We Have A Heartbeat!

by Doug Marshall, CCIM
Market Assessment


It’s become a cliché: “The economy is recovering! The rebound is here!”

But after reading many reports like this, sometimes based on spotty evidence and flimsy source material, it’s still a large and looming question. Are we seeing real growth, and if so, is a recovery happening in the Pacific Northwest?

If growth, wouldn’t that be encouraging for those of us who’ve been waiting for something to cling our hopes on? The $800 billion government stimulus package, encouraging spending and protecting business, is beginning to show some positive results.

Consumer spending has increased around 4 percent in the first quarter of this year; new home sales increased 27 percent; and exports jumped in the first two months of the year by 15 percent, as compared with the previous year. All this has occurred as household debt has declined by $600 billion since the fall of 2008.

Surely this means that we’re seeing recovery, optimists say. And that would be a very, very good thing for a commercial real estate market facing billions of dollars in loans requiring refinancing, or at least major modification.

Where is it going to come from? This very important question is still left unanswered with no apparent solution in sight.

But it appears that this is a real, sustainable recovery we’re seeing. Consumer spending is a great indicator of economic recovery. Any indicator that comprises 70 percent of American economic activity is sure to be that.

But that still doesn’t answer the question: What is the health of the commercial real estate market while people shop Amazon for iPads or go shopping for a new car?

Even the real estate market is showing positive indicators that we’ve gone through the worst of it and are coming out the other side as evidenced by:

· Citigroup, who recently put together a $222 million AAA-rated RMBS pool to Wall Street. That’s very modest in terms of the size of the mortgage pool when compared to just a few years ago, but it’s progress nonetheless.

· REITs have had a robust increase in the value of their stock over the past year as they have taken advantage of acquiring real estate at depressed prices.

· The CMBS market, such as it is, is eking out more substantial packages. They remain low in dollar amount by comparison with previous years, but the trend upward is a positive sign.

There are qualifications to the reported activity, of course. The CMBS process still remains, according to some REITs in the mix, “laborious and painful, hardly worth the effort”. But it’s a market that has gotten slowly to its feet.

The question now is whether employment and income, other indicators required to round out the “recovery” rally, are making the same effort or experiencing the same improvement.

Ah, there’s the rub.

Sources:
Peter S. Goodman, The New York Times, April 25 2010;
Erika Murphy, GlobeSt.Com Beltway Buzz, “Another Win For CMBS – and REITs,” March 24 2010;
Erika Murphy, GlobeSt.Com Beltway Buzz, “Four Signs Of Life In The Past Week,” April 22 2010