Value branding in 2009

I just bought a Starbucks coffee and after receiving two 20% discounts the final price came to $1.14 after tax ($.80 discount). That is $.10 cheaper than the coffee cart outside the front door of starbucks. The other day I was at dinner with friends who have done pretty well in business. One has a summer home valued in my estimates at $50 Million. The topic of conversation which often times revolves around exotic vacations and expensive toys was all about finding value. Late 2008 and 2009 will be the value years.

So how do we prosper in a market where everyone wants something for nothing? We go back to the roots of our brand. When Brian and I set out to create the Signature Community brand we looked to create a new level of service and convince our residents that had only been found in much higher end luxury buildings. We have been successful over the past few years of rolling out an experience that is a real value proposition for residents of higher end buildings. We need to push that model.

On the acquisitions side we need to take advantage of the value opportunities that are now available in the market. Sellers (and more often lenders) are making decisions based on their immediate cash needs and not the long term value of the assets. As long term value investors we are looking at the value 5 years out although we are discounting the short term holding costs. This is providing a tremendous opportunity for growth of our brand.

So while I am not optimistic that 2009 will be a good year for the apartment industry (in fact I expect it to be one of the worst on record) I do see some silver lining in the niche we have created for ourselves on both the operations and acquisitions sides.

Let's make it happen.

Nick

The Mortgage Meltdown Video

http://www.cbsnews.com/video/watch/?id=4668112n

Cutting costs and revenue enhancement Ideas to prepare for the future

As everyone knows the economy is bad and only getting worse. We already have a few markets that are now operating in the red and I expect it will get substantially worse in coming months. As a company we are hunkering down to deal with this difficult situation. But we need everyone's help. We are making cost cutting and revenue enhancement a major focus at the corporate and regional levels but we need your help to find solutions at all levels of the organization. Please think about what we are doing out there in the field and give us your ideas on how to do it better or at a lower cost.

We will be having an additional award each Wednesday to the individual or group that comes up with the best cost cutting idea of the week.

Some of the ideas that have come from the initial meetings are;
temporary furnished housing, replacing costly copiers, replacing cable with WIFI internet in student markets, reducing office space needs, verifying pet fee charges, marketing our communities upmarket as a value brand (think Dunkin Donuts vs. Starbucks), move phone service to internet based systems, and less usage of costly contractors more work done in-house or with smaller sub-contractors from Craig's list type sources.

One thing that will keep us ahead of the competition will be keeping the Signature Community brand as a coveted brand. So please keep in mind that with all the cost cutting we must maintain the highest level of service and offerings possible to our residents. If we maintain the integrity of the brand through these tough times we should be well positioned to take advantage of the future economic upswing.

Thanks for making it happen.
Nick

HELP WANTED 2.5 Million jobs to fill

2.5 Million jobs!

That is what President Elect Obama has promised. My feeling is he can't put these jobs out soon enough. The US Economy needs more jobs if there is any chance of survival for millions of companies out there.

Companies from GM to NWJ all survive based on consumer spending.
And when consumers don't have jobs they can't spend. Lets hope these jobs come soon.

We are also starting an initiative within the acquisitions group to look in on where those jobs will be created so we can focus our acquisitions efforts in the right areas. If anyone has any insights as to where they these jobs will be please share with us so we can work our acquisitions accordingly.

It's Obama's job to get 2.5 Million people working its our job to house them.

Lets make it happen.
Nick

Leverage and Pain

http://www.forbes.com/finance/forbes/2008/1208/182.html

Leverage and PainA. Gary Shilling 12.08.08, 12:00 AM ET

Painful financial deleveraging has given us an excruciating global recession. It may cause even deeper pain ahead. The slashing of borrowing comes after spectacular buildups in the financial and consumer sectors. The combined debt and equity of U.S. financial institutions went from 10% of gross domestic product in 1973 to 118% at the end of 2007. Over the same period household debt, including mortgages, rose from 45% of GDP to 98%. Is it any surprise that this borrowing binge ended in a credit crisis?

The ending of a credit crisis entails deleveraging, which is to say, the liquidation, repayment or cancelation of debt. This process engenders pain.

Consumers dropped their saving rate from 12% in the early 1980s to zero 20 years later. They did this while persuading themselves that watching a rising stock portfolio or living in an appreciating house was a form of saving. The stock market crash at the turn of the century did not bring them to their senses, because by then the house price boom was under way. Now there's no asset left with which to play the savings fantasy game.

Stocks are not much higher than they were at the 2002 bottom. Houses are en route to what I forecast will be a 37% peak-to-trough falloff. Consumers are tapped out. Their credit cards are maxed out, and home equity lending is dead. Heavy borrowing pushed their equity in autos and other durables from 60% in the early 1990s to 40% today. Their $3 trillion in 401(k) plans at the end of 2007 has taken a beating as stocks have swooned.

So people are shrinking their discretionary outlays on everything from motorcycles to liquor. They're replacing a 25-year borrowing and spending binge with a saving spree. Over the last quarter-century consumer spending grew an average of one-half a percentage point per year faster than aftertax income, adding about a third of a percentage point to GDP growth. For the next decade spending is likely to rise a percentage point slower than income each year.

Consumer spending constitutes 70% of GDP, and the effect of that restraint is multiplied as it ripples through the economy. As a result real GDP growth will drop by a full percentage point from its earlier 3% rate to 2%.

The saving spree will be reinforced by the fact that baby boomers desperately need to save for retirement, while those in their 20s and 30s, typically big spenders as they form households, are much fewer in number. The threat of deflation also depresses consumer spending. People are waiting for lower prices before buying houses, and they'll wait to buy other things, too.

Capital spending will also be subdued, as slowing growth makes for excess capacity. Forget exports as a source of strength. American consumer restraint will slow imports, hurting foreign lands that depend on the U.S. for export growth and depressing their own demand for American products. Hence the clamor these days for government spending as a form of stimulus.

The BRIC quartet (Brazil, Russia, India and China) and other developing countries will sink like bricks as their exports drop and as commodity prices collapse, driven down by both enfeebled global demand and the end of the delusion that commodities are an asset class like stocks and bonds. China doesn't have a big enough middle class of free spenders to offset export weakness there (see my May 19 column, "Chinese Chance"), and the end of the oil boom will slash Middle East economic growth and hobble the petroleum-addled dictators of Venezuela and Russia.

Deleveraging threatens economic growth in many countries that have depended on Western bank generosity. Iceland is bust. Baltic nations, and eastern European ones like Hungary, are in for years of sluggish growth, with homeowners no longer able to borrow cheap money abroad. Argentina, already a pariah to international lenders, is setting an ugly precedent in grabbing its private pension funds to repay its debt.

The demise of securitization and other derivatives and the return to basic banking--lending prudently at profitable interest rates--will reduce credit availability for years and subdue economic growth. Big firms can't float commercial paper; little ones can't get bank loans to meet their payrolls. The accelerating consolidation of financial institutions will eliminate many risk-taking lenders, and entrepreneurs will be inhibited by the scarcity of venture capital money.
So even after the financial crisis and recession end, maybe by 2010, slow economic growth and poor profits are likely to drag on. Don't be in a rush to buy stocks.

A. Gary Shilling is president of A. Gary Shilling & Co., economic consultants and investment advisers.

Economic Update

As many of you know NWJ/Signature community was forced to make job cutbacks last week.

Many of the job cuts were in markets where we had more personnel than necessary and we feel that the remaining workforce can more than handle the overflow work.

The cuts were obviously not desired but needed to deal with the impending difficult times we will be dealing with in the coming months of this economic downturn. As I have mentioned in this blog over the past few months the economy is turning significantly worse and there does not seem to be a quick end in sight. We as a company need to band together to deal with these issues. We have made numerous changes at the regional manager levels, stabilization levels and in the corporate offices and anticipate that these changes will leave us much better equipped to weather the rough economic seas ahead of us.

We do need your ideas and help to find other ways to help deal with the impending difficulties that are already wreaking havoc on our resident base and their lives. Remember that Signature Community is a lifestyle brand and as such we must do whatever we can to make our residents lives better. Some times that involves cooking steak dinners or supplying free cable tv or at times it may be providing hot dogs or canned goods to our less fortunate residents or allowing them to do small jobs to help pay the rent.

These are bad times for everyone and we as a company must find ways to help our residents survive it.

Again please share your ideas and thoughts.

Thanks for making it happen.

Nick

Apartment Sector Facing Tough Times But Should Weather Storm

Apartment Sector Facing Tough Times But Should Weather Storm

By Dawn Wotapka Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)-

Multifamily investors better brace for a bumpy ride over the next several quarters, thanks to massive job losses that ended the sector's bull run with a thud.

