Madoff and funds of funds=Sleaze

This whole ordeal w/ Madoff really is becoming sleazier and sleazier. Not only did he screw his investors out of their money.... others were collecting huge fees for doing nothing more than marketing Madoff's services. Funds of funds have a fiduciary duty to conduct due diligence on behalf of their clients...what the hell were they looking at? They saw the fees they could collect, and stopped their homework there. Madoff often times did not charge his clients a management fee (which should have set off alarm bells), instead, he processed all of the trades himself. Who know the commissions he charged on these trades and the size of the spreads!! All of this on top of the rest that Wall Street has put us through. Happy Holidays economy!



Fairfield Sent Madoff $7.3 Billion as Funds Took Fees


By Katherine Burton
Dec. 15 (Bloomberg) -- Walter Noel’s Fairfield Greenwich Group would have collected about $135 million in fees this year for peddling Bernard Madoff’s investing acumen to clients from South America, the Middle East and Asia.
The $7.3 billion Fairfield Sentry Fund invested solely with Madoff, taking a cut of 1 percent of assets and 20 percent of gains, which averaged about 11 percent annually in the past 15 years, according to data compiled by Bloomberg. Fairfield Greenwich is one of at least 15 hedge-fund firms and private banks, including Tremont Holdings Group Inc. and Banco Santander SA, that earned similar fees for sending customers’ cash to the 70-year-old money manager.
“It’s mind-boggling that people like Tremont and Fairfield Greenwich had been doing this for so long,” said Brad Alford, who runs Alpha Capital Management LLC in Atlanta, which helps clients choose hedge funds. “It’s the job of these funds of funds to be doing due diligence. That’s why they get paid.”
Madoff was arrested Dec. 11 after he allegedly confessed to running a “giant Ponzi scheme” that may have bilked investors of $50 billion. That fraud escaped the notice of Fairfield Greenwich, Tremont and other funds of funds that had at least $17 billion invested with Madoff. Hedge-fund investment adviser Aksia LLC said the managers should have seen “red flags,” such as Madoff’s use of a little-known, three-person auditing firm.
Hedge funds that have disclosed holdings with Madoff were due at least $290 million in fees this year, based on reported assets, fees and Bloomberg data. The calculations don’t include fees of as much as 5 percent that clients paid for some funds when they first invested. Madoff didn’t assess fees for his money-management services, getting paid instead through commissions from his brokerage business for trading the stocks in the accounts.
Worldwide Web
Investors ensnared by Madoff include Fred Wilpon, the owner of the New York Mets baseball team, clients of private bankers in Geneva, wealthy Jewish families in New York and Palm Beach, Florida, and institutions including BNP Paribas SA in Paris that loaned investors money to increase their bets. Losses have been reported by a pension fund in Fairfield, Connecticut, New York hospitals and a charity in Salem, Massachusetts.
While Madoff didn’t run a hedge fund, his alleged crime may accelerate investor defections from the $1.5 trillion industry, already hit by its worst losses since at least 1990 and redemptions that may reach $400 billion this year, according to estimates by Morgan Stanley. In a Ponzi scheme, returns to early investors are paid with money from later ones, until there isn’t enough cash to go around. Madoff’s alleged scam unraveled when he received $7 billion in redemption requests that he couldn’t meet.
In the Middle
Funds of hedge funds such as Fairfield Greenwich act as middlemen, raising money from investors and farming it out to other managers that they vet. The go-betweens manage 44 percent of hedge-fund assets, according to data compiled by Hedge Fund Research Inc. Their investments lost 19 percent on average through November, a little more than a percentage point more than single-manager funds, the Chicago-based firm says.
Institutions including New York State’s $154 billion retirement system and the endowment of Baylor University have been cutting back their investments in funds of funds to save the extra layer of fees -- generally 1 percent of assets and 10 percent of profits -- that they charge on top of the underlying managers’ take. Last year, for the first time, more than half of the hedge-fund assets of the 200 largest U.S. pension plans were invested directly with individual managers, according to data compiled by Pensions & Investments magazine.
‘Shocked and Appalled’
Funds of funds say they earn their fees by discovering the best managers and assembling a diversified group of investments. They also are supposed to conduct ongoing due diligence to avoid frauds or other dangers, such as managers straying from their core investment strategy.
Fairfield Greenwich is the biggest loser to emerge so far from the Madoff scandal. It had more than half its $14.1 billion in assets with him, according to a company statement.
“We are shocked and appalled by the news,” said founding partner Jeffrey Tucker in a Dec. 12 statement. Tucker was an attorney in the enforcement division of the U.S. Securities and Exchange Commission before starting Fairfield Greenwich with Noel in 1983. Thomas Mulligan, a spokesman for Fairfield Greenwich, declined to comment.
Noel built a marketing machine that covered the globe. His son-in-law, Yanko Della Schiava, is based in Lugano, Switzerland, and is responsible for selling Fairfield Greenwich funds in Southern Europe, according to the firm’s Web site. Another son-in-law, Andres Piedrahita, is head of Fairfield Greenwich’s European and Latin American businesses and is based in London and Madrid. A third son-in-law, Philip Toub, markets the group’s funds in Brazil and the Middle East.
Tremont, Manzke
Three months ago, the firm acquired Banque Benedict Hentsch, a deal that the Swiss private bank said today it has reversed.
Tremont, founded by Sandra Manzke in 1985, also was an early Madoff investor. The Rye, New York-based firm, a unit of Massachusetts Mutual Life Insurance Co.’s OppenheimerFunds Inc., has yet to disclose how much money it had invested with Madoff. It sold Madoff-managed investments since 1997 under the Rye Select Broad Market name, charging 2 percent of assets, according to a marketing document. Monteith Illingworth, a spokesman for the firm, declined to comment.
Manzke now runs Darien, Connecticut-based MAXAM Capital Management LLC, which marketed a $280 million fund that was invested solely with Madoff. Manzke told the Wall Street Journal she was wiped out. Manzke didn’t return calls or e- mails.
Swiss Connection
Another Madoff investor is London-based FIM Ltd., whose Kingate Europe and Kingate Global funds had about $3.5 billion in assets as of the end of November, according to reports sent to clients. The firm, run by Carlo Grosso, marketed the funds to many wealthy Italian families. Kingate collected a 5 percent fee to get into the funds and a management fee of 1.5 percent of assets.
Access International Advisors LLC, a New York-based investment firm, charged a 5 percent fee up front, a 0.8 percent management fee and a 16 percent performance fee on its LUXALPHA SICAV-American Selection fund, according to Bloomberg data.
Spain’s largest bank, Banco Santander, said its clients invested with Madoff through its Optimal Strategic U.S. Equity fund. Those investors paid 2.15 percent of assets in fees.
Swiss private banks also sent money to Madoff. Union Bancaire Privee, the largest investor in hedge funds, had a managed account called M-Invest that was a direct conduit into Madoff, people familiar with the situation said. Benbassat & Cie, another Swiss bank, had $935 million invested in Madoff on behalf of clients, according to Le Temps.
Warning Signs
When Aksia researched Madoff last year, it learned the firm’s books were audited by accountants Friehling & Horowitz, operating out of a 13-by-18 foot location in an office park in New York City’s northern suburbs. One partner, in his late 70s, lives in Florida. The other employees are a secretary, and one active accountant, Aksia said.
Other details that made Askia nervous included the “high degree of secrecy” surrounding the trading of the feeder fund accounts, which provided capital to Madoff Securities, and its use of a trading strategy that appeared “remarkably simple,” yet “could not be nearly replicated by our quant analyst,” Aksia wrote in a Dec. 11 letter to its clients.
To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

