At Closing - Navigating the Climate of Uncertainty
By: Alex Klatskin, partner, Forsgate Industrial Partners
Now that the summer has ended and we are all back at the office fully rested, we are looking to see what direction the economy and real estate markets will be heading. While the first two quarters of this year were very encouraging, the summer has brought us more uncertainty.
The debt ceiling antics that went on in Washington did not help anyone plan for the future of their business. We were all hoping for leadership, but what we got was electioneering and more uncertainty. Unexpectedly, the only good thing to come out of the near default was the 10-year Treasury neared two and one-half percent. If you ever wanted or needed to borrow money, the recent past has been an historic opportunity.
While unexpected benefits are always nice, it still makes it impossible to plan your business. By Congress putting off a real resolution to the debt issue until the end of 2011, they have made the problem worse. It is concerning that the “supercommittee” has the ability to pick winners and losers and to redirect the economy; hopefully they will perform the needed reforms. At some point, the low cost of debt becomes less attractive than the high cost of uncertainty. It is important to let our legislators know that we cannot run our businesses with the rules constantly changing, particularly when we think the cost of doing business will rise.
In certain markets around the country, development activity is way up, particularly in build-to-suit activity. While we think of this as an opportunity, the underlying reasons are not always great. The majority of the projects are initiated for cost-savings, not expansion. We really need economic and corporate expansion to occur in order to have us all prosper, not relocations due to trimming occupancy costs.
At NAIOP Corporate, there are bright spots. Our new principal membership is up more than 60 percent from last year and the number of people who decided not to renew has dropped by 27 percent. This is good news and leads me to believe that development activity is in our near future. While we have never done a formal comparative analysis of our membership statistics to the overall real estate market, I am convinced that we would see a great correlation.
I look forward to seeing you all at Development ‘11 in Scottsdale, Ariz., in October.