May
13
The market seems to be getting better. The amount of “Potential” energy in the market is encouraging. Billions of dollars have been raised by large private REITS, pension funds and mutual funds and these dollars are just itching to be invested in commercial real estate. The problem is that there’s nothing to buy. Sure there are a few transactions here and there but to put a finger on where and when is something akin to the “Whack-a-mole” game at your local Chunky Cheese.
Prices of commercial properties are up a bit and loan mods are up as well. It’s widely expected that banks will continue extending loans rather than selling off the debt at a discount. Banks can’t take the large hit to their capital that selling of debt and foreclosure would cause. Because of this behavior investors are kept on the sidelines which ultimately dampens what would otherwise be an extremely actively acquisitions market, the likes of which hasn’t been seen in years. A market that would generate enough activity to promote job growth.
Those in the know believe banks will maintain their “extend and pretend” strategy; In a recent study by Gary Koster, global leader, real estate fund services in Ernst & Young’s New York headquarters Ernst and Young “30% of U.S. respondents expect banks will continue to extend loans. By comparison, 47% of U.S. survey respondents believe that banks will begin to sell off their troubled loans at reduced valuations and 23% think banks will foreclose on the underlying real estate this year.Thirty percent expect banks will continue their “extend and pretend” strategy.
“Survey respondents believe that the “extend and pretend’ strategy will be the dominant strategy but it will slowly change and they will get pressure to clear their portfolios,” Mr. Koster said.
That pressure to clear their portfolios is the catalyst that we need in this market. It will be the “Tipping Point” that resurrects commercial real estate. Be prepared for musical chairs as executives migrate from firm to firm trying to be on the ship with the strongest rudder (strongest ability to raise cash and execute transactions).
Present job front: At GES we have seen land grabs and entitlement activety start to increase dramatically. Many of the large public residential builders are starting to hire again (slowly). Their faith in the market recovery right now is timely. Apartment and Hotel owners/builders are starting to move as well. I still feel we’re a few months off of a decent hiring stream but at least the news is moving in a positive direction. Most of the opportunities ahead will be comprised if Investment, Acquisitions, Asset Management and Entitlements.
We’ll soon be singing “Oh thank heaven for 2011”
Attached is a copy of the US Employment situation. Click twice (once on this page and once on the next) for expanded view. It shows that retail and construction job growth is starting to go up.
Retail and Construction job Growth
