Friday, November 13, 2009

Municipal Securities and the So-Called "Real World"

It always amazes me to hear Series 7 classroom instructors tell students that the Series 7 "has nothing to do with the real world."

Nothing could be further from the truth. As you'll see from the link below, the Series 7 material that you're studying about municipal securities is unfolding right across the street from my office. Across the street sits an old brick industrial building that was almost converted into lofts, condos, and townhomes except that the real estate market--as you may have heard--sort of went south before they could sell any of the units. I watched a few work crews install hundreds of windows and sandblast the original wooden beams, but this project never even got off the ground after that. The developers borrowed $15 million with nothing to show for it, and the lenders have sued to foreclose on the property.

A very familiar story playing out across America, isn't it?

What does this have to do with municipal securities? As you'll see from the article at the link below, the local park district now wants to purchase that huge former industrial campus with our tax dollars and use it for office space and recreational facilities. They'll have to borrow a ton of cash to buy the property now in foreclosure, and they'll do so only if we taxpayers vote "yes" in February to let them issue these municipal bonds backed by an increase in our property taxes. If the majority determines that tax payers should pay a few hundred bucks more a year in property taxes in order to expand the park system, the bonds will be issued. If the majority votes "no," the issue will die temporarily, until the politicians can think of another plan. It's kind of shocking to see how the village played their hand on this one. The village dragged out the development of the "Roos building" painfully by requiring all kinds of variances and rejecting round after round of architectural changes . . . by the time the developers got the village council to approve the project, the real estate market had completely turned south and--oopsie--no interested buyers at this time.
Now that the building is in foreclosure, that same local government steps in to buy it at a discount. Then again, this is basically Chicago here. I mean, you can see the Sears Tower by stepping outside and looking to your right. But it seems like some pretty strong-armed tactics for a village government to take just the same.
In any case, if you'd like to see how the same Series 7 material you're studying is unfolding right outside my office window, click on the link below:

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