A Beleaguered Beazer - Ian McCarthy Speaks From the Heart

Things are not looking up for Beazer Homes. Beazer suffers from the same market ills as the other home building giants, but Beazer staggers further under the added burden of a SEC investigation over lending practices and a tarnished image.

Their workforce has been reduced by 50% (some 1,300 jobs) since March 2006 and they are reportedly looking at more cuts to come.

The Atlanta Business Chronicle recently stated that “Beazer is also evaluating the recoverability of its goodwill which could cause more impairment changes.” In simpler terms it means that their tarnished reputation and negative PR has negatively affected their market value. What’s it going to cost to fix that?

I don’t mean to kick anyone when they’re down, especially the home team, but Beazer’s corporate leadership and corporate culture appears dismal – at least to an inside outsider, which I am.

I have described in the past their lack of marketing ingenuity, absence of brand authenticity, lackluster product, and lack of a consumer concentric focus. This is in stark contrast to most of their competition that though also suffering is maintaining corporate integrity.

In this same Atlanta Business Chronicle article, the following quote appears from Ian McCarthy, Beazer president and CEO, “The housing industry continues to face the most difficult business conditions in over a decade. We maintain the view that the long-term fundamentals for housing remain compelling and that our strategic initiatives to differentiate Beazer Homes in the eyes of the consumer and to allocate capital and resources in order to enhance long-term shareholder value will position us well for the future. At the same time, we must continue to adapt to the realities of the current market by remaining disciplined in our operating approach and continuing to focus on initiatives aimed at responding to what we believe will continue to be a challenging environment in the near term.”

From the heart? That is a well prepared off-the-cuff interview. Who’s fooling who? I have this strong suspicion that was either read from a computer screen or emailed verbatim over to the reporter at the ABC. McCarthy basically said NOTHING. Yada, yada, yada, in other words.

A Washington D.C.-based shareholder, CtW Investment Group, called for Beazer’s board of directors to remove McCarthy as president and CEO citing his “failed leadership”. You just can’t disguise exemplary leadership. You also can’t survive poor leadership in a poor market.

Leadership always, always matters.

FreeRice - A Total Win-Win

A great new website called FreeRice was launched on October 7th. The concept is terrific and incredibly simple. FreeRice is a vocabulary challenge where for every correct answer, 10 grains of rice are donated to the United Nations World Food Program. I won’t be so optimistic as to think FreeRice will end world hunger, but if I can hone my language skills and set into motion a humanitarian effort at the same time with absolutely no cost to me…well that my friends, is a no-brainer.

The rice is paid for by the advertisers listed at the bottom of the vocabulary screen and they are a stellar, blue-chip collection of sponsors. The site has not been up 30 days yet and already the benefits total 1,330,639,890 grains of rice for the hungry. Sounds impressive, but I have to be honest and admit I have no earthly idea how much rice that is but the exponential increases shown on FreeRice’s Totals' page makes it pretty clear they’re on to something.

“WARNING: This game may make you smarter. It may improve your speaking, writing, thinking, grades, job performance...” So how does it work? You click on the answer that best describes the vocabulary word given. If you answer correctly, you’re given a harder word. If you are incorrect you are given an easier word. And each correct answer lands 10 more grains of rice into someone’s empty bowl. I’ve already racked-up over 1,000 grains myself.

This is great for people just learning English all the way to college professors. FreeRice automatically adjusts to your level of vocabulary starting by offering up words at different levels of difficulty and then, based on how you do, assigns you an approximate starting level. As you play, your correct answers determine a more exact level. When you get three words right in a row, you go to a harder level. This one-to-three ratio keeps you at the “outer fringe” of your vocabulary, where learning can take place.

There are 50 levels in all but it is apparently rare for anyone to score above 48. Since I didn’t get close to 48, I’m going back for more. Who knows, maybe my ongoing education will help to save a few lives. I’d really like to think so.

Forbes Real Estate News - Who Writes This Stuff?

Forbes is one of my news feeds on Google Reader. Forbes Real Estate News to be more exact. Forbes is a brand that I hold in some degree of esteem. But I have reconsidered that lofty estimation of late and want to vent about their real estate news content, which I think is so thin as to be near ethereal. I keep them on my Reader hoping to eventually stumble upon some edifying real estate epistle.

Matt Woolsey, the genius newsman who writes most of this stuff, must have the easiest job in the world. He probably has his own researcher. I have this picture: Matt shows up around 10:30 or 11:00, says “I think I’ll put this list up today….let’s see…how about ‘Top Ten Homebuilders in the Tank’.” Article is written by Noon. Time for lunch and if Matt doesn’t dawdle he can even get a round of golf in before cocktail hour.