However, those able to withstand the turbulence will benefit from reduced new supply, a decline in home ownership rates and a surge in the key apartment renting age group. For now, mounting unemployment is set to curtail rent increases and edge up vacancy rates, likely depressing net operating income to flat or negative levels next year. The pain could be more pronounced for more upscale operators including Post Properties (PPS) and AvalonBay Communities (AVB), which recently said it was "increasingly cautious" regarding next year's outlook. The hurt is being felt. From September to October, occupancy rates slipped 0.3% and effective rent fell 0.8% in the top 20 markets, according to UBS, with the biggest monthly drops seen in Denver, San Diego and Las Vegas.

"The sector's fundamentals are weakening more quickly than anticipated," research firm Green Street Advisors said. "...While the prospect of negative [net operating income] growth for the sector in '09 seemed unlikely earlier this year, it is a scenario that now appears increasingly likely." That is because unemployment is essential to the sector. Operators count on college graduates getting their first place, new hires relocating, and those promoted upgrading into nicer digs. Post-pink-slip tenants find roommates, move home or find cheaper deals - downgrading from A-level to B-level apartments - scenarios becoming more common as the financial crisis roils the globe. October's unemployment rate hit 6.5% - the highest in years - and could top 8% by the end of next year. The 25-to-34-year-old age group, prime renters, has been particularly hard hit. Layoffs have battered every sector - media, telecom, financial - and apartments haven't been spared. Camden Property Trust (CPT) recently announced the first cuts in its history, with 79 positions shaved from corporate and regional staff and on-site positions. "Heavy job losses are exacting a toll on the sector," Green Street said. "The weak employment picture now appears to be overpowering the favorable rent-to-own dynamics that have been prevalent over the last several years and has cast a dark cloud over the '09 and '10 growth picture." The firm's most recent estimates for apartment REIT revenue growth average 2.7% for 2009 and 2.0% for 2010. But these numbers now "appear too rosy in light of the reality on the ground today and the rapidly deteriorating economic outlook. More likely, '09 revenue growth will be only half that large." Stephen Swett, a Keefe, Bruyette & Woods analyst, says revenue and net operating income growth could turn negative next year, depending on just how weak the economy gets. Richard Anderson, a REIT analyst at BMO Capital Markets, said same-store net operating income growth is likely to be negative for many players. Rent increases should be minimal, as operators work to keep current tenants, and incentives will increase to attract new ones.

Of course, few expect vacancy rates to dip below 90% anytime soon. "On the margin, vacancy will get worse, but the reality is they could just cut prices to fill units," Anderson said. Until recently, apartments were a star performer in REIT world, buoyed by access to financing via Fannie Mae (FNM) and Freddie Mac (FRE), both now under government control, but the capital remains. Back in August, the sector's year-to-date return topped 20%.

Times have changed. As of Wednesday, the apartment sector was down nearly 20% month-to-date, and more than 41% quarter-to-date, according to the National Association of Real Estate Investment Trusts. That is compared with 23% and 47% for the overall sector. Such reversals don't have industry watchers too concerned. Restricted construction lending has slowed new starts to a trickle nationwide. Issued permits have fallen by more than half since June, so little competition is in the pipeline.

In September, an annualized seasonally adjusted 233,000 construction permits were issued for five or more units, down from 489,000 in June, said BMO's Anderson. But not all permitted apartments are actually built, and that number is likely to fall further, he added.

"The actual start relative to permits is going to be significantly lower than it normally is," Anderson said. "You can say very clearly that new starts are going to decline drastically." Meanwhile, as the single-family market downturn deteriorates - prices are crumbling with mortgages increasingly hard to obtain - fewer tenants are fleeing to buy houses, something Mid-America Apartment Communities (MAA) noted in its most recent conference call. Camden Property Trust, meanwhile, highlighted the baby boom "echo" that is producing "many more" 18- to 24-year olds than the previous cycle. These younger renters are eschewing sprawling McMansions, favoring a mobile lifestyle that lets them live, work and shop in the same areas.

"When job growth returns, there will be significant pent up demand," said Richard Campo, Camden Property's chairman and chief executive officer, said in a recent earnings call. "We believe that there will be a shortage of multi-family units beginning in late 2010 and through 2013." Such optimism is enough to keep some investors in the pay-by-the-month game. Jay Leupp, whose Grubb & Ellis AGA Realty Income Fund has nearly 15% of its holdings in the sector, said: "We like apartments." -By Dawn Wotapka, Dow Jones Newswires; 201-938-5248; dawn.wotapka@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary:

http://www.djnewsplus.com/al?rnd=1bP0hrf3cEF8XItNaEuUZQ%3D%3D. You can use this link on the day this article is published and the following day.

The Economy in 2009

A new President will be taking office in January. President Elect Obama faces economic troubles not see since FDR took office. His first task will be to create jobs. And create them fast. We need a"New Deal" for the 21st century. If jobs are not created in short order, then the high unemployment that President Bush will be leaving him with (my guess is 8-9% when January's numbers are announced) will grow at a historic rate and is likely to leave this country and possibly the world economy in a depression.

People just don't seem to understand how bad the economy is. Look at it this way. For the past 5 years, if you eliminate the "perceived"gains in home real estate values, then the US population made no increase in earnings. But US spending was substantially up. How is that possible? It was through the invention of home equity loans and easy credit. How many of you know people who's lifestyles we refinanced through the rising equity in their homes. This phenomena created almost all the jobs in our economy over the past few years(auto workers, retail workers, home builders, etc) was all driven by this "Perceived" rise of housing values. The short term problem is that all this housing mania was a bubble that has now burst. Real estate prices are almost to the levels that they belong (historic averages, relative to rents, etc). That is the short term problem that $700 Billion is being pumped into the lenders to help fix. But let's talk about the long term problem.

What happens next year or the following year for that matter. Since the US economy was really only growing with increased real estate values what happens when we don't have that option. How are people going to buy things? Think again to your friends that bought everything on home equity loans how are they going to pay for vacations this year?

Realize, I am not just talking about people making $30k year or $50k year I know people making $1MM year that were still using their home equity to furnish their lifestyle. This problem spans the entire US economy and has very long term effects on the US economy. It is very likely that Obama is dealing with this problem in the 2012 election.

So what does this mean for you, me and the company. First we better get use to slow economic growth. The age of fast growth and affluence is gone for now. Second, we better make sure that we are seen as an affordable alternative to high priced brands. Third, think before you spend whether it is for personal expenditures or for the company. We need to see if there is a less expensive option. Watch your budget.Its going to be a long difficult four years and everyone needs to plan accordingly. We can weather this storm together, but it will take smart decision making and careful attention to the bottom line.

Thanks for Making it Happen!
Nick

Positive Encouragement to get over the Finish Line

Lately, the mood in New York has been bleak. But this Sunday was different. This Sunday was the NY City Marathon. Every year this proves to be an inspirational and engaging event for millions. This year was no different.

On Sunday morning, I jumped on a bus and rode to the farthest reaches of the city in preparation of my fifth running of the NYC marathon. With little training and some nagging recent injuries, I wasn't at all prepared for this undertaking. But I did know, that somehow, I would survive. Mainly because I knew the incredible energy created by the positive spirit of the 2 Million spectators would carry me and 40,000 other runners over the finish line.

I was speaking with another CEO after the race and the one thought we both had was how much easier our jobs would be if the positive attitude expressed to us from strangers along the sides of the road race was available to us in our business lives. Imagine how things would flow if residents, co workers, supervisors, spouses, and significant others where cheering for us everyday telling us "You can do it", "You got it" "Almost there", "Looking good!" "You're the Man!","You go girl!" "Make it happen!", "Great job".

My challenge to you is to make our organization like a marathon cheering session. Help your residents, co-workers, anyone you meet accomplish their goals of the day by just giving a few extra words of encouragement. Use the words above or add some of your own. But make it positive and Wow them.

In economic times like these, when we can't open the paper or watch the news without seeing more negative news, we need more positive motivation.

For this weeks Wow awards please be ready to discuss the positive encouragement you gave and received this week.

Thanks for Making It Happen!

NWJ Retreat

Waking up to a Marine drill sergeant, chugging red bull on a 5 hour car ride, teamwork, trust and leadership where the themes of last weeks Reading based management retreat.

Lessons in leadership, teamwork and trust in others were taught with spiderwebs, logs and sledgehammers. Afterwards, we got down to business with a meeting to discuss the future of Signature Community as well as the short term problems and solutions. Many great ideas and processes came out of the meeting and we look forward to working with the entire organization to share and implement.

Last week was our busiest deal committee meeting ever with 9 deals presented and 8 approved.These deals close out '08 with a big boost and position our acquisitions group nicely for '09 growth.

Thanks for Making It Happen
Nick

Economy

As we discussed last week in my "State of the Economy" address we are headed into some difficult economic times. I was encouraged by all the questions asked and the email responses I received afterward. Seems like many of you are focused on ideas and solutions to help our company survive and prosper during these trying times. Please continue to send any ideas to jekogian@nwjcompanies.com

Here are some famous quotes I find appropriate for these times:

Niccolo Machiavelli - "Whosoever desires constant success must change his conduct with the times."

