Showing posts with label Real Estate. Show all posts
Showing posts with label Real Estate. Show all posts

Save Hawaii's beaches or property?

SUBHEAD: Climate change and ocean rise is forcing difficult choices on Hawaii now.

By Nathan Eagle on 28 July 2017 for Civic Beat -
(http://www.civilbeat.org/2017/07/save-beaches-or-property-climate-change-will-force-tough-choices/)


Image above: A Waikiki lifeguard station surrounded by ocean water is barely operational today. From original article promo.

A coastal hazard expert briefs Hawaii officials and others about the need to adapt to rising sea levels and warmer temperatures.

With the impacts of climate change bearing down on Hawaii, government officials and community members need to make some important decisions about the islands’ iconic coastlines, said Dolan Eversole, a coastal hazards expert with the University of Hawaii’s Sea Grant program.

“That’s the policy question that we’re faced with now — what’s more important, protecting the property or protecting the beach?” he said. “It’s not a simple answer.”

Eversole was addressing a roomful of state and county officials, nonprofit leaders and others Thursday at the annual State of Hawaii Drowning Prevention and Ocean Safety Conference at the Hawaii Convention Center in Honolulu.

Even under conservative projections, he said Hawaii will have to adapt to a suite of issues that are exacerbated by increasing temperatures and rising sea levels, including coastal erosion, hurricanes, tsunamis, high surf, high winds and flooding.

“Climate change is not necessarily an independent problem,” Eversole said. “It’s going to overlie the problems that we have and in many cases make them worse.”

The “king tides” that caused flooding in Waikiki and other parts of the state this summer were in many ways a glimpse into the future, he said.

It’s not all doom and gloom though, at least compared to other coastal states like Florida and Louisana that are also being forced to adapt to climate change.

Hawaii has the advantage of topography, Eversole said. Elevations increase quickly in the mountainous islands, so adapting for some can mean moving to the other side of Kamehameha Highway, which wraps around Oahu’s northern coast.


Image above: Coastal highway on north shore of Oahu threatened by high ocean waves. From original article.

“It’s going to be inconvenient but we won’t have to go too far,” he said, underscoring how that’s not even an option in some other places.

Eversole is also heartened by Hawaii having a climate adaptation plan underway. The first part of that plan, due in December, will show how sea-level rise will likely affect hotels, homes and other properties in the coming decades.

Honolulu Emergency Services Director Jim Howe, who was the city’s longtime ocean safety chief, said the city has much of the necessary information and has started to respond.

He said the newly created Office of Climate Change, Resilience and Sustainability has held its first major gathering of stakeholders to gain input. A full report from that meeting with roughly 350 individuals from businesses, nonprofits, government and environmental groups is coming, he said, but the preliminary results illustrate the need to focus on the coastal areas and infrastructure.

“We’re going to have to make some priority decisions,” Howe said. “Where are we going to best spend our money? What is going to be the best approach for us as a community? That’s a dialogue that we need to have.”

He said Hawaii has to brace for weather impacts, from increased flooding to more frequent hurricanes.

“All of us in the community need to be prepared,” Howe said. “The more we can be proactive, the better off we’re going to be in the end.”

There’s a lot at stake. Hawaii’s economy largely depends on millions of tourists coming to visit its famed beaches.

Hospitality Advisors, a consulting firm, estimated Waikiki Beach alone contributes more than $2 billion in visitor spending annually.

Waikiki Beach is already in need of millions of dollars of overdue work and there’s still no master plan for the beach, Eversole said.


Image above: The beach at the Royal Hawaiian Hotel is under ocean waves that break against the hotel's porch railing. From original article promo.

And the adjacent Kuhio Beach is a “public safety emergency,” he said, noting how sections of the groin are collapsing in front of a mound where hula dancers perform.

“It’s a mess right now,” he said. “It’s the worst I’ve ever seen it.”

Studies are underway, including the state’s $800,000 Waikiki Beach Technical Feasibility Study, and public-private partnerships have formed to address the most serious problems.

The Waikiki Beach Special Improvement District Association is splitting a $1.5 million project with the state to fix the Royal Hawaiian groin, which Eversole said “literally holds together Waikiki Beach.”

Commercial properties pay a special tax that funds the association’s projects, which are all focused on beach management.

Construction may not begin for two years, though, due to permit requirements, Eversole said.

“Hawaii is probably one of the most vulnerable areas to coastal hazards in the world,” he said.

This is not the first time Eversole has waved flags trying to alert the public and policymakers to the problems Hawaii faces due to climate change.

He was lead author of a 2014 UH Sea Grant report, funded by the Hawaii Tourism Authority, that details the current and future effects of climate change in the islands.

Eversole said what concerns scientists the most are the extremes, not the averages, in terms of swings in temperatures and the rates of change.

The rate of warming air temperature in Hawaii has quadrupled in the last 40 years to more than 0.3 degrees Fahrenheit per decade. This causes stress for plants and animals, heat-related illnesses in humans and expanded ranges for pathogens and invasive species, he said.

“It could get exponential at some point in the future unless we do something about it,” he said.

When it comes to sea-level rise, the global average is 4 millimeters a year, but it’s not uniform. Low-lying atolls in the western Pacific are seeing 10-millimeter increases annually while Hawaii is averaging 1.5 millimeters a year.

Eversole said that Hawaii should not bank on its below-average increase because projections show it will greatly accelerate.

“Inarguably in the scientific community, climate change is real. There is no question,” he said. “The only question that surrounds climate change is what do we do about it. We’re in a catch-up mode.”
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Fact or Fantasy: Kauai General Plan

SUBHEAD: A real community meeting is planned for 6:30pm Tuesday July 11th at King Kaumuali`i School in Hanmaulu.

By Gabriela Taylor on 8 July 2017 for Island Breath -
(http://islandbreath.blogspot.com/2017/07/building-bottom-up-economy.html)


Image above: Photo illustration "The Paved Paradise" by Riki Goft. From (http://www.pxleyes.com/best-photoshop/rikigoft/).

[IB Publisher's note: This article was also published in the Garden Island News today.]

WHAT:
Kauai Community Coalition meeting on the Kauai Plan

WHEN: 
Tuesday, 11 July 2017 at 6:30pm

WHERE:
King Kaumuali`i School Cafeteria Hanamaulu.

4380 Hanamaulu Rd, Lihue, HI 96766

After a two-year process with extensive input from over a thousand people, the County Planning Department proclaimed that the recent Updated General Plan (UGP) document is built upon the following four basic goals:
  1. A Sustainable Island, 
  2. A Unique and Beautiful Place, 
  3. A Healthy and Resilient People, 
  4. An Equitable Place With Opportunity for All.
The UGP is all but a done deal, with only the County Council left to weigh in, followed by the stroke of the pen of the Mayor. The problem with this document, which is the blueprint for the future of Kaua’i, is that it doesn’t measure up to the four basic goals highlighted by the Planning Deptartment.

Several residents have written to TGI Forum expressing that the UGP is superficial, has errors, will lead to more traffic, loss of agricultural land and of our rural life style, depletion of our natural environment, more resorts, and inadequate affordable housing for locals.

Sustainable? Not possible when we ship in 80-90% of our food.

One of the insightful letters published July 5th in TGI, by Laura Conrey, compares Kauai to the Galapagos Islands where the government takes measures to prevent both unsustainable tourism and immigration.

It states “Population growth planning is essential for the common good.” and “ Mass tourism is bad for the environment and local business.” Unlike Kauai, these guidelines, have teeth and are adhered to.

I moved to Kauai in 1974 when there were no stoplights on the highway. It was aquamarine ocean and lush emerald nature that captivated me, as well as, the laid back local life style and the Hawaiian culture.

Since then, I’ve never thought of living anywhere else and consider it a privilege to make my home here.

When you love something, it’s only natural to take care of it. We are the stewards of this magnificent island, which is being threatened by over population and tourism that stresses our roads, water, sewage, land fill and nature.

The coral is dead or dying, and the rate of bird species extinction, record breaking. On top of it all, do you know that 40% of all new houses are purchased by mainlanders and foreigners, because only they can afford them?

Why is the County giving out resort and tract housing permits (with no or minimal affordable housing) to developers - like candy to children? This is the antithesis of the above UGP goal #4: An Equitable Place with Opportunity for All, because, among other issues, housing isn’t affordable for locals.

It took me 70 minutes (normal 35 minutes) inching along on the Kapaa Bypass at 1:30 pm, June 6, to get to my doctor’s appointment (late) in Lihue.

My previous testimony at public hearings has focused on Kapaa/Wailua, where despite debilitating traffic, a 780 house development Hokua Place on 93 acres, has been recommended for up-zoning from Agricultural to Neighborhood General (aka Urban) in the latest version of the UGP.