Fannie is no longer kicking out renters

Fannie Mae is doing the right thing and not kicking out renters of homes that it owns via foreclosure.

Fannie Mae Lets Renters Stay Despite Foreclosures

New York Times

By CHARLES DUHIGG

Published: December 14, 2008

In a move that provides relief to thousands of renters who face eviction but draws the federal government even deeper into the housing market, the loan giant Fannie Mae said Sunday that it would sign new leases with renters living in foreclosed properties owned by the company.

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Carol T. Powers/Bloomberg News

John Taylor, a consumer advocate, said banks should follow Fannie Mae’s example.

It is the first nationwide effort to provide widespread relief to renters ensnared by the unfolding mortgage crisis, and it will effectively transform Fannie Mae — a government-controlled mortgage finance company — into a national landlord. It may also increase pressure on private lenders to establish similar programs and on lawmakers to pass renter relief.

“There are renters all around the country who have been holding up their end of the bargain and paying their rent faithfully, but the landlord got into trouble, and so the renter is now unfairly facing eviction,” said John Taylor, president of the National Community Reinvestment Coalition, a consumer advocacy group. “It’s really good news that Fannie Mae is doing this. Now the question is whether private sector will follow suit.”

In recent months, skyrocketing foreclosure rates have exposed as many as 70,000 renters to evictions, even though many never missed rent payments, according to analysts who track housing data. In many cities and states, renters can be evicted after their home goes into foreclosure, regardless of how long their lease stretches into the future.

Many financial institutions — including JPMorgan Chase and Bank of America — have policies to evict renters after foreclosure, company representatives said.

Fannie Mae’s initiative is expected to initially benefit as many as 4,000 renters living in foreclosed homes owned by the company. Fannie Mae has traditionally only bought and sold mortgages. But when a loan held by the company goes into foreclosure, Fannie Mae gains ownership of the underlying property until it is resold to new investors.

