I traveled coast to coast last week making Emerging Trends presentations and here are some observations:
Real estate pros get increasingly spooked by the economic news. In particular, execs working in the capital markets show more frustration and angst. It's beginning to dawn on folks that heady transaction volumes enjoyed for most of the past decade won't be repeated next year, and brokers and bankers realize the fee-for-all is over for a while. The closer people are to the debt markets the higher the gloom quotient -- refi risk jangles nerves. Commercial developers naturally tend to be more optimistic -- they have no choice with projects going up. Skill sets become more valued for leasing, property management and workouts.
Investors in global pathway markets -- New York, Washington, LA and San Fransisco (where I made speeches last week) -- feel more insulated from the potential downturn. Core style properties in these cities offer downside protection, buoyed by solid occupancies and tenants locked into long-term leases. In tough times, DC investors always gain comfort from seemingly never-ending federal largesse. San Francisco rides momentum from resurgent tech companies and the West LA office market remains tight. Foreign tourists also provide a lift attracted to these prime U.S. destinations by the weak dollar. Amid the cacophony along New York's prime shopping streets, English sounds like a foreign language lately.
But office leasing momentum and upward rent moves have hit the wall for now. Even in the global pathway markets, recent investors who overpaid and over leveraged swallow hard as do their lenders. They know those overly optimistic pro formas won't deliver and the flipping game is over, eliminating easy exits. One San Francisco real estate advisor is knocking on doors of local owners he thinks may be in distress to offer capital resources. And he says he's making attractive deals. Rising cap rates and flagging growth in net operating incomes portend some value erosion.
It's time to accept we're in for a rough ride. The real issue is for how long and at what cost?
© Miller Ryan LLC 2007
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
