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See: San Francisco's Goldilocks Market by Terry Pristin [NYTimes]
See: Risky Real Estate Moves by Sarah Max [CNN/Money] 
See: Bubbles Abound in a World of Ready Cash by Steven Pearlstein [Washington Post] 
See: Mortgage Market Feels Some Pain by [The Street.Com Staff]
See: FED Signals Concern on Inflation by Andrew Balls [FT.com] 
See: The Danger of the Debt Trap by Thorsten Polleit [Mises.org]
See: FED: Homebuyers Duck for Cover by Sarah Max [CNN/Money]

Ole Bear, Editor, Commentary

How to Make a Buck in Real Estate or
You got to know when to hold ’em, know when to fold ’em... -- The Gambler, a song

Mr. Shorenstein out in San Francisco is one smart Cookie! From the Goldilocks Market linked above, here is a great snippet:

"Prices are staggeringly high relative to the returns and the underlying fundamentals," said Douglas W. Shorenstein, the chief executive of his family business, in an interview in his 49th-floor corner office at the Bank of America Center overlooking San Francisco Bay. "If somebody is willing to pay a lot more than I would pay, then we're a seller."

This reminds me of Old Joe Kennedy... you know the guy who fathered PT boat captains and Camelot, who also made a fortune during Prohibition bootlegging Scotch into the country. Joe and his fellow cronies who had fed the stock market frenzy of the late 1920s were all out of the market before the October 1929 Stock Market Crash. A little bird [the canary in the coal mine, perhaps?] must have tipped 'em all off to be out of the Greater Fool Theory Market. Mr. Shorenstein, running the family held commercial real estate business, deserves a A+ in our view. Reading further in the article, we are wondering who appraised all these properties for a possible bank loan on them. With prime space in San Francisco running a 19% vacancy, rents softer than melting butter, and what appears to be some below cost short sales in this market -- we wonder if these appraisals will pass review standards? A short sale is not exactly how you make a dollar in real estate -- this is what I call a short sale:

The spike in commercial real estate prices here has left many real estate specialists scratching their heads. Only two years ago, Tishman Speyer Properties was forced to sell Market Center, two buildings on Market Street that were 83 percent vacant, for $79.5 million, less than half of the $189 million it had paid for the complex in 1999.

We wonder if this short sale, and possibly others, made it into the appraisal reports for market analysis? As I said, Mr. Shorenstein deserves an A+ for understanding the Greater Fool Theory, and about selling high and buying low. {He is] Definitely from the Warren Buffett School of Value Investing.

The two essays by Ms. Max are pretty good and have the ability to scare the pants off of folks in what I call the real estate debt liquidity trap. Providing folks with all sorts of mortgage loan instruments to shoot themselves in the financial gonads is part of the mortgage and banking business that is oriented to the Silver Apples of the Moon and Man in the Moon Marigolds. What the mortgage folks don't seem to understand is that the debt and liquidity trap [albatross] placed on the borrowing public, is in fact their own liquidity trap [albatross, and a few dead pelicans perhaps?] in light of the total loan to total deposit ratio [Loan/Deposit Ratio], currently running 107% as of 4th Quarter 2004 for 8,975 Federally insured institutions. See: http://www.fdic.gov/bank/statistical/stats/2004dec/industry.html . As Ole Man Ozark documents, we don't need no stinking liquidity! We will just file a liquidity plan with the regulators!

The other essays are somewhat topical and interesting reads on real estate, bubbles, and debt. As most of you know, the FOMC bumped up another 25 basis points to the FED Funds Rate, which has less impact on real estate mortgage money, than what happens to the 10-year treasury money. If bond prices shoot craps, bond yields will rise [ehhh go through the roof]. If that were the case, mortgage rates would most likely increase for folks. Although this appears to be an enigma, a conundrum to Alan Greenspan and the FED Boys and Girls, it appears that Mr. Shorenstein has this all figgered out as part of the smart real estate money. If Maria at CNBC were reporting on Shorenstein's commercial liquidations -- she'd be talking about all that cash parked on the side ready to jump back into the market [real estate]. We suspect, however, Mr. Shorenstein appears to have a much different liquidity plan. It is called buy low, sell high -- and cash money talks.

Being in the market, and out of the market are both considered to be investment strategies to make a buck in real estate, in our view. As Kenny Rogers sings in the song, The Gambler:

You got to know when to hold ’em, know when to fold ’em,
Know when to walk away and know when to run.
You never count your money when you’re sittin’ at the table.
There’ll be time enough for countin’ when the dealin’s done.

Yours Truly,

Ole Bear, Editor
Columbia, Missouri

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