Fannie Mae owned 67,500 properties in foreclosure at the end of September, according to the company’s most recent filings. Most of those were owner-occupied. Under the new policy, former owners will most likely not be eligible to rent homes they lost in foreclosure.

Last month, both Fannie Mae and Freddie Mac, the other government-controlled mortgage giant, temporarily suspended foreclosures and evictions until early January. Fannie Mae will now offer renters in foreclosed properties month-to-month leases until the property is resold. A company representative said program details were still being worked out.

“While it may be sometimes tougher for us to sell a property when people are in it, we understand that lots of people are in tough situations right now,” said Chuck Greener, a Fannie Mae spokesman. “If a renter wants to stay in their home, we’ll make that happen. And if they want to move out, in many cases we’ll help them pay for the move.”

A spokesman for Freddie Mac said that the company was looking at a number of options, including a program similar to Fannie Mae’s, but that no decisions had been made.

The companies’ regulator, James B. Lockhart of the Federal Housing Finance Authority, issued a statement on Sunday saying that he expected both companies to update their policies shortly regarding renters living in foreclosed properties. Both Fannie Mae and Freddie Mac were taken over by Mr. Lockhart’s agency this year and now operate in a conservatorship.

Representatives of some major banks said it was unclear if Fannie Mae’s new policy would prompt their institutions to change theirs.

“We’re not in the business of managing rental properties, and we’re not in the business of being a landlord,” said Thomas Kelly, a spokesman for JPMorgan Chase, which owns about two million loans. “Clearly the renter is caught in the middle in cases like this. When a property is in foreclosure, we follow the law.”

Some lawmakers and housing advocates say such policies are unjust.

“If your loan is owned by Fannie Mae, you get to stay in your home. If your loan is owned by someone else, you’re on the street,” said Mr. Taylor of the National Community Reinvestment Coalition. “These banks need to realize they’re in the property management business now, whether they like it or not.”

Some lawmakers have complained that evicting renters is unfair. In November, the Los Angeles City Council voted to draft a law that would bar financial institutions from evicting renters living in foreclosed homes.

Last year, the House passed a measure that would require the new owner of a foreclosed property to inform renters at least 90 days before an eviction. That bill failed to pass the Senate. Law enforcement officers in some states have refused to evict residents of foreclosed properties.

But Yadilka Torres, who rents a home in New Haven, Conn., for $775 a month, had no such protection. Fannie Mae took possession of her house in September, when it went into foreclosure. Even though she was current on her rent, she received an eviction notice saying that she and her two young children would have to leave.

She looked for another apartment but could not find anything affordable. Under Fannie Mae’s new policy, she will now be allowed to stay.

“I was feeling so nervous,” Ms. Torres said. “I’ve tried very hard to pay the rent and to pay all my bills, and it seemed unfair this was happening. I’m very grateful we won’t have to move.”

New Condos are not selling like they use to

Just a few months ago, new developments in New York City were selling sight unseen. Now, developers are happy if they get a couple of contracts signed each month.

What I find interesting in the article, and what I am also seeing with my own business, is that more purchases are being made by first time buyers. Those who do not need to sell first are in a much better position to buy.

NYTimes article

Job cuts in NYC moving beyond Wall Street

Well, we had to see this coming. As the New York Time reports, workers outside of Wall Street are now getting laid off in New York. This is when the city will start to feel the pain. Wall Streeters live large and their spending in places like restaurants and high end clothing stores and on such things like domestic help and black cars has created many jobs for those lower on the economic food chain. (and their spending and income also adds millions of dollars to the city's tax rolls). While most Wall Streeters have at least some of a nest egg left these days (or maybe not after the dismal performance of the equity markets in 2008) to see them through after they have been laid off. But blue collar and many white collar types are not as fortunate. New York City is in for some econmoc pain, and I think that it is just beginging to show in the job numbers.

By Patrick McGeehan, The New York Times |

Well-paid professionals like lawyers, accountants and architects are joining the rapidly expanding unemployment rolls in New York City, as the effects of the financial crisis have spread beyond Wall Street not only to other white-collar industries but also to the construction and retail trades, a new report shows.

The number of white-collar workers outside the financial industry receiving unemployment checks was up by more than 40 percent in October from the same month last year, and the

number of college graduates collecting benefits was up by 50 percent, according to the report by the Fiscal Policy Institute, a nonprofit research group.

“Unemployment is starting to shoot up in New York City, and it’s affecting a spectrum of workers, both professionals and blue-collar,” said James Parrott, the institute’s chief economist and author of the report. “It’s hitting young workers and older workers, and it’s poised to rise dramatically in the weeks and months ahead.”

The report comes amid continued bad news in the financial industry. On Thursday, Bank of America said it planned to cut 30,000 to 35,000 positions over the next three years as it digests its acquisition of Merrill Lynch.

