Nesters Upset the Economy

For many, the best part about college is moving out and enjoying the newfound freedom, but now as graduation nears, how “free” do these graduates want to be?  Since 2007, more and more college graduates have been returning to live with their parents due to the struggling economy; and according to a recent study by the University of Southern California Lusk Center of Real Estate, this trend continues to drive the economy to a deeper sorrow. 

As students transition to move back in with their parents, many industries lose business and income. For example, real estate brokers and sales agents will miss out on commission, less demand for housing is needed, construction jobs are reduced, furniture stores will sell less product, service providers miss out on contracts for internet, telephone, cable etc., and the “paradox of thrift” or cause and effect scenario keeps going. 

While there are couples in their later 20’s and early 30’s starting families, moving out and sparking economic growth, the number of recent graduates moving back in exceeds this group.  On top of that, the median age for “leaving the nest” is rising as the economy worsens. According to the data in the New York Times article, 950,000 new households were created last year, but is significantly lower than 2007 numbers when 1.3 million new households were created.

How do we fix this downward spiral?

While the solution may be as simple as increasing spending, it will be difficult to persuade the 25% of jobless graduates to do so.  But in reality, by holding back spending, the economy is only worsening.  As Robert Reich, economist and UC Berkeley professor, advocates that the middle class is the backbone of the economy and the ones who have the means to spend, need to. Big spending is not what is required but a little bit by a larger group will go a long way. 

The other beacon of hope is that large group of individuals who have been holding back rent checks and saving money.  We can only hope this group of people is nearing the ability to take the leap to purchasing a home.  In order to incentivize this crucial group of potential homebuyers, programs such as “first time home buyer” tax incentives need to make a comeback.  Are you listening Federal Housing Administration?  Let Americans feel safe to leave the nest.  

The Comeback

Remember those gigantic cubes of stores surrounded by a sea of pavement?  Oh yeah…they’re called malls.  Over the last decade, the concept of the enclosed mall has been nearly put on life-support and only to be easily forgotten with replacement by the lifestyle retail center.  The recent trend to create open-air retail centers such as the Grove, Americana, Santa Monica Place and 3^rd Street Promenade have changed the traditional shopping experience but right when people thought enclosed malls were dead, a recent study by the Urban Land Institute begs to differ.  

Since the early 2000’s, the enclosed mall has been in a death spiral, reaching its lowest point in the last couple years due to the take over of new shopping experiences.  The majority of these malls were built during the suburban housing boom of the 1980’s and have remained unchanged for the last several decades but mall Real Estate Investment Trusts (REITs) have decided to spice things up to help spark a comeback.  By taking an unconventional approach to bring in new tenants, who would normally occupy a “big-box” retail store,  Tenants such as Best Buy, Dick’s Sporting Goods and Target are starting to make the move into the enclosed mall. 

So what does this mean?

Well, since the decline of the real estate market in 2007, the vacancy rate for the enclosed mall has risen to over 12% and this in turn caused many major retail anchors such at Nordstrom’s and Cheesecake Factory to relocate to the more attractive and highly visited lifestyle retail centers. With the loss of major anchors, slowly but surely, the smaller stores were beginning to die off, but now with the addition of high volume retailers like Target and Best Buy, daily mall spending has increased to numbers higher than pre 2007 amounts. 

The revitalization of the enclosed mall is also beneficial because it now allows consumers to take part in daily shopping routines in more convenient locations that promote public interaction. As you can see, the addition of the lifestyle retail center has caused a shift in the shopping spectrum, but does not mean that the enclosed mall is going anywhere, well it would be too costly to tear it down, its just now attracting a new customer base. I’m curious to see the long-term effects of having multiple strong retail options available to consumers. 

Safety 2nd

If you live in Los Angeles, you are most likely an attendee of the worst tailgates ever.  I’m not talking about a sporting event pregame party with friends, but rather a different type of parking lot….the LA Freeways.  The 405, 101 and 5 freeways are known for their infamous bumper-to-bumper traffic that can wear you out more than the 9 to 5 work day. 

By 2020, California’s population is projected to increase by 6 million and this traffic, congestion and roadway crowding will only get worse. A green, environmentally-friendly solution is to get people out of their metal gas-powered cocoons and onto their bicycles. 

Los Angeles has been very slow to realize the changing needs of its residents.  The Los Angeles County population is currently about 10 million but most of its infrastructure and roadways were designed in an era when the population was nearly half of what it is today, causing extra stress on routes used by automobile commuters.  

In response to the increased traffic, increased fuel prices, parking difficulty and newly promoted mixed use land uses, more and more cyclists are hitting the streets, but doing so in a space struggle with cars.