To prove my point here is a list of their real estate articles for the last few weeks.

Ten Rising-In-Value Real Estate Markets

America’s Most Murderous Cities (My Personal Favorite)

Ten Ways to Solve the Housing Crisis

Most Affordable Places to Live Well

America’s Fastest-Growing Cities

America’s Most Expensive Natural Disasters

Most Expensive Places to Heat a Home

America’s Richest Real Estate Billionaires

London’s Most Expensive Flats

Best Places for Real Estate Deals

Weakest U.S. Markets

America’s Priciest Property Taxes

America’s Most Stable Housing Markets

Maybe they keep the good stuff in a vault. OK, Forbes, it is time to let your quality writers take a crack at real estate.

Dump This House

“Dump This House” was The Wall Street Journal’s headline – not mine - prefacing “Unloading Your Property in a Slow Market”. Being a real estate veteran and survivor of three substantial downturns prior to the current milieu, the term “dump”, as a verb referring to real estate, makes me cringe. But I have to admit, the headline got my attention.

In his article, Jonathan Clements, makes an analogy that the price cutting of home prices is no worse than a rough day in the stock market. But I beg to differ that a stock market loss is in any way similar to the loss of value on your personal home, at least emotionally. You don’t usually see people go ballistic in reaction to a stock market loss, but just watch the reaction of a seller when he gets a look at a really low-ball offer.

It is easy to dump or unload a stock that is not performing, but it’s a different ballgame when some jerk (or realist depending on which side of the table you’re on) offers you $100,000 less than you paid for your house just two years ago. But if you absolutely, positively, have to “dump” in a declining market you better do it seriously and fast. If you don’t absolutely, positively have to sell then get out of the game. Wait for better days.

With all the talk of home price slashing and slow markets you might expect that home prices would be down more than the 4.5% decline from their July 2006 peak. But unsold housing inventory is growing exponentially creating a current 10-month supply. Until the market improves and housing inventory starts to sell-off at a faster rate, it follows that the market supply will increase.

If you have a house that has a stellar, unique selling proposition you’re lucky. But if your house is the standard, run-of-the-mill great house, well you might have a painful wait for a buyer. And if circumstances find said house vacant, the cost to hold could equal as much as 1% of the home’s value per month for insurance, HOA or CA costs, property taxes, utilities, maintenance and, of course, the mortgage payment itself.

So where is that going to leave a seller? Let’s take a normal, beautiful, “must see inside” house which is listed at a reasonable price – not great, fly-off-the-market price – but reasonable. Unfortunately the seller has taken a job in another city and so the house sits vacant. If the cost to carry is 1% of the house value per month and there is a 10-month supply for sale with prices continuing to decline at a rate of 4.5% (some areas have experienced much greater declines) …well you see where this is going. If the seller’s number does not come up for 10 months he is already about 15% behind the 8-ball and still no more competitive in the marketplace than when he started. I guess he could get lucky…or more likely, not.

The housing market has produced cash cows for many years, providing wealth-wells for homeowners. It is really hard for sellers to give up that bastion of security where every time they went to the savings vault, there was always a load of cash waiting in the form of equity. Magically, it replenished itself through appreciation. Now the reverse spiral is occurring and a dose of reality is hard to swallow.

Tough love is the advice du jour. Either get realistic and competitive on the price or get out of the market. It is not a time for the faint of heart.

So tell me something I didn’t know.

New Internet Sleuth for Publishers Tracks Content – Plagiarists Beware

Yesterday The New York Times published an article about a new company that can track copyrighted media over the internet. Whether it’s an article, pictures, or video, Attributor , the young detective company on the case for the likes of The Associated Press and Reuters, can track down a publisher’s content to where it has been copied and reused with or without permission.

The implications here are huge, both for the mega publishers and news aggregators like Google or MSNBC, but also for bloggers (should any of the big guys choose to follow that Long Tail for the 20¢ of revenue my three readers may generate). We are not talking residuals as with the entertainment industry writers, but rather the revenue for the Holy Grail of news media survival….online ads.

No sooner did publishers get the memo that their online presence was the key to the future and online ads were the revenue generators of tomorrow, than the bloggers and news aggregators began to siphon traffic and ad dollars away from the originators. The “reuse” of news content is not the greening of the publication and news industry.

The world is moving towards a time where information and news is free to consumers. But the creators and generators of that news and information have to drink from the well of capitalism in order to provide “free” content. It isn’t free at all. News publishers must be able to capture a benefit, a profit, and if the benefit is no longer circulation dollars then, until there is a new model, it must be from ad revenue. When news becomes nonprofitable then we will have to rely on Wikipedia-type news.

