Real Estate Downturn Will Create 360,000 New Jobs

Many of the challenges we face in the real estate sector are merely a repeat of what we experienced in the late 80s. What no one is talking about is the tremendous opportunity we have to create over 360,000 new jobs in our struggling economy over the next 12 to 18 months.The domestic real estate industry represents $1.6 Trillion or 8.5% of the U.S.’s Gross Domestic Product. The global capital crisis is impacting all aspects of the real estate market including brokerage, development, asset management, lending, and the countless support industries to the real estate sector.Background InformationAs background, during the early 1980s, Congress granted the Savings and Loan (S&L) industry new powers. Among others, these powers included lower reserve requirements and the ability to expand lending products and invest in real estate ventures. It wasn’t long before Congress corrected this mistake and tightened regulations, but for many S&Ls, it was too late. In 1989, the Federal Government had to step in and bail out the S&Ls by forming the Resolution Trust Corporation (“RTC”). The RTC was charged with liquidating these financial institutions and disposing of failed real estate assets and mortgages from the S&L industry. By the time it all came to an end in 1995, 1,043 Institutions with more than $402 Billion in assets (much of it in commercial real estate loans) failed. This cost the United States taxpayer more than $153 Billion.During the bailout, the Federal Government spent over $400 Million in administrative costs that were not billed back to individual receiverships. According to the GAO, those bill-backs plus the administrative costs totaled over $87.9 Billion. Data is not available on specific breakdowns, but it is reasonable to assume that these bill-backs included all kinds of service fees to vendors including lawyers, property managers, brokers, and countless vendors supporting the property disposal activities.What we are experiencing today makes the S&L crisis pale by comparison. Guarantees and cash payments by the Federal Government now exceed $7.5 Trillion. So far in 2009, 45 financial institutions are now in the hands of the FDIC with assets exceeding $11.94 Billion as compared to 2008 where 25 banks failed with over $17 Billion in assets. Another 114 financial institutions have taken TARP money totaling over $168 Billion more. It has been estimated that hundreds of additional banks will fail over the next 12-18 months.At the same time, both commercial and residential real estate values continue to fall in many markets around the country. CAP rates in many markets for high quality investment product are up over 300 bps from levels of just six months ago. This increase alone wipes out any equity from commercial borrowers utilizing traditional leverage ratios. Coupling this fact with plunging tenant demand and falling lease rates means that even high quality real estate assets are in trouble.In the current real estate downturn, it is likely that commercial loan failures will follow a similar pattern as to the residential failures we are already seeing. Unlike the 1980s though, it is expected that the magnitude of failures we are anticipating will dwarf what we experienced during the RTC bailout.Although many lenders still have performing loans in terms of debt service payments, it is likely that many will find that their borrowers are in violation of loan covenants due to declining real estate values. How these lenders treat these activities on the commercial side remain to be seen. Federal regulations dictate that when a loan is in default, lenders must set aside cash reserve at substantially higher levels. With cash in short supply, lenders will be challenged with developing a strategy that may include utilizing TARP funds.OpportunityAfter researching past history and integrating current challenges, we believe that the opportunity exists to generate over 360,000 direct and indirect jobs to deal with the disposition of problem loans on both the commercial and residential side during this down cycle. These new job estimates are supported by the over $42 Billion in estimated fees that will be paid for services required to work through the problem loans and assets that will be paid for services required to work through the problem loans and assets that we anticipate will be coming back to financial institutions.Direct jobs are estimated to total over 145,000. Many of these jobs are high paying – including advisory, legal, property and asset management, appraisal, underwriting, and numerous other real estate-related jobs. Additionally, utilizing real estate industry multipliers, it is believed that another 210,000 jobs can be created that benefit from the spending generated by the direct job sector. These jobs include countless categories occupied by people who provide goods and services to the new consumers that the primary sector jobs will create.It is not known exactly how many jobs were created during the RTC crisis. We can only surmise by reviewing the available government data that a large portion of the $87.6 Billion in RTC administrative costs related to industry jobs. With the Trillions of dollars in hard cash outlays and government guarantees, it is difficult to imagine that the size of the real estate challenges will not be substantially larger than during the S&L crisis. Therefore, we feel our assumptions are likely conservative.Our hope this time, is that the Federal Government takes a different approach to disposing of the real estate assets that will be coming back to the lenders. Rather than creating new government entities and jobs to work through troubled assets (FDIC and a potential new government agency), it appears to make much more sense to take advantage of an experienced and existing distribution network (our existing banking systems) specifically those who have received TARP funding.As taxpayers we have already invested in TARP funds to banks plus the takeover costs of over 70 financial institutions in the last two years alone. With an estimated investment exceeding $200 Billion, It seems to make sense to utilize, that infrastructure, to work through the problem loans and assets. The $42 Billion in estimated fees will go a long way to stabilizing these banks and helping them repay some or all of the debt they have borrowed from the American taxpayer.Some may believe that Government has all the answers. But, there are many others who have faith in the ingenuity of American business and the entrepreneurs that are out there, working every day, creating private sector jobs. A wonderful opportunity exists for the Federal Government to take advantage of our existing real estate and banking infrastructure to put countless people back to work.