Last summer, Mayor Villaraigosa was hit by a taxicab while riding his bike on Venice Boulevard. Other than suffering some bumps and bruises, Villaraigosa was also “hit with the bug” to become a bicycle advocate.  His partaking includes the three CyLAvia events that have taken place and the 2010 Los Angeles Bicycle Master Plan* that was released last week.

*Although named the 2010 Los Angeles Bicycle Master Plan, it was released in 2011.

While the 2010 Los Angeles Bicycle Master Plan is the first master plan since 1975 and addresses many of the needs for today’s cyclists, it leaves out an important component which caused Villaraigosa to become involved in the first place….separation of cars and bicycles. 

The new master plan proposes 1,684 miles of bike routes but roughly two-thirds of those routes will be flawed in the eyes of cyclists.  The issue lies in “bike lane” which is a 4-5 foot wide lane placed to the right of traffic lanes but to the left of the curbside parking lane. 

Cyclists are forced to be in the path of cars attempting to park, opening car doors and exiting the parking lane. Not to mention next to cars traveling at speeds up to 50 mph, given they are following the posted speed limit. 

All it takes is one driver to be not paying attention, on their phone texting, picking up that french fry that fell on the floor or applying make-up, to strike a cyclist. As you can imagine, a 2 –ton car vs a 25 pound bicycle will not be a good match-up. 

Some statements from cyclists at a public hearing held by the Los Angeles Department of Transportation:

“The plan is not designed for us”

“No one asked us what we wanted, even though we are the ones using the bike routes”

Cyclists feel that they were left out of the design process and what they really want/ need for safety is a “bike path” separated from the automobile.  All this would take is some sort of buffer to deter drivers from crossing into the path of cyclists. 

It doesn’t make sense that Los Angeles is placing large amounts of resources to create a master plan that is not safe in the eyes of those using it. Since money is most likely the primary issue with creating such separated pathways, the LA DOT should reduce the amount of miles in their master plan but create routes that cyclists actually feel safe using. 

There is no point in allocating funds to create something that no one will use. If Los Angeles is serious about creating an attractive alternative to the car, they really need to sit down and actually consider the needs of bicycle riders. 

As of right now, sitting in traffic seems more fun than getting hit by an automobile.  Keep trying Los Angeles!

Right of Way

On October 9^th, 2011, the 3^rd annual “CicLAvia” dominated the streets of Downtown Los Angeles. For those of you who have no clue what im talking about, CicLAvia is an annual event in which cars, trucks, buses and motorcycles are temporarily removed from a designated segment of streets and are open to the public to ride their bikes, rollerblade, run or walk and essentially enjoy the urban streets in a way not normally imaginable. 

Even only in its three short years in Los Angeles, the event has been a huge success in attracting people of all ages.  This concept first originated in Bogota, Columbia 30 years ago as a response to traffic congestion and pollution, but is that all CicLAvia means to Angelinos?

Not quite. Not only do Angelinos participate in this event to enjoy motorized vehicle traffic-free streets and as a breath of fresh air, but use it as a way to fight and stand up for their rights as cyclists and pedestrians. 

Over the last several years, we have seen an increase in cyclists in result to increased traffic congestion, increased fuel prices, and growing mixed-use lifestyle making its way in Downtown Los Angeles, but these individuals are doing so at a high risk. While the city is beginning to realize that there is a lack of bike-friendly pathways in Los Angeles, and the high liability of mixing cars and cyclists in the same lanes, their solutions are nothing more than mediocre. 

Most of the city’s plans simply consist of a reduction of driving one lane, and adding in a 5-6 foot wide bicycle lane either to one or both sides of the road.  As a cyclist myself, I feel that these plans are not sufficient.  In order for cyclists to feel safe on the road, they have to be separated from cars and trucks.  While I do understand that this is a difficult task is such a built-out region, but an addition of some sort of physical barrier other than a painted line should be included. 

If Los Angeles wants to further increase and promote cycling as a form of transportation, the city needs to provide safer options.  I consider current plans such as Spring Street to be a start, but further thought needs to be considered on creating successful projects.

Responsible Modernization

Times are changing and so are the driving forces behind each generation.  The youngest generation, the Millenials, are driven by technology and efficiency, and require facilities such as schools and workplaces to be modernized in order accommodate their lifestyle. 

In 2001, the Los Angeles Community College District, LACCD, felt the need to upgrade their campuses to revitalize current infrastructure and construct new buildings with future generations in mind. In doing so, the on-going $5.7 billion project has managed to become a spectacle of thorough investigation by many news outlets, including the Los Angeles Times, to determine if they have been wasting tax dollars or if the “green” projects across their 9 campuses were ahead of their time. 

