Case Study: A Green use for urban infill

Bruce Monroe pre-demolition

Could this  ↑ Become This  ↓

Sure!

It would just take some thought, planning, and community willpower. A bit of quick background: The Bruce Monroe school on Georgia Avenue and Irving Street in Washington DC was originally slated to be replaced with a mixed-use project containing residential units, retail, and a new school. Unfortunately, the guys from Bear and Lehman and Countrywide went off and did some not so nice things with other people’s money and broke the financial system. Thus, there’s no real money around to get the project off the ground. So the DC government, under the auspices of the DMPED (Deputy Mayor for Planning and Economic Development) and the OP (Office of Planning) are working on a “temporary use” for the site. Temporary means somewhere in the neighborhood of five years, most likely. So far, a parking lot was proposed and quickly shouted down, and as of today, my understanding is that there will definitely be two basketball courts, a tennis court, landscaped gardens, and a playground. The next need is for indoor, heated space. The conventional approach, of course, would be to drop one of these bad boys on the site:

Sexy, no?

If a standard trailer won’t draw excited throngs of visitors onto a site in an area DCMUD describes as desperate for thoughtful development, then I don’t know what will. Don’t get me wrong, there’s a reason you see these things on every undeveloped site in the country. They’re cheap, readily available, and don’t require a lot of thought or effort to get one planted. The problem, of course, is that they add little value to a site like Bruce Monroe.

prefab cabin

Truck it in, truck it out

Imagine all these visitors coming to GA ave. Paying for parking, supporting local restaurants down the street, staying to catch a show at the Lincoln Theatre...

Certainly not like something like this would, at least. Having a green prefabricated structure on the site would promote a number of initiatives the community, the city, and neighboring business owners want. So here’s a concept I came up with that I think is eminently feasible and will reap excellent rewards for all stakeholders.

Green Incubator Proposal for Bruce Monroe Site

• Reuse the site as a technology showcase/ DC Green incubator
• Place prefab houses on the site as both showhouses for green technology and office/sales space
• Use buildings could as a showoom for retailers such as Greater Goods, Eco-Green Living,
Community Forklift, and a sales office for service providers such as DC Greenworks
• Place DDOE Employees onsite to assist homeowners with green renovation
• Install rain gardens/rain barrels on the site

rain barrels

• Create a dropoff point for Recyclable construction materials

Advantages for the site:

• Structures built off-site can be delivered and finished within several months as opposed to years
• Much more attractive, activated, and safe than a standard trailer
• Structures can easily be removed once permanent use for the site is found.
• Museum of Modern Art in NY held wildly popular similar exhibit in 2008

Advantages for the community

• Local youth can be employed in the finish work, button-up, and maintenance, learning valuable skills and earning money.
• Creates a Destination on Georgia Avenue and will improve rather than detract from neighboring property values. (Think how many people read Dwell and want to move to a more sustainable lifestyle).
• Presence of structures and people (employees, visitors, etc.) prevents blight and transforms impression of Georgia Avenue.

Advantages for the city

• Creates economic opportunity and sales tax/lease revenue from Prefab homebuilders, retailers, employees, and parking.
• Attracts visitors from MD/VA and surrounding region interested in sustainability.
• Promotes image of DC as a green city and encourages sustainable practices by residents.
• Project could be incorporated with DDOE/SYEP Green Summer Program.

Green Summer Employees mulching trees back in 2008

Think this is an awesome idea? Good. Lobby Ward 1 Councilmember Jim Graham’s office at 202.724.7774 (they’re already looking at this and are supportive, but the more voices, the better).  Call the Deputy Mayor’s office too(Specifically Andre Byers at (202) 724-7210). And if you, or someone you know would like to be involved in providing the structures, building them, or providing expertise, call me!

