Wednesday, September 15, 2010

After the Crash

Developer Jackie Welch looks back on the real estate boom and bust.

Posted By on Wed, Sep 15, 2010 at 4:58 PM

After 40 years in the real estate business, Jackie Welch has something he never had much of before: time on his hands.

The developer who sold a dozen school sites to the Shelby County school board, more than 4,000 residential lots, and scores of sites for suburban shopping centers, strip malls, and office buildings from 1990 to 2006 now has two employees. His office is on the market for $1.5 million. Only offer: $1.1 million.

We met at a restaurant on Poplar Avenue near Ridgeway. He recalled when cement mixers, pickups, and flatbed trucks carrying bricks and loads of lumber for new houses jammed Poplar between East Memphis and Collierville. Every once in a while a truck would go by while we ate, but not often.

"You hardly ever see a concrete truck going down the road any more," he said. "It's scary."

Nothing creates jobs like a new house. Jobs for concrete workers, bricklayers, painters, carpenters, decorators, electricians, landscapers, nurseries, plumbers, framing crews, appliance stores, furniture stores, real estate agents. Multiply by the number of days it takes to build a house times the number of new houses built in a year and add the roads and schools and shopping centers to serve them and you have either a booming economy or a recession.

And, of course, suburban sprawl and its costs in public debt and blighted neighborhoods that were abandoned.

"It was relocation. It wasn't growth," Welch said. "People were following the county school system and moving to avoid city taxes. Mortgages were so easy to get. Anyone could qualify. If you wanted to sell your house for $125,000, there was a buyer standing there who could qualify. Then you could step up to a $250,000 house and that person could buy a $400,000 house. It was a chain reaction."

Welch Realty and its partners developed two or three subdivisions a year in Shelby County, Bartlett, Cordova, and DeSoto County, ranging from starter homes on $35,000 lots to mansions in Devonshire Gardens near Collierville. Until around 2007, most of it sold right away.

"When it was good, it was great," Welch said.

The bet was that the guy who got the mortgage was good for it and the value of the house would go up. Neither happened.

The big-volume builders like Bowden, Reeves Williams, Matthews Brothers, and Faxon-Gillis Homes pulled back or shut down. Jerry Gillis, CEO of Faxon-Gillis, said his company will start 35 houses this year, compared to 12 last year and 150 in 2006.

"The sales volume on those 150 starts was $39 million, and $31 million of that was direct costs that go back into the economy, plus the real estate commissions," he said. "The amazing thing is that interest rates are the lowest in 60 years and prices are down. It appears the whole world has been hit by a downturn and everybody is keeping their powder dry — if they have any powder."

Welch commented on other signs of the times in his former stomping grounds:

Winchester: "It was once the main road in southeast Shelby County. Now, 22 restaurants closed. There's not much left of it."

Germantown Parkway from Poplar to Highway 64: "There's not a shopping center that doesn't have multiple vacancies."

Small neighborhood shopping centers: "You can buy those today for 60 cents on the dollar from banks."

The Land Use Control Board: "That's where everything starts in the development business, and they don't have anything to do right now. Meetings are over by 11 o'clock in the morning."

Whitehaven, where Welch grew up: "I bought a house for an investor for $50,000 that sold for $120,000 a few years ago."

First Capital Bank, a $185 million bank where Welch is chairman of the board: "We've got some questionable loans on the books, and we're working our way through them."

He is in favor of consolidation, although he lives in Collierville.

"I am for it, but it is not going to pass," he said. "And it would only be as good as the administration."

His outlook for a real estate comeback is grim.

"It will be a generation before it comes back like it was in the mid-'90s," he said. "Unemployment has to come down to 5 percent. We're not through the worst of this yet by any means. You're going to see a couple of companies that are pretty well known that will close before the end of the year. The shock waves will be tremendous."

Wednesday, September 1, 2010

Counting Kids at MCS

City Council should demand an end to alibis and vague numbers.

Posted By on Wed, Sep 1, 2010 at 12:12 PM

Nothing connects people to a community like public schools. That connection took a huge hit in 1973 from court-ordered busing, and I don't think Memphis has ever really recovered.

Memphis City Schools lost 28,500 white students in one year, many to private schools. A racially balanced system with 148,000 students became a de-facto segregated system with 100,000 students, give or take a few thousand, today.

Shelby County Schools went from 17,000 students after Memphis annexed Raleigh in 1975 to more than 47,000 students today. The more recent beneficiary of Memphis flight is DeSoto County, where enrollment has increased from 23,000 to 31,000-plus in eight years.

Bill and Melinda Gates grants and other foundation funds and moral support are fine, but nothing connects you to a big school system like eating the cooking. The time invested in pride, anguish, transportation, car pools, booster club meetings, sports, field trips, and PTA is life changing. Plus, over 12 years, public school saves you $100,000 to $200,000 per kid, which makes those high Memphis property taxes bearable.

Selling Memphis City Schools to people in Memphis and Shelby County who don't use them but pay for them with their property taxes is a hard sell. Which is why it is so important for MCS to honestly and openly report its enrollment, which is the basis for most of its funding. MCS is losing the support of people who live in Memphis but no longer eat the public school cooking or never ate it at all.

People of good will want everyone's children to have a decent education, but they don't want to be billed for phantoms. School enrollment should not be like pegging attendance at Glenn Beck's rally or a sports event "packed" with no-shows. Counting kids in a big district is complicated but not impossible. FedEx counts millions of packages, stores count SKUs, and the Census Bureau counts us.

Prompted by the $57 million in court-ordered back payments to MCS, the Memphis City Council, which has to fund the schools, is taking a hard look at enrollment. The early estimates have ranged from 92,000 to 120,000. In other words, as many as 28,000 students could be "tardy." If they are, instead, phantoms, it's a difference of about $300 million in state and local funding, at the going rate of $10,300 per student.

Here's a summary of the different enrollment numbers provided by various state and local sources:

The 2009 Tennessee Report Card says the enrollment at that time was 104,829.

The 2007 Tennessee Report Card said the enrollment then was 110,753.

The Tennessee Court of Appeals, in a January ruling that said Memphis is obligated to fund the schools an additional $57 million, said, incorrectly and without attribution, that MCS "serves approximately 112,000 students."

Two weeks ago, Superintendent Kriner Cash told the school board the enrollment in the first week of class was 92,378.

By the end of that week, an MCS spokesman had reported that the enrollment was 96,678. And Cash said that late enrollees could bring the number to 118,000 or even 120,000.

If so, where do they come from?

Private schools? Not likely. Someone who can afford private school either stays put or transfers to a city optional school and reserves a spot as early as possible and gets to school on time.

DeSoto County Schools? Again, not likely.

"I see them coming this way," says DeSoto Superintendent Milton Kuykendall. His district cracks down on illegal interlopers, requiring proof of residency such as a utility bill, mortgage statement, or car tag. About 30 percent of those who get reviewed by the residency committee get booted. Some are from Memphis. But we're not talking thousands of kids making an exodus back to Memphis.

Shelby County? Maybe. Memphis annexed Chimney Rock Elementary and part of Dexter Elementary this year, adding about 1,200 kids. But no evidence suggests the county system, with 28 new schools since 1990, is bleeding students to MCS.

"Our enrollment is pretty stable," said SCS spokesman Mike Tebbe, who estimates it will exceed 47,000 this year.

That leaves the streets. If Cash's upper estimate is correct, than as much as one-fifth of MCS enrollment doesn't believe in starting school until after Labor Day. How they expect to learn anything is a mystery.

Or else MCS is padding the numbers. Either way, MCS has some explaining to do.

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