Commercial Real Estate Finance

Posts Tagged ‘unemployment’

In the earlier post regarding Sarah Palin’s train-wreck of a speech at ICSC REcon 2010, I mentioned that she should have talked about the legislation making its way through Congress that could potentially subject carried interest to the normal tax rate (currently 35%, could increase to 39.6% next year). It is currently taxed at the capital gains rate of 15%. The ramifications of this aggressive bill could be quite severe, or mild depending on your particular view. The end result could be good or bad for the American economy. In the rest of this post I will summarize the arguments for both sides, without much opinion (this is going to be hard).
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Much has been said regarding the economic downturn and its hard-hitting subsequent effects on the commercial real estate industry.  When economic forces such as unemployment, consumer spending, and housing all converge negatively on us, most sectors of income producing real estate were hit hard.  But why did we not see this coming?  Or maybe the better question is: Why were we not better prepared for this? After all, real estate is cyclical and the good times could not have lasted forever. While real estate metrics like cap rates, cash on cash return and price per pound are all very simple, yet static tools, why did the more diverse and complex metrics like internal rate of return, specifically designed to take time and market fluctuations into account, seem to fail us? Read the rest of this entry »

In a recent article in the Wall Street Journal it is suggested that while malls and office parks have suffered from the real estate swoon that has been talked to death at this point, there is a sector of commercial real estate that really has not been hit all that hard.  And it isn’t some niche asset class like medical office buildings or student housing, but rather a class of commercial assets defined by their lease structure, rather that the type of tenant they house. Read the rest of this entry »

Okay.  Maybe they are not actually making fun of us.  But if it was in their nature, this would certainly be a good reason to.  With all of the economic turmoil facing the broader U.S. economy (think businesses closing, unemployment in double figures), the Amish seem to have resisted the burdens of the recession much like they resist the convenience of electricity. And frankly, if I were a bank headquartered in the middle of Pennsylvania, or any of the other various traditional Amish enclaves throughout the country, I would be paying attention.  A lot of attention. Read the rest of this entry »

While many you have not even gotten to the ‘aftermath’ portion of the credit crisis, the federal government is busy not learning lessons with the benefit of hindsight.  Obama’s plan to funnel $30 billion to “small banks” is exactly the sort of central economic planning that effectively caused the crisis. Read the rest of this entry »

10. Tulsa (projected vacancy rate in 2010: 19.2 percent, up 2.2 percentage points from 2008). The oil and gas sector was an albatross in the 1980s, when Tulsa suffered from a severe energy bust. But in recent years energy (along with healthcare, aerospace, and government) has helped sustain Tulsa’s economy. Employment and economic growth are much better than national averages, and unlike in other cities, most big construction projects have stayed on track. With new buildings coming online, the overall vacancy rate will stay high until the economy fully rebounds. But it will worsen only slightly in 2010 and probably start to improve by 2011.

9. Pittsburgh (17.3 percent, up 2.4 points). This once industrial city wriggled out of the Rust Belt years ago, and the economy now revolves around medicine, technology, and higher ed. At 7.7 percent, the unemployment rate is nearly 2 percentage points lower than the national average. Few people got rich in Pittsburgh during the real estate boom, which seemed to pass the city by. But the bust has spared Pittsburgh as well, with home prices remaining more stable than in most other markets. That leaves the Steel City primed for a recovery. Read the rest of this entry »

Last week, the Wall Street Journal published an article citing a survey of 47 economists, the majority of whom said the recession is over and the economy had bottomed out. But the question remains: what does that mean?

Several key indicators must be examined in even considering whether or not a recession has ended. However, for the 247,000 additional people who lost their jobs in July, it seems more likely one could first find the bottom of a bottomless pit. This leads us to one indicator: unemployment. While the July unemployment rate dropped 10 basis points from 9.5% to 9.4%, this was due partially to a decrease in the labor force itself, as a greater number of workers have become so fed up with the job market they stopped looking for work entirely. Since then, the first two weeks of August have seen over one million Americans file for unemployment benefits. Read the rest of this entry »

Real Questions…

…. and Unintended Consequences

Question 1:

If you are a buyer of real estate (and actually have capital), what sort of IRR are you looking for? 20%? 30%?

Question 2:

If you are an owner of real estate, why on earth would you sell into this market unless you absolutely had to?

These questions succinctly sum up the entire commercial real estate market. Other statements examine facets of the problem, but they all revolve around this problem we’ll call, “The Bid/Offer Spread”.

Every day, the fund managers who still have jobs wake up, read the Wall Street Journal and say to themselves, “If I’m going to buy a property, I deserve a discount.” Any possible ‘green shoots’ notwithstanding, unemployment is high, the economy is in recession, global icons are getting destroyed (or taken over by the government), and the banking system as a whole is only viable because the Feds have stepped in with HUGE assistance programs. You can also throw in the fact that recent liquid market action (rally in gold, commodities and TIPS while the 10yr notes sells off ) is telling us we might even have an inflation problem in the not-so-distant future. Read the rest of this entry »