"Energy and persistence conquer all things."

"Some of us will do our jobs well and some will not, but we will be judged by only one thing: the result." - Vince Lombardi

You live longer once you realize that any time spent being unhappy is wasted.
Ruth E. Renkl

"Don't let what you cannot do interfere with what you can do." - John Wooden

"As soon as you think you are on top of the world, some snake comes out of the tall grass and cuts you down!" - Bill Russell

"A man without a smiling face must not open a shop." - Chinese proverb

"Courage is fear holding on a minute longer." - George S. Patton

"Do your homework because kids in India are." - Jim Tunney

"The reason why so little is done is generally because so little is attempted." - Samuel Smiles (1812-1904, Scottish author)

"Step by step. I can't think of any other way of accomplishing anything." - Michael Jordan

"If we did all the things we are capable of doing, we would literally astound ourselves." - Thomas Edison (1847-1931

"Anything in life worth having is worth working for." - Andrew Carnegie (1835-1919), Scottish industrialist & philanthropist; founder, Carnegie Steel Co.

"The fruits of life fall into the hands of those who climb the tree and pick them." - Earl Tupper (1907-1983), American businessman; inventor of Tupperware

Again, thanks for making it happen out there every day and please send me your ideas.
We need your help.

Nick

The Trouble with Homeownership

It's good for the community but not the wisest investment.

By Robert Shiller


In America we draw a connection between owning a home and being a good citizen. We've evolved from a feudal society, in which those who didn't own land were almost like slaves, to one in which homeownership is linked to social mobility, as well as civic virtue. In 1835 Alexis de Tocqueville wrote that America "stands alone" in the equality of distribution of property and that "nations are less disposed to make revolutions in proportion as personal property is augmented and distributed amongst them, and as the number of those possessing it increases." In fact, studies like one done by Edward Glaeser at Harvard University and Bruce Sacerdote at Dartmouth have shown that homeowners are indeed better citizens—they are more likely to vote in local elections or to know the name of the head of the local school system. Speaking to a group of people at the much-maligned Fannie Mae recently, I said that I believed the work that they do contributes to the generally good feelings that Americans have toward each other.

But what's ironic, as any classical economist would tell you, is that homeownership is actually not a great idea from an investment standpoint. A better strategy would be to diversify as much as possible—put your money into stocks, bonds, many different geographies—and then use the income to rent whatever you like, which allows for greater flexibility and efficiencies. The popular argument that renting is equivalent to throwing money down the drain is really fallacious, since the money you save can be invested to produce dividends. Instead of you tinkering with the plumbing and breaking something, a professional can do it. The lawn guy who has the right equipment can come and mow all the lawns faster and better than individuals would, and so on.

Still, behavioral economics tells us that the emotional lure of homeownership is strong and would be difficult to break completely, even if that were desirable. I think that what's really needed at this point is some restructuring of the model for homeownership. Let's allow people to continue becoming homeowners, but find better ways to manage the risk around these investments. Perhaps we need to reconsider some of the tax benefits that encourage homeownership. We might also create new types of mortgages that reset depending on the ability of people to pay. We could also elevate the status of renting, by increasing the rights of renters relative to landlords.

Broad home- and stock-ownership in the United States and overseas is a good thing. But limits need to be set. To the extent that an equity culture leads to entrepreneurship and investment and wealth creation, I'm for it. But I was not, for example, in favor of George W. Bush's plan to privatize Social Security. Can you imagine what would have happened to people retiring today if that plan were in place? I like to think of capitalism as a game. We need to make sure we structure the rules of the game in such a way that we don't get injured while playing it.
Shiller is the Arthur M. Okun Professor of Economics at Yale University and cofounder of MacroMarkets LCC. His most recent book is “The Subprime Solution.”

CEO MMM

As we discussed last week in my "State of the Economy" address we are headed into some difficult economic times. I was encouraged by all the questions asked and the email responses I received afterward. Seems like many of you are focused on ideas and solutions to help our company survive and prosper during these trying times. Please continue to send any ideas to jekogian@nwjcompanies.com

Here are some famous quotes I find appropriate for these times:

Niccolo Machiavelli - "Whosoever desires constant success must change his conduct with the times."

"Energy and persistence conquer all things."

"Some of us will do our jobs well and some will not, but we will be judged by only one thing: the result." - Vince Lombardi

You live longer once you realize that any time spent beingunhappy is wasted.
Ruth E. Renkl

"Don't let what you cannot do interfere with what you can do." - John Wooden

"As soon as you think you are on top of the world, some snake comes out of the tall grass and cuts you down!" - Bill Russell

"A man without a smiling face must not open a shop." - Chinese proverb

"Courage is fear holding on a minute longer." - George S. Patton

"Do your homework because kids in India are." - Jim Tunney

"The reason why so little is done is generally because so little is attempted." - Samuel Smiles (1812-1904, Scottish author)

"Step by step. I can't think of any other way of accomplishing anything." - Michael Jordan

"If we did all the things we are capable of doing, we would literally astound ourselves." - Thomas Edison (1847-1931)

"Anything in life worth having is worth working for." - Andrew Carnegie (1835-1919), Scottish industrialist & philanthropist; founder, Carnegie Steel Co.

"The fruits of life fall into the hands of those who climb the tree and pick them." - Earl Tupper (1907-1983), American businessman; inventor of Tupperware

Again, thanks for making it happen out there every day and please send me your ideas. We need your help.

Vultures Preparing to Swoop Down

Vultures preparing to swoop down

By Theresa Agovino

Published: October 12, 2008

Almost 600 apartment complexes across New York City face the threat of default. The Las Vegas Strip is lined with millions of square feet of faltering casino construction projects. Banks nationwide are holding tens of billions of dollars of toxic real estate debt.

To many investors, its all adds up to one thing: a once-in-a-lifetime chance to make a killing.

"We believe the shakeout in the real estate industry is going to create opportunities," says Michael Katz, co-chief executive of Sterling American Properties, a division of Sterling Equities, which also owns the New York Mets.

Sterling American is scrambling to raise $600 million to snap up distressed assets. "People are waiting to pounce," Mr. Katz says.

Indeed, many funds, investment banks and brokerages are raising capital, adding staff and bolstering marketing efforts to scour the wreckage of the financial crash for profitable deals.

Rarely has vulture investing been so difficult. Experts emphasize that markets are so chaotic that figuring out what constitutes a good price can be all but impossible. Investors considering buying distressed debt will find themselves sorting through complicated structures in which loans were bundled, divided into segments and sold off.

"Investors are really going to want someone that's been in the field before," says John Lyons, CEO of Savills, a real estate investment bank.

Early this month, Savills set up a distressed real estate division and staffed it with seven senior executives. One of its major goals will be to win contracts to help the federal government buy $700 billion of the debt weighing down banks. Untangling the arcane debt structures to determine what assets are worth will be a daunting exercise, Mr. Lyons says.

Manhattan-based Latus Partners plans to cherry-pick bank loans as part of the investment strategy for its $140 million distressed real estate fund. Howard Glatzer and Brad Settleman, Latus' managing principals, predict that roughly 60% of the fund will be invested in distressed debt. They will also buy buildings and make loans.

The two executives say the chaos in the real estate industry has created so many openings that they are trying to raise another $100 million for the fund. Despite the tumult, Mr. Glatzer says, "I'm optimistic on what it means for Latus."Nationwide searchThough Mr. Katz says the Sterling American fund might purchase some debt, it will primarily buy commercial and residential properties. He intends to look across the country but hopes to pick up troubled buildings in urban markets, including New York, where prices skyrocketed in recent years.

"Maybe we'll have some opportunities in New York, but we are looking all over," Mr. Katz says. But prices will have to fall 20% to 30% from last year's highs before the fund would even consider a deal, he says.

Landlords are also interested in expanding their empires on the cheap. NWJ Cos., which owns and operates affordable residential rental properties in 19 markets nationwide, has hired three acquisition specialists and recently began assembling a $20 million purchase fund.

Jumping back in

CEO Nick Jekogian says escalating prices largely kept NWJ on the sidelines for the past 18 months, but he predicts that will change soon.

"We are positioning ourselves for growth," Mr. Jekogian says.

As an increasing army of potential buyers begins to hunt for bargains, some brokers are mobilizing. Real estate advisory firm Eastern Consolidated has hired two additional brokers and a lawyer this month alone.

"We're collecting great people," says Chairman Peter Hauspurg. "We want to get stronger so that when the business comes back we are ready."

