Sunday, November 22, 2009

"MARKETING" - why is this word the same?

As some of my friends (and blog-site readers) know, I am working, part-time, in Europe.

There are some very interesting differences (and a lot of them) between Europe and the U.S. Some of those differences are “cultural” and some of those difference are “languages,” “currencies,” and “measurement.”

A very funny situation came up during my current trip. (Well, it was funny to me, but I do have a very weird sense of humor, so not all of you will find this one to be funny.)

This situation happened during a meeting with several people from different countries – The Czech Republic, Russia and Poland, and, of course, I am from the U.S.

During this meeting, we were discussing “Marketing”, and, since I have a tendency to ask stupid questions, I asked, “ what is the native-country-language word, in each of your countries, for ‘marketing’ ”.

With straight faces ……

Our team member from Moscow said that “the Russian word for marketing is “marketing.”

And, our team member from Warsaw said that, “the Polish word for marketing is “marketing.”

And, our team member from Prague said that, “the Czech word for marketing is “marketing.”

(When I was in Budapest, Hungary, later in the week, my Hungarian associates also said that “marketing” is the Hungarian word for marketing.)

Update: Same thing happened when I visited Croatia last month (same question, same response.)


Since I am the ultimate “contemplator”, I had to think about this for a while. And, I did so until I finally came up with what I think is the right answer.

I am not going to put the answer (the explanation if you will) here right now. Instead, I’m going to let my blog-site readers guess at the answer for about one week. Afterwards, I’m going to amend this post by adding the answer/explanation.

UPDATE: OKAY, SEVERAL PEOPLE E-MAILED ME WITH THE CORRECT ANSWER. For those of you are still wondering about this, the word, "marketing", did not exist in most of the former European communist countries when they were under communist rule because there was no marketing, no need for marketing, marketing was an activity that did not exist. So, after the fall of the Iron Curtain, these former communist countries, needing to add "marketing" to their languages, took the easy route and simply used the English language word, "marketing." Not altogether different from this is when you see a sentence in a foreign language, a sentence that's talking about something on the web, you will see a bunch of foreign language words mixed in with English language words such as "Internet" and "routers."

Tuesday, November 17, 2009

Regarding Canon's announcement that it is buying OCE

Well, this deal was "major news" to reprographers! Caused a lot of e-mails flying back and forth.

One friend, who is in the reprographics business in Europe (owns a very large enterprise), was not happy about the deal - said that Canon offers low/mid quality equipment and poor customer service, and that OCE offers outstanding equipment and good customer service.

Just to the opposite, two friends in the U.S., both of whom are senior executives - and "players" in the reprographics business/industry - had a different point of view - they (basically) said the same thing - they are not unhappy about the deal - they said that OCE has been difficult to deal with and Canon easy to deal with.

Okay, what do I think about this deal? (Not that anyone cares what I have to say about this deal, but, this is my blog and, in typing this post, I get to practice my typing, if nothing else.)

OCE (for the most part) makes excellent, reliable, dependable, high-end, mid-range and low-end, large-format imaging equipment. OCE also makes excellent, reliable "higher-end" small-format imaging equipment (higher range cpm/ppm copiers and printers and transactional digital printing equipment.) In 2005, OCE paid around $685 million to acquire Imagistics, and, with that acquisition came Imagistics' (formerly called Pitney Bowes) line of mid-range and low-range copier/printers. I thought that was an "interesting" deal, for OCE paid a lot of money to acquire what was, essentially, a crappy line of low and mid range copier/printers. Not nearly engineered as well as OCE's own small-format equipment. And, they paid a lot of money for Imagistics. That deal never made any sense to me. Yes, there are some that would say that that particular marriage allowed OCE to "fill out its line." But, why do that when the equipment isn't as good as the stuff they were making themselves? One of my friends said that part of OCE's financial-results-problems were being caused by that acquisition (lower margins.)

Canon makes excellent quality, mostly reliable, small-format imaging equipment. I'm not a fan of Canon's toner-based wide-format imaging systems. I do like Canon's ink-jet wide-format equipment.