With three new resorts already approved in the Wailua corridor, plus Hokua Place, there will be at least an additional 2,500 vehicles added to the congestion that will be minimally resolved by the few road remedies recently proposed by the DOT, to be in place by 2022.

Overbuilding is an island-wide issue. In addition to the east side, both the north shore and west side residents have protested the up-zoning of land in the UGP hearings, to no avail.

Do we want another Maui? Visitors choose Kauai for it’s bounty of nature and laid back life style. Please compare the four basic visions of the Planning Dept. to what the UGP actually says online. Web site (plankauai.com). I’m asking everyone who loves Kauai to get involved before it’s too late.


Image above: Joni Mitchell song "Big Yellow Taxi". "They paved Paradise and put in a parking lot". From (https://youtu.be/94bdMSCdw20).

Just say “No. We’re not going to Pave Paradise and Put up a Parking Lot”.

Better yet, get involved.

Please join the Kaua`i Community Coalition, a grass roots group of residents already active with the General Plan process, by attending an island-wide meeting to help formulate a response to the shortfalls and ramifications of the so-called Updated General Plan.

See also:
Ea O Ka Aina: Commission accepts General Plan 6/15/17
Ea O Ka Aina: Okay given to destroy Paradise 6/10/17
Ea O Ka Aina: Testimony against General Plan
Ea O Ka Aina: Kauai General Plan open house 12/8/16
Ea O Ka Aina: Reject the Kauai General Plan update 11/30/16
Ea O Ka Aina: Kauai County "Keep it Rural" 11/17/16
Ea O Ka Aina: Kauai General Plan Update 9/4/16
Ea O Ka Aina: Kauai General Plan Update 9/3/16
Ea O Ka Aina: Will developers write Kapaa’s future? 5/6/16 
Ea O Ka Aina: Kauai Plan Disappoints 12/9/15
Ea O Ka Aina: Hokua Place comment deadline 5/28/15
Ea O Ka Aina: Coco Palms good to go 3/11/15
Ea O Ka Aina: Lihue Loss of Vision 9/5/14
Ea O Ka Aina: Tax Donkey Purgatory - Lima Ola 7/18/14
Ea O Ka Aina: Annals of pure bullshit - Coco Palms 6/22/14 
Ea O Ka Aina: Coco Palms Travesty 8/10/13  
Ea O Ka Aina: Review 2000-2020 Kauai General Plan 4/2/09
Island Breath: Kauai Sustainable Land Use Plan 11/1/07
Island Breath: LEGS Sustainability Conference 10/13/07
Existing Kauai County General Plan 2000-2020 1999 

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The End Begins

SUBHEAD: New York's "Billionaires Row" suffers biggest foreclosure in its history.

By Tyler Durden on 23 June 2017 for Zero Hedge  -
(http://www.zerohedge.com/news/2017-06-23/new-yorks-billionaires-row-suffers-biggest-foreclosure-history)


Image above: And perhaps most impressive is the view of Central Park — waking up to this everyday is worth $100 million.From (http://www.businessinsider.com/inside-one57s-100-million-penthouse-2015-1#and-perhaps-most-impressive-is-the-view-of-central-park--waking-up-to-this-everyday-is-worth-100-million-10).

In the latest sign that NYC’s ultra-high end property market is on the verge of imploding after a wave of overly aggressive development, another luxury condo at Manhattan’s One57 tower, a member of “Billionaire’s Row,” a group of high-end towers clustered along the southern edge of Central Park, has gone into foreclosure - the second in the span of a month.

The 6,240-square-foot (580-square-meter) full-floor penthouse in question, One57’s Apartment 79, sold for $50.9 million in December 2014, making it the eighth-priciest in the building.
“It’s probably the most-expensive foreclosure we’ve ever seen in luxury development,” said Donna Olshan, president of high-end Manhattan brokerage Olshan Realty Inc. “I don’t know of a foreclosure that’s larger than that.”
According to Bloomberg, the shell company that purchased the property took out an unusually large mortgage and promised to repay in full a year later.
In September 2015, the company took out a $35.3 million mortgage from lender Banque Havilland SA, based in Luxembourg. The full payment of the loan was due one year later, according to court documents filed in connection with the foreclosure.

The borrower failed to repay, and now Banque Havilland is forcing a sale to recoup the funds, plus interest.
And, in what’s become a strong contender for the “no sh*t” quote of the day, a spokeswoman for Extell Developments, the developer that built One57, said there' s a lesson to be learned from this unfortunate situation.
“This shows that too much leverage is probably not wise,” Anna LaPorte, an Extell spokeswoman, said of the most recent default.


Image above: Ninety stories of multimillion dollar apartments is a new record in NYC real estate. Evan Joseph/Extell Development. From (http://www.businessinsider.com/inside-one57s-100-million-penthouse-2015-1#of-the-26-units-sold-so-far-only-half-of-the-buyers-are-known-they-include-head-of-bdo-unicon-group-andrey-dubinsky-and-president-of-swanson-health-products-leland-swanson-2).

A June 14th auction was scheduled for a 56th-floor apartment at the same tower. That condo was purchased in July 2015 for $21.4 million. Public records have yet to reveal any transfer of ownership for that property.

Investors across the NYC property spectrum should take note; prices in Manhattan and Brooklyn have risen so quickly they’ve effectively pushed marginal buyers out of the market and forced renters to devote a greater share of their income to housing.

Today, more than 30% of Americans pay half their income in rent - the highest percentage in decades.

And with more investors in the city concentrating on luxury properties, some ultra-luxury buildings like One57 are struggling with unsustainable vacancy rates of nearly 40%.

Until last month, no apartments on Billionaires’ Row, which also includes 432 Park Ave., had been subject to a foreclosure auction, according to PropertyShark. The loss of a Manhattan residential property to creditors is a rare event, regardless of the unit's price-tag: Only 27 new residential foreclosures in the borough in the first quarter.

Could this be the start of a trend? We think so. Which leads us to our next question: How, exactly, does one short the luxury real-estate market?

We also look forward to The Left deciding that a probe into this transaction is warranted, just in case it was some complex way to transfer Russian funds to Trump... (only half-kidding).
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Trump tries privatizing public lands

SUBHEAD: Hunters and Fishers score quick kill on Republican plan to sell western public lands.

By Kirsten Downey on 6 February 2017 for Civil Beat -
(http://www.civilbeat.org/2017/02/hunters-and-fishermen-score-a-quick-kill-of-public-lands-bill/)


Image above: After the state the Federal government is the largest owner of land in Hawaii including the land around Haleakala on Maui shown here. Photo by the Good Reverend Flash. From original article.

A congressional land grab of 3.3 million acres didn’t sit well with groups that use public lands, a significant issue for Hawaii, too.

The first attack on public lands under the Trump administration came fast, and it died fast, too.
 
Responding to ferocious public pressure generated by two upstart public-lands advocacy groups, U.S. Rep. Jason Chaffetz, a Republican from Utah who chairs the House Oversight and Government Reform Committee, has dropped his plan to force the sale of 3.3 million acres of federal land in the western United States to the highest bidder.
The federal government owns 20 percent of the land in Hawaii including Haleakala National Park on Maui.

“Political activism is the only way to protect public lands from President Trump and his cheerleaders in Congress, and it works,” said U.S. Rep. Raul Grijalva, an Arizona Democrat, ranking minority member of the House Natural Resources Committee.

The Democrats on the committee haven’t gotten a lot of vocal support from the public for the past few years — with President Barack Obama in office, people thought their efforts weren’t needed — so he and his staffers watched the developments unfold, first with worry, and then with surprise and admiration.

What happened to the measure, H. R. 621, The Disposal of Excess Federal Lands Act of 2017, has important consequences for Hawaii as well. 

About 20 percent of the land in Hawaii is owned by the federal government, falling under three basic jurisdictions — the U.S. Fish and Wildlife Service, the National Park Service and the Defense Department. What happens to one set of federal lands can easily happen to another.

Hawaii U.S. Rep. Colleen Hanabusa will be playing a major role watching over federal lands. 

On January 24th she was named ranking member of the federal lands subcommittee of the House Natural Resources Committee, which will give her jurisdiction over the National Park system, national trails, historic and prehistoric sites on federal lands, Forest Service and wildlife resources.

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The Death of Golf

SUBHEAD: Maybe some of these courses could be dug up and transformed into food forests.

By Karl Taro Greenfeld on 26 June 2015 for Mens Journal -
(http://www.mensjournal.com/magazine/the-death-of-golf-20150625)


Image above: A cart path on the abandoned Northgate Golf Course in Reno, Nevada, May 22, 2012. From (http://maxwhittaker.photoshelter.com/image/I00007q36TuLgBwE).

