Last sunset of 2009

I am sure most of you will agree with me that its nice to see this one behind us. Looking forward to some real opportunities in 2010. Happy New Year!

Sent from my Verizon Wireless BlackBerry

2010 Here We Come

2010 Here We Come

            While doing the holiday party circuit this past week, I heard one thing constantly; no matter what industry you are in, "goodbye 2009 and hello 2010". This is ironic because no one is projecting that business will be better in 2010. People I have spoken with, expect that the state of confusion and pessimism that has dominated 2009, will change to more optimistic and steadier times that will allow companies to properly plan out their futures.

            In my eyes, the real estate industry and the apartment market more specifically will not be running quite as smoothly.  I think the markets are now at the point where we can project and budget our next 12 months, but they are not looking very pretty.  Unemployment is still very high and apartment buildings are difficult to manage when residents are losing jobs.  Until the job engine gets started again 2011?  2012?  Currently, we can't predict any increases in rents and our fixed operating expenses will continue to grow, many in our industry will just keep "waiting it out".

            At Signature Community we are not "waiting it out". This quarter alone we have initiated over 150 changes into our organization to help bring costs down.  We are changing our office hours to be more customer friendly, sharing jobs across the country to take advantage of down time, revamping processes to take advantage of operational efficiencies and using technology to make our employee's and resident's lives easier.  This change effort is not limited to making an immediate impact on the SCM balance sheet, but will position our organization as one that can change with the times. More importantly, SCM will be capable of changing the way it does business, which exceeds the typical management company. 

            On a positive note, I see 2010 as a year of major growth at Signature.  Many of the sellers (banks) we have been working with for more than a year are finally getting into position to sell assets instead of "delaying and praying" like they did in 2009.  The nice thing about our focus and expertise in managing smaller than institutional size apartment properties, is that many lenders are having difficulties with these assets, mainly because they lent to "mom and pop" inexperienced owners who are not doing the tough work that Signature has been doing in 2009. Those assets are now being sold for very significant discounts by the lenders.  That should lead to some nice growth opportunities for Signature in 2010.

Thanks for supporting Signature Community in 2009 all your hard work and patience will make things happen in 2010 and beyond!

 

Nick

It’s All About Attitude

In the beginning of 2009 I had a bad attitude.  I actually believed the financial markets/real estate markets were going to fail and create chaos in the world. As of today, I don't think the economic data looks any rosier.

What is different on November 30th 2009? My attitude and the company's attitude have changed. That change in attitude is the only reason why the US economy seems better.  We stopped worrying and started fixing things.   Our company has dealt with many challenging issues in 2009 and will, in my estimate, be dealing with even stronger headwinds in 2010. Our positive energy and a "can do attitude" is the difference between success and failure in the "great recession".

As many readers know, Signature Community started a process earlier this quarter to significantly reduce expenses and streamline operations.  We solicited ideas from all levels of the organization, formed teams to research and execute on those ideas. We are now finishing up our research phase of this initiative and from what I have seen; the results are going to be amazing.  The results I am talking about are not just accomplishing our goal of $100,000/month savings, I am most impressed by the can do/make it happen attitude of all the team members.  We have members that span all ages, experience, background, geographic and income diversity.  We created groups that now can work together toward one common goal, of making Signature Community, our Signature Community, a great brand!

I thank all the team members for their dedication and look forward to the upcoming presentations.   I know that with a "can do/make it happen" attitude, Signature Community is going to thrive in 2010 and beyond.

 

Thanks for making it happen.
Nick

The New Normal

The New Normal

All over New York we are seeing signs of an improving economy.  On the corner near the NY headquarters, a new lunch concept just started construction as well as two others that have signed leases in the past 6 months.  Many of these retailers have wanted to enter the coveted NY City retail market for some time, but have been locked out by expensive rents. Along comes a big recession and everything changes.  With retail rents down 15-50%, it's giving new concepts an option to make it here. Interestingly enough, it's great for New Yorkers also, who were growing used to the vacant corner becoming either a bank or a cell phone store. So with this activity who gets hurt?  Well the landlord that recently bought the building expecting rents at 20% higher levels obviously is going to have problems and probably the bank that lent him the money whose loan is not going to be covered by the new rents. This is going to be the trend for 2010 and the new normal is now created.

"Real estate cycles in 10 year time periods but the memory only lasts 7 yrs."  - Unknown

I saw a report over the weekend that projected an 8-10% further loss in property values of residential homes.  Interestingly commercial real estate write-downs have only been a fraction of that.  Now one point is that commercial real estate lags residential by a year or two but doesn't it seem like its time for lenders to start taking the hits now instead of waiting for another replay of September 2008?  The same dynamic that built up the residential market (easy credit, low rates) powered the commercial real estate bubble also. Now the commercial market has the same problem as the residential market (no credit available, lower demand) which is pushing values downward to the point where landlords do what homeowners did in 08/09, increasing default rates and making loans worth just pennies on the dollar.  They say memory is short term but come on, it was just 18 months ago that Bear Stearns went down because of these residential toxic assets.

At Signature Community we saw the problems coming in the multifamily market and we adjusted course accordingly.  In 06/07 we were on a search to extend our brand offerings and kept adding services like gyms, cable TV, and swimming pool access.  In late 08 we realized that the key to survival in the great recession was going to be providing a good place to live at an affordable price and the highest level of customer service possible (not a bunch of amenities). We adjusted our sails because we knew the winds of change were blowing hard.  Our strategy worked. Our resident retention rates are at an all time high and moved occupancy up to 97% (6 points higher than industry average). We did it by listening to the customer and finding out what they did and didn't want and adjusting our offerings accordingly.

Our job as a landlord is not to get the highest rent possible, it is to make the living experience the greatest possible at an affordable level. We do that everyday at Signature Community for more than 8,000 residents nationwide.

Thanks for making it happen with Signature Community.
Nick

Will the Entrepreneur Boom Miss the U.S.?

http://www.forbes.com/forbes/2009/1116/opinions-rich-karlgaard-digital-rules.html

As we marvel (or worry) about the Dow reaching 10,000, let's look again at how closely the crash and recovery are tracking the 1970s. From January 1973 to December 1974--23 months--stocks fell 48%. Over 17 months (October 2007 to March 2009) stocks dropped 54%--a little faster and more dramatically, but comparable. In 1975 stocks rose 38%, in 1976 another 24%. The bounce from this year's Mar. 9 low is nearly 60%. Again, faster and bolder but roughly the same, so far.

The 1975--76 rally didn't last. What torpedoed stocks from 1977 to 1982? I would argue it was the 1976 election, which elevated an unknown, underqualified reformer named Jimmy Carter to the presidency. The 1976 election also produced 61 Democratic seats in the Senate, along with a two-thirds majority in the House.

Article Controls

There wasn't much pro-market advocacy in Washington during the late 1970s. Thus, it was no surprise when the worrisome inflation that had erupted under Gerald Ford took a turn for the worse. The Carter Administration and Congress believed the Federal Reserve's job was to ensure stable employment. The result? Inflation kicked into hyperdrive and pushed up taxes by way of bracket creep. Economic activity was distorted by a witches' brew of inflation and high taxes, which meant that speculators and tax lawyers got rich while the rest scrambled.

Looks scarily familiar, doesn't it?

The saving grace of the 1970s was entrepreneurship and innovation. During that otherwise rotten decade we saw the creation of startups that remain mighty today: FedEx ( FDX - news - people ), Southwest Airlines ( LUV - news - people ), Microsoft ( MSFT - news - people ), Apple ( AAPL - news - people ), Genentech ( DNA - news - people ), Charles Schwab ( SCHW - news - people ), Oracle. In 1971 Intel ( INTC - news - people ) introduced the microprocessor, which technology futurist George Gilder calls the most important invention in the last 50 years. Silicon Valley-style venture capital emerged during the 1970s, as did venture debt, better (and unfortunately) known as junk bond financing.

Will entrepreneurs and innovation bail us out again? They're already doing so. The rub is that most of this entrepreneurship and innovation is occurring outside the U.S. Americans--the mainstream media and the political class, especially--are terribly parochial regarding this. For example:

--How many Americans have heard of Huawei, the Chinese rival of mighty Cisco ( CSCO - news - people )? Huawei was started in 1988 and will sell $30 billion in telecom gear in 2009. Cisco was started in 1984 and will do $40 billion in sales. But Huawei's recent sales trajectory is steeper. It's possible Huawei could pass Cisco during the next few years.