The real question is not whether they frivolously spent money, which they have, or if the plan was unrealistic, but what allowed this costly mistake to happen?  The problem was a result of poor oversight and the lack of proper procedures and regulation.

The issue should have first been known when the 7 members on the board of trustees were accepting guidance from the very contractors who stood to make a profit from their decisions. Contractors such as FTR International and URS Design were amongst this group and have been long time donors to the LACCD board, so why not trust them, right?

Well, that’s where the issue started.  The LACCD decided to reject construction bids from several construction firms to allow FTR to head the project.  Not only did FTR “win” the bid, but they ran the show.  FTR demanded money up front, worked on their own schedule, caused millions of dollars in damages due to shoddy work, and on top of that, sued the LACCD for over a million dollars. 

The issue escalated to this level due to a lack of oversight and the ignorance of proper hiring procedures. Larry Eisenberg, executive director of facilities planning and development at LACCD, stood to benefit from the contracts awarded to the construction firms who were donors to the LACCD, rather than hiring contractors based on experience, capabilities and previous track record.

Successfully completing a project of this magnitude requires strict procedures and regulations to protect the intended outcome.  In this case, it was easy to see that the focus was not on providing the greater public good, but instead to help those few groups involved.

It seems, that more often than not, when local governments are faced with large public projects, some sort of scandal arises. 

The solution: follow the footsteps of the Federal Government.

The Federal Government is king when it comes to procedures and yes the long, lengthy, and lackluster procedural documents are often advantageous.  In order to prevent such problems like those that arose between the LACCD and the “qualified” contractors, the General Services Administration, GSA, implements the Federal Acquisitions Regulation, which serves as standard for federally managed projects.

The Federal Acquisitions Regulation puts forth a couple simple procedures and regulations that could have prevented such a fiasco. 

     1)Advertise construction opportunities

     2)Award the contract on predetermined weighted factors

By advertising the construction projects, a larger group of contractors could have bid on the project, other than the few that had some relation or another to the LACCD board members.  This eliminates the conflict of interest aspect of the bidding process and in result prevents this type of scandal. 

More importantly, “award the contract on predetermined weighted factors.” This mandate requires all contractors to register with the GSA, and pass a background check which examines the contractor’s capabilities, track record of prior projects, their ability to adhere to budget and lastly disclose any relation to the parties involved in the project. 

If simple measures were taken by the LACCD when formulating the search for possible contractors, a majority of issues would have been avoided.  The call of greed and rule bending to narrow the playing field probably seemed like a fail-safe idea in the eyes of the LACCD members, but look where it got them. With the addition of proper oversight and the implementation of procedures and regulations in the hiring process, the LACCD community college project could have very well been successful.
 
Maybe its time for local government to look up to Uncle Sam for advice.

Real Estate Perspectives

For those of you looking for some interesting Op-Ed pieces, check out these articles:

- White Picket Fence? Not So Fast

- What's Blowing the Real Estate Bubble in China?

- Executive Action to Ease the Foreclosure Crisis?

Back to the Center

Last week I discussed the future of office space and how companies are now catering the work environment based on who is occupying it, the Millenials.  As a follow-up, I discovered that companies are not only converting their current spaces to plan for the future, but they are now making the move from the suburbs back to urban cities. 

“This is a real trend, and it’s driven by the best way to recruit the Millenials”

In the 1950’s, the future of quality living was seen to be in the suburbs, but as the generation who thought the American Dream was to live in a nice neighborhood and own a home with a large yard (the Baby Boomers) is retiring from the workforce, where does the future of employment lie? It lies in the CBDs, the Central Business Districts.

Companies who are making the move from the sprawled and decentralized business parks of the suburbs back to the city’s urban core have two main motives:

1)       Shred surplus space

2)        Locate to where the labor is

As previously discussed in Rightsizing Office Space, by restructuring the layout of the office place with a reduced number private offices and assigned work spaces, companies are able to reduce the average work area per employee from 200 sq ft to 50 sq ft.  The end result is less required overall square feet, which means that they could now afford to occupy smaller or higher quality places in downtown locations.

According to a study by ULI’s Industrial and Office Park Council, the Millenial generation, 17 - 34 year olds, prefer urban lifestyles which have access to mass transit.  The place that accommodates the lifestyle sought by many Millenials is the urban city environment.  Since the Millenial generation is set to make up over half the workforce by 2014, the companies looking to hire the new talent want to be accessible.

What does this mean for the real estate world?

This trend has made a start to revitalizing the urban core of our cities, but did it at the expense of the suburbs.  The vacancies of the CBDs have been reduced to 15% and suburb office space vacancy has risen to just above 20%.