One night last September, my 15-year-old daughter, Esmee, told me her plan to try out for the girls golf team here in Pacific Palisades, California. While I was pleased with her interest in golf — which I'd played semiseriously, along with seemingly every other man under 40 in the Tiger-dominated late '90s — I felt I had to prepare her for the inevitable letdown. She lacked the requisite power and the repeating, compact swing I assumed were required of a varsity golfer. Do your best, I told her, but be prepared for the possibility that you might not make the team.

When she texted me a week later to say she'd made the cut, I was stunned. In the years I'd gone to the school, the golf team was a bunch of country club regulars whose swings were nice right-path whips, golfers who'd been playing for a half-decade by the time they got to high school. I asked the coach, James Paleno, what had changed.

"There just isn't the interest we used to have 14, 15 years ago," he says. "Now I have kids showing up who have never hit a golf ball before. Kids are just less aware of golf. They have too many other options. And then when they find out it takes five and a half hours to play 18 holes, they're just not interested."

By any measure, participation in the game is way off, from a high of 30.6 million golfers in 2003 to 24.7 million in 2014, according to the National Golf Foundation (NGF). The long-term trends are also troubling, with the number of golfers ages 18 to 34 showing a 30 percent decline over the last 20 years.

Nearly every metric — TV ratings, rounds played, golf-equipment sales, golf courses constructed — shows a drop-off. "I look forward to a time when we've got the wind at our back, but that's not what we're expecting," says Oliver "Chip" Brewer, president and CEO of Callaway. "This is a demographic challenge."

During the boom, most of those 20-somethings who were out hacking every weekend were out there because of one man: Tiger Woods. Golf's heyday coincided neatly with Tiger's run of 15 major golf championships between 1997 and 2008. If you listen to golf insiders, he's the individual most to blame for those thousands of Craigs­list ads for used clubs.

When Tiger triple-bogeyed his marriage, dallied with porn stars, and seemingly misplaced his swing all at once, the game not only lost its best player; it also lost its leading salesman. The most common answer given by golf industry types when asked what would return the game to its former popularity is "Find another Tiger."

But you can't blame one man's wandering libido for the demise of an entire sport. The challenges golf faces are myriad, from millennials lacking the requisite attention span for a five-hour round, to an increasingly environmentally conscious public that's reluctant to take up a resource-intensive game played on nonnative grass requiring an almond farm's worth of water, to the recent economic crisis that curtailed discretionary spending. "Golf is an expensive, aspirational game," says Brewer, "and a lot of millennials are struggling with debt and jobs. If you don't have a job, golf doesn't really fit you very well."

Combine the game's cost with the fact that golf is perceived as stubbornly alienating to everyone but white males — Augusta National, home of the Masters and perhaps the most famous golf club in the world, didn't accept black members until 1990 and women until 2012 — and it's no wonder young people aren't flocking to it. "One of the major reasons golf hasn't been growing is because historically, it has not been welcoming enough," says Greg Nathan, senior vice president of the NGF. "We need to make people feel more comfortable."

Not long ago, the game could count on young fathers to hide out on the links, and weekend tee slots are still filled with plenty of off-duty dads. But it takes two to properly helicopter-parent a family these days, and that means parents are spending more of their weekends at the playground than at the country club.

During the Tiger boom, everything about the game seemed to expand, from the length of the putters to the size of driver heads to the scale of the courses themselves. "When I won the U.S. Open at Bellerive in 1965, the course measured 7,191 yards. It was a monster," notes Gary Player, the only non-American to win a career Grand Slam.

"Now," he says, "7,500-yard courses are everywhere." And those courses have raised their greens fees. Pebble Beach may be able to charge $495 for a round, but when your local public course wants $150, it gets steep. And many of those golf courses weren't designed merely for golf; they were the lure for tens of thousands of homes that aimed to deliver one version of the American dream: golf course frontage.

Lake Las Vegas could be the poster development for an entire era of American excess — the real estate boom, the subprime mortgage crisis, and the exuberant overinvestment in golf courses as bait to sell property.

The 3,600-acre community built around a 320-acre artificial lake in Henderson, Nevada, featured two Jack Nicklaus–designed golf courses and one Tom Weiskopf course, the primary selling points for homes ranging from $500,000 to $5 million. Ritz-­Carlton opened a resort on the lake, which was declared a "Hot Spot" in 2004 by the Washington Post.

One of those three golf courses has since closed, the Ritz-Carlton is long gone (it's now a Hilton), and some of the luxury houses have hit the market for as little as $150,000. The golf course has been converted to scrubby trails, and it turns out that homes on a desert are a lot less desirable than homes on a golf course.

"For so many years, golf was a tool for developers to sell property," says Phil Smith, a golf course designer who worked with Nicklaus and Weiskopf during the boom. "There wasn't a sense of long-term viability in some of these developments."

As the homes around them hit foreclosure, courses often went neglected, leaving behind what has become a depressingly common sight and the enduring symbol of the sport's sad state in America: the abandoned course going feral.

They line the Carolina coast and pepper central Florida, and are littered throughout the West —fairways sprouting dandelion heads, water hazards infested with snapping turtles, rattlesnakes slithering out of bunkers. According to the NGF, a golf course in America closes roughly every two days, while just 11 courses were opened in 2014.

Ron Gorski, 59, was the manager of the Escondido Country Club when it closed down in 2013. It's one of a string of courses that have gone brown along the Avocado Highway corridor running north from San Diego. San Luis Rey Downs, a couple of miles north, closed in August 2014, and Carmel Highland, just down the highway, hosted its last round in March. Gorski, who resembles the actor and former Tennessee senator Fred Thompson, grew up in Colchester, Connecticut, spending summers playing shirtless at a local course where his parents dropped him off and picked him up in the afternoon a couple of days a week.

Now, as he drives his Jeep Cherokee down what used to be the first fairway, he shakes his head as he shows me the water hazards gone dry, the stumps where the pine trees used to be — the course now a nocturnal playpen for local wildlife. The tennis courts are cracked, the swimming pool drained, the pro shop gutted. Hawks circle overhead.

The last foursome walked off the course on March 31, 2013, wrote their scores on their Escondido Country Club cards, and drove off.

"It was a damn shame," Gorski says, "but we tried everything under the sun. Lowering greens fees. Kids play free. Two for one. The owners were doing all kinds of Groupon deals, and the remaining members didn't like it." By the time Escondido Country Club closed, there were only 120 members, most paying $300 a month. "That didn't even cover our water bill."

The course was designed in the early 1960s to play through the upscale Escondido neighborhood of midwestern transplants who came to claim their place in the sun in ranch- and mission-style homes backing onto the course. The homeowners could drive their golf carts off their backyards onto the fairway and then up to the clubhouse. Gorski remembers the good times: "On Friday nights the place was hopping. There were gin rummy games going in the back room. And now look at this."

We've parked and are making our way through the taproom. The San Diego County sheriff's department did canine training here for a while, hiding packages of drugs somewhere in the vast clubhouse and letting the hounds run through the place.

As Gorski steps over the old utility bills and bank statements scattered all over the floor, he looks around the front dining room, notices fresh chunks of missing drywall, and says, "Someone's been in here." Scavengers have returned, jimmying open a side door and trying to strip out the copper piping from the walls. "There's not much left to take in here."

The owner of the course, a development firm named, aptly, Stuck in the Rough, intends to turn the acreage into a residential development, an option available to resorts in prime residential areas. "What else could you do with the place?" Gorski asks. "Golf just didn't work. We couldn't get the young families to come out."

Even before it was shuttered last fall, the Malibu Golf Club decided to cut down drastically on its exorbitant water bill. "They were only watering the tee boxes and the greens," says former club pro Gene Hori. "The good news was you could hit these monster drives, because the fairways were like asphalt and the ball would skip forever."

Now, the manorial wrought iron gates in front of Malibu's only golf club are padlocked, and a sign hangs zip-tied to the metal: beware of guard dogs on patrol. The man who currently oversees the course, Tom Hix, 61, has gray hair in a thick shock and a forehead pork-belly pink from the California sun. He is a co-managing member of Malibu Associates, which bought the course near the peak of the golf boom, in 2006, and then filed for Chapter 11 last March.

They put up the guard dog signs shortly after, to ward off would-be trespassers. (There are actually no dogs.) Hix has been developing golf courses for 30 years, as president of real estate and golf course developer Hix Rubenstein, and will not let his clubhouse be scavenged for scraps.

Instead, he has a vision: cutting down the seven-figure water bill by reducing water consumption and introducing a water-saving sewage-treatment facility that will satisfy 10 percent of the course's water needs. And then turn the Malibu Golf Club into a health-and-wellness center that just happens to include a golf course. "The days of private golf clubs are numbered," he says, "and you have to have something different."

