This sale will mark a record in New York City residential real estate; not only will this be a record sale price for an apartment, it will also be a record sale on a price per square foot basis.  At 6,744 square feet, the sale equates to close to $13,050 per square foot.  For some perspective, according to the NAR the median value of a home across the U.S. was $162,500 in October 2011 – that money would buy roughly 12.5 square feet at 15 CPW.

This penthouse apartment, PH-20, was purchased in 2007 by Sanford Weill, former chairman of Citigroup for $43.7 million.  In less than five years he doubled his money.  During that same period, the median home price in the US fell from a high of roughly $230,000, or a 30% drop.

15 CPW is an ultra-luxury condominium building built on the site of the old Mayflower Hotel, and faces Central Park.  The building was designed by ‘starchitect’ Robert A.M. Stern.  The likes of Goldman Sachs CEO Lloyd Blankfein and top hedge fund managers Daniel Loeb, Daniel Och and Scott Bommer call the twenty-story tower home.

What does it cost to live in this building?  According to the apartment data for PH-20, which is listed by Kyle W. Blackmon of Brown Harris Stevens, the condo has monthly common charges of $8,867, plus the real estate taxes work out to $4,958 per month.  I’m sure this will be an all cash purchase, but if Dmitry decided to put down 20% and finance the balance of $70,400,000, the monthly mortgage payments, using a 5% interest rate on a 30-year mortgage, would be $377,922 per month.

I can see Moscow from here.

Ireland is in a tough spot.  The previous government’s (Fianna Fail) perilous decision to cover all bank assets (not only deposits, but bonds and debt) during the onset of the financial crisis has put the country severely into debt, which resulted in a joint EU-IMF bailout of the country in November of 2010.  The government has had to drastically cut services and public sector wages and raise taxes, further hampering a recover.  Most major banks at this point have essentially been nationalized, including AIB, Anglo-Irish, Irish Nationwide and EBS. Furthermore, a recent stress-test found further capital shortfalls in the banks, with more capital injections likely being needed.

There will be no luck for the Irish economy, but there are sectors that are doing well. There was 1.3% increase in GDP in 1Q2011, due largely to exports, which are booming; however, domestic consumption is still down.  Looking at GNP, which excludes Irish-based multinationals, it was down 4.3% from the prior quarter; overall, GDP is off 18% from peak. Tourism appears to be doing ok – it’s anecdotal, but every place I went was mobbed by tourists, and the hotel where my sister was staying was completely booked up.  Google recently purchased the largest office building in Dublin, a sign of a long-term commitment to the country, and other tech firms and pharmaceutical companies have announced than plan to increase hiring in coming months.

The country will probably see a slow improvement in the economy over time if the ECB keeps interest rates low (many mortgages in Ireland variable and are tied to ECB rates), and if the IMF extends extra credit to the country if it is needed.  However, the real thorn in the side of the Emerald Isle is the remains of its housing bubble.  A recent report by the Urban Environment Project at University College Dublin (UCD) puts the number of vacant homes in the country at 345,000 or 17%, of the housing stock.  This is even higher than the report by the National Institute of Regional and Spatial Analysis figure of 300,000.  Some of these homes may be vacation homes, but regardless, in a country of 4.4 million people, it will take years, if not decades to clear this inventory.

While on average, real estate prices have fallen by over 50% nationwide, land values have dropped by 75% or more. Near the peak of the bubble, a disproportionate amount of loans, in terms of euro-value, were given out to just a handful of developers; now NAMA, the organization created to handle the distressed assets, is forced to dispose of this land at a massive loss.  The average Irish citizen will be paying for this mania for decades though increased taxes, and lower wages.  As my uncles, who had to close one of his businesses put it, “the many are having to pay for the sins of the few.”

The only Green in Ireland.

This blog-post also appears on my companies blog: Commercial Grade

Back in 2008 the Mortgage Bankers Association (MBA) decided to purchase a building under construction at 1331 L Street NW in Washington DC for $79 Million, five blocks from the capital (makes sense because their political action committee, the Mortgage Bankers Association Political Action Committee or MORPAC could be close to congress to lobby congress on behalf of their business).  Holliday Fenoglio Fowler LP, a real estate advisory firm, announced in June 2008 that it had arranged the $75 million financing for the MBA at the height of the commercial real estate market MBA took out a $75 Million mortgage on the building from PNC.