FUTURE REVISED LINE-UP FOR CANON PRODUCTS (OCE stuff included)?: (these are simply my opinions as to what's going to happen, post-acquisition):

The comments below do not talk about OCE's "display graphics" equipment business. That's because this blog is devoted to the "reprographics" business and industry and because "display graphics" still only accounts for probably less than 20% of reprographics industry revenues.)

1) the Imagistics line-up of low and mid range small-format, copier/printer equipment (which was re-branded OCE after OCE bought Imagistics) will be discontinued. Absolutely no reason for Canon to keep that stuff, since Canon already covers that range of equipment and since Canon's own stuff is better. (That will also put a lot of people out of work, I think, due to consolidation of sales, service and manufacturing - i.e. "consolidation.") (Comment: Imagistics, $685 million down the drain.)

2) Canon will probably stop manufacturing it's toner-based large-format imaging systems - since OCE has superior equipment. (That will also put a lot of people out of work, I think, due to consolidation of sales, service and manufacturing - i.e. "consolidation.")

3) Canon's large-format imaging, ink-jet based imaging equipment may likely be merged with OCE's current line-up of large-format, ink-jet based imaging equipment (here, I'm referring to the equipment primarily used for CAD plotting/printing.)

4) The merger of OCE's "FM" business with Canon's "FM" business will create a very, very significant player in the FM business. For my reprographer friends in the U.S., I hope that the Canon/OCE "FM" business will stay out of the A/E/C market space (For my European reprographer friends, I'm hoping that Canon will discontinue OCE's FM business in the A/E/C market space in Europe - but I'm not going to hold my breath on that one.)

All in all, a VERY interesting deal. Two, well-respected companies, combining forces.

When Ricoh purchased IKON, that took some of the wind out of Canon's sails (since IKON was a dealer for both Canon and Ricoh equipment and IKON stopped selling Canon equipment sometime after that deal happened.) So, the Canon/OCE deal helps Canon in that respect (picks up some of the market share that Canon lost when Ricoh bought IKON.)

Monday, November 16, 2009

What's the Federal Reserve "Beige Book" say about the state of the non-res development market and financing for non-res R.E. projects?

As many of you know, the Federal Reserve, each month, publishes what’s know as the “beige book,” which is basically a running narrative of business conditions across the 12 Districts that make up the Federal Reserve System. The October beige book contains the report on business conditions in September; the November beige book, not yet out (at least that I’m aware of), will contain the report on business conditions in October.

I spent a few minutes, this past week, to “peruse” my way through the October 2009 beige book (which, as I said, reported on business conditions as of September.)

In particular, my “perusal” was limited to scanning the “REAL ESTATE” and “FINANCE AND BANKING” sections. Below, in this blog-post, I’ve “extracted” comments from certain “Districts” about the “real estate” and “finance and banking” conditions those districts. PLEASE NOTE: I did not read all of the District reports; I only read the specific reports for 4 different districts, but I also read the “overall” (what I guess you would call the U.S.-country-wide) summary.

As you read the portions I’ve extracted (and reprinted below), also keep in mind that the District and Overall reports do talk about “residential” real estate activity and “loan” activity related to residential, but, since the lifeblood of reprographers comes from the “non-res” real estate market, I’ve extracted (and reprinted) below ONLY information that talks about “non-res” real estate activity (or, should I say, lack thereof) and commercial property financing.

One last comment: There is that old saying, “follow the money.” I’ve been saying, in many of my blog posts, that the non-res (commercial real estate) market, and the bulk of printing reprographers do, will not come back to life until the money begins to flow. Admittedly, I am a peon (would “idiot” be a better word?; maybe so) when it comes to economic research and forecasting real-estate project financing and non-res development, design and construction activity. But, the news, blog readers, is not particularly good.

