Norton On Real Estate: Economic history is repeating itself

I recently had to participate in a “summit” and speak about what opportunities may be pending for commercial real estate in the next two to five years. At first blush, that should be easy. After all, commercial real estate is what we do at Norton Asset Management Inc. Alas, things are far from clear in the current economic haze. The last several weeks have been a financial, fiscal and investment roller coaster.

In this and similar columns over the past year, I have remained optimistic and positive. The glass is half full, not half empty. I have repeated, over and over again, that New England is doing OK. The mix of services, government, medical, electronic R&D and defense has kept the region above water. This is not to say that all is rosy. In fact, there are several concerns in front of us.

In New Hampshire, we are losing population. Currently it is a trickle, but it is negative for the first time in decades. We are not creating jobs. Those few jobs we are creating are at Wal-Mart and other big box retail stores, although this too is grinding to a halt.

The number of jobs is one thing and the quality and pay scale of those jobs is another. Young people struggle to find 40-hour-a-week jobs with benefits. Most are offered part-time positions with little if any benefits.

In the real estate world, it takes jobs to fill buildings. Fewer jobs translate to higher vacancy rates, which leads to lesser values.

Energy costs are rising. The leaves are turning, and fall is here. Behind fall is winter and those nasty heating bills.

Transportation costs are up. Gasoline has dropped back to $3.40-$3.60/gallon, but this is temporary. When crude oil trades over $120 a barrel we will be facing $5 gasoline in the not-too-distant future.

The housing sector is in disarray following the subprime mortgage bubble. One economic pundit predicts over 500,000 residential foreclosures nationally in the next two years. Ouch! Perusing the Sunday papers this summer, very few houses over $300,000 were trading. There was a burst the week just before school started, but most of the activity has been under $300,000.

Here in New Hampshire, the state budget is in deficit. The same is true for cities and towns.

A perfect storm

So how long will all this last?

When pondering the future, it is important to consider the past. We in New England have had a good run since 1994, after we emerged from the real estate and bank debacle of the late 1980s and early ‘90s. Those were dire times, but we did bounce back. And we will bounce back from this correction as well. My best guess is that we are in for two to four years of rough sailing.

It is somewhat of a perfect storm because the rough waters are in our consumer/household budgets, our local economies (public and private) and our national/global economy. Solutions are much more complex.

Over summer, I read a biography of Andrew Mellon by David Cannadine. From 1928 to 1932, Mellon served as secretary of the treasury. The Roaring Twenties were ending. The stock market was in a very speculative bubble condition. Global commodities prices were up and down. Global political tensions were increasing. Herbert Hoover, the former secretary of commerce, was uncertain about how to calm the markets and get the country back on track. Deja vu all over again!

I cannot tell you how precisely this will unfold, but it will get worse before it gets better, and then we will figure out how to put it back together, as we have in the past.

This is not to say that things will be as they were before. One example is gas at $5 or $6 a gallon, which will change living, commuting and consumer behaviors. There are several more.

As John Wayne used to say, we are burning daylight and it is time to put our shoulder to the wheel and do real work — walk the walk, not just talk the talk.

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