Addressing Excess
Developed Real
Estate with Parks
Michael Messner
November 30, 2009
After equities peaked in 2000, financial markets turned to
creating mortgage debt, which increased 137% in 9 years
Stock Market
Capitalization
Mortgage Debt
$16T
Outstanding
Stock Market
$14T
Capitalization
$12T
$10T
$8T
Mortgage Debt
Outstanding
$6T
$4T
$2T
$0T
Jan. 2000
Jan. 2009
Includes home, commercial, multifamily residential, and farm mortgage debt
2
We built 500,000 excess homes per year in the 2000’s
There are now 19 million vacant homes – 14.5% of all units
Vacant: Year-round
6 million
excess
homes
Vacant: Seasonal
Total
Units (millions)
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
1990
1995
2000
2005
2010
3
Residential properties have lost $4 to $7 billion since the peak
due to excess supply
Value of U.S. Residential Property
22
21
1) The Fed bought $1.5T
of mortgages
20
$ Trillion
Note: Stabilization of
prices was supported by
government policies –
19
2) 1½ million houses
have been sold with a
subsidy of $8,000 each
18
17
16
15
14
Q1'06 Q3'06 Q1'07 Q3'07 Q1'08 Q3'08 Q1'09
3) Over 90% of new
mortgages have
government guarantees
through Fannie Mae,
Freddie Mac, and Ginnie
Mae
Sources: Federal Reserve Z.1 (blue); Seminole est. using Case-Shiller 20-city prices (red)
4
The commercial property market has dropped $3 trillion
due to excess supply
Value of U.S. Commercial Property Market
7.5
$ Trillion
7.0
6.5
6.0
5.5
5.0
4.5
Jan'06 Jul'06 Jan'07 Jul'07 Jan'08 Jul'08 Jan'09 Jul'09
Source: Moody's Commercial Property Price Index, Seminole Capital estimates
5
We built an excess of retail space, and continued despite
the introduction of online shopping

Between 1990 and 2005, consumer spending per capita rose
14%, adjusted for inflation, yet retail space per capita in the
United States doubled.
– "Malls Test Experimental Waters to Fill Vacancies", NY Times, 4/5/09

There are 12.5 billion square feet of retail space in the U.S.
– Costar, noted in ICSC Retail Real Estate Business Conditions report, 5/16/08

The U.S. has over 6 times as much retail space per capita as
any European country.
– Retrofitting Suburbia by Ellen Dunham-Jones and June Williamson, noted in
"Repurpose-Driven Life," NY Times Magazine, 6/8/09
6
Online commerce share gains are likely to continue
Source: Morgan Stanley
7
Vacant retail space is climbing fast – the equivalent of over
25,000 big box stores lies empty
1400
Millions of Square Feet
1200
1000
800
600
400
200
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Including the associated parking, this represents over
150,000 acres of vacant land.
8
Recently there has been a large increase in retail space for
lease. Much of this space may soon be vacant.

19.4% of retail space is available for lease (either vacant or
occupied), up from 6.8% in 2Q 2006
– Costar, 4/22/09
9
65% of regional malls are weak or weakening
Strong:
384 malls
(35%)
Transitioning
to Weak:
216 malls
(19%)
Weak:
512 malls
(46%)
Source: Morgan Stanley
10
More regional malls are becoming “dead malls”
11
Atlanta’s retail vacancy rate is 23% and climbing
12
“Densify or dynamite”
“We’ve probably seen the apogee of big-box retail,” said Matt
Winn, a managing director with Cushman & Wakefield of
Georgia. For some suburban shopping centers, “it’s going to
get ugly. Retailers were rewarded by Wall Street for opening
stores. Now they have to ask, ‘Does another store make
sense?’ ”
Winn spoke to the Federal Reserve Bank of Atlanta earlier this
year about incentivizing smart retail growth. His message to
the bankers: “densify or dynamite. If everyone consolidates
into fewer centers, what happens if the others become
completely vacant? You take the dynamite out and you
change them.”
- Atlanta Business Chronicle, Oct. 16, 2009
13
Atlanta’s property market inside the Perimeter has plunged



Historical 5-yr price per acre average, improved lot: $1.76 MM
Current market listed price per acre, average:$371,000 per acre—a 79% discount
Many potential sellers are not listing properties due to market conditions
14
We need to change this ...
15
... into this:
16
Over $11 trillion has been allocated to the financial rescue
to support paper assets
Program
Allocated
($b)
Totals
Federal Reserve (major programs are listed)
Commercial Paper Funding Facility LLC (CPFF)
Term Auction Facility (TAF)
Unnamed MBS and GSE Program
Term Securities Lending Facility (TSLF)
Term Asset Backed Securities Loan Facility (TALF)
1,800
900
1,450
250
1,000
7,205
Total: Federal Reserve
FDIC
FDIC Liquidity Guarantees
Loan Guarantee to Citigroup & GE's lending arm
1,400
388
1,788
Total: FDIC
Treasury Department (major programs are listed)
Troubled Asset Relief Program (TARP)
700
Fannie Mae / Freddie Mac Bailout
400
Recovery and Reinvestment Act
780
Total: Treasury Department
FHA - Hope for Homeowners
Grand Total
Source: Strategas
2,132
300
11,425
17
A special purpose vehicle supports the TALF (Term ABS
Loan Facility)

The New York Fed is authorized to make up to $1 trillion of nonrecourse loans to eligible borrowers secured by eligible ABS.

