Over the next year it is rumored that several more major parcels will be coming in for either new site plan approvals or zoning changes requesting Planned Development Districts. There are significant differences between the two requests. A site plan approval would essentially be new construction on a site with a specific zoning designation and as long at the project fit within the parameters of that designation then the property owner would have a right to whatever size and use the project was eligible for under that zone.
A Planned Development District is another matter. Under that designation the size and mixed uses would be whatever the developer asked for and received approval for by a two thirds vote of town meeting. The most recent example was the May town meeting decision to approve a change to Northwest Park. The park had approximately 2.1 million square feet under its current zoning but with the approved change those development rights went to approximately 3.3 million square feet.
A 1.2 million square feet increase of office and retail would be a significant amount of development for any community our size to absorb but to tell you the truth that is only the tip of the ice berg. Let's for a moment add up the other approvals that have been made over recent years that remain on the books but have not yet begun construction.
In no particular order there is the following;
Wall Street 300,000 sq. Feet
Sun Network Drive 400,000
Oracle 400,000
Wheeler Road 300,000
Northwest 1,200,000
The Ma/Com application in process now if approved would add another 560,000 square feet ( more than double what they have by right) to this list of approved but not started total of development rights.
With all of these approvals and counting the nearly 1 million square feet added over the last five or six years you expect that the assessed value of this commercial property has dramatically increased the total value of that class of real estate in town. If you thought that then you would be sorely disappointed. In fact according to these figures from the Assessor's Office, http://www.burlington.org/AssessorsDepartment_files/CL-RATE.pdf the current value of $1,361,394,435 is well below the 2002 value of $1,473,890,731. The net effect of this decline as well as the enormous increase in residential assessed values have resulted in the average residential tax payer footing a nearly 50% increase in the taxes on their home over this period.
What has been the benefit of this rush to increase development rights in the town? If you thought that significant infrastructure improvements were included as a quid pro quo then again you are disappointed. Not only has nothing been done to improve or even inspect the main sewer trunk, not one thing has been contributed to increase the production, storage or distribution of the water supply.
The town should be slowing down a bit on enormous PDD approvals in order to determine how we are going to absorb a nearly 30% increase to our existing commercial space. Just because someone wants a huge increase in his development rights does not mean that he is entitled to them nor does it automatically mean it is beneficial to the finances of the town if it has the effect of devaluing other properties as a result of new competition.
We may be at a point of diminishing returns in our commercial space. Approving and building more and more space with out a demonstrable way to absorb it into the market may in fact reduce our values and real estate tax income as the past five years have already proven.
The most recent water ban fiasco also points out how tenuous our infrastructure situation is. The enormous increase in restaurants and potential liquor license approvals will only exacerbate that problem.
Sunday, August 26, 2007
Saturday, August 18, 2007
Market uncertainty
It was quite a week on Wall Street as all the human emotions were on display. Fear, greed, disappointment, relief, and elation all took their turns at center stage.
The culprit of course is the on going uncertainty in the fixed income markets caused by sub prime credit woes. Sub prime by definition is loans that were issued to borrowers who were below acceptable norms for the granting of mortgages. Sub prime could have meant anything such as low credit scores, history of late payments or charge offs and previous bankruptcy as well as inadequate income to meet debt service.
In order to fully understand the current situation we have to go shortly before September 11, 2001. Prior to the attack on the towers in 2000 the Fed had set their rates at approximately
%6.5. In 2001 they began cutting rates when it was apparent that the economy was falling into recession. The dramatic decline in rates was accelerated post 9/11 http://www.newyorkfed.org/printable.html and ultimately resulted in the lowest rates in nearly fifty years.
The swift action by Alan Greenspan and the Federal Reserve Open Market Committee staved off economic calamity as a result of the towers attack. The low rates resulted in any number of economic benefits. The primary beneficiary was the U.S.consumer and the residential real estate markets. With very low mortgage rates available, buyers who might have been shut out of the housing market suddenly found that debt service costs had dropped so dramatically that their incomes now made home ownership possible.
With such a large number of new buyers in the market this resulted in residential real estate prices rising to the highest levels ever seen. These values resulted in further stimulation to the economy as existing homeowners recognizing this new wealth began to tap into their home equity and this resulted in the consumer driven Goldilocks economy that we have seen over the past 5 years.
