Category Archives: Business

Napkin calculations about the Dropbox

bubbleDid you see the headline? “Dropbox raises $250 million based on $10 billion valuation by the BlackRock investment fund.”

Back in 2011, Dropbox also raised $250 million, but on a $4 billion valuation by investors which included Goldman Sachs.

So BlackRock believes that Dropbox is 2.5 times more valuable 3 years later. Which means that Dropbox shareholders gave up 6.25% of their shares to raise $250 million in 2011 and only had to give up 2.5% of their shares to raise an additional $250 million 3 years later.

Could both valuations have been accurate? No. If this proves to be an example of a vastly overvalued company, it will all appear obvious after the fact. Tech bubble or latest greatest? Right now, no outside investor can tell.

Idea to revive real estate market

The most read article posted on Real Clear Markets recently was one from Forbes with an idea about how to move capital trapped in the real estate market into more productive sectors of our economy.

Here’s an outline of the article:

  • Problem:  Underwater loans for commercial properties that are either overbuilt or vacant.
  • Goal:  Convert ‘in the red’ properties into green space and hold for development.
  • Solution:  Permit banks to deposit some of their excess real estate securities with the Fed, remove those properties from the market, convert to green space, and hold until the market recovers. A $200 billion land bank fund, provided by the banking system and backed by the Federal Reserve, would be established to help finance this conversion.
  • Effect on Fed:  The Fed would be shifting some of its Mortgage Backed Securities (MBS) purchases to new Land Backed Securities (LBS) – long-term assets backed by the eventual redevelopment of most of the green space. This would be a straightforward way to redirect capital out of bad investments and eye sores like dead-end malls, empty stores, and vacant factories, so that the capital can be redeployed into our new asset-light economy.
  • How this differs from TARP: The stimulus money changed nothing. Jobs were protected but not stimulated. No one gets anyplace faster, no new productivity improvements were generated like the Interstate Highways did. Stimulus projects were not transformational.  Converting real estate to green space and freeing that capital would have three positive effects.
  1. Direct job creation for demolition and green space conversion.
  2. Strengthening the banking system by removing bad real estate loans so banks can make new loans.
  3. Real estate owners will spend and invest more, knowing their properties have stabilized in value.

The article by Michael Messner — who runs a hedge fund, Seminole Capital Partners — is copied in full at end of post. Continue reading

Warren Buffett gets a pass

Perception: Warren Buffett is a business icon and media favorite. There is no appetite to hold him to the same ethical standard as, for example, oil executives, let alone those espoused by his own company.

Reality: True. Being an elderly white Midwestern supporter of the first African-American president buys you a lot of understanding.

A James Stewart column details how Buffett blatantly ignored his own company’s ethical standards and possibly insider trading laws. The column is copied at end of post. Continue reading

Optimistic view of Downtown Miami office space

Perception: Economy is in the dumps nationwide and Miami can’t compete with wealthier cities.

Reality: Step outside, it’s beautiful here.  The economy is so diverse, many good trends can go undetected before they register on a macro level.

A New York Times article provided some interesting facts about commercial office space in the downtown Miami and Brickell area — which the article alternately referred to as the “central business district:”

  • In 2010, Miami’s growth in commercial office space was 2nd nationwide, to Washington DC — 1.3 million sf to their 2.5 million sf.
  • A delayed 40-story office tower will now be completed by August 2011, adding 600,000 sf in office space.
  • Downtown Miami’s vacancy rate is currently 22 percent, about twice that of Washington DC.
  • Asking rents in the new buildings are considerably less than $40 a square foot, when concessions are taken into account.

The New York Times article is copied at end of post.
Continue reading