Economy Draws Lively Debate at CPN Philadelphia Conference

Even experts continue to disagree about the depth of the American economy’s troubles and its impact on commercial real estate. That was clear during the lively opening panel discussion this morning at CPN’s annual Philadelphia Property Opportunities conference.

“I think we’re facing the abyss, and it’s principally driven by the home building sector,” Chris Terlizzi, executive vice president for Citizens Bank, told about 300 real estate professionals at the Sheraton Philadelphia City Center. “We have a lot of uncertainty right now, and it’s anybody’s guess as to how it’s going to play out.”

The current situation is worse than the downturn that started in 1990 because today’s economic slowdown is rippling throughout the global economy, he added. Only the weak U.S. dollar is continuing to keep the economy afloat, primarily by attracting foreign capital looking for bargains. “I think America’s for sale at this point,” Terlizzi said.

Matt McManus, chairman of Bluestone Real Estate Capital L.L.C., agreed with Terlizzi’s pessimistic outlook. “Talking to lenders this past week, I get the sense that they’re preparing for 1990 or worse,” he explained. Craig Butchenhart, president of NorthMarq Capital Inc., acknowledged that he has downgraded his personal outlook for the economy in recent months, placing the chances of a recession at 50-50 rather than 25 percent. But Butchenhart also argued that the commercial real estate sky is not yet falling. “We’ve been running at about 90 degrees for quite a while now. When the temperature drops to 40, it feels really cold,” he said.

Despite a stream of bad economic news, real estate fundamentals have not yet been affected. Nationally, NorthMarq Capital’s delinquency rate on its $36 billion servicing portfolio is only .26 percent. That is just a fraction of the 7.5 percent delinquency rate the company had in the early 1990s, Butchenhart reported.

In the midst of this uncertain climate, Philadelphia’s renowned stability is luring investors from other cities around the country, noted Spencer Yablon, manager of corporate affairs for the Philadelphia office of Marcus & Millichap Real Estate Investment Services.

The city’s other strengths dominated the conference’s keynote address by Jim Mazzarelli, senior vice president & regional director for Liberty Property Trust. Mazzarelli urged the audience to promote Philadelphia’s often underrated strengths as a strategy to draw the knowledgeable workers that the city needs to boost job growth in general and its real estate market in particular. He cited the area’s highly educated work force, affordability, relatively low commuting time, and sophisticated cultural amenities. But one missing element is the regional approach successfully adopted by many other major metropolitan areas, and Mazzarelli proposed that Philadelphia follow suit.