The Great Depression Online




Great Depression Online Archive Issue:

A Work of Genius

Great Depression Online
Long Beach, CA
September 12, 2008

Inside This Issue You Will Discover…

*** The Worst Job in America
*** The Smartest Guys in the Room
*** A Work of Genius
*** And More

The Worst Job in America

We often marvel at the side-splitting idiocies of the modern world.  Right now a spectacular hubbubs being made over the election race.  Yet most observers, we believe, are lacking the proper perspective.

They are too close to the show stage and take the day to day bluster of it all far too seriously.  From our upper balcony perch things come into focus for us a bit more clearly.

One observation is that the country’s top job must also be its worst job.  Who in their right mind would want to be President?  Just the thought of it gives any sane man or woman the cold sweats.

~~~Income Security of the Month – September 2008~~~

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~~~~~~~~~~~~~~~~~~~~~~~~~

But there are lunatics out there who want the job.  And we are certain that one of them will get it.  For that’s the inherent justice of democracy.  It delivers to the people exactly the President they deserve.

The Smartest Guys in the Room

Next we turn our sights to the hysterical stage of money…always on the lookout for another side-splitting idiocy.  Before long, one comes into focus.  And while this observation may not be worth much, we figure it’s at least worth double what you paid for this little newsletter.

Here it is…

It’s near impossible for a total moron to blow big money; to succeed at such a feat you must be a genius.

While a total moron may squander his family inheritance at the craps table in an Indian Gaming Casino…or, perhaps, he’ll run up the legal fees on a string of failed marriages…you never hear of a total moron putting up $1 billion in cash, and borrowing another $4.4 billion, to work a deal where they loose $192 million per year.

It’s only the smartest guys in the room who are capable of reasoning their way into such a stunning boondoggle.  But two prominent real-estate investors did just that.  They found it necessary to spend $5.4 billion -- $1 billion out of pocket – to purchase Stuyvesant Town and Peter Cooper Village, a massive complex of 56 buildings and 11,000 apartment units along Manhattan’s East River.

Yes, the dollars involved in the deal are staggering.  But it’s the ridiculous assumptions that were made for justifying the endeavor that had our eye’s popping out of our head.

A Work of Genius

We could hardly believe it.  But there, before our bulging eyes, Andrew Bary of Barrons imparted the shocking details, which involved a plan to convert thousands of low-rent apartments protected by strict New York City rent-control laws to much higher market rents…

“A weakening New York economy, led down by Wall Street, may make it tough for Tishman Speyer, the complex’s manager, to get $3,000 monthly rents for one-bedroom apartments or $4,000 for two-bedrooms in what originally amounted to a middle-class housing project, built by MetLife for returning World War II vets and their families.”

Here’s the kicker…

“Tishman Speyer … has tried to reposition the apartments as luxury rentals.  But that effort is being undercut by the complex’s housing-project look.” 

So, for now, they’re stuck with a property that generates an annual operating income of $108 million, which is far short of the $300 million required just to service the debt.

Did these geniuses ever bother to pencil this out on the back of a cocktail napkin?

Surprisingly, they did…

“When the new landlords arranged the financing in 2006, they projected that rental income would triple, to $336 million, by 2011.  To reach that goal, rents would have to double from their current average around $1,800 a month.”

Alas, they haven’t.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Find out all about the “Income Security of the Month – September 2008.”  This fund invests exclusively in one of the fastest-growing and most undervalued foreign markets on the planet. Thanks in large part to its international strategy, the fund has posted total returns of +179% over the past five years, and it ranks in the top 10% of its category over the past decade.  Learn more here: Income Security of the Month - September 2008.

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