--Did you know that Korean automaker Hyundai achieved record sales numbers in the lousy month of August? The J.D. Power quality ratings put Hyundai solidly in the top half, which belies the image of junky Korean cars.

--Did you know that Brazil's aircraftmaker Embraer ( ERJ - news - people ) has taken the airplane press by storm with its innovative light jets, the Phenom 100 and 300? In my Oct. 5 column I quoted Cessna's CEO, Jack Pelton, as saying he's "scared to death" of Embraer.

--Are you aware that outcomes of heart bypass surgeries are as good in India as anywhere else in the world?

--Or that Singapore is willing to pay U.S. research stars in biotechnology about $715,000 in annual salary?

Entrepreneurs and innovation will once again save the economy. But this time the miracle won't happen predominantly in the U.S. Policymakers seem not to care.

Apple the Outlier

Apple is now 33 years old, yet it seems like a perpetually new company. The company's blowout performance in its fiscal Q4--and really since the iPod's launch in 2001--has everything to do with Apple's keen sense of cultural shifts, which keeps the company at the edge of new. The genius of Steve Jobs has always been to marry his solid layman's understanding of technology to his world-class design eye and preternatural understanding of cultural moods.

Apple ( AAPL - news - people ) always seems one step ahead, even when it comes from behind. Apple didn't invent the personal computer, but it made the computer personal. It didn't invent the MP3 player, but the iPod put it all together. Smart phones existed before the iPhone. The forthcoming Apple iPad (or whatever it's called) will stand on the shoulders of the Amazon Kindle.

The lesson of Apple is to think deeply about what touches customers in an enduring way. What endures is great design and product coherence--stuff that looks cool, works well and, thus, justifies higher prices. This formula works even in a recession. Apple is a secular company with a religious following. It understands that people want transcendence and hope, especially during a difficult period. Apple's products have a quality that reaches beyond the economic dirge and reminds us of what is possible.

Movies did that in the 1930s. Apple is doing it now. Which is why Apple is an outlier.

Read Rich Karlgaard's daily blog at http://blogs.forbes.com/digitalrules or e-mail him at publisher@forbes.com. See Rich Karlgaard's new TalkBack video series at http://forbes.com/talkback.

Next Generation of Opportunities

Next Generation of Opportunities

 

Visionary is a self-fulfilling prophet. Don't predict the future.
Create it -  Leland Kaiser

It seems as though everyday, I read about new companies being created in the economy.  I admire every entrepreneur's willingness to take on risk in this environment; they realize that now is the time to create the next great company. Waiting on the sidelines for things to get back to the way they were, is just not going to happen. This recession has brought with it a transparency into the real US economy.

While the US is still a significant economic power, we can not keep operating as if we are 60+% of the world's economy like we were at the start of the decade.  We are now 45% and dropping.  We are a mature nation that no longer makes money on exporting goods; we export our culture and knowledge.

For the US to maintain its relevance in the future, we will have to make sure our education system is second to none. We must find a way to give a great K-12 and college education to all Americans and residents.  The current system is just not going to work. How can a middle class family afford $40,000 a year for college?  How are we going to stack up 20 years from now against countries that give away their college educations?  

When I was in school the saying was, "Finish your dinner because there are kids starving in India".  30 years later the saying is, "Finish your homework because kids in India have already done theirs.

This recession should be a wake up call for our country and everyone that if we continue to try and do things the old way we are going to be crushed by economies that are moving significantly faster than ours.

At Signature Community, we realize that many of the people being left behind are lower middle class residents, whose jobs have been outsourced to countries with lower labor costs.  We are doing everything we can to help this group learn job skills that will allow them to find work.  Many of the ideas we are researching as part of our Signature Ideas program revolve around helping residents get a leg up in this economy.  One program in particular includes giving residents access to computers, training and assisting them in finding Internet based jobs where they will make more money.  You would think that in the US, every household would have a computer by now, but we just did a study in one market and less than half of our residents had access to the Internet.  We at Signature Community are doing everything we can as a landlord to help change the lives of our 8,000 plus residents that live at Signature Community.

Don't predict the future. Create it.
Nick

Why This Real Estate Bust Is Different

http://www.businessweek.com/magazine/content/09_46/b4155042792563.htm

Unrealistic assumptions, layers of investors, sky-high prices, and possible fraud will make it hard to clean up the mess in commercial real estate

By Mara Der Hovanesian and Dean Foust

When Goldman Sachs (GS) sold complex bonds backed by the Arizona Grand Resort and other commercial properties in 2006, it suggested the returns would be strong. The 164-acre luxury Arizona Grand, set against the Sonoran Desert in Phoenix, boasted an award-winning golf course, deluxe spa, and several swank restaurants. The on-site water park was named one of the best in the country by the Travel Channel. With the resort's new owners planning to refurbish hotel rooms and common areas, Goldman told investors that the renovations would help boost cash flow.

As was so often the case during the real estate boom, the lofty projections didn't pan out. When the economy softened and business travel slumped, Arizona Grand's bookings slipped to 67%, from 80%. The resort defaulted on the $190 million underlying loan in 2009—a hit that alone could largely wipe out investors who bought the riskier pieces of the Goldman mortgage-backed securities deal.

"It's one of the largest losses we have forecasted for an individual loan," says Steve Kuritz, a senior vice-president at Realpoint, an independent credit-rating agency. The property, once valued at $246 million, is now worth just $93 million. A spokesman for Goldman says the pricing on the bonds was in line with market levels at the time and not above what investors could get on similar securities. Grossman Co. Properties, which owns Arizona Grand, didn't return calls for comment.

It would be easy to write off this blowup as just another casualty in the regular boom-and-bust cycle of the $6.4 trillion commercial real estate market. But the Goldman deal, with its unrealistic assumptions, multiple layers of investors, and stratospheric prices, helps illustrate why this downturn is more complicated than previous ones—and will turn out to be far costlier. Already, prices have plunged 41% from the peak in 2007, according to Moody's/REAL Commercial Property Price Index—worse than the 30.5% fall in the housing market from its 2006 apex. "We've never seen this extreme a correction as far back as the data go, which is the late 1960s," says Neal Elkin, president of Real Estate Analytics, the research firm that created the index. Adds billionaire investor Wilbur Ross: "Commercial real estate has gone from being highly liquid at sky-high prices to being extremely illiquid at distressed prices."

To appreciate why this bust is like no other, first consider the typical commercial real estate downturns that used to crop up every 5 or 10 years. The pattern was predictable: When prices for apartment complexes, office buildings, shopping malls, and other properties began to rise, developers sped up their projects to cash in on the bull market. Eventually, some of those developers, unable to fill all the new space, began to default on their loans, and lenders were stuck with the buildings they'd financed. The slump lasted no longer than the time it took for the property glut to be worked down.

TURNING A BLIND EYE

But overbuilding isn't the culprit in this bust. An oversupply of money is what pushed commercial real estate over the edge.

It turns out the same excesses that drove the housing market's crazy rise and fall were present in commercial real estate, too—but they have largely gone unnoticed until now. Bankers, in their haste to make more and bigger loans, blindly accepted borrowers' wildest growth assumptions and readily overlooked other shortcomings on loan applications. They did so in part because they could easily sell their dubious loans to investors in the form of commercial mortgage-backed securities. As the market overheated, it became a breeding ground for fraud: A flurry of new court cases reveals the disturbing extent to which commercial mortgage borrowers may have doctored loan documents.

While the housing crisis seems to be easing, the commercial storm is still gathering strength. Between now and 2012, more than $1.4 trillion worth of commercial real estate loans will come due, according to real estate investment firm ING Clarion Partners. Analysts at Deutsche Bank (DB) estimate that borrowers will have trouble rolling over as many as three-quarters of the loans they took out in 2007, the most toxic vintage.

For the banks and investors whose money fuels the economy, this presents major problems. Their losses will likely cast a shadow over lending—and, by extension, the overall economy—for years. The market won't fully recover until 2020, says Kenneth P. Riggs Jr., CEO of Real Estate Research, and in cases where "values were over the top...maybe never."

In the short term, toxic securities are creating a new problem weighing on the market: a tangle of interconnected investors fighting over the remains of the properties they own. In the past the damage was limited to a handful of lenders who invested directly in any given project. Now there can be dozens of groups of investors, each with its own agenda. The April bankruptcy of shopping mall owner General Growth, one of the largest real-estate-related bankruptcies ever, affected hundreds of parties—an unprecedented slicing and dicing of assets. These investors won't soon forget the bust and aren't likely to dive back into the market as aggressively as they once did.