Faraji Whalen,
President, Five Wide LLC
202.487.9565
Fwhalen@alum.mit.edu

http://www.5wide.com

Container house made from recycled shipping containers

Addendum: The Case for Retail

Effective Retail is great for neighborhoods. It can provide jobs, services, additional security, and in many neighborhoods, a compelling identity. These days, retail bays can also provide a bunch of empty storefronts and desperate brokerage signs. But let’s focus on the positive. Think Georgetown’s strip of clothing stores, boutiques, and salons

M Street in Georgetown

or U Street’s vibrant mix of furniture stores, thrift shops, and bars:

U Street

Now, I’m not naive enough to think that we can turn Georgia Avenue into Georgetown or U Street overnight, or  frankly, that we’d want to. Those neighborhoods have a particular niche, as well as their own particular issues, particularly regarding housing affordability. What I do believe to be a great opportunity however, is the potential use of the Bruce Monroe site as a retail incubator in the same way Los Angeles and London have been successful in pairing with retailers and artists to fill vacant retail with pop shops: creative exhibits, art spaces, and showrooms.

Solar-powered KiosKiosk Pop-up shop

Since the BM site will be without permanent structures for at least 3-5 years, there’s a great opportunity there to create revenue both for businesses and the city by creating an attractive green temporary retail destination on the site. The Georgia Avenue facing side of the site is already zoned for commercial, and there is already a precedent for the construction of temporary retail: Voila Puma!

Puma's collapsible container city

This interesting creature is made of  24 recycled shipping containers and took two weeks and roughly 6000 person hours to build with disassembly taking 3-5 days. Once it is no longer needed on a site, it can be shipped off to the next location.

Away we go

The shopping experience

Given the overall green theme of the proposed project,  A consolidated retail outlet made of shipping containers or other similarly portable structures would be a great draw for the neighborhood. Yes, there’s tons of vacant retail on Georgia Avenue, you’re saying. Why add to the inventory?

Well, here’s the thing.

• By creating a single point for complementary green retail (Greater Goods, Eco-Green Living, Community Forklift, and, say, DC Greenworks) you create a destination point for people interested in purchasing green building supplies, construction items, etc. (Externality, for economics nerds).
• The site creates revenue for the city from rent, jobs for local residents, and opportunities for existing small businesses.
• The site becomes much safer, as foot traffic from employees, customers, and visitors keeps the site activated and discourages malfeasance.
• If you build it, they will come. And once you disassemble it, five years from now, you’ll have a precedent for whatever new retail will go into the proposed mixed-use site that will permanently sit on the site.

Think this is an awesome idea? Good. Lobby Ward 1 Councilmember Jim Graham’s office at 202.724.7774 (they’re already looking at this and are supportive, but the more voices, the better).  Call the Deputy Mayor’s office too(Specifically Andre Byers at (202) 724-7210). And if you, or someone you know would like to be involved in providing the structures, building them, or providing expertise, call me!

Faraji Whalen,
President, Five Wide LLC
202.487.9565
Fwhalen@alum.mit.edu

http://www.5wide.com

Why 2010 is the year for opportunity in real estate.

My old Econ professor

Bill Wheaton Professor, MIT Department of Economics
In the last few years, Professor Wheaton has been actively applying economic research to the real estate industry. He helped organize the MIT Center for Real Estate, and teaches the program’s core course in Real Estate Economics.

Why 2010 is the year for opportunity in real estate.

As we look at the real estate landscape, becoming more and more littered with delinquent, defaulted and foreclosed properties, it’s appropriate to realize that this year, more than almost any other is the year of opportunity. The fiscal crisis has both created and made us aware of a host of real estate opportunities – here are two that come to my mind:

First, in the US 2010 is much like 1990. The causes of these two real estate depressions are different, but the end result will be the same. When real estate is down it eventually comes back and those who realize this will wind up owning those who do not. Just look out 5-8 years after 1990. Re-capitalized funds increased many fold in value, debt sold off for a fraction of its par value rebounded, new forms of debt and equity emerged. 1990 was a time of great opportunity and so is 2010.

