Fitzgerald noted that the supply and demand cycle is getting out of balance, consumer confidence is at a 16-year-low, and "you have over-financing and when those stars align, you have a recessionary environment in commercial real estate." You have overbuilding, which seems to happen and hyper credit, which always seems to happen." He further explained that "if you looked a year ago in the CMBS markets, you had securitized lenders lending 80 to 90% on 100% vacant facilities across the country at non-recourse…also at fixed interest rates. It's out of balance. The thing that's going on today, a year later, is that we are back to a normalized or standard underwriting procedure. The people lending into these value-add situations are the commercial banks. For a long period of time, people were used to underwriting their facilities with fixed-rate debt and that's not the case anymore."

He said that if there is a piece of good news, it is that "we have that there's a slowdown in the market for space, but deals are still getting done. Users who have been into the market have been in a situation where they need more space or a new lease, but need a higher level of approval. Leases for example are still getting signed, but it is taking longer for transactions to get done because everyone is now being mindful of that next expenditure."

When asked where the best bet is to put money, Dunkelberg said that on the residential side, he would look to distressed water properties. "Other than that, I would have to start looking at where the growth is going to be. Perhaps the outskirts of Philadelphia to see where the new centers are coming in and where the population will be and be there and invest in that."

Fitzgerald said that his strategy is to look for assets that have a short-term rollover. "You need to be able to carry a property through two or three years of lease-ups. You are buying at prices that are 15% less than last year, but you need to make sure you can weather the storm.

Dunkelberg said that buying existing assets doesn't grow this economy. "What we are interested in is; are you going to build new ones, and I think that is what's going to be depressed for a while."

As far as what to expect for Philadelphia's future, Fitzgerald said that it is important to "figure out a way to make yourself competitive relative to the competition. If we find ourselves aligning with our competition, what can the city do relative to those competitions so that people want to move here and so that businesses want to locate here?" He said that "it is important for the brokerage industry to get the deals done that you can get done today."

Dunkelberg said that "what's good for our region is the structure of our business sector. It is very professionally oriented. The growth with the local Universities provides great economic growth as well. "I am optimistic about the next four to eight years with the Mayor. …We can't change the reputation of Philadelphia in a year, but it will happen. We do have a stable economy, and that is something that not a lot of cities have. The Philadelphia economy change will be muted compared to the rest of the economy."

Instant Insights /

Economist: Local Change, Muted in Comparison

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