Shooting the Salesman

http://nymag.com/news/intelligencer/51009/

Shooting the Salesman
As the financial system unravels, the country has decided it’s all Wall Street’s fault. It’s not.
By Mark Gimein
Published Oct 5, 2008

In the midst of the financial crisis, the country is at least able to reach bi-partisan agreement on where to fix the blame: Wall Street. It is a convenient explanation for voters wanting to be reassured that someone else is at fault, but it is starting to look unconvincing, or at least badly incomplete. Because at the bottom of the muck-filled well of the banking collapse lies something much simpler than the complicated bonds and derivatives that are Wall Street’s stock-in-trade: bad loans. Really, really bad loans.

New York is supposed to be the world capital of financial sophistication, but when it comes to the Rube Goldberg contrivances that kept the real-estate market going in California, Florida, and other parts of the country, we are duffers. To the average, or even not-so-average, New Yorker, the mortgage-speak that is familiar to folks who bought houses in places like San Diego—“negative amortization,” “alternative/reduced documentation”—is gibberish. If you want to find the birthplace of the depraved mortgage culture, you can go to Oakland, California, the headquarters of Golden West (bought by Wachovia and the source of its troubles), the people who invented the negative-amortization mortgage—a mortgage on which you pay less than the interest for a few years, until the payments rise and you either refinance or move out. Or maybe to Seattle, the headquarters of Washington Mutual, which might have set the standard for bad lending.

One financial analyst and blogger named Michael Shedlock kept a monthly tally of the loans going bad in one bundle of Washington Mutual mortgages from 2007 (yes, that’s last year). In the post-Depression era, no more than 2 or 3 percent of all mortgages have failed in a year. After less than two years, half of this batch of WaMu loans had soured or were at least two months behind.

It was not Wall Street that gave homebuyers mellifluous assurances. In fact, the culture of New York lending and the co-op rules that imposed an extra (and, it’s now obvious, useful) level of restraint on real estate in New York meant that your average Wall Street deal-maker couldn’t get a loan on the terms that were routine in all of Southern California.

So where did Wall Street come in? The investment houses did what their job is in any bubble: They sold it to their clients. The hundreds of billions of dollars of shoddy loans that mortgage underwriters made were packaged off and retailed to investors around the world. Not all the loans: The banks kept plenty on their own books—if they could have gotten rid of them all, Wachovia and Washington Mutual and Countrywide would still be in business. But many, many billions of dollars of them were bundled, cut up into slices to make “mortgage-backed securities” and “CDOs” and an alphabet soup of other bonds.

The mystique of Wall Street is all about the knowledge business. But the reality has been that most of it is about the sales business, putting its imprimatur on investments and in the process, especially in the later stage of a bubble, rubbing away the marks of their less-than-pristine origins. And by doing so, Wall Street shields the rest of the market from responsibility. We have seen the pattern before. The junk-bond frenzy will forever be linked with the names Ivan Boesky and Michael Milken. We remember that the savings-and-loan crisis took down Salomon Brothers; who can recall the banks involved? And when it came to the indigestion that followed the Internet smorgasbord, it was the investment banks that walked into court for a round robin of fines, not the Silicon Valley executives or the venture capitalists who’d cashed in their shares as their dot-coms cratered.

This may be the death of Wall Street as we know it. But rest assured that when the next speculative frenzy comes around, someone will be there to retail it, whether it’s called Wall Street or something else.

Economy in Tailspin

The economy is in a tailspin, the US stock market keeps reaching new lows, credit markets are operating at a trickle, and the real estate market is a mess, but NWJ Cos closed on a deal last week and is preparing to close on another large refinance this week. I would not say things are easy by any means but we are getting deals done because these are the times when a good operator like NWJ Cos can flourish.

The lenders want to see fundamental based deals and that is how our model has been running for years. In the recent past we were being outbid by everyone because the deals were based on the speculate / future sale value of the property and not the investment / hold value. Now the tide has turned and only value investors are going to be able to operate, get finance and make deals in this current market. This creates tremendous opportunities for us to grow.

These opportunities are not going to come without problems. The market is taking big hits in values right now; the consensus is that real estate values have fallen 10-25% over the past 12 months. This obviously affects the valuation of our company. This makes it even more important for our operations group to produce good returns from our existing assets and move the properties along until the next real estate upswing.

Fortunately, we have spent considerable money and time over the past few years developing our management team and our brand identity. It is in times like these that investments should pay off nicely. The challenge will be to continue the growth of the brand and to improve the profitability of the assets in times of very low economic growth in the economy. I feel confident that we have the right people in place to take our buildings to the next level and keep the ship steady during these turbulent times.

I also am looking forward to the growth opportunities available to us in these turbulent times.

Please see the press release below.

Thanks for making it happen!
Nick

Press Release

FOR IMMEDIATE RELEASE
Media Contact: 5W Public Relations
Rita Larchar / (212) 584-4271
rlarchar@5wpr.com

NWJ COMPANIES MOVES INTO EL PASO MARKET WITH MULTI-MILLION DOLLAR REAL ESTATE PURCHASE
NWJ Companies Announces $11 Million Acquisition In Texas Multifamily Market

NEW YORK, NY and EL PASO, TX (October XX, 2008)— New York based NWJ Companies (www.nwjcompanies.com), parent company to customer-centric Signature Community properties (www.asignaturecommunity.com), announced today their first major multifamily acquisition in El Paso, TX. The properties are Three Fountains (77 units), Village I (87 units) and Village II Apartments (72 units). NWJ Companies purchased this portfolio for approximately $9 million and intends to invest more than $2 million to upgrade and revitalize the properties to meet the high quality standards of the Signature Community family. Kunal Chothani of Investment Property Advisors acted as the investment advisor for NWJ Companies, with Summit Capital Partners V, LLC making its fifth investment with NWJ Companies over the past two years as equity investors for this high-profile transaction.

"We are excited to enter the El Paso market with this purchase, and grateful to our lending and investment partners for their continued commitment to our business model in these times of economic uncertainty. We look forward to continuing to add to our portfolio in this market going forward." said Nickolas W. Jekogian, III, president and CEO of NWJ Companies. "This acquisition aligns with our overall strategy of acquiring and repositioning under-valued apartment assets, which we are confident will be successful due to our high operating standards and our continued long term hold strategy."

The newly attained properties are located on the west side of El Paso. Three Fountains features over-sized one, two and three bedroom apartments. Village I and II offer spacious floor plans, including two-story townhouse style cottages in Village II. NWJ Companies plans to modernize the interiors, along with making improvements to the common areas and exterior to align with the Signature Community lifestyle.

"Fortunately we are still able to obtain financing in a tough environment due to our long track record and underlying fundamentals in our acquisition model", said David McLain, Vice President-Acquisitions of NWJ Companies. "This is an exciting project with a superior location, within walking distance to major retail. We were attracted to the El Paso market because of its excellent fundamentals and potential to become a welcoming, high quality home for future Signature Community residents."

About NWJ Companies, Inc.

NWJ Companies, Inc. (www.nwjcompanies.com) is a privately owned multi-family real estate investment and redevelopment organization that owns more than 4,000 units in 18 markets nationwide. Through its Signature Community brand (www.asignaturecommunity.com), properties are designed and managed with a focus on customer service, including building amenities and special incentive programs for residents. Signature Community holdings are located in the Mid-Atlantic, Midwest and Western regions of the United States. The Company was founded in 1991 by Nickolas W. Jekogian III.

About Investment Property Advisors

Investment Property Advisors (www.ipa-realestate.com) is a brokerage company specializing in small to midsize multifamily properties. The team has a proven formula to perform thorough investigations on the target assets. Market studies, building and environmental reviews, and renovation budgeting are performed by IPA using the latest technologies to provide sharp and detailed feedback to the Acquisition Specialists, all within a very short time period to expedite the transaction.

Government Bailout - A Necessary Evil

The world today revolves around credit. Most businesses today use debt to finance their operations. Very similar to consumers using credit card for Christmas presents. Not just long term debt (ex. Debt to build factories, or equipment) but short term debt (ex financing of accounts receivables, seasonal credit lines). If the placement of debt stops then business large and small will be in jeopardy. The best analogy would be if your credit cards were turned off just before Christmas.

If these loans do not continue to be available to corporations then business will stop. What does that mean to the typical American worker? It means corporate layoffs, slowdown of growth and in many cases corporate bankruptcies.

This is why the government bailout is so important. After the bailout banks should be able to go back to lending again; albeit at very different terms than just a few weeks ago. Banks will be much more conservative over the next few years.

The problem with the bailout is that the government is now going to have a lot of bad loans to deal with. For investors this will be a great opportunity but for borrowers this will create problems for many years to come. All this distressed debt is going to create an overhang in the debt market for the many years to come. Debt markets will be soft for the next 5 years making borrowing difficult but at least not impossible.

In a few minutes we will see the effect on Wall St. of the bailout plan; unfortunately we will not see the effect on Main St. for many years to come.