Secondly, the current crisis originated in the US and was largely the result of US financial mis-behavior. The post-postmortems are revealing that the US is not as wise and powerful as we often think, and that the rest of the world is gaining market share in many dimensions. Those gaining are a set of emerging markets that are a) big and populous, b). have saving rates many times ours, and c). have developed mixed political economies in which the power of capitalism has been unleashed but balanced against the role of a beneficent state. In this new economic paradigm these economies are helping to lead the global recovery rather than waiting for the US to drag everyone up by their heels. The opportunity is to participate in the emergence of these emerging markets.

At MIT, the Center for Real Estate (CRE) has seen much of this before. In 1990, we developed special courses in “workouts and restructuring”, and a few years later we were the first real estate program to see the potential of the emerging markets. As we look to 2010 and beyond, the Center has not forgotten these lessons and our professional programs are poised to help those who wish to capitalize on them.

Understanding the economic fundamentals of real estate markets is crucial for making prudent decisions about investment, management, or development. On June 10-11, 2010, MIT/Center for Real Estate’s Professional Development Institute will be offering a 2-day course on Real Estate Markets: Location, Product, & Timing.  The class is taught by William Wheaton, who helped to develop the field of urban economics and is the first economist to apply econometric methods to the forecasting of real estate markets.

To register, get more information on Real Estate Markets: Location, Product, & Timing, or to view all of CRE’s professional development offerings, please visit: The MIT PDI

New York Economic Development Commission Openings

List of positions here This particular program is probably of interest to those of you who ar erecent graduates or will be graduating from an MBA or real estate development program this year: *PROJECT MANAGEMENT PROGRAM*
Location:	New York, NY
Job Code:	216
# of openings:	3
Description
Are you passionate about New York City? Do you want to be a part of a company that is involved with the economic development of one of the greatest cities in the world? This is your opportunity to help New York City evolve. Overview NYCEDC provides a range of services to the City including large scale redevelopment planning, strategic planning, asset management, capital construction, and valuation and analysis of a variety of City contributions to private development. Each project is managed by a team of professionals that may have expertise in the following areas: real estate development, finance, planning, budget, construction and legal services. NYCEDC provides its project staff with the opportunity for hands-on experience in the management and execution of complex, high profile projects involving the City as well as interaction and negotiation with global businesses. In addition to interaction with private sector professionals and a variety of agencies and departments of the City and City Hall; NYCEDC is committed to providing intensive training and fostering the career development of its staff. Job Summary A highly competitive two-year program, the NYCEDC Project Management Program offers unique exposure to our different disciplines and departments. Program participants join NYCEDC as Project Managers or Senior Project Managers and rotate between three departments over a two year period. Core skills training may include finance, real estate, negotiation, presentation, and general project management, all designed to prepare NYCEDC Project Managers to work effectively across several departments. Specific responsibilities will vary by rotation, but may involve real estaurban planning, public realm development, infrastructure planning (maritime, rail), real estate development and citywide economic policy. Qualifications Bachelor’s degree or recent Master’s graduate (Master’s degree in urban planning, real estate, public policy, public administration, and/or business administration) Outstanding academic record Excellent communication skills (written and verbal) Strong analytical skills Detail oriented Have a pro-active, collaborative, and strategic mindset Strong problem solving skills Ability to look at the big picture and search for insightful, creative solutions to economic development challenges Demonstrated quantitative skills (especially experience using Microsoft Excel and/or the ability to build financial models) New York City residence is required within 180 days of hire About NYCEDC The New York City Economic Development Corporation is an Equal Opportunity Employer. NYCEDC offers excellent benefits, including company-paid 401 (a) pension plan and a 403(b) tax-advantaged retirement savings plans, medical, dental and vision benefits, and tuition reimbursement. Application Process Applications are now being received for the 2010 Project Management Program. The program will commence in July 2010.

