From a small northwestern observatory…

Finance and economics generally focused on real estate

Great news!

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I am particularly pleased to announce (brag?) that the Washington State Economic Development Finance Authority (WEDFA) will be honored with the Excellence in Development Finance Award by the Council of Development Finance Agencies at the upcoming National Development Finance Summit.

I’ve had the very real pleasure of serving as a Director of WEDFA for several years now, at the behest of Governor Jay Inslee.  WEDFA is an independent agency within the executive branch of state government, created by the state legislature to act as a financial conduit to businesses through the issuance of nonrecourse revenue bonds.

WEDFA was honored for the Columbia Pulp project, a wheat straw-to-paper pulp facility in Columbia County, Washington. Farms in this area (known as the Palouse region) generate post-harvest wheat straw in quantities too large to effectively till back into the soil. This represents a very real waste issue for the region. A significant portion of that wheat straw will go into an environmentally friendly pulping operation developed and commercialized by Columbia Pulp I. Paper pulp will be sold on the open pulp markets. One major use of the project’s output is expected to be compostable food containers and straws. Although not yet in full commercial operation, the project has brought about 100 new long-term industrial jobs to a county of 2,000 people. Project construction activity also added a powerful two-year economic stimulus to the area.

The Columbia Pulp I project was made possible by a coordinated efforts of institutions and individuals, including wheat farmers, scientists, mill specialists, institutional debt investors, equity investors, local economic development groups, tax credit providers and state and local government. The Washington Economic Development Finance Authority was able to facilitate the project’s debt financing through the issuance of $198,755,000 of Environmental Facilities Revenue Bonds. The bonds were issued in three limited sales to institutional investors, the final piece of which was issued in 2019.

“This year’s recipients are model examples of what is currently taking place in the development finance industry. We are proud and excited to honor this year’s recipients at the 2019 National Summit in Tampa, Florida” said Toby Rittner, President & CEO of the Council of Development Finance Agencies.

Written by johnkilpatrick

November 1, 2019 at 3:07 am

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Baby Boomers and Housing

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In an on-line forum, I was asked recently, “In the USA, how will the aging of the “baby boom” generation affect the future of the housing market.”  My answer was as follows:

Well, there’s an old joke in economics — “How did the French revolution affect world trade?” Answer: It’s too early to tell.

Without question, the baby boomers spent a LOT of money on bigger houses, more vacation homes, and lots of other conspicuous consumption toys (boats, airplanes, etc.). It is becoming clear that the subsequent generations do not have the same taste in housing. This is going to mean some radical shifts in the nature of home ownership. Conversely, the boomers are living a lot longer than prior generations, and living independently longer. This means that the aggregate demand for housing is a function both of the size and the shape of the demographic “baby boom” bubble.

Consider that the boomers in the USA are often referred to as the “pig in a python” generation. The birth rate in the USA took off like a rocket about 9 months and 15 minutes after the end of world war II. (Think about it). The birth rate collapsed, more or less, about 9 months and 15 minutes after the introduction of the birth control pill (not exactly, but the analogy is useful). As such, this pig-in-a-python demographic is moving thru the economy, and refuses to get old and die. (I write this as someone born at the absolute crest of that wave.)

US Birth Rate 1909-2008

Note:  Baby Boom Generation shown in red.

The future implications for housing, housing demand, and the mix of housing demanded by the market, will be dramatic. However, we don’t yet know all the details and shape of that demand, and may not know for some years to come.

Written by johnkilpatrick

October 27, 2019 at 8:29 am

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Real estate risk audit

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Sixty percent or more of American households own some kind of real estate, even limited to the home they live in.  Perhaps even more Americans may indirectly own real estate thru a pension plan or 401-K.  Wealthy families nearly always have significant real estate holdings, both for the portfolio diversification aspects and as a hedge against economic bad-times.

The recession of 2007-09 left a lot of investors gun-shy.  Historically in the U.S., real estate has been a solid investment in both good-times and bad, and since WW-2, single family homes have increased in value about 2% above inflation, year-in and year-out.  However, before, during, and after the recent recession, real estate prices roiled in much of the country, although admittedly prices seem to be back on an even keel.  Nonetheless, investors continue to be nervous, and rightfully so.

House Price Index versus Recessions

Of course, for investors, developers, and managers with more complex portfolios, these questions require a bit more of a portfolio audit.  For the securities investment portfolio, significant resources are available to manage and evaluate investment choices in the face of changing circumstances.  For real estate investors, tools are somewhat more granular and heuristic.  Nonetheless, the stakes are high, and a solid real estate portfolio audit is a must-do on a periodic basis.

