the whim of our enemies.

Boone Pickens has proposed an alternative energy plan that employs wind and solar to power our home, offices and factories. Natural gas would propel our transportation needs. The west coast and southeast would be served by the sun while the interior portions of the country would be powered by wind turbines. While Pickens does not include nuclear energy as an option, this is also a viable alternative provided we can comfort people to the low risk factor.

The most important energy issue is that we quickly formulate a plan and initiate it. We can not continue to continue moaning that it takes too long to realize a result in a changed policy.

The next president and the next congress must address this issue and not stop working on it until a consensus is reached and initiated. ]]> 10@http://bfkco.com/pivot/ Blog Tue, 08 Apr 2008 00:00:00 -0500