There doesn’t seem to be a “win-win” option available when it comes to real estate and job growth in this current down economy, but lets hope that the newfound investment of downtown can provide the jobs that recent or soon to be college grads are in search of.  

Rightsizing Office Space

For the past few decades, the “Baby Boomer” generation, born between 1946 to 1965, has been the most dominant group in the workforce.  Currently, they account for almost two-thirds of the total United States population.  We are now at a crossroads where it is expected that the youngest generation in the workforce, the Millenials, born post 1981, will account for over half of the workforce by 2014 (Newberg, 2011). In making the dramatic transition to the Millenials, what will the future of office space need to look like in order to accommodate the soon-to-be dominant generation in the workforce?

Baby boomers and Millenials have different characteristics and work habits, which can be seen in their preferred work and office environments.  To accommodate the change in generations within the workplace, the future of office space will be more efficient, promote mobility, and consequently, smaller.  In order to analyze the new modern office environments, it is best that we first consider the characteristics and workplace habits of the current workforce generations, then describe the traditional versus modern office space, and finally, discuss its effect on real estate. 

Workforce Generations:

Currently, there are four distinct generations who occupy the workforce:

I. Tradionalists                                                                                                  II. Baby Boomers                                                                                                       III. Generation X                                                                                                IV. Millenials

Each generation has innate core values created by the era in which they were born and the experiences within their lifespan (Swenson, 2008).  These core values affect work ethic, office space habits and communication styles.  While there are four groups listed, the Baby Boomers and Millenials do account for the majority of workers.

Traditionalists:

Traditionalists, also referred to as the “Silent Generation”, are born between 1922 and 1945 and are the oldest group of individuals in the workplace (Patota,Schwartz, 2007).  They also account for the smallest population in the current workforce, less than 10%, due to the fact that the majority of them are older than the average retirement age of 67.  Members of this generation, or some of them, have witnessed the Great Depression, the New Deal, WWII and the G.I. Bill.  These shared experiences and memories have developed a hardworking and loyal work ethic.  Tradionalists grew up at a time when work was seen as a privilege and remained loyal to those who employed them, often times working at the same place for decades. 

In today’s age, the Tradionalists are the most tech-challenged and the slowest to change their work habits and embrace the old fashioned style of everything must be written by pen or pencil.  They also prefer the face-to-face meeting types and like to build strong relationships not only with people within their office, but also everyone who they converse with professionally. 

Baby Boomers:

The most dominant group in the workforce since the 1980s, in terms of population, are the Baby Boomers. This generation is defined by those who were born between 1946 and 1964 and have been witness to many memorable events that shape their lives. The Boomers grew up in a time of reform, economic prosperity, Vietnam and the expansion of suburbia. The only way they have known is to question authority, causing them to rely upon themselves. Baby Boomers are often seen as the most work-centric individuals within the workplace; and are motivated by position, perks and prestige (Govitatana,  2001). They are independent, goal-oriented and competitive and among this group are the majority of current CEOs’ and higher ranking position holders. These hardworking individuals define themselves by their professional accomplishments and the 70-80 hour workweeks which they sacrificed to get to where they are in their professional careers.

Boomers feel the following generations must pay their dues of hard work to advance in life and earn positions based on what they have done rather than who they know.  There were 78 million people born into this generation in the United States 76 million of them will retire before 2030, which is at a rate of almost 8,000 per day (Swenson, 2008).  This group of soon to be retired workers take the work environment by command and believe in teamwork, optimism and gratification for a job well done.

Generation X:

Generation X serves as the succeeding generation to the post World War II baby boom and are a significantly smaller group of 45 million.  Generation Xers’ are comprised of individuals who were born in the period between 1965 and 1980 and make up roughly 35.7% of the American workforce (Boston College, 2007).  Among this group of predominantly 30-40 year-olds, 60% of the Generation X group have attended college and are better educated and ethnically diverse than the previous generations.  On an individualistic level, most Generation X associates grew up in a time with high divorce rates, two-income families, AIDS, women in the workforce, MTV and the personal computer (Patota, Schwartz, 2007). Most importantly, the personal computer is what allows them to slowly stray away from the previous generation.  Generation X was the first generation to grow up with the computer, allowing them to be technologically adept and being a part of the shift from a manufacturing economy to a service economy (Patota,Schwartz, 2007). 

Compared to the prior generations, Generation X is more flexible in the sense where they are more willing to switch from employer to employer and also be more flexible in their work schedule.  They value the work to live or work/life balance, the balance between work hard and play hard, more than their parents who placed a great importance on the long workweek.  Generation X begins to bring a more informal work environment and expect that promotions are based on ability not seniority. 

