Saturday, March 13, 2010

And we are forever thankful.....

Sweet deal in Columbus: ProLogis ensures that the cookies
will arrive. 3/11/2010 Midwest Real Estate News Reports
ProLogis, a global provider of distribution facilities, in March
temporarily donated 49,000 square feet of distribution space
in Columbus, Ohio, to The Girl Scouts of Ohio's Heartland
Council.

The Trefoil (shortbread cookie),
my favorite.

More from the Hubble Telescope

For more amazing pictures, click here.


"Act with kindness, but do not expect gratitude."

The "you can make a difference" guideline....

Guideline #17: What you do matters.

When you buy a stocks, bonds, shares in a REIT, mutual
funds, rare coins, gold, art, or collectibles you have
invested your money, which is a very good thing. However,
you have done so passively. If you have purchased wisely
you can make significant gains. If the market appreciates
you can make significant gains. But, once you have made a
passive investment there is not much you can do, except

Real estate is different. It is true that if you have
purchased wisely, or if the market appreciates, you can
make significant gains. It is also true that by inaction,
ignoring your tenants, not fixing things that need fixed,
not cleaning things that need cleaned, you can make your
property value go down. It is even more true that by action,
taking care of your tenants, fixing things that need fixed,
improving things that maybe do not need improved,
upgrading your tenants, you can make your property value
go up.

A regular periodic review of the property matters. Is the
rent appropriate for market conditions? Are the expenses in
line? Are both you and the tenant following the provisions of
the lease? Is the property in sound condition? What are the
repairs or improvements on the horizon? Is the neighborhood
around the property holding its own? What can I do to improve
this investment? These are among the questions you, as the
active investor, need to think about and answer to your own

What you do, or don't do, matters.

Friday, March 12, 2010


"No duty is more urgent than that of returning thanks."
-Saint Ambrose

That was then...........

This undated post card of South Park Place (looking
west from Second Street) is presumed to be about
ninety years old.

This is now......

Actually some good stuff here. Please
notice the building in the foreground (also shown
below). In the late 1980's, Garry McAnally designed
and built a three story office building, in the process
filling a long term empty gap. It is the most
interesting building on the block and judging by the
old post card it replaced the most interesting building
on the block. Also, please note the three story brick
buildings facing on Third Street. The buildings shown
on the post card were lost an unknown, but long, time
ago. When I first came to town, the single story
Klines building sat there. That building, and its
adjoining neighbors, burned down in the 1990s.
They were replaced soon after by the Garry McAnally
designed Candlewick Commons/McDonald's building.

Here is a close up of the newest building on South
Park Place. It sure would be nice if we could figure
out a way to fill the gap at the west end of the block.

Getting near the end of the guidelines.....

Guideline #23: Pay attention to your financing.

In the late 1970's a group of local investors were buying
small apartment complexes with the assistance of "owner
financing". They would put some money down, borrow
some from a bank, and borrow the rest from the owner on
a five year note. They thought of five years as a "long time".
Add five years to 1978 and you end up in 1983, when
interest rates were 15% or so. Made for some interesting
times and some real scrambling.

There has been much in the news lately about the coming
HUGE problem with commercial real estate loans. During
the 2000's lots of money was chasing investment real estate.
Previous posts have discussed how badly smart people were
over paying. Many of those investments were financed with
five or ten year balloons. Those notes are coming due in the
next several years. Given the current state of the banking
industry and fallen property values, refinancing those notes is
getting very interesting.

It should be noted that over our 25 some years in doing this,
financing has only been a problem in four or five of those years.
The other 20 or 21 years, borrowing money varied between
a reasonable business proposition and way too easy.

There are lenders still making loans today; think community
banks, credit unions, savings and loans. It has reverted,
though, to the old fashioned way of doing business. You
will need a down payment, the property will need to appraise
out, and you will have to show that you can re-pay the loan.
These are hardly earth shaking standards, they were just out
of fashion for a while.

Like all cycles, this one will pass.

