Robin Hood Says ‘Hell Yeah’ to Recovery Led by Goldman Bonuses

Nov. 13 (Bloomberg) -- David Saltzman, executive director of the Robin Hood Foundation, may be one of the few people who refuses to demonize a Wall Street recovering from record losses with earnings that may include record bonuses.

“Let me be emphatic about that one: ‘Hell yeah,’” Saltzman said during an interview at Bloomberg News headquarters. “It’s clear that New York City is better off in all sorts of ways if there’s a healthy financial community.”

Robin Hood gets more than half of the $150 million in donations it raises each year from investment banks, brokerage firms and hedge funds. The return of record Wall Street compensation will help the charity continue to fund the more than 200 poverty-fighting programs it supports.

Goldman Sachs Group Inc., the most profitable securities firm, Morgan Stanley, the second-biggest U.S. securities firm, and JPMorgan Chase & Co., the second-biggest U.S. bank, will hand out $29.7 billion in bonuses, up 60 percent from the previous high in 2007.

The U.S. economy expanded last quarter for the first time in a year, growing at a 3.5 percent pace. The Standard & Poor’s 500 Index, a benchmark for the largest U.S. stocks, fell 38 percent last year, the biggest drop since 1937. The index has gained 21 percent this year.

“Our hope is that people think carefully about how to spend their bonuses in this time of great need, and that people will remember to help their neighbors,” Saltzman, 47, said.

Robin Hood saw individual donations drop 3 percent last year, as charitable giving in general declined after the bankruptcy of Lehman Brothers Holdings Inc. in September 2008, according to Mark S. Bezos, senior vice president for development and communications. The foundation raised a record $72.7 million in one night at its 2009 spring gala, yet many contributors hold back their donations until late in the year.

‘How It Will End’

“Our fundraising for 2009 looks okay, but we can’t predict how it will end up this year,” Saltzman said. “It could be that people are wildly generous or it could be that people say I haven’t hit my high watermark. I really hope people respond.”

Saltzman said Goldman Sachs is the biggest contributor among financial firms to Robin Hood. He didn’t say how much the firm or its employees give annually. Goldman Chairman and Chief Executive Officer Lloyd Blankfein has been a board member and has given grants ranging from $5,000 to $500,000 through his family foundation during the past five years, according to the charity’s tax filing.

“Lloyd is a guy who gets it,” Saltzman said. “Goldman as institution and Goldman as the sum of its individuals have been remarkably generous, and it’s from the top down.”

Crash of 1987

Robin Hood was dreamed up 21 years ago by hedge-fund manager Paul Tudor Jones II, chairman and chief executive officer of Tudor Investment Corp. After the stock-market crash of 1987, Jones thought that the U.S. would experience the worst economic decline since the Great Depression, and the poor would need help. He gathered a few young finance executives at his Manhattan bachelor pad to launch the foundation, Saltzman said.

One was Glenn Dubin, who later started Highbridge Capital Management LLC in 1992. Dubin tapped Saltzman to become executive director in 1989.

Saltzman, a native New Yorker, had a master’s degree in public policy from the city’s Columbia University and several years’ experience working for New York’s Human Resources Administration, Department of Health and Board of Education.

Since its founding, Robin Hood has raised more than $1 billion. The nonprofit operates without an endowment. Its board of directors covers administrative and fundraising costs so that all donations are funneled in full to the needy. The directors range from Tom Brokaw of NBC News and actress Gwyneth Paltrow to Steven A. Cohen, chairman and CEO of S.A.C. Capital Advisors LLC and Marian Wright Edelman of the Children’s Defense Fund.

Teen Pregnancy

The foundation is the top nongovernment source of funding for charter schools in New York City. Other programs it supports include: Single Stop USA, which helps poor households secure government benefits; Teacher U, a graduate-level teacher training program; and the Carrera model, which seeks to prevent teen pregnancy.

Michael Weinstein, 61, an economist who studied at the Massachusetts Institute of Technology in Cambridge, Massachusetts and serves as the foundation’s chief program officer, monitors Robin Hood’s aid targets to ensure that the poverty programs it funds get concrete results.