So how does this sleuthing work and how will it keep everybody on the up and up? When Attributor, the bloodhound of content trackers, finds the copyrighted content the software tells the publisher:

• If the webpages that use their content are licensed or unauthorized,
• If the pages include ads or not,
• How much of the copyrighted content was reused,
• If attribution and links back to the publisher exist, and
• If pages that reuse content are getting a higher search engine ranking than the original publisher.

When Attributor finds unauthorized content an automatic message can be sent to the operator:

• Demanding a link back to the original publisher’s site, and/or
• A share of revenue from ads on the page,
• Or a halt to the copying.

Increasing online ad revenue spells survival for many newspapers and magazines and online traffic is the key. Two of the three resolutions will provide a positive benefit for the publisher. One magazine executive speaks to those benefits, “The ad revenue they get from it might not be much, but if each of those just gives a link back to our original, that could be a significant amount of traffic.”

The appeal for The Associated Press and Reuters is different than newspapers. For a news service the issue is unlicensed use of across-the-wire content. Detected unlicensed users become potential licensees. Chris Ahearn, president of Reuters sees this as an opportunity. “Our attitude is there are enough lawyers in the world, so why don’t we turn this over to our sales people?” Bingo!

Attributor, based in the San Francisco area, was founded by two TechnoMasters, Jim Brock, CEO and Jim Pitkow, CTO. Stay tuned to their blog which offers some really good content. My newest RSS feed. The question is how soon after I hit the "Publish" button will they know I'm here?

Emerging Trends in Real Estate 2008 - Markets to Watch

Part III

How much difference does a year make when ranking the investment and development prospects for U.S. cities? Not as much as you might think given the market aftershocks from the credit crisis and economic concerns over housing woes.

The results from the Urban Land Institute's Emerging Trends in Real Estate 2008 survey still favors a handful of 24-hour cities as "Best in Show": New York, Washington, D.C., San Francisco, Boston, and Chicago, together with southern California stars and Seattle, easing up the inside rail.

The Triple Crown winner however is New York. Although New York has always been ranked at or near the top of Emerging Trends' surveys, New York has way surpassed its closest U.S. competitors. One interviewee from Chicago said, "It's a tale of two worlds - New York and everything else." Trophy buildings lease for three times as much in New York as in Chicago. "New York's fundamentals are out of the ballpark right now." Wall Street is a huge factor in New York's ascendancy and a derailment of the stock market could deeply effect the city's real estate market.

Emerging Trends mantra for investment prospects continues to be "global gateways" with emphasis on coastal cities followed by interior gateways such as Chicago, Atlanta, and Dallas. Must haves are high immigration flows and large international airports, major shipping ports, and/or export-import hubs. Access to global markets is key! "You need to be in the global pathways."

The following is a listing of how the investment and development prospects of metro areas stacked up from "Abysmal" to "Fair" to "Excellent". The ratings include the investment prospects for all property types from industrial to hotel, retail, apartments and homebuilding. Some of the more noticeable movement from the 2007 report is that Boston, San Jose, and Seattle moved up substantially and most Florida markets (except Miami, which stayed about the same), Las Vegas, and Atlanta were downgraded. If you will email me I will forward the actual chart which I was unable to import in a readable format here.

In the "Excellent" to "Fair" category for investment in all property types: Seattle, New York, Washington D.C., San Jose, Los Angeles, San Francisco, Honolulu/Hawaii, Austin, Boston, Raleigh/Durham, Portland, San Diego, Denver, Charlotte, Phoenix, Sacramento, Houston, Las Vegas, Orlando, Virginia Beach/Norfolk, Tampa/St. Pete, Miami, Salt Lake City, San Antonio, Chicago, Tucson, Atlanta, Jacksonville, Nashville, Dallas/Fort Worth, Baltimore, and Minneapolis/St. Paul.

In the "Fair" to "Abysmal" category for investment in all property types: Philadelphia, Indianapolis, Providence, Milwaukee, Kansas City, Memphis, St. Louis, Columbus, Cincinnati, Pittsburgh, Cleveland, New Orleans, and bringing up dead last...Detroit definitely in the Abysmal trash can. (ULI really doesn't mince words.)

It was a much shorter list for markets with prospects for homebuilding. The only markets considered by the survey to be above the "Fair" rating are: Seattle, Honolulu/Hawaii, Raleigh/Durham, San Francisco, New York, Portland, Washington, San Jose, Austin, Charlotte, Los Angeles, Salt Lake City, Houston, Dallas, and San Antonio.Here are some of the salient points on the individual markets:

Seattle. Developing into an exciting 24-hour city "smack-dab" on key Asian shipping routes. Corporate presence includes heavyweights like Microsoft, Boeing, Washington Mutual, Amazon, Costco and even Google. Multifamily and industrial sectors rate as the leading buy candidates in the entire survey. "Best West Coast value."

