The irony is commercial developers and construction lenders had been relatively disciplined in the recent run up. There was little pure spec office development. It was hard to build new hotels. Big projects especially were difficult to finance even when lenders were throwing money at just about anybody with their hand out.
But that doesn't matter now. Land values continue to drop while prospects for meeting project proformas have been shattered. Prime office tenants--financial companies, law firms, media companies--chop bodies left and right and vacancies shoot up. The always volatile hotel business suffers through a particularly sharp decline. Anybody with a spanking new project ready to open must be under water.
You know things are really bad when contractors and labor unions cut prices to get some projects off the drawing boards. But how low will they have to go to make it worthwhile for developers to take the chance?
Pre-leasing isn't in the cards for office developers. Will lenders go along in the current credit environment? No way. Anybody ready to build a hotel today should be taken out of their misery. That's a non-starter.
Of course, condo product is in freefall. The debacle which started in places like Miami, Las Vegas, and Atlanta now hits New York, Chicago and other big cities. Any recently completed project bleeds red ink. These places won't need new residential highrises for five years or longer. In the meantime, does anybody need an apartment at a cut rate?
The contractors and labor guys should start focusing on infrastructure projects. That's where the action will be over the next five to ten years. And the government will be paying the bills.
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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.
