Toyota Closing NUMMI Plant in Fremont

Market Watch: I wonder how many local LA Basin jobs will be lost, how many small parts manufacturing companies will be lost.

The Nummi plant employs about 4,600, most of them represented by the United Auto Workers.

Friends of Nummi, a group that has been fighting to keep Nummi open, said the plant receives supplies from about 1,000 companies throughout California. The group estimates about 50,000 California jobs are tied to the plant.

The plant's future has been hanging in the balance since June, when General Motors announced it was ending its 25-year, 50-50 joint venture there with Toyota.
GM's decision to exit the venture was part of the struggling Detroit car marker's effort to shrink operations as it went through bankruptcy restructuring earlier this year. GM's last model to roll out of the Nummi plant was the Pontiac Vibe. GM, as part of its downsizing, is phasing out the Pontiac brand.

Congats Robert Sammons!

Fellow Researcher in New York City on Bloomberg.

FYI there is more office space in NYC than there is industrial space in the West Inland Empire, so I do not envy the market he has to cover.

Still open for debate is which market is worse: High-rise empty office buildings for imploded Wall-Street firms, or, empty mega-distribution centers overly dependant on foreign imports.

Ports of LA / LB Face a Grim Future

Port statistics came out today for LA / LB. This is volume for July.

Los Angeles: 305,226 inbound, 138,269 outbound. This is down -2,3% over the month, -17.5% over the year.

Long Beach: 221,719 inbound, 108,420 outbound. Up 4.8% over the month, down 23% over the year.

Combined, volume is up 4.6% over the month, down 20% over the year.

This is the start of the peak season, so seeing LA being down over the month brought a little tear to my eye. The decline in imports has been slowly receeding at LA, so slowly receeding that it might not look like any improvement at all.

Seeking Alpha has a pretty grim outlook

And to add insult to injury to the state which is bankrupt in all but name and continuing to pay with IOUs, the future before the port complex is looking bleaker by the day as seaborne traffic may gradually shift completely away from the harbors, which are among the primary economic drivers for this Top 10 global economy.
But sluggish recovery from the recession isn't the only thing that threatens the amount of business at the two ports.The report said that a larger number of freight shippers will prefer to move more cargo via a wider Panama Canal channel that is expected to open in 2014, bypassing the Southern California ports' rail connection for moving freight to other parts of the U.S.

...

Among the report's many points is that this recession is far more complicated than the economic downturns following the dot-com bust and the 9/11 terrorist attacks, after which pent-up consumer demand rather quickly returned the economy to relatively normal levels.This time, no such pent-up demand exists. Instead there has been a fundamental lowering of financial capability, according to the report, produced for the ports by consulting firms Tioga Group and IHS Global Insight.
The report tracks with what economists at the Los Angeles County Economic Development Corp. have been predicting and leads experts there to question whether international trade "will be the big engine of growth that it once was" for the region.

Rose Friedman, Economist Partner of Husband Milton, Dies at 97

Bloomberg:

LOL WUT? (CRE debt & Distressed Mischief)

From REIT Wrecks: http://www.reitwrecks.com/2009/07/mortage-reit-ipos-vibrant-life-after.html

Mortgage REIT IPOs: There is Vibrant Life After Death in CRE Debt

In just the past two months, 8 Mortgage REITs have filed to raise $3.9 billion in fresh cash, which should not be all that surprising. Retail financial advisors are saying that buckets of high net worth cash are sitting on the sidelines, waiting for opportunities in distressed commercial real estate. With several REIT follow on offerings up 150 percent so far this year, the public market is clearly betting on a turn around. Indeed, back in May, it appeared that the 52 week lows for REITs had already come and gone. Investors are now feeling safe enough to travel even farther down the curve and back into CRE debt, and a slew of new Mortgage REITs are emerging to greet them.Ladder Capital is the latest aspiring Mortgage REIT, with plans to raise raise $400 million to invest in distressed whole loan mortgages.

Ladder Capital Realty Finance (LCRF), as the new firm will be known, will primarily target first mortgage originations as well as senior participations in fixed and floating first mortgage loans.

Regulatory filings indicate that LCRF may also originate and acquire CMBS using TALF money, invest in some B-note and mezzanine loans, as well as provide financing for third party purchases of CRE notes and first mortgages.

And you wonder how we got into this mess in the first place. The Ponzi Scheme perpetuates itself with people buying and selling shares of the previous, old & busted Ponzi Scheme.

A regional sourcing strategy? In my supply chain network? It is more likely than you think.