“Robin Hood is a pretty rigorous foundation because they go through a pretty extensive process to determine the impact of the dollars they spend,” said Colvin Grannum, president of Bedford Stuyvesant Restoration Corp. in Brooklyn, which aids the working poor with the charity’s grants. “You have to be committed to working toward specific goals, you have to be responsive to them, and we have to demonstrate what we’ve done.”

Soup Kitchen

Saltzman said he lures donations from Wall Street by taking executives to see a charter school under construction or to a soup kitchen Robin Hood funds. To get younger hedge-fund and Wall Street executives to contribute to Robin Hood, the organization held a fundraiser last night at M2 Ultra Lounge nightclub in Manhattan. Called “Food for Good,” it’s a venture with online grocer FreshDirect based in Long Island City, New York. Each $50 ticket will fund a turkey dinner for a family of eight during the Thanksgiving holiday.

“We want to attract people of all ages to Robin Hood, and what’s great about this was that it was generated by a bunch of people outside of Robin Hood,” Saltzman said.

Saltzman said the organization has begun planning next year’s spring gala. He declined to predict whether it will exceed last year’s ticket sales with big bonuses coming back to Wall Street firms.

“I’m always scared to death before we have an event,” Saltzman said about its spring gala that year that raised about $72 million. “I was scared to death in 2007, I will be scared to death in 2010 and be scared to death for any event we’re a part of.”

Bill Gross Says Value Diminishing in Credit Markets

Nov. 13 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said value is diminishing in credit markets and yield spreads may widen.

Mortgage and high-yield corporate debt is “overvalued,” making Treasuries and investment-grade company debt attractive, Gross, co-founder and chief investment officer of Newport Beach, California-based Pimco said in a Bloomberg Radio interview. Emerging-market debt also offers value to “some extent,” he said.

The sustainability of the U.S. economic recovery by the private sector after government stimulus programs remains in question, Gross said. Below-average growth may prompt yield spreads to increase on high-yield debt and the Federal Reserve’s plan to complete its mortgage purchase program will hurt returns on those securities, he said.

The $192.6 billion Total Return Fund managed by Gross returned 17 percent in the past year, beating 57 percent of its peers, according to data compiled by Bloomberg. The one-month return is 0.94 percent, outpacing 59 percent of its competitors. Pimco is a unit of Munich-based insurer Allianz SE

Trade Deficit in U.S. Increases by Most Since 1999

Nov. 13 (Bloomberg) -- The trade deficit in the U.S. widened in September by the most in a decade, reflecting rising demand for imported oil and automobiles as the economy rebounded from the worst recession since the 1930s.

The gap grew a larger-than-anticipated 18 percent to $36.5 billion, the highest level since January, from a revised $30.8 billion in August, the Commerce Department said today in Washington. Imports surged by the most in 16 years, swamping a gain in exports.

Demand for foreign products may remain elevated in coming months as consumer and business spending improve and companies aim to prevent inventories from collapsing even more. Exports may also rise as expanding economies in Asia and Europe and a weak dollar drive demand for American goods, giving manufacturers such as Dow Chemical Co. a lift.

“Sometimes what looks bad on the surface is actually quite good and I think that’s the case this time around,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “Exports are growing strongly and imports are turning up because domestic spending has turned the corner.”

The dollar dropped after the report. One euro cost $1.4875 at 8:50 a.m. in New York, up 0.2 percent from late yesterday. The yen climbed to 89.68, up 0.8 percent. Stock-index futures pointed to a gain at the open.

Exceeds Forecasts

The trade gap was projected to widen to $31.8 billion, from an initially reported $30.7 billion in August, according to the median forecast in a Bloomberg News survey of 77 economists. Deficit projections ranged from $28.6 billion to $34.1 billion.

A collapse in world trade earlier this year brought the gap down to $26.4 billion in May, its lowest level since November 1999, as imports plunged even faster than exports. As commerce begins to pick back up, global leaders agree more needs to be done to strengthen the expansion.