One of my reprographics industry friends, Shaun Meany, President of ARC’s PEiR Group enterprise, did a very recent blog post ( just a few days ago, on his blog-site: ) about his attendance at the Eastern Regional Reprographics Association Convention. At the ERRA, he listened to speaker Robert Singerline (of McGraw-Hill) talk about the forecast for the Construction Industry in 2010. Here’s part of the article that Shaun posted about that guy’s presentation:

“I also enjoyed the Construction Industry Forecast presented by McGraw Hill’s Robert Singerline. The outlook for 2010 is expected to be better than 2009 (thank God!) and there are definite bright spots ahead in 2010.

Singerline sees an increase in construction ahead for all all areas of the country in the coming year. South Atlantic, South Central and the West are all expected to see double digit growth. It is important to keep in mind that even with so rosy an outlook the industry is down so low that these positives really do not translate into big numbers - especially when compared to 2006 when construction was at its peak. Residential construction should signal the early stages of a recovery. Next year, Singerline says, there will be continued growth in government projects along with some institutional and non-building construction.”

My opinion…… as expressed in an e-mail I sent to Shaun about his blog post:

"Dear Shaun,

Last week, I mentioned a couple of AIA articles on my blog-site ( and the opinions expressed in those articles - as to forward growth and the outlook for 2010 - run contrary to what Singerline evidently said at the Eastern Regional.

Certainly, everyone is entitled to their own opinion.

However, I don't see where anyone, at this point in time, can forecast an upside to construction activity in 2010. A clear signal would have to come from two different things.
1) some indication that the financial markets are (for financing projects is) unfreezing. It is still locked up.
2) a positive movement in the ABI index. It is still very negative.



As to the projections the guy (who spoke at the ERRA meeting) presented, I'm thinking that he must have been using, a) a weegie board, b) an abacus, c) a crystal ball, d) a palm reader, e) tarrot cards, f) tea leaves, g) a fortune teller ?????

Okay, let me now get to the information I extracted from the Fed’s Beige Book report:



From the “summary of all districts” section of the report:

Commercial real estate continued to weaken across the 12 Districts, although even this sector had scattered bright spots. Each District indicated that demand for private commercial real estate was weak, with New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco all characterizing activity as declining further since the last report. An inability to obtain credit was often cited as a problem for businesses that wanted to purchase or build space. High vacancy rates were noted as a key concern especially for landlords who were not offering concessions. And, while industrial real estate in the Richmond District was generally weak, renewed interest by retailers to revisit postponed expansion plans was also noted. Finally, public nonresidential construction activity funded by federal stimulus projects was a source of strength in the Cleveland, Chicago, Minneapolis, and Dallas Districts, but gains were often offset by state and local government cutbacks. Sources reported that lending by nondepository financial companies remains limited, especially for real estate and construction.

3rd District (HQ in Philadelphia)

from the “real estate” section of the report:
Nonresidential real estate firms indicated that leasing and purchase activity declined during the past few months. Vacancy rates continued to rise for apartments and office, industrial, and retail buildings. Contacts reported that tenant downsizings and business terminations were resulting in the return of space to the market. There has also been a substantial increase in sublease space coming on the market. Rents have declined, especially for older buildings. Contacts expect nonresidential real estate markets to remain soft for some time. One contact said, ―markets will struggle through the remainder of this year, and they will still face challenges in 2010.

5th District (HQ in Richmond)

from the “real estate” section of the report:
Industrial real estate activity in most areas of the District was often described as ―dead, and new construction of industrial or office buildings was further deterred by difficulty obtaining financing.

6th District (HQ in Atlanta)

from the “finance and banking” section of the report:
Commercial contractors noted that tight lending conditions had restrained commercial development.

and, from the “real estate” section of the report:
Private-sector commercial real estate activity weakened further in September. Vacancy rates continued to rise across all segments, and contacts continued to cite downward pressure on rents. Developers reported fewer backlogs, and more projects were delayed or cancelled. The outlook among contractors remained unchanged since last reported, with most anticipating activity to continue to decline into 2010. However, contractors in some parts of the District noted that federal stimulus monies were starting to help spur some public-sector activity.

