Panel Finds Slowing U.S. Economy Will Continue to Effect Commercial Real Estate

The deteriorating U.S. economy will continue to negatively effect commercial real estate fundamentals. That was the conclusion reached by a panel that convened at the CityScape USA on Thursday to examine macroeconomic factors in the U.S., and their impact on commercial real estate performance. Some panelists did see some positive factors amidst a mostly gloomy economic scenario. Continued productivity increases, and low yearly wage growth among U.S. workers could mean that employment losses could be less than in previous recessions, said Richard Green, director of Lusk Center for Real Estate at the University of Southern California. Fred Cooper, senior vice president of finance and investor relations at Toll Brothers, said he has seen that the single-family housing market “is showing some signs of stability at the low end.” But some cities that have enjoyed boom times in recent years are now feeling pain, said Paul Murad (pictured), president of Metroplex Realty, naming Las Vegas, Phoenix and San Diego as cities that have been hit hard in the commercial and residential area. He blamed the media for magnifying the bad news, where in recent years they overemphasized the good news. But, Murad said the recent halt of construction of the massive Echelon Place mixed-use development on the Strip was one sign of a troubled market. Beyond U.S. shores, Bryan Shaffer, chairman of IRETO, said there might also be signs of slowing growth in Asia. He said there could be some failures of Japanese REITS, and also said that China’s building boom may have outpaced its growth. He remained positive about Dubai, however, as well as any market that has been buoyed by petrodollars. Asked by moderator Hessam Nadji, managing director of research services for Marcus & Millichap Real Estate Investment Services, if the panelists agreed that the apartment sector would be the healthiest in terms of fundamentals, they concurred, with industrial next in line. But the panelists saw challenges in both the office and retail sector. On a panel that explored institutional investors’ strategies for investing in emerging markets, panelists agreed that investing in new markets demanded finding a local partner fully versed in the legal and regulatory statutes of the country in which to be invested.Joan Fallon, manager of real estate investments for U.S. Steel and the Carnegie Pension Fund, said investment would surely reach beyond the BRIC countries (Brazil, Russia, India, China.) But William Krauch, managing director and head of global marketing for ING Real Estate, said he didn’t see a great deal of investment opportunities for his firm in the Middle East. “It’s a fascinating place, but there are not a lot of capital requirements,” Krauch said. “A lot of these projects are self-financed. We like to put our capital where there is a lack of capital.” During a question-and-answer session, one audience member asked if Russia’s recent invasion of Georgia could hamper investment in the region. ING’s Krauch said the company has invested in both Central and Eastern Europe, and he has not seen any effects from the crisis to this point.