http://www.bfkco.com/blog.php Ben F Kushner Blog en admin@bfkco.com Copyright 2011 Pivot TWS Site Administrator - 1.40.5 Mon, 10 Oct 2011 09:27:19 -0400 60 http://www.bfkco.com/pivot/entry.php?id=12 http://www.bfkco.com/pivot/entry.php?id=12#comm The US and the world are currently engaged in taking desperate measures to stabilize an economy that has yet to begin to recover from the crash of 2008. The economy suffered a crash landing and we remain on the bottom. Talk of a double-dip recession is a joke for most people who are wondering why they missed the recovery. In our nation, the President waited three years into his term to introduce serious measures to produce jobs and reduce the deficit. Members of congress have shown no willingness to subordinate their political successes to solving the problems of a nation that is in its worst economic shape in 80 years.The high unemployment rate and trillion-dollar deficit are our immediate crisis issues. But any successful fix is only temporary until we address the long-term problem that will result in a stable, and economically viable society. While lack of jobs and crushing debt are our immediate problems, the pathetic state of our educational system must be fixed to help us to endure as the number one civilization in the past 10,000 years.

People tend to blame teachers for not making students smarter, parents for not getting their students to study, unions for protecting teachers who should be ousted, the economy for causing Draconian cutbacks, government for everything and on and on.

The problem however is that a student who does very well throughout his/her education including earning a college degree has earned good grades in a system that has intentionally dumbed itself down so as not to be too demanding on our boys and girls.

A quarter century ago, John Adams and his contemporaries read Homer in Greek and Cicero in Latin. They had to memorize long passages of classic works in the languages they were written. They had to memorize the math and science of the day and do long problems without the benefit of any device except their brain and a chalkboard.

The classical educational system continued in some form well into the 20th century. It then should not be surprising that the very difficult and demanding regimen of the classical education coincided with the Enlightenment, the Industrial revolution, breakthrough revelations in electro-magnetism, the atom, cosmology, relativity, mathematics, and great music and literature. The period produced "superstars" such as Lincoln, Curie, Edison and Einstein and Hubbell. There was no fame or fortune for characters like Paris Hilton, Kasey Anthony or Real Housewives. Dickens was the Dancing of the Stars of his era.

Today the classical education has been reduced into the quantitative education. It is not about the quality of education that the system focuses, it is about how many progress and graduate using the minimalist approach when it comes to what they learn.

Approximate answers to math problems in some elementary schools are acceptable. Unless one is considering quirks in the quanta, there are no approximate answers in math. It is either right or wrong. Critical thinking, critical problem solving, communication skills are not emphasized. As we saw in the recent City of Atlanta Cheating Scandal, goals are all about numbers and percentages. Budgets depend on achieving these numbers. The goal of achieving higher test scores for funding and personal advancement sparked Atlanta teachers to go to the ugliest, most hypocritical extremes to accomplish their goal.

Teachers who lose their integrity should be fired but teachers cannot turn straw into gold. Not all students are going to do well. Not all kids who have reached their sixth birthday before September 1 are ready to begin school. Children who have not had the benefit of good parenting may not be ready to be in the same learning environment as kids whose parents have given them the advantage of a proper foundation.

Some disadvantage children have special needs. They should be in an environment that will prepare them or offer them the opportunity to advance. There is nothing wrong with a 7 or 8-year-old entering first grade.

We tend to appease to the lowest common denominator. This is wrong.

Again, in the Enlightenment, kids who could do well in a rigorous academic environment went to school as long as they could progress. Otherwise they learned trades and skills that many academics could not perform. It is doubtful if the rotund and portly John Adams would have been very good at tasks that required physical or dexterous skills.

Restoring or implementing a system-change as radical as being described will not occur through agreement or legislation. Only a cataclysmic occurrence necessitating a new direction can do that in a society so gridlocked on direction.

