Economic winners, losers in post-9/11 era
The 9/11 attacks were a geopolitical gut punch that did little to mute the overall economy on the mend from the dot-com bust.
Putting dollars-and-cents analysis on that tragic day 20 years ago is hard for this native New Yorker. Thankfully, the long-term damage to the overall business world has been modest. Even my hometown enjoyed, until the pandemic, a business revival.
My trusty spreadsheet — filled with government economic data from the fateful day through this summer — reveals a somewhat sluggish post-9/11 economy, both locally and nationwide. Let’s not forget that these two decades included the mortgage meltdown and ensuing housing crash creating the Great Recession, plus the job-slashing business limitations of the pandemic era.
So here’s how some key economic benchmarks performed — before and after 9/11.
Jobs? California employment grew at an 0.9% annual pace from 2001 through prepandemic 2019, slightly better than the nation’s 0.7% growth. But look at 1990-2001: 1.5% annual growth statewide and a 1.7% U.S. hiring pace.
Paychecks? Per capita income in California grew 4% a year, 2001 to 2020, topping the national rate of 3.4%. Again, this is down from 4.3% annual growth statewide in the ’90s and a 4.4% U.S. pace.
Inflation? Slow growth muted cost-of-living increases. The national consumer price index rose at a 2.1% annual pace in the 20 years ending in June versus 2.9% in the ’90s.
Homes? Low inflation and slow economies pushed down interest rates. For example, 30-year mortgages averaged 8% in 1990-2001 and 4.8% afterward. Even with the pain of the real estate collapse not long after 9/11, California price gains averaged 4.8% annually in 2001-2021 and 3.7% nationally. Compare those jumps to 3.7% annual price statewide in the ’90s and a 2.4% U.S. appreciation rate.
Now the relatively meek post-9/11 economy didn’t treat all industries equally.
When my spreadsheet used a Wall Street lens — an analysis of stock performance in 83 industries by Charles Rother of American Strategic Capital of Costa Mesa — you see huge variances in 20 years’ worth of stock total return, that’s price gains plus dividends.
For example, is it a shock that war is often profitable ground for defense contractors?
The 9/11 attack sent American troops first to Iraq and
is a quasi-governmental agency that was formed by the League of Cities, is the owner of the project.
Waterford acts as the project administrator. We run the full acquisition process, get approvals from the city and then oversee the asset management of the properties and the program after closing.
A city will enter into an agreement with us. They will allow CSCDA to purchase the property with the caveat that the rents will be restricted by a certain percentage based on average median incomes.
It allows CSCDA to create tax-free municipal bond financing to purchase the project.
Q A
There are two things that make that possible.
One is (we get a) break on property taxes because that’s about 30-40% of the operating expenses on a property like this.
And then two, we can raise municipal bond financing for the project, which right now is very inexpensive.
QHow much are the property taxes for this building?
AFor this property, it was about $1.6 million a year.
QWhy does the program target luxury, or Class A, buildings? Why not buy cheaper properties?
AHow are you able to lower the rent?
Newer projects require less ongoing maintenance than older buildings. So these (bond) investors, while their cost of capital is efficient, they traditionally do not want to buy projects that require a lot of initial upkeep or initial construction. When it comes to construction, there’s risk.
When you think about it from the city perspective, this is really targeting a demographic of people who make that middle-income. And we want to be able to provide them a really high-quality living environment.
The other thing is, the city gets all the equity
WORKFORCE HOUSING DETAILS
Waterford apartment projects: Jefferson Platinum Triangle and
The Parallel — total units: 400 at Jefferson/386 at Parallel — sale price: $161.6 million for Jefferson and $157.6 million for Parallel — vacancies before sale: 5% at Jefferson and 12% at Parallel — 2020 property tax: $1.6 million for Jefferson and $1.4 million for Parallel
in the project once the bonds are paid off. Waterford does not have any equity in this project. Neither does CSCDA. The title transfers to the city.
The city will give up the property tax revenue. They’ll get the lower rent for middle-income tenants, and they will get the equity in this project once the bonds are paid off.
Let’s say it’s only worth what we paid, $160 million. They will have given up $48 (million)-$56 million in property tax revenues, and now they’re sitting on $160 million in equity. And that’s if the value is what it is today.
Q A
It’s really essential workers. Teachers, firefighters, police, city workers, clerical workers and nurses. Union employees, (emergency) medical technicians, educationrelated groups, people in the service industry. Here (in Anaheim), it’s a good amount of people who work at Disneyland.
Q
Who is renting these buildings?
The city of San Jose rejected the workforce housing program. What was their concern?
AIt wasn’t offering enough affordability to justify removing the property from the property tax rolls. They (also) were concerned that after 30 years, the property could be in a really rundown shape when they get it back. I don’t think they wanted to be early in the program.
The city of Anaheim embraced this program early on. They believed in the merits of it.
Q A
We get paid fees for being the asset manager.
We could have acquired these projects as marketrate projects. We would have bought it, increased rent, held it for three to five years and sold it for a profit.
Under this structure, it takes us longer to make the same amount of money, but it’s a 35-year bond. So it’s a nice income stream for us.
QHow much do you make on a project like this?
AWe’ll make an initial acquisition fee.
It’s usually something like 1% of the purchase price. (Then) we’ll make ongoing asset management fees that are standard within the industry.
QAHow do you make money on the deal?
How much is that for this particular project?
$200,000 a year. It’s a good solid business for us, is really what it is.