And yet the securities are only a secondary problem. The main driver of the commercial real estate bust is the underlying loans. How frothy did the market get? In one notable example, New York investment fund Sterling American Property and real estate company Hines paid $281 million in 2007 for the 42-floor office building at 333 Bush St. in San Francisco. That worked out to $518 a square foot, far higher than today's price, according to Real Capital Analytics, a research firm. Less than two years later, the building's primary tenant, law firm Heller Ehrman, filed for bankruptcy and stopped making rent payments. According to Real Capital Analytics, the building's owners did not make a recent loan payment, and the lender is expected to begin foreclosure proceedings. Says a spokesman for Sterling and Hines: "[We] continue to own and operate the property."

What's striking is how quickly some big commercial deals have gone south. In April 2007, Charney FPG, a New York real estate partnership, paid about $180 million to buy a 22-story office building in Manhattan's Times Square district. It borrowed $202 million to pay for the purchase, renovations, and incidentals—111% financing. Because the rental income didn't cover the debt payments, Comfort's lenders, Wachovia and RBS Greenwich Capital, required the firm to set aside $10 million in reserves to keep the project afloat until it got more paying tenants. Those occupants never materialized, and by July the owners had exhausted 95% of their reserves. The building is now in jeopardy of being seized by the bankers, says Real Capital Analytics' head of research, Dan Fasulo. "Everyone knows Judgment Day is coming." Says a Charney spokesman: "The owners are in the midst of restructuring the debt." Wachovia and RBS declined to comment.

Commercial lending mirrored mortgage lending in another way: Loans were made based on an unshakable belief that the market would never go down. An analysis by research firm REIS of mortgage securities created between 2005 and 2008 found that income projections for properties exceeded their historical performances by an average of 15%. "It was all based on assumption of cash flow," says Howard S. Landsberg of New York-based consultant Weiser Realty Advisors. "If you couldn't afford to pay the bank back now, in three years you could count on another $20 a square foot" in rent. When the numbers didn't add up, some lenders got imaginative. Says a banker at a large Wall Street firm: "If the cash flow wasn't there, you had to ignore it or find ways to create it."

Some lenders may have drummed up business for themselves, enticing borrowers with more money than they needed. Consider Credit Suisse's (CS) $375 million loan to the Yellowstone Club in Big Sky, Mont., one of the starkest examples of poor underwriting in recent memory. Opened in 1999 by Timothy L. Blixseth, a welfare kid turned timber magnate, the private ski and golf club catered to the ultra-wealthy crowd. Microsoft (MSFT) founder Bill Gates and Tour de France champion Greg LeMond built multimillion-dollar vacation homes there. In 2005 a Credit Suisse banker approached Blixseth about a loan, which the banker compared to "a home equity loan," according to bankruptcy court documents. Blixseth initially turned down the offer. But after several calls and a personal visit to Blixseth's home near Palm Springs, Calif., the banker persuaded Blixseth to borrow $375 million in the name of the club. According to court papers, the two decided the transaction fee by coin flip; Blixseth won, agreeing to pay 2%.

"WILD, OUT-OF-CONTROL SPENDING"

But not all of the funds were earmarked for the club. The deal allowed Blixseth to use up to $209 million of the proceeds "for his own personal benefit," according to the bankruptcy court papers. In a civil lawsuit filed by Yellowstone investors and homeowners, the plaintiffs say Blixseth used some of that money to fund a lavish lifestyle, including the purchases of a 20-seat Gulfstream corporate jet, two Rolls-Royce Phantoms, and three Land Rovers. His ex-wife, Edra Denise Blixseth, may have benefited from Credit Suisse's largesse, too. In a legal declaration filed in a Montana court, Timothy Blixseth notes her "wild, out-of-control spending." Among her extravagances, he alleges, was a "divorce celebration party" with "a voodoo doll game whereby the guests could poke pins in a life-size doll in my image to inflict pain on my various body parts." Timothy Blixseth's attorney says his client used the "vast majority" of the funds for business purposes. Blixseth, the attorney says, plowed money into an international expansion plan, including the purchase of "golf and resort properties in Mexico, the Caribbean, and elsewhere," as well as the Gulfstream jet. Edra Blixseth could not be reached for comment.

While Blixseth was busy spending the money, Yellowstone was struggling under the weight of its debt. Vendors often went unpaid for three months or longer, according to bankruptcy court testimony. In November 2008, Yellowstone filed for bankruptcy protection. "The only plausible explanation for Credit Suisse's action is that it was simply driven by the fees it was extracting from the loans it was selling and letting the chips fall where they may," said Ralph B. Kirscher, a federal bankruptcy judge in Helena, in a May court decision. Timothy Blixseth's attorney says the bankruptcy was prompted by his client's divorce proceedings. A spokesman for Credit Suisse says: "We worked on behalf of the institutions that held this loan." (The judge vacated his decision after the bank agreed to settle with Yellowstone's new owners, which include money manager Cross Harbor Capital Partners.)

RED FLAGS GALORE

The banks were hardly the only freewheeling players during the credit boom. The fast-and-easy lending environment was fertile territory for alleged fraudsters. In 2007 Prudential Financial lent $13.9 million to Namir A. Faidi, a Houston developer who planned to use the money to pay off construction loans on Piazza Blanca, a Mediterranean-themed shopping complex in Galveston, Tex. Faidi dipped into the project's reserve fund to make the first loan payment but failed to make any more. After that, Prudential concluded that some of the leases he'd submitted weren't legitimate. According to a civil suit filed in federal court by Prudential, Faidi's loan papers included a signed lease from time-share giant Bluegreen, a purported tenant that would occupy 26% of the space. But when Prudential contacted Bluegreen after the default, it learned it had backed out of talks and never signed a rental agreement.

In court proceedings, a Bluegreen employee said the signatures on the documents weren't his. Another supposed tenant, Mia Group, said in court filings that the lease on file for the restaurant company was invalid because it was signed by a business associate who didn't have authority to do so. "He was a few leases short of what he needed to get the loan," says Andrew F. Spalding, a Houston attorney who is representing Prudential. "I'm sure his thinking was just like that of most other developers: Even if the tenants were fake, he figured he could still fill that space in no time with someone else."

An attorney for Faidi, Robert A. Axelrad, says the disputed lease for Bluegreen was arranged by an outside broker. He acknowledges that the loan application included future rent payments from Bluegreen, but he says the figures were meant to be "pro forma" estimates based on the possibility of Bluegreen occupying the space. "My client says he never saw the lease and never represented there was a lease," says Axelrad. Faidi filed for personal bankruptcy in September. The civil case is ongoing.

Glaring problems that normally would have raised red flags seemed to be in plain sight of loan officers during the credit boom. Phoenix entrepreneur John J. Wanek appeared to have the right credentials when he applied for a $6.5 million loan from Merrill Lynch to buy the Ashberry Village Apartments in 2002. The sprawling ranch-style complex in Columbus, Ohio, would be the latest addition to his small, Midwestern real estate empire. He had never missed a payment on a half-dozen similar properties. And the rent rolls Wanek provided showed that more than 90% of Ashberry's units were occupied. After Wanek defaulted within six months, Merrill concluded that it had been duped. It claimed in a civil suit filed in a Franklin County (Ohio) court that Wanek had altered the rent-roll numbers to make the complex look more profitable. Merrill, which is now owned by Bank of America (BAC), contends that the complex was nearly one-third vacant at the time, and that Wanek had "grossly understated" the operating expenses. According to the suit, Wanek had inflated the numbers to get a bigger-than-necessary loan and used the extra money to cover back payments on other apartment buildings.

Even if the allegations are true, Merrill should have seen the warning signs. According to the suit, after applying for the loan, Wanek told Merrill he would transcribe data from the previous owner's supposedly illegible rent rolls into easier-to-read spreadsheets. In the process, he boosted many figures to suspiciously round numbers. Wanek also overstated his equity in the real estate he posted as collateral and listed some of his parents' assets as his own.

An attorney for Wanek, Mark C. Collins, says his client recreated the rent rolls—with Merrill's approval—only because his office had been burglarized and many records stolen 10 days before closing. "He prepared those numbers as best he could off the top of his memory," says Collins. "The proper due diligence wasn't done by anyone, but they want to make the buyer the scapegoat." Wanek, who filed for bankruptcy shortly before he lost the civil case in January 2006, now faces criminal fraud charges from the Franklin County prosecutor.

