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Direct From the Yale Daily News....

It only took Forty Years to reverse a Bad Decision that seemed Avant Garde in the late 60's. I think of the people who hold an Oak Street Neighborhood Reunion every year. Imagine seeing your neighborhood returned after being plowed under for a highway. "They paved paradise, put in a highway connector." -kristin

Plans for Route 34 demolition are revealed
Rustin Fakheri

Staff Reporter
Published Wednesday, April 22, 2009
After 40 years of contention, New Haven will demolish part of the Route 34 East Connector to build a boulevard and shops.

At a press conference Monday, Mayor John DeStefano Jr. unveiled a city project that would reconnect streets and develop businesses along the route in the Oak Street area of the city. The plans include demolishing part of the connector, replacing it with a boulevard, and using the freed 10 acres of land from the project to house businesses. But the project?s expected cost, and its extended time frame, threaten to further strain the city?s budget at a time when the Elm City is struggling for funds.

According to New Haven city records, the state of Connecticut acquired 26 acres of land in the late 1960s to connect downtown New Haven to its valley communities through an extension of Route 34. The project displaced 600 families in the process. At the time, the project was billed as creating jobs and improving the city by destroying the Oak Street area ? a ?slum neighborhood,? as contemporary advertisements for the project called it ? in favor of ?high-income apartments and department stores.?

By razing the Oak Street area, the state claimed it would better connect downtown New Haven and the Yale-New Haven Medical Center, which were on opposite sides of the neighborhood.

DeStefano said he hopes that this time the new project will better connect downtown New Haven to Union Station and the medical school campus while creating more than 5,500 construction jobs and 2,000 permanent jobs. The plan allows the Yale medical school campus ? which includes both Yale-New Haven Hospital and the Yale School of Medicine ? to expand into the area south of the highway.

Developer Carter Winstanley will, as part of the Downtown Crossing project, erect a new building between North and South Frontage Roads. The building, which will feature office and laboratory space, will mark the beginning of DeStefano?s 15-year Downtown Crossing project, meant to rebuild more than 18 acres of land in the area, the mayor has said. The city has yet to turn the land for the building over to Winstanley, though city officials said they expect the deed to change hands before the end of the year.

At the press conference, DeStefano said Downtown Crossing, at a projected cost of $45 million for solely the medical school campus portion, would generate $100 million in sales, income and property taxes. The cost of the entire project, City Hall spokeswoman Jessica Mayorga said, is difficult to pin down in light of the long-term nature of the construction.

But city officials maintain that the project will, in fact, decrease the tax burden on residents by broadening the city?s tax base.

?By reconnecting the street grid, developing space for new businesses, labs, housing, restaurants, cultural attractions, parks and so much more,? DeStefano said in a statement, ?we will be growing our tax base, reducing the tax burden on our residents and most importantly, creating thousands of new permanent jobs at all skill levels.?

Ward 6 Alderwoman Dolores Colon said the project will be the first attempt made by the city to bring a community back to the ward it fractured in the ?60s.

?I think that whole area needs life after dark,? she said of the Oak Street area. ?After the hospital and Med School employees leave, it?s like a grave site.?

The city expects the Route 34 project to take 15 years to complete

April 22, 2009

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Counting on CNN and the rest of the media to be behind the curve on insight

CNN is reporting the widely known fact that $700 Billion in commercial real estate loans that will mature in the next two years. Surprise! With rising vacancy, dropping rental rates and stricter underwriting standards, their pundit Don Peebles thinks that a lot of properties will go into foreclosure.

What a soothsayer.

Commercial real estate cycles have followed residential cycles since Lords kept serfs to work their land. Crops died off, tenant farmers couldn't meet the price of their rented land plots, the overlord took their land back and home, they couldn't work so stopped buying meat and fish, grocers went out of business, pubs couldn't pay their rent and every one clung by their fingernails or fell until a better crop came in and harvests improved.

Suddenly, the media seems to be catching on.

Those of us in the industry knew that commercial real estate would suffer, the only questions were and remain, how long will the market be slow and how far will values drop? As ever, the answer is yet to be seen. If layoffs continue, businesses will shrink requiring less physical space, more space will come on the market with fewer companies growing or starting up (government bailout money is still elusive for business, CBIA loans are difficult to secure, taking longer than ever, banks are skittish about lending...funny when those businesses might employ more members of the families whose homes are in jeopardy if they could expand their product and service lines and grow through the recession), and landlords will see more vacancy in their buildings, making it harder to meet existing mortgage payments, or refinancing terms.