12th District (HQ in San Francisco)

from the “real estate” section of the report:
Reports suggested that demand for housing continued to improve slowly, while demand for commercial real estate eroded further.Conditions continued to deteriorate in the commercial real estate market: demand for office and industrial space fell further, and financing for new development and purchases reportedly remained ―frozen.

from the finance and banking section of the report:
Lending standards remained relatively restrictive, with scattered reports of further tightening, especially for commercial real estate lending, and credit quality continued to deteriorate. However, on net bankers and other contacts noted improved *access to financial capital in recent months.

(*Joel’s comment: I’m not sure what that sentence implied. Could mean that bankers aren’t having problems getting money (Fed is giving money away, near zero interest rates for banks who want to borrow from the Fed; does not necessarily mean that investor/developers are getting improved access to loans!)

Friday, November 13, 2009

Three AIA articles that should be of interest to reprographers

Currently suffering from a serious case of jet-lag on my current trip to Europe, I'm up at 2:30 a.m. in the morning, and, with nothing better to do (until I get tired enough to get back to sleep), I thought I'd spend a few minutes time exploring information posted on various "Architecture Industry" related sites (both in the U.S. and in Europe.) While doing this, I came across three interesting articles on the AIA (US) web-site. So, in the spirit of "know thy customer", here are the "summaries" of those three articles:


Steep Downturns in Nonresidential Construction Projected Through 2010 
Greatest downturn in commercial and industrial sector; institutional, more modest
by Kermit Baker, PhD, Hon. AIA
Chief Economist, DATE: JULY 10, 2009

Summary: A weak economy and continued difficulties with construction financing have slowed investment in nonresidential buildings by U.S. businesses, nonprofit institutions, and government agencies. Construction of buildings, which began to slow in the second half of last year, moved into a downward spiral toward the end of the year. This industry will see no relief this year, but the decline will moderate somewhat as we move through 2010. The AIA Consensus Construction Forecast Panel projects a 16 percent decline in nonresidential construction activity this year, and an additional drop of almost 12 percent in 2010.

The full article - and it is a long one - can be found at this Internet address:

Architecture Firm Billings Remain Relatively Weak
Project Backlogs at Firms Shrink to 3.9 Months

by Jennifer Riskus
AIA Economics Research Manager, DATE: OCTOBER 23, 2009

Summary: Despite recording the highest inquiries score in two years, the Architecture Billings Index remains mired in the low 40s, with a score of 43.1 reported in September. Architecture firm billings have been in this vicinity for six of the last seven months, and have not yet shown any clear signs of approaching 50, and an increase in billings. Business conditions remain quite poor for many firms, with increasing numbers indicating nonexistent project backlogs and insufficient billable hours for current staff. Inquiries scores are still rising, but this continues to be triggered by the increased competition for projects, rather than actual increases in project activity.

The full article - and it is a long one - can be found at this Internet address:

Overview of the 2009 AIA Firm Survey
Date of post on site was October 9, 2009

Comprehensive data on firm business trends just released
Summary: The AIA published The Business of Architecture: An AIA Survey Report on Firm Characteristics on October 5. Based on an analysis of 2,699 AIA-member firm responses collected between January and March 2009, the report is available on-line from the AIA Bookstore. To provide a comprehensive sense of the information covered in the survey, we offer here a reprint of the survey overview.

The full article can be found at this Internet address:
You will also notice that you can buy the full survey by accessing the AIA on-line bookstore

Thursday, November 12, 2009


Consider donating to CREST, a very worthy cause! And, get the word out about CREST!

I know that many of you (with the exception of my International visitors) are aware of THE CREST FOUNDATION. But, since some of my blog-site readers are not IRGA members, it is likely that some of you may not be aware of what CREST is and what CREST does.

CREST is all about ……….
…… Funding College Opportunities For Our Children!