All told, Merrill and the lenders on Wanek's other properties have lost $38 million. His parents, two retired schoolteachers, had to file for bankruptcy as well. "Lenders were willing to underwrite on his record and the revenue stream of the property," says David D. Ferguson, an attorney who represented Merrill. "But it was a scheme doomed for failure."

Latest Data and Execs Tell Different Stories for Apartments

By Sule Aygoren Carranza

Obrinsky

WASHINGTON, DC-Despite reports of improvement from industry professionals, it appears that conditions in the greater multifamily market are continuing to deteriorate. The US Department of Commerce's Census Bureau recently announced that the national vacancy rate for rental properties has reached a record high of 11.1%, or 4.59-million units, at the end of the third quarter. That figure is 50 basis points over the second quarter rate and 9.9% higher than Q3 2008.

Of all the housing units in the US, renter-occupied residences accounted for 27.7%. While vacant housing units comprised 14.5% of the country's total housing inventory, units on the market for rent accounted for just 3.5% of the whole. By comparison, the national homeownership vacancy, at 2.6% in Q3, ticked down by 20 basis points over the past year, but remained relatively flat quarter-over-quarter.

Despite the tendency to concentrate apartments around metropolitan centers, the vacancy rate for rental units in major US cities was the same as the vacancy rate across national suburban markets, both at 11.2% in the third quarter. The rate outside of metropolitan statistical areas came in at 10.6%. Regionally, rental properties in the South tended to have the highest vacancies, 14.2% on average, whereas those in the Northeast were the lowest, at 7.5%.

On the revenue side, rents for residential units took a dip along with occupancies. According to the Bureau of Labor Statistics' Consumer Price Index, rental rates declined for the third consecutive month in September, this latest time by 60 basis points, on a seasonally adjusted annual basis.

"Although the magnitude of the decline may not seem like an especially severe indication of weakness in the rental market, any decline in the nominal rent measure is unusual by historical standards," remarks Paul Emrath, assistant vice president of housing policy research for the National Association of Home Builders. Since the index's inception in 1981, he adds, the only other time the CPI rent component showed a monthly decline was in 1992--at least, before July. Adjusted for inflation, that decline brings "real rents" down to 111.3--the lowest the index has been for a year and 1.6 points below the peak reached in May.

Those working in the industry have a rosier view of the market. Senior multifamily executives polled by the National Multi Housing Council for its most recent Quarterly Survey of Apartment Market Conditions indicated that the sector is showing some signs of improvement.

In the case of basic fundamentals such as vacancies and rents, conditions remain weak, but have strengthened between the second and third quarters, with the market tightness index moving up from 20 to 31--based on a scale of 0-100. Although this was the ninth consecutive quarter that the index hit sub-50, it was also the fourth quarter in a row that the level has risen.

What is doing noticeably better was sales and financing activity, concurred those polled. Hitting its highest level in four years, the sales volume index rose from 44 to 59, with 90% of executives reporting that conditions have either remained unchanged or have improved over the prior quarter.

Equity players are back in the market, funneling more cash into the sector. That equity financing index rose from 39 to 58, the highest level in three years, with one-quarter of participants seeing more equity available in the market.

The debt financing index also rose from 39 to 59--its highest level in three years. More than a quarter of executives said it's a better time to borrow money than in June.

"The broad improvements in sales volume and debt and equity financing suggest the transactions market may finally be thawing," says NMHC's chief economist, Mark Obrinsky. "Nearly half of the respondents indicated that the gap between what sellers are asking for and what buyers are offering--the bid-ask spread--has narrowed."

Still, it's not time to celebrate just yet. "The economic headwinds are still strong," Obrinsky warns, "As the job market continues to sag, demand for apartments continues to slip."

Change of be changed

Change or be changed

 

"If the rate of change inside an organization is less that the rate of change outside... their end is in sight". Jack Welch- Former CEO GE

In our efforts to follow the moves of industry leaders I found this excerpt from a Google Investors conference. 

Investing in innovation at Google

Eric (CEO of Google) said during our third quarter earnings call that "innovation is the technological pre-condition for growth." He was talking about the kind of innovation that's only possible when you can attract and retain the world's finest minds. Some come to Google through acquisition, like the people who created Google Earth (formerly Keyhole), or the folks at Android Inc. — but most innovation coming out of Google is homegrown.

A good example is Google Chrome, which in only a year, has more than 30 million active users. Larry and Sergey recently gave the Chrome team a Founders Award, a multimillion-dollar stock bonus shared by the Googlers who worked across functions and regions to create and launch that product. As its name suggests, this award is presented by our founders to celebrate the kind of large-scale, game-changing achievements that Google stands for. The Chrome team joined a long list of teams — including Gmail, AdSense for Content, Google Maps and parts of our sales and marketing units — who have won this award (and could win again!).

We want to continue to create products that rethink industry standards, challenge the status quo and make people's lives easier — and we know that there are great minds out there with the same goal.

At Signature Community, our everyday focus is on helping our company evolve faster than the changing industry.  We are innovating within the company to out pace our competition.  Last month I opened up my email to the ideas of all our employees, residents, vendor and investors; and I received so many great ideas that it was tough to narrow down the highest leverage items.  We did use a very analytical (blind survey) approach to deciding the highest leverage ideas and are now setting up teams to approach the task of researching and executing on these ideas on a company wide basis.  It is this type of teamwork, which allows individuals to be involved in shaping the destiny of Signature Community.

At Signature Community we continually strive to be better than our competition and changing the way we do business is one of the primary ways that we will stay ahead. I thank everyone in the organization who has agreed to help navigate the changes we are making this quarter and I look forward to working with each team to make Signature Community even better.

Thanks for making it happen at Signature Community.

-Nick

 

Be careful What you wish for.

A month ago I asked the entire Signature organization to share ideas they had to make the company better. Boy did I get an earful. Hundreds of ideas were sent to ideas@asignaturecommunity.com. Not just from employees but residents, vendors, lenders and investors. Great ideas shared to make our company better. So now what? Well, its time to execute on those ideas.

First, as promised I am giving awards to the ten best ideas. Those awards will be given on our weekly Signature Community customer service call on Wednesday. The next step is to put the ideas into categories that can be grouped together for execution. Next action is challenging the great people at Signature Community to create teams for researching these ideas over the next 30 days. These teams will be made up solely of volunteers that are willing to put in work towards seeing these projects produce results.

As many of you know I am a big follower of Google and its innovative management ideas. One employee perk that Google has been using, is to allow employees to dedicate one day a week to a pet project. Some of Google's greatest ventures have resulted from this (Gmail, google maps, google chat).

Over the next two months we are going to do the same thing at Signature Community. Once we form our teams to execute on the ideas we will set aside a day a week for each team member to work on their project. We will obviously need everyone to help with this process and it will be one giant team working towards Signature's goal of reducing expenses by 5% company wide.

I am looking forward to setting up these teams over the next few days and personally working with these teams to make Signature even greater than it is today.

Thanks everyone for sharing your ideas and we look forward to implementing each and every one as quickly as possible.

Thanks for making it happen at Signature Community.
Nick

Green shoots in the economy but not helping real estate?

Third quarter earnings coming in above expectations, financial's still up from January levels. Some investment banks with all time high earnings but what is going on with real estate? The problem is that real estate doesn't work like other industries. As a matter of fact it is somewhat counter cyclical to the earnings growth cycles of corporate America. As growth accelerates real estate becomes more in demand and since the supply curve for real estate takes years to adjust (concept to construction completion is typically 5 yrs or more) there is always a lag in supply which creates profits in commercial real estate. Problem is that when the economy changes and demand drop quickly but supply reacts very slowly (look out your window I bet you still see cranes moving out there).

On top of this supply demand misalignment that will last many years to come. Real estate also has the problem of the inflated market due to external circumstances that started deflating quickly last year and will likely remain in deflation mode until all the mess is cleared up between bankers and developers. In the past 5 years the availability of capital has been a tremendous booster to property values. Essentially every real estate owner had a willing buyer for his real estate (a lender) that was paying great prices and had no negative tax implications. Example - developer owns apartment building with $100,000 of rent and lender would underwrite this to $65,000 in annual net income divide that by a 6 cap rate produces a value of $1.08M which the lender would give 80% of as a non-recourse loan netting $866,000 tax free. The alternative for an owner was to sell to someone paying a little less than what the bank valued the property for but after tax consequences the net to the owner was less on a sale then on a refinance. So what did every developer do? They financed as many dollars as they could from the property and looked at it as if they had sold the property. So in essence all the capital available through investment banks as securitzed lending created an artificial supply of buyers. When my company was trying to buy properties the past few years are biggest competition was not other buyers it was lenders knocking on doors and providing more net funds to an owner than we as a buyer were offering.

