Cursed By Knowing The Numbers

The 2% per month cost increases look to be behind us, at least until the residential construction market comes roaring back, which may take ten years.

Materials prices actually dropped 1.4% in September--the first decline since Katrina.  Lumber prices should remain weak but not drop further, gypsum product prices should actually decrease in 07 due to the drop in housing starts.  Increasing Chinese production of cement and steel means no cost increases for us.

Ken Rosen says to buy all the entitled land you can get your hands on in '07--there is a fair amount available since the music stopped for the condo developers.  And the prices are soft.

I am forecasting (and putting in my budgets) an allowance for an 8% cost increase for work I have not put under contract yet, but expect to do so during 2007.

Here is how I break out total job cost by trade.

I believe great project managers need four things above all else--resourcefulness, a logical view on incoming events, humility, and loyalty. With a keen eye for quality.   Here is my resolution for the new year:

• To develop the resourcefulness of MacGyver;
• To reason with the logic of Kasparov;
• To understand with the humility of the Dalai Lama;
• To be as loyal as our dog.

And to be as action oriented as House, MD.

 Wish me luck.

Tom Sargent, of Equity Community Builders, was on the front page of today's IJ announcing an insanely great land re-use of Fort Baker [the old military post on the north end of the Golden Gate Bridge.

Thanks to Tom's persistence, the process that began in 1998 has finally resulted in the entitlements and land uses necessary to return this asset to productive use--Cavallo Point- The Lodge at Golden Gate.

The plan is to create an upscale resort and conference center with a focus on the environment, in a national park setting.

"A meeting focusing on climate change or public policy issues that relate to the management of public lands or habitat conservation is what we would like to see," said Steve Kasierski, real estate project manager for the NPS. "We want people to think about Fort Baker as a destination for environmental and public policy meetings like the Aspen Institute. We want to create a sense of place."

Tom was my first boss out of graduate school, and boy did I have a lot to learn.  He was a good teacher, and is a great real estate developer.  Well done, Tom.

says real estate empresario Sam Zell in a new year's greeting card to his business partners.  No, I am not on Sam's card list, but I did get a copy of this sent by a friend of a friend.  And not one to keep from sharing the love, here it is. 

There is a huge amount of liquidity in the marketplace coming from the monetization of assets, and returns on assets are slim--not enough to support the amount of cash us [future] grey haired retirees in the US, Europe and Japan are going to need.

Click on the image for Sam's musings [flash] about the new year, sung to the tune of Raindrops Keep Falling On My Head:

Meanwhile, the amount of liquidity/low cost of capital should mean above average GDP growth rates for much of the world.  The optimistic view is that the low cap rates/high prices are just discounting for all this amazing growth we have ahead of us.  Old rule of thumb is that an 8% increase in income is equal to 100bps in cap rate.

Tip of the hat to my friend, and of course, Mr Zell.