Now comes the trouble as a triumvirate of problems begins to assault the stretch home buyer who was on the margins trying to hold onto the American Dream. Many of these buyers had financed both the primary mortgage as well as a second mortgage to finance the down payment with adjustable rate mortgages. As the economy began to recover and the Fed recognized inflation pressures, the Federal Reserve began to normalize interest rates by slowly raising them. If a mortgage holder was late in converting the adjustable rate mortgages to fixed ones then they now faced the problem that they couldn't refinance because the now dropping values put the home owner under water in that his value did not exceed his indebtedness.
Adding to the home owners woes was the dramatic increase in utility costs. Rising oil prices in the Northeast for example resulted in home heating oil nearly tripling in price. The final blow of course is that the significant rise in real estate values produced a corresponding rise in residential real estate taxes.
With the number of new buyers and the amount of real estate that changed hands at high prices during the past five years now has inevitably led to a corresponding amount of increased activity in the foreclosure market.
This is where it gets very sticky for Wall Street and the U.S. economy in general. During the recent real estate boom, the traditional community bank source of mortgages was pushed to the back of the bus in favor of companies that bundled mortgages and sold them on Wall Street.
It is reported now that as many as 4% of sub prime mortgages are in the foreclosure process with as many as 16% more having delinquency problems. This has spelled disaster for a number of hedge funds that have held these instruments. The problem comes in the form of a liquidity crisis. That is basically defined this way, if you hold these instruments in your fund and suddenly your customers want their money back then you have to sell these instruments to get the necessary money(liquidity) to pay them.
Exacerbating the problems were the really smart Wall Street hedge fund managers who might have margined (used as collateral to buy more securities) the bundled mortgages. As the month has unfolded these managers have found that the instruments they hold no longer have any buyers and indeed they can not even value them in the market place. With client redemption requests as well as margin calls coming from their banks, several of these funds have gone belly up.
Just how big and how deep does the problem extend? That is the nub of the issue right now. How many loans have major U.S banks written to these various hedge funds and how shaky are the funds and the collateral? What impact will this have in the U.S credit markets and will the problem spill over into the U.S and world economies?
The answer to these questions are unknown at the moment but it is safe to say that the markets are taking serious notice. The Dow fell to as much as a ten percent correction off of recent highs during this week and the Nikkie in Japan had the biggest one day sell off (%5.4) in seven years. As that news was being absorbed Friday morning, the U.S. futures market was pointing to a similar type of opening when suddenly the Federal Reserve acted by reducing the discount rate by one half percent.
By taking such action and changing the bias from worries about inflation to worry about the health of the economy, the Fed sent a strong signal. The markets responded accordingly with a significant rise. This by no means signals the end of the problem. It does however mean that the Federal reserve has now focused its attention on this problem as the one deserving the most attention.
The culprit of course is the on going uncertainty in the fixed income markets caused by sub prime credit woes. Sub prime by definition is loans that were issued to borrowers who were below acceptable norms for the granting of mortgages. Sub prime could have meant anything such as low credit scores, history of late payments or charge offs and previous bankruptcy as well as inadequate income to meet debt service.
In order to fully understand the current situation we have to go shortly before September 11, 2001. Prior to the attack on the towers in 2000 the Fed had set their rates at approximately
%6.5. In 2001 they began cutting rates when it was apparent that the economy was falling into recession. The dramatic decline in rates was accelerated post 9/11 http://www.newyorkfed.org/printable.html and ultimately resulted in the lowest rates in nearly fifty years.
The swift action by Alan Greenspan and the Federal Reserve Open Market Committee staved off economic calamity as a result of the towers attack. The low rates resulted in any number of economic benefits. The primary beneficiary was the U.S.consumer and the residential real estate markets. With very low mortgage rates available, buyers who might have been shut out of the housing market suddenly found that debt service costs had dropped so dramatically that their incomes now made home ownership possible.
With such a large number of new buyers in the market this resulted in residential real estate prices rising to the highest levels ever seen. These values resulted in further stimulation to the economy as existing homeowners recognizing this new wealth began to tap into their home equity and this resulted in the consumer driven Goldilocks economy that we have seen over the past 5 years.