Well as everyone knows that demand disappeared very quickly in 08 and real estate values are reflecting that now and will be for some time to come. As I hope my example illustrates the economy as it sits right now has no real effect on real estate values and won't for years to come. So how does a real estate company survive in a market like this? Fortunately real estate unlike the stock market is not repriced every day so unless there is a major need for a valuation ( refinance or sale ) today's value doesn't matter much and the key is performance. As a real estate operator today's value is created in running the property as profitably as possible. At Signature Community we have had a single focus mindset on doing just that. Running apartment properties to maximize their operating cash flows. And the results are showing with properties running at higher occupancies than competing properties and working under a lower cost structure than the competition we maximize value in '09 and beyond.

Until Wall Street or China or some other provider of liquidity creates a new source of demand for real estate we will be stuck with lower property values so the only way to survive in 2010 let alone strive is to keep operations strong and profitable.

Thanks for making it happen at Signature.
Nick

Here is a very scary graph.

http://tipstrategies.com/archive/geography-of-jobs/


Nickolas W Jekogian
www.NWJCompanies.com
917 763 3500

Blindsided

On Wednesday evening last week the largest retailer in the world (Walmart) took a direct shot at the core of the largest Internet retailer in the world (Amazon) by drastically reducing prices on the top 200 books sold. The price reduction was a crazy 50% off obviously a loss leader move for Walmart. In press releases Walmart and Amazon have both stated that they will not be undersold in this category and will beat the competitors price which by Friday meant lowering prices by pennies and I think now books that once sold for $20 - $30 are now on sale for $8.99. Great for the consumer right? Maybe or maybe not.

Someone is definitely going to lose this fight and most likely it will be Amazon because they don't have the deep pockets that Walmart does (Walmart can probably give books away for free and still have no significant impact on its balance sheet). This fight is most likely not about books but more about another area of business that Amazon has started in (food, electronics, toys) so the results are likely to be a truce at some point and Amazon quietly backing out of an area that Walmart wants to dominate. This move obviously is not good for the consumers who will ultimately see less competition and higher prices.

What happens to Barnes and Noble, local independent books stores and even writers for that matter. Its going to be a very tough holiday season for book stores while their online competitors (Walmart is only offering this pricing on line) are selling at half what the local stores price is. Some stores will close others will just suffer through it. Barnes and Noble stock price has fallen 15% since last weeks announcement. Writers will likely be paid less advances because the long term margins are being reduced. Amazing the industry changing implications a decision by a few individuals in Arkansas has on the world.

At Signature Community we dealt with this on Sept 15, 2008. When the financials markets went into a tailspin and credit markets froze our industry came to a screeching halt. Deals stopped happening and everything went on hold for more than a year now. The general operating dynamics of our properties really hasn't changed much but the perceived value of our properties has diminished subst antially. Without financing real estate deals don't happen. Or if they do, they are substantially reduced in price. We are dealing with this as an industry and more importantantly as an operating company for the past year and probably for the foreseeable future. We were blindsided just like the book industry.

At Signature Community we have made profitable operations our number one focus. In the Summer we pushed our occupancy rates substantially higher then our competitors and in the fall of 2009 we have beed focused as a company on bringing our property level expense down by 5% which will put us substantially ahead of our competitors. We have garnered hundreds of ideas on cost cutting and efficiency gains at ideas@asignaturecommunity.com. (Please share your ideas today!)

Our industry was blindsided. However, as a company, we are taking advantage of this game changing scenario to make our business better and even grown our brand through acquisitions under a very different financial model.

There are two kinds of companies out there, the ones that stay down after being blindsided and the ones that grow because of it. Signature Community is in the later category and will be growing from the blindside impact.

Thanks for making it happen at Signature Community.
Nick

Riding in the rain

As most of you know I am an ironman level triathlete. This means that in my free time usually before 7am I swim a mile, bike a few hours or run 10 miles. I have dedicated a substantial amount of my free time over the past few years to these endourence events and feel that they help me in running my business. The following is one lesson I have learned in Ironman that equates to success in business or life.

The one thing I have learned and I think the most appropriate for todays economic environment is that an ironman is a long race (2.4 mile swim, 112 bike ride, 26.2 mile run) taking anywhere from 10 to 17 hours to complete. During that long day you will be faced with all kinds of challenges both expected and unexpected, kicked in the face by other swimmers, flat tires, rain, etc. The key to surviving an Ironman is not giving up. It really is that simple.

Business is really the same way. Everyday we are thrown new challenges; unemployment, credit freeze, loan calls, lenders taken over by feds, etc, etc. What makes a company sucessfull in these times is the persistence to keep going. Hit a problem, find a solution, implement, if it doesn't work try another.

When you are running the marathon section of an Ironman you are very tired, incorherent and in a lot of pain. The only thing that keeps you going is small goals. Sometime the most courage you can build up is the ability to get to the next aid station or even the light post 100 feet in front of you. You make that agreement with yourself that you will keep running till you make it there. You make it and then you focus on the next milestone. You do this for 4 hours striaght and somehow you get to the finish line. If you start thinking about the finish line too soon you will not make it. The feat is just too hard to comprehend in that state of mind and pain.

In business today I see the same things. There are so many macro problems with this country, the economy, and the real estate market that if we focus on them we are never going to get to the finish line. So we focus on the milestones (goals) we can visualize and reach quickly ( 90 days out). We set aggressive yet reachable quarterly goals and repeat them to ourselves (the organization) every moment possible. In an Ironman I can often be heard shouting at myself; "Make it to the light post. You can make it happen!" The organization is no different than a delussional runner at mile 135 in an Ironman. It needs to be heard over and over what the goal is and that it can make it.

At Signature Community we are thinking like Ironman competitors. We know we can't control the weather but we can make goals and make it to them. We then set reachable goals the next quarter and accomplish them. Our interim goal us continue this process until we are out of this economic mess. The long term goal of growing our brand will come in time when the opportuties are right but the short and interim goals we are hitting now will set us up well for these growth opportunities that are going to be available.

Thanks for making it happen at Signature Community.
-Nick

Ideas

The potential of the average person is like a huge ocean
unsailed, a new continent unexplored, a world of possibilities waiting to
be released and channeled toward some great good. - Brian Tracy

As leaders our job is to take all the great potential bottled up in our organization, its social network, business network and other great ideas both in and out of the industry and deploy them in a manner that is both economically and politically feasible. As your leader, it is what I have spent most of my adult life trying to master.

How do we gather the great ideas of the organization? Most companies don't even have a process to hear the ideas of their people. Second how do you act on those ideas when everyone has a different idea of where the ship should be going? That's where the art of leadership comes in.

"You can't direct the wind, but you can adjust your sails." - German proverb

In today's economy, the leaders job is not to guess the next change of the wind (predict and prepare), the leader’s job is to create an agile organization that can react to "the winds of change" with the speed of an agile sailing team. A system that promotes team involvement and idea sharing so that the ideas created by people on the front line can be implement quickly at all levels. Any sailor will tell, you can't stay ahead of the wind, but if your team reacts quickly enough to the changing winds you will win the race.

At Signature Community, we set out to create systems in our organization that allow us to work quickly in a changing environment and react to the changing "winds". Our latest advancement in that process is ideas@asigaturecommunity.com. This is our brainstorming site that allows everyone in the organization to share their ideas to help us "Thrive in 2010". The ideas we have seen so far have been amazing. Ideas that could never be thought of in the corporate office in NY. Keep them coming!

We have even opened up our ideas@assignaturecommunity.com idea exchange to our vendors and residents for their ideas on how to make our communities a better place to live and work.

In times where we really have no idea what the immediate future holds it is good to know that we have great people helping us trim our sails to deal with these turbulent times.

Thanks everyone for making it happen at Signature Community and please share your ideas at ideas@asignaturecommunity.com.