Guess what happened next? The property market crashed.  The value of the MBA’s shiny new office building plunged in value.   In February of 2009, at the bottom of the market, the MBA sold the building for $41.3 Million, and essentially walk away from the balance they owed.

Now it’s time for the hypocrisy – John Courson, the CEO of the trade group, when asked in a prior interview about home-buyers intentionally walking away from their mortgages, said “What about the message they will send to their family and their kids and their friends?”  On top of that, giant commercial landlord Tishman Speyer is locked in a court battle with the MBA, contending the trade group still owes $1 million after breaking an earlier lease to move into its former, massively overpriced headquarters.

However, the winners of this deal are also connected to the real estate industry – the buyer was the CoStar Group Inc., the largest provider of Commercial Real Estate Data in the U.S. (we use them in my office) – as mention, they paid $41.3 Million.  But now, the commercial property market is rebounding (in my office we’re seeing strong demand from institutional buyers for high-quality, class-A, well-leased offices).  So now CoStar is reselling the property, just a year later for $101 Million to German property-fund Manager GLL Real Estate Partners, who CEO Jochen Schnier is taking advantage of low interest rate.  CoStar will stay as a tenant in the building.  CoStar doubles its money, and GLL gets a high-quality, long-term investment.

This post will also appear on my company’s blog, Commercial Grade

This graph may be a bit outdated, but the point is clear: there is a grave disparity in how western CEO’s are compensated, when compared to their Chinese counterparts.  Compare this with Jamie Diamon’s compensation of $19 Million, or Vikram Pandit’s (Citibank) compensation of $10 Million.  Citibank is a corporation that would not exist if not for a massive bailout by the US government.

I do believe in performance based compensation, but when a CEO is paid $10 Million by a bank that would be “bank”rupt if not for tax-payer money, there is a problem.  While many on Wall Street were reckless, the Chinese banks were making money the boring way – by building a customer base, taking deposits, and making old-fashioned loans.  With that said, a large market cap doesn’t necessarily equate to profitability.  To be sure, although AgBank recently had its IPO, it got its own bailout just over three years ago by Chinese Government to cover bad loans.  Also, it’s important to keep in mind that these banks were once completely state-controlled, and their CEO’s are Communist Party members that are appointed by the heads of the party.  But this still brings up the question of pay at banks and how it relates to the troubles with our financial system.  The Senate just passed the massive Financial Overhaul Bill, some of which I believe is good, most of which I believe will not change how Wall Street is run.  As NYC Mayor Bloomberg recently said in an interview, the people who benefited the most from the Financial Overhaul Bill were the lobbyist.

So how do banks stay competitive and attract talent, without destroying the financial fabric of the country?  I believe the best way for banks to remain stable is to link performance-based pay to profitability over a longer time period, with major bonuses doled out every three to five years; plus, have payouts linked to appropriate risk-reward ratios.  The CEO’s of large banks should be compensated for not only making a profit, but also maintaining a healthy balance sheet and a smartly run company; as we’ve seen, Wall Street can be extremely profitable one year, and bankrupt the next.  Short-term performance-based pay encourages short-term risk-taking by managers, and can put a company and the entire economy at risk.

However, as I’ve been contemplating this frightening statistic, something more dangerous about the monogenic nature of our food supply has occurred to me.  Has anyone heard of the Irish Potato Famine?  By the mid-1800’s Ireland had grown heavily dependent on potatoes as their major food source, in addition, one variety of potato was planted extensively, the Lumper, due to the high yield the crop produced.  Then in 1845 a blight struck the potato crops; an oomycete (a fungus-like water mold), spread rapidly though the crops and ravaged the country for the next seven years leading to a million deaths due to starvation.

The U.S. has become heavily dependent on corn and soy products both economically and as a food source (humans and farm animals consume vast amounts of corn); over 70% of processed foods contain either a corn or soy product.  So while there are many issues that are raised from industrial farm practices, the monopolization of the food supply, and by GM crops, I fear the lack of diversity in our food supply has the potential for the most devastating consequences. Viruses have an amazing ability to mutate and adapt, as do bacteria and fungi.  Analysts expect close to 90 million acres of corn to be planted and 86 million acres of soy to be planted in the U.S. this year, most of it will be Monsanto’s seeds.  It would be a frightening scenario if either of these crops were hit by a disease; I see this as a national security issue.  There’s an old saying that “one should never see how sausages or laws are made,” unfortunately in Washington, it’s the largest corporations, with the best lawyers, and the highest paid lobbyists that end up writing our laws.

