At a client meeting last week, a top broker asked me when we would see "some good news." Come to think of it, I´ve been writing this blog since November 2007, and it´s been all downhill since then. I asked him what he thought---he helps oversee a 1500-plus nationwide network trying to source deals. He said he didn´t know, but except for a few isolated markets-like San Francisco and maybe Washington DC, most places are still bottoming. He added until players are comfortable about a turnaround, the transaction markets will remain compromised. Well, that´s certainly the conventional take and makes sense.
So what does that mean for timing a recovery? Well, it´s still a good bet that commercial markets will stop falling during 2010. The big pension fund accounts have taken huge write downs, approaching 40%, on their institutional quality portfolios. They may lose another 5-10% before they´re done, but most of the depreciation is already out of the way.
Now keep in mind, the commercial real estate markets trailed housing and the stock market into the tank by a good 18 months to two years. Housing arguably hit bottom about a year ago and struggles for any lift. The stock market began a bull run last spring reversing part of its steep fall. The lag suggests commercial properties will bottom out during the second half of the year-higher quality properties before B and C. The bigger 24-hour hour gateway markets will recover more quickly-that´s why San Fran and DC appear ahead of the curve. New York will be an early convalescent too.
But crashing out is one thing, what about the rebound? Will commercial markets mimic housing´s trough of pain and stay down for an extended period? The jobs situation will be the key, as I´ve been saying repeatedly. You´ve got to believe that hiring will pick up by summer. The first half of stimulus has been spent and that basically cut the losses. The next half will flow through the system over the next year and that should start to push down the unemployment rate. Tempering some jobs gains will be cutbacks by state and local governments, who need to balance budgets-more public sector jobs and jobs that rely on public sector funding will get slashed over the next nine months. That just won´t be helpful. In effect, one government hand (the states) reduce jobs, while another (the Feds) will need to increase payments for unemployment. Either way that´s not going to fill buildings or prompt a major uptick in consumer spending.
The stimulus funding has bought time, but hides the fact that the private sector shows few signs of ramping up hiring. Financial sector regulation likely will clamp down on practices, which had created lots of jobs for mortgage brokers, traders, and dealmakers in the go-go days.
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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.