Bruce Ratner: Villain extraordinaire?

“What at first seemed to me impressive on a clinical level—a developer’s savvy use of state-of-the-art political tactics—ends up being, on closer inspection, truly chilling.”

An interesting look at the political, neighborhood, and racial/socio-economic angles of modern urban development, this time in the context of the Atlantic Yards project, Forest City Ratner‘s mega-development which will bring the Nets back to Brooklyn and is notable for having Jay-Z as an investor. Having visited Forest City’s Manhattan offices last year on the MIT MSRED program’s annual New york trip, they’re certainly pushing him hard in their skybox sales office.The skyboxes are pretty sweet, but $540,000 a year is a little out of my price range right now unfortunately:

Atlantic Yards Skybox

Read more: The Battle for the Soul of Brooklyn — New York Magazine http://nymag.com/news/features/18862/index7.html#ixzz0htENLQAc“

The article is written by a reporter who lives close to the development and goes into depth about not only the political machinations of the deal, but the kind of community input (both support and opposition) that come into play on these mega-deals. Even ACORN makes an appearance. Whether or not you support the development, I think it’s an excellent example of what it takes as a businessman and a politician to get things done.

Here’s a link to one of the organizations mentioned in the article dedicated to stopping the develpment:

What do you think about the development? What about Forest City’s methods?

Faraji Whalen

Networking in Real Estate: Beating the Dead Horse Back to Life

There’s perhaps no field in which personal relationships play a bigger part in one’s professional success than networking (excepting perhaps entertainment and multi-level marketing scams) than Real Estate. I envy MBA’s to some degree because there’s a very formulaic path to employment to those that choose it. You do your two years at Goldman or Accenture, sweat out the GMAT, do a pre-MBA summer program, intern after your first year, hit the interview circuit, and land a job destroying value and putting the global economy at risk of a meltdown. What could be more fun?

That said, the reason so many of us got into real estate in the first place is to avoid that kind of rat race. We wanted to play in the margins, make a lot of money, get off the reservation, create lasting monuments to our glory, and provide affordable housing. Maybe save the world by doing some sweet green transit-oriented development while we’re at it. Of course, the career path to be able to do this is much less cut and dried. There are a million practice areas in real estate, and a million ways to make money (or lose money) doing them. The best way to get into these practice areas is to know someone who’s already in them.

I have never gotten a job from a job posting. Ever.

Not from Monster, from Careerbuilder, Indeed, The Washington Post, SelectLeaders, etc. While I posted a list of relevant job sites a while back, I’m really not that bullish on the value of them. I’m sure people have had success via these things, I just haven’t, nor do I know that many people who have. I think they can be valuable in the context of knowing what’s going on in the broad environment, but I think where they can really pan out is if you have an existing relationship with someone at that firm you can call up and say “hey, I see you guys are looking for an Analyst/Associate/Program Manager/Butter-Churner. I’m interested.” And get around HR as opposed to going through HR.

My first job out of college was via a temp agency. The company liked me and hired me. 18 months later, I was recruited by a larger company in the same field with a 60% pay increase. After my old mentor left that job, he recruited me to work at his new firm. Again, 60% pay increase. Now both of these positions were advertised and the companies were “interviewing”, but these were basically my jobs from the get-go. Everybody else on the interview docket was basically there to fulfill HR requirements. When I worked in sales, we were very careful to avoid going after RFP’s in which we would be “Column fodder.” The term refers to situations in which a client was required to interview a certain number of providers, despite the fact they knew who they were going to choose in the first place. Everybody else who put tons of time, money, and effort into their presentation didn’t have a shot in hell at getting the contract. The best way to avoid being interview fodder is to have the inside track, so here are some ideas