Budgeting – What It Is and Why You Need It

Most of us have probably heard the word “budgeting” for thousands if not millions of times in our lives, yet a lot us still asks “What is Budgeting?” First of all, the word budgeting has the root word budget. And budget came from an old French word bougette, which means purse. Based on its etymology, budgeting has everything that has to do with money. And since the purse is used to keep and hold money, then budgeting has the very same duty to hold and keep money.However, if you are still wondering what is budgeting exactly, then prepare to have a rather more in depth definition in the modern times. In its most basic form, budgeting is the act of planning for all expenses. Starting from the moment that the money comes in to the very moment that it exits, the flow should be thoroughly planned. The purpose of budgeting in every person’s life is to create a concrete assessment of all financial matters. For example, if you are earning a $1000 every week, you should divide this money for all your needs. You should have an allowance for your food expenses, for your household bills, for your transportation and communication bills, etc.There are many types of budgeting, but the most common ones are those that are used by individuals and simple households. The main reasons why people adapt a specific budget plan are so that they could avoid a lot of financial problems and for them to be able to have a good flow of money. Let’s take an ordinary household for example. If they do not plan for their budget, they will eventually spend all their money down to the last penny. And when an emergency situation arouses, they will not have anything to spare. So they will simply take the action of borrowing money from a loaner. But loaners have interests on their money, so the family will have to pay so much more that what they borrowed.As to what is budgeting exactly, it will all depend on how you adapt it to your own life. You can choose it to be your guideline for your regular expenses, or it could be your disciplinary partner that will help you straighten your reckless and wanton spending. Whatever it might be, I hope you now understand what is budgeting and what role in could play in your life.

Happiness Isn’t a Blessing, It’s a Choice

If we count our blessings, happiness is definitely in there. But, many things are considered a blessing. Like fame and good fortune, as well as a happy family. Blessings are good things in our lives. Things that make us feel good about life. But as much as happiness makes us feel good, it is a choice we make.You can take two people, put them in the same situation and one will be happy with where they are or what happens. Yet the other will be sad or concerned that things may not turn out well. A lot of which is based on personal experience. The choices each will make or the results one expects whenever they find themselves in a tough situation.We cannot rule out genetics either. The way we look at things is ingrained into our genetic make up. Although we can learn to compensate for our genetic responses we are likely to have to work at it for most of our lives. Unfortunately, having happy parents does not insure that you will have a happy disposition. Because it can be passed on invisibly, your parents parents can be responsible for your disposition.As I said, you can learn to compensate for habits or behaviours that interfere with your happiness. Sometimes it takes an outsider to help you see those areas in your life where your thinking may be flawed. This is why there are life coaches and counsellors. They are trained to help you learn where you can improve your life and compensate for things that may be keeping your from being truly happy. So as much as our character affects our ability to be happy. In many ways happiness is a choice.We need to remember that truly successful people tend to be happy. Happy with their lives, the choices they make, and themselves. For some of them it comes naturally. For others it is the result of a lot of work. In either case, in many cases, happiness is a choice. A choice they make because they know that being happy allows them to make better decisions. Those decisions means happier results and more success.So is happiness a blessing. For many people it is, because they find it hard to be happy. For others it is not, because they find it easier to be happy. But in either case happiness is generally a choice. Because happiness is a relative idea. For a person with nothing one thousand dollars can mean happiness. For a millionaire one thousand dollars, not so much.But another person with nothing could look at that same thousand dollars and become upset because now they have to decide what to spend it on. Or whether to spend it at all. After all if they spend it they won’t have one thousand dollars anymore. Then they will be back to having nothing. Then they will never get another thousand because of how they wasted this thousand dollars.They have made a choice to worry about having one thousand dollars instead of being happy that they have it. Worry was their choice, it could have been happiness, or excitement. Each is a choice that could be made. Mostly based on their genetic makeup. But they can learn to focus on happiness regardless of what their natural reaction would be.So learn to make happiness your choice. If you find that difficult, you may want to consider getting the help of a coach or counsellor to get your life on track and focused on success and happiness.

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