That means building 40 four-bedroom villas, Beverly Hills housewife–level spa facilities, several restaurants, conference centers, and screening rooms, all housed in LEED-certified buildings and largely powered by solar panels. "By the time we're done, golf will be really ancillary." He's reassuring potential investors that only 20 percent of the revenue from the club will come from golf; the rest will be from locally sourced produce, barre-method fitness classes, and spa treatments.

In other words, make a golf course seem less like a golf course. "There's nothing else we can do to make this work."

By now the various attempts to "save" golf by making the game faster, cheaper, and easier to play have all taken on an air of desperation. There have been a number of initiatives and innovations designed to lure younger players onto the course — most of them attempts to speed up the game. "Golf is losing fans because of time," says Phil Smith. "We need to provide for that."

That means shorter courses, some three- or four-hole loops that can be played "through" existing courses, or bigger holes or short-game areas — anything so that a player can go out and swing a club and get back before sundown. "We have to shorten the courses and change the equipment," Gary Player says. "Your average golfer will have a much better experience if he or she doesn't feel the need to hit a driver off of every tee box."

There is also FootGolf, essentially golf played with a soccer ball, and Big Hole Golf, where the game is played with cups as wide as 15 inches, and, of course, Frisbee golf. The PGA and USGA have introduced Tee It Forward, which encourages players to set their tees well ahead of their normal tees, with the hope that beginner players can finish a round in three hours. "I'd like to play a game that can take place in three hours," Nicklaus told CNN this past January. "And something that isn't going to cost me an arm and a leg."

At every turn, the game is trying to lure younger golfers into the clubhouse. The USGA sponsors Drive, Chip & Putt, a skills program for juniors similar to the NFL's Punt, Pass & Kick, and one of last year's participants, 11-year-old Lucy Li, became the youngest player in history to qualify for the U.S. Women's Open. The First Tee, a partner of the PGA, LPGA, and several major corporations, has focused on introducing golf into schools by donating equipment and providing a golf-friendly curriculum.

Still, the sparse crowd on a Saturday afternoon at the Los Angeles Golf Show definitely skews more Arnold Palmer than Lucy Li. In fact, there's hardly anyone under the age of 50 who isn't manning a booth.

There were a few dozen golf courses and country clubs trolling for members: Angeles National, Rio Hondo, the Crossings at Carlsbad, each offering deeply discounted rounds and practically begging me to play at their courses. Their sales managers touted their yardage, conditions — "the only Nicklaus Design golf course in Los Angeles County," a "$44 weekday special including a hot dog and a soda" — and said they believed the golf business was finally rebounding.

But I didn't have to press very hard to get them to admit that business was slow. "It's a challenge," says Debora Main, marketing and sales manager of Candlewood. "It's been a tough few years."


Image above: One of 13 Topgolf locations in the United States. Photograph by Ben and Kelly Photography / Courtesy Top Golf. From original article.

Nearly everyone I spoke with at the convention pointed to one company as the potential savior. "Maybe Topgolf is our Tiger," says Callaway's Brewer, which owns just under 20 percent of Topgolf, the company that has devised a simulated version of the game by putting microchips into balls at high-tech driving ranges.

Players hit into the target area as a computer screen keeps score based on how accurate the shots are. In between drinking, eating, and listening to the house DJs, they stand on an Astroturf mat and play 20 balls. It's golf's version of bowling.

The company was formed in the U.K. but was acquired by a U.S. investment group in 2005. Topgolf has 13 locations in the U.S., and will have 20 by the end of the year and as many as 50 by the end of 2017, including a 105,000-square-foot facility adjacent to the MGM Grand in Las Vegas. It's golf as karaoke, with crowds of young people sitting in hitting bays and partying between taking their hacks. And the company is booming, with revenue far exceeding $100 million this year. Most important for the golf industry, 54 percent of its 4 million visitors last year were between the ages of 18 and 34.

"We're not in the golf business, or, OK, we are, but we're really in the hospitality business," says Ken May, 54, the Topgolf CEO. He was the chief executive who presided over the merger of FedEx and Kinko's and joined Topgolf in 2013. "I opened 500 FedEx Kinko's. I know how to open a lot of boxes," he says, "and that's what we're doing here."

May has a compact, even swing. He lines up a 7-iron on the second deck of a Topgolf facility in The Colony, Texas, takes a short backswing, scoops the ball nicely, and pops it out to about 150 yards. A score comes up on the screen behind him, giving him four points and informing him that his next shot is worth double. There are nine games golfers can play at Topgolf, which has targets spread all around the range. So that even though I top my first shot, it skitters along the turf and into a target I hadn't even been aiming for, and I, too, pick up a few points.

"See," says May. "You get some points!"

May, who worked his way through Memphis State unloading boxes for UPS, was a casual golfer before he came to Topgolf. But that's fine, he says, because he sees himself as being in the fun business, not the golf business. The first requirement for every aspiring Topgolf associate who shows up for a group interview is to get up and dance. "We want people who are outgoing, guest-focused. A lot of people wash themselves out of the process, because on a break, they're checking their phones instead of socializing."

The atmosphere on a typical Friday or Saturday night is more nightclub than country club, albeit with some of the fattiest, heaviest food this side of a Cheesecake Factory. While a DJ spins on a lounge level, golfers chow down on Mushi (Mexican sushi), Mac Daddy Burgers (hamburgers with macaroni and cheese piled on top), and Injectable Donut Holes, all while ordering cocktails from an attendant assigned to their hitting bay. The formula is working, with four-hour waits for hitting bays — the patrons killing time at a fully stocked sports bar with dozens of screens. So the golf is pretty much pure profit.

It's the opposite of a stuffy country club or even a posh public course, where arranging a tee time, or even finding the starter's window, can be intimidating for a novice golfer. On a recent Monday night, I watched a pair of 16-year-olds, an African-American male and his white date, walk into the Colony location and start hitting. When I asked the girl about the experience, she said it was the first time she had ever hit a golf ball. But based on how fun the whole experience was — the food, the games, DJ Snake and Lil John's "Turn Down for What" blaring on the PA — she thought they would be back.

I went back to my hitting bay, waved my 5-iron in front of a sensor, and a microchipped ball already tagged with my name for scoring purposes came rolling down the ramp. I was hitting 'em OK, fading a little but making 200 or so yards, scoring 75 after 20 balls. (I have no idea if that's a good score or not.)

At one point a guy in khaki pants interrupted me during my backswing to tell me I was picking at the ball instead of scooping. Jeff Johnston was a PGA professional who offered a half-dozen little tweaks and pointers for my swing — unwanted advice, in other words, after which my game completely fell apart, just like it would have on a real course.

A week after the golf show, my daughter, Esmee, and I drove to a local course to cash in one of my vouchers. Esmee hadn't had a great season on her team, becoming progressively demoralized as the season went on. I understood why: Golf is a difficult, humbling game.

Our nine-hole round that afternoon was the classic good walk spoiled: lovely sun, cooling breeze, shimmering eucalyptus trees, and poorly hit balls zigzagging back and forth across the fairway. Our pace annoyed those behind us, so we let a foursome play through. I could see my daughter's frustration mount as she bent over her balls, swung down, popped her head, topped her shots, and it was all she could do to resist stomping from the course and never playing again.

Somehow I resisted the temptation to tamper with her swing, forgoing urgings not to bend her left arm or to open her clubhead. Occasionally I urged her to keep her head down, to follow through, but mostly I just watched and waited as she struggled through a miserable round.

On the seventh hole, a straight par 4 up a little hill and then an elbow to the right, Esmee botched her 2-iron off the tee, sending the ball skittering up the fairway. But her second shot, a 3-iron from the rough just left of the fairway, was magnificent, her swing a rightward path from three till nine that followed through, the contact a satisfying thwack, and the ball soaring some 200 yards, coming to rest just shy of the green. She stood for a moment watching it, and then she looked at me and smiled.

I knew she would remember that one good shot for the rest of her life.
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Annals of pure bullshit - Coco Palms

SUBHEAD: Coco Palms redevelopment is going Green and means 2,000 new jobs and a quarter $billion for Kauai!

By Juan Wilson on 22 June 2014 for Island Breath -
(http://islandbreath.blogspot.com/2014/06/annals-of-pure-bullshit-coco-palms.html)


Image above: Early promotional photo at the Coco Palms Lagoon. From (http://www.hawaiimagazine.com/blogs/hawaii_today/2010/3/30/Coco_Palms_Resort_Kauai_update

At the time the Coco Palms was built in 1953 there was no "traffic" on Kauai. There wasn't a red-light on the island to stop at. Conveniently there was a 2,000 tree coconut tree grove on the marshy property. A featured lagoon would be easy. So, in 1960, in "Blue Hawaii", when Elvis Presley and his bride to be rode a flower bedecked double-hulled canoe to the resort's Wedding Chapel, the myth of the Coco Palms was born.