If you invested with a plan similar these guidelines, this current
cycle most likely is not an issue for you. You just weather the
storm, and maybe even take advantage of it. A lot of money
gets made when markets are in turmoil. This go round is no
different. Once your investment property has significant
equity and ample cash flow, refinancing may be an attractive

If life is worth is worth living well and fully.

Bucket List is a fabulous movie. It inspired some folks to
make their own list of things to do, to see, to be, before they
die. For those of us who haven't yet, click here.

Thursday, March 11, 2010


"It is a dangerous thing to ask why someone else has been
given more. It is humbling- and indeed healthy- to ask why
you have been given so much."
-Condoleezza Rice


"Here's the key to success and the key to failure: We become
what we think about. Now, read that again. We become
what we think about."
-Earl Nightingale

Still with the guidelines.....

Guideline #24: There is a lot of land.

Some lessons are learned harder than others. Value is
derived from use (guideline #4), location (guideline #5),
and difficulty of replacement. Look at the aerial maps
at the Licking County Engineer's web site or go to Google
Earth some time. Vacant developable land is anything but
scarce. If you invest in land, be prepared to be very

Guideline #30: Don't sell the little thing before you sell
the big thing.

Real estate often has various components. A five acre lot
can easily be divided and sold from an 80 acre farm that has
a decent amount of frontage. The fixtures, equipment, and
licenses can easily be sold from a closed restaurant or bar.
The timber can easily be sold off of a wooded tract of land.
And so on.

Peoples' needs and motivations vary, so this is not a "never
do", but it is a "really think hard about it" type of guideline.
There are times when it may be best to sell a piece to protect
the whole. But, more often than not, "cherry picking", or the
selling of the first piece at a good price, seems to negatively
impact the value of the remainder. Diminish the value of the
remainder enough, and you have devalued the entire

Wednesday, March 10, 2010


"A man is what he thinks about all day long."
-Ralph Waldo Emerson

The don't ever forget again guideline.....

Guideline #32: Cash flow is king.

If you have a problem that has a financial solution, and
your investments generate the cash flow to solve the
problem, do you really have a problem?

Tuesday, March 9, 2010

Still another guideline....

Guideline #16: Budget for taxes, income that is.

Since we do not believe in "investing" in things that are
designed to lose money (see Guideline #25), profitable
investments create an income tax obligation. Prepare for it.

One of our youthful mistakes in investing was to believe
that all our investments should be paid off within ten years.
It is important to know that we typically put a little as
possible cash into the deal, financing as much as possible.
This was not some grand strategy. It was just a reflection
of the fact that we did not have a lot of cash. Most of our
early investments were rehab projects. Back in the mid-
1980's we found a niche that had been mostly ignored;
buying, fixing, and leasing older properties in the smaller
"county seat" cities around Ohio. Ignored niches often
offer significantly good returns on investment.

Anyway, back to the guideline. We financed several of
these early deals with ten year amortization, trying to pay
the debt off as soon as possible. We forgot, or more
accurately did not realize, that principal reduction gets
accomplished with taxable income. We put all of our cash
flow into reducing the debt, then had to borrow money to
pay the income tax obligation that the investment created.

This led us to Guideline #32 and to the decision to finance
our investments over a longer period of time.

Let's make some more magic....

The 1964 1/2 Ford Mustang went into production in
Dearborn, Michigan forty six years ago today. Unveiled to
the public at the New York Worlds Fair in mid-April,
the car created an immediate sensation and changed
the automotive world.

Growing up, our next door neighbor was a car guy.
In the late summer of 1964 he showed up with a rag-top
model. We felt very cool cruising with him.

Wouldn't it be great if Detroit could recapture a little of
Lee Iacocca's old magic?


"This is one of the greatest laws in the Universe, fervently do I
wish I had discovered it as a young man. The great law briefly
and simply stated is that if you think in negative terms you will
get negative results. If you think in positive terms you will get
positive results. That is the simple fact which is the basis of an
astonishing law of prosperity and success."
-Norman Vincent Peale

Monday, March 8, 2010

Guidelines for investing redux......