U.S. Treasury Secretary Timothy Geithner and other finance ministers at the Asia-Pacific Economic Cooperation forum in Singapore this week reiterated a pledge to maintain stimulus efforts “until a durable recovery in private demand is secured.”

Asia is “leading the world” back to recovery, Geithner told reporters at a joint press briefing with his APEC counterparts. President Barack Obama began a swing through Asia today as world leaders work toward a rebalancing that will make global growth more reliant on spending by Asian consumers and businesses and less dependent on their American counterparts.

Imports Jump

Imports climbed 5.8 percent, the most since March 1993, to $168.4 billion. The figures reflected a $4.1 billion increase in imported oil as the cost of a barrel of crude climbed to the highest level since October 2008 and volumes also rose.

Purchases of foreign-made autos and parts surged by $1.7 billion to $16.4 billion, due mainly to a $1.3 billion increase in imports from Canada and Mexico as North American vehicle production picked up. Imports from South Korea also climbed.

The federal “cash for clunkers” auto trade-in program, which expired in late August, generated momentum in car sales and boosted demand for parts and supplies. Automotive inventory restocking is also boosting demand for foreign-made autos and parts.

U.S. sales for South Korea-based Hyundai Motor Co. increased in September for the third month in a row, while Toyota Motor Corp. is boosting production of models such as Corollas and Camry sedans to rebuild its U.S. inventory.

Replenishing Stockpiles

“Our inventories are continuing to recover with a very good pipeline as we move into the fourth quarter,” Robert Carter, Toyota’s North America sales chief, said on a conference call last month.

Exports rose 2.9 percent to $132 billion, the most this year, propelled by sales of civilian aircraft, industrial machines and petroleum products. The dollar this month was down 12 percent from a five-year high reached in March against a trade-weighted basket of currencies from it’s biggest trading partners.

China’s economy grew 8.9 percent in the third quarter from the same period in 2008, the best performance in a year. Exports to the Asian nation were the highest since October, even as imports from China also climbed.

“The economic outlook for the rest of 2009 appears to be stabilizing, with strong growth in Asia Pacific, especially China, and other emerging geographies,” Andrew Liveris, Dow Chemical’s chief executive officer, said in an Oct. 22 statement.

Factory Pickup

Dow’s factories around the world ran at 78 percent of capacity in the third quarter, an increase of 3 percentage points, because of increased demand in developing markets, including China and Brazil, as well as relatively low North American ingredient costs that led to increased exports. The largest U.S. chemical maker yesterday said cost cuts and rising sales will boost earnings more than analysts estimate.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit grew to $41.7 billion, the highest since January. The figures suggest the government may revise down their estimate for third-quarter economic growth.

The U.S. is growing again after posting its worst contraction in seven decades. The world’s largest economy expanded at a 3.5 percent annual rate in the third quarter, the best performance in two years. Economists surveyed last month forecast a 3 percent rate of growth this quarter

Real Estate Economists Parse October Jobs Report

The October employment report released by the U.S. Bureau of Labor Statistics last Friday reflects a familiar but troubling pattern for a commercial real estate industry desperately seeking green shoots.


While the pace of job losses continues to moderate, total non-farm payroll employment nationally has fallen by a whopping 7.3 million since December 2007. The end result is rising vacancies and falling rents across all major property types, and the industry’s woes are likely far from over.


The continuing deterioration in labor market conditions for young adults is particularly problematic for the apartment sector, according to Sam Chandan, president and chief economist of New York-based Real Estate Econometrics


“The unemployment rate for heads of households that are 24 or younger — a group that is almost exclusively renters — rose from 14.9% to 15.6% over the month,” according to Chandan, who also serves as an adjunct professor of real estate at the Wharton School of the University of Pennsylvania.


U.S. nonfarm payrolls fell in October by 190,000, including a net loss of 61,000 in construction, 40,000 in retail, and 37,000 in the leisure and hospitality sector.


Meanwhile, the unemployment rate nationally rose four-tenths of a percentage point to 10.2%, the highest rate since April 1983. What’s more, the number of unemployed persons increased by 558,000 in October to 15.7 million.