Millenials:

Millenials or Generation Y, are the most recent crop of professionals entering the workforce and are in their 20’s.  This generation is significantly larger than Generation X and is the fastest growing group who is expected to dominate the workplace within this coming decade.  The Millenials are the group who are “always connected” to their devices, grew up with the Internet, witnessed the attacks of September 11 and the more recent War on Terror (Patota, Schwartz, 2007).  Their most specialized skills are their techno-saviness, ability to multi-task quickly, work well in groups, street smarts and social ability. 

Millenials are diverging further from the treacherous workweek of the Baby Boomers and are more focused on getting tasks done quickly and efficiently with current technology.  The Millenials are an interesting group based on the fact that they are very confident but prefer teamwork work environments and their ability to work with others, share responsibility and rewards is a hint that the workforce is changing.  The Millenials quick and technologically influenced life-style allows them to be flexible in their workspaces and occupy the least amount of space.

Traditional Office Space:

Traditional office space, as we know it, was designed to accommodate Baby Boomers. Over the last half-century, we have seen the construction of huge office buildings that house thousands of employees during the workday.  The office work environment is very basic; it consists of large private offices for executives and middle managers, assigned workspaces for administrative personnel and general staff, and conference rooms for daily, face-to-face, meetings. On most occasions, the private offices take up the window-front space and the assigned workspaces, which account for the majority of floor space, are located in the center of the building. 

According to the U.S. General Services Administration's recent research, the formula that most businesses use to calculate the average assigned workspace is based on 200 square feet per person, which stems from the Baby Boomer design elements for office space (GSA, 2010).  This rule of thumb was created many years ago and is still being used even though the office space essentials for the younger generations are changing.

Along with the changing requirements for office space, the amount of time spent in the workplace is also changing.  Traditionally, people commute to work, spend 8 to 10 hours at their desk and at meetings, then commute back home 5 days a week.  With new technology and business structure, the workday has changed. We are beginning to see less hours behind the desk, more time spent collaborating with others and most interestingly, its not necessarily face-to-face.  With modern technology, employees are now able to work, collaborate and hold meetings from all from their computers.  While time at the office is still important, there is becoming less reduced need to be there all day, everyday. 

Modern Office Space:

The modern office space is designed with the Millenial generation in mind and in turn is more efficient, promotes mobility, and smaller.  The modern office space is a finely tuned version of traditional office space that is up to date and is purpose built.  The three characteristics: more efficient, promote mobility, and smaller have been repeatedly mentioned, but how do they lead to the future of office space?

The office spaces of the future are literally smaller.  Companies will occupy less physical space and at the same time reduce their operating costs due to the reduce rents.  For starters, there will be a reduced number of private offices.  Private offices are rather large, under utilized and also provide a place to hide from the rest of the workforce. Since on most occasions, private offices are on the outer edges of the building, they block most of the natural sunlight from illuminating the innermost areas of the building.

The biggest difference is the amount of space allocated towards assigned workstations.  Traditional office spaces are over saturated with assigned workstations and are more often than not, under utilized.  The assigned workstations will be reduce drastically and will be resized to 50 square feet per person (GSA, 2010).  This reduction in size is attributed to the modern technology of Hotelling or Teleworking. Hotelling spaces are an even more informal and community oriented work environment that essentially only requires a laptop.  With this new wave of need-based workstations, offices’ are becoming more efficient in the amount of space they occupy and how the use it.

The ability to be mobile is what makes the modern office space possible.  With technology such as laptops, the Internet, collaboration tools such as Teleworking, Cisco, Chatter, GoogleDocs, and Box.net, there is no need to be in the office on a daily basis.  People can collaborate on assignments and hold meetings or conferences with the comfort of their own homes or even from different countries.  Buy reducing the amount of people who attend and occupy the office everyday, the use of less floor space is a cost effective solution.

Effects on Real Estate and the Environment:

As already mentioned, the modern office space uses less physical space, meaning that companies can downsize or more effectively “rightsize” their office space.  By reducing the total amount of space used, companies will be able to operate in smaller, more purpose-built office units and in turn leads to a reduced need for new office buildings to be constructed.  According to Newberg, the current nationwide office space vacancy rate is at 16.1%, the highest it has ever been since 1993(Newberg, 2011).  With companies reducing their need for floor space, there will less demand for new office buildings.

The modern office space also has a positive impact on the environment.  With the use of Teleworking and mobility, employees will have to make less trips to the office, ultimately producing a smaller carbon footprint.  By reducing automotive emissions, using less paper within the office, and more effectively utilizing space, the modern office space promotes a green and eco-friendly lifestyle. 