The report, based on state and federal unemployment statistics, provides hard data confirming a trend that was until now best understood anecdotally. It also showed that New York entered the recession much later than the rest of the country, largely because hiring by law and accounting firms, media companies and tourism-related industries remained strong through the first half of the year.

As recently as July, the number of new claims for unemployment benefits in the city was onlyabout 10 percent higher than it had been a year earlier. But since employment peaked in August, the city has lost about 10,000 jobs. And in the 12 weeks between late August and late November, first-time unemployment claims increased by more than 40 percent over the same period the year before, the sharpest year-over-year increase since February 2002.

Mr. Parrott said that the figures understate the severity of unemployment because many laid-off workers have not started collecting checks and many others do not qualify for benefits. In October, fewer than one-third of the 225,000 unemployed residents of New York City were collecting benefits, he said.

That portends an upsurge in the city’s unemployment rate for months to come, Mr. Parrott said. Most forecasts project that the city will lose more than 150,000 jobs during this recession. The Fiscal Policy Institute report estimates that job losses will average about 10,000 a month from November 2008 through the end of 2009.

The city’s unemployment rate was 5.7 percent in October, up from 5.2 percent in October 2007. The national unemployment rate was 6.5 percent, up from 4.8 percent the year before.

The growth in New York’s ranks of the well-educated unemployed seems to parallel a national trend, said Lawrence Mishel, the president of the Economic Policy Institute in Washington. Since March 2007, the number of college graduates who are unemployed has risen at a faster rate, 75 percent, than has the number of all unemployed Americans who are 25 and older, 62 percent, Mr. Mishel said.

“This is very strong evidence that this recession is very hard on college grads, more than usual,” Mr. Mishel said.

Mr. Mishel’s organization works with Mr. Parrott’s to promote the concerns of organized labor and low-wage workers.

Kenly Lambie, an architect who lives in Brooklyn, joined the ranks of the unemployed this summer after she was laid off by a firm where she had worked for a year. The dismissal caught her by surprise, but she said other firms have also cut back as construction loans have dried up.

“It’s really grim, and almost everyone I know who was at my level is unemployed,” Ms. Lambie, 29, said. She said she hopes to land at another firm in the city, but added, “If a really interesting opportunity came along in, say, Argentina, I’d jump on it.”

In the meantime, Ms. Lambie is trying to get by on a weekly unemployment check of $405, which she said is “definitely not enough.”

(Video: Possible layoffs at Yahoo)

A separate report released on Thursday by the city comptroller’s office echoed the central findings of Mr. Parrott’s study, doubling the city’s projection of the number of people who will lose their jobs by August 2010, to 170,000.

The comptroller’s report also estimated that total Wall Street bonuses this year will be less than half what was paid last year, making it the smallest amount since 2002. Largely as a result, city tax revenue will fall by 4.3 percent in the next half year, the comptroller concluded.

The layoffs in New York are following a traditional recessionary pattern by radiating out from the big financial companies to other professional services and to lower-paying businesses like

retailing, according to the report, which uses the latest data available from the state’s Labor Department.

In October, 6,428 people who had worked in professional, technical and scientific services were receiving unemployment benefits, up 42 percent from October 2007. That total — which includes the fields of law, accounting, consulting and engineering — exceeded the 5,935 people from the finance and insurance industries who were receiving benefits, the report showed.

The number of blue-collar beneficiaries was up 50 percent, driven mainly by a jump in laid-off construction workers.

Among those collecting benefits in the city, the smallest increases have come in management and from the fields of health care and social services and arts, entertainment and recreation, the report found. Health care and businesses that benefit from tourism have helped to bolster the city’s economy as the financial crisis has worsened.

But with the dollar strengthening against other currencies and foreign economies faltering, tourism has already begun to decline, threatening employment in that sector.

Not every unemployed person has a tale of woe. Lynne Figman, a real estate lawyer, said that she was given only about five minutes to clean out her desk at Phillips Nizer when she was laid off on Nov. 5. Her boss said he was letting her go because the firm expected its real estate practice to plummet next year, she said.

But Ms. Figman, who is receiving unemployment benefits now, has already begun setting up her own practice from her Upper West Side apartment and expects to have a healthy list of small businesses and homeowners as clients. On Sunday, she turns 50.

“I’m still going through with the plan to party,” Ms. Figman said. “My parents insist.”

Christine Haughney contributed reporting.

Copyright © 2008 The New York Times

Does Zell know more about real estate than publishing?

Sam Zell, who has made a fortune buying when everybody else is selling, was quoted in Tel Aviv saying that he thinks Us real estate will start to rebound in the spring of 2010. As they say in the Promised Land...from his lips to G-d's ears....