Image above: Elvis Presley arriving in 1960 at the entrance to the Coco Palms to film "Blue Hawaii". From (http://www.messynessychic.com/2014/01/23/elvis-presleys-abandoned-tiki-paradise/).

Entertainers from a half century ago gave the Coco Palms some glamor. That would include stars like Frank Sinatra and Elvis Presley and lesser celebrities like Kauai's Larry Rivera (who has shilled for a renewal of the resort).

But renewal of places like the Coco Palms have to be framed in restorative historic terms. They are laden with false promises and nostalgia.  This is because no one in their right mind would seriously consider building a new, expensive resort in a tsunami floodplain on an eroding beach experiencing ocean rise at the busiest traffic bottleneck on Kauai. It would be insane to do so.

It could only be sold as a restoration of some glorious past that is bathed in a golden light of reflectance.

Image above: Elvis in wedding scene from finale of "Blue Hawaii" at the Lagoon of the Coco Palms. From (http://www.messynessychic.com/2014/01/23/elvis-presleys-abandoned-tiki-paradise/).

In 1991 Hurricane Iniki did great damage to Kauai. The Coco Palms Resort, facing the Pacific Ocean on Wailua Beach has been closed since. Some damaged hotel facilities, like the Sheraton in Poipu were rebuilt - with reinforced cement bunker technology. The fragile wood Coco Palms was left to rot - and with good reason.


Image above: The Coco Palms after Hurricane Iniki devastated Kauai in 1991. In months the resort was officially closed for good. From (http://www.messynessychic.com/2014/01/23/elvis-presleys-abandoned-tiki-paradise/).

Every few years for the last decade or so we've gotten some sunlight and green smoke that have been blown up our skirts on plans to resurrect the dead Coco Palms Resort into 21st Century.

Needless to say, the schemers and speculators who come up with these plans are not hotel operators. They are grifters and sideshow hustlers. They want to "GET IN" by obtaining property rights at a penny-on-the-dollar and then "GET OUT" by having to be bought out and leaving others holding a bag of turds.

Code words these "developers" use are:
  • New Jobs
  • Restoration
  • Smart Growth
  • Green Energy
  • Public Amenities
  • Cultural Integrity
  • Historic Preservation
These words are, if not meaningless, untrue when evoked for the purpose of securing money and permits for speculative development. Older, faded celebrities are commandeered to invoke nostalgia and bring a blessing to the project. Political hacks join in for free publicity photo-ops.

This is all hype by con-artists' flacks to lull the public while the commons and cultural heritage is plundered.

There was a recent article on the latest Coco Palms scheme in Pacific Business News dated 6/18/14.  The "reporter" Duane Shimogawa parrots the project's developer:
"The redevelopment of the iconic Coco Palms Resort on Kauai, which will be branded as a Hyatt resort, could mean up to 1,970 new jobs and $230 million infused into the Garden Isle’s economy"
 Of course over two-thirds of those jobs would be short term construction. The bulk of the rest would be maids, groundskeepers, bellboys, kitchen staff etc.

The article goes on to say: 
Coco Palms Hui LLC, which is headed up by Honolulu investors Tyler Greene and Chad Waters, is raising EB-5 funds for the renovation and reopening of the famed resort in East Kauai, which has been shuttered for more than two decades after being destroyed by Hurricane Iniki. The report says the funds could be raised by close to 200 EB-5 investors.
The EB-5 immigrant investor program, a federal program that puts foreign investors on the fast track for permanent U.S. residency, gives green cards to foreign nationals who invest between $500,000 and $1 million in a U.S. company or project and $1 million in a U.S. company or project that will create at least 10 American jobs within two years.
In recent years, the Mainland has seen a flurry of activity in this program from wealthy foreigners, particularly from China, South Korea and Great Britain.
 Well at least they are going to import their suckers this time. I imagine it will mostly be Chinese "mad money" since the real estate bubble over there exploded. Although, it would seem Macau would be a better spot in that it has legal casinos. Kauai does offer gambling but its hard to build a resort around chicken fights.




Image above: Today a casual sign advertized a "business" that operates a tour of the Coco Palms grounds at 2pm on Monday through Friday. From (http://www.bizjournals.com/pacific/news/2014/06/18/kauai-coco-palms-redevelopment-could-mean-2k-new.html).

See also:

Ea O Ka Aina: Coco Palms Travesty  4/10/13
Ea O Ka Aina: Wailua Beach "Elephant Path" 12/22/12
Ea O Ka Aina: Wailua Bike Path Consideration  12/12/12
Island Breath: Annals of False Advertizing - Kauai Lagoons 3/18/08
Island Breath: Coco Palms Developers Break Promises 1/14/07
Island Breath: Coco Palms & Traffic Problem 3/1/06
Island Breath: Coco Palms Review 1/8/06
Island Breath: Kauai Coconut Coast Overdeveloped 11/12/05
Island Breath: Coco Palms Development 12/28/04

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Dead Mall Syndrome

SUBHEAD: The self reinforcing death spiral of suburban retail commercial real estate in America.

By Charles Hugh Smith on 22 January 2014 for Of Two Minds -
(http://www.oftwominds.com/blogjan14/dead-malls1-14.html)


Image above: An abandoned Toys & Gifts Outlet store at the Belz Factory Outlet Mall, Allen, Texas. From (http://www.adweek.com/news/advertising-branding/does-american-shopping-mall-have-second-life-149165?page=3).

Retail CRE (Commercial Real Estate) is highly leveraged and loaded with staggering amounts of debt that rests on leases that are only as good as the retailers' profit-loss statements and solvency.

The decay of the "build it and they will come" model of commercial real estate is gathering speed for a simple systemic reason: the decline is self-reinforcing in several critical ways.

Before we start the analysis, let's ask a basic question: How much of the stuff and services purchased at retail outlets, malls, strip malls, etc. is absolutely necessary and how much is excess consumption?

Conventional "Growth by any means" Cargo Cultists such as Paul Krugman never ask this basic question, because the answer (very little is essential, most is excess consumption) undermines the entire narrative that all growth is good, even the most marginal, unsustainable, wasteful and fiscally imprudent.
Put another way: what if Degrowth is the future, for a variety of structural reasons? If so, the need for billions of square feet of commercial space will implode.
Degrowth, Anti-Consumerism and Peak Consumption (5/9/13)

Looming U.S. Retail Implosion: DeGrowth 2014 (12/4/13)
There are two primary self-reinforcing dynamics in retail CRE: consumerist and financial. Let's start with the consumerist dynamic, which is composed of several interlocking feedback loops.
  1. As the cost of big-ticket household expenses such as healthcare, energy, college, etc. rises while real income declines for the bottom 90%, households have less disposable income to spend on excess consumption--another tattoo, skinny-triple-mocha-fudge-lattes, 13th pair of shoes, etc. I addressed the decline in real income yesterday in The First Domino to Fall: Retail-CRE (Commercial Real Estate).

  2. The rise of eCommerce is eroding the desire to drive to the mall, strip mall, etc. when the goods can be delivered to one's door by the Brown Truck Store (Mark G.'s phrase).

  3. As anchor chain stores and other key retailers reduce inventory and slash investment in maintenance and store improvement, the attractiveness of these physical places declines dramatically. Shopping in a decaying sepulchral cavern with little inventory on the shelves is not very appealing.

  4. As chains close anchor stores in malls, foot traffic declines and the feeding chain of smaller retailers starves. The "cool/fun" factor of a mall declines exponentially with store closings. It's just not much fun to stroll through a huge space filled with closed storefronts and few other shoppers. In fact it can be a quite depressing experience.
The financial self-reinforcing dynamics are equally pernicious. Correspondent Chris H. (U.K.) recently described the precarious dependence of property valuations on long-term leases:

The book value of the properties is based on the attainable rents. If just one property in the portfolio has to settle for a lower long-term rental rate, that will devalue the entire 'book to market' portfolio. Just a few low 'book to market' evidence-based valuations and the whole sector could collapse.

One way to dodge that bullet is to not offer any long-term leases. Another is to entice major tenants to sign high-value leases with various guarantees (that the mall will maintain a certain occupancy rate, etc.).

The primary point here is that CRE is highly leveraged and loaded with staggering amounts of debt that rests on leases that are only as good as the retailers' profit-loss statements and solvency.

As Mark G. noted in his overview After Seven Lean Years, Part 2: US Commercial Real Estate: The Present Position and Future Prospects, the standard commercial real estate loan is not a 30-year mortgage; it's a short-term mortgage ( 5 to 10 years) with a huge balloon payment that's due at the end of the term--a balloon payment that requires refinancing.

That need to refinance will force lenders to examine mall owners' leases and the valuations that are based on high occupancy and lease rates. As anchor tenants vacate and smaller tenants close up in their wake, how many of these retail properties will justify their previous valuations? What happens to these properties when the balloon payment can't be paid because the owners cannot refinance?