1. Get involved: One of the best ways to get out there and make a name for yourself is to be involved in local community groups that have a touch on real estate. Every city has initiatives for neighborhood renewal, retail support, affordable housing, etc. Get involved with these because the big real estate development players certainly will be as well. It’s one thing to be able to tell someone what you can do, it’s an entirely different ball of wax to have already shown them. Probably the most influential person in my real estate career was someone I met while working on a public-private volunteer initiative to promote retail businesses in a certain neighborhood in DC. He just so happened to be working on a 190-unit mixed use development at the time and we became friends through that initiative. Since then, he’s been instrumental in getting me in front of everyone from the mayor to local brokers, as well as writing a kick-ass reco for me for grad school. You can find out about these through your local free publications. In DC, The City Paper and the Hill Rag/DC North/East of the River publications are great sources to find events. Your local economic development agency will also have a lot of information about neighborhood and economic development initiatives you can join. Local neighborhood Listservs are also a great way to keep in the loop and find out which meetings are going to be attended by the people you want to suck up to.

2. Get educated: One of the ways businesses drum up more business is to hold educational events and seminars. Reznick Group in Bethesda, MD is famous for this. They host tons of FREE seminars, workshops, and events designed to promote their tax credit business. One of the best ways to find these are through your local Business Journals. They have tons of notifications for business and networking events.

3. Conferences: These can get a little dicey because they tend to be expensive and it requires a lot of self-motivation and discipline, as well as pre-conference planning to make them pan out for you. Here are some I’ve attended:

ICSC Recon: The International Council of Shopping Centers Real Estate Conference takes place every May in Las Vegas (May23-25 this year) and is an absolutely huge event. If you’re a grad student, you MUST go to this event. The student membership is only $50 for the year and Registration for ReCON is only $50, compared with $850 for non-members. Not bad. There are specific student-focused panels and opportunities to meet privately with mentors. I’ve created some great relationships at ReCon and recommend it to any student. The other great thing about ReCon is that you can peruse the attendees list and set up meetings with prospects ahead of time (I highly suggest this. It’s just too big a conference to hope you run into the right people). If you do go, make sure you get an invite or sneak into the New York Developers party at the Wynn. The buffet is excellent. Also, the DC Developers’ event is always good, as is the Diversity Reception, also at the Wynn.ICSC also has many local workshops and seminars. Check them out here.

ULI Annual Conference I’m a little less bullish on the Urban Land Institute’s conference because I think less business gets done there. I attended the ’08 conference in Miami, and I did meet a couple of people who were helpful to my thesis, but overall, it’s more of an academic exercise to some degree, with lots of panels about sustainability and mixed-use development with gorgeous Artist renderings of this Jetsons-like future of glass curtained-walled, thriving walkable neighborhoods (most of these projects are stalled in developer hell trying to scrape up financing). I find the local Urban Maretplace events to be fairly good though, with a lot of good information, and well-qualified folks. ULI’s Young Leaders Group has some interesting events, but the knock on those has always been that it’s a bunch of other “young leaders” as opposed to more seasoned (read decision-making) professionals to whom one can hitch their wagon. Here’s a list of events

USGBC Events. Truth be told, I don’t take advantage of the USGBC and their young professionals’ group, the Emerging Green Builders, as much as I should. My issue with them is probably the same as with some of the ULI stuff, in that it’s more geared to Urban Planners and Architects in some ways than development and finance types. That said, if green building is indeed the wave of the future, it doesn’t hurt to be involved with one of the movement’s pioneers. Greenbuild is in Chicago this year.  Event list here

Giving Back the keys: Where’s the opportunity?