Sam Zell on www.CNBC.com

Once again, the most dangerous words in investing.."This time is different"

For all those who thought that Dubai, Miami, Las Vegas or New York for that Matter....

Is Dubai’s Party Over?

The glitzy facade shows some cracks.

Christopher Dickey with Vivian Salama in Dubai and Nick Summers in New York

NEWSWEEK

From the magazine issue dated Dec 15, 2008 - click here to link to Newsweek

In her classic account of World War I, Barbara Tuchman sets the scene for the passing of the prewar era with a vision of epochal pomp, the funeral of Britain’s King Edward VII. Nine monarchs rode in the procession and the pageantry evoked “gasps of admiration,” wrote Tuchman. But when it was over, one British peer reflected that “all the old buoys which have marked the channel of our lives seem to have been swept away.”

In Dubai last month, a very different kind of pageant was held, but if Tuchman were still around she’d have been taking notes. This triumph was billed as a world-beating blowout, a $20 million star-smacked extravaganza with the likes of Charlize Theron, Lindsay Lohan, Michael Jordan, and Robert De Niro in attendance. The fireworks display was so enormous it could only truly be appreciated from the heavens (literally—it was visible from space). The occasion was the opening of the $1.5 billion Atlantis resort complex on an enormous artificial archipelago shaped like a palm tree. The point of the party, its promoters explained, was to show the world that Dubai is a land of fantasies come true, an over-the-top destination for good times. But among many of the guests, the mood was funereal. As the fireworks exploded, the global economy was imploding. Many of Dubai’s overleveraged fortunes were crumbling, and no one was sure where to turn. The old buoys seemed to have been swept away.

“It’s a tragedy in the making,” said a senior executive with one of the city’s biggest real-estate-development companies as he peered into his champagne. “A lot of people are going to get hurt. A lot of dreams are going to be shattered,” he said, referring not only to the erstwhile rich and the speculators. Imported workers are already being exported, jobless, back to their homes. Skyscrapers are standing unfinished, baking in the sun. “Have you seen all those ships lined up on the horizon?” he said, gesturing toward the open gulf. “They’re stuck out there full of steel and concrete nobody wants anymore.”

While it may be an exaggeration to say that as goes Dubai, so goes globalization, it has become hard to imagine one without the other. More than any other place on earth, this city-state in the United Arab Emirates is the creation of worldwide commerce, a specialty-built magnet for the kind of hot money that seeks the quickest, highest profits and then moves on when they disappear. A lot of that cash comes from nearby Arab oil powers, most notably the adjacent emirate of Abu Dhabi, which has 90 percent of the UAE’s crude. But many billions more have flowed in from Iran, India, China, Russia, Europe, the United States, and indeed just about every other corner of the world.

For the past decade at least, real-estate speculation has been the national sport. The price of houses and apartments, many not yet built, rose by 43 percent in the first quarter of this year alone. Mortgage money was easy to get and speculators commonly flipped properties for substantial profits in a matter of weeks, sometimes even days, before the first monthly payments came due. Everybody wanted in on the game. “Employees didn’t focus on their work anymore,” complains the chairman of a regional transport company. “They all wanted to go buying property for 10 percent down, if that.” As of June, Dubai had 42 million square feet of office space under construction, more than any other city in the world, even Shanghai. What was a flat desert 20 years ago is today an urban canyon. Such is the frenzy that the Hard Rock Café, built among vacant lots in 1997, is now surrounded by skyscrapers—and plans to tear it down for another high-rise are being debated as if the Hard Rock were a heritage site.

But Dubai wasn’t just a receiver of world capital. It was also an important global investor. In 2006, its DP World acquired the management of six major U.S. container ports—until an explosion of xenophobic protest in Congress made the deal politically untenable. Today, among many other holdings, Dubai owns a 43 percent share in NASDAQ OMX and a 20.6 percent share in the London Stock Exchange. Its wholly owned subsidiaries include Travelodge in Britain, Mauser in Germany, and Barney’s and Loehmann’s in New York. By early 2005 the “liquidity gift,” or windfall profit, created by rapidly rising oil prices started to look like it would last, and Dubai’s boom really picked up steam. Some of the city’s top financial officials started warning privately that a bubble was forming and so sought to keep diversifying their holdings as widely as possible. But as oil prices continued to climb, more and more fresh cash poured into Dubai’s freewheeling economy and the public started to feel protected from global shocks. Nobody was ready for the plunge in prices over the past four months, which has taken oil down to less than a third of its price last summer. Dubai turned out to be “insulated but not isolated,” says Mary Nicola, an economist with Standard Chartered Bank.