There are three other financial factors to consider:
  1. Many of the healthiest malls are "premium outlets" that cater largely to foreign tourists and the dwindling class of upscale American households. Should a global recession occur, tourism will take a hit, along with the ability of foreign tourists to buy thousands of dollars of luxury brand handbags, etc.

  2. Since the top 10% of U.S. households is heavily dependent on bonuses, ownership of stocks, real estate appreciation, etc. for their income gains, a rollover in equities and residential real estate would negatively impact the "wealth effect" that has powered their five-year long shopping spree.

  3. Much of the "growth" reported by retailers has resulted from poaching existing store sales: The American Model of "Growth": Overbuilding and Poaching (November 19, 2013).
Once the wheels fall off this model of "growth," chains will enter a cycle of closing marginal stores to boost profits. That will place additional pressure on retail properties as once-reliable chain tenants exit marginal properties en masse.

I have been covering the commercial real estate sector for years:
The Gathering Storm in Commercial Real Estate (CRE) (10/21/09)

Commercial Real Estate (CRE): The Slow-Mo Cliff-Dive Gathers Speed (11/16/10)



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Real Estate Reality

SUBHEAD: Is the Bottom In, or is the current "recovery" just a Head-Fake?

By Charles Hugh Smith on 10 December 2012 for Of Two Minds -
(http://www.oftwominds.com/blogdec12/RE-headfake12-12.html)


Image above: Reality? No... A view of part of  Paramount Studios huge backlot New York stage set. "Seinfeld" was filmed here. From (http://texifornianperspective.tumblr.com/post/25281263782/new-york-in-la-paramount-studios).

Everyone interested in real estate is asking the same question:

Is the bottom in, or is this just another “green shoots” recovery that will soon wilt?

Let’s start by reviewing the fundamental forces currently affecting real estate valuations.

Expanding the pool of potential buyers has reached the upper limit.

There are two ways to expand the pool of qualified home buyers, and they both rely on expanding leverage:  A) lower the down payment from 20% cash to 3%, and B) lower the mortgage rate to 3.5%.

Lowering the down payment increases the leverage from 4-to-1 to 33-to-1, a massive leap.

Increasing leverage increases risk. Over 90% of all mortgages are guaranteed or backed by Federal agencies such as FHA. This “socialization” of the mortgage industry means that losses ultimately flow through to the taxpayers, who are subsidizing the housing industry via these agencies.

Lowering the mortgage rate increases the leverage of income.  It now takes much less income to qualify for greatly reduced monthly payments.

With mortgage rates barely above the prime rate and Treasury bond yields negative in terms of inflation, there is simply no room left for lower rates or down payments.  The “increase home sales by expanding the pool of buyers” game plan has been run to the absolute limit.

The pool of buyers cannot be expanded any further; that boost to sales is done.

The unintended consequence of enticing marginal buyers to buy homes is that defaults are rising: 1 out of 6 FHA-insured loans are delinquent. This is the “blowback” of qualifying everyone with an income above the poverty line as a homebuyer.

The mortgage industry has escaped any consequences of “robo-signing” mortgage fraud.

Everyone interested in real estate is asking the same question: Is the bottom in, or is this just another “green shoots” recovery that will soon wilt?

Let’s start by reviewing the fundamental forces currently affecting real estate valuations.
Expanding the pool of potential buyers has reached the upper limit

There are two ways to expand the pool of qualified home buyers, and they both rely on expanding leverage: A) lower the down payment from 20% cash to 3%, and B) lower the mortgage rate to 3.5%.

Lowering the down payment increases the leverage from 4-to-1 to 33-to-1, a massive leap.

Increasing leverage increases risk. Over 90% of all mortgages are guaranteed or backed by Federal agencies such as FHA. This “socialization” of the mortgage industry means that losses ultimately flow through to the taxpayers, who are subsidizing the housing industry via these agencies.

Lowering the mortgage rate increases the leverage of income. It now takes much less income to qualify for greatly reduced monthly payments.

With mortgage rates barely above the prime rate and Treasury bond yields negative in terms of inflation, there is simply no room left for lower rates or down payments. The “increase home sales by expanding the pool of buyers” game plan has been run to the absolute limit.

The pool of buyers cannot be expanded any further; that boost to sales is done.

The unintended consequence of enticing marginal buyers to buy homes is that defaults are rising: 1 out of 6 FHA-insured loans are delinquent. This is the “blowback” of qualifying everyone with an income above the poverty line as a homebuyer.
The mortgage industry has escaped any consequences of “robo-signing” mortgage fraud

If the rule of law existed in more than name, this is what should have happened:
  1. MERS, the mortgage industry's placeholder of fictitious mortgage notes, would have been summarily shut down.
  2. All mortgages and derivatives based on mortgages would have been marked-to-market.
  3. All losses would be booked immediately, and any institution that was deemed insolvent would have been shuttered and its assets auctioned off in an orderly fashion.
  4. Regardless of the cost to owners of mortgages, every deed, lien, and note would be painstakingly reconstructed on every mortgage in the U.S., and the deed and note properly filed in each county as per U.S. law.
That none of this has happened is proof that the rule of law is “optional” for financial institutions in America.

The $25 billion mortgage fraud settlement turned a blind eye to the fraud, and now the banks are applying losses they have already booked to the $25 billion, mooting the supposed “benefit” of the settlement to consumers.

The Federal Reserve’s purchase of mortgages – over $1.1 trillion in 2009-10 and now another $40 billion a month – is essentially a money-laundering operation in which the Fed exchanges cash for dodgy mortgages.

Analyst Catherine Austin Fitts (QE3 – Pay Attention If You Are in the Real Estate Market) summarized what this means:
“The Fed is now where mortgages go to die.”

"Thousands of mortgages on homes that do not exist or on homes that have more than one ‘first’ mortgage are now going to the Fed to disappear. Thousands of multifamily and commercial mortgages will be bought up as well. With documents shredded, criminal liabilities extinguished and financial institutions made whole, funds can return without fear of seizure.

QE3 proves beyond any shadow of a doubt that the extent of the fraud was as bad as I said it was. You can count up the bailouts and QE1, QE2, QE3 the numbers speak for themselves. The fraud was indeed in the many trillions of dollars.”
In other words, the financial sector has gotten away with murder, and the “overhang” of systemic fraud has been erased with Fed connivance.

Banks are restricting inventory.

The banks are withholding distressed properties to restrict the inventory of homes for sale.

If supply overwhelms demand, prices decline. That would be a bad thing for banks sitting on millions of defaulted mortgages and distressed properties. Millions of impaired properties are being held off the market so supply is lower than demand.

The strategy has costs; thousands of defaulted homeowners have been living mortgage-free for years. But the gains have been impressive: with supply dwindling, beaten-down markets have seen gains of 20+% this year as strong investor demand has pushed prices higher.

Since the strategy has paid such handsome returns, why change it?

ZIRP has attracted investment.

The Fed’s ZIRP (zero interest rate policy) has pushed investors into a “search for safe yield” that has led many to buy corporate bonds, dividend stocks and everyone’s favorite “safe” fixed asset, real estate.

In many markets, one-third or more of all sales have been to investors.

Some are buying distressed properties to “flip” in strong-demand markets, but many are buying the homes as rentals with the plan being to hold them for a few years as prices rise and then sell to reap appreciation.

Anecdotally, every investor class is getting into the act, from Mom and Pop to big players such as insurance companies and Wall Street funds. One of my contacts in the insurance industry told me that his firm was buying large multi-unit apartment complexes, as these rentals generated a yield of 6% to 7%, far above the 1.7% yield of ten-year Treasury bonds.

In a non-ZIRP world, Treasuries and other asset classes would offer similar yields but without the risks and costs of managing rentals. But in a ZIRP world of near-zero yields for low-risk financial assets, rental real estate is a compelling investment: decent yields, relatively low risk, and strong appreciation potential if housing has indeed bottomed.

“The bottom is in” – isn't it?

Once potential buyers see prices rise and they conclude that “the bottom is in,” they jump in and buy, pushing prices higher in a positive feedback loop. The higher prices rise, the more evidence there is that the bottom is in, and the greater the incentives to jump in before prices once again rise out of reach.

Favorable rent/buy ratio

With mortgage rates well below 4%, the rent-buy ratio is favorable in many areas. It may indeed be cheaper to buy than to rent in some locales.

“Hot money” flowing into real-estate.

As economies in Europe and Asia falter, “hot money” is flowing into perceived “safe havens” such as the U.S. and Canada. Some of this “hot money” ($225-$300 billion a year is leaving China alone) is flowing into real estate, a well-known phenomenon in markets such as Vancouver, B.C., Miami, and Los Angeles.

Conclusion

What can we conclude from this overview of fundamentals?