Too many of the 10 millions who are out of work have the same skills and similar resumes. Hopefully, a more diverse society where people gravitate to where they are best suited will emerge. ]]> 12@http://bfkco.com/pivot/ Blog Thu, 29 Sep 2011 00:00:00 -0400 http://www.bfkco.com/pivot/entry.php?id=11 http://www.bfkco.com/pivot/entry.php?id=11#comm When is it coming back? is the question we get a few times a week. The "it" is commercial real estate.

Commercial real estate has been hit from several directions since the collapse of the economy and onset of the crisis in the financial markets in 2008. Most obviously, new financing has dried up for retail-based real estate, such as shopping centers. High unemployment and lack of consumer spending have contributed to loss of tenants and rent reductions. Aggressive, and expensive, incentives are now necessary to entice the few prospective tenants available to lease units of the large amount of vacant space available.These problems are related to the poor market for new homes. Residential development expansion typically creates a need for proximate neighborhood shopping. The grocery stores, home improvement stores and chain restaurants compete to find developable intersections in the midst of new rooftops. As the large retailers locate, small businesses open in the new centers because they find their customers from the traffic generated by the grocery stores and other large retailers anchoring the shopping center.

Stopping this difficult cycle depends on one thing: available capital. Capital investment is the fuel that provides the dollars to pay for this expansion. Confidence in the minds of the lenders and equity investors that the model will work again and again sets up the lunches and golf games where the deals are met that result in the loans and investments.

Getting money flowing again means going back to the basics. Beginning with the repeal in 1999 of the Glass-Steagall Act, a set of laws which had prevented investment banks to operate as commercial banks, financial engineers created the Commercial Mortgage-Backed Security. This security allowed investment bankers to package junk residential and commercial mortgages into bonds in order to sell them to nations, institutions, and organizations seeking slightly higher rates of return than very low yielding traditional bonds and accounts.

The CMBS's were given the triple-A stamp of approval by unwitting rating agencies like Standard and Poors, Fitch, and Moody's. Bonds with triple A ratings were easy to sell. This provided the banks with tanker loads of cash, and the competition for deals heated up among them. Pretty soon, normal underwriting standards went with the winds.

In reality the bonds were not triple A (more like triple F). When the home-borrowers that were the source of the income for the bonds defaulted, it brought down the large investment banks and threatened the entire economic structure of the nation and the globe. The banks that were chasing loans the way chickens chase grain now turned 180 degrees away from lending.

Going from one extreme to the other with regard to lending is typical of banks in times of boom and bust. In good times, banks make far too many bad loans and in bad times they make far too few good loans.

A better plan: Lenders should underwrite specific properties and applicants rather than make deals based on competition or excessive available capital. When they do, the markets will stabilize for much longer periods and the ups and downs will be far less severe.

Lenders and developers must coexist. Commercial real estate development does not work well without financing and leverage. A small project of 20,000 square feet, a strip mall of six or seven shops with a family restaurant on the end, costs $3 to $4 million complete with tenants, fees, construction and land cost, and will take 12 to 18 months from idea to opening. A strip of 20,000 square feet has. It might take an investment of $40 to $60 million to develop a large center with four or five "big box" tenants that is developed near a regional mall or at an interstate exit. The time period to open this is a matter of two or three years or longer with many obstacles to clear.

With the time and risk involved, the only way developers can make these projects work is through steady, reasonable access to capital. The developer must be able to create a good plan, conduct extensive due diligence and have adequate pre-leasing of space prior to construction to reduce the risk for failure. But once those factors are in place, and the lender appropriately verifies them, banks must be willing to come along.

If they work, these retail areas help everyone. They create construction jobs at the front end, steady jobs as the shops open, and make open fields attractive to other development (such as new homes). Our economy needs these developments.

Let's just see if the lenders will provide dollars and sense, or nonsense. ]]> 11@http://bfkco.com/pivot/ Blog Wed, 01 Dec 2010 00:00:00 -0400 http://www.bfkco.com/pivot/entry.php?id=9 http://www.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 -0400 http://www.bfkco.com/pivot/entry.php?id=6 http://www.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 -0400 http://www.bfkco.com/pivot/entry.php?id=8 http://www.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 -0400 http://www.bfkco.com/pivot/entry.php?id=10 http://www.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 -0400