New Loan Started, March Apartment Update

I've started  a new hard money loan on a property in Richmond, CA. This is a 4 bedroom duplex, 2 bedrooms and 1 bath on each side. Each unit is 600 square feet for a total property square footage of 1,200 square feet. Each unit has an attached one car garage. There is at least one tenant in the property (my partner was unable to see the interior of either side). The property was built in 1960 and is on a 3,750 square foot lot. There is a train track nearby and my partner said he could hear the train as it went by, but he thinks it might not be audible from inside the property.

Surprisingly, there are several duplex comps within a 1 mile radius. They sold for between $140,000 (REO sale, slightly smaller property) to $215,000. This property was purchased at auction for $176,000. The opening bid was $117,000, so there was a lot of interest in this property and the price was bid up nicely. Our after repaired value estimate is $220,000 with a current value estimate of $170,000. (Yes, our current value estimate is lower than the purchase price.) Our loan is for $120,000, giving us a 71% loan to value ratio based on the current value. We also estimate the units can rent for $700 a month each, which would be a $1,400 monthly income on a $120,000 investment, should we have to foreclose. Not bad. Our borrower is someone we have worked with a couple times before. He has always paid on time. He works for our biggest borrower and is starting to build his own business of rehabbing foreclosed properties. He is personally guaranteeing the loan. I'll refer to this property as Hard Money #27.



In other news, the March numbers for the apartment complex are in. Rent income increased by $2,000, occupancy rose. Total revenue dropped due to lower utility billbacks, and operating expenses declined. All those factors combined to give an increase in Net Operating Income over last February by almost $3,000. Management expects revenue to continue to increase going forward. For the first three months of this year, the property is cash flow positive, although it is still below the budgeted cash flow amount.

Public Intellectuals and the Growing Harvard Hypothesis List

My mother has always hoped that I would be a "public intellectual".   While I have failed, many noteworthy academics at Harvard are willing to step up.  In recent years, Harvard's scholars have provided many big ideas for which they made national news.  Here are three famous examples;

1.  Today,  Ferguson on why Keynes was so focused on the short run.

2.  Reinhart and Rogoff and the critical 90% debt ratio.

3.  Larry Summers on women and hard math.

There are at least two interesting questions here.  What is the socially optimal amount of provoking the populace?  Second, does holding Harvard stationary cause excellent scholars to "cross the line" or does Harvard seek out and aggressively recruit scholars that are more likely to engage in this activity?

On the first point, in this age of Paul Krugman --- I feel that my friends at the University of Chicago have under invested in engaging with the public.  John Cochrane and Casey Mulligan are writing strong blogs but Professor Krugman is winning the applause and the public debate as my Chicago friends are free riding and ducking stepping into Milton Friedman's large shoes.  

Lectures on the Economics of Sustainable Real Estate Investment

Every May, I grow tired and bored.  This year is worse than usual.  I'm teaching too much and I not hearing enough new ideas from my colleagues.  In search of new stimulation, I've made a strange choice.   Nils Kok and I have agreed to write a textbook at the intersection of real estate finance and investment, urban economics, energy economics and environmental economics.  While there are some good texts for each of these subjects,  I've gotten excited about how to write a book at the MBA/PHD/Masters in Public Policy level that covers our thinking at the intersection of these four subjects.  

The typical MBA doesn't fully appreciate the power of microeconomics as a tool for  understanding the world and for making money.  The typical Ph.D is all tooled up but doesn't have a clue about what are interesting "doable" research questions. The typical Masters in Policy student is often suspicious of free market forces seeing them as a cloaked way to transfer income from the 99% to the 1%.   This book will have a lot to say to all of these groups.

The perceptive reader will see how basic University of Chicago price theory and simple econometric tests can be used in tandem to make a number of interesting statements.   This book will highlight the power of free market ideas as a force for promoting environmental protection and improving urban quality of life.  This project has jolted me back to life.  Once we are done, we will simply give the book away basically for free as an "E-book".    We are on pace to finish this project by December 2013.

The point of this blog post is not merely to boast about what I will do.  If you are an altruist, or if you are an under cited researcher, please send me your relevant research and I will read it to see if your work should be bundled into this endeavor.  

Adaptation During Wartime: The Case of the Marines in Iraq

From 2000 until 2007, I was colleagues with Richard Schultz at the Fletcher School at Tufts University.   My Fletcher colleagues are often quoted in the news.  When I read their quotes, it makes me flash back to good days.   Today, the WSJ reviewed Schultz's new book.   Here is a quote from the review;

"The Marines deserve a large share of the credit for turning around a war that had been all but lost. Along the way, they relearned hard truths about counterinsurgency campaigns—that wars among the people aren't won by technology alone; that it is essential to understand the languages, culture and history of the people among whom one fights; that building competent local forces is the way out of counterinsurgency operations like the continuing one in Afghanistan.

Mr. Schulz is absolutely correct in describing the Anbar campaign as a "textbook example of how Marines—true to their organizational culture—learned, adapted, and prevailed over a murderous, cold-blooded foe." This victory was impossible to imagine when I was fighting in Anbar nine years ago, but today Drill Instructors at Parris Island are already shouting marching cadences to Marine recruits that celebrate those who led the fight in Anbar. It thus joins a long list of tough battles in which the Marine Corps demonstrated not just its legendary faithfulness but also its flexibility."

In this age of celebration of the low risk drone attacks, this emphasis on "hearts and minds" is related to important empirical work being done by UCSD's Eli Berman and his co-authors.  

Switching subjects,  for all of you seeking to be more productive, happier people --- I suggest listening to this music.  

Understanding the Origins of Great Economists' Worldview

This Sunday the NY Times supplies a friendly debate between two titans named Glenn Hubbard and Larry Summers.   The author of this piece, Adam Davidson,  appears to believe in the key role childhood experience plays in shaping us in later life. Without delving into any Freudian theories, he pays close to attention to each man's upbringing and the political conversation at the dinner table when each man was a child.  If economics is a science then why would such facts matter in explaining their respective policy views today?     Clearly, Davidson does not believe that economics is a science.

In the aftermath of the financial crisis, many cynics want to view academic economists as political ideologues who know how to reverse engineer "fancy" mathematical models to generate the predictions they already "knew" were correct (i.e we need more stimulus, or reduce debt now!).   We, the academic economists, are viewed as having false credibility because we know math and statistics and we cloak our opinions in what appears to be hard science.

How can economists earn back our credibility? Would modesty help?   These are dangerous days.