The mission of the CREST Foundation is to fund and award scholarships to children - of reprographics industry employees - who wish to pursue a better education, but who lack the financial means to do so. This foundation provides opportunities for the reprographics industry to unite for the benefit of the children of our long-term employees who provide so much value to the industry.

An industry friend (who, himself, is involved in CREST’s efforts) gave me a very recent update about CREST’s activities. He said:

“Recently, we were able award $125,000 to 21 deserving kids of repro industry employees from across the country.

While we are proud to have made the awards, our concern is that the number of students applying for the grants each year has been small.

We've heard repeatedly that reprographics company employees (especially at the production floor level) are simply not aware of the scholarship program, despite promotional efforts through the IRgA, vendor forums, newsletters and public relations activities.

As a result, kids who need the kind of financial assistance that CREST can provide are missing opportunities to fund their college costs.”

So, I ask my industry friends to support CREST, and to do that in two ways:



For further information about CREST, please visit this web-site address:

Season’s Greetings to all of you!


Sunday, November 8, 2009

And, a forecast of good news (forward forecast for development and construction activity) in an article on

Well, the previous post was "not good news", so, to be fair, I thought I'd go ahead and post this article, one that appeared recently at .... and one that appears to be "good news."

The internet address of this article is:

Housing Could Spark A Rebound in 2010
By Bruce Buckley

Following three years of precipitous decline, the construction market may have finally hit bottom and be in the early phase of a rebound with housing leading the way.

McGraw-Hill Construction is forecasting that total construction starts will climb 11% to $466.2 billion in 2010, following an estimated 25% decline in 2009. The forecast was announced at the 2010 Construction Outlook conference in Washington, D.C.

After a 39% drop in construction between 2006 and 2009, an improving residential market and signs of strength in some public sector markets could spark a turnaround in 2010, says Robert Murray, vice president of economic affairs for McGraw-Hill Construction.

“This is not a booming market; it is just inching upward,” he says.

Given the volatile economic conditions of the current recession, Murray notes that the industry may not realize a significant rebound in 2010 even if the worst is over. “At the very least, we’re stabilizing after years of steep declines,” he says.

Despite a continued slump in the commercial and manufacturing sectors, improvements in single-family and multifamily housing will help buoy total construction spending next year, Murray says. Single-family housing may have hit bottom in 2009 with an estimated 430,000 units started. Construction could rise 30% next year to 560,000 starts, returning to levels on par with 2008 when 549,000 units were started.

Murray notes that even with the rebound, levels remain 65% below the mid-decade peak of the housing boom. His residential forecast hinges on continued low mortgage rates and the extension of first-time homebuyer tax credits.

Multifamily housing will also begin to regain traction, rising from 140,000 units started in 2009 to 160,000 units in 2010—a 14% rise. Murray credits some of the improvements to stimulus funds and community-level block grants provided through the U.S. Dept. of Housing and Urban Development. Although the sector could rebound, activity remains only about one-third as high as 2007 levels when 452,000 units were started.

Non-residential building sectors have yet to bottom out, according to McGraw-Hill Construction forecasts. The commercial and manufacturing sectors could continue to struggle next year with an estimated 6% drop in combined contract value of starts to $55.5 billion. In 2007, those sectors accounted for $113 billion in new starts. Manufacturing could take the biggest hit, dropping 14% to $9.4 billion as capacity issues continue to hamper the sector.

Among commercial buildings, hotels could see the largest drop, declining by 9% to $4.5 billion. Office buildings starts will ease back another 3% to $19.7 billion, as employment remains weak and businesses curtail expansions. Stores have seen the most dramatic retreat, dropping from an all-time high of 314 million square feet of space to a predicted 95 million square feet in 2010—the lowest level in nearly 50 years.

Funding from the American Recovery and Reinvestment Act bolstered highway construction starts in 2009—a trend that is expected to continue to fuel work going into 2010. Total contracts by value for highways and bridges rose nearly $4.4 billion in 2009 to $57.3 billion. In the absence of a new federal highway bill, Murray expects appropriations to remain flat for highways and bridges in 2010; however, the last batch of stimulus projects could spark a 13% rise to $64.7 billion in total starts.