I wrote my graduate thesis at the MIT Center for Real Estate on opportunities in distressed condo investing. As opposed to individual units, I looked at where vulture investors could take control of whole projects and create some arbitrage opportunities for fully finished projects as well as repositioning plays for those that were in some stage of completion. It was a hard paper to write because at that time, so few deals had been done. I talked to tons of PE companies, and very few of them had active deals on the table, even among the companies that had closed opportunity funds. There were a couple of major hurdles to foreclosing on condo deals as opposed to other types of assets:

• Complexity of the deal: Because condo units are individually titled, getting control of the entire project usually means getting control of the underlying paper as opposed to the physical asset. Additionally, if a project has already sold units, there may be a conflict of interest between buyers who purchased at a relatively high basis and the group that intends to come in and sell at lower prices. There are also issues related to the condo association: Who controls it, what services can be cut, how to deal with owners who want to rent out units, unpaid association dues, etc. These are not clean, easy deals
• Catching a Falling Knife: Here’s the thing: The reason a condo project is in financial trouble is not because the developer was able to take advantage of market demand and sell units at a cost per square foot that exceeded their cost to build. Which means that Real Estate Professionals in large numbers made huge errors in forecasting demand. Given the churning economy, fiscal policy, and job/state migration numbers, it’s certainly no easier now to figure out what the actual market will be. This is further compounded by a constantly changing supply inventory. For every competing project that turns rental,lowering supply, there’s additional inventorycreated by foreclosures, short sales, and individual owners who want to cut their losses.
• Spread between buyers and sellers: During mid 2009, when I wrote the paper, there was a virtual Mexican stand-off between lenders and investors over the value of the debt. Many lending institutions were keeping debt on their books at par value or very close to it, and thus, would be forced to take huge write downs if they were to sell it at a discount, potentially sparking insolvency. Equity groups and sovereign wealth funds had little interest in buying extremely risky debt for complicated deals at anywhere near what sellers wanted. As such, many loans simply were extended or renegotiated as lenders hoped to “live to fight another day.”

Over the past several months, there has been some activity returning to the market: A few select deals:

1. The Floridian, Washington DC: Goldstar Group, Metropolis Capital Finance, and Spectrum Partners purchased $31.8MM of debt on the 118-unit building, of which 32 have been sold. Running some quick math, at par value, the units would have had to bring in $370,000/unit to satisfy the debt. Original sales prices were north of $500/SF. While the sale price of the note hasn’t been published, Goldstar says they can afford to drop prices to the low $400′s. The Floridian website notes prices for 1BR’s start at 333,000 and 2brs at 392,000. Assuming a 2br is at or about 1000 SF, that comes pretty close.

Source: Washington Business Journal

2. The Mansion on Peachtree, Atlanta iStar Financial purchased the physical asset for $66.1 million. There were an estimated $194 million in debt on the property, split between a $147 million loan from iStar and $40.4 million of mezz debt from Georgian Bank, whose assets were taken over by First Citizens after Georgian became insolvent.

“First Citizens is promised a government guarantee on 80 percent of any losses incurred in the disposition of distressed assets held by Georgian Bank.”

The 42 story property is a hybrid condotel with 127 hotel units and 45 residences, originally starting at $3 million. That said, the Penthouse sold last year for $4 million. Original asking price was $10.2 million. Quite a haircut. Using the same formula, if the remaining units were sold at a similar basis, you’d see prices starting at $1.2 million. Seven of the units have sold, leaving 38 to go. To get par value for the asset, the units would have to be sold at an average of $1.8m apiece. Mind you, the units are sold as raw shells, so factor in another couple hundred thousand to do the interior fit out, and you’re looking at $2 million apiece plus what would have to be some pretty hefty condo fees.

“The focus now is on the building’s ownership, not selling condos, said Mike Bugg, senior vice president of SkyRise Group, a division of Atlanta Fine Homes Sotheby’s International Realty, which had an exclusive contract to market the homes.”

Given that Atlanta’s economy is in the tank and there are more competing luxury projects than you can shake a stick at, it seems likely that iStar will either reposition the building by carving up the units (all of which took up at least half a floor) into more manageable sizes or look at selling the entire building. Because there’s already an operating hotel in there, there may be an opportunity to expand those operations. All things said, this deal might continue to be a loser for iStar. It seems like the biggest winner here would be First Citizens, who are guaranteed at least $32 million from guarantees on their mezz.