Greater disparity in labor wages + low transportation costs = longer supply chains = bigger distribution centers = hubs servicing half the continent = good for the Inland Empire

Weak American Dollar + high fuel prices = shorter supply chains = local suppliers + regional warehouses = bad for the Inland Empire

From the FT:

Manufacturers are abandoning global supply chains for regional ones in a big shift brought about by the financial crisis and climate change concerns, according to executives and analysts.

Companies are increasingly looking closer to home for their components, meaning that for their US or European operations they are more likely to use Mexico and eastern Europe than China, as previously.

Trade Makes The World A Better Place

My high-school economics teacher, to which I am in a large part indebted as he spurred my creative interest in the subject, used a number of games to teach economic principals.



One of these games involved giving each student a bag of trinkets, paper, pencils, gum etc.



He then instructed each student to write down the value of what they believed the objects were worth. He also told them to quantify on a 1-to-10 scale how much they wanted the objects.



In the next step, students could trade their items. It was very informal, there were no auctions or formal trading routes, you just walked around seeing what everyone else had and struck up a deal if it interested you.



The last step was to have the students estimate how much their new possessions were worth and rate on a scale of 1-to-10 how they felt about their new items.



To every ones surprise, they now had more than they started with.



This was a powerful demonstration that people will trade only when it benefits them. Trade creates wealth.



I thought of this example as I stumbled upon an economics paper that seeks to estimate the impacts of increased trade in India. Here is the link.



The author looks at railroad construction in India and a very detailed dataset and comes to the following conclusions:



1. Railroads reduced trading costs in India.

2. Railroads increased trade flows.

3. Railroads reduced supply shocks, prices did not fluctuate as greatly as before.

4. Railroads increased real income

5. Railroads decreased income volatility

6. Railroads paid for themselves.



The author utilized some pretty clever tools in his paper to ensure accuracy. Since building a railroad is not a random process you had to tweak the process a bit, otherwise you will draw conclusions from a biased premise. To get around this, the author examined areas where railroads were actually built, and compared growth to areas where railroads were supposed to be built, but were not.

In this way, you are more accurately comparing apples to apples.

A good read.

When does 2/100th of an inch equal $1,000,000?

Seattle Times:

A small mistake at the Port of Seattle is going to cost a lot, perhaps about $1 million. The problem is 2/100ths of an inch, and it delayed the opening of a celebrated project by two months.
The Port constructed a new cargo terminal on the Seattle waterfront and dug a trench to hold the electrical cable for cranes that lift containers from ships.
The new trench, built by contractor BergerABAM, is narrower than it should be, so the cable doesn't fit.
"Clearly the contractor should've built the trench at 2.52 inches and it's 2.5," said Port Commission President Bill Bryant.

Yes, clearly.

SSA will pay $20,000 a day in rent to the Port once its 30-year lease kicks in, Port spokeswoman Charla Skaggs said. But that amount is for both Terminal 30 and adjacent Terminal 25.

When SSA couldn't power the cranes, which serve both terminals, it argued the whole area was rendered unusable.

At $20,000 a day in rent, there had better be some cranes. And some power to go along with it.

I had no idea terminals rented for so much. This may explain why the Ports of Los Angeles and Long Beach are such cash cows. And it also explains why ship operators want to load and unload as many ships as possible, it is too expensive to do this inefficiently. This doesn't cover the cost of wages, insurance, fuel etc.

Big business, small mistake.

Retail in The IE

Our new retail manager, making waves!

Here is the URL to the video.
http://business.inlandsocal.com/?nvid=378772&shu=1

Guess whose numbers are in the freaking Wall Street Journal?

PHOENIX -- Along a 15-mile stretch of desert, amid strip malls and unfinished subdivisions, nearly a dozen giant warehouses sit silent and empty. They are relics of this city's dream of becoming a national warehouse hub, a
vision dashed by plunging imports and a reordering of the nation's biggest ports.

Decisions to site these warehouses were made earlier this decade as Americans were buying so many new cars, televisions and T-shirts that California -- the gateway for many Asian imports -- was running out of cheap storage space. With cash from pension funds and other investors, developers sought to turn the desert on the city's west side into a distribution hub, 370 miles from Los Angeles ports.

Oh, oh my god. We are having a tough enough time getting people to move 60 miles from the Ports of Los Angeles. 370 miles, really?

370 miles? 370 miles?

We have 25%+ vacancy rate with over 6 million added each year for the last 2 years.

If you have ever been to the Inland Empire, you realize that you don't have to go ALL THE WAY TO PHOENIX to find some vacant land.