Now comes the trouble as a triumvirate of problems begins to assault the stretch home buyer who was on the margins trying to hold onto the American Dream. Many of these buyers had financed both the primary mortgage as well as a second mortgage to finance the down payment with adjustable rate mortgages. As the economy began to recover and the Fed recognized inflation pressures, the Federal Reserve began to normalize interest rates by slowly raising them. If a mortgage holder was late in converting the adjustable rate mortgages to fixed ones then they now faced the problem that they couldn't refinance because the now dropping values put the home owner under water in that his value did not exceed his indebtedness.
Adding to the home owners woes was the dramatic increase in utility costs. Rising oil prices in the Northeast for example resulted in home heating oil nearly tripling in price. The final blow of course is that the significant rise in real estate values produced a corresponding rise in residential real estate taxes.
With the number of new buyers and the amount of real estate that changed hands at high prices during the past five years now has inevitably led to a corresponding amount of increased activity in the foreclosure market.
This is where it gets very sticky for Wall Street and the U.S. economy in general. During the recent real estate boom, the traditional community bank source of mortgages was pushed to the back of the bus in favor of companies that bundled mortgages and sold them on Wall Street.
It is reported now that as many as 4% of sub prime mortgages are in the foreclosure process with as many as 16% more having delinquency problems. This has spelled disaster for a number of hedge funds that have held these instruments. The problem comes in the form of a liquidity crisis. That is basically defined this way, if you hold these instruments in your fund and suddenly your customers want their money back then you have to sell these instruments to get the necessary money(liquidity) to pay them.
Exacerbating the problems were the really smart Wall Street hedge fund managers who might have margined (used as collateral to buy more securities) the bundled mortgages. As the month has unfolded these managers have found that the instruments they hold no longer have any buyers and indeed they can not even value them in the market place. With client redemption requests as well as margin calls coming from their banks, several of these funds have gone belly up.
Just how big and how deep does the problem extend? That is the nub of the issue right now. How many loans have major U.S banks written to these various hedge funds and how shaky are the funds and the collateral? What impact will this have in the U.S credit markets and will the problem spill over into the U.S and world economies?
The answer to these questions are unknown at the moment but it is safe to say that the markets are taking serious notice. The Dow fell to as much as a ten percent correction off of recent highs during this week and the Nikkie in Japan had the biggest one day sell off (%5.4) in seven years. As that news was being absorbed Friday morning, the U.S. futures market was pointing to a similar type of opening when suddenly the Federal Reserve acted by reducing the discount rate by one half percent.
By taking such action and changing the bias from worries about inflation to worry about the health of the economy, the Fed sent a strong signal. The markets responded accordingly with a significant rise. This by no means signals the end of the problem. It does however mean that the Federal reserve has now focused its attention on this problem as the one deserving the most attention.
Thursday, August 09, 2007
I like our chances
I wrote a similarly themed piece about the Red Sox last year at the All Star break and within minutes the team imploded and didn't even make the play offs finishing 11 games out. This year's edition seems less likely to be dissed by the baseball gods.
The primary reason that the Sox will win the American League East and the World Series is because of pitching. The Sox are the leading the American League with a 3.81 earned run average and it has come as a result of good pitching in all phases of the game. The starting pitching is getting deep into games and then the bullpen is taking it over and bringing it home.
The pitching staff has been bolstered for the stretch run in two major ways. In a trading deadline deal they acquired Eric Gagne for late inning relief as a set up man for shut down closer Jonathan Papelbon and after a six week stint on the DL, Curt Schilling is back in the starting rotation.
In a short seven game series the Sox could feature a three man rotation of Daisuke Matsuzaka, Josh Beckett and Curt Schilling. If they get six innings then Terry Francona has the option of going to Hideki Okajima, Gagne and Papelbon to finish out the game. This combination is unmatched right now in the rest of baseball.
In Red Sox land this is akin to Bizarro world. Down through the years the team has always been featured as mashers with both pitching and defense coming up short. Not only are the Sox leading the league in pitching but they are also second in team defense.
The team's traditional strength at the plate is somewhat muted this year for a number of reasons. Both Manny Ramirez and David Ortiz are having sub par years in the power numbers area. The team itself is ninth in the league in home runs however they strike out as a team fewer times than any team in the American League. They have scored a total of 589 runs which is a 89 runs fewer than the Yankees have scored in the same number of games. The Yankees numbers are some what suspect because of the number of times they play the Devil Rays and the way they have beaten them like a drum.