The ABS will be pledged as collateral for the loans and held at the
New York Fed’s custodian.

If a borrower fails to repay its loan, the ABS will be transferred to a
special purpose vehicle (SPV) to be established by the New York
Fed.

Treasury will purchase up to $20 billion in subordinated debt issued
by the SPV; the subordinated debt will absorb the first $20 billion of
losses at the SPV.
Can the Fed create a SPV to buy land for parks?
18
FDIC’s Corus Bank Transaction
Assets (loans & REO) with a value of $4.5 billion in unpaid principal
balance, were sold by the FDIC for $2.772 billion (about 60 cents on
the dollar) to a newly created LLC, funded by half debt and half equity:
• $1.386 billion of debt (“Term Notes”) – FDIC-guaranteed zero coupon
debt to be sold in the market.
• $1.386 billion of equity - 60% kept by FDIC, and 40% purchased for
$554.4 million by private buyers
The new LLC also can borrow from an FDIC-created “Advance
Facility”: up to $1 billion at LIBOR+3% over 3-5 years, to fund
completion of buildings and operating deficits in finished buildings.
In total, the FDIC provided almost $2.4 billion of debt and $832
million of equity, or 85% of the funding, while private buyers
provided $554 million, or 15%.
In terms of book value (UPB), private buyers provided only 10%.
Can the FDIC construct transactions with similar leverage
to buy land for parks or park-plus-development packages?
19
Summary

Creation of mortgage debt has encouraged overbuilding
of non-productive housing and retail assets