What should an investor expect out of such an audit?  For a securities portfolio, the answer is simple — some stocks get sold, others bought, and some resources get shifted to other asset classes.  For real estate, the key may be simply be one of management or financial emphasis.  If a recession is coming, and vacancy rates rise, then operational and financial leverages change.  These may necessitate financing shifts or evaluation of current and prospective leases.  Development plans may need to be put on hold, or conversely perhaps accelerated.   Some properties may need to be re-aligned or even positioned for redevelopment after the trough of the recession.  Shrewd investors keep a lot of dry powder going into a recession, as buying opportunities will abound.

If you have questions, drop me a line.  I look forward to the opportunity to chat with you about these things.



Written by johnkilpatrick

October 23, 2019 at 9:17 am

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Rock Hall 2020 Nominees

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So, the Rock Hall of Fame has announced the nominees for the Class of 2020.  Other than the continued oversight of Steppenwolf, I think it’s a great list.  (You might refer to some of my meandering about the Rock Hall on the sidebar, to the right of the screen.)

Pat Benatar, Dave Matthews Band, Depeche Mode, the Doobies, Whitney Houston, Judas Priest, Kraftwerk, Motorhead, Nine-Inch-Nails, The Notorious B.I.G., Rufus featuring Chaka Khan, Todd Rundgren, Soundgarden, T.Rex, and Thin Lizzie make up this year’s nominees.  Regular readers of this blog will probably guess my preferences.  The oversight of Whitney Houston and the Doobie Brothers over the years is nearly unforgivable.  Ms. Houston is the ONLY artist to chart seven consecutive No. 1 Billboard Hot 100 hits, and “I Will Always Love You” is the best-selling single by a female artist in music history. The soundtrack to The Bodyguard is the 4th best-selling album of all time (behind Michael Jackson, AC/DC, and Pink Floyd, all of whom are in the Hall). Add to it — and this is amazing — her soundtrack to The Preacher’s Wife is also the best-selling GOSPEL album of all time.

The Doobies are my personal favorite act of all times. Their induction ought to be a given — they are on nearly everyone’s “WTF” omission list. One of the biggest problems the Hall will have is picking exactly WHICH members of the Doobies get to receive the award — there have been nearly 100 Doobies over the years. This was a problem with Chicago — the original 7 from the first few albums got inducted, but none of the band-members who joined after Terry Kath died and Peter Cetera left. (By the way — wasn’t Cetera a jerk for not showing up????). Anyway, it would be hard to argue that founders Tom Johnson, Patrick Simmons, Dave Shogren, and John Hartman don’t belong on the stage, plus Michael Hossack, Skunk Baxter, Tiran Porter, Keith Knudsen, John McFee, and of course Michael McDonald. That group, plus a few others, would pretty much cover everyone up thru their 1982 disbanding, and all of that crowd should be on the stage sometime soon.

Of the rest, of course Judas Priest, Notorious B.I.G., and Todd Rundgren will be Rock Hall inside favorites.  However, my votes (and so far, the largest number of fan votes) would go to Pat Benatar.

Fans can vote for up to 5 nominees each day.  The top 5 vote getters will be counted along with the normal judging, in a secretive fashion known only to the top members of the Illuminati and, apparently, the Pope.  Simply visit to make your voice  counted, however, they manage to count these things!

Written by johnkilpatrick

October 19, 2019 at 10:44 am

Posted in Uncategorized

A bit about the election

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This is NOT about politics, per se.  Don’t get me wrong, I’m fairly politically active.  However, I try to focus this blog on the economy, real estate, and such and so-forth.  That said, the upcoming 2020 election is dominating the news (and will for the next 14 months, at least) and the mathematical model of getting to a “win” for the dems or the repubs is fascinating to say the least.  First, let’s reflect on the electoral map from 2016.  Note that this is ALL that matters — the dems won the popular vote hands-down in 2016, but lost because they seemingly forgot how the system actually works.


Now BECAUSE of the way the system works, about 70% of all electioneering dollars in 2016 were spent in 6 states.  Indeed, about 90% was spent in 12 states.  This is a function of two things.  First, Alaska has 3 electoral votes.  Plus, Alaska is decidedly and comfortably republican.  The dems ignored it, and the republicans just needed to remind folks that the election was on a Tuesday.  Texas has something of the opposite problem — huge, but again comfortably republican.  (There is some argument that this could potentially change in 2020, but no one is betting big bucks that way just yet.)

As an aside, in 1980, presidential elections were severely limited in spending.  It’s hard to remember, but those were the post-Watergate years, and the Congress was actually jealous of its power back then.  The republicans figured to spend all of their money in the mid-west and the west. California was republican back then, and the south was considered to be solidly in Carter’s camp.  Some republican operatives had a neat idea — what if we spend a LITTLE money in the south, and throw Carter off his game down there?  That was the real tipping point for turning the south from democrat to republican.  Lots of folks don’t remember that states like Georgia, South Carolina, and Virginia had prominent democrat power structures even into the 1980’s.  But, I digress…

This election — 2020 — will be fought in six states.  Period.  All of the money and all of the effort will go to (starting from the upper left and working our way down) Minnesota, Wisconsin, Michigan, Ohio, Pennsylvania, and Florida.  Collectively, these states have 103 electoral votes — over a third needed to win, and about three times the winning margin from 2016.  Whichever candidate carries a majority of the electoral votes in these six states will win.  Period.  Not much else matters.  (Yes, Virginia and North Carolina, I’m talking about you.)