Some of the other low lights offensively are Julio Lugo and J.D. Drew. Neither of them have hit anywhere near their career statistics. There is still plenty of time for them to get hot but particularly in Lugo's case if it doesn't happen Alex Cora will be manning the shortstop position in the playoffs.
The rest of the club is solid at every position. Mike Lowell is having a great year at the plate as is Kevin Youkilis who also has taken to first base defensively as if he was born there. Dustin Pedroia was penciled in from day one as the starting second basemen despite many critics who said the little guy was no more than a career minor leaguer. Well , Theo and the Sox management have the last laugh on this one as so far Pedroia has been solid in the field and dynamite at the plate. After getting off to a horrible start Pedroia has been ripping the cover off the ball to the tune of a .326 batting average. In center field Coco Crisp has been solid and sometimes spectacular and at the plate he has raised his average to near .280 after a very slow start. Coco finally seems to be getting back on track after last years injury.
Although the Sox were 12 games ahead of the Yankees early on, no one in Red Sox Nation doubted that the Bombers would be in the thick of things at the end of the season. This week the Bombers went 8 and 5 to close within six games of first place in the division. It really doesn't matter what the Yankees do. As long as the Sox make it to the playoffs they will match up well with any teams they face. Besides, every Sox fan knows that all roads leading to success must go through the Bronx Bombers so as to make it that much more satisfying.
The primary reason that the Sox will win the American League East and the World Series is because of pitching. The Sox are the leading the American League with a 3.81 earned run average and it has come as a result of good pitching in all phases of the game. The starting pitching is getting deep into games and then the bullpen is taking it over and bringing it home.
The pitching staff has been bolstered for the stretch run in two major ways. In a trading deadline deal they acquired Eric Gagne for late inning relief as a set up man for shut down closer Jonathan Papelbon and after a six week stint on the DL, Curt Schilling is back in the starting rotation.
In a short seven game series the Sox could feature a three man rotation of Daisuke Matsuzaka, Josh Beckett and Curt Schilling. If they get six innings then Terry Francona has the option of going to Hideki Okajima, Gagne and Papelbon to finish out the game. This combination is unmatched right now in the rest of baseball.
In Red Sox land this is akin to Bizarro world. Down through the years the team has always been featured as mashers with both pitching and defense coming up short. Not only are the Sox leading the league in pitching but they are also second in team defense.
The team's traditional strength at the plate is somewhat muted this year for a number of reasons. Both Manny Ramirez and David Ortiz are having sub par years in the power numbers area. The team itself is ninth in the league in home runs however they strike out as a team fewer times than any team in the American League. They have scored a total of 589 runs which is a 89 runs fewer than the Yankees have scored in the same number of games. The Yankees numbers are some what suspect because of the number of times they play the Devil Rays and the way they have beaten them like a drum.
Some of the other low lights offensively are Julio Lugo and J.D. Drew. Neither of them have hit anywhere near their career statistics. There is still plenty of time for them to get hot but particularly in Lugo's case if it doesn't happen Alex Cora will be manning the shortstop position in the playoffs.
The rest of the club is solid at every position. Mike Lowell is having a great year at the plate as is Kevin Youkilis who also has taken to first base defensively as if he was born there. Dustin Pedroia was penciled in from day one as the starting second basemen despite many critics who said the little guy was no more than a career minor leaguer. Well , Theo and the Sox management have the last laugh on this one as so far Pedroia has been solid in the field and dynamite at the plate. After getting off to a horrible start Pedroia has been ripping the cover off the ball to the tune of a .326 batting average. In center field Coco Crisp has been solid and sometimes spectacular and at the plate he has raised his average to near .280 after a very slow start. Coco finally seems to be getting back on track after last years injury.
Although the Sox were 12 games ahead of the Yankees early on, no one in Red Sox Nation doubted that the Bombers would be in the thick of things at the end of the season. This week the Bombers went 8 and 5 to close within six games of first place in the division. It really doesn't matter what the Yankees do. As long as the Sox make it to the playoffs they will match up well with any teams they face. Besides, every Sox fan knows that all roads leading to success must go through the Bronx Bombers so as to make it that much more satisfying.
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