  • The mortgage industry escaped any real consequence from its systemic fraud,
  • The Status Quo plan to reflate the housing market with super-low mortgage rates and down payments has worked to some degree.
  • The financial sector’s plan to boost home prices by limiting supply has also worked.
  • ZIRP has created a “crowded trade” in low-risk investments with attractive yields such as corporate bonds, dividend stocks, and real estate, which is being fueled by a self-reinforcing perception that “the bottom is in”.

The question now is will these forces continue pushing prices higher? If so, the bottom may well be in. If these forces deteriorate or lose their effectiveness, then the “green shoots” of investor interest may wither as the U.S. economy joins Europe and Japan by re-entering recession.

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Paradise Real Estate

SUBHEAD: Hawaii hotel real estate speculation boom returns with $1.85 billion loan from Goldman Sachs.

By Nadja Brandt on 11 December 2012 for Bloomberg News -
(http://www.bloomberg.com/news/2012-12-11/hawaii-real-estate-paradise-returns-with-goldman-loan-mortgages.html)


Image above: A view of Waikiki beach is seen from the Sheraton Waikiki on the island of Oahu, Hawaii. From original article.

Hawaii, buffeted in the aftermath of the U.S. recession and Japan’s tsunami, is benefiting from a travel rebound that’s sent tourism revenue to a record and spurred real estate investments across the islands.

Goldman Sachs Group Inc. (GS) last month announced a $1.85 billion loan for a once-distressed hotel portfolio that has five Hawaiian properties, including the Sheraton Waikiki and the Westin Moana Surfrider in Honolulu. Companies from Walt Disney Co. to Starwood Hotels & Resorts Worldwide Inc. (HOT) are expanding resorts. On the Big Island, the first new residential development in at least five years is starting construction.

Property investors and lenders are seeking to take advantage of increased demand from affluent Asian travelers and visitors from Northern California enriched by the technology- industry boom, according to Honolulu-based Hospitality Advisors LLC, an industry consulting firm. Oahu, which attracts the most visitors of Hawaii’s eight major islands, has the highest hotel occupancy among the top 25 U.S. markets, research firm STR said.

“What’s driving Hawaii now, particularly Oahu, is the resurgence of the Japanese market -- there was a lot of pent-up demand after the tsunami -- and substantial growth in Chinese and Korean numbers because of the increase in wealth in those regions,” said Joseph Toy, president of Hospitality Advisors.

Lodging and tourist-industry revenue, including room rentals and food and retail sales, rose 15 percent to a record $3.62 billion this year through Sept. 30, according to Hospitality Advisors. That compared with a low of $2.59 billion in the first nine months of 2009, when the U.S. was in a recession after the credit crisis.

Japan Tsunami

Travel was also reduced by the March 2011 Japanese earthquake and tsunami that killed thousands of people and led to the worst nuclear crisis since Chernobyl, according to Hawaii’s tourism board. Mary MacNeill, managing director at Fitch Ratings, predicted at the time that the disaster would set back a recovery by one to two years.

“Tourism bounced back sooner than expected,” she said in an e-mail last week. “The Japanese tourism decline was not as great as originally expected. In addition, other markets, particularly China and Korea, had a large increase in travel to Hawaii.”

The average property value for Oahu hotels probably will climb 24 percent to $547,764 a room by 2015, according to HVS and STR, developers of an index that tracks supply and demand, profit and loss forecasts, and investment yields. Oahu’s projected per-room value is the second-highest among 65 major U.S. markets, after New York City, the firms said.

Strong Comeback

“This market has come back so strongly after the downturn,” Suzanne Mellen, a San Francisco-based senior managing director at hospitality-consulting firm HVS, said in a telephone interview. The firm conducted appraisals of the hotels for the Goldman Sachs financing.

That deal involved hotels owned by private-equity firm Cerberus Capital Management LP and known as the Kyo-ya portfolio in the commercial-mortgage backed security market. The loan backed by the properties was sent to special servicing in April 2011 after the hotels’ value dropped. Special servicers negotiate with landlords on behalf of bondholders and decide whether to modify a loan or foreclose.

Cash flow at the properties has almost doubled since 2009, Deutsche Bank AG analysts said in a May research note. That month, Cerberus sought to replace debt after a deal struck with New York-based Goldman Sachs in 2011 failed to close, three people familiar with the transaction said at the time.

CMBS Demand

The new financing will include a mortgage and mezzanine loans. A portion of the debt may be sold as bonds as investor demand for CMBS surges. Wall Street banks issued about $16 billion of securities tied to everything from mobile home parks to skyscrapers in the fourth quarter, a post-credit-crisis record, according to JPMorgan Chase & Co. Sales are on pace to reach $46 billion in 2012, almost 50 percent more than last year, the analysts said.

“We’re going to let the financing speak for itself,” Michael DuVally, a Goldman Sachs spokesman, said in an e-mail. John Dillard, a spokesman for Cerberus with Weber Shandwick in New York, didn’t return a telephone call and e-mail seeking comment.

“These properties are completely irreplaceable because of the restrictive Waikiki zoning laws that make any new builds nearly impossible, and they are incredible cash cows,” Mellen said. “You can’t be better located than these hotels, sitting right on the beach in Hawaii.”

Redeveloping Hotels

Many lodging investors are limited to redeveloping existing hotels, rather than constructing new ones, because of strict environmental and zoning laws meant to prevent overbuilding in Hawaii, especially near beaches, Mellen said.

“It is the highest barrier of entry market I can think of,” she said. “People say New York is a high-barrier market or San Francisco, but I think Hawaii is much worse.”

In August, Walt Disney (DIS) announced plans to expand its Aulani Resort on Oahu, just one year after its opening, for an undisclosed amount. The Burbank, California-based company plans to add a third swimming pool and a splash zone for kids, and has already added more lawn space for weddings. The new pool and splash zone are scheduled for completion in mid-2013.

Starwood Hotels last month said it completed work at four properties: the $188 million redevelopment of the Sheraton Waikiki, the $6.5 million renovation of the Sheraton Maui Resort & Spa, the $16 million upgrade of the Sheraton Kauai Resort and the $20 million refurbishment of the Sheraton Kona Resort & Spa at Keauhou Bay.

Hawaii Flights

The work is intended to help meet “the increased demand for high-quality accommodations as business and leisure travel to the Hawaiian islands continues to grow,” the Stamford, Connecticut-based company said in a statement.

This year through September, total seats on flights to Hawaii rose 7.3 percent, including a 47 percent increase in scheduled seats from Asian countries, according to data from the Hawaii Tourism Authority. Seats from the Oceania region, which includes Australia and New Zealand, climbed 30 percent, and from Japan they rose 13 percent. Scheduled seats from the U.S. West Coast rose 4.1 percent.

Any airline cutbacks or economic slumps in countries such as China or Japan may quickly upset Hawaii’s recovery, according to Stephen Hennis, a director at Boulder, Colorado-based STR Analytics.

Very Susceptible

“The fact that you can only get to Hawaii by plane or boat makes it more susceptible to cutbacks by airlines,” he said. “And its dependence on discretionary spending makes it very susceptible to economic changes in the regions it gets most of its visitors from.”

The state’s visitor arrivals this year through September climbed 9.6 percent to 5.97 million, according to a Hawaii Tourism Authority study. The biggest increases came from Japan, with a jump of about 16 percent, and the category that includes China and Korea, which had a 27 percent gain.

Hawaii’s gross domestic product is expected to rise 2.4 percent next year, compared with a projected 1.6 percent increase in 2012 and a decline of 0.2 percent in 2011, according to data from the state Department of Business, Economic Development and Tourism. GDP probably will climb 2.5 percent in both 2014 and 2015, according to the agency.

While Hawaii’s recovery is driven largely by tourism, real estate categories other than lodging also are improving.

“The ripple effect on other aspects of the Hawaiian economy is phenomenal,” said Mellen of HVS.

Building Volume

Building-permit volume in the state, including residential and industrial applications, climbed 33 percent to $1.2 billion worth of projects this year through September, according to data from Colliers International, a Seattle-based real estate services company. That’s the highest level since 2007, when permits for a record $1.35 billion worth of development were filed in each of the comparable periods.

In Honolulu, construction of a dozen condominium projects with a total of about 3,000 units is expected to begin in the next three years -- about the same growth pace as in the peak years of 2006 and 2007, said Michael Hamasu, a Honolulu-based director of consulting and research at Colliers.

On Maui, two residential communities -- Kehalani and Maui Lani -- are under construction, and on Oahu, a couple of large residential projects are being developed, including Ho’opili, a planned community by Fort Worth, Texas-based D.R. Horton Inc. (DHI)’s Schuler division, Hamasu said.