“The bad news for the economy and commercial real estate is that we are still losing jobs, and it will likely take another few months before we turn the corner,” says Hessam Nadji, managing director of research services for Marcus & Millichap Real Estate Investment Services based in Encino, Calif.


“Further, even after we turn the corner, the recovery will face a number of headwinds, and job growth will remain muted in 2010,” adds Nadji. The six- to nine-month lag between employment and occupancy trends points to rising vacancies until mid-2010.”


Encouraging signs


So what’s the silver lining in the rather gloomy October jobs report? “The fact that job losses fell below 200,000 for the month confirms the winding down of the worst employment crisis since the Great Depression,” according to Nadji. Another positive sign is the drop in first-time unemployment applications, which points to further moderation of job cuts in coming months.


“Coupled with other positive developments, such as inventory clearing and rising exports, we should be more confident that the recession has come to an end, at least technically,” says Nadji. U.S. gross domestic product in the third quarter grew 3.5% on an annualized basis, providing further evidence of recovery.


The veteran Marcus & Millichap researcher also points out that roughly half of the $787 billion federal stimulus package has yet to be spent. “The full trickle effect will not materialize until well into 2010. Ultimately, the prospects beyond 2010 are far more promising as there will be more pent-up demand for corporate spending,” emphasizes Nadji.


Employers added 34,000 temporary workers in October, which is another positive development because they are typically the first to be hired during a recovery. Lastly, revisions to the nonfarm payroll employment for August and September show that the net job losses for those two months totaled 373,000, not 464,000, a 91,000 change to the upside.


The revisions to the August and September jobs figures helped Wall Street investors look beyond the double-digit unemployment rate nationally. The Dow Jones Industrial Average rose by 17 points on Friday to close at 10,023.


October surprise


“It is not surprising to see the Bureau of Labor Statistics (BLS) adjustnumbers from previous periods,” says Victor Calanog, director of research for New York-based Reis. “At the cusp of downturns it gets even more confusing, as sometimes BLS revises numbers from positive [job gains] to negative [job losses].”


The real surprise, emphasizes Calanog, is that the unemployment rate breached 10% this year. "Most consensus estimates did place the unemployment rate in the low to mid-10s by next year, so we were headed in that direction. But 22 months into the recession, I think most people expected at least some kind of slowdown to the bloodletting."


One data point that Calanog is tracking closely is labor underutilization, known as the “U-6” because of its data classification by the Labor Department. The figure includes the officially unemployed who have looked for work in the last four weeks. It also includes discouraged workers who have looked in the past year, as well part-time workers who want to work full time.


This broad measure of unemployment, the U-6, increased from 17% in September to 17.5% in October. “Typically this number is indicative of the amount of labor that employers need to soak up before making actual new hires,” explains Calanog. “The higher this number goes, the longer the labor markets will take to stabilize and for job gains to truly be reflective of an economic recovery.”


Consumer power erodes


While job losses are moderating, unemployed persons are staying unemployed longer, according to Chandan of Real Estate Econometrics. “The mean duration of unemployment is now 26.9 weeks, up from 26.2 weeks in September. Put another way, the average unemployed person has been out of work for just over six months.”


Persons who remain employed generally have little power in wage negotiations, adds Chandan. Absent overall improvements in wages, he believes that the retail-spending outlook will be subdued through the holiday season.


The decline of 40,000 jobs in the retail sector during October may reflect retailers' soft expectations for the holiday shopping season, according to Chandan. Job losses were particularly large for stores selling discretionary items, including book and music stores. Department stores also took a hit.


“While measures of consumer sentiment and general economic activity have both improved, personal consumption trends remain weak,” concludes Chandan. “The savings rate rebounded last month following the end of the Car Allowance Rebate System program (cash for clunkers). Consumers remain cautious in making large and discretionary purchases.”

‘Phantom’ Vacancy Haunts Office Market as Job Losses Mount

Nov 11, 2009 3:17 PM
National Real Estate Investor


Amid rising unemployment and weakening demand for space, the U.S. office vacancy rate rose to 13% in the third quarter. But it could climb as high as 19% if companies consolidate their space to reflect smaller workforce levels.

