February 25th, 2013
You’ve heard about Warren Buffett and Bill Gates trying to get their fellow billionaires to give away half their money to charity? Well, now their challenge is resonating outside the United States. Twelve new magnates have joined the Buffett-Gates “Giving Pledge” bringing the total to 102.
Who are they? Richard Branson, the Virgin Airlines eccentric; David Sainsbury, the super market tycoon; Hasso Plattner, German founder of SAP, the software giant; Victor Pinchuk, a Ukrainian ; Vladimir Potanin, a nickel mining magnate. There are two Africans now on the list – Mo Ibrahim, a mobile phone billionaire who previously spoinsored a cash prize for retired African leaders who did a good job in office; and Patrice Motsepe, a South African mining boss.Joining them is one Malaysian, Tan Chee Yioun, and one Indian, Azim Premji, a technology tycoon. According to Forbes, there were 1223 billionaires on the planet in 2012. Surprisingly, Buffett and Gates could find no takers in some of the world’s fastest growing economies – Mexico, Brazil or China.
What about giving overall? No question — the recession has put a hot on giving. According to The Chronicle of Philanthropy, the top 50 donors committed a total of $7.4-billion to charity in 2012. The median gift was $49.6-million, down significantly from 2007’s high of $74.7-million.Most of the money went to big, elite institutions. Seventy-two percent of the dollars pledged supported higher education, arts and culture, hospitals, and private foundations. One encouraging sign is that younger billionaires are joining the ranks of the world’s most munificent people: Among the five top philanthropists last year, three were couples under 40. The youngest was Mark Zuckerberg, the Facebook co-founder, who is 28, and his 27-year-old wife, Priscilla Chan.
January 23rd, 2013
President Obama was inaugurated for his second term — the 44th president — a day after he took his oath on the constitutionally required date at the White House. The crowd was smaller, the weather throughout most of the nation was biting cold, and the message was hope chilled with the experience and weariness of a drawn-out recession. Out of the lofty rhetoric and perfunctory promises, we looked for themes that point to the tenor of an Obama second term.
The President started his speech with a historical framing of the event (“The patriots of 1776 did not fight to replace the tyranny of a king with the privileges of a few, or the rule of a mob. They gave to us a republic, a government of, and by, and for the people”) before weaving in the architecture of the Obama doctrine – of government activism, of infrastructure improvement, his belief in the transformative power of education and an enlarged notion of citizenship.
It is interesting to compare Obama’s tone with the addresses of his predecessors: President Reagan declared an end to the era of big government and President Clinton signaled a move into a new century. Using phrases like “our generation’s task” Obama pronounced “a decade of war” as “now ending”. Much of the latter half of the speech used the Obama language of renewal to posit a third way, between FDR and Reagan, of individualism and collectivism. “Seize it together”, “the broad shoulders of a rising middle class”, were followed by raising the promise of a little girl rising out of poverty with the help of a social safety net. This signaled a new level of inclusiveness for an inaugural address (“ We do not believe that in this country freedom is reserved for the lucky or happiness for the few” ) with reference to “our gay brothers and sisters”. Most memorably, he referred to “Seneca Falls and Selma and Stonewall,” a threading of social movements that drew the gay community, women and African Americans into a common civil rights narrative.
The President remains an extraordinary orator, his voice rising and dipping in pitch and volume, the meter of his delivery tightening and then relaxing throughout the speech. No matter what side of the political spectrum one finds oneself, there is no question that the occasion of the American inauguration remains significant in human history. We are second only to England in terms of the number of consecutive peaceful transitions of power. This remains a supreme achievement at a time when the right to vote remains contested in so much of the world. Inaugural day is a nod to the legacy of our union and a pledge to the future.
January 4th, 2013
Like a good 30’s serial, Congress seems to enjoy brinkmanship and 11th hour rescues. And it was historic. For the first time in 20 years, Republicans voted to raise income taxes (the last time was when George H.W. Bush broke his “read my lips, no new taxes” pledge). The Senate’s “fiscal cliff” bill passed 257-167. The Bush-era tax cuts will expire for people making $450,000 and up on earned and investment income. They will see their top rate go back to where it was during the Clinton era – from 35 percent to 39.6 percent. The deal also delays implementation of the sequester – $110 billion in automatic spending cuts set to begin Jan. 2—by two months. Ultimately, it comes down to gamesmanship and how the issues poll. Higher taxes on the middle class poll badly for Republicans as opposed to refusing to raise the debt ceiling. That’s why Republicans fared better in August of 2011 during the debt ceiling talks than in January of 2013.