Now, to get a sense of what’s happening, and why rallies in New Mexico and dinners in California don’t mean much, let’s look at the congressional map from 2018.  Polls lie, but electoral maps don’t…


Now, this is one of the most interesting maps I’ve seen in a while.  Focus on the ledgend for a minute.  This is broken down by the 435 congressional districts, all of which were in play in 2018.  The ones in grey can be ignored — either republican or democrat, the vote there didn’t change much (plus or minus 10%) from 2018.  For example, Alaska was republican and Hawaii democrat in 2016, and that didn’t change in 2019.  Dark blue states were democrat to start with, and became more-so.  Dark red states were republican to start with, and became more-so.  Dark red basically happened in three places — the rural southern Georgia/Alabama districts, rural eastern North Carolina, and rural California.  None of these four states is in play in 2018, so basically who cares?  Dark blue, on the other hand, happened in some key areas — Miami/Dade County, where the republicans usually hope to pick up conservative Cuban voters.  It happened in central and southern Wisconsin, central Ohio, central Florida, eastern Michigan, and the small but highly populated Minneapolis/St. Paul region of Minnesota.

More interestingly are the purple districts — these flipped from republican to democrat.  this happened a LOT across the country, but most significantly in south Florida (retiree-populated Monroe county, in particular, in eastern Pennsylvania, in two districts in the suburbs of Minneapolis, and in two districts in eastern Michigan.  Now, the republicans were not without their gains — two rural districts in Minnesota (which went blue in 2016) flipped to red.  Nonetheless, the bulk of the model right now heavily favors a blue wave in these six states, if the trends continue.  In 2016, the democrats ran a “national” campaign, and the republicans focused attention on key issues that would flip swing states.  Indeed, the democrats won the “national” campaign, with a plurality of the popular vote, but lost the war.

Clearly, there are some second-tier states that are teetering on the edge of becoming swing states.  Southern Arizona, with its significant Hispanic population, and the growing up-scale suburbs in North Carolina make these two states very interesting.  Iowa made some surprising shifts in 2018, but with only 6 electoral votes, they won’t get nearly the attention they deserve.

So, predictions?  I’m loathe to put money on this, but it will be an interesting time to be a voter in Broward county, Florida.

Written by johnkilpatrick

September 20, 2019 at 8:16 am

Posted in Uncategorized

Huh… busy week and it’s only Monday

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China buys two things from the United States:  agricultural products and Treasury bonds.  Thanks to our misguided attempts at a trade war, they’ve announced today that they’re going to quit buying one of those two items.  Indeed, for the past two decades, China has been working to expand their sources of basic resources, including foodstuffs. Other countries are happy to oblige.  Since 1970, Brazil has cut down about 20% of their rainforest, mainly for agriculture.  Most of the deforested Amazon is used for cattle grazing, and about 80% of that beef is exported (guess who buys it?).  Brazil is now also the world’s 2nd biggest producer of soy beans.  (Guess who buys THAT?).  Thanks to our U.S. trade policies, Brazil is poised to leap into first place.  By the way, the impact on the global biosphere is devastating, but that’s almost an afterthought.

Is this likely to cause a recession?  Coupled with the yield curve inverting, a slow-down in housing sales, and w-a-a-a-a-y too much Federal deficit spending, and all the signs are certainly there.  If there is one redeeming thing, it’s that so many of us recognize that a recession is likely at this point.

Written by johnkilpatrick

August 5, 2019 at 1:54 pm

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Lowe’s is laying off thousands

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Well, by itself, this is a startling headline (click here for the full story).  The CNN story blames it on needing to catch up with Home Depot and also right-sizing their inventory (which is, admittedly, huge).  Indeed, for several years, home remodeling has been the bright spot in the retail sector.

However, I’d also remind readers of my note about the remodeling sector from not long ago (click here for that story).  The homebuilding and home sales sectors have been reporting some softness, mainly cost driven, and that’s inexorably tied to home remodeling.  Intriguingly, the folks being laid off are generally in the assembly biz.

As a personal anecdote, I purchased a house in Key West not long ago, and immediately bought a new grill from Home Depot.  Not withstanding my normal “do-it-yourself” attitude about things, this particular grill was a multi-person job.  Home Depot was on the spot, and sent over a team to do the job (kuddo’s to the Home Depot in Key West, Florida!).  Had I not bought a house there, I wouldn’t have bought the grill, and the assemblers wouldn’t have had a job.  You do the math, folks….

Written by johnkilpatrick

August 1, 2019 at 1:01 pm

Posted in Uncategorized

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