As with so much in the interconnected world economy, the ripple effects of the current crisis keep spreading, exposing some of the more unpleasant facets of the Dubai dream. Layoffs, which have already begun, will have an impact not just in Dubai but also in the working-class neighborhoods of Manila and Mombasa and Thiruvananthapuram that sent their workers to the gulf. Thousands are expected to leave when the holiday season is over, with little fanfare. The guest workers’ invitations can be revoked any time, so few complain—but bitterness is widespread. Meanwhile, prices for houses and apartments still on the drawing board have dropped almost 50 percent in some areas, mortgage money is simply frozen, and major projects are stalled or being scaled back. Rumors abound that Dubai may have to sell a substantial stake in Emirates Airlines, the national carrier that’s vital to keeping it connected to the outside world. And in a business culture built on inside dealing, the official denials of such a sale have had little credibility out on the street.

The sense of uncertainty and fear has grown so much that even in Dubai’s famous gold souk, which was a center of trade long before the word “globalization” was invented, there’s now a pall of confusion. “Not only are gold prices dropping,” says Firoz Merchant, the owner of one of the shops. “Everything is uncertain and moving in different directions.” As if to underscore the gloomy mood, last month the Dubai Marina suddenly started filling up with excrement. Apparently many buildings in the city can only dispose of their wastewater by having it trucked to a treatment plant. But the drivers got impatient with long lines and started pumping it into storm drains that led straight to the sea.

In an effort to restore confidence just days after the Atlantis resort blowout, Dubai announced the creation of an “advisory council” headed by Mohamed Alabbar, the chairman of Emaar Properties, which is building, among many other projects, the tallest skyscraper in the world in the heart of the city. Emaar’s stock price, it is worth noting, has plummeted more than 80 percent this year, and the sale price of luxury apartments in the hyper-high-rise has dropped by 40 percent.

“Here in Dubai we are realists, and we are also optimists,” Alabbar told a forum at the Dubai International Financial Center on Nov. 24. To reassure his audience and the world he promised transparency, a rare concept in Dubai, and addressed the question of the emirate’s debt, long rumored to be astronomical. Alabbar said the government and its many affiliated companies had obligations of $80 billion, but assets of $350 billion. “Let me therefore state categorically: the government can and will meet all its obligations going forward.”

Such semi-official figures have never been made public before and their details have still not been divulged. So neither the liquidity of the assets nor the basis for their valuation is clear, and it’s hard for analysts to judge just how realistic Alabbar’s optimism is. “The important thing is not to focus on Dubai’s assets and liabilities, it is about moving forward to rectify the situation,” says Mushtaq Khan, an economist at Citigroup who authored a recent report on the Gulf.

If there is good news, it’s that Dubai’s leaders were quick to take some corrective measures in the earlier stages of the crisis. In September and October, the Central Bank implemented a $32.7 billion plan to support the country’s financial institutions. Alabbar announced last month that the two main home-mortgage lenders, which had run out of money, would in effect be nationalized. And he promised that the three largest developers in Dubai, which control about 70 percent of the supply on the real-estate market, would work together to keep it under control. The crash of the moment is really “a healthy correction,” he said.

Perhaps. Certainly many Dubai residents say they’d like a chance to catch their breath, and there are ample signs the city needs to catch up with itself. Just 50 years ago, the place was a dusty outpost of a few thousand people on a forgotten corner of the Arabian Peninsula. Forty years ago, one of its biggest businesses was smuggling gold to India. After British forces withdrew in the early 1970s from what were called the Trucial States, the seven local sheikhdoms became the United Arab Emirates. Abu Dhabi had the greatest share of wealth because it had by far the greatest share of oil. But Dubai had entrepreneurial spirit.

In the 1980s, under Sheik Rashid bin Saeed Al Maktoum and then his son Sheik Mohammed bin Rashid Al Maktoum, Dubai developed its enormous free port—even as Iran and Iraq fought a war on the horizon. Golf courses that were kept green with millions of gallons of desalinated water started changing the landscape, and by the 1990s, Dubai was building landmark resorts like the sail-shaped Burj Al Arab Hotel. It also started cashing in on new technologies with special Internet and media “cities” built to make it as important a hub for communications as it was for shipping and air traffic. In just five years, from 1995 to 2000, Dubai’s population grew 25 percent, and now stands at about 1.6 million people. The vast majority are expatriates coming to work at every level of society, from menial labor to senior management. In 2007, the Emirates as a whole counted only 864,000 citizens, compared with 3.6 million foreign workers. “While infrastructure development was rapid, the number of expats flocking to the city overwhelmed it,” says Citigroup’s Khan.