The credit markets have to keep in alignment if the country does not want to sink into a depression let's just hope that the effects of this bailout do not create a long term recession.

Feel free to ask any questions.

Make It Happen.
Nick

Wall Street Staggers

http://www.businessweek.com/magazine/content/08_39/b4101000869093.htm?campaign_id=rss_daily

Wall Street Staggers
by Paul Barrett

In times of high stress, many in the financial world seek solace in watery metaphors. We hear of vast irresistible forces converging in "perfect storms" and unforeseeable events contributing to "100-year floods."

How could we have expected, let alone prevented, this?
Count on Warren E. Buffett to cut to the truth. Years ago, referring to reckless corporate debt, Buffett noted (or so the story goes): "You never know who is swimming naked until the tide goes out."

The tide's moving, and we're starting to get the full, not-so-pretty view. Along with the bare swimmers emerging from the soggy murk, we're being reminded of some of the dumb ideas and reckless choices that helped deliver us to our current debacle. As stunning as the scene seems, we've actually had plenty of experience with this sort of thing. But like some stubborn residents of hurricane zones, we swiftly choose to forget the last tempest and reassure ourselves that things will be different from now on. Why don't we learn the obvious lesson to the contrary? Answers: the timeless power of hubris during periods when profits seem easy, and a set of foolish financial notions that have become prevalent over the past three decades.

One of those beliefs is the indiscriminate antiregulatory ideology one hears preached on Wall Street with tent-revival fervor. What makes this thinking so perplexing is that many of the free-market true believers also assume the federal government will save them if they flop. Consider the extraordinary taxpayer-backed rescues of insurance titan American International Group (AIG), housing financiers Fannie Mae (FNM) and Freddie Mac (FRE), and, before those, the Treasury-guided merger of Bear Stearns into JPMorgan Chase (JPM). It brings to mind the homeowner who rants about getting Washington off his back but wants federally guaranteed flood insurance no matter how close to the Gulf Coast he builds his house.

Other by-now-familiar attitudes have helped put us in the drink: In good times, there's no such thing as too much leverage. (Remember Michael Milken?) Derivatives don't require oversight, even though almost no one understands them. (How now, Long-Term Capital Management?) And, don't worry, the quantitative geniuses have devised models to eliminate extreme risk. (Enron, anyone?)

"Now, again, the banks and the Bush Administration and [Treasury Secretary Henry] Paulson and [Federal Reserve Chairman Ben] Bernanke would like you to think these crises are like floods or hurricanes," says Michael Greenberger, a senior official at the Commodity Futures Trading Commission (CFTC) during the Clinton Administration. An advocate of more aggressive regulation of investment banks, he was shot down in the late 1990s by Democratic colleagues, not just GOP foes. Most financial calamities aren't like natural forces beyond control, Greenberger says. "These are predictable events." Predictable events, of course, are more likely to be prevented with sound rules and stiff enforcement.

Different Animals
Alfred E. Kahn offers the long view—a very long view. As the Carter Administration's aviation czar, he unshackled airline routes and fares in the late 1970s, reshaping that industry (for better and worse) and helping spur a lengthy era of economic deregulation. Still sharp at 91, the retired Cornell University economist and part-time consultant recalls that almost as soon as the free-market spirits were set loose, a furious stampede ensued. Lenders, for one, demanded lots more freedom. But they "were a different kind of animal" from airlines and trucking firms, which the Carterites also deregulated, Kahn says. "They were animals that had a direct effect on the macroeconomy. That is very different from the regulation of industries that provided goods and services.…I never supported any type of deregulation of banking."

During the Reagan years, Kahn's cautious industry-by-industry analysis was replaced by the all-encompassing antiregulatory ideology of the University of Chicago. One result: the liberation of an armada of savings and loan pirates, abetted by congressional Democrats as well as Republicans, many of them drunk on S&L campaign largesse. (Wall Street lobbyists with open wallets have since perfected the practice of neutralizing Congress on a bipartisan basis.) Hundreds of thrifts ultimately collapsed in the late 1980s and 1990s amid greedy and, in some cases, fraudulent real estate deals.

As early as 2000, William J. Brennan, a prominent consumer attorney who has represented mortgage borrowers since the S&L catastrophe, warned in testimony before the House Financial Services Committee that real estate finance would return in new guises to haunt us. Few listened. Behind every burst of ill-advised lending lurk financial innovators creating new mechanisms to entice ever-more-sketchy borrowers, says Brennan, the director of Atlanta Legal Aid Society's Home Defense Program. In the 1980s, Michael Milken and his comrades at the now-defunct Drexel Burnham Lambert investment bank exacerbated the S&L fiasco by hawking their thrift clients' high-risk junk bonds. More recently the likes of soon-to-be-defunct Lehman Brothers and Bear Stearns engineered the securitization of mortgages, encouraging home lenders to spew wildly unwise loans. "Lending without regard [for] the ability to pay back started with the S&L scandal," says Brennan. In the 1980s the borrowers were reckless shopping-mall developers; in the recent boom, unsophisticated and sometimes cavalier homeowners.

Wall Street transformed dicey subprime mortgages into the toxic securities that have required hundreds of billions in writedowns and that drove once-mighty Merrill Lynch (MER) to sell itself to Bank of America (BAC). One of the most striking aspects of the current turbulence is the degree to which banks invested in the noxious fare themselves, notes Emanuel Derman, who heads risk management at Prisma Capital Partners, a hedge fund in Jersey City, N.J. "These guys ate their own cooking; they didn't just pass it on to clients."

The outsize appetite on Wall Street for hazardous mortgage-backed securities and even more obscure derivatives has had a lot to do with the people in the kitchen failing to understand fully what was in their recipes. All of this is painfully familiar to anyone who paid attention to past adventures with wizards who claimed their esoteric models had magically eliminated risk and uncertainty. Hedge fund Long-Term Capital Management (LTCM) couldn't imagine Russia defaulting on its debt, much as Lehman apparently couldn't conceive of housing prices across the country deteriorating simultaneously, followed by a paralyzing credit crunch.

For four years in the mid-1990s, LTCM boasted extraordinary profits based on supposedly flawless computer formulas devised by a team that included two Nobel laureates. But in the summer of 1998, Russian credit disintegrated, one of several concurrent global shocks that the LTCM crew had failed to factor into their algorithms. After losing more than $4 billion in a few months—in retrospect, the amount seems almost quaint—the hedge fund received a federally organized rescue, although it later shut down altogether.

Financial "rocket scientists," says Henry T. Hu, a corporate law professor at the University of Texas in Austin, have a knack for neglecting low-probability, catastrophic events. The smartest guys in the room at Enron similarly assumed away risks they didn't want to confront. "These models…work in normal circumstances but not during times of market stress, when it really matters," Hu says. "It is almost like a safety belt that only fails in a serious car crash."
One of the things that dismayed outsiders about LTCM after it came apart was the size and complexity of its derivatives portfolio. Some in the Clinton Administration pushed for more oversight of the unregulated, privately traded instruments whose value derives from price shifts in currencies, securities, or other assets. Then-Fed Chairman Alan Greenspan, allied with Robert E. Rubin, Clinton's Treasury Secretary (and now a director and senior counselor at Citigroup (C), opposed tougher policing of derivatives. Banks could watch over each other more effectively than regulators could, Greenspan argued. This turned out to be shortsighted.

In an interview, Greenspan doesn't back down, even after all we've seen lately. "The majority of lawyers, in my experience, seek to regulate—that is, to contain certain activities with little weight given to the lost benefits of such activities," he says. "The question is: What do you lose? In this case, a very valuable instrument [credit default swaps, the derivatives at the core of the current mess] for the diminution of systemic risk. You can stop the system dead and eliminate speculative losses. But you will also get significantly reduced economic activity and ultimately lower standards of living."

Greenspan adds: "I've been extraordinarily distressed by how badly the most sophisticated people in the business handled risk management. But the question is: If, protecting their own resources, they can't do it, who's going to do it better?" (Well, maybe regulators who don't have big bonuses at stake would be less likely to get carried away by the euphoria.)
Rubin says separately that he didn't oppose the general idea of scrutinizing derivatives, but instead argued against particular proposals in the late '90s to expand CFTC authority. "I have always been concerned about derivatives," he says.

Michael Greenberger served as the CFTC's director of trading and markets at the time. A proponent of tougher oversight, he recalls the Greenspan-Rubin resistance as being fierce and across-the-board. "If we had prevailed, the [subprime-securitization] party would never have gotten started; the wildness wouldn't have happened," he says. "There would have been auditing requirements, capital requirements, transparency. No more operating in the shadows. Bear Stearns, Lehman, Enron, and AIG would be thriving, and spending every waking hour complaining about regulatory restraints imposed upon them." Now a law professor at the University of Maryland, Greenberger adds: "In a booming economy, people couldn't be convinced that without corrections, LTCM would happen again—bigger and with more ramifications." Today, Bear, Lehman, and AIG have untold amounts of outlandish derivatives on their books. It could be years before anyone untangles what they're worth.