Not that the Democrats won a clear victory. Left-leaning house and senate members decried the deal for sparing people earning between $250,000 and $450,000 from higher taxes. And the administration faces three new cliffs in short order – when the sequester comes back in two months; followed by a new debt ceiling deadline and expiration of the continuing budget resolution at the end of March. We are now in an era of cliffhangers.
One clear winner is Joe Biden who burnished credentials as a wily tactician and a master of backroom deals. After the Obama-Boehner impasse, it was Biden and Senate minority leader, Mitch McConnell who made the deal happen (by a landslide 89-8 vote). With Biden set to lead the campaign for gun control, it seems clear that the administration sees him as their chief negotiator.
All told, the fiscal-cliff deal produces $620 billion in deficit reduction over 10 years. Stay tuned.
January 4th, 2013
With the Bush era tax cuts on capital gains poised to expire at the end of the year, the investment sales market went on a tear in the 4th quarter. According to CoStar, total deals were up 46% from the same time a year ago based on transaction data through Dec. 31, according to Brian Kerschner, real estate economist for Property and Portfolio Research (PPR), CoStar’s analytics and forecasting company.
Not surprisingly, it was small-cap deals — assets most likely to be sold by owners hoping to mitigate the tax consequences of a sale – that really spiked, increasing in volume by 77% in the fourth quarter. Large-cap deals typically have less exposure to capital gains because they tend to involve REITs and pension funds which are tax advantaged investors.
The maximum rate for long-term capital gains had been 15% for individuals earning up to $85,650 a year or families earning up to $142,700. If we had gone over the cliff, the rate would have jumped to 20%.
Deals that closed in the waning days of 2012 included the following:
- Amazon.com had the blockbuster of the year: It paid $1.16 billion for its Seattle headquarters, encompassing 11 buildings totaling 1.8 million square feet.
- Cupertino, CA-based Mission West Properties, Inc. sold all of its real estate assets for about $1.3 billion in two separate transactions
- Dexus Property Group sold the majority of its U.S. industrial portfolio for $561 million as part of its strategy to exit the U.S. market by April, reallocating proceeds from offshore property sales to core Australian properties, CEO Darren Steinberg said. The sale of 26 of Dexus’ 27 American properties was achieved at a significant premium to their book value.
Incidentally, the same logic applied to the residential market. New York, for example, saw an extraordinary 2,598 home sales in the last three months of 2012 — the highest for a Manhattan fourth quarter in at least 25 years.
Under the terms of the fiscal-cliff deal reached Tuesday, capital-gains taxes increased only for annual incomes over $400,000 for individuals and $450,000 for households. They will pay a new capital gains tax rate of 23.8%.
December 26th, 2012
According to the U.S. Green Building Council, the perceived cost benefits of green building include the following: Operating costs decrease of 13.6 percent for new construction and 8.5 percent for existing buildings; Building value increases 10.9 percent for new construction and 6.8 percent for existing buildings; Occupancy increases of 6.4 percent for new construction and 2.5 percent for existing buildings; Rent increases 6.1 percent for new construction and 1 percent for existing buildings.
So, where are the opportunities ahead? As of 2010, the total U.S. building stock is approximately 275 billion square feet, of which 60 billion is commercial space. At 1.674 billion square feet of currently LEED-certified commercial space, today’s green buildings market is chump change compared to the opportunity coming down the pike over the next 2 decades.
During normal economic times, we tear down approximately 1.75 billion square feet of buildings each year. Every year, we renovate approximately 5 billion square feet, and we build new approximately 5 billion square feet. Unless the past does not presage the future, by the year 2035, approximately three-quarters (75%) of the built environment will be either new or renovated. Talk about a historic opportunity for the architecture and building community to avoid dangerous climate change by embracing the green revolution.
December 12th, 2012
By 2030, no country—whether the US, China, or any other large country—will be a hegemonic power. So opens a new study, by the National Intelligence Council. The product of 4 years of research, the report offers a number of pronouncements: A return to pre-2008 growth rates and previous patterns of rapid globalization looks increasingly unlikely, at least for the next decade; China alone will probably have the largest economy, surpassing that of the United States a few years before 2030; the US, European, and Japanese share of global income is projected to fall from 56 percent today to well under half by 2030; today’s roughly 50-percent urban population will climb to nearly 60 percent, or 4.9 billion people, in 2030; and the worldwide middle class will continue to be bigger better educated and have wider access to health care and communications technologies like the Internet and smartphones. That may be the best news of all in the report. “The growth of the global middle class constitutes a tectonic shift. For the first time, a majority of the world’s population will not be impoverished, and the middle classes will be the most important social and economic sector in the vast majority of countries around the world.”