Source, Atlanta Journal Constitution

3.Tribeca Summit, New York

“It is not clear whether there was a foreclosure or if they simply declared bankruptcy and turned the keys over to the financier as it all happened very quickly and without any lis pendens that I could find.

Either way this should be good news for buyers as KBS is a reputable firm and likely will be much easier to deal with as new sponsor. The building has been complete for some time and word is that current residents are happy, but sales have been stop and go due to the financial difficulties of original sponsor and their unwillingness to adjust prices to reflect current market levels.”

This development I don’t know that much about, but given that 50% of the units are sold, it sounds like the financiers just got tired of the developers holding out for top dollar and bid them adieu.

Source: Curbed NY

The question becomes, with more deals like these inevitably on the way, where are the opportunities for Real Estate Professionals? Are equity firms ramping up hiring to analyze deals? Are banks bringing on consultants and associates to figure out how to dispose of non-performing assets? What have you heard?

Buffett predicts housing slump to end in 2011

From Business Week: Read full post here:

Feb. 28 (Bloomberg) — Billionaire Warren Buffett said the U.S. residential real estate slump will end by about 2011, predicting that’s how long it will take demand for homes to catch up with the supply.

“Within a year or so, residential housing problems should largely be behind us,” Buffett wrote yesterday in his annual letter to the shareholders of his Berkshire Hathaway Inc. “Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.”

The worst housing decline since the Great Depression has left one in five U.S. mortgage holders owing more than their houses are worth. Record foreclosures last year flooded a real estate market already glutted with unsold property, causing new construction to fall to the lowest in at least 50 years. The fall in homebuilding is the only fix unless the U.S. decides to “blow up a lot of houses,” Buffett joked.

“People thought it was good news a few years back when housing starts — the supply side of the picture — were running about two million annually,” said Buffett, the chairman and chief executive officer of Omaha, Nebraska-based Berkshire. “But household formations — the demand side — only amounted to about 1.2 million.”

Berkshire, which owns a real-estate brokerage, a business that constructs pre-fabricated houses and units that make products used in homebuilding, has suffered amid the slump. Profit at Clayton Homes, the pre-fab housing business, fell about 9 percent to $187 million before taxes, while earnings at carpet manufacturer Shaw Industries fell 30 percent.

“High-value houses and those in certain localities where overbuilding was particularly egregious” will take longer to recover, he wrote.

‘Deeply Invested’

“He’s very deeply invested in this,” said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire stock. “Across his industrial companies, he’s massively poised to gain” from a housing recovery, Russo said.

Buffett joked that curbing home construction was the best of three ways to reduce supply. The other two, he said, would be to explode homes in a “tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program” or “speed up householder formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.”

Buffett’s annual communications with shareholders have won him a following of professional money managers and the moniker “the Oracle of Omaha.” He’s written passages in past years that compare investing to baseball, derivatives to venereal disease, and Wall Street bankers to Pied Pipers. The letters have been compiled into a book for those who want to study his pronouncements.

Analysis:

Generally speaking, it’s difficult and somewhat foolhardy to ignore a Warren Buffett announcement. While he’s not always been right, his track record for understanding and profiting from sectors and industries is not bad, to say the least. There’s a reason he’s called the Oracle of Omaha, after all. The question is, how do we as Real Estate professionals prepare ourselves for the shift in the market. Is now the time to acquire assets, or to hoard capital to make investments once buying and selling activity returns to a more predictable level? Given that all real estate, like politics, is local, what are the geographic areas in which to go long, and which to continue to short or avoid? There’s some evidence that certain markets have stabilized with prices increasing or not dropping quite as fast according to the Case Schiller index. But what about Miami and Atlanta, where job creation is still anemic at best? What’s your play? What are you doing to get ready?