One other legacy of LTCM is "moral hazard": the prospect that other financial actors would take greater risks because at some level they'd assume that they, too, would be considered "too big to fail." Surely one can surmise that Fannie Mae and Freddie Mac overstepped in part because of an implied federal safety net that turned out to be a very real one.

Edward S. Lampert, the hedge fund tycoon who controls Sears Holdings (SHLD), worries about yet another twist. He says the current wave of federal intervention sends the opposite signal from what's intended: that officials are panicking because of broader instability. "As an investor, that was my immediate reaction" to the Fannie and Freddie moves, he says. "They completely destroyed confidence in any financial institution."

Lampert frets that with investment banks failing and merging, the resulting consolidation will concentrate risk and invite more rescues. "You are going to have Citi, JPMorgan, and Bank of America with $2 trillion-plus in assets each," he notes. "That's three times the size of Fannie and Freddie. Now if they end up with problems, what do you think is going to happen? They are too big to fail."

Interesting Article

http://www.cnbc.com/id/26858394

Nickolas W Jekogian
www.NWJCompanies.com
917 763 3500

The Economy and NWJ

Last week what started out as a $100B problem ended on Friday with the Feds agreeing to solve a $700B problem. But does that solve the problem? Can the Feds solve the problem? What else is out there? And what does that do for me, my job, and our company?

The times are very reminiscent of the early 90s when real estate brought down the economy. It seems that real estate never gets credit for the good times (essentially the past 5 years of economic growth were driven by peoples ability to borrow against increasing home values) but does get the blame for the bad times ( housing declines cause economy to fall). One thing about the real estate market and housing in particular is that leverage substantially changes the upside and downside swings. With the ability to borrow up to 95% of a homes value comes the inverse problem of; if the house value declines by 10% your investment is not only wiped out but you owe substantial money on top of that. Now multiply that problem by the millions of home owners that received cheap, easy credit in the last few years.

Over the years investment bankers became the lender of choice for home owners (mortgage backed securities). They bought the loans by the Billions. But when the music stopped and the real values of these loans started to become apparent they wanted out of them as quickly as possible and some sold them cheap (Merrill Lynch started it with 22 cents on the dollar sale of loans.). Once that started everyone had to start adjusting the pricing of these loans so what they could have on their books was $1B that now became worth $220M almost overnight. Problem was that bankers are even better at leverage than home owners so they had to cover the loans they took out against these diminishing assets. It created a ripple effect that has pretty much eliminated all investment banks, many commercial banks, and insurance companies (they liked the high returns of these loans in good times).

The problem in the real estate industry as we are seeing in the finance markets with a decrees in value of these loans we are going to begin seeing in the real estate market. Fortunately or unfortunately depending on how you look at it the real estate market is not priced on a daily basis. So the drop will take a little longer to take effect but it will come. We have already seen drops of 10% in most markets over the past 12 months and now that the ability to borrow has substantially dried up we are going to see even steeper drops.
So what do we do as a company?

First off we have to make sure that what we have stays profitable and cash flows. In the good times of easy credit we always pushed to get to the next refinance to solve our cash issues. Well now there isn't going to be a refinance out for a few years. So we need to double our focus on profitable operations.

Next we need to make sure that the projects we have that are being stabilized continue as quickly and efficiently to stabilization so that we don't have to worry about continuing to fund them. We still do have a few funding sources to refinance these projects through but they need to be truly stabilized projects.

On the acquisition front we need to really pay attention to our fundamentals (Proforma). We need to make sure that we are not making projections based on what the economy has been doing (the real estate values can only go up syndrome). Times like these will provide lots of opportunity and the key is not to deploy limited capital into projects that will not allow immediate and substantial returns. If we follow that acquisitions model the rewards when prices start accelerating upwards will be tremendous. I speak from experience of seeing values stay very steady for years (best time to buy) and then spiking substantially in the early 2000s (best time to sell or refi).

We played the market perfectly in the mid-90s early 00s. And now it’s our chance to play it again with a much better management team, and better capital sources.

Let's Make It Happen
Nick

Fw: (BN) Schwarzman Raises the Bar,Buffett Wields Cash in Distressed-Assets Glut

-----
Nickolas W. Jekogian
917 763 3500
Jekogian@NWJcompanies.com

---

From: Jonathan Colton <jlcolton@me.com>
Date: Mon, 22 Sep 2008 04:51:19 -0400
To: Nick Jekogian<jekogian@nwjcompanies.com>; dmclain@nwjcompanies.com<dmclain@nwjcompanies.com>
Subject: (BN) Schwarzman Raises the Bar, Buffett Wields Cash in Distressed-Assets Glut

Bloomberg News, sent from my iPod.

Schwarzman Raises Investing Hurdle, Buffett Uses Cash

Sept. 19 (Bloomberg) -- Bankrupt Lehman Brothers Holdings Inc. and government-seized American International Group Inc. top the list of distressed sellers seeking buyers for at least $1 trillion of assets. So far, bargain hunters aren't biting.

The same uncertainty that erased $3.1 trillion from global stocks in the first four days of this week has all but paralyzed the market for unpaid corporate debt, non-performing mortgages, degraded securities and repossessed real estate. Before takeovers are pursued that help troubled companies bolster capital and pay off creditors, hedge funds and buyout firms that have raised $163 billion this year face roadblocks such as a lack of financing.

``We're raising the hurdles for putting money out there because there are going to be increasingly better opportunities,'' Blackstone Group LP Chief Executive Officer Stephen Schwarzman said in an interview. ``You're most aggressive when you're coming off the bottom.''

Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben S. Bernanke and members of Congress pledged yesterday to fill the void by moving bad debt to a government institution that would sell it.

``The goal of that would be to assure people that there is a way to price the assets,'' said Neal Soss, chief economist at Credit Suisse Holdings USA Inc. in New York. ``Then private investors would gain courage and come back more actively in the markets.''

Berkshire Hathaway

The winners from Lehman's bankruptcy and AIG's government bailout will be investors such as billionaire Warren Buffett who can buy without borrowing and, in some cases, afford to hold onto their purchases for as long as five years without cashing them in, said Thomas Priore, chief executive officer of New York-based ICP Asset Management, which originated and oversees $13 billion in collateralized debt obligations.

Buffett's Omaha, Nebraska-based Berkshire Hathaway Inc. has been involved in eight acquisitions since October, including yesterday's $4.7 billion purchase of Constellation Energy Group Inc. in Baltimore. That compares with six in the previous 12 months, when Berkshire's largest acquisition cost $350 million. The deals were possible because the company had cash on hand totaling $31.2 billion at the end of June.

Pre-Crisis Position

``The ability to raise capital, no matter who you are, has changed dramatically,'' Richard Friedman, global head of merchant banking at Goldman Sachs Group Inc., said Sept. 16 at the Dow Jones Private Equity Analyst conference in New York. ``People are winning by not losing at the moment. It's going to be eerie for a while.''

Priore estimates financial firms will have to sell $1 trillion of assets worldwide to make up for the shortfall between the $518 billion they have lost or written down, and the $364 billion in new money they've been able to raise.

If the average bank has borrowed 10 or 11 times that amount, multiplying by the roughly $100 billion difference means ``that's $1 trillion worth of assets they need to shed to get back to the position they were in pre-crisis,'' Priore said.

Funds run by Washington-based Carlyle Group, Sailfish Capital Partners LLC of Stamford, Connecticut, and Peloton Partners LLP in London have shut down because of mortgage- related losses, illustrating the perils of jumping in too early.

Hedge Fund Losses

Hedge funds that invest in distressed assets and corporate restructurings have lost 4.9 percent so far this year, compared with gains of 5.1 percent for all of 2007 and 15.9 percent in 2006, according to Hedge Fund Research Inc. in Chicago. Hedge funds are private pools of capital whose operators receive management and performance fees.

Sovereign wealth funds, money controlled by countries or their rulers, were among the first called upon by banks starting last year to shore up their capital. The funds responded by investing more than $46 billion. The share price declines of the beneficiaries, including New York-based Merrill Lynch %26 Co., Citigroup Inc. and Morgan Stanley, mean government-owned funds, such as Korea Investment Corp. and the Government of Singapore Investment Corp., have losing positions.

The pain prompted at least one fund, Mubadala Development Co., the Abu Dhabi government-owned investment company, to withhold any new lifelines to the U.S. financial services industry, Waleed al-Muhairi, Mubadala's chief operating officer, said in a telephone interview.

``In the U.S., it's typically new investors who come in and they wipe out older ones,'' said Yngve Slyngstad, executive director of Norges Bank Investment, which runs Norway's sovereign fund, the world's second-largest.

