LyrArc Article Gist
With $3.5 trillion dollars of commercial real estate debt outstanding, amid collapsing real estate prices, there is concern that this will hamper economic recovery. About $700 billion of commercial real estate mortgaes were packaged into securities and sold to pension funds, college endowments, foundations and other investors. This means the pain will be felt across the country, even in this small Ozark town of Springfield, Missouri, where the police and firefighters union has invested its entire 11% real estate allocation of $12 million in PRISA, a real estate fund of Prudential Insurance. Prudential in the boom years like 2005, was making as much as 25% return and large fees, and it marketed these products across the country. Even in a loss year of 2008 this generated $89 million in fees for PRISA. It decided to build 11 Times Square with a developer, 1.1 million square foot skyscraper in New York city, and the piece of that in the form of a security was marketed in this small Ozark town at a meeting between a Prudential representative and the towns pension fund board members, 1 policeman, 3 firemen and 2 city officials. The pension fund valued before the financial crisis at $131 million is now valued at $91 million, with 10% tied up in PRISA. A request for redemption of $5 million was rejected. The irony is that the pension fund was trying to boost returns to 7.5% from 5% on the advice of actuaries, to better fund the retiree obligations. The developer of the skyscraper Pozycki only comitted $15 million, or 4% of the equity, in exchange for developer's fees, having been burnt by earlier deals in the 1990's. As the building is nearing completion in 2009, not a single tenant has signed up. A loss of 50% is expected by 2009, because of so much vacant office space in New York city. Prudential will continue to collect its fees. And in Springfield the the losses will lead to budget cuts, reducing how often park lawns are mowed, and roads maintained, eliminating the summer concert series, multi-family housing inspections, and aservice to trap skunks and feral cats....

LyrArc Article Gist
United Airlines has asked Airbus and Boeing to come up with competing bids for 150 new jetliners, an order worth an estimated $10 billion. After the 9/11 bombings, with the slowdown in air travel and the steep losses airlines suffered from high oil prices, its the overseas airlines that made the big orders. The domestic airlines were content to work with an aging fleet. United's move at this time may be calculated to take advantage of the improving credit situation, and the lower prices of steel and other commodities to get better pricing from manufacturers. The thrust of the order is to replace 11 of United's wide body fleet, the Boeing 747,757,767,and 777 model fleet. The average of these planes is 747-13 years, 777- 10 years, 767- 14 years, 757-17 years. See graph. The most crucual conditions United is looking for are financing arranged by the manufacturer that does not use United's cash, and the flexibility to change the order later if market conditions change. United sees this as amove to get good pricing and financing terms now so that when the planes are delvered over time, spread out over several years, the planes would come in just when air travel is picking up with an economic recovery. If it does not get the terms it wants, United may wait. It has already retired half of its oldest planes, the Boeing 737's, with the remaining half due to be replaced by end of 2009. United's competitor American Airlines, announced in fall 2008, that it wants to order upto 100 Boeing jetliners if it can get new agreements with its pilots union. In spring 2009 American speeded up deliveries of 737-800's to replace some of its old MD-80's. Newer aircraft mean better fuel efficiency, and ways to cover routes that are not possible with older aircraft....