ULI’s Nashville District Council held it’s annual Real Estate Trends Conference this morning in conjunction with the good folks at the Nashville Chamber of Commerce. Dean Schwanke, the Senior VP at the ULI Center for Capital Markets & Real Estate was the presenter this year. The “Emerging Trends” study is a compilation of close to 900 interviews conducted with real estate “experts” around the country – somehow I slipped onto the list for the last couple of years, so you know it’s good (tongue planted firmly in cheek.) If last year’s overall menu presentation was cold and rancid meat loaf, this year’s menu looked like the three week old ham sandwich you found in the leftover drawer of the refrigerator – it might be edible, but I wouldn’t risk it. The full report is available through the ULI website by clicking here. From my scribbled notes, the following bullet points to consider:
- Expect another 30-50% decline in asset values for most commercial real estate.
- Good news – investor expectations for returns are being re-calibrated.
- New term – “financial engineering,” as in “we are going back to basics, no more financial engineering.”
- More than 50% of the respondents felt that equity was over-supplied.
- BUT, 78% felt that debt is undersupplied although the life companies are stepping up.
- It is anticipated that in 2011 the public equity REITs will be the most active buyers – they are generally flush.
- If you want to know what the new normal looks like, set your sites on the 2003-2004 numbers.
The general tenor of the discussion was that while we have not been knocked out in this fight, we are definitely taking the standing eight count. On a national (and I think local level too) the best asset classes to be looking at in the coming year are moderate and high income apartments.
The most worrisome slide was towards the very end of Schwanke’s presentation…well, the one showing the gentlemen wearing sombreros and taking a siesta as this year’s advice to developers was worrisome for me…but, the slide I am talking about concerned the governmental picture. Unsustainable levels of debt at the municipal, state and federal level, anticipated spikes in interest rates, gnawing continued high unemployment. Here in Nashville, we should fare better than most – our city and state have been well run, overall, and in general, we behave like adults towards business. But, I suspect this is the same set of facts that most Americans know in their guts and that’s what is keeping the fear quotient up and preventing businesses from cranking up employment.
After a short break, a panel discussion was held with Larry Kloess of HCA, Bill Nigh with Bank of Nashville, Randy Rayburn of Sunset Grill and other delectable restaurants fame, and Laquita Stribling with Randstad, a local employment agency. This was a well rounded and intriguing presentation. A few highlights again from my legal pad:
- In banking, it’s back to the basics. Do you have a net worth? Do you have bankable cash flow? The regulatory environment is driving the uncertainty that keeps banks from lending.
- From Randy, we learned what an important part of the local economy the hospitality industry is – it’s big.
- In discussing challenges, Laquita pointed out that 15% of Nashville’s employment base is within 10 years of retirement – there is a significant gap between retirements and new graduations, making it critical that we keep our graduates from all of our fine schools in town.
- Larry mused about the effects of the healthcare reform bill essentially telling us that it is so complicated and convoluted and it is being layered onto an industry that is so complicated and convoluted that….well no one knows. He did tell us that there is a rapidly growing problem in the shortage of primary care providers and to expect future visits to the doctor to be more like trips to the dentist: the hygienist works on you for 45 minutes then the dentist comes in and asks about your handicap.
The good news is that we are in a city that is considered highly creative with a great brand. We are also blessed with pretty good governance and a business and real estate community that is truly gifted in what they do. As I am scribing this, over the wire comes news that there’s a good chance that Community Health is making a run at Tenet and that combined they would become the second largest hospital management company. With HCA first and the aforementioned merger second, the Nashville area would truly become ground zero for healthcare.
We still have a few years of rough sledding, but there are few other places I would rather be than right here in Middle Tennessee…hmmm, with that rhyme maybe I’ll try my hand at songwriting!