Savings and Loan

Hedge funds have raised $129 billion to invest in distressed assets and restructurings, data compiled by Hedge Fund Research show. Buyout firms have amassed $33 billion so far this year for distressed assets and are in the process of raising $30.5 billion more, according to London-based Private Equity Intelligence Ltd.

Distressed assets expected to flood the market dwarf what was available to investors following the collapse of the U.S. savings and loan industry in the early 1990s, said Paul E. Johnson, president of Southwest Next Capital Management, a real estate fund in Phoenix.

As mayor of Phoenix from 1990 to 1994, Johnson had a front- row seat when the government closed 747 thrifts, costing taxpayers $140 billion.

Asset Disposal

``For Arizona, 1990 was brutal,'' Johnson said. ``I think with what's going on right now with the financial institutions, this is going to be bigger.''

Resolution Trust Corp., created by the federal government to liquidate assets of failed thrifts in an effort to repay creditors, ended up recovering almost $400 billion from asset sales, its acting chief executive, John Ryan, said when the RTC concluded its operations.

Former Federal Reserve Chairman Alan Greenspan, Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, and Representative Barney Frank, chairman of the House Financial Services Committee, are among those who have called for an agency styled after the RTC to dispose of devalued assets.

``The best answer is to get these assets cleared, reset and get the economy going again,'' Johnson said. ``Even so, we may have done such a colossal job of fooling ourselves it will take years to get out of this.''

22 Cents

Before Lehman filed for bankruptcy Sept. 15, the New York- based securities firm was already selling off pieces of itself. Lehman shed 19 percent of its gross assets in the second quarter, Chief Financial Officer Ian Lowitt said on a June 16 conference call. It was part of the firm's plan to pursue sales in a measured way, Lowitt said at the time.

That process was disrupted July 28, when Merrill Lynch said it sold $30.6 billion of CDOs to an affiliate of Dallas-based Lone Star Funds for $6.7 billion, or about 22 cents on the dollar. Merrill, the world's biggest brokerage firm, agreed Sept. 14 to be sold to Charlotte, North Carolina-based Bank of America Corp.

More than $125 billion of junk bonds, including some of those most likely to default, will mature in the next three years, said Daniel Arbess, founder of New York-based Perella Weinberg Partners' Xerion hedge fund.

When the bonds mature, it will be in a new credit environment in which lenders will be less likely to refinance that type of high-risk debt, Arbess said.

Default Rates

``That creates a very high likelihood of near-record defaults,'' Arbess said.

Default rates for high-yield corporate debt probably will rise to 4.9 percent by the end of this year and 7.4 percent in 2008, according to a Sept. 8 report by New York-based Moody's Investors Service.

Instead of buying now, it's better to wait for terms to improve, Arbess said.

``Our single best asset in the portfolio right now is patience,'' Mark Patterson, chairman of New York-based Matlin Patterson Global Advisors, said at a Sept. 16 investors' conference. Patterson's company has raised $5 billion to buy distressed companies.

BlackRock Inc., the largest publicly traded U.S. money manager with $1.4 trillion in assets, began raising $3 billion this month to buy loans that banks are selling at a loss.

``The deleveraging that's occurring is putting a lot of big asset pools up for sale,'' Laurence Fink, New York-based BlackRock's CEO, said in an interview. ``We're looking at one or more big opportunities.''

Real Estate for Sale

Lehman has a $32.6 billion commercial real estate portfolio, according to Real Estate Alert, a Hoboken, New Jersey-based industry newsletter.

Local developers have been teaming up with private equity firms to buy raw land, lots that have been prepared for building, and unfinished or unsold single-family homes, apartments and condominiums, said David Tobin, principal of Mission Capital Advisors LLC in New York, which advised on about $5 billion of whole home-loan sales in 2007.

``Money wants local knowledge,'' he said.

Last month, Miami developer Jorge Perez, with Lubert-Adler Partners LP, a Philadelphia-based private equity firm headed by Dean Adler, bought 120 new condos on Biscayne Boulevard for $30.3 million, about half the price of individually sold units. It was the largest bulk sale of downtown Miami condos to date.

Falling Prices

Today, IndyMac Federal Bank FSB, the Pasadena, California, mortgage lender that was seized by the Federal Deposit Insurance Corp. on July 11, will put eight pools of California properties on the market, according to IndyMac Director of Corporate Communications Evan Wagner.

``Some of these sales are going on now because we want to sell before prices decline further,'' Wagner said. The goal is to sell the pools by the end of November, he said.

The median price of a new home in the U.S. has fallen 12 percent since the peak in March 2007, according to the U.S. Commerce Department.

That's not far enough for some bargain hunters -- not for homes, not for mortgages, not for corporate debt and not, in Scott Sperling's case, for companies he might want to buy.

``Prices still need to drop dramatically,'' said Sperling, co-president of Thomas H. Lee Partners LP, a closely held leveraged buyout firm in Boston, at the Dow Jones conference. ``Just because prices are down doesn't mean it's cheap.''

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net .

Find out more about Bloomberg on iPhone: http://bbiphone.bloomberg.com/iphone

Sent from my iPod

Good History Lesson on Government Bailout of RE Industry

http://www.americanprogress.org/issues/2008/09/learing_from_the_past.html


Nickolas W Jekogian
www.NWJCompanies.com
917 763 3500

Chaos Creates Opportunities

There is no doubt about it the US economy is in a recession! Things are bad on Main Street, Wall Street and everywhere in between. These times are difficult but they also prove great opportunities. The greatest real estate companies have been created in the down cycle of the market swing and not during the high times.

"There is no such thing as bad weather. Just improper clothing." Anonymous

We as a company have an amazing opportunity to prosper in these turbulent times if we flawlessly execute on our model over the next few years. Under performing properties will not make it in this business climate. We need to find them and buy them.

Our focus on the resident is the right model for today’s market. Residents have options and we need to make sure that staying in a Signature Community is the best one for them. We can do that.

Ability in financing in a market like this is key to our existence. Fortunately, we have a good track record with our lenders and continue to perform extremely well in regards to paying off loans and meeting our promises to lenders. If we want to continue borrowing then we need to make sure that we make no mistakes in this area. Performance is our existing portfolio it is our only track record to point to. We must keep that record up in order to continue of acquisitions pace.

"You can't build a reputation on what you are going to do." - Henry Ford

Our Investors relationships, although relatively new, are strong because of our performance over the past few months in these difficult times. They continue to expand into new opportunities but again it will only last as long as our success.

"Vision is the art of seeing what is invisible to others." - Jonathan Swift

The one thing I have always found interesting about Wall Street is its win-lose proposition. One side has to win and the other has to lose. Today many Billions of dollars are being lost but that means that someone is making them somewhere else. It’s up to us to take advantage of the opportunity.

Let's Make It Happen!
Nick

Moving Forward

I started my career in real estate in 1987. I was a freshman in college and was hired as an accounting intern for a shopping center developer. For the first 6 months of my employment it looked like this company could do no wrong. The company grew quickly, making deals all over the east coast and banks were lending 110% of each deal. But by the end of my six month internship everything had changed. Tax laws changed, lender liquidity issues arose, retailers declared bankruptcy and the economy contracted. This was the start of a real estate downturn that lasted 10 years.

The year 2007 and 2008 are very similar to the late 80s. Lenders stopped lending, tax laws are about to change, retailers are declaring bankruptcy left and right, and the economy has slowed to a trickle. This makes for some pretty tight times going forward in the next few years. In the 80s and 90s only the well run and financed companies were able to continue and that's going to be the same going forward now.

In the last few years many investors bought apartment buildings because they thought the market was going to keep going up; easy money. Well, now those investors are seeing that this business is not that simple.

See link to Stuyvesant deal ----
http://seekingalpha.com/article/94321-manhattan-real-estate-is-teetering-barron-s

I feel that we have positioned our company well for the coming years. We have one of the best management teams in the Multifamily business. We have a solid team and group of contractors to stabilize new projects. We have financed more than Half a Billion in debt and continue to attract some of the best lenders in the industry. We have created a differentiating factor for ourselves with our Signature Community brand that continues to lead the industry in innovation and customer service for our residents. And we have one of the largest most aggressive acquisitions group in the industry.

The upcoming year 2009 thru 2012 are going to be difficult years but with our team and our focus on the NWJ/Signature Model we will turn adversity into opportunity. The times are going to make us into the Billion dollar company we have been striving for.

"You buy when the blood is in the street. That little formula has worked miracles. It's just the opposite of what the average guy does. You want to buy [when there is] 'panic' and sell [when there is] 'euphoria.' It's all market psychology. It's all fear and greed." - J.P Morgan

Thanks for Making It Happen.
Nick

NWJ/Signature Business Model

The other day I was sitting with someone and while starting to explain our business model I decided to illustrate it for clarification.

