Monthly Archives: October 2008

Welcome to Wednesday, the First Day of the Rest of Our Lives

Dear Friends,

Thank you for the emails you have been sending me that tell me Obama is a Muslim, a terrorist, a pal of unrepentant terrorists, a tax-and-spend-liberal, a Marxist, a socialist, a redistributor of wealth, person who would surrender our interests in Iraq, someone who doesn't support our troops, ineligible to be president because he was born in Kenya, a man whose cousin is living in a rundown shack in Kenya, or someone who will make our country blow up. Many of you have told me you are going to pray for our country if he gets elected.

Good idea. We should all be praying in our own ways. You will notice that I have not sent one single piece of mail saying anything about McCain, positive or negative, although I have linked on Twitter to the stories written by Rolling Stone, the Times, and the New Times — my liberal media. In fact, I have done little more than identify myself as an Obama supporter and try to correct your misinformation about Obama.

Here's why: on Wednesday, we will all have to get up and live with each other no matter who gets elected. We will have to feed our families, try to get or keep jobs, stay healthy, and stay in our homes.

Moreover, we will need each other. We will have to talk to each other and band together to get things done, because — face facts — government only impacts our lives at the margins in a democracy. On a day to day basis, we impact each other far more.

Last night I found myself hurt because a woman I respect, who I thought respected me, sent me her latest piece of scurrilous rumor about Obama as though if she just sent me one more piece of hate-filled rhetoric, I could finally be educated.

Instead, I'm hurt. I thought I tred very hard to honor her religion, when I am an agnostic. I tried very hard to honor her political positions, though she's a conservative and I'm not.

But she has not honored me. She must think I'm some sort of dumb ignorant schmuck because I support Obama. She must think I need help or training. She must think I am — WRONG, misinformed, dumb, or whatever. Otherwise why does she keep sending me stuff she knows I can read for myself since it's the common scum?

I can't wait for Wednesday, when we all have to be civil again.

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Live Blogging a Commercial Real Estate Group Therapy Session

I have a real estate license, which requires continuing education, so this morning I'm attending a seminar on the state of the commercial real estate markets. Not surprisingly, the brokers and developers are finding the capital markets not very friendly. Banks are not using their government money to lend; they are using it to acquire other banks. Most banks are really not in business today. This is true in every industry, but it's astonishing the young commercial real estate Type A people who have never seen a down market.

 Getting financing and trying to make any type of project stand by itself is difficult
, which is why developers are going to mixed use projects, where one fundable component can start at a time. At the same time, cities are pushing for density, and  high end mixed use doesn't work everywhere. (You need 6 million tourists going to high end resorts who want to go shopping to make them work. Thus many mixed use projects are sucking wind right now).

 Retail is a disaster. In Phoenix, there are 13 vacant Mervyn's, and 18 vacant Linens and Things because of retail bankruptcies. There are midnight moves, falling rents, one year free rent and free-flowing TI money for tenants. The only retailers who are expanding are Marketside (WalMart) and Fresh and Easy, and the dollar stores. We have a thousand shopping centers that need to be redeveloped, and everyone in retail is waiting to see who else will go BK after Christmas. There isn't even any SBA money to finance franchisees in these centers.


National capital markets are grim
. There's no liquidity, and major life insurance companies are sitting on the sidelines, too. The illiquidity of real estate loans scares them. They can buy Caterpillar bonds at 390 over the Treasury, so why buy into a real estate deal?

It's probably easier to do a loan under $25 million than over. And the spreads are 300-400 points over the Treasury bond. 7.90 rate.

You will be putting 40% down if you are buying in Phoenix. And looking at a 7.9% finance rate. Buying anything makes no sense. Tenant quality has to be good. Seasoning has to be 3.5 years.

There is no happy news today. There are few transactions because of the gap between the bid and the ask, which is what happened first in the housing market. Sellers can't reduce their prices to transact.

Private lenders are lending on properties that are being bought at a discount
: "broken deals" and 50 cents on the dollar repos. You can get a 1-3 year bridge loan on a good property for a high price if you are an A paper client and you can't work in the regular credit market, which is shut down. Bank borrowers with great assets are getting loans. People are paying 13% for loans if they need to move forward on a deal.