Nick

Success Is Contagious

Below is a recent article about the power of friendship and camaraderie in the success of initiatives. Doesn't matter if it’s a diet, sales goal, or chance to stop smoking; the results are significantly better when those around you also subscribe to the same belief. The results in these studies really are astounding. 36% of people are more likely to stop smoking if surrounded by non-smokers, diets are 80% more effective when done with others, and sales increase significantly when groups share results.

Harnessing the power of groups and turning it into successful results is not new but putting research to the results obviously is significant enough to finally make us believe that the buddy system works.

Does it work? Let's look at some results. At our NY headquarters this past weekend 4 people did triathlons and in the past year more than 75% of our office has done one. This is obviously not scientific but still pretty good results.

At Signature Community earlier this year we started having everyone in the organization engage in one common goal for the quarter. Last quarter it was leasing and this quarter it is cost cutting/ income maximization and the results of this group focus have been phenomenal. Our occupancy shot up by 5% nationwide and we are now operating at occupancy rates far above our peer group.

This quarter we are focused on initiatives to reduce expense and increase revenue generating at the company's management level. In just a few days after I briefly mentioned this program to our team I have received a deluge of ideas at our ideas@asignaturecommunity.com email site. I welcome everyone to share their ideas.

As the article states when people work together and have common goals the rewards can be substantial.

Thanks for making it happen!
Nick

http://www.wired.com/medtech/health/magazine/17-10/ff_christakis?currentPage=all

Expect More Rental Homes with Federal Policy Shift

A major federal shift on housing policy will likely increase the number of rental homes and other rental units, making it easier for renters to find a place to live.

Abandoning the home "ownership society" of George W. Bush's presidency, the Obama administration has plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units around the country, including rental homes, according to a recent story in the Boston Globe.
The money would pay for building low-rise rental apartment buildings and town houses, and buy foreclosed homes that can be refurbished and turned into rental homes for low- and moderate-income families at affordable rates.

The ideological shift from Bush's emphasis on encouraging home ownership acknowledges that not everyone can or should own a home. The shift is also a response to skyrocketing foreclosure rates, tight credit and the recession.

The federal Housing and Urban Development Department will still be in the business of helping people buy homes with existing lending subsidies, Carol Galante, HUD's assistant secretary for multifamily housing, told the Globe.

Homeowners who lost their homes to foreclosure are turning into renters themselves, and sometimes renting back their own homes from the bank.

Foreclosure notices nationwide increased 9 percent during the first half of the year, while nationwide vacancy rates for homeowner housing crept up for the second consecutive quarter, the Globe reported.

"People who were owners are going to be renting for a while," said Margery Turner, vice president for research fro The Urban Institute, a Washington think tank that studies social and economic policy.

"There is a housing stock that is sitting vacant. There is a real opportunity here" to use those homes as rental property and solve both problems, Turner said.

President Obama's budget also seeks $1.8 billion for the construction of rental housing, which is the same amount Congress approved last year.

For a list of some of the best cities to rent in, check out this story.

Real Estate: Real Money And Real Problems

Real Estate: Real Money And Real Problems
ALTERNATIVE INVESTING, REAL ESTATE, REITS, ETFS, INVESTING, MORTGAGES, HOUSING
CNBC.com
| 31 Aug 2009 | 02:22 PM ET

The last property Giovanni Isaksen bought to fix up and resell was a “nice house in a nice neighborhood.” An independent real estate investor in the Seattle area, Isaksen and his partner figured they could sell the house for about $850,000, so they budgeted for renovation accordingly.

But the market was strong, and soon it seemed they could sell the house for $899,000, so they decided on more improvements.

“By the time we got to market, people were going crazy,” he says. “Some said we could get $1.2 million.”

In the summer of 2006, the house sold for $920,000—more than they initially expected, but at little or no profit.

“If we had stuck to the original plan, the thing would have sold in a week and we would have ended up in the same or a better financial position,” Isaksen says. “After we backed out the carrying costs, it was within dollars of where we originally planned to be.”

The lesson, he says: “Plan your work and work your plan.”

Real estate is a common means of diversifying a portfolio and hedging against inflation.

“As inflation occurs the value of your property will go up,” says Todd Huettner, president of Huettner Capital, a Denver-based real estate financing brokerage. “Then there’s the financing. You’re borrowing dollars when they’re cheap today and paying them back when they’re worth less.”

But depending on how you get into real estate, it can be a time consuming, complex and (as the recent bust proves) risky proposition.

There are many ways to invest—in properties or funds; in commercial, residential or industrial; in single-family homes or condos. Each strategy has advantages and disadvantages, but experts say there are a few principles that hold true across the board.

First, do your homework. “Don't feel obligated to do the deal if you don't have all the information you need,” advises Gregor Watson, managing partner at McKinley Capital Partners, a $30-million dollar real estate fund in California. “Just because it's free doesn't mean it's a good deal.”

That means examining market dynamics for the segment you’re considering, knowing how financing works, understanding all the aspects of the deal. “If it's outside your area of expertise, hire professionals,” Watson says.

Be skeptical of deals that seem too good to be true.

“Be careful of the real estate agents—they're out to make a sale,” says Marty Sumichrast, an entrepreneur, venture capitalist and real estate investor.

And finally, expect things to go wrong. “What if you had a vacancy and needed a new roof and a water heater, all in 30 days?” Huettner asks. “If you see all the things that could go wrong, you’ll usually end up being okay.”

With those principles in mind, you need to figure out how you want to invest. That choice will depend on your personal and financial goals and predilections.

REITS And ETFS

George Van Dyke, an independent financial consultant in Towson, Maryland, advises his clients to use real estate investment trusts, EITS, and exchange-traded funds, ETFs, to diversify into real estate. The vehicles are fast and easy ways to get into different properties, geographical areas and real estate classes.

“With publicly traded securities you can remain liquid,” he says. “If you can't tolerate the risk, you’re not forced to go and sell a physical piece of real estate, which could take months.”

It’s also relatively simple to limit risk by using a trailing stop loss order, which automatically sells an asset if it drops below a certain predetermined price.

“If the real estate investments we utilize go up for an extended period of time, it is possible to lock in years of gains,” Van Dyke says.

With REITs and ETFs, you don’t have any of the hassles or liabilities that come with being a landlord or a property owner. But some investors are looking to be more hands-on. And, Van Dyke notes, you may be missing out on some money.

“The returns that you would get on a physical piece of real estate would exceed what you would get on a publicly traded security,” he says.

Residential: Single Family

For many, the next step up is investing directly in a property.

“Residential is the easiest and lowest risk,” Huettner says. “You don’t have to have a few million bucks to get involved, and you can get a 20-year fixed-rate loan at a really low rate, putting down 20 or 25 percent.”

The simplest approach is to buy a house or apartment unit to rent, especially since most of us are familiar with home ownership.

“If you're starting in single family, buy in the neighborhood you're working in,” Isaksen suggests. “You’ll know about the area. You’ll be able to get there easily.”

When looking for properties, consider how the home fits into the neighborhood and the current housing market. If a property is dirt cheap, ask yourself why.

“Is it because it's a three-story townhome in suburbia?” Watson says. “Don't just look at price. Make sure the product matches the market.”

Isaksen advises making sure you’re in the middle tier of the neighborhood in terms of size and price.

“You don't want to be the highest end home on the block,” he says. “You don’t want to have to lead the market.”

Keep in mind that single-family homes require hands-on management, and so are difficult to run from afar. Also, make sure you’re okay with being a landlord.

“Some people aren’t cut out for it,” Huettner says. “They don’t feel comfortable telling someone they’re behind on their rent.”

Another potential downside: cash flow is all or nothing. If you lose your tenant, it drops to zero.

Residential: Multifamily

On the other hand, if you have 20 tenants and one moves out, you still have 19 others paying the rent, Isaksen says.

Other pluses of investing in this category: your rentals are all in one location, so there is one lawn to mow and one roof to repair; if the property is large enough—over 80 or so units—you can hire a professional manager.

“Then you're not in the landlording business—you're in the property ownership business,” Isaksen says. “You're not getting called at two in the morning to fix that toilet.”

On the downside multifamily properties are often more expensive than single family homes, and the financing is different.

For one, loans are based on debt service ratios—an assessment of the cash flow rather than an appraisal of the resale value. There are more financing options for loans over $1 million, Huettner says.

Local bank loans will typically be portfolio loans, and be 10- to 15-year fixed rate loans, which means high payments, or 20-year loans with balloon payments.

Commercial

“A lot of the residential investments on the market are foreclosures,” says Tim Grizzle, author of Creating Wealth in a Turbulent Economy, a CPA and a commercial real estate broker, registered investment advisor. “I just don't want that karma.”

