Making lemonade out of lemons

The other day a client asked me, “How is it going? Are you busy?” I replied, “We find ourselves busy doing 10 $3,000 jobs/projects instead of three $10,000 jobs/projects. The revenues are level, but the workload is double.” Then the light bulb went off in my head because, as I have shared this with various people, they simply nod their heads in agreement. They too, are working harder to generate the same revenues.We are not out of the woods yet, relative to commercial real estate. We have received several calls for assistance from banks now having to deal with troubled commercial real estate loans. Frankly, we have anticipated such calls for more than two years and we had anticipated quite a volume by now. Not so far. But the ongoing Great Recession continues to linger, and job recovery is anemic, so firms are coming to realize that they not only do not need so much space, they cannot afford it.To quote Jeff Thredgold of Thredgold Economic Associates, “Constraining a more impressive economic growth rate are sluggish residential and commercial real estate valuations and soft demand, historically high unemployment, and consumer anxiety about ever expanding government and mind boggling budget deficits … numerous forecasts have been downgraded in recent weeks, mostly tied to European financial challenges.”Jeff states that for the first time since the Great Depression, total job losses during a recession wiped out total employment gains during the prior expansion and hundreds of thousands of jobs in construction and manufacturing are lost for good. Ouch!More importantly, the future path is not clear. Inflation versus deflation? The pundits are equally divided on this one. More of the critical analysis comes from academic economists and economic historians who do not have a point of view or spin to push. Many corporate and bank economists, as well as those working in government, cannot or will not speak their minds for fear they will be chastised for being too negative.Back here on Main Street, we are not sure what the short-term future holds. We are working hard — in fact, we are working on projects that two years ago we would’ve declined. But at least we are working and we are busy. When the going gets tough … adversity brings opportunity!A recent e-mail newsletter stated that until the overall economy rebounds there will be no meaningful recovery in the commercial real estate industry. But there are other opportunities for real estate professionals, such as managing troubled asset portfolios, creatively refinancing loans and acquiring assets that cannot be conserved by owners.

One constant factor

For those of us who have worked in these vineyards for years, we have seen many cycles. Commercial real estate becomes in short supply during a growth cycle, rents increase and profits increase. This invites competition, so new players come into the market, or existing ones build more buildings, the shortage of space becomes a surplus or even a glut, the economy turns down and the cycle nosedives.The one constant factor is obsolescence. Buildings age. They leak, grow mold, their HVAC systems become less efficient, they do not have enough electrical power for new technologies. So, some buildings no longer can compete. They change uses — perhaps an office tower becomes a residential condo building or a former Wal-Mart (replaced by a Super Wal-Mart) becomes a community center. The point is that over time there is always change and some upgrading of the building stock. The sector is dynamic.But that does not mean that someone who bought a building for $100 a square-foot in 2005, which can be replaced with a brand-new building today for $70 a square-foot, is excited about investing in commercial real estate. In these challenging, trying and uncertain times, having an experienced, veteran real estate adviser at your side is well worth his or her weight in gold (at $1,200 per ounce, that is a topic for another column!).Bill Norton, president of Norton Asset Management, is a Counselor of Real Estate (CRE) and a Facilities Management Administrator (FMA) with the Building Owners and Managers Association. He can be reached at