Mass transit, which saw $3.8 billion in new starts in 2007, is primed for a jump in funding thanks to the start of several megaprojects, including the $1.6 billion Dulles Corridor Metrorail project in suburban Washington, D.C. and a new $8.7 billion Trans-Hudson rail tunnel connecting New Jersey to Manhattan. The prospect of billion of dollars for high-speed rail projects could also fuel added work in the coming years, Murray says.

Institutional building construction should begin to stabilize in 2010, thanks in part to stimulus funds. After a 23% drop in square footage this year, McGraw-Hill Construction forecasts that the sector will flatten out with a drop of 2%.

Public buildings got a big boost from the ARRA in 2009 and will reap many of the benefits in 2010, as starts in the sector are expected to rise 8% to 51 million square feet—on par with the 2007 peak.

Healthcare projects took a big hit in 2009 in light of the tight credit market. The sector dropped 36% in 2009 to an estimated 70 million square feet of new space. That sector is expected to see 72 million square feet of new starts in 2010.

Educational buildings dropped 23% to 172 million square feet in 2009, as state and local governments pulled back projects and private institutions saw big drops in endowments. The sector is expected to continue its downward path in 2010 with 158 million square feet of new starts.

Further stuff about the Commercial Real Estate Market (not good news)

An industry friend pointed me, this morning, to this Business Week "cover story" article.

After reading this article, I don't know what else to say but, "ugh", this is not good news for the reprographics industry. In order for a recovery to get going, capital (lending) markets have to begin flowing again. Here's the article:


Why This Real Estate Bust Is Different .....

..... Unrealistic assumptions, layers of investors, sky-high prices, and possible fraud will make it hard to clean up the mess in commercial real estate

By Mara Der Hovanesian and Dean Foust (With John Cady in New York

When Goldman Sachs (GS) sold complex bonds backed by the Arizona Grand Resort and other commercial properties in 2006, it suggested the returns would be strong. The 164-acre luxury Arizona Grand, set against the Sonoran Desert in Phoenix, boasted an award-winning golf course, deluxe spa, and several swank restaurants. The on-site water park was named one of the best in the country by the Travel Channel. With the resort's new owners planning to refurbish hotel rooms and common areas, Goldman told investors that the renovations would help boost cash flow.

As was so often the case during the real estate boom, the lofty projections didn't pan out. When the economy softened and business travel slumped, Arizona Grand's bookings slipped to 67%, from 80%. The resort defaulted on the $190 million underlying loan in 2009—a hit that alone could largely wipe out investors who bought the riskier pieces of the Goldman mortgage-backed securities deal.

"It's one of the largest losses we have forecasted for an individual loan," says Steve Kuritz, a senior vice-president at Realpoint, an independent credit-rating agency. The property, once valued at $246 million, is now worth just $93 million. A spokesman for Goldman says the pricing on the bonds was in line with market levels at the time and not above what investors could get on similar securities. Grossman Co. Properties, which owns Arizona Grand, didn't return calls for comment.

It would be easy to write off this blowup as just another casualty in the regular boom-and-bust cycle of the $6.4 trillion commercial real estate market. But the Goldman deal, with its unrealistic assumptions, multiple layers of investors, and stratospheric prices, helps illustrate why this downturn is more complicated than previous ones—and will turn out to be far costlier. Already, prices have plunged 41% from the peak in 2007, according to Moody's/REAL Commercial Property Price Index—worse than the 30.5% fall in the housing market from its 2006 apex. "We've never seen this extreme a correction as far back as the data go, which is the late 1960s," says Neal Elkin, president of Real Estate Analytics, the research firm that created the index. Adds billionaire investor Wilbur Ross: "Commercial real estate has gone from being highly liquid at sky-high prices to being extremely illiquid at distressed prices."

