Friday, February 26, 2010

Buzz Words du jour

Our industry, like many others, loves buzzwords.

Often, a lot can be read into these buzzwords besides just their intended meaning. Probably the buzzword that best exemplifies a word or phrase that has meeting way beyond that which was intended is the phrase "burn rate."

For those of you with short memories this phrase came to prominence during the dot com boom and referred to the rate at which unprofitable "new economy" (another buzzword rife with unintended meaning) companies were burning through their capital.

Unbelievably, at the time this was not necessarily meant to be a bad thing but just another metric to be considered in valuing a business. However, in retrospect and with the value of hindsight, it is clear that this buzzword signified the mania of an era.

Similarly the term "capital stack" (sorry, but it makes me think of pancakes) is a recent real estate industry buzzword that has similar significance. It refers to the many layers of equity and debt and hybrids of each that are created as part of the "financial engineering" (another great buzzword) to allow developers and property entrepreneurs to acquire huge amounts of real estate with little or none of their own money.

What this innocuous term really signifies is a transaction that is so overly leveraged that the capital stack is in danger of collapsing. This buzzword pretty much sums up the last five years of our industry.

The Law of Unintended Consequences

During a period of economic downturn and increasing unemployment, it is important to consider the many obstacles to economic growth that have been created by well-meaning laws meant to address a whole host of societal problems.

While many laws have been passed that on the face of it serve a very high moral purpose, often they have an unintended consequences that can stifle economic growth and, ultimately, cause more of a problem than the evil they were meant to address.

Anyone who has managed a business over the past 20 years has witnessed how the landscape of employer/employee relations has changed to the point that the ability of a company to manage employees has become so fraught with potential litigation etc., that hiring decisions are influenced by the potential "litigation cost" of each employee. All it takes is for one grievance or lawsuit to be filed by an employee against an employer for that employer to allow future hiring decisions to be affected as result.

Because of the breadth and magnitude of well-meaning laws enacted to protect employees and various classes of individuals it is difficult, if not impossible, to run a company for any period of time without at some point being sued. Compounding this problem is that the bar is so low for an "aggrieved" employee to file a claim or initiate a lawsuit against a employer that many claims are filed and suits commenced that have little or no merit.

And while these claims may ultimately be decided in favor of the employer, the employer still incurs significant expenses to defend these actions. Almost every small business owner I know has had such an experience. Recently, an organization I support suggested supporting a law that would require employers to allow employees to take time off during the course of the day to attend parent teacher conferences at their children's school.

While I am sympathetic to this as an employer and would allow my own employees to take time off for such purposes, I objected quite strenuously to supporting a law which would mandate that employers grant such leave. I felt very strongly that inviting the government to micromanage how businesses function in this manner only ultimately acts as a disincentive to hiring and that the law should not be supported. In fact, rather than enacting new laws now that will stifle business and economic growth our politicians should focus eliminating existing laws that discourage hiring and are of marginal utility.

Falling Water

Falling Water: Not your typical Tudor, colonial or ranch style house, "Falling Water" is a Frank Lloyd Wright masterpiece. Watching this video will help you truly appreciate the genius of his architectural style.

Interesting news from around the city

Trailer Park Hipsters: you have to admire the entrepreneurial spirit particularly when it comes to real estate in New York.

I remember the "beach barge" that several years ago some nightclub operators created by pouring sand in a barge and mooring it to the Manhattan side of the East River. It lasted about five days before the city shut it down. I was not surprised then when I heard that some fledgling young real estate moguls decided to create a trailer park in an old warehouse in Bushwick.

I decided to take a look for myself and drove out there one Saturday morning. It was difficult to locate since it's behind an unmarked door. However, when I got inside I found half a dozen broken down trailers set up with numerous twentysomethings milling about.

"Interesting," I thought. When will the city shut them down?"

As it turns out, while it lasted little bit longer than the beach barge, the trailer park was recently shut down by the fire department.

Click here for a trip around the world, guaranteed to make you smile!

I particularly like the bearded guy in Paris.

Another sign of the times: one imaginative and entrepreneurial company seeking to take advantage of a terrible real estate market has taken a chapter from those airport vendors offering to wrap your suitcase in plastic and are offering to wrap unfinished condominium construction projects in plastic so that they can be put on hold and resumed later.