Conclusion:

By taking a closer look at the differences in characteristics and workplace habits between Baby Boomers and Millenials, it is obvious that there needs to be a change in the workplace to accommodate the younger individuals and their working styles.  Since Millenials are technology driven and are able to work with mobility, the new modern office space is not only more appropriate for the users, but also for the companies who provide the space.  By reducing costs, creating more efficient workspaces, reducing the overall carbon footprint, it is easy to see what the office space of the future will look like and where the future of commercial real estate is headed.

Works Cited:

Dobbs, Jason, Patrick Healey, Katherine Kane, Daniel Mak, and Tay McNamara. The Multi-Generational Workforce. Rep. Boston College, July 2007. Web. 6 Oct. 2011. <http://agingandwork.bc.edu/documents/FS09_MultiGenWorkplace_000.pdf>.

Govitvatana, Wipanut V., and Dr. Joseph Benkowski. "Generation Gap in the Workplace Between Baby Boomers and Generation X." The Graduate College University of Wisconsin Stout, 2001. Web. 6 Oct. 2011. http://www2.uwstout.edu/content/lib/thesis/2001/2001govitvatanaw.pdf

Newberg, Sam. "The Incredible Shrinking Office Space – Fact or Fantasy?"UrbanLand Home. Urban Land Institute, 24 Aug. 2011. Web. 3 Oct. 2011. <http://urbanland.uli.org/Articles/2011/August/NewbergOffice>.

Pasieka, Shirley A. "Exploring the Changing Workforce: Understanding and Managing Teh Generation of Millenial Workers." Diss. Northcentral University, 2009. UMI Microform/ Proquest LLC, 13 Mar. 2009. Web. 06 Oct. 2011.

Patota, Nancy, Deborah Schwartz, and Theodore Schwartz. "Leveraging Generational Differences for Productivity Gains." Journal of American Academy of Business, Cambridge 11.2 (2007). Print.

Swenson, C.. "Next Generation Workforce. " Nursing Economics  26.1 (2008): 64-66. Health Module, ProQuest. Web.  06 Oct. 2011.

United States. General Services Administration. Public Building Services. Leveraging Mobility, Managing Place: How Changing Workstyles Impact Real Estate and the Carbon Footprint. June 2010. Web. 2 Oct. 2011. <http://archive.teleworkexchange.com/pdfs/Leveraging_Mobility.pdf>.

United States. General Services Administration. Public Building Services. The New Federal Workplace: A Report on the Performance of Six 20/20 Projects. June 2009. Web. 05 Oct. 2011. <http://www.gsa.gov/graphics/pbs/GSA_NEWWORKPLACE.pdf>.

"Workplace Effectiveness Research Publications." GSA Home. Web. 5 Oct. 2011. <http://www.gsa.gov/portal/content/103982>.

United We Crumble

Most people are aware that students are not the only ones who receive report cards. Restaurants, businesses, and even professors are graded. However, few people are aware that The United States infrastructure also gets graded. On the most recent report card, issued by the American Society of Civil Engineers, the United States received a g.p.a. equivalent to a “D” on its infrastructure quality. 

Infrastructure: It’s so intrinsic to society that we never think about it. The way we never think about the bones in our body, until they start to break.

That is exactly the way of thinking which has allowed the infrastructure to reach such a poor current condition.  The American Society of Civil Engineers has rated infrastructure across the country in 15 different categories ranging from aviation to wastewater, with the average score resulting in a near failing grade. 

So what happened?

Most of the infrastructure we see today in the U.S. was built between the 1930’s and 1960’s and has seen very little attention or maintenance. The build-out is reaching the end of its life cycle and operating under loads it was not intended to handle. Also, the amount of funds allocated to maintaining the crucial supports of our country is far less than others.  For example, China spends 9% of their GDP on infrastructure, Europe spends 5% and the United States spends a mere 2.4% The combination of design flaws, corrosion and deferred maintenance are all factors for the crumbling empire. 

Are we the next Rome?

Not quite. Although the United States is below par, very disappointing to say the least, there is hope.  According to the American Society of Civil Engineers, it will take $2.2 trillion over 5 years to get the country where it should be.  That does not include the Department of Transportation’s estimate of $134 to $262 billion required each year through 2035 to improve the nation’s road, rail and air transportation systems.

Aware of the situation, President Obama has made infrastructure revitalization a key attribute in his jobs creation package.  He believes that the American Jobs Act will “jumpstart thousands of transportation projects across the country.”  He has also proposed to spend $90 billion, $50 billion more than what is currently planned, to retrofit or construct 150,000 miles of roads, 4,000 miles of railway and 150 miles of airplane runways.  

