News
FORECAST: SUNNY
January 12, 2011
| Did you trudge into the office today? Stay home to build a snowmanwith the kids? Send us your snow pics and stories for tomorrow’s issue! In the meantime, we’ll warm you up with bullish industry forecasts we heard across the board yesterday. |
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| Our first stop was the Foundation for Accounting Education’s real estate conference at the Marriott Marquis, where we snapped the CEO panel: Monday Properties prez Anthony Westreich, Sterling American Property co-CEO Michael Katz, and Cushman & Wakefield’s Janice Stanton (wearing her Bruce Mosler hat). Michael says we’ve hit bottom and the only way to go is up. Money will burn a hole in your pocket if you don’t invest, and job losses have stopped, encouraging people to sign office leases, establishing rents and values. Janice says last year was the return of the mega deal, with 16 global deals worth $1B or more, including Google’s $1.8B purchase of 111 Eighth. She expects investment volumes toincrease another 50% this year. |
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| Moderator Michael Rosenblatt of The Quest Org and FAE committee chair Daniel Rosenberg of Sterling American Property join the speakers. The industry has raised so much opportunistic money and it’s “use it or lose it” time, Janice says, but she’s concerned about the “bar effect” (everything looks good at 2 am). Anthony says these types of transactions could cause a false- positive environment that brings too much investment demand—it’s difficult to be a buyer in an overheated environment. But there’s very limited development, and the office sector experienced a huge rental spike in the past quarter, he says. With decreasing concessions and vacancies, we’re heading back to a landlord’s market. He’s bullish about future office demand, and predicts further rent increases. |
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| We then dropped by Club 101 for the local Appraisal Institute andCounselors of Real Estate chapters' annual economic forecast luncheon. Before the presentation, Appraisers and Planners’ Ruth Agnese had a special recognition for Deutsche Bank’s Alex Hesterberg—the Appraisal Institute’s first-ever national lifetime achievement award, which she accepted on his behalf during AI’s annual meeting in Miami Beach. Ruth and industry colleagues, such as Cushman & Wakefield’s Brian Corcoran and Argus Software’sBruce Kellogg, shared touching, often humorous anecdotes about Alex, praising him for his dedication, service, tenacity, and high ethical standards over his career. The humbled Alex responded, “Each and every one of you take a little piece of this... but I did get it, and I’ll keep it.” |
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| Groton Analytics principal Anne Covell and Moody’s Economy.com chief economist Mark Zandi then brought an extra dose of positivity to the event with their forecasts (here, Anne and Mark, second from right, join Greenwich Realty Advisors’ Howard Gelbtuch and Metropolitan Valuation Services' Steven Schleider.) In NYC, jobs have begun to recover, and overall, we didn’t lose as many as 2001’s recession, Anne points out. Rents are heading back up, with Midtown Class-A rents now over $70/SF. Eight million SF of new office space is underway or planned for the next two years. Even so, we’ll continue to see rents rise and vacancies drop below 10% by ‘13. Last year, NYC also saw its highest number of tourists ever—48.7M—which hopefully will bode well for the 15k hotel rooms proposed or planned over the next three years. |
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| Mark, fresh off of delivering another forecast that morning to ULI New York, opened by saying he was more optimistic than most economists. Why? US businesses are in good shape, with profits surging. This should be followed by jobs, he notes. Households aredeleveraging, which is turning the credit cycle. The banking system is profitable again; it's looking for lending opportunities and the credit spigot is opening. Pent-up demand for goods and services is developing, and monetary and fiscal policy response has been successful and will remain aggressive. He did, however, express concern for the continuing foreclosure crisis, a European debt problem threatening to boil over, and uncertainty over China. |
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| And yesterday evening, Alix Partners senior advisor Dennis Yeskeymade his sixth annual appearance at NYCREW’s forecast event, where we snapped him with GE Real Estate’s Kathleen Carey, Crowell & Moring’s Barbara Champoux, and Marcus & Millichap’sKaren Dome in Crowell’s Madison Ave offices. This has been Dennis’fifth career downturn, and he opened with good news—this economic recovery is slightly ahead of the past three recessions. Although ’09 was not a good year, this recession was “a crisis that was a non-crisis.” We didn’t experience the expected massive sell-offs, workouts, and bankruptcies. And unlike the early ‘90s (when “you never told people you were in real estate”), our industry was thecaboose at the end of the train. |
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| So don’t expect a double dip—just a long, slow, and bumpy jobless recovery, Dennis says. The past five downturns also didn’t have as much capital on the sidelines, which totals $1.1 trillion, from private investors, pension funds, foreign investors, life companies, REOs, and public REITs. Values are recovering quickly for select properties and markets, particularly Class-A apartments, CBD office space, and some hotels and retail. He was particularly bullish on NYC and DC. On the bottom of his list? Land, Class-B and C apartment buildings, gaming and related hospitality, resorts, second homes, and suburban offices. Overall, the economy is switching back to a normal recovery, and he’s been more optimistic these past six months. “Commercial real estate is still attractive,” he says. |
