No, I am not referring to climate change!  “Green” as in “green back,” is the subject of this post.  I attended the Urban Land Institute’s “Emerging Trends Conference” last week.  As always, it is superlatively well done and the quality of the presenters and information is top shelf.  For us at the M2H Group, the message was clear and not unexpected: “Developers need to go play golf.”  Fair enough, we’ve been living off our consulting practice for over a year now, so we’re prepared to stay hunkered down for awhile.

Here are the key bullet-points of the presentation:

  • Commercial real estate hits bottom in 2010 as writedowns, defaults and workouts mount. The “extend and pretend” relationship between the owners/developers and their lenders is coming to an end.  The banks’ reserves are improving giving them the strength to start disposing of their commercial deals.
  • Cash is king – investors with cash should do well and properties that are flowing cash will stay off the market.  We will not see a return to the RTC 10-cents-on-the-dollar type plays, but we will see writedowns of 30-40% giving investors a chance to re-enter the market at a lower basis.
  • Credit will continue to be extremely tight.  Lending for new construction virtually non-existant.
  • We are in a jobless stabilization – and retail and commercial losses will exacerbate the unemployment situation.  No traction is foreseen until mid-2011 at the earliest.
  • Housing and multi-family will be the strongest sectors in real estate.
  • California, Arizona, Florida and Nevada continue to suffer the most.  Texas, with its business friendly environment is doing well along with “Gateway” cities (New York, DC, San Fran, Chicago) where foreign investors may look to swoop in on lower cost deals.

All of this tracks pretty closely to what we’ve been saying over here.  I would add that Federal policy right now is more of a hindrance than a help.  There is so much uncertainty among small businesses that they are not inclined to start expanding in the face of unknown healthcare and environmental taxes.  The National Federation of Independent Businesses released their December report and it finds entrepreneur’s optimism waning.  Jeff Cornwall, who heads up Belmont University’s Entrepreneurial Center notes in a blog post:

It seems that the most resilient players in our economy may be losing hope.  Entrepreneurs may have stopped digging.

The NFIB Index of Small Business Optimism lost 0.8 points in November, falling to 88.3 (1986=100).

What is particularly worrisome is that even in the depths of the 1981-82 recession, the Index never fell below 90 and quickly surged to a record high early in 1983.  In this recession, the Index has been below 90 for six quarters, indicative of the severity of this downturn and the apparent hopelessness that is creeping across the land.

“The biggest problem continues to be a shortage of customers,” said NFIB Chief Economist William Dunkelberg.  “Apparently, owners can’t find a good reason to be optimistic about the future of the economy or their personal future.  The legislative agenda in Washington is a major factor blunting consumer and owner optimism.”

This kind of pessimism does not bode well for the entrepreneurs (oh wait, that’s all of us!) in real estate.  So, until the clouds start to part, we over here at the M2H Group will keep repeating our mantra: “It will be green in 2013!”

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