According to Wayne Klotz, president of the ASCE, “We have all the technology. All we have to do is to decide that it is a priority and get on with doing it.”  While I do admire his enthusiasm, this will be a huge project for the United States. Although this is of great importance for the future of the country, the United States is also struggling to keep up with education, healthcare and manufacturing.  The question is, which is the most deserving for the immediate allocation of funds?

Real Estate Developers Going Back to School

Yes, it is true; many real estate developers are now going back to college.  Are they going back to learn a new trade? Learn how to better manage their current business?  While the answers to both those questions in some cases may be true, the main reason why they have returned to their college campuses is to build.  These developers see a great opportunity to build student housing that is designed around the students’ wants and needs. 

American Campus Communities Inc. is one of the largest and leading developers of student housing in the United States.  They currently have over $156 million invested in 4 current student housing projects set to be completed by Fall 2012.  Their housing projects are located in Arizona, Georgia, New Mexico and Texas which combine to house 3,249 beds. 

But aren’t we in a recession? Isn’t the real estate market dead?

The answer is yes and no.  Yes the economy is struggling, but no the real estate market is not dead….not completely.  While some markets of real estate, such as the residential housing market, have been stagnant following the devastating housing bubble burst a couple years back; one market that has seen steady growth in the past 20 years is student housing. 

The recent article featured by the Urban Land Institute describes the reasons developers have decided to build in such a market.  

The two main reasons for developers to build student housing are:

          1) Rising rents

          2) Increasing enrollment at universities

According to the ULI article, rents are projected to increase 2 to 6 percent in 2011.  A rental rate increase in that range could mean smiling faces for owners and developers.  Also, universities in general have seen an increased number of applicants and attendees; the number is continuing to grow. This growth is due to the current state of the economy which has been witness to many job losses.  Many victims of the economy are deciding that more education will help their chances of gaining another job in either the same industry or a new one.

Another economic factor working in favor of these developers is the very high occupancy rate for student housing.  Most major universities have essentially a “micro economy” surrounding them which is not greatly affected by the national economy.  The reason for this is the high-density of students living around campus.  It is almost certain that there will always be students at these universities and they need to live somewhere. 

Developers also realize that the limited housing stock in the university areas is becoming outdated. 

"Today’s student population is looking for a student housing experience that replicates the individual’s experience of living at home. Many high school students have grown up not sharing a bedroom and often times a bathroom.  Additionally, not only do many grow up enjoying community amenities such as swimming clubs and fitness facilities, but their multimedia experiences at home have become increasingly elaborate."

They are catering new developments to be a great social experience with many features and amenities that attract students that current student housing cant offer.  

While I do see the construction of new student housing projects as a benefit for the universities, the students and the micro economies surrounding the schools, I have one concern…overbuilding.  I fear that the universities micro economies might witness a similar housing crisis as the national economy if developers overbuild these areas.  I could only hope that these developers are wise enough to run market studies and correlate with the university to quantify the need for housing.   Lets hope that these developers decide to brush up on the real estate markets and feasibility classes while revisiting university campuses.

Should Government Regulate the Mortgage Industry?

After the recent collapse of the mortgage industry, there has been an on going debate on whether government should regulate and provide more oversight on the mortgage industry or let if be self-regulating.  Many people assume, prior to its near overnight downfall, the industry was not regulated by the government.

This is not true. The Federal Government has control over numerous agencies that affect the mortgage industry either directly or indirectly. Some of the agencies that did regulate at the time of the collapse include: the Federal Reserve Bank, the Department of Housing and Urban Affairs, the Federal Housing Administration, and State Governments, just to name a few.

So what was the problem?

The issue was not the matter if whether there was or was not regulation, it was a problem of efficiency and accountability.  With that many Federal and State agencies involved, it is difficult to point the finger and where the problem lies.  In this case, the problems were found in numerous agencies. 

In brief, the major issue was the fact loans were being issued to people to purchase homes that they could not afford with terms that would sooner or later cause them to default on their note. 

From an accountability standpoint, who is at fault?   Well…. the answer is not so clear.  All agencies could have easily figured out what was going to happen, but the fact was, the programs were successful and the economy was booming, so why stop something so good. 

In a recent article, an interesting point is made on the issue with the government regulation that now haunts our economy.

They are politicians not CEO's, and they don't ever do anything until something goes wrong and then they just run around trying to get on TV talking about how they are going to "fix" this so it never happens again.

I’m pretty sure we have all seen this before.  So the question is, what should be the government’s role on the mortgage industry, if any?  The answer is not one that could be summed up in a single posting, so I will leave it up to you to foster a solution and report to the economists who are boggled by this issue day in and day out. 

