As we sink into August doldrums when everybody goes away andsummer days get more precious, uncertainty and pessimism cloudoutlooks and depress temperaments. Reality sinks in—at best theeconomy will struggle to gain traction, jobs growth will remainrestrained, and demand for real estate will be sluggish. Even withtons of stimulus, second quarter GDP growth backtracked and FederalReserve code words continue to signal that the financial system isonly slowly recovering from its deep hemorrhaging with no quick fixin sight. Delay in raising interest rates means only one thing:we’re still in the crapper.
The good news for many on-the-edge borrowers has been that banksare still too wounded to pull the trigger on defaults and startforeclosing. But now everyone begins to realize the day ofreckoning has only been delayed for many real estate owners. Thecrummy economy means only one thing—there’s no escape from pain.The time approaches when regulators, banks, special servicers, andborrowers will realize the losses. But given the monumental size ofnecessary write downs, it looks like the agonizing process may beextended over years to keep from undermining confidence in theentire financial system. A sudden recalibration would be just toomuch of a shock to a debt ridden government and many overleveragedtaxpayers in addition to all those depletedbankers.
One group in control of its destiny already has taken itsmedicine and appears in a recovery mode--pension fund managers ofopen end core funds. Over eight quarters beginning in 2008, many ofthese funds registered severe losses ranging from 30% to more than40% on diversified portfolios of office, retail, industrial,apartments and hotels. Some fund managers now think appraisers mayhave been too brutal especially in the wake of a recent feedingfrenzy by backlogged capital looking to buy anything that’s wellleased with stable cash flows. These advisors anticipate 2010calendar-year total fund performance—from income andappreciation—can vault into the low teens with solid value upticksextending into next year. After wanting out of these core accounts,pension fund plan sponsors reverse course and begin to queue up toget back in.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