But even if Dubai needs an enforced breather, it’s not likely to get through the downturn unscathed. Abu Dhabi, after many years of quietly helping to fund Dubai’s growth and watching Dubai develop a reputation for innovation and excitement, is now looking to take a bigger share of the action. “A formal statement is unlikely,” says Khan, “but strategic assistance from Abu Dhabi is likely.” And so is increasing control. Abu Dhabi dominates the UAE’s federal government and last week the federal constitution was pointedly amended to bar the prime minister (Dubai’s Sheik Mohammed), his deputies and federal ministers from “any professional or commercial job” and to prohibit them from any business transactions with the federal or local governments. How this can be enforced is an open question—to a large extent, Dubai isMohammed Al Maktoum—but the message was clear enough: Abu Dhabi is now in charge.

Meanwhile, the Emirates are literally taking some time off, first for Muslim holidays and then for Christmas. Few big new initiatives are likely to be announced before the beginning of the year, if then. But the cracks continue to show. Take the new Atlantis resort, for example. It is a joint project between South African developer Sol Kerzner’s group and Nakheel, the Dubai development company that built the Palm Jumeirah island and other even more extravagant real-estate follies up and down the coast. Days after the grand opening, Nakheel announced it was laying off 500 people, or roughly 15 percent of its global workforce. “The people with Nakheel spend $20 million on fireworks and don’t have money to pay their own people,” says a Lebanese businessman with extensive interests in Dubai. “It’s a disaster.”

Meanwhile, even the rich are feeling the pinch. Last week the owner of a Mediterranean-style villa on one of the Palm Jumeirah’s beachy fronds facing the Atlantis dropped his asking price from $4.9 million to $3.6 million and then $3.13 million, and offered to throw in his Bentley as well. “Our client has his money stuck in the markets and he desperately needed it to run his business,” says real estate agent Anthony Jerish. “Still, nobody bought it. Maybe we will sell the Bentley separately. I don’t know.” No, this isn’t the old Dubai at all.

Good post from Noah at Urban Digs

Chasing A Moving Target

from Manhattan Real Estate: New York City Real Estate Tips by Noah Rosenblatt

A: A post for the sellers out there after getting some calls recently about this topic. If I had one piece of advice to Manhattan sellers, especially those who own properties that have few special resale features to offer (amazing park or river views, large outdoor space, fireplace, roof rights, amazing location, etc..), it would be to fight denial, resist the urge to anchor to peak prices, and to price your property aggressively at the outset. The hope is to be ahead-of-the-curve and to sell the property before you are forced to chase a moving target. The target of course are the buyers and the bid they may be willing to submit for your property. When I say 'chasing a moving target', I refer to any property that has reduced their asking price 3,4, or even 5 times over the course of the listing in the desperate hopes to find out where "market value" is. This type of seller is chasing a moving target, a target of buyers that seem to be running away ahead of them; finding themselves behind the curve chasing the market as it falls. As the buyers run away due to declining confidence and deteriorating economic fundamentals, the seller's are chasing them down with the hopes of catching up. The result tends to be counterproductive because it ultimately can lead to fierce sell side competition and even a further depression of buy side confidence. Let's say you are a buyer and you find an apartment that meets your needs. Now lets say that this property's asking price was reduced from $2,000,000 to $1,950,000, to $1,900,000, to $1,825,000, and is now asking $1,795,000; from original asking price to current asking price. As a savvy buyer in a market that is clearly pressured, with inventory clearly rising, with sales volume clearly way down, what are you going to be thinking about a potential bid? Chances are you will say to yourself something like this..."well, the seller is obviously eager to sell because they keep reducing the asking price, so why not bid lower and see what type of response I get". This is the kind of psychology that occurs out in the field. Denying this exists, well, is to deny that psychology plays a role in the buyers mind during the buying process. This buy side psychology is everywhere right now! Arguing this is to be an eternal optimist, and to see the silver lining in every situation; which is fine, but it may get you into trouble if you strategize a property sale in this manner. I'm not saying deals are not happening, they are, but deals that are happening are from buyers that are bidding cautiously! Even the Fed's beige book quoted Jonathan Miller's appraisal firm as telling us this:

"A major residential appraisal firm reports substantial deterioration in New York City's housing market over the past two months: prices of Manhattan co-ops and condos are reported to have fallen by 15 to 20 percent since mid-summer, though it is hard to get a clear handle on prices due to thin volume--much of the recent activity is reportedly from desperate sellers."

