The economic numbers are almost beside the point aren’t they? If we are not technically back in recession, realistically we are. And we really haven’t been out of recession since the crash.
What growth the U.S. economy mustered, coming out of 2010 into 2011 was stimulus related, and since stimulus has dropped off, we’re back in the dumps. All the public sector budget slashing will continue to make things worse—yes government bleeds with inefficiencies that need to be corrected, but keep in mind when we cut government budgets, we reduce jobs—not only government jobs, but private sector jobs funded by government contracts in construction, defense, not-for-profits, and many other businesses which employ a lot people.
That’s helping keep unemployment up and consumer spending down. If you want to see what government austerity precipitates, look at the UK, which is slumping headlong back into technical recession.
Cutting out all the political B.S. and the economist mumbo jumbo—the jobs picture won’t improve until income and related wage rates sink some more so American businesses become more competitive in global markets; and people and the government have a chance to eliminate crushing debt service loads, which rob spending power. It’s finally dawning that this process will take many years and not just the next election cycle.
In the meantime, welcome to what amounts to chronic recession. In real estate that translates into tenants getting great deals and moving into the best space they can afford, rents flattening and not moving much from currently depressed levels, lesser quality properties languishing in obsolescence, and a lackluster transaction market where static pricing produces little incentive to sell or buy. Better capitalized players will have a significant edge in maintaining properties and attracting tenants, earning decent cash-flow returns without much appreciation pop. Under-capitalized owners risk revenue erosion—their under maintained properties start to look more threadbare, and they can’t compete on tenant concessions.
The only property sector which performs well is apartments. It’s basically the perfect recession play since more people cannot afford to own homes. But investors should realize at some point they will not be able to keep pushing rents—their tenants will be constrained by income and benefits erosion; and developers will put up a lot of new product in the next three or four years, eventually softening the market.
Now today I read that Ford’s board has granted its CEO a $50 million bonus for slashing jobs, cutting worker benefits, and making the company profitable again. Would it be better for the economy, if Ford were just as profitable, but the Ford guy only made $5 million or $10 million a year (you think he could get by?) and the company hired $40 million or $45 million worth of employees, who maybe weren’t as productive, but at least had incomes to pay off mortgages, buy some more at malls, and take a vacation trip to some hotel once a year? Or maybe Ford could spend some of that CEO bonus on putting solar panels made by American companies on its factory roofs or invest more in battery cells for electric cars or various other initiatives that would employ more people in ways that might enhance our economic futures? You think there might be better ways to spend a corporation’s money for the betterment of more people and the country as a whole than giving one guy an outrageous pay check? You think?
In the meantime, 40% of the population has no savings or wealth to speak of and the poverty rate is nearing post Depression era records. Incidentally, most of these people—nearly 120 million Americans-- won’t be able to buy a new Ford unless some bank or finance company extends them more credit that they won’t be able to pay off.
It’s a path going nowhere fast.
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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.