Robert Reich: The Economy and the Middle Class

When people think of public intellectuals, what often comes to mind are famous leaders and scholars such as presidents or leaders of countries and authors who comment on current issues concerning the economy, health and the society.  In fact, a public intellectual is held responsible for using their intelligence in a way that confronts societal issues and creates solutions to move past the issue at hand.  The role of the public intellectual is to address and respond to the problems of his or her society as the voice of the people. 


One man who is qualified to take on that role is Robert Reich.  Reich is a political economist who has held many positions in his life, but is currently passionate about finding solutions for our fallen economy. 

Robert Reich, born in Scranton, Pennsylvania, has started his political career from a young age and built an impressive education resume.  Reich earned his bachelor of arts from Dartmouth University graduating at the top of his class in 1968 which landed him a scholarship to Oxford University where he studied Philosophy, Politics and Economics. After earning his masters as a Rhoades Scholar, Reich then continued to Yale where he received a J.D. from Yale Law School. 


His affiliation with some of the most prestigious universities around the world did not stop as a student.  Reich later went on to teach at the John F. Kennedy School of Government at Harvard University, he taught Social and Economic Policy at Brandeis University and now currently is a Professor of Public Policy at University of California Berkeley’s Goldman School of Public Policy. 

Not only does Reich have a strong educational background, he also has picked up a thing or two regarding politics from his work experience.  In the early 70’s, he served as a law clerk for the Chief Judge of the U.S. Court of Appeals for Judge Frank Coffin.  After a short two-year stint as a clerk, he was appointed as the Director of Policy Planning Staff for the Federal Trade Commission in 1977 during the presidency of Jimmy Carter. 


In the more recent years, Reich has served as the 22^nd Secretary of Labor for President Bill Clinton is his first term as President.  Robert Reich and Bill Clinton were first introduced during their years at Oxford then once again at Yale.  Clinton was so fond of Reich’s way of thought, he actually used some of his ideas during the presidential campaign which got him elected.  The main basis of the Reich-inspired “Putting People First” 1992 campaign is stated in Clinton’s speech:

For more than a decade our government has been rigged in favor of the rich and special interests. While the wealthiest Americans get richer, middle class Americans work harder and earn less while paying higher taxes to a government that fails to produce what we need: good jobs in a growing economy, world-class education, affordable health care, and safe streets and neighborhoods. Economic growth will not come without a national economic strategy to invest in people and meet the competition. Today we have no economic vision, no economic leadership and no economic strategy.

Robert Reich firmly believes in this model where the middle class is the backbone of the economy.  In his video The Truth About the Economy in 2 Minutes and 15 Seconds, Reich breaks down the problems with today’s economy into 6 major points:

1)    Since 1980 the American Economy has doubled, but wages fell flat. 

The economy has doubled in size, but wages barely increased

2)    All gains from the economy go the super rich.

The top 1% used to take home just 10% of all income, but now that top 1% takes home nearly 20% of all U.S. income. The super rich have 40% of the nation’s entire wealth.

3)    With money comes political power.

All of this money at the top is given the super rich a lot of political power.  Specially the power to reduce their tax rates.  From 1980 to today, the top tax rate has decreased from 70%-35% and much of their income is considered capital gains which is subject to only a 15% tax rate. This means huge budget deficits.

4)    Huge budget deficits.

Tax revenues are down to less than 15% of the total economy.  In result, public services are being cut at all levels of government.  The effect of neglecting these services lead crowded schools, neglected roads, bridges and other infrastructure.

5)    Middle class divided.

The middle-class is competing against each other for jobs which brings up the battle between union and non-unions, public vs private, native-born and immigrant. 

6)    Anemic recovery.

The middle class is unable to borrow as it once did, no longer has the same purchasing power to stimulate the economy.  This leads to continued high unemployment and weak recovery. 

In conclusion, Reich states “ the only way we could have a strong economy is with a strong middle class.” He not only mentions this as a thought, but responds with reasoning and offers a solution. 

Robert Reich is the type of public intellectual that we need in this type of economy.  In an article regarding the future of public intellectuals, titled The Decline of the Public Intellectual, Dr. Stephen Mack analyzes the society’s need for the public intellectual.  In his concluding statement, Dr. Mack states:

           

 It is also, however, the obligation of every citizen in a democracy. Trained to it or not, all participants in self-government are duty-bound to prod, poke, and pester the powerful institutions that would shape their lives. 

This statement agrees with Reich’s opinion about how the small group of super rich have the most control in our economy.  Reich advocates for the middle class to fight for their rights in order to provide for themselves and a larger portion of income.  Robert Reich is a public intellectual that is passionate about bettering the community and objectively communicates the well being of the middle class.