To appreciate why this bust is like no other, first consider the typical commercial real estate downturns that used to crop up every 5 or 10 years. The pattern was predictable: When prices for apartment complexes, office buildings, shopping malls, and other properties began to rise, developers sped up their projects to cash in on the bull market. Eventually, some of those developers, unable to fill all the new space, began to default on their loans, and lenders were stuck with the buildings they'd financed. The slump lasted no longer than the time it took for the property glut to be worked down.

But overbuilding isn't the culprit in this bust. An oversupply of money is what pushed commercial real estate over the edge.
It turns out the same excesses that drove the housing market's crazy rise and fall were present in commercial real estate, too—but they have largely gone unnoticed until now. Bankers, in their haste to make more and bigger loans, blindly accepted borrowers' wildest growth assumptions and readily overlooked other shortcomings on loan applications. They did so in part because they could easily sell their dubious loans to investors in the form of commercial mortgage-backed securities. As the market overheated, it became a breeding ground for fraud: A flurry of new court cases reveals the disturbing extent to which commercial mortgage borrowers may have doctored loan documents.

While the housing crisis seems to be easing, the commercial storm is still gathering strength. Between now and 2012, more than $1.4 trillion worth of commercial real estate loans will come due, according to real estate investment firm ING Clarion Partners. Analysts at Deutsche Bank (DB) estimate that borrowers will have trouble rolling over as many as three-quarters of the loans they took out in 2007, the most toxic vintage.

For the banks and investors whose money fuels the economy, this presents major problems. Their losses will likely cast a shadow over lending—and, by extension, the overall economy—for years. The market won't fully recover until 2020, says Kenneth P. Riggs Jr., CEO of Real Estate Research, and in cases where "values were over the top...maybe never."

In the short term, toxic securities are creating a new problem weighing on the market: a tangle of interconnected investors fighting over the remains of the properties they own. In the past the damage was limited to a handful of lenders who invested directly in any given project. Now there can be dozens of groups of investors, each with its own agenda. The April bankruptcy of shopping mall owner General Growth, one of the largest real-estate-related bankruptcies ever, affected hundreds of parties—an unprecedented slicing and dicing of assets. These investors won't soon forget the bust and aren't likely to dive back into the market as aggressively as they once did.

And yet the securities are only a secondary problem. The main driver of the commercial real estate bust is the underlying loans. How frothy did the market get? In one notable example, New York investment fund Sterling American Property and real estate company Hines paid $281 million in 2007 for the 42-floor office building at 333 Bush St. in San Francisco. That worked out to $518 a square foot, far higher than today's price, according to Real Capital Analytics, a research firm. Less than two years later, the building's primary tenant, law firm Heller Ehrman, filed for bankruptcy and stopped making rent payments. According to Real Capital Analytics, the building's owners did not make a recent loan payment, and the lender is expected to begin foreclosure proceedings. Says a spokesman for Sterling and Hines: "[We] continue to own and operate the property."

What's striking is how quickly some big commercial deals have gone south. In April 2007, Charney FPG, a New York real estate partnership, paid about $180 million to buy a 22-story office building in Manhattan's Times Square district. It borrowed $202 million to pay for the purchase, renovations, and incidentals—111% financing. Because the rental income didn't cover the debt payments, Comfort's lenders, Wachovia and RBS Greenwich Capital, required the firm to set aside $10 million in reserves to keep the project afloat until it got more paying tenants. Those occupants never materialized, and by July the owners had exhausted 95% of their reserves. The building is now in jeopardy of being seized by the bankers, says Real Capital Analytics' head of research, Dan Fasulo. "Everyone knows Judgment Day is coming." Says a Charney spokesman: "The owners are in the midst of restructuring the debt." Wachovia and RBS declined to comment.

Commercial lending mirrored mortgage lending in another way: Loans were made based on an unshakable belief that the market would never go down. An analysis by research firm REIS of mortgage securities created between 2005 and 2008 found that income projections for properties exceeded their historical performances by an average of 15%. "It was all based on assumption of cash flow," says Howard S. Landsberg of New York-based consultant Weiser Realty Advisors. "If you couldn't afford to pay the bank back now, in three years you could count on another $20 a square foot" in rent. When the numbers didn't add up, some lenders got imaginative. Says a banker at a large Wall Street firm: "If the cash flow wasn't there, you had to ignore it or find ways to create it.