Another reason he invests in moderate-sized commercial properties is that the rents are generally higher than with residential properties.

Lending for commercial properties is based on the income the properties produce.

“Generally the income the property produces needs to be 1 1/4 times the debt service,” Grizzle says. Financing can be difficult to obtain these days, but private investor groups are a common option. “Basically you call everybody you know and ask if they know anyone who has money to invest.”

When seeking out potential properties, research local market dynamics—the commercial real estate saw is, “Retail follows rooftops.”

Shari B. Olefson, author of "Foreclosure Nation" and an attorney with Florida-based law firm Fowler White Boggs, suggests strip shopping centers as an investment.

Though retailers are not doing well currently, grocery stores, discount stories and drugstores are.

“Look for a local strip venture that you’re familiar with and has local businesses that people use and need,” she says. Also be aware that they need to be renovated every five to ten years.

But no matter what you’re considering, don’t be afraid to walk—for any reason.

“The best investment decisions are usually the properties that you turn away,” Huettner says. “There will always be other great deals.”

Keep Going

I recently read the attached article in an adventure magazine. I am always interested in hearing the stories of success and failures of adventurers, as I often try to relate them to my life and business. Many of the traits required to climb a mountain, explore the arctic or just finish a challenging race are the same traits that business leaders need to survive in these trying times.

The article simply illustrates that optimism is the number one requirement for success. How can someone survive a 480 mile trek in temps of 60 below without being optimistic. Business is no different. These are trying times for everyone in just about every industry. For those that see these times as a challenging opportunity, to better ourselves and our companies, are the ones the will thrive, not just survive.

Getting Focused
Think Small. When running a marathon, if you focus on mile 26 while at mile 20 you will never see the finish line. You need to think in small steps. Let's make it to mile 21. When there, go for mile 22, when things get really tough aim for the next telephone pole. Step by step is the only way to finish. The business world is no different. People often get distracted by trying to do 20 different things or trying to get everything perfect. You need to think small. Pick one or two short term goals, hit them and then move to the next one. The momentum and sense of accomplishment from hitting these short term wins will propel you and your team to the next one. Before you know it, you've reached your goal and are ready to begin work on new goals.

After action review. What worked, what didn't. Failures can be as valuable as successes. Sure its great to succeed, but with failure your are able to look into yourself and really get a grasp of what your limits are. This is the only way to get better. In business its the same way. Need to fail, but fail fast and cheaply. Learn from the mistakes and rally the organization around the failure to be better equiped next time. If you are a growth company, the failure was likely smaller than some of the future opportunities you will be confronted with. Remember, you have to take risks to succeed and with risk will inevitably come failure.

Celebrate the finish. Doesn't matter if you just finished a walk to the north pole or a 5 mile race. If you worked your hardest you deserve a reward. Doesn't have to be extravagant, just make it special. Maybe a meal at a restaurant you wouldn't typically go to. A movie on a work night. Whatever it is, make a mental connection between the recent success and the reward. Business is no different when you and your team hit a goal, celebrate. Again, keep it simple, but make it special. Ice cream at lunch time, drinks after work, a tailgate party for the local team. It doesn't need to be extravagant, but does need to follow the recent success.

Business life today is about survival and the lessons learned in the Artic cold are usefull. Keep up your optimism, focus on the task at hand, shoot for small wins, evaluate failures, celebrate wins.

At Signature Community we have been in an Artic environment for the past 12 months, but we are making the most of it. We are optomistic that we will make it out stronger than before. We have focused our attention on the items that we can control (occupancy rates, customer satisfaction, cost controls) and not dwelling on the unknows (global economic distress), we shoot for short term wins ( 97% occupancy, acting with urgency, manager empowerment) not confusing long term ideas, we fail and learn from our failures, we celebrate our wins, and we will not stop until the finish line.

No More Bad Days
http://adventure.nationalgeographic.com/2009/08/performance-bright-side-andrew-tilin-text

Thanks for making it happen.
Nick

You Made it Happen!!

You made it happen!!!
97 % Occupancy for Signature Community!!!

Richmond, V A = 0% vacant market=10%
Albuquerque = 2.2% vacant market = 9%
Philadelphia = 1.35% vacant market = 5/7%
Kansas City = 5% vacant market = 9%
Indianapolis = 6% vacant market =10%
EL Paso = 9% vacant
we started at 30% vacant occupancy 4 months ago

Real Estate companies nationwide are at a 90% occupancy level Signature Community is at 97%!

Great job everyone

The Opportunity Revealed

We are continually presented with great opportunities, brilliantly disguised as (un)solvable problems.

Modified quote from Lee Iacocca, Business Leader

Job loss, deficit spending, unexpected capital expenditures, loan capital calls, lawsuits, more lawsuits, higher market vacancies, bad credit reports, midnight move-outs, a fire, another fire, foreclosure threats, higher taxes, insurance company fights, escrow release restrictions, lower appraisals, lender re-negotiations what a year we've had.

Can't say that its been fun, but I have to admit, it has been educational for me and our leadership team. Two years ago, none of these problems were on our radar screen. Now we deal we these items every day and have been very successful in solving most of them.
In 2007 it seemed like the only issue in real estate, was to see how fast you could refinance into a higher leverage loan and how much cash can come out of it. Today its the opposite. How much cash do you need to put in to keep the thing afloat. How much more will be needed if things get worse or when the loan comes due. We now live in very different times than 2007. For the real estate industry as well as many other industries, this is a time of major adjustments.

The positive: Over the past year, we have learned things in our business, that will allow us to be a much more sustainable company for the future. No more borrowing to survive. Today, it comes down to operating profitably.

It seems like every industry is adjusting to this new reality. And I expect that this reality will be the norm for quite some time to come, possibly decades.

At Signature Community we have taken the past 12 months to stay focused on one goal - profitable operations. Coming off of some expensive years, this was a very big goal. Our company was staffed for growth (which had been put on hold by the economy) and had a good deal of inefficiencies and overlap in the operations. Over the past 12 months we cut down expenses, reduced redundant positions, slashed our corporate overhead and substantially changed our reporting structure. The results are nothing short of amazing. (An unfortunate testament to the slow, jobless economic recovery). Our manager in the past would fill out a couple page form each week, that would be reviewed by the asset management dept. Now the managers engage in a DAILY huddle with their region and discuss what is going on DAILY. Regionals then get on a call with corporate and filter up the information. The process is daily, its collaborative, interactive and very effective. You may ask - "Show me the money?". The results speak for themselves. Our company wide occupancy on September 1st 09 is 97% -- 6% points above the national average and in some markets we are leading the average by more than 10% points. Our gross collections overall are 2% higher than in 08 (not bad in a down year). And our resident retention rates are almost 15-20% points higher than the industry.

At the end of the day it's pretty simple, empower good people to consistently hit a few common goals at a time, while always keeping the customer in mind. We did it last quarter through consolidation, standardization and maximizing of operating efficiencies.

Thanks everyone at Signature Community for making it happen and continuing to make our communities better than the rest.

The New American Dream: Renting

http://online.wsj.com/article/SB10001424052970204409904574350432677038184.html

By THOMAS J. SUGRUE

Suburban sprawl in Placer County, Calif.

'A man is not a whole and complete man," wrote Walt Whitman, "unless he owns a house and the ground it stands on." America's lesser bards sang of "my old Kentucky Home" and "Home Sweet Home," leading no less than that great critic Herbert Hoover to declaim that their ballads "were not written about tenements or apartments…they never sing about a pile of rent receipts." To own a home is to be American. To rent is to be something less.

Every generation has offered its own version of the claim that owner-occupied homes are the nation's saving grace. During the Cold War, home ownership was moral armor, protecting America from dangerous outside influences. "No man who owns his own house and lot can be a Communist," proclaimed builder William Levitt. With no more reds hiding under the beds, Bill Clinton launched National Homeownership Day in 1995, offering a new rationale about personal responsibility. "You want to reinforce family values in America, encourage two-parent households, get people to stay home?" he said. George W. Bush similarly pledged his commitment to "an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, 'welcome to my house, welcome to my piece of property.'"