Analysts fear that the nation’s job losses are not yet fully reflected in the office vacancy rates. If employers across the country cut their space needs to match layoffs when tenants’ leases come up for renewal, soaring vacancies could later wallop the office sector.

The nation’s unemployment rate reached a 26-year high of 10.2% in October, and more layoffs are expected in months ahead. Meanwhile, the gap between the current vacancy rate and the rate statisticians project based on the unemployment rate stands at six percentage points, according to Bethesda, Md.-based research firm CoStar Group.

“We call it phantom vacancy. Phantom vacancy can mute any recovery that we do see down the road,” says Jay Spivey, senior director of analytics at CoStar.

Currently, without a sharp adjustment in leasing requirements to get rid of the unused space, the firm expects the national vacancy rate to peak in the third quarter of 2010 at about 16%.

It could take two more years, until the third quarter of 2012, before landlords begin to see positive gains in rent. That is because all the excess supply in the market needs to be absorbed before vacancies tighten sufficiently to warrant higher rents.

The current employment picture does not bode well for the office market. The volume of negative net absorption has not reached the level expected for such a high number of job losses.

In the first quarter of 2009, the office sector recorded negative net absorption of close to 20 million sq. ft. nationally, compared with an expected negative net absorption of nearly 130 million sq. ft. In the third quarter, net absorption totaled approximately negative 13 million sq. ft. Given the mounting job losses, analysts were expecting net absorption of 25 million sq. ft.

The job losses piling up during this downturn are unlike those of the early 2000s when dot-com companies went bust. This time many big, established companies lost jobs, including major financial institutions.

“If they’re laying off workers, it might be that in their office they might have every fifth desk sitting empty. That’s not necessarily given back to the market [so far] in terms of space,” says Spivey. One reason the space has not yet been consolidated is that many leases have not yet come up for renewal. Some tenants want to hang on to prime space in anticipation of growth.

However, if thousands of tenants give up unused space, that could drive up vacancy rates while depressing net operating income. And that additional space could lengthen market recovery time. “The excess space would have to be burned off before we start to see any real, positive absorption,” says Spivey.

Vacancies roil Phoenix market

Among the nation’s 20 largest markets, vacancy rates vary widely. The worst-performing office market in the third quarter was Phoenix, which recorded a vacancy rate of 21%.

Overbuilding has presented a problem for Phoenix, which is struggling with a large amount of office space coming on line at a time when the market is already suffering from negative net absorption. Those two trends have magnified the effects of the metro area’s vacancy rate.

Much like Phoenix, the Dallas and Atlanta markets, which recorded 17% vacancy rates, have also experienced a lot of suburban office construction. Because a great deal of land was available and building costs were cheaper than in many other markets, developers became aggressive, adding to the vacancy rate. In Atlanta, developers also undertook a lot of high-rise urban construction in the Buckhead submarket.

In the Detroit area, vacancy rates have risen along with the well-chronicled troubles of the auto industry. Some Michigan developers and property owners face severe competition from financially distressed properties.

“When you’re at a 20% to 25% vacancy rate, you have a supply and demand problem. That’s way too much supply, which is creating a tenant market and driving lease rates down to what they were 20 years ago,” says Scott Marcus, principal of RSM Development & Management, an owner, developer and manager of medical office properties based in Bloomfield Hills, Mich.

The surging vacancy rates have jeopardized owners’ ability to stay in business, he says. When competitors lose their properties to foreclosure, and the properties re-enter the market at far lower sale prices and lease rates, the results can be devastating.

“If those buildings go back to the lender, similar buildings [to his] are being sold for 30% of what we paid for ours.” In Southfield, Mich., for instance, a 200,000 sq. ft. building sold for $5 million. “We’re seeing class-A properties being sold for under $100 per sq. ft., one third of replacement cost.”

Buyers of distressed properties can afford to lease the buildings for a fraction of the going rate, making it even more difficult for market-rate owners such as RSM to compete.