(The illustration can be viewed above)

The narrative is as follows:

1. We start in a market with a systematized acquisitions process. Literally we knock on every door to buy their building.

2. Stabilize the condition and resident base of the recent acquisitions.

3. Acquire more buildings until reaching 1000 units in market

4. Create centralized amenities and professional operations in the market.

5. Manage the assets as a community within a nation portfolio.

6. Sell any outlier's.

7. Finance buildings within markets as one property.

8. Return investors equity.

9. Repeat process in more than 100 markets throughout the US.

As long as all of you continue executing as you have this model works and it can be reproduced in 100s of US markets not to mention foreign Countries.

Thanks for Making It Happen!
Nick

Olympics - China's coming out party

I am sure most of you watched the Olympics this weekend and were as impressed as I was by the opening ceremony. I was amazed by the scale of the event like no other. From my standpoint it was the message that China was sending to its people as well as the world; with teamwork we can accomplish anything and we will!
China's greatest resource is its people. Over a Billion strong. If the people of China continue to work as a united group it is going to accomplish things as a country that the US can not even imagine.

Human resources (good people) are a better asset to have then natural resources like (oil, productive farms, etc) because good people working together will create amazing and powerful things.

I was especially impressed by the one act in the opening ceremony where there were thousands of boxes moving up and down to symbolize the creation of the mountains. What was incredible to me was seeing at the end that it was not a mechanical computerized system creating this image, but instead it was completely driven by thousands of people. That is teamwork!

The analogy I see with our company is that we have so many good people and as long as we work together as a team we can and will move mountains.

Thanks for making it happen.
Nick

Can You Become a Creature of New Habits?

Can You Become a Creature of New Habits? By JANET RAE-DUPREE

HABITS are a funny thing. We reach for them mindlessly, setting our brains on auto-pilot and
relaxing into the unconscious comfort of familiar routine. “Not choice, but habit rules the
unreflecting herd,” William Wordsworth said in the 19th century. In the ever-changing 21st
century, even the word “habit” carries a negative connotation.

So it seems antithetical to talk about habits in the same context as creativity and innovation. But
brain researchers have discovered that when we consciously develop new habits, we create parallel synaptic paths, and even entirely new brain cells, that can jump our trains of thought onto new, innovative tracks.

Rather than dismissing ourselves as unchangeable creatures of habit, we can instead direct our
own change by consciously developing new habits. In fact, the more new things we try — the more we step outside our comfort zone — the more inherently creative we become, both in the
workplace and in our personal lives.

But don’t bother trying to kill off old habits; once those ruts of procedure are worn into the
hippocampus, they’re there to stay. Instead, the new habits we deliberately ingrain into ourselves create parallel pathways that can bypass those old roads.

“The first thing needed for innovation is a fascination with wonder,” says Dawna Markova, author of “The Open Mind” and an executive change consultant for Professional Thinking Partners. “But we are taught instead to ‘decide,’ just as our president calls himself ‘the Decider.’ ” She adds, however, that “to decide is to kill off all possibilities but one. A good innovational thinker is always exploring the many other possibilities.”

All of us work through problems in ways of which we’re unaware, she says. Researchers in the late 1960s discovered that humans are born with the capacity to approach challenges in four primary ways: analytically, procedurally, relationally (or collaboratively) and innovatively. At puberty, however, the brain shuts down half of that capacity, preserving only those modes of thought that have seemed most valuable during the first decade or so of life.

The current emphasis on standardized testing highlights analysis and procedure, meaning that few of us inherently use our innovative and collaborative modes of thought. “This breaks the major of us inherently use our innovative and collaborative modes of thought. “This breaks the major rule in the American belief system — that anyone can do anything,” explains M. J. Ryan, author of the 2006 book “This Year I Will...” and Ms. Markova’s business partner. “That’s a lie that we have perpetuated, and it fosters mediocrity. Knowing what you’re good at and doing even more of it creates excellence.”

This is where developing new habits comes in. If you’re an analytical or procedural thinker, you
learn in different ways than someone who is inherently innovative or collaborative. Figure out
what has worked for you when you’ve learned in the past, and you can draw your own map for
developing additional skills and behaviors for the future.

“I apprentice myself to someone when I want to learn something new or develop a new habit,” Ms. Ryan says. “Other people read a book about it or take a course. If you have a pathway to learning, use it because that’s going to be easier than creating an entirely new pathway in your brain.” Ms. Ryan and Ms. Markova have found what they call three zones of existence: comfort, stretch and stress. Comfort is the realm of existing habit. Stress occurs when a challenge is so far beyond current experience as to be overwhelming. It’s that stretch zone in the middle — activities that feel a bit awkward and unfamiliar — where true change occurs.

“Getting into the stretch zone is good for you,” Ms. Ryan says in “This Year I Will... .” “It helps keep your brain healthy. It turns out that unless we continue to learn new things, which challenges our brains to create new pathways, they literally begin to atrophy, which may result in dementia, Alzheimer’s and other brain diseases. Continuously stretching ourselves will even help us lose weight, according to one study. Researchers who asked folks to do something different every day — listen to a new radio station, for instance — found that they lost and kept off weight. No one is sure why, but scientists speculate that getting out of routines makes us more aware in general.”

She recommends practicing a Japanese technique called kaizen, which calls for tiny, continuous
improvements.

“Whenever we initiate change, even a positive one, we activate fear in our emotional brain,” Ms.
Ryan notes in her book. “If the fear is big enough, the fight-or-flight response will go off and we’ll
run from what we’re trying to do. The small steps in kaizen don’t set off fight or flight, but rather
keep us in the thinking brain, where we have access to our creativity and playfulness.”
Simultaneously, take a look at how colleagues approach challenges, Ms. Markova suggests. We
tend to believe that those who think the way we do are smarter than those who don’t. That can be fatal in business, particularly for executives who surround themselves with like-thinkers. If
seniority and promotion are based on similarity to those at the top, chances are strong that the
company lacks intellectual diversity.

“Try lacing your hands together,” Ms. Markova says. “You habitually do it one way. Now try doing it with the other thumb on top. Feels awkward, doesn’t it? That’s the valuable moment we call confusion, when we fuse the old with the new.”

AFTER the churn of confusion, she says, the brain begins organizing the new input, ultimately
creating new synaptic connections if the process is repeated enough.
But if, during creation of that new habit, the “Great Decider” steps in to protest against taking the unfamiliar path, “you get convergence and we keep doing the same thing over and over again,” she says. “You cannot have innovation,” she adds, “unless you are willing and able to move through the unknown and go from curiosity to wonder.”

Pressure

"Pressure is a word that is misused in our vocabulary. When you start thinking of pressure, it's because you've started to think of failure." - Tommy LaSorda, LA Dodgers manager

"Good luck is what happens when preparation meets opportunity." - Darrel Royal, Univ. of Texas football coach

"If what you did yesterday seems big, you haven't done anything today." - Lou Holtz, Univ. of South Carolina football coach

"The key is not the will to win...everybody has that. It is the will to prepare to win that is important." - Bobby Knight, Texas Tech men's basketball coach

The next 45 days are probably going to be the busiest in the history of our company.By Sept 15th we will:

• Close on a $75M acquisition.
• Sign agreements of sale on an additional 2,000 units
• Lease up 300 units.
• Settle a $12M insurance claim
• Finance more than $100M in debt (in a very bad debt market)
• Raise $14M in equity capital.

That's a lot of work in a very short period of time but when I look at the dynamic organization we have created I am confident that we will succeed. Thinking outside the box and Wowing people with our attitude of success is what makes us different. Like many great sports teams we have spent time practicing and perfecting ourselves so when the opportunities arise we can take advantageous. So we earned the pressure and opportunity to perform this month.With everyones dedication and extra effort this next few weeks is going to be an incredible success.

We will succeed.

Let's Make It Happen.

Crunch Time!!!

Sorry I missed last weeks post. I had finished a very wet and cold Ironman race late in the night before and didn't get back in an area with cell/internet service until late monday.

This week's topic is about Crunch Time. It happens in our business every year at the end of summer. Leasing season is ending and we need units filled before the phone stops ringing. Our annual profitability is made or broken in these 4 weeks. If we are left with vacancies we will not likely fill them until early next year and with profit margins as tight as ours that means the difference between a profit and loss this year.

With that said I ask everyone to step up their efforts over the next 4 weeks to get us to 100% occupancy in each and every market. We can do it.

If anyone has already reached this goal in their market and has time on their hands please discuss with your supervisor how you can help in other markets. We are still looking for additional leasing agents and management help throughout the country.

"Energy and persistence conquer all things."

Ordinary people believe only in the possible.
Extraordinary people visualize not what is possible or probable,
but rather what is impossible.
And by visualizing the impossible, they begin to see it as possible.
-Cherie Carter-Scott (American Author, Speaker, Trainer)

Thanks everyone for making the impossible happen!

Nick