In reading the report, I was struck by how definitively it seemed to herald the close of the American century (not quite a hundred years if you consider WWII the dawn of American supremacy) and the peace it promised – the Pax Americana. The world today is infinitely more complex and power is not discrete and binary but multivalent and shifting. The report details for us the good, the bad and the ugly of geopolitcs. Developing nations will become especially important to the global economy, including Brazil, Colombia, India, Indonesia, Nigeria, South Africa and Turkey (the developing world already provides more than 50 percent of global economic growth , 40 percent of global investment and 70% of global investment growth). Aging countries will see a period of decline over the next two decades, including Europe, Japan, South Korea, Russia and Taiwan, which could slow their economies further. And at least 15 countries are described as being “at high risk of state failure” by 2030, among them Afghanistan and Pakistan, but also Burundi, Rwanda, Somalia, Uganda and Yemen. In terms of global hotspots, the widespread use of new communications technologies will become a double-edged sword for governance. On the one hand, social networking will enable citizens to coalesce and challenge governments, as we have already seen in Middle East; at the same time, better surveillance tools will allow closer monitoring of civilian populations.
December 10th, 2012
Banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported income of $37.6 billion in the third quarter, a 6.6 percent improvement over third quarter, 2011. This is the 13th consecutive quarter that earnings have registered a year-over-year increase. The other big news – the decline in the number of banks on the FDIC’s “Problem List” from 732 to 694. This is the first time in three years that there have been fewer than 700 banks on the list
For the economy, this means more liquidity as loan balances posted their fifth quarterly increase in the last six quarters, rising by $64.8 billion . Loans to commercial and industrial borrowers increased by $31.8 billion (2.2 percent), while residential mortgages rose by $14.5 billion (0.8 percent) and auto loans grew by $7.4 billion (2.4 percent). The bad news? The nerves around the fiscal cliff may have caused home equity lines of credit to decline by $12.9 billion (2.2 percent), and real estate construction and development loans fell by $6.9 billion (3.2 percent). Remember that $2 billion of property construction and design would be eliminated if sequestration happens, cutting 66,500 jobs.
Still, the FDIC report is cause for optimism. Only 12 insured institutions failed during the third quarter. This is the smallest number of failures in a quarter since the fourth quarter of 2008, when there were also 12. An additional seven banks have failed so far in the fourth quarter, bringing the year-to-date total to 50. Through December 4, 2011, there had been 90 failures year-to-date.
“More than 55 percent of all banks reported loan growth,” Chairman Gruenberg noted. “Small banks are also increasing their lending, including their loans to small businesses.”
The complete Quarterly Banking Profile is available both here and at on the FDIC Web site.
December 6th, 2012
On December 5, 2012, the world lost it’s greatest living jazz artist, Dave Brubeck. Some may dispute that claim but consider his achievements. He was the first jazz artist to reach rock-star status with 1959′s groundbreaking album, Time Out, the first jazz album to sell a million copies. The album gave us the hit singles Take Five and Blue Rondo a la Turk and turned an esoteric art form that previously was appreciated only by beatniks and counterculture snobs into mainstream fare. Brubeck was so popular that he became only the second jazz musician (after Louis Armstrong) to be featured on the cover of Time. In addition to major concert halls, Brubeck played college campuses and brought jazz to new generations. But he was no populist lightweight. Serious jazz artists like Miles Davis covered his work and critics wrote odes to his experiments in time signature.
Needless to say, Brubeck, Paul Desmond and their various band members over the years, wrote and recorded some of the most iconic jazz music heard on the airwaves both then and now. I saw and heard him play in various venues lo these many years, and was always, always fascinated by the depth and breadth of his creativity and technical genius, even at his last performance at Chicago’s Ravinia Festival last season. I couldn’t fathom someone in their 90s being as facile and dexterous on a keyboard as he was. I cherish his music, own 20 of his hundreds of CDs and still retain my original vinyl albums from back in the 1950′s. Thank you, Mr. Brubeck for giving us the music that has touched our soul.
Rolla Heinen, Due Diligence Manager – The Alter Group, Music Lover