Thursday, November 5, 2009


Okay, here are's "brief" comments about ARC's Q3 results:

Market Report -- In Play (ARP)
November 5, 2009 4:21 PM ET

Stocks mentioned in this article
American Reprographics Co (ARP)

All news:
American Reprographics beats by $0.05, beats on revs; reaffirms FY09 EPS guidance Reports Q3 (Sep) earnings of $0.06 per share, excluding non-recurring items, $0.05 better than the First Call consensus of $0.01; revenues fell 31.6% year/year to $119.4 mln vs the $116 mln consensus, with gross margins at 36.5%. Co reaffirms guidance for FY09, sees EPS of $0.27-0.33 vs. $0.28 consensus.


Well, I'm going to say it, of course! My EPS estimate* at $.06 was "spot on".

[* I did say that my estimate(s) excluded one-time charges.] My sales revenue estimate, at $118 mil was only $1.4 mil less than the actual number.


When the stock opens tomorrow morning (Nov 6th), will it be "up" or will it be "down" from the $5.70 closing price on Nov 5th?

Wednesday, November 4, 2009

ARC Q3 and Q4 2009 results - my "estimates"

Okay, this is my first time playing financial analyst. I guess if "they" can come up with estimates, so can I. As to the financial analysts that follow ARC, what do they know that I don't know, and, what do I know that they don't know?

Okay, when Suri (ARC's CEO) made a downward revision to ARC's full year 2009 EPS, he also, when they were talking about the loan restructuring transaction, said that the costs of that loan restructuring transaction would be about $.05 - $.07 per share. He also said, if I'm remembering this correctly, that ARC would earn between $.27 and $.33 (EPS) for the full year 2009, "excluding" the costs of the loan restructuring transaction.

Okay, ARC's going to announce its Q3 2009 earnings this week, and here are my predictions of ARC's Q3 and Q4 2009 results:

Q3 2009 Sales - $118 million
Q3 2009 EPS - $.06 per share (prior to any one-time charge for the loan restructuring transaction.)
If the loan restructuring transaction is booked in Q3, then ARC's EPS, after deducting $.06 per share for the costs of the loan restructuring transaction, will be $.00 (EPS).

Q4 2009 Sales - $110.9 million
Q4 2009 EPS - $.00 per share (prior to any one-time charge for the loan restructuring transaction.)
If the loan restructuring transaction is booked in Q4, then ARC's EPS, after deducting $.06 per share for the costs of the loan restructuring transaction, will be -$.06 (EPS).

As to my 2009 "full year" estimates:
ARC reported EPS of $.14 in Q1 2009
ARC reported EPS of $.17 in Q2 2009
My predictions are that ARC's combined EPS for Q3 and Q4 2009 will be $.06 (regular EPS, excluding the one-time charge for loan restructuring costs).
Okay, that means "regular" EPS of $.37 for 2009
And, if the restructuring costs are $.06 EPS, that will net ARC's EPS to $.31, including loan restructuring costs.

My EPS estimates are slightly higher than the revised EPS estimates that Suri and Jonathan (ARC's CFO) gave.

These predictions DO NOT INCLUDE any provision ARC may take for goodwill impairment!

Anybody got a crystal ball that works? If so, I'd like your crystal ball.

On November 3rd, trading action in ARC stock was very, very high; over 800,000 shares traded - almost twice ARC's average daily trading volume. Investors getting in ahead of a "positive" earnings "surprise"? Or, investors getting out ahead of a "negative" earnings "surprise"? I certainly don't know. I guess it was a positive sign for the stock that in spite of all that buying and selling, the stock closed at the same price it opened, $5.75 per share.

DISCLOSURE: I own stock in ARC (albeit a very miniscule percentage of ARC's total O/S shares).