Surveys show that Americans buy into our gauzy platitudes about the character-building qualities of home ownership—at least those who still own them. A February Pew survey reported that nine out of 10 homeowners viewed their homes as a "comfort" in their lives. But for millions of Americans at risk of foreclosure, the home has become something else altogether: the source of panic and despair. Those emotions were on full display last week, when an estimated 53,000 people packed the Save the Dream fair at Atlanta's World Congress Center. Its planners, with the support of the Department of Housing and Urban Development, brought together struggling homeowners, housing counselors, and lenders, including industry giants Bank of America and Citigroup, to renegotiate at-risk mortgages. Georgia's housing market has been devastated by the current economic crisis—6,605 homes in the Peachtree state went into foreclosure in May and June alone.

Atlanta represents the current housing crisis in microcosm. Since the second quarter of 2006, housing values across the United States have fallen by one third. Over a million homes were lost to foreclosure nationwide in 2008, as homeowners struggled to meet payments. The number of foreclosures reached an all-time record last month—when owners of one in every 355 houses in the country received default or auction notices or were seized by creditors. The collapse in confidence in securitized, high-risk mortgages has also devastated some of the nation's largest banks and lenders. The home financing giant Fannie Mae alone held an estimated $230 billion in toxic assets. Even if there are signs of hope on the horizon (home prices ticked upward by 0.5% in May and new housing starts rose in June), analysts like Yale's Robert Shiller expect that housing prices will remain level for the next five years. Many economists, like the Wharton School's Joseph Gyourko, are beginning to make the case that public policies should encourage renting, or at least put it on a level playing field with home ownership. A June 2009 survey commissioned by the National Foundation for Credit Counseling, found a deep-seated pessimism about home ownership, suggesting that even if renting doesn't yet have cachet, it's the only choice left for those who have been burned by the housing market. One third of respondents don't believe that they will ever be able to own a home. And 42% of those who once purchased a home, but don't own one now, believe that they'll never own one again.

A family house-hunting

Some countries—such as Spain and Italy—have higher rates of home ownership than the U.S., but there, homes are often purchased with the support of extended families and are places to settle for the long term, not to flip to eager buyers or trade up for a McMansion. In France, Germany, and Switzerland, renting is more common than purchasing. There, most people invest their earnings in the stock market or squirrel it away in savings accounts. In those countries, whether you are a renter or an owner, houses have use value, not exchange value.

For most Americans, until the recent past, home ownership was a dream and the pile of rent receipts was the reality. From 1900, when the census first started gathering data on home ownership, through 1940, fewer than half of all Americans owned their own homes. Home ownership rates actually fell in three of the first four decades of the 20th century. But from that point on forward (with the exception of the 1980s, when interest rates were staggeringly high), the percentage of Americans living in owner-occupied homes marched steadily upward. Today more than two-thirds of Americans own their own homes. Among whites, more than 75% are homeowners today.

Yet the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation.

We are a nation of homeowners and home-speculators because of Uncle Sam.

It wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and, in a little noticed provision in the 1913 federal tax code, allowing for the deduction of home mortgage interest payments.

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words "keep out of debt" or "pay as you go" appeared in countless advice books. As the YMCA told its young charges, "If you can't pay, don't buy. Go without. Keep on going without." Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn't lose its sweetness because someone else held the title.

In any case, mortgages were hard to come by. Lenders typically required 50% or more of the purchase price as a down payment. Interest rates were high and terms were short, usually just three to five years. In 1920, John Taylor Boyd Jr., an expert on real-estate finance, lamented that "increasing numbers of our people are finding home ownership too burdensome to attempt." As a result, there were two kinds of homeowners in the United States: working-class folks who built their own houses because they couldn't afford mortgages and the wealthy, who usually paid for their places outright. Even many of the richest rented—because they had better places to invest than in the volatile housing market.

The Depression turned everything on its head. Between 1928, the last year of the boom, and 1933, new housing starts fell by 95%. Half of all mortgages were in default. To shore up the market, Herbert Hoover signed the Federal Home Loan Bank Act in 1932, laying the groundwork for massive federal intervention in the housing market. In 1933, as one of the signature programs of his first 100 days, Frankin Roosevelt created the Home Owners' Loan Corporation to provide low interest loans to help out foreclosed home owners. In 1934, F.D.R. created the Federal Housing Administration, which set standards for home construction, instituted 25- and 30-year mortgages, and cut interest rates. And in 1938, his administration created the Federal National Mortgage Association (Fannie Mae) which created the secondary market in mortgages. In 1944, the federal government extended generous mortgage assistance to returning veterans, most of whom could not have otherwise afforded a house. Together, these innovations had epochal consequences.

Easy credit, underwritten by federal housing programs, boosted the rates of home ownership quickly. By 1950, 55% of Americans had a place they could call their own. By 1970, the figure had risen to 63%. It was now cheaper to buy than to rent. Federal intervention also unleashed vast amounts of capital that turned home construction and real estate into critical economic sectors. By the late 1950s, for the first time, the census bureau began collecting data on new housing starts—which became a leading indicator of the nation's economic vitality.

It's a story riddled with irony—for at the same time that Uncle Sam brought the dream of home ownership to reality—he kept his role mostly hidden, except to the army banking, real-estate and construction lobbyists who rose to protect their industries' newfound gains Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever. The only housing programs prominently associated with Washington's policy makers were underfunded, unpopular public housing projects. Chicago's bleak, soulless Robert Taylor Homes and their ilk—not New York's vast Levittown or California's sprawling Lakewood—became the symbol of big government.

Federal housing policies changed the whole landscape of America, creating the sprawlscapes that we now call home, and in the process, gutting inner cities, whose residents, until the civil rights legislation of 1968, were largely excluded from federally backed mortgage programs. Of new housing today, 80% is built in suburbs—the direct legacy of federal policies that favored outlying areas rather than the rehabilitation of city centers. It seemed that segregation was just the natural working of the free market, the result of the sum of countless individual choices about where to live. But the houses were single—and their residents white—because of the invisible hand of government.

But by the 1960s and 1970s, those who had been excluded from the postwar housing boom demanded their own piece of the action—and slowly got it. The newly created Department of Housing and Urban Development expanded home ownership programs for excluded minorities; the 1976 Community Reinvestment Act forced banks to channel resources to underserved neighborhoods; and activists successfully pushed Fannie Mae to underwrite loans to home buyers once considered too risky for conventional loans. Minority home ownership rates crept upward—though they still remained far behind whites. Even at the peak of the most recent real-estate bubble, just under 50% of blacks and Latinos owned their own homes. It's unlikely that minority home ownership rates will rise again for a while. In the last boom year, 2006, almost 53% of blacks and more than 47% of Hispanics assumed subprime mortgages, compared to only 26% of whites. One in 10 black homeowners is likely to face foreclosure proceedings, compared to only one in 25 whites.

During the wild late 1990s and the first years of the new century, the dream of home ownership turned hallucinogenic. The home financing industry—at the impetus of the Clinton and Bush administrations—engaged in the biggest promotion of home ownership in decades. Both pushed for public-private partnerships, with HUD and the government-supported financiers like Fannie Mae serving as the mostly silent partners in a rapidly metastasizing mortgage market. New tools, including the securitization of mortgages and subprime lending, made it possible for more Americans than ever to live the dream or to gamble that someone else would pay them more to make their own dream come true. Anyone could be an investor, anyone could get rich. The notion of home-as-haven, already weak, grew even more and more removed from the notion of home-as-jackpot.

And that brings us back to those desperate homeowners who gathered at Atlanta's convention center, having lost their investments, abruptly woken up from the dream of trouble-free home ownership and endless returns on their few percent down. They spent hours lined up in the hot sun, some sobbing, others nervously reading the fine print on their adjustable rate mortgage forms for the first time, wondering if their house is the next to go on the auction block. If there's one lesson from the real-estate bust of the last few years, it might be time to downsize the dream, to make it a little more realistic. James Truslow Adams, the historian who coined the phrase "the American dream," one that he defined as "a better, richer, and happier life for all our citizens of every rank" also offered a prescient commentary in the midst of the Great Depression. "That dream," he wrote in 1933, "has always meant more than the accumulation of material goods." Home should be a place to build a household and a life, a respite from the heartless world, not a pot of gold.
—Thomas J. Sugrue is Kahn professor of history and sociology at the University of Pennsylvania. He is writing a history of real estate in modern America.

Corrections & Amplifications:
Home mortgage lenders acquired 6,605 properties in Georgia through foreclosure in May and June 2009, according to RealtyTrac, a real estate data provider. An earlier version of this essay incorrectly said 338,411 homes went into foreclosure in Georgia in May and June.