Kohanaiki Development

A joint venture of real estate investor Kennedy Wilson (KW) and Irvine, California-based IHP Capital Partners is spending about $300 million on Kohanaiki, a new golf-and-residential development on the Big Island of Hawaii’s Kona Coast, said William McMorrow, chairman and chief executive officer of Beverly Hills, California-based Kennedy Wilson. The companies expect the project to have a value of about $1 billion when it’s fully completed, in 10 to 15 years, he said.

“Everything in Hawaii is hitting on all cylinders,” McMorrow said in a telephone interview. “It’s an opportune time to deliver product to the Hawaiian market.”

Kohanaiki is the Big Island’s first new residential development in at least five years, said Saul Pinto, CEO of Kohanaiki Shores LLC, the property’s developer. The 500-unit, 500-acre (200-hectare) project received permits in 2004, then stalled during the slump, he said. Lots and units will be marketed at $1.7 million to $6 million “and up” toward the end of 2013’s first quarter, Pinto said.

California Buyers

“I would say 80 percent of buyers on the Big Island come from California, and to a lesser degree from Seattle and Portland,” Oregon, McMorrow said. “The majority of California buyers are from Northern California, and they have benefited from the success in the tech and venture-capitalist sectors. It’s a big driver.”

One of the biggest names in the technology industry, Oracle Corp. founder Larry Ellison, earlier this year bought 98 percent of the island of Lanai for an undisclosed price. The sale included two resort hotels, two championship golf courses and club houses, and more than 88,000 acres of land.

The sales volume for commercial-property transactions of at least $1 million is likely to reach about $2 billion this year in Hawaii, the highest level since 2007, when sales totaled $3.04 billion, according to Colliers. Real estate investments are likely to increase for the foreseeable future, said Toy of Hospitality Advisors.

“We see a lot of capital that is in search of acquisitions in Hawaii,” he said. “My phone rings a lot these days.”
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Opportunities of the Past

SUBHEAD: Pursuing those deals only speeds the dissolution of any Status Quo that depends on spent models of growth.

By Charles Hugh Smith on 3 December 2012 for Of Two Minds -
(http://www.oftwominds.com/blogdec12/opportunities-of-the-past12-12.html)


Image above: "House of Crud" retail space in shopping plaza mashup. From original article.

Pursuing opportunities of the past only speeds the dissolution of any Status Quo that depends on spent models of growth.

If we had to summarize the global effort to reflate various debt and asset bubbles to "restart growth," we might say the Status Quo is pursuing opportunities of the past.

Let's start with investing in real estate. Retail space is in massive oversupply. Others have done an excellent job describing the overcapacity, high vacancy rates and cannibalizing of sales at existing stores by adding stores: Are you seeing what I'm seeing?

Suffice it to say that an era of deleveraging, declining household income and aging populace is not a good foundation for retail expansion.

The wave of creative destruction unleashed by the Internet has yet to envelop commercial office space--but it's already reached the front steps. Just as online retail has decimated retail sectors such as bookstores, the Web is busy revolutionizing white-collar work, the mainstay of office towers and business parks.

Real work can now be done offsite/remotely at a home office, café, or anywhere but a cubicle at headquarters, and the cost advantages of this flexibility will not be going away. Yes, there are still powerful reasons to meet in person, but there are equally powerful reasons to permanently downsize travel and office costs.

Structural changes in the economy are increasing self-employment and contract labor and shrinking the scale of new enterprises. Millions of well-educated American workers already work at home, and since the average U.S. house has grown in size over the past 50 years, free-lancers and self-employed professionals have plenty of space rent-free.

High-growth companies which once hired thousands of employees and rented entire buildings are increasingly offer highly automated products and services. New-tech juggernaut Twitter recently leased more space in San Francisco as it was expanding its staff by--gasp!--200 employees. Will Twitter be filling that empty office tower near you? No, because its "service" is largely automated software. It now requires less than 1,000 employees to operate a global tech juggernaut.

Many global companies no longer need a headquarters; their senior staff work just like junior employees, from home, hotel room, cafe, etc. Airbnb, Coursera and Uber: The rise of the disruption economy.

The "recovery" in housing is limited for structural reasons. Household formation is in a multi-decade downtrend, household income is also in a structural decline since 2000 and trillions of dollars in subsidies and giveaways have barely budged the needle of housing sales, starts, etc.

Buy and hold stocks: adjusted for inflation, total returns on the "buy and hold stocks forever" strategy since 2000 registered a 14% loss, as we see in this chart, courtesy of master chartist Doug Short:

The "buy and hold bonds" strategy is also running out of air. Now that interest rates are zero or negative when adjusted for inflation, there are limits on how much bond yields can decline. This game may run for for awhile but the returns from here until the day rates rise in a "credit event" are modest. Not only have the low-hanging fruits been picked in the 31-year bond bull market, those buying now are stripping the last fruit from the top of the tree.

What happens to those who buy into opportunities of the past? As a guide, we can see what happened to household net worth since the 2007-8 global financial meltdown ended the financialization era: American Households Hit 43-Year Low In Net Worth.

Pursuing opportunities of the past only speeds the dissolution of any Status Quo that depends on spent models of growth.


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Repairing the Damage

SUBHEAD: But God forbid the kanaka should occupy their own lands in an attempt to repair the damage, restore the sacred. By Joan Conrow on 18 May 2012 for Kauai Eclectic - (http://kauaieclectic.blogspot.com/2012/05/musings-repair-damage.html) Image above: Main highway, Haena Parking, Kauai. today. Photo by TomBarefoot. From (http://www.tombarefoot.com/info/Kauai_Beaches_Kee_Beach.html). It was so nice to wake to the sound of much-needed rain today. And so nice yesterday to see folks out picking flowers for graduation lei and parties, and to pass the bedsheets and other makeshift signs posted in high-visibility places and spray painted with congratulatory words to the class of 2012. Things like that set Kauai apart from other places. I spent most of the day on the North Shore, where the weather was glorious and the trades were gusting and the sea was that amazing color of blue-green. Nearly as stunning was the intensity of tourism. I'm not kidding when I say the ratio of rental to local cars was easily 20-1. By 10 a.m., the overflow parking lot in Haena State Park was, well, overflowing and cars lined both sides of the road from Limahuli Garden to the end. It was hard to imagine how that many people could fit on Kee Beach, or envision the level of traffic on Hanakapiai Trail. I kept thinking, wow, the day is still young, and it's not even peak season. I was also thinking of how the Hawaii Supreme Court said Ikaika Pratt couldn't exercise his traditional native rights to caretake Kalalau Valley because the state has to consider the greater good in regulating access. Problem is, the state doesn't regulate, and definitely not for the greater good. Just go to Haena State Park and you'll see it's effectively been handed over to the visitor industry. Unfortunately, that's not the only example. A friend and I spent the better part of the day walking the spectacular shoreline between Hanalei Colony Resort and Cannons. As tour helicopters buzzed overhead and tour boats bounced along offshore, I documented one case after another of blatant, intentional plantings in front of oceanfront houses — most of them vacation rentals. In the process, great swaths of public beach have been privatized. In one area, a public beach easement has been replaced with a wall, trash cans for the six adjacent vacation rentals and the increasingly common no trespassing, no parking, no more aloha signs. As we passed house after house that sleeps 8 or 10 or 12 or 14, I thought, gee, add 'em all up and you've got a defacto 200-room hotel on one small stretch of beach — operating with none of the oversight and regulations that would govern such a facility. We walked past attorney Terri Tico's oceanfront house, where some coconut palms were recently planted on the public beach, and I thought of her letter to the editor, in which she managed to plug her personal injury practice as heartily as the North Shore Path. She also falsely claimed that boondoggle project is an all-volunteer effort. Mmmm, except for coordinator Tommy Noyes and realtor/planner Ben Wellborn, who is being paid very well indeed with state Department of Health monies to come up with a “wtf?” plan — I mean “alternatives report” — that speaks of relocating taro loi in Hanalei and building cantilevers over streams alongside historic bridges. “Why should the public be paying to develop paths on Princeville land?” asked my friend, a North Shore resident who noted that people who live up there don't want their communities connected, especially not to Princeville. Besides, she said, there is no community left in Hanalei. It's full-on a resort town now. And as she pointed out, even this level of tourism isn't enough. The state and county want to keep building tourism and encourage more growth in the visitor industry, with no thought to the cumulative impact on resources, communities and the local lifestyle. Image above: Main highway, Haena Parking, Kauai. 1963. Photo by Helen Lind. Note horses wandering free. From (http://ilind.net/oldkine_images/kauai-1963/index.htm). But more important, at least to the state, the high court has affirmed that cultural practitioners will not be allowed to camp in Kalalau without competing with tourists for the proper permits. In the weird, warped mind of the state, it's OK to let tourism run amok on the beaches and trails, skies and sea. But God forbid the kanaka should even intermittently occupy their own lands in an attempt to repair the damage, restore the sacred. .