This Issue -- Wednesday, November 9, 2005 |
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Commercial Real Estate Deal - Why We Are Believers in GM |
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by Andy and David Farbman |
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These are the times that try an auto executive's soul. Especially if you're an auto exec at GM. Right now, the world's largest automaker is trying to wean consumers from high incentives in the form of rebates, zero-percent financing and most recently, employee discounts for everyone. GM Chairman and CEO Rick Wagoner noted that "U.S. market and economic conditions have become significantly more uncertain." To address that uncertainty, GM is working to reduce structural costs by penning a tentative agreement with the UAW to reduce GM's health care liability by $1 billion per year in cash, and by announcing plans to close plants and reduce its manufacturing headcount by 25,000 from 2005 to 2008. This is on top of continued white collar headcount reductions. In Europe, GM is improving, though it remains in the red. GM Asia Pacific is growing at a rapid rate, thanks in part to strong economic growth in China. GM has been consistently profitable in the Latin America, Africa and Middle East region. GMAC is a consistent moneymaker for GM, though credit-rating downgrades have hurt GMAC's ability to borrow money. The all-important North American market, by far the largest market for GM, yielded a net loss of $1.6 billion in the third quarter, which means that in spite of the positives in other sectors, GM Corporation still posted a net loss of $1.1 billion for the quarter. The good news is that the leadership at GM has a plan in place to effect a turnaround in North America, which is critical to the success of the automaker. GM is getting away from rebates and focusing on reducing the overall sticker price on its vehicles, or instead adding content, such as OnStar or XM Satellite Radio to its vehicles without raising prices significantly. Promising new and upcoming vehicles like the Pontiac Solstice, Pontiac G6 Coupe, Chevy HHR and GM's new line of full-size SUVs bode well for the future, with the caveat that higher gas prices make full-size SUV's less attractive to some consumers. The leadership at GM is more than competent, and one need only look at the nascent European turnaround to see that once GM develops a plan and focuses on execution, it can move quickly to address deeply-rooted problems. We still believe in the old maxim: "What's good for America is good
for General Motors, and vice-versa." So we hope to see a turnaround at
GM, and we believe that things will right themselves. |
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Residential Trends - Record Building Boom in Shanghai |
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Over 75 million Chinese farmers are expected to abandon their pastoral way of life to seek their fortune in cities like Shanghai and Beijing, according to a recent article in the New York Times. This would be the largest recorded population migration in human history. That move is pumping up demand for residential and office space in Shanghai and other cities in a way never seen before, not even in New York circa 1900-1940. In fact, according to the Times, more skyscrapers will be built this year in Shanghai than exist in all of New York City. This in a city that already has some 4,000 skyscrapers, compared to New York's 2,000. All this building is raising concerns from real estate experts and environmentalists, who are sounding the alarm both of a possible real estate bubble and potentially irreversible damage to the natural and social fabric of mainland China. "Perhaps in part because the communist government lacks experience dealing with free markets, there exists a strong possibility of a real estate bubble in fast-growing cities like Shanghai," said Andy Gutman of NAI Farbman. "In addition there are concerns that in the modernization of cities like Shanghai, the Chinese are recklessly paving over their historic and social heritage, some of which dates back centuries." |
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Real Estate Investing - Michigan Ranked #2 in Capital Investments |
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Michigan wooed major corporate capital investments worth $6.5 billion in 2004: a total of 213 projects that led to the creation of 32,474 new jobs. Only Texas brought in a greater volume of corporate capital investment, according to Ernst & Young LLP's first annual U.S. Investment Monitor. All told, the top five states in the Monitor (Texas, Michigan, Ohio, California and New York) accounted for nearly 40 percent of all capital investment in the United States. "In spite of the negative headlines surrounding the North American auto industry, Michigan is still competitive in terms of attracting capital investment, be it new, expanded or renovated corporate or industrial facilities," said Michael Kalil of NAI Farbman. "Notably, a significant portion of the capital flowing into Michigan and the United States comes from overseas investors." Over 20 percent of the $6.5 billion invested in Michigan came from direct foreign investment, while direct foreign investment accounted for about 15 percent of the $1.2 trillion invested throughout the United States last year. |
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Monetary Policy - Next Fed Chief Stands on Shoulders of Giant |
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President George W. Bush announced the appointment of Ben Bernanke to replace legendary Chairman of the Federal Reserve Board Alan Greenspan, whose term expires on January 31, 2006. Bernanke, a Harvard and MIT alumnus, has worked both as an academic at both Princeton and Stanford and as a member of the Federal Reserve Board from 2002 to June 2005. "Ben comes with superb academic credentials and important insights into the ways our economy functions. I have no doubt that he will be a credit to the nation as Chairman of the Federal Reserve Board," said outgoing Fed Chairman Alan Greenspan. "Ben Bernanke is the right man to build on the record Alan Greenspan has established," said President Bush. |
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Investing - Real Estate Securities Growing |
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Commercial mortgage-backed securities (CMBS) are growing quickly, reaching near record profits. CMBS allow investors to buy an ownership stake in a pool of commercial real estate mortgages. Since mortgage lenders need ways to raise capital to finance further loans, they often sell mortgage packages to secondary lenders or sell them as bonds on the open market. According to the Wall Street Journal, these commercial mortgage-backed securities are heading towards a record year in 2005, but the article goes on to warn that a large influx of capital from investors could lead to lax lending practices, thus bringing up property prices. "CMBS give investors a way to plant roots in the commercial lending market," said Andy Farbman of NAI Farbman. "The downside is that if everyone and their brother invests in CMBS-type investments, there is a chance that a bubble could drive up property values and a painful market correction could be the end result. Investors need to be careful to weigh both potential risks and rewards." |
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Office Market - Rents Going Up Across U.S. |
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Gone are the days of beating up landlords for lower rents, new amenities and renovations. It's no longer a tenant's market. Across the United States, office space prices are creeping upwards as vacancy rates decline. According to REIS, Inc., a national real estate market analysis firm, office vacancies have fallen to 15 percent this year, from nearly 17 percent in 2003, and vacancies are expected to decline to nearly 10 percent by 2009. The Detroit market continues to defy the national trends, with a vacancy rate of 18.9 percent. "Greater economic growth means higher office rents and fewer perks," said David Farbman of NAI Farbman. "But as the Detroit economy continues to languish due in part to painful restructuring in the automotive sector, the real estate market will remain depressed." Farbman notes that higher vacancy rates can be a boon to bargain-hunting office tenants. |
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NAI Farbman publishes this e-newsletter to convey general information about real estate and not for the purpose of providing advice. The information you obtain from this e-newsletter is not, nor is it intended to be, real estate advice. You should consult an attorney for individual legal advice regarding your own situation. This e-newsletter and its contents do not create a professional relationship between NAI Farbman and any subscriber to this e-newsletter. Electronic mail ("E-mail") sent to NAI Farbman, or any of its brokers, agents, partners or employees will not create an professional relationship and will not be treated as confidential. Please do not send confidential information unless and until a formal relationship has been established. The links to other publicly available web sites are provided as a convenience. We make no claims, promises or guarantees about accuracy, completeness or adequacy of the information at those sites. For coverage comments or news tips, e-mail us or call (248) 353-0500. NAI Farbman |
2005 is proving to be a difficult year for