New York. "Catapulted beyond mere U.S. markets." The weak dollar makes the city look cheap next to top European markets. New York's suburbs are not nearly as strong as Manhattan.

Washington, D.C. Considered past its peak by respondents. Time to hold. Over leveraged deals may experience stress. No stress inside beltway and Maryland suburbs hold up, but Northern Virginia is more volatile.

Los Angeles. Housing market in the tank and Orange County office market softens. West LA office "has never been so good." Luxury markets across the board excel. Warehouse market is red hot. Good apartment market.

San Francisco. Big survey gains this year and heads back north on the list. Top market for hotel buy. Driven by the brain trust Mecca, 24-hour downtown, and gateway opportunities. San Francisco ranks as the survey's top hotel buy. Unrelenting Asian trade also makes warehouse a strong buy.

Boston. Known as a "hot and cold" office market, Boston is now enjoying a strong office scene although much of the financials have moved to greener pastures. No major building activity drives demand. High quality universities drive a quality talent pool and a vibrant downtown draws professionals. Housing prices on the decline but low affordability spurs renter demand and Boston apartments rate a strong buy signal.

San Diego. All markets are overpriced, expensive, and exhausted. Prime business centers migrate north. Small airport a negative for growth. Housing weak but say the respondents, "What a great unique place to live."

Denver. Downtown reinvents itself and their light rail system works beautifully. Textbook success story. The fast growing northern suburbs cluster around master-planned transit-oriented development linked directly to downtown. Downtown office is off the charts. Housing in check and apartments are firm. Kudos.

Phoenix. Perfectly positioned for solid growth as an affordable alternative to Southern California. Self-limiting land mines for Phoenix include poor city planning and infrastructure needs. Denver's success may be hard to repeat here. Office and apartments show some softening and stress on the housing sector put the area's growth in "slow gear".

Houston. High energy costs are boosting economy of real estate markets here. The Panama Canal expansion primes Houston's shipping and warehouse prospects drawing business from the West Coast ports. The easy-to-build environment lets developers get ahead of the market. High influx of people and growth for the the suburbs is continuous "with no zoning to get in the way."

Miami. Can be summed up with two words - "Condo mess." Miami held it's overall survey ranking however because the other market segments remain pretty stable. Because developers put all their attention into the condo mania and neglected other property types office prospects remain pretty good. The Miami warehouse market is one of the best in the nation. Latin American commerce and trade add market support. Tourism strong. Issues facing Miami are transportation, hurricane threat, taxes, and water.

Chicago. Ever optimistic developers continue to build in the office market causing softness in existing buildings. After rampant flipping prices are maxed out. Retail and hotels are firm but oversupply could be seen in industrial and apartments due to a full pipeline of projects coming online.

Atlanta. Chronically overdeveloped. Atlanta wrote the book on "boom-bust" developing. The economy is driven by growth and is "our engine and our enemy." Every sector is soft. Urban markets are growing but linear development makes a true center core difficult. The huge Atlanta International Airport positions the city as the Southeast's transport hub and link to global markets.

Dallas/Fort Worth. Like Atlanta, Dallas/Fort Worth loves to build and build and build. Office vacancies never seems to get below 20%. Pricing not as strong for commercial properties as in other national markets. Warehouse is unexpectedly strong now. "Investors have been wary of poor supply/demand fundamentals." Airport infrastructure puts the city on global pathways.

Heading north to the Canadian markets, interviewees appear more positive about 2008 prospects than their U.S. counterparts. Predictions look for an above average year but not in the spectacular range. U.S. housing woes have not extended to Canada as they clamped down early on the credit frenzy. "Property markets, including housing, track at or near equilibrium with high occupancies and controlled development."

Downtowns are the mainstay of the Canadian real estate markets. Residents, developers, planners, investors all gravitate to the city centers. "The hot-growth energy cities out west - Calgary and Edmonton - score the highest ratings for investment prospects, development, and for-sale housing, Toronto, Canada's premier global pathway city, and Vancouver also register strong scores. Ottawa and Montreal follow, and Halifax in the Eastern Maritime provinces lags."

Part I – Emerging Trends in Real Estate – A Dose of Fear

Part II – Emerging Trends in Real Estate – Best Bets for 2008

Part III - Emerging Trends in Real Estate - Markets to Watch