Still waiting for things to look up

Six months ago we were looking forward to summer in anticipation of measurable economic improvement. While things do not seem to have gotten worse, they are only slightly better. The pundits have pushed their forecast for recovery in 2011 (and several into 2012 and beyond). I find the discussions, dialogue, columns and articles all interesting, but I have yet to find a solid explanation and prognostication of when we are truly going to start the up cycle.Those proponents of economic cycle theory talk about seven-to-eight-year real estate cycles (peak to trough). But with such fancy econometric modeling capacity, now we see downside scenarios, upside scenarios and base scenarios all overlain on top of the curves from the early 1990s. Of course, that was more of a regional downturn (the Texas and Southwest savings and loans along with the New England banks and real estate). Today, every area in the country is underperforming. In our world, commercial real estate, “The Insider’s Perspective” article in the most recent Real Estate Issues quarterly journal was titled “Emerging From the Rubble!” Ken Riggs concluded in the final paragraphs:”The commercial real estate industry will continue to experience challenges and obstacles in its path to recovery, and Real Estate Research Corp. expects commercial real estate values to continue to decline at a measured pace throughout 2010. Going forward, the commercial real estate market’s focus will be on how far values and eventually prices will decline from their peaks recorded in early 2007. … We estimate that institutional commercial real estate will see a peak to trough average loss of 35 to 45 percent. …”Ugh! It’s hard to sell investment real estate with that forecast staring us in the face. However, there are always users needing space – some more space and, today, many needing less space.The other side of the equation is that both institutional investors and many regional banks are less able to “extend and pretend.” Plus, investors seeking market opportunities will find later in 2010 and on into 2011 (and perhaps 2012) a good time to buy high-quality, well priced, long-term investments in commercial real estate.Our potential investor clients are determining what property types in which geographic areas are of most interest to them. We’re then connecting with the local banks (as well as the big regionals) to apprise them of our client’s interests, resources, capacities and appetite. Next summer we will report how this all played out (or is continuing to play out).For those clients in the service sectors, business appears to be OK, but not great. Like us, many find themselves maintaining revenues and income, but doing so by servicing more clients and customers with smaller projects and needs. We are averaging 10 client projects a month versus perhaps four or five a year or two ago. The revenue is steady, but the workload has doubled. With young ones in college, one does what one has to do. But the economy is anemic, some of that is attributable to a handful of major disincentives emanating from Washington, which are likely to stifle solid levels of U.S. job creation in coming months and yearsConsider: Higher and higher health-care costs for employees, with more and more complex and costly government mandates to come; sharply higher taxes on the horizon (state and federal income, capital gains, dividend tax, etc.); states and municipalities are increasing fee income to offset declines in sales taxes, property taxes and income/(business and personal) taxes; and out-of-control budget deficits.While U.S. households are clearly saving more (and thus spending less) household net worth is still down 17 percent from the peak of $65.9 trillion in the second quarter of 2007. It is going to take a while to get back to that level.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