Experience is the best defense in recessionary times
We have all survived the first three months of 2009 and the first two months of the new presidency. The stock market continues to oscillate. Home sales are not brisk, but the Northeast is in much better shape than some regions. Unemployment continues to climb. The pundits are split. One half still say we will see improvement before the end of 2009, while the other half say it won’t come until sometime in 2010. The immediate focus is on the details of the stimulus package and specifically what dollars are coming to the states, when.
The stimulus is focused on jobs, specifically “shovel-ready” infrastructure projects. Large transfers to states to shore up Medicaid and unemployment payments also help from a current cash flow perspective. But if unemployment continues to climb to 9 to 10 percent nationally and 7+ percent in New Hampshire, does all the spending help?
The $80 billion to help homeowners over their heads feels good at first blush, but the details are thin, and deploying $80 billion so quickly spells trouble when it comes to efficiency and accountability. The Republicans are taking heat, maybe justifiably so, for not supporting the president’s agenda, but having reservations about spending so much money so quickly is not just partisan politics, it is a very valid concern.
I do not envy the Democratic majority having to lead in this very dicey and stressful time, but the stimulus spending in New Hampshire is only predicted to create 16,000 to 17,000 jobs, which is almost exactly how many jobs will be lost if we hit a 7 percent unemployment. This has something to do with the law of big numbers: “a billion here, a billion there … “
My angst comes from the lessons learned from observing Japan over the last 19 years. Japan was and is the world’s second-largest economy. The statement that stagflation couldn’t happen here is troubling. Again, the global economy is so complex, it is possible (not necessarily likely) that anything could happen.
We are out daily talking to customers and clients as well as potential customers and clients about real estate. But those conversations quickly turn to their underlying business. If business is off, if they are laying off workers, they either do not need all their space or they need to cut their occupancy costs. Helping firms identify and execute cost-saving measures is one of our skills. At the same time, following an extensive run-up in commercial real estate values since 1995-96, there is pent-up demand from those looking to purchase real estate at more historically normalized prices and values.
Getting a realistic/workable housing and residential mortgage strategy in place is a key first step. As Dennis Delay of the New Hampshire Center for Public Policy Studies recently said, we need a turnaround in housing that is not artificial. Following that, recalibrating commercial real estate values and mortgage parameters is the next step to finding the bottom and getting folks comfortable with investing in this important sector.
While this current situation is not the result of the same causes that impacted commercial real estate in the early 1990s, the workout strategies and tactics may be very similar.
Today, there are over 8,000 federally insured banking institutions, and that number could decline to 4,000 by the time this economic crisis is over. We have already seen the arranged mergers and takeovers of a number of lenders. This will continue over at least the next 12 months.
One thing about President Obama — he is bright, and while he has gathered very smart people around him, he will not be afraid to change course if the initial programs are not showing results. Once we find bottom and the stimulus dollars get traction, commercial real estate values will rebound.
Bill Norton, president of Norton Asset Management, is a Counselor of Real Estate (CRE) and a Fellow of the Royal Institution of Chartered Surveyors (FRICS). He can be reached at firstname.lastname@example.org.