Big deals for class A office buildings in Boston, Houston and Chicago suddenly raise headlines about the revival of commercial real estate in the New Year. The CMBS markets show signs of life too, another positive sign. The New York Times even has an article about phoenix-like developers, who make new deals despite losing buckets for investors in the crash.
Unmistakably, markets have bottomed and the best prime properties in the leading locations have become targets for prodigious amounts of sidelined capital. That acquisition pattern started in the two top 24-hour gateway markets—first Washington DC in late 2009 and then New York as well as San Francisco, and now extends to less favored but top rated cities in a trickle down effect. No doubt it’s a good time to buy… up to a point.
But let’s not kid ourselves… dealmakers are still bummed out about the lack of opportunistic plays—the transactions that can provide promotes and big pay days in a few short years. The suburbs look dicey and little confidence exists about secondary and tertiary markets unless you’re a local player interested in some income and playing for the long-term.
And while markets ease off bottom, owners, borrowers, and lenders continue to tally up their losses and workout their problems following the recent debacle. The marginal recovery provides some hope and eases pressure, but hardly erases the monumental destruction of capital, which took place.
Despite the more upbeat (sales driven) Christmas season, the real estate demand side appears tepid at best. The big corporates sit on mounds of cash, much of it made overseas in low labor cost markets, not here. Why should they ramp up hiring in the U.S.A. when their outsourcing model works so well?
Wall Street’s value mirage machine needs a major tune up and shows few signs of accelerating any time soon. The big financial companies will do their best to gut new regulations limiting their vacuous trading activity and the M&A guys are back trying to revive the old formula of buying, refinancing, downsizing and finally repackaging companies for a quick score. The hedge fund crowd has been revealed for what they are--a bunch of speculators, who lose money as easily as make it. They can’t create the same magic in an anemic economy with restricted credit and the specter of higher interest rates.
At the same time, many states and local governments face bankruptcy unless they can abrogate unsustainable public pension agreements. Healthcare costs increase as more companies push more of the burden onto workers, and the housing market shows no sign of an immediate turn around. Mortgage rates are increasing when people just don’t have enough equity for even reasonable down payments. Oil prices surge, because Asian industrial powers increase demand—gasoline prices increase eating into the car-driving public’s pocket books while threatening to inflate prices on most everything else, especially food.
Yes, it’s getting better. But as the Beatles song goes—“It’s getting better, can’t get much worse.”
Hope you have a great 2011—hey maybe you will.
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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.