This is happening to people who want to move forward on deals to realize the potential income rather than sit on unfinished projects. Rates are dependent on the type of transaction; a drop in prime doesn't affect the private lenders, because there's so little money available. Going forward, land at 12.5%-13% on land, 11.5 for income producing property.

All the markets face liquidity problems, which means commercial real estate is losing 30% of its value–not because of the value of the real estate, but because of worldwide credit problems.It will take ten years to come back. In the mean time, property is being exchanged and the vultures are out there doing creative deals.

These commercial real estate guys and gals are hoping that after the election, a new administration will force the banks to lend, rather than sit on their money. Good luck.

What will probably happen is that people will come in with private money, buy all these assets at 25-50 cents on the dollar, and move the market along.

Don't sell if you don't have to. Don't try anything fancy. Keep your tenants happy. And buy land; they're not making it anymore:-)

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I Call the Bottom

I have no special expertise to call a bottom, I’ve just been around long enough to know one when I see one.

A bottom is when I start cooking at home after twenty years of eating out. I’ve discovered anything can be sauteed in olive oil and garlic and taste good.

A bottom is when people start calling to ask if they can meet with me and “pick my brain.” I have a big cyber-rolodex, so when someone is looking for a job, or their kid is, or their wife is, I’m a common stop on the journey. I haven’t heard of someone hiring in months, except my friend Mark who needs a laborer for his truss plant (but only to complete the job he is currently fabricating).

A bottom is when I start thinking that when my car lease is up, I’ll get a hybrid because I’m over cars.

A bottom is when I quit replacing items in my wardrobe that I no longer “like” and begin wearing jeans and a shirt every day, assuring myself that every professional woman dresses like this today.

A bottom is when I know all the news in advance.

So we are at the bottom. Now what?

We wait. This isn’t going to sound good if you are looking for a job. But no one will hire you between now and January 1 anyway, because we all go on Christmas break in another week or so, even if we don’t admit it. And for the next week, we’re all paralyzed waiting to hear who the president will be (as if he could do something about all this anyway).

We meditate, go to the gym, and practice yoga, letting go of attachments that cause us suffering: money, cars, houses. We use the time to get in shape for what will come in the future.

We rediscover our families, even the ones we don’t like, because we may have to either move in with them or take them in some time in the near future. We learn that there’s a reason extended families work so well in developing countries.

We don’t bother feeling depressed, guilty, angry, deprived, or upset, because those don’t do a damned bit of good. A global meltdown isn’t the fault of any one individual who could have done it differently (not bought the house with the teaser-rate mortgage, for example).

And we don’t blame the rich, the poor, the Democrats, the Republicans, the war in Iraq, the racists, the socialists, the bankers, the Wall Streeters, the mortgage brokers, or our spouses.

We sure don’t kick the dog. We curl up with him and learn to live in the moment.

Because it WILL turn around. Not until after the election, and not until after the first of the year, but it WILL turn around. It always does.

What will we have learned?

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Live Blogging Arianna Huffington

Arianna Huffington starts off with a riff on Sarah Palin’s red shoes.

And then goes on to entrepreneurship and her company, Huffington Post: where she is now in the digital space and where she is going.
She reminds the audience that you can compare this presidential election to 2004: no YouTube, no HuffPo in 2004. The growth of digital media between 2004 and now makes Obama possible.
Obama would have not been the nominee without digital media; would not have defeated Democratic royalty
Obama beat the Clinton records for fundraising by using the Internet, and then translated the viral to the street. A million people knocking on doors. She tells of meeting Chris Hughes, the young man who left Facebook to run Obama’s digital campaign
Because of the Internet, Rovian politics is over. Rumors can spread, but they will be proven false.
(It’s like Scoble always says: if something appears online and it isn’t corrected in 24 hours, it is probably true.)
There could not be Swiftboating or McCain’s black illegitimate child rumors today. They would be corrected, because bloggers have obsessive-compulsive disorder and sticking to proving rumors false is the key to the Internet success
Will.i.am: If you are consuming old media, you are consuming it on your couch; if you are consuming new media, you are consuming it on your horse.