This is where deals are happening at, due to the illiquid nature of the marketplace right now! Sellers should learn from this real time information and price accordingly; but most are not. Most sellers are still anchored to previous sales in their buildings, even though the time & place of those sales were in an environment much less pressured than today. As far as I'm concerned, if you are going to use a comparable sale from 8-12 months ago, might as well plan on selling for 20% or so below that figure; calculating in a premium/discount for what floor you are on, light/view differences, layout differences, and renovation differences. There is a reason sales volume will be down significantly for the months of OCT-DEC 2008, and the reason is a disconnect between buyers & sellers. So, who's right? The buyers of course! The buyers are ALWAYS RIGHT! Umm, correct me if I am wrong, but that apartment you are trying to sell is ONLY worth as much as a buyer is willing & able to pay for it! Nothing more, nothing less. Just because your broker can't believe a buyer is not biting at a certain price, just because a seller can't believe no bids came in after a reduction or two, is proof that the market has changed and that the target is moving! As publisher of UrbanDigs.com for the past 3 years, I am outrageously lucky to have such a great readership, and active forum for people to openly discuss their thoughts on any topic of the day. But one side effect is that sellers call me for help after they mistakenly fell for the oldest trick in the book; signing on with a broker that excels at the sales pitch, promises an unrealistic price for their property, and sells themselves as an expert on their building with plenty of buyers waiting already in the wings. Of course, the high price puts the seller behind the curve and forces them to ultimately chase the moving target; and there never really were any serious buyers to begin with! So, these sellers call me because they want to know what price their property should be listed at given the real time conditions of the marketplace. I can't help these people because they are signed to listing agreements with their broker, and it would be unethical of me to interfere and give advice to somebody else's client. I don't care who you use to sell your property, but you need to be smart and acknowledge the world we are in RIGHT NOW! The world 6 months ago doesn't matter anymore. If you decide to price high because a broker promises that their business will get you that number, don't expect a quick sale! In fact, expect a long time on market with plenty of price reductions to re-stimulate traffic to your listing as time goes on. The reasons why I think the next 2-3 quarters in Manhattan will continue to be pressured are as follows: 1) JOBS - when the forced marriages of the credit crisis close, the re-organization, costs cuts, and job cuts will be announced. I believe Merrill alone is expected to announce up to 30,000 job cuts when their deal with Bank of America closes next quarter. Merrill will not be the only financial institution to announce layoffs. As it gets going in the financial sector, the slowdown will ultimately seap into the real economy here in NYC. The result will be layoffs at consumer driven business during the course of 2009. Its a very sad chapter of this crisis. To think that Manhattan real estate has seen the worst of the declines, as we enter a period of heavy job losses, is quite silly. Unfortunately, we must assume that X percentage of these jobs lost are from those that own a home here in Manhattan. Lets keep it real here as always, 2009 is likely to be the dark year for Manhattan's economy and it is certainly rational to expect this fundamental to continue to pressure the sell side of our real estate market. 2) APPRAISALS - NEGATIVE TIME VALUE - something that very few are discussing. Let us wake up the reality that the market has eroded and that the significant erosion in prices has not yet filtered through to closed sales. In comes 'negative time value' from the appraisal side. Now, when you do comps analysis on that property you are considering bidding for, you have to review comps from the past 6-8 months, which means the deal was signed into contract between 8-11 months ago or so. It's only when the deal closes that the purchase price is recorded as a matter of public record; and then used as a comp. Think about what will happen when NOV & DEC sales get recorded in JAN & FEB of next year! These fresh comps, that reflect the erosion I have been describing recently, will set the new hallmark for analysis! Jonathan Miller adds:

"Conditions this fall have been characterized by low sales activity and price erosion. We have been making negative time adjustments on most of our appraisals during this period to reflect the change in value between the date the “comp” sold and current value. Not one lender has expressed concern and in fact, continue to remind their approved appraisers to reflect current market conditions in their reports. The rapid change in this underwriting orientation is personally shocking to me since underwriting has been detached from reality for so long. In my view, restoring trust in the lending process begins with having correct valuations as a benchmark for informed lending decisions."

When these deals close, and are entered into the system as comps, it will set the new level for future analysis. The question then becomes, how much longer will the appraisers price in 'negative time value' into their #s? 3) MEDIA - I am telling you that the market is illiquid, sales volume down significantly, and that deals being done today are in the 15-25% down from peak range. It is likely that these contracts that are signed today, will close in the next 1-3 months. With that said, it appears Q1 of 2009, released April of 2009, could be an ugly report. If it is, and reflects what real time information I am discussing here, then the media is going to go overboard with it. The effects on buy side confidence and psychology from the media's take on the Manhattan market at that time, is likely to further dampen demand at a time when many sellers will probably have a time pressure to move the property. Time will tell if the media enhances this slowdown cycle. 4) POCKETS OF DISTRESS - feeds from #1. It is likely we see more pockets of distress as long as this market REMAINS ILLIQUID! That is the key phrase, illiquid! If this market remains illiquid, and there are few bids being submitted, trust me, you will eventually see those sellers that absolutely must move property. This may lead to some fierce sell side competition IF the market remains illiquid for a significant portion of 2009. I generally ask myself, what fundamentals will improve over the next few quarters that will lead to a wave of buyers entering this market with strong bids, adding liquidity to the market? I have trouble rationalizing an answer to this question right now. Sellers, price ahead of the curve for any hope of avoiding chasing a moving target!