Clearly, the senate hearings were just intended to be a public flogging, one that gave politicians a chance to scold the big money makers at Goldman while scoring some populist points with their constituencies. There was no smoking gun, nor was anyone really expecting anything material to arise out of the Senate hearing – that will be the job of the SEC, as they are alleging fraud, which from what I gather, they’re going to have a tough time proving. The case will boil down to disclosure, and if material information regarding the Abacus Synthetic was withheld.

To summarize the allegations, the SEC has filled civil charges claiming that Goldman did not disclose conditions surrounding the Abacus 2007-AC1 Synthetic to investors; specifically, it claims that Goldman failed to disclose that Paulson & Co. (a hedge fund) had a say in constructing the specific reference CDO that was used as the reference for the Abacus Synthetic. The SEC also claims that Goldman did not disclose to ACA (an independent third party that was selected to manage the security) that Paulson & Co. planned to short the Abacus Synthetic, but rather ACA was told that Paulson would take a long position on Abacus.

Unless you’re an investment professional this may all sound like a lot of financial mumbo-jumbo, so let me attempt to explain.  The Abacus security in question is a “synthetic” CDO.  A CDO, or collateralized debt obligation, is a portfolio of mortgages, which is typically sliced into traunches of varying risk for which bonds are issued at each risk level.  A synthetic is a derivative- meaning it derives its value from another underlying product, in this case, a CDO, but ultimately hinges on the performance of sub-prime mortgages and whether or not the owners default on them.  However, Synthetic CDOs, which Abacus was, are actually structured as a credit default swap (CDS), which is essentially insurance on something – in this case the insurance is on the performance of the sub-prime mortgages that make up the reference CDO.  Confused yet?

The crux is that this product was synthetic, and because neither counter-party to the trade actually owned the reference securities, it was essentially a bet on the housing market- the investors taking the long position betting the market would continue to rise, and the short position betting the market would fall.  The counter-parties to the trade were both taking a risk, and despite language from Goldman traders making “lemonade from big old lemons,” Goldman continues to maintain that the investors who took the long position (who lost large amount of money because the sub-prime mortgages defaulted), were intelligent and informed institutional investors, which it seems they were (ABN Amro & IKB Deutsche Indusriebank were the two largest institutions that lost money).  Paulson & Co., who took the short position and bet that homeowners would default, made $1 Billion on the bet.

In April of 2007, when this deal was structured, the housing boom was still roaring – I should know, I was working as a real estate agent at the time to pay for my college expenses, and at that time investors were throwing money at anything with the words “real estate” attached to it, so I’m sure Goldman had no problem finding willing buyers to take the long position on Abacus.  The opinion on the Street is that Goldman did not do anything legally wrong; however, there are ethical questions that are raised.  Real estate agents in New York are bound by their fiduciary responsibility, meaning that they must work in an ethical manner and must only work in the best interest of their client or customer (either the seller or the buyer).  Dual Agency is allowed, but only if it is disclosed to and agreed to by both parties in writing.  Goldman is a market maker for securities, and under current securities laws they can advise both sides of the trade, and trade on their own account in the security.  This is analogous to a real estate agent trying to look after the best interests of the buyer, the seller, and the best interests of him or herself.  The problem here is not Goldman Sachs, but the current regulations that allow this to take place.  While as a general rule, I’m in favor of less regulation, securities regulators should look at the real estate industry’s notion of fiduciary responsibility before any new laws are passed.

This post also appears on: www.millercicero.com/blog

Back in the 80’s this was a vacant lot (sans burnt-out cars), now there’s an 18-unit low-rise apartment building on the lot with a manicured garden.  Across the street there’s a new playground for children.  The Bronx is certainly not burning anymore. Gentrification can be a very good thing.

