Norton on Real Estate: Batten down the hatches for the long haul

It’s likely that 2009 is going to be as stressful as the last half of 2008.

The markets, local, regional, national and international, continue to be in disarray. Here in New Hampshire, we continue to beat the drum that we are in better shape than the other five New England states, but that is beginning to ring hollow when the unemployment rate will hit 7 percent, which is low compared to others, but very high for New Hampshire.

This was confirmed by a recent presentation to the New England Counselors of Real Estate in Boston by Bob Tannenwald, a vice president of the Boston Fed and director of its New England Public Policy Center. The high level of entrepreneurism, high education levels and relatively good age demographics continue to make New Hampshire New England’s star performer.

The state budget is a mess. Once again we look to Washington to bail us out of significant budget shortfalls. Public education, K-16, health care and crumbling infrastructures are all big-ticket items. Infrastructure stimulus priority lists should include water and sewer projects as well as highway and railroads.

There is great hope for President Obama. Lord knows his plate is more than full. No honeymoon period for him (or us!). The Fed has dropped interest rates as low as they can go. We have dropped interest rates. There is talk of tax cuts and, of course, stimulus spending to the tune of another $800 billion or more (on top of the bailout’s $700 billion). The deficit for 2008 and 2009 and maybe 2010 are forecast to be a trillion dollars each!

There appears to be a consensus that we need to pull out all the stops and stoke the furnace to heat up the economy. This is the number one priority. But can we dictate consumer, corporate and global behaviors? Don’t we want to hit bottom or be near it before we put the pedal to the metal? Don’t consumers and businesses need to sense that there is in fact light at the end of the tunnel before their confidence returns? Should we keep some powder dry in case this economic engine fails to jump-start?

More rough waters

I do not know the answers to these questions. My business partner and I have battened down the hatches. We see a very difficult year in 2009 and most likely the first half of 2010. While our focus is real estate, people and businesses need to have confidence that the business cycle has turned and things are improving before they hire new employees, lease or buy more space and invest in new equipment or technology.

The risk is that if we put all the government’s chips on the table we need to make sure that all of the players are in the game and ready to play. So while there is political urgency to do something – anything — it is not clear that rushing everything is the optimum strategy. With majorities in the House and Senate, the Democrats may choose to act before the right actions are defined. (Where did the first $350 billion of TARP money go?)

As I said, this is very complex and I cannot discern a clear path. For commercial real estate, prices haven’t softened quite enough yet. They will in mid- to late 2009. But for users, the cost of money may go up. So perhaps the first half of the year is optimum if your core business is solid, your customers are upbeat and you have the ability to tough out the next 24 months.

For investors, it is a little more dicey. Availability of funds is one thing, but the underlying credit and stability of tenants is key. Five- or seven-year leases should get one through this deep correction with upside in the 2014-2016 period.

This recession is different — more intense, because so many sectors are under stress. So there are more rough waters to come, but by late 2009 we should be through the rapids and begin to settle into calmer waters.

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