What Obama Will Mean for NY Real Estate

Finally the election is over.... I thought we'd never reach Election Day. And even though I
enjoy politics and current events, a steady diet of campaign sound bites and electoral coverage
became rather tedious.

I'm glad Obama won, having nothing to do with race and the first African American
to win the Presidency. That is something we can all be proud about, but going into a voting
booth and pulling a lever isn't going to end racism and poverty and all the world's ills.
I hope Obama's experiences, including his having lived in Indonesia and having immediate
family in Kenya-- will give him a global perspective. And although I tend to be
skeptical of hype and I like to be a contrarian, I finally had to conclude that Obama-- with the
strange name and sometimes controversial allies-- was the best man to lead the nation.

How will his election affect New York real estate? Well, first, Mr. Obama is inheriting
enormous debts and a bag full of snakes. It wont be easy for him.
Sometimes the best and brightest politicians get
bogged down in minutiae and trivial matters (poor Bill Clinton spent two years dealing
with a stupid sex scandal). Throughout Obama's
campaign, however, he stayed on message and refused to get off track when
confronted with Rev. Wright, Bill Ayres, "Joe the Plumber," etc.
I hope as President he doesn't allow others to divert his attention from the pressing
issues of America.

The primary issue is, of course, the economy. As President, he has limited powers.
George Bush has already committed hundreds of billions to bailing out banks and other
financial institutions. Obama will have to raise taxes-- there is no other way to pay
for the enormous debts he is inheriting. One hopes he structures taxes so that
entrepreneurship is encouraged, as well as small businesses. The nation needs good
jobs, since the US is in competition with 200 other nations, many of whom have eager
people willing to work for little money. So American workers must be smarter, more efficient,
more innovative-- which they have been in the past. The government must offer
encouragement to the next Bill Gates, the next Steve Jobs-- or at least get out of his way.

I hope Obama keeps his promise to extricate us from the useless and
painful conflict in Iraq-- a totally unnecessary conflict which has cost us
hundreds of billions and will end up costing us at least THREE TRILLION
DOLLARS (according to Nobel economist Prof. Stiglitz of Columbia University).
That will free up billions that might be better spent in this nation-- on essential
goods and services that will also provide jobs for Americans-- improving infrastructure,
adding teachers and schools, providing parkland, etc.

I would hope Obama will be a role model, not just for minorities, but for anyone
who has to struggle. Obama has succeeded in overcoming many obstacles-- racial,
economic, political-- but he made it. And one solution to our economic problems is a very
simplistic one-- more economic growth, which leads to more tax revenues, more jobs,
more money for everyone.

And economic growth need not be more smokestack industries polluting the nation.
I heard Vinod Khosla speaking recently at MIT about the enormous potential
of "green" industries, everything from alternative fuels and energy sources to
alternative transportation. And here real estate is vitally important-- because
there can be prosperity and wealth without exploitation and pollution.
Mr. Khosla is hardly a hippie tree-hugger; he has made billions by being smart
and also increasing his own personal wealth. Real estate developers can produce
better, more energy-efficient buildings. I'm writing an article now on creative
re-use of industrial buildings for residential use, for instance, and recently
published a piece on roof gardens. These are ideas which will save money,
save the environment, produce jobs, and give people places to live which
are sustainable. Again, the federal, local and state governments can encourage
sustainable growth-- through tax credits, local tax abatements, offering
advice and counsel rather than bureaucratic red tape.
(perhaps Obama can reverse one of the Big Lies: "I'm from the government,
and I'm here to help you....")

What about foreclosures and all the investors stuck with lousy investments?
First, I don't believe all the current problems are caused by "greed" and
a few big Wall Street crooks. Those are easy scapegoats, but there has
always been greed, and nothing indicates any particular increase in the "greed index."
The reality is the current credit crisis and economic meltdown was caused by many
people who aspired to home ownership when they really couldn't afford it. Banks
gave loans to people they shouldn't have loaned to-- and the government encouraged
it. As a real estate attorney, I saw it happen-- people who couldn't afford to pay
back mortgages would get 90% financing. Banks encouraged people to take out more
than they could reasonably pay back.

Real estate prices continued to rise far in excess of Consumer Price Index or wages
or any other reasonable indicator of prices. But sellers were happy making big profits,
and banks were happy giving out big loans (since they made money on fees, and sold
the loans after originating them), and attorneys were happy to represent clients.
It was a win-win-win proposition-- except prices can't go up 15%-20% forever.

And when reality set in and prices began to stabilize (and fall in some locales),
homeowners suddenly realized their mortgages were more than the equity they
had in their homes. When homeowners began defaulting, that affected securities
(mortgage-backed securities). Investors
assumed these were solid investments-- they were AAA rated by Standard
& Poor's, and were backed by residential mortgages-- and people usually pay their mortgages
rather than face living on the street in cardboard boxes.

So, there we have a rather fragile world economy-- built on sand--
fine until the tide comes in.

Now President Obama has to make hard choices to straighten out
years of shoddy financial activities. Banks should be cautious about
granting mortgages-- there need to be prudent underwriting standards, even
if that means that some people won't get loans. A home buyer should
have to provide a reasonable down payment, so that he has an investment and
equity in his home. Prospective home buyers need to show common
sense as well (alas, the government can pass all sorts of regulations,
but can't stop people from being foolish suckers). And there should be
some government oversight of organizations like Fannie Mae and
Freddie Mac-- non-governmental entities that made big profits and
paid executives enormous salaries-- but cried "MOMMA!" once they had
economic problems. And you and I will pay for all their mistakes.

President Obama is a very smart man, and I assume he will appoint
smart people to his cabinet and other posts. As Americans, we have a job, too.
If an inter-racial kid raised in a poor single-parent home can become the
most powerful and important person on earth (and no doubt about it,
President of the US is STILL that), we all can acheive great things, too.
So rather than be depressed about the economy or whining about our
jobs (or lack thereof), we can reinvent the world-- and make some money
while doing it.
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