Guideline # 25: It is an investment, not a tax shelter.

In my early days of commercial real estate, many of my
compatriots were selling “tax shelters”. That was a
fancy term for an investment that will likely lose money.
Of course, back in 1980 the top marginal tax bracket was
70%, which meant that out of each dollar earned over
$215,400, the IRS took 70 cents. (For reference sake, the
current top bite is 35 cents out of every dollar over $372,950).
A lot of smart high income people figured that it was better to
lose a little money on real estate, but maybe build some equity
over time, than just give the money to Uncle Sam. I was
never comfortable with that philosophy. To my young and
naive eyes it seemed unnatural that a certain property might
be worth more to one investor just because his tax bracket
was higher. The question I never got a satisfactory answer to
was, why would you buy something that you knew was going to
lose money on a regular basis? Seemed wasteful. As you
might suspect, we did not sell a bunch of "investment
property" back then.

When Congress passed the Economic Recovery Act of 1981 it
amended the Tax Code to allow for really, really, really
generous tax treatment for real estate. As a result, real estate
development went into overdrive and the value of investment
real estate was unnaturally inflated. In a successful attempt
to curb tax shelters and to “simplify the Code” Congress then
passed the Tax Reform Act of 1986. The 1986 Act both
eliminated special incentives, including accelerated depreciation
(ACRS), that investment real estate enjoyed and expanded the
dreaded Alternative Minimum Tax (AMT). These simple changes
instantly erased somewhere between 10% and 20% of the
market value of commercial real estate. This fall in values,
combined with some questionable lending practices, contributed
to the savings and loan crisis of the late 1980’s.

The lesson I learned from all this was that when the government
giveth, it soon finds a way to taketh. Basing investment decisions
on the Tax Code is fraught with risk.

Today the Code appears to be neutral towards real estate
investment. Depreciation is still available as a deduction against
income. However, set for 39 years for commercial real estate
and 27.5 years for residential, the current deduction for
depreciation is just properly taking into consideration the fact
that, even while the property value may be increasing, the
components of the building, like the roof and the air conditioning
system are wearing out. They have a useful life that gets shorter
with each passing year and will need to be replaced. (It is
possible to depreciate various components of investment
property faster, but that is a question for you and your tax
preparer/accountant to resolve.)

The Code still offers Investment Tax Credits (between 10% and
20% depending on what the project is) for rehabilitating
commercial property put in service before 1936. The only
problem is that if, as an individual tax payer, you try to use the
Tax Credit, the Alternative Minimum Tax kicks in and removes
most of the value of the Credit (it’s that giveth and taketh
thing again).

Invest for value, not shelter.

Ecstatic Poem from Kabir

The Guest is inside you, and also inside me;
you know the sprout is hidden inside the seed.
We are all struggling; none of us has gone far.
Let your arrogance go, and look around inside.

The blue sky opens out farther and farther,
the daily sense of failure goes away,
the damage I have done to myself fades,
a million suns come forward with light,
when I sit firmly in that world.

I hear bells ringing that no one has shaken,
inside 'love' there is more joy that we know of,
rain pours down, although the sky is clear of clouds,
there are whole rivers of light.
The universe is shot through in all parts by a single
sort of love.
How hard it is to feel that joy in all our four bodies!

Those who hope to be reasonable about it fail.
The arrogance of reason has separated us from that
With the word 'reason' you already feel miles away.

How lucky Kabir is, that surrounded by all this joy
he sings inside his own little boat.
His poems amount to one soul meeting another.
These songs are about forgetting dying and loss.
They rise above both coming in and going out.

-Kabir, Ecstatic Poems, translated by Robert Bly


"Regardless of the circumstances of your life, you are the
writer, director, and producer of your mental images. You
will always act out those pictures. Your circumstances do
not determine what your life will be; they reveal what kinds
of images you have chosen up until now."
-Wayne Dyer

Sunday, March 7, 2010

I just want to celebrate..