In Phoenix, developers face headwinds beyond the drop in global trade. Shippers are increasingly turning to ports in Georgia, Virginia and Florida to transport goods bound east of the Mississippi, while space in the Inland Empire -- much closer to Los Angeles -- has become abundant.

"Instead of being the beneficiary of its location between Southern California ports and the East, Phoenix has become the victim," said Jeff Shell, head of corporate finance for real-estate brokerage Grubb & Ellis Co.

Feeding the commercial space boom were publicly traded real-estate investments trusts and private-equity funds that funneled cash from pension funds, endowments and other investors.

From 2001 through 2008, some $5.6 billion in industrial property deals were done
here, according to Real Capital Analytics Inc.

In a 2005 deal, Mr. Czerwinski paid $14 million for 300 acres of land 25 miles from Phoenix. Three months later, he sold the parcel for $24 million to a California developer, Voit Real Estate Services. Voit held on to the land for about a year before selling it to Duke

Realty Corp., an Indianapolis property company, for $36 million.

Duke Realty and SunCor Development Co., a subsidiary of Phoenix energy giant Pinnacle West Capital Corp., are among the developers stuck with big chunks of empty space. In Goodyear, 25 miles west of Phoenix, SunCor's year-old, 400,000-
square-foot warehouse features palm trees and rustic architecture but no tenants.
At the height of the frenzy, Phoenix brokers said, investors agreed to buy an empty warehouse for more than it cost to build it.

That is how LBA Realty, an Irvine, Calif., investment firm, ended up paying a reported $73 million for a four-building, 1.1-million square-foot complex early last
year.

And it is how ING Clarion Partners, the New York real-estate-investment unit of Dutch financial giant ING Groep N.V., ended up paying $44 million for a new, 700,000-square-foot complex around the same time.

Things like this make me think that at its heart, real estate is a giant Ponzi scheme. The music stopped and suddenly we realized we didn't have enough chairs. We didn't even have chairs, we had empty boxes 370 miles from anyone who cares. Each one a headstone to an ill conceived notion of endless greed and speculation.

Cheap money is a poor foundation for any viable business; strange things are allowed to grow when the normal constraints of economic reason are not applied.

What foundations am I talking about? The notion of scarcity. Leverage allows you borrow other people's money and take risks as if the money is free and without cost.

But money is in fact a scarce good, it does have a cost and it needs to be paid for. Leverage is great on the way up, but it burns on the way down.

And that is what we are stuck with today.

We don't sell buildings anymore, we deal in notes

One of the topics that has been coming up, over and over again to the point where one is forced to start paying attention, has to do with debt.

Real estate is a peculiar beast, in that what we are offering is really, really expensive and most buyers do not have the cash on hand to purchase these buildings.

If these entities do have the cash on hand, they could leverage this amount by borrowing more.

Few people buy real estate with money they actually have, but rather they buy real estate with money they will have, or think they will have, at some point in the future.

There tend to be a few exceptions and you can spot them because they are the ones who are not bankrupt, and not about to be bankrupt, are not hurting to the extent that someone with a maturing mortgage loan with a parade of creditors would be.

These people own their buildings, do not plan to sell and do not really plan to buy unless it is an amazing deal. You are not going to see, in my opinion, a lot of activity from these boring long term investors. They got to where they were by not being greedy or fearful and they will not be sold unlike all the suckers playing with someone elses money.

This second group of people, the suckers, they don't own their building anymore. It is going to the bank or whoever lent the money in the first place. The problem is that it will be difficult to figure out who will actually own these buildings, mainly for the same reason that the whole sup-prime mess will take a long time to sort out. There is no clear-cut owner, frequently it is a bunch of people who never met and who don't really want to own or operate a building.

If you can find these people and get them to sell you their partial interest in a building, and offer them some reasonable number above 0 for their shares, you could, in theory, buy a building indirectly on some shadow real estate market that is not monitored by anybody.

This has come up a number of times. Mostly because brokers want to get in touch with the people at the bank or they want to know who owns what on a particular parcel.

Since rents are down and vacancy is up, the margin calls will continue and bankruptcies will increase. This secondary behind the scenes loan market will get bigger.

Here is a piece on the extend of the coming tidal wave of defaults.

Perhaps this shadow market will have its own shadow bubble as more and more people pile into the unknown. But people are asking for this info and there is not an easy or cheap way to obtain it. Which means that brokers can be the gatekeepers again, but who knows if they will be "real estate brokers" or "finance / investment brokers" the lines are getting blurred.