Economic Update-Property Investors Now Looking for Bargains?

Commercial real estate is experiencing sluggish deal volumes, uncertain valuations and the gathering clouds of properties that need refinancing toward the end of this year and 2010–without the assurance that lenders will actually want to step forward and do those deals. What’s a potential property investor (there is money out there) to do in such a climate: sit on the sidelines or assess the risks, and wade into the market? “There are absolutely risk takers today, but they’re mitigating that risk somewhat by looking for deals,” Peter Lynn, co-founder and co-principal of Chicago-based brokerage Building Equity, which specializes in commercial property investment sales, told CPN. “To make a move in the market today, an investor is going to need a significant discount to line up financing for the deal.” Lynn adds that such risk-takes are still outnumbered by bench-warmers, who may regret such timidity later. “If they purchase now, the value of the asset may go down a bit in the next six months or a year, but in the long run, the return will be significant,” he said. “Down the road, I think when people look back at this time, they’ll think that this was a great time to buy.” Among those out looking for properties, multi-family is still the asset of choice. But maybe not for long. “If unemployment levels continue to rise, that would negatively impact the multifamily sector, and investor appetite may shift,” Lynn said. At the end of the day on Monday, U.S. Treasury Secretary Timothy Geithner was said to be “tweaking” the second part of TARP, with the nation hoping that he pays more attention to its details than he did with his tax returns. Reportedly the creation of a “bad” or aggregator bank to vacuum up toxic assets, including the mortgage-backed-security variety, will not be in offing. Meanwhile, President Obama was on the stump in hard-hit parts of the country for his stimulus package, essentially warning the nation that without action, more of the country will look like Elkhart, Indiana, where he spoke. Currently Elkhart, called the RV capital of the World by boosters, is suffering from 15.3 percent. Most Republicans in Congress seem to be unimpressed by the president’s pitch, but the bill seems likely pass the U.S. Senate anyway. Were the markets impressed by all this high-level activity? Maybe not. The Dow Jones Industrial Average yo-yoed around all day Monday and ended up almost where it started, down only 9.72 points, or 0.12 percent. The S&P 500 gained 0.15 percent, while the Nasdaq lost a minuscule 0.01 percent. The impact of lower U.S. retail sales is now clearly being felt in the distribution industry, which is bound to have an impact on warehouse/distribution properties. According to Port Tracker, a report by the National Retail Federation and IHS Global Insight, retail container traffic at major North American ports is projected to fall 11.8 percent in the first half of 2009. That drop will come on top of a contraction of 7.9 percent last year. The impact of U.S. retail contraction extends all the way back to the factories of East Asia. Power consumption in China–one of the better yardsticks of economic activity in that country, where GDP reports need to be taken liberally with salt–grew 5.23 percent in 2008, which was about 9.5 percentage points lower than a year ago, according to a report by the China Electricity Council last week. It might have been growth, but it was the slowest growth in about a decade, hearkening back to the doldrums of the Asian currency crisis.