Will also appear on http://www.millercicero.com/blog/

The reality is that people like simple answers for complex problems.  I explained to this person that there is blame to be laid on many participants in the housing market.  The trail of a single “toxic” mortgage looks something like this: at the bottom you have the home owner that purchased a house they couldn’t afford, then there’s the mortgage broker that brokered the loan that he/she knew the borrower couldn’t afford.  There’s the underwriter with lax standards who signed off on the loan, and the bank, looking only to make money by collecting a servicing fee on the loan, who sold the loan along with other toxic No-income, No-asset, or Stated Income loans to an investment bank.  The investment banks, some of which have now failed or got bailed, lumped them together by securitized them, and did not do their due-diligence to discover under what kind of standards these loans where underwritten with.  There are the rating agencies that rated these problematic Mortgage Back Securities as wonderful and safe investment grade securities.  Also, we can’t really let the investors off the hook, many of whom were those very same investment banks that sliced, diced and clumped loans together to created these chimeras; they then loaded up on these Mortgage Back Securities like steroids and greatly over leveraged themselves, hoping for Herculean returns.  And of course, at the top of Mount Olympus was the Fed, who kept feeding this creature via their monetary policy- they kept rates so low for so long, that eventually: pop-goes-the-economy.

The people who suffer from this mess are the hard-working Americans who bought houses they could afford and didn’t speculate on high-rise condos in Miami Beach or McMansions in the desert, along with all the brokers and bankers and investors who were responsible and did their due-diligence. This monster was molded by many players in the market and it almost brought down the U.S. economy.  But now, instead of letting the housing market find price equilibrium, the government is starting to write a bad sequel to this horror story, and the ink they’re using are all their various housing programs they’re inventing.  Hopefully we’ve learned something from the last disastrous chapter of the housing market, and this time policy makers and housing market participants will keep the recent history in mind so there will be a happy ending this time around.

Also at:  http://www.millercicero.com/blog/

According to the public record, 200 West Street is 48 stories high and measures 200 x 400 feet.  The glass and steel office tower is conservative in design, but has an expansive lobby on the West Street side where employees and visitors are greeted by a massive piece of art by Julie Mehretu and a Franz Ackerman (it has been reported that Goldman employees are not particularly fond of it).  Besides the art, open space and clean lines define the interior, and it has that new building feel – there’s a sense of perfection hovering in the air, as I’m sure Goldman intended.

200 West Street was designed by Henry N. Cobb of Pei Cobb Freed & Partners, and Tishman Construction was the lead contractor for the project.  The tower is expected to earn LEED Gold certification (Leadership in Energy and Environmental Design), as Goldman’s tower at 30 Hudson Street in Jersey City has achieved.  By making use of green building technologies, such as water and energy conservation, and use of recycled materials in the construction (a Goldman employee told me that even conference tables and counters throughout the building were constructed from recycled material), Goldman is aiming to get this second-highest certification (LEED Platinum being the ultimate green building designation).

I had a meeting on the 12^th floor.  Stretching from the 10^th to the 12^th floor in the building is the “Sky Lounge,” which is connected by a massive spiral staircase (see pictures below), which houses a large cafeteria, and seems to serve as a general meet-and-greet area for guests.  Hallways are wide, and there are plenty of common spaces dotted throughout the Sky Lounge floors.  One feature of the building design that a Goldman employee expressed an annoyance with is that in order to reach some of the upper floors, employees must take two sets of elevators: first to the Sky Lounge, and switch to a second elevator to reach some of the upper floors.  There may be a security aspect to this design, or perhaps Goldman wants to subtly deter their employees from going off site to get their lunch. Productivity and profit rule.

The west side of the building has a curved glass exterior on the upper floors, which allows for an expansive view of the Hudson River and New Jersey.  Floor layouts also incorporate this curve into their interior design. Upon arriving on a floor, it can be a bit disorienting navigating the curvy layout when looking for a room, unlike Goldman’s old building at One New York Plaza, which was square and dull.

Although it’s a green building, there is nothing particularly cutting edge or flashy about the building.  It fits into the Battery Park City mold. The move of employees from One New York Plaza, and the space that Goldman was renting at 85 Broad Street is still under way.  An employee told me it will still be another two to three months before everyone is in. Goldman has roughly 7,000 employees at the moment, and the building can house close to 10,000 according to an employee.

At a time when there is little to no new construction taking place in New York City, Goldman got its way – a brand new building built with tax-free liberty bonds.

The first three picture were interior shots on my iPhone. The last picture is from Architectural news.