Vacancies are costly – to neighbors, communities,
banks, and the economy

Vacancies are huge and will continue to grow

Parks address the physical toxic assets undermining our
financial system

Parks transform this new liability to a neutral or positive
asset
20
Appendix 1: Rescue funds allocated & guaranteed (per Bloomberg article 9/25/09)
--- Amounts (Billions)--Limit
Current
===========================================================
Total
$11,563.65
$3,025.27
----------------------------------------------------------Federal Reserve Total
$5,870.65
$1,590.11
Primary Credit Discount
110.74
28.51
Secondary Credit
1
.58
Primary dealer and others
147
0
ABCP Liquidity
145.89
.08
AIG Credit
60
38.81
Commercial Paper program
1,200
42.44
Maiden Lane (Bear Stearns assets)
29.5
26.19
Maiden Lane II (AIG assets)
22.5
14.66
Maiden Lane III (AIG assets)
30
20.55
Term Securities Lending
75
0
Term Auction Facility
375
196.02
Securities lending overnight
10.42
9.25
Term Asset-Backed Loans (TALF)
1,000
41.88
Currency Swaps/Other Assets
606
59.12
GSE Debt Purchases
200
129.21
GSE Mortgage-Backed Securities
1,250
693.60
Citigroup Bailout Fed Portion
220.4
0
Bank of America Bailout
87.2
0
Commitment to Buy Treasuries
300
289.22
----------------------------------------------------------Treasury Total (see next page)
$2,909.5
$1,075.91
----------------------------------------------------------FDIC Total
(see next page)
$2,477.5
$356
----------------------------------------------------------HUD Total
(see next page)
$306
$3.25
-----------------------------------------------------------
21
Appendix 1: Rescue funds allocated & guaranteed (continued)
--- Amounts (Billions)--Limit
Current
===========================================================
Total
$11,563.65
$3,025.27
----------------------------------------------------------Federal Reserve (see prev. page) $5,870.65
$1,590.11
----------------------------------------------------------Treasury Total
$2,909.50
$1,075.91
TARP
700
372.43
Tax Break for Banks
29
29
Stimulus Package (Bush)
168
168
Stimulus II (Obama)
787
303.6
Treasury Exchange Stabilization
50
0
Student Loan Purchases
60
0
Citigroup Bailout Treasury
5
0
Bank of America Bailout Treasury
7.5
0
Support for Fannie/Freddie
400
200
Line of Credit for FDIC
500
0
Treasury Commitment to TALF
100
0
Treasury Commitment to PPIP
100
0
Cash for Clunkers
3
2.88
----------------------------------------------------------FDIC Total
$2,477.50
$356
Public-Private Investment (PPIP) 1,000
0
Temporary Liquidity Guarantees* 1,400
301
Guaranteeing GE Debt
65
55
Citigroup Bailout, FDIC Share
10
0
Bank of America Bailout, FDIC Share 2.5
0
----------------------------------------------------------HUD Total
$306
$3.25
Hope for Homeowners (FHA)
300
3.20
Neighborhood Stabilization (FHA)
6
.05
22
Appendix 2: Possible Federal Funding Programs for Park Conversion
Summary
Authorized
FDIC
?
Support for private purchase and management of assets owned by failed banks
Available
/unspent
?
2009 stimulus bill (Recovery & Reinvestment Act)
$780 bn
Possible future stimulus bill
?
Regular appropriations
?
Departmental appropriations (Agriculture, EPA, Park Service, etc.)
$565 bn
?
?
TARP (Troubled Asset Relief Program)
$700 bn
Treasury purchase of financial instruments backed by troubled assets
$308 bn
TALF (Term ABS Loan Facility)
$1 trillion
$956 bn
Lending to support purchase of securities backed by real estate or other assets
P-PIP (Public-Private Investment Program)
$1 trillion
Assists in buying loans and securities from banks’ balance sheets
$1 trillion
23
Appendix 2: Possible Federal Funding Programs for Park Conversion (continued)
FDIC
The FDIC has provided support for private purchase and management of bad assets owned by failed
banks. See, for example, the Corus Bank transaction, where the FDIC issued up to $2.386 billion in debt
and lent money to private investors who put up $554.4 million in cash for 40% ownership of approximately
20 REO properties and 80 construction loans on unfinished condominiums and other properties.
Recovery and Reinvestment Act ($780bn authorized, approx $124bn spent, $565bn yet to be spent)
Possible future stimulus bill
Regular appropriations
There may be some flexibility in departmental appropriations under the 2009 stimulus bill, a possible future
stimulus bill, or regular appropriations to support land purchases, especially from land-related departments
such as Agriculture, EPA, Park Service, etc.
TARP – Troubled Asset Relief Program ($700bn authorized, approx $392bn outstanding, $308bn
available)
TARP allows the United States Department of the Treasury to purchase or insure up to $700 billion of
"troubled" assets, defined as
• Residential or commercial mortgages (and any securities, obligations, or other instruments that are based
on or related to such mortgages) that in each case was originated or issued on or before March 14, 2008,
the purchase of which the Secretary determines promotes financial market stability; and
• Any other financial instrument that the Secretary, after consultation with the Chairman of the Board of
Governors of the Federal Reserve System, determines the purchase of which is necessary to promote
financial market stability.
TARP allows the Treasury to buy illiquid, hard-to-value assets (e.g., CDOs) from banks and other financial
institutions, who must issue equity warrants or senior debt securities to the Treasury so the government
could profit if the financial institutions recover.
TARP does not support purchase of physical assets, only financial instruments.
24
Appendix 2: Possible Federal Funding Programs for Park Conversion (continued)
TALF – Term ABS Loan Facility ($1 trillion authorized, approx $44bn outstanding, $956bn available)
The TALF program provides loans to support liquidity in the Asset-Backed Securities markets (e.g., for
credit cards, auto loans, small business, and commercial real estate loans), which froze in the credit crisis.
This program has not been widely used. $43bn has been used to buy pre-existing (“legacy”) ABS. Only
$1.4bn has been used to support newly-issued ABS as of Nov. 17, 2009.
The Asset-Backed Securities markets historically have funded a substantial share of consumer credit and
SBA-guaranteed small business loans. The TALF is designed to increase credit availability and support
economic activity by facilitating renewed issuance of consumer and small business Asset-Backed
Securities at more normal interest rate spreads.
To manage the TALF loans, the Federal Reserve Bank of New York created a special-purpose vehicle
(SPV). The SPV buys the assets securing TALF loans. Under TARP, the U.S. Treasury Department
provides $20 billion of credit protection to the FRBNY in connection with the TALF, by buying debt in the
SPV. Eligible collateral includes AAA-rated U.S. dollar-denominated cash ABS.
P-PIP – Public-Private Investment Program ($1 trillion authorized, $0 outstanding, $1 trillion available)
The FDIC, Fed and Treasury announced the P-PIP on March 23, 2009 to provide liquidity for "toxic assets"
on the balance sheets of financial institutions. P-PIP has two primary programs:
1) The Legacy Loans Program will attempt to buy residential loans from banks’ balance sheets. The FDIC
will provide non-recourse loan guarantees for up to 85 percent of the purchase price of legacy loans.
Private sector asset managers and the Treasury will provide the remaining assets.
2) The Legacy Securities Program will buy mortgage backed securities (RMBS) originally rated AAA and
commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) which are rated AAA.
The funds will come in many instances in equal parts from the Treasury's TARP, private investors, and from
loans from the Fed’s TALF.
The P-PIP has not been successful, in part because banks seem unwilling to sell bad assets at fair market
values because they are reluctant to take asset write downs.
The facility will cease making loans collateralized by newly issued CMBS on June 30, 2010, and loans
collateralized by all other types of TALF-eligible newly issued and legacy ABS on March 31, 2010, unless
the Board of Governors extends the facility.
25