Friday, October 29, 2010

The Angry Man and the Guillotine

I like John Palmieri, the Director of the Boston Redevelopment Authority. He approaches development thoughtfully. His work at Seaport Square, Fan Pier, South Station, Liberty Mutual, and countless other development sites have been noteworthy and worth commending.

Unfortunately he works for the Angry Man. And after the latest self-induced debacle at the Filene’s site, the Angry Man, as is his custom, will be looking for any head to roll other than his own. Alas poor Yorick.

For two years, the Angry Man has been threatening Vornado and its partners at the Filene’s site with any combination of removal of permits to eminent domain. I wrote about the nonsense of such an approach on September 25, when the editors of the Globe started drinking the Angry Man‘s Kool Aid and demanding the same.

Fast forward one month and the Angry Man, using Mr. Palmieri the way President Bush used Colin Powell, had admitted that his approach was not thought out financially or procedurally.

I don’t want to beat a horse that’s not only dead but nearly buried, so let’s focus on how the Angry Man works. The Angry Man can never be wrong even when he is wrong. I didn’t hear any apologies for the money spent analyzing and developing renderings for a new City Hall in the unreachable docks of the easternmost piece of Boston Harbor. And you won’t hear any apologies for his nonsensical behavior with Vornado. His plea for help from Mayor Bloomberg was an embarrassment to Boston. His latest desire for unachievable vengeance on Messrs. Roth and Hynes is a further embarrassment.

This brings me back to Mr. Palmieri. The guillotine has been delivered to floor 9 at City Hall. And the Angry Man will pass the blame on again. Good luck John. Maybe intelligence and practicality will prevail at City Hall. But between Chiofaro and Vornado, the Angry Man needs to strike out at someone.

Thursday, October 28, 2010

Report on Massachusetts Home Sales is Not Accurate

Yesterday, most media sources reported that single family home sales had declined year over year in September. The Boston Globe chose to run this at the top of the business page with the ominous and incorrect title, “Mass. home sales dropped 12.9 percent last month.” The report was on existing single family homes and condominiums, not “homes.” I guess that’s the old-fashioned attention grabber.

The story was not technically incorrect. It was selectively correct. The Globe gave short shrift to pricing, which, if included as I do below, paint a very different picture.

As an example, suppose the lead article of the Globe Sports Section that same day discussed the previous night’s game against the Heat and covered all of the Celtics’ scoring but never mentioned the Heat. The title would read “Celtics Score 88 Points.” I don’t know about anyone else, but I think I might want to also know how many points the Heat scored so I could at least know who won the game. But that’s exactly the way the Globe played the news.

The correct approach would have incorporated both numbers of sales and pricing. Every industry measures its performance by GROSS REVENUE and GROSS PROFIT. Let’s look at the numbers in that light.

Gross home sales revenue in September 2010: 3,285 homes x $287,000 = $940,000 gross sales.

Gross home sales revenue in September 2009: 3,771 homes x $284,000 = $1,070,000 gross sales.

Gross single family home sales, expressed in revenue dollars, decreased by 8.3%, not by 12.9%. The same analysis of existing condominium sales results in a gross revenue decrease of 16.2%, not 21.5%.

Declines of 8% and 13% are certainly not comforting news, but they are a far cry from 13% and 22%. It’s not as bad as you think. When sales are declining while prices are increasing, that is simply the market at work constantly seeking market pricing.