How and why did the HuffPo start?
HuffPo was always a news aggregator with a definite point of view
Doesn’t mean being partisan
Does mean being about facts, reality and truth
Her passion was to have a collective blog, and bring interesting people to the online conversation who were not in it right now, either because they are too old or too busy
The first person she asked was Arthur Schlesinger. She taught him to blog. He typed his blog and faxed it to her. She didn’t care if he sent it by pidgeon.
Her editors take faxes, take dictation. Many famous people dictate their blogs.
They have over 2500 bloggers, 2000 of them post themselves
Last month, HuffPo had a million comments, so they have 30 pre-moderated comment moderators in real time. There is no technology to replace this yet
This means there’s a civil environment on HuffPo in which to blog, in which you are not going to be called names by trolls

Why did she start it? She saw when Trent Lott was forced to resign by bloggers how powerful they were, and when she started being interested in blogging.
Now she is opening up new verticals. All the verticals attract new readers. Someone will read a blog by Jamie Lee Curtis, and then come back, or not. 120,000,000 uniques a month. 72% of traffic does not come back,
50% of traffic does not come from politics. Their goal is to keep shifting.
New initiatives: Locals, starting with Chicago. Big news pages
Creation of My Huffington Post: your choices Moving to a social networking platform
Groundrules for HuffPo: if you have a mistake in your blog, you have 24 hours to correct it or your password is withdrawn
Fact-based. No conspiracy theorists

The Future
Always a role for print while people of her generation are alive
Hybrid future. Fact-based, reality based, but not necessarily committed to taking both sides of an issue like the MSM does
Objective journalism is dead. The truth is not in the middle. We should not be debating evolution or the earth is flat. HuffPo is raising more money, for investigative journalism She doesn’t think investigative journalism will die with the near death of print.

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Obama Has Soul

Barack Obama is showing us what he stands for when he leaves the campaign trail less than two weeks before the election to visit his 85-year-old grandmother. In taking this unusual and underplayed step, he is exemplifying the family values other people talk about, but only he demonstrates.

He’s probably thinking, “I can’t believe I’m so close and she might not be there to see it, after all she has done for me.” Or he is thinking, “none of this is important without her.” Or perhaps it’s simply, “she’s sick? Gotta be there.” Whatever he is thinking, it has superseded all the inanities of the silly season and brought him back to what is most important to him.

I read volumes into this about his humanity, and about his actual platform. Not the Democratic platform, or the Republican platform, but the platform this man stands on, a platform of strong women to whom he knows and always acknowledges he owes a lot.

If he acknowledges this, he deserves my vote. He will not let me starve. He will not let my son go to war unnecessarily, mouthing platitudes and cliches about religions and geographies he knows nothing about.
He will not let me be old and sick and alone.

It’s about time a man stepped up to the plate who believed all these things and acted accordingly. I know I will be accused of all kinds of underlying stuff here, but: Obama’s my man because he’s got SOUL.

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DMI08: Digital Media Here, Monetization Not

What an interesting conference. The takeaway is that the infrastructure is here for both digital and mobile digital media, but the monetization models are not and the content owners are growing desperate. We are at the disruptive stage, where newspapers and TV stations are laying off and only SOME players have figured out how to make money from the new way younger people want to consume content.

I’ve got a lot of facts and figures here that corroborate the intuition we all have as early adopters (aka people with iPhones).

Has it Happened Yet?
According to Richard Cottrell, the CEO of Accenture Digital Media Services, which was formed to provide managed services to some of the big content providers, 2008 is the year Digital Media became a reality.

30% of the music industry’s revenues come from video now, and by 2012 it will be 50%. 500 new online companies exist now that didn’t exist ten years ago, generating $2.9b for rights owners. I didn’t realize how big a driver the iPhone was for this.

Music was the first shifter to digital distribution, and we know how the RIAA still feels about this, so how do we extrapolate that to film? 85% of video consumed today is prerecorded. But only 23% is consumed on TV.
By next year, a 15% increase in online consumption of media expected, driven by a generational shift. The younger the person, the happier he/she is watching TV over IP. We are coming close to the time people will be making a choice between cable and IP, not having both. How do you think this is making the TV industry feel?

Because of the shift, the channel brand is almost irrelevant. Only the content matters. You watch “The Daily Show” on Hulu, not on Comedy Central, because on-demand services are more compelling. Even among older people, one third of adults watch some content via alternative devices.