Now, according to CNN's pundit, this isn't a big deal for the economy because someone else will pick up the property and people won't lose jobs like they did in the financial industry. It'll just be one investor or group of investors trading property to another group, so only a small pocket of people will be hurt. **Nice Spin if you can Get It.**

Conveniently, CNN's real estate report left out an entire sector of commercial real estate owners. The business owners who own their business property or those who own properties larger than they need so that they can live in their workspace for free. As their debt management issues impact them and their business, it'll be a sign that our economy and corporate health is still in jeopardy. He also neatly side stepped the issues that underlie vacancy in commercial and industrial properties. Empty spaces where companies once employed, once paid taxes to the towns and cities in which they are sited, dark buildings not being maintained. Don't let CNN fool you. In painting commercial real estate owners as an army of Donald Trumps that deserve a little humility, they neglect to look at the issues that create and are created for and by a commercial real estate bust.

When buildings go dark it won't simply be because people bought investments that were upside down at the top of the market; their debt exceeding their income. It will also be because companies failed, mortgages came due. It will mean that not only are more people losing work, but town city and county tax based services will suffer. Non-profits will suffer - fewer businesses, fewer sponsorships, fewer profits.

A commercial real estate money collapse will be felt in every pocket of America to some degree. It looks as though the crash will not be stopped with $250 Billion in commercial loans coming due this year. As with every bust, some areas will be hit harder than others and this time, Connecticut's barriers to business, though keeping us out of the hunt for desirable corporate headquarters and regional satellite business centers for the past ten years, will help us through the recession. Since we haven't grown like the rest of the country for the past twenty years, there isn't far for us to fall. Unless of course, our state government chooses to enforce more regressive corporate and sales taxes, in which case we'll only have our legislators to blame. Then again we're already 49th best state in the union to do business, how much farther can we fall?

April 20, 2009

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Turbulant Commerial Real Estate Market Nationally, Locally

Since the start of the Commercial Real Estate crash of 2009, Connecticut Commercial Real Estate owners have been living in the eye of the real estate storm. Landlords in CT read the news as REIT stocks tumbled on the heels of hedge fund implosions. They worried as the end of 2008 and the credit crisis hit retail property owners with rising vacancies and rent renegotiations. But, they did not feel the earth shift under their feet the way REITs world wide and commercial property owners in Florida, Texas, Vegas and the Inland Empire east of Los Angeles hit by the subprime crash, over building, and the crash of our retail economy did.

Now the storm is gaining speed and no one is safe in the eye. The market in Connecticut is shifting, assets and equity are for sale.

In Plainville, Connecticut Commons, 556,000 square feet of retail space is on the block. It is part of a 52 property portfolio being sold by Macquarie DDR Trust throughout 20 states. The property had been valued by the ownership for $91 million. But that counts Linens and Things on the balance sheet. An open air big box center, one wonders what the vacancy rate will be in six months or two years. How many people will buy fishing rods at Dick's Sporting Goods for opening day of trout season this year?

A year from now, the sale of the John Hancock Tower will be hailed as the shot heard round the commercial real estate world. The building sold at auction in 60 seconds for $660.6 million.

In 2006, its sale price was $1.3 billion.

In 2009, a roomful of investors stood with their arms at their sides while a single bidder raised his hand. The Tarantino twist in the story? This was not a sixty second sale.

Normandy Real Estate Partners bought enough of the debt through second and third mortgage leans on the tower to force its troubled owners into foreclosure on the first mortgage. More twists: the roomful of prospects were only there to see what would happen and how low the price would go.

The unknown subplot realized after multiple calculations? Not only was the sale price a fifty percent discount off the purchase price of two years ago, Normandy bought the building for an even lower price in real dollars. They bought the Boston landmark at a cost of money far below that which is available to buyers with today's underwriting and increasing vacancy. The real cost of the tower is closer to $400 million.

Investors watched. Fire sales won't sweep the market traditionally, savvy investors are going to look for similar over leveraged properties. In fact they already are, in Colorado and Southeastern states where money ran like water for the past seven years.

In Connecticut those properties will be harder to find, vacancy rates being an underwriting issue since the early 90's when the state last sunk. But 1031 money flowed freely from New York City for several years, so there will be distressed properties to cherry pick.

Though Prologis, Kimco Realty and Simon Property have successfully sold equity, REITs are over leveraged and stocks are falling. Mergers and acquisitions are on the horizon. Of the 130 public REITs, 30% are trading at below $5 a share. REITs have stakes in CT. Through mergers and acquisitions, properties will continue to be dropped from portfolios and will be opportunities for CT investors who have been waiting for prices to fall.

While there isn't much land left in our state, existing properties will be prime for redevelopment, green development, transit oriented development and available at lower prices than we've seen in ten years if they are sold off as under-performing REIT assets.

Toxic, the catch phrase of self help books for a decade is the commercial real estate catch phrase of the next several quarters. Keep an eye out for toxic assets and opportunity.

April 14, 2009

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