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.