It is difficult not to see the handwriting on the wall, so 63% of companies are pursuing a content distribution strategy across all three screens (TV, online, and mobile; 55% of executives think mobile video will be mass market in 3 years; and 53% of media execs believe social media is their highest growth opportunity. They just need to figure out how to get there.

Of course this creates great disruption:
–Managing content across multiple channels requires a new, complicated supply chain
–Enabling new business models that produce a compelling alternative to “free” is still a challenge
–Understanding end user bahvior, preferences, and consumption patterns is just evolving
–Controlling the complex economics to deal with rising costs and pricing pressures is not there yet

Monetizing the “Great Consumption Shift”
Daniel Khabie, Digitaria Interactive, says marketers have taken their heads out of the sand. 66% of marketers claim to be advertising within online video today; 19% more expect to be before year end; 55% of Americans have broadband. And by the way, America has very low numbers compared to other countries.

To do this, 48% of marketers use podcasts.
36% of marketers expect to use widgets
34% of marketers expect to use social networks (because social network adoption has risen to 41% this year).

Kasey Lobaugh, Deloitte, says CEOs will soon recognize that what they thought was 7& of sales driven by the web turns out to be 50%, and that will drive digital marketing big time.

Go take a look at one of the only content providers that has learned how to handle this new method of distribution. KCRW, a Los Angeles station, has built a special media player, which it has has used to monetize digital content successfully. Before the new player, the consumption metrics were already huge:
1.7 miiion hours of streaming content a month were consumed, as well as 1.3 million podcasts a month
650 original performances are available on demand, by artists like Coldplay, Beck Norah Jones, etc. Some of this is original stuff, and some of this is their archives. Once they started streaming, KRCW realized there was a major demand for its archives, too. But it’s a big expense to stream all that content.

How does KCRW pay for all this? It is monetized by “buy now” opportunities for customers, and by underwriting. Because the media player integrates with social networking sites and other applications, it becomes a destination for buying and sharing content. This player have produced a 100% increase in underwriting revenue for the station.

Thanks to Phoenix-based Limelight Networks (NASDAQ:LLNW) for the opportunity to attend this conference, which is mostly for its partners and customers.

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Is it Over Yet?

Can I open my eyes, or are we still in a free fall? Nobody knows, but the smart people are writing anyway. The two people I read a lot lately are Barry Ritholtz and Nouriel Roubini. Barry’s a smart, New York markets guy who does research and analysis for a living. Roubini is a smart economics professor at NYU who writes a global economic monitor and has predicting all this for years. Roubini aggregates information in his RGE Monitor and explains it. Barry just rants every day. I love them both because they’re both totally different in the way they come at things, but they do agree on a lot of fundamentals..

Here’s a quote from the morning email ROubini sent me today:

The process of deleveraging is still ongoing and, on the real side of the economy, the measures adopted so far might reduce the severity and the length of the U.S. (and global) downturn but will not avoid it. A recession in the U.S. likely started a long time ago. U.S. home prices are still falling and will not find a floor as long as demand for homes keeps falling faster than supply and inventories stay at record highs. U.S. personal consumption might exhibit negative growth in Q3 2008 for the first time since Q4 1991 – and with personal consumption making up over 70% of U.S. aggregate demand, Q3 2008 real U.S. GDP growth could very well turn out negative. Private investment, both residential and capex, has been falling for quite some time. Unemployment is high and rising.

The old saying that when the U.S. sneezes the rest of the world catches a cold seems to still hold. Most of the other G7 economies have already experienced a quarter of negative growth and are navigating toward recession. A G7 recession coupled with a marked slowdown of large emerging economies can realistically translate into a global recession.

….i two essential components are still missing among the measures adopted so far. The first one would be a large fiscal stimulus plan in the form of old fashioned traditional Keynesian spending to boost aggregate demand. “If such a fiscal stimulus plan is not rapidly implemented any improvement in the financial conditions of financial institutions that the rescue plans will provide will be undermined – in a matter of six months – with an even sharper drop of aggregate demand that will make an already severe recession even more severe.” The second one is a plan to reduce the debt overhang of distressed households via the institution of a new Home Owners’ Loan Corporation (HOLC) or better a Home Owners’ Mortgage Enterprise (HOME)

I think Obama is proposing both of these, so if we just limp toward Election Day without forgetting to vote for him, we will probably get help.

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