Warren Buffett makes his bets (on GE and Goldman) and proves once again in tough times cash is king -- he's in a position to make what could be big scores. On the other hand if you are in a debt driven business or have used a lot of leverage on your investments you are more likely to be flat on your back. The Washington rescue/bailout package may prevent systemic collapse in the credit markets, but won't change dramatically the gloomy outlooks for folks who had been playing the debt game. Necessary deleveraging will take time and deeply pain investors who borrowed too much and surviving lenders who ramped up volume at the expense of underwriting discipline.
And despite the significant damage already suffered across the credit sector, commercial real estate has yet to take most of its lumps. Appraisers characteristically have been gazing in the rear view mirror. Just a few weeks ago, a well-known appraisal honcho was telling me about how income numbers were holding up in most institutional portfolios "through June 30." Well, how about looking at the next few months. Let's hope the credit scare abates, but no one should expect the lending spigots to flow again as unemployment ramps up and the government comes to terms with the fact that the country is essentially busted. The scary thing is that so many Americans have been living (large) off credit. The home equity lines, attractive car financing, the credit card deals --it's all over. Now what does everybody do to keep going when they are in the red and lenders out of self preservation start to turn the screws?
As previously noted, more retailers will be toast. Office rents will decline. Warehouse activity sinks. And housing... please. How many people will have enough equity to buy homes in this environment under normalized (stricter) lending guidelines? Not enough to spur any rebound.
Let's not kid ourselves -- the last few months represent an unprecedented crash of the debt markets and the way we have done business for the past generation -- borrow and consume. It was unsustainable. Now we must shift to paying off our debts, creating new businesses and industries, and adding value once again to the world economy. It may not take a generation to recover, but the next President has to hope things are looking better by the next election, and that's no sure thing.
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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.