While driving to Philadelphia this weekend, I was minding my
own business while my ipod was playing 875 of my favorite
songs through my car radio. All of a sudden, I found myself
singing along with Rare Earth on I Just Want to Celebrate.

Seems like a good theme song.


Truly I say to you, whoever says to this mountain. 'Be
taken up and cast into the sea,' and does not doubt in his
heart, but believes that what he says is going to happen,
it shall be granted to him
Therefore I say to you, all things for which you pray and
ask, believe that you have received them, and they shall
be granted you.
-Mark 11:23-24, The Open Bible, New American

For verily I say unto you, That whosoever shall say unto
this mountain, Be thou removed, and be thou cast into
the sea; and shall not doubt in his heart, but shall believe
that those things which he saith shall come to pass; he
shall have whatsoever he saith.
Therefore I say unto you, What things soever ye desire,
when ye pray, believe that ye receive them, and ye
shall have them.
-Mark 11:23-24, King James Version

And be not conformed to this world; but be transformed
by the renewing of your mind, that you may prove what
the will of God is, that which is good and acceptable and
-Romans 12:2, The Open Bible

The part of my job that I really, really like is.......

........being able to meet and talk with some really neat people.

Stopped by Boat Boys earlier in the week and talked with the
new owner, Tim Figgins. He was obviously up-beat and happy

about his business. On the surface, this is a bit counter intuitive.
He got into the business just as the real cratering of the
economy was taking place. One might think that the boat
business might suffer more than most in these times. One might
be wrong to think that. Tim was clearly happy, so I asked him
why. The following is his very generous response to that
question. It is a tad longer than my normal post, but enjoy........

"Like people in small businesses everywhere we have been
placed in a position to have to respond to macro-economic
conditions like unemployment and underemployment, tight
lending requirements, and consumer confidence that seems to
have reached a plateau. What I’ve tried to do in the first 15
months at Boat Boys is based on the serenity phrase of accepting
the things I cannot change, being empowered to change the
things I can, and having the wisdom to know the difference.

The first part of making that “serenity” happen for us was to
make sure our current customers knew we were interested in
giving them good service. Our industry traditionally relies
heavily on new sales as a catalyst for everything else, but that is
not the case in the current environment. Used product is a new
focus, mid- range trades, modest upgrades, and servicing boats
rather than replacing them have become the new “norm.” We’ve
tried to recognize this as a place to find opportunity in the face of
challenge. We instituted a process on day one of new ownership in
which every customer is called within 30 days of completion of
their service work to make sure everything was delivered as we
promised it would be. We’ve heard a great deal of feedback – a
vast majority of which was good. Some of which was not. But to a
person – whether “fully satisfied” or not everyone was surprised
and appreciative that we cared enough to ask. And rather than
having that customer be left only partially satisfied and us
unaware,we had the opportunity to (1) know what we had not
done well enough (2) fix the problem and (3) learn how to avoid
the problem next time.

Everyone wants to feel like they are your most important
customer. Every person on our staff makes customer satisfaction
calls. Everyone needs to be a part of making sure we do things
right, hearing the consequences when we don’t, and hearing the
praise when we do.

Our CSI scores compiled independently by Yamaha in the last 12
months went from 74 (about a C- grade) to a 94. Our service
business is up 48% YTD over last year. Our used boat sales are up
20% YTD over last year. And in the first year of business under
this ownership, our net profit increased by 92%.

Make no mistake, it is a rough and tumble world – and we need
to do grow our top line as well as our bottom line in the coming
years – but we will continue to do the simple things small
businesses can do to serve our customers well. By spending time
and energy mining our current customers and making sure they
have no reason to go anywhere else, we spend a lot less wasted
time and energy hunting new customers and selling them on
giving us a try."

A great attitude. A great example, "change the things I can".

Thanks, Tim. I love my job.