Ken Riggs: Second Quarter 2009 Edition of the ITQ

Click here for the audio podcast of Ken Riggs.

The outlook for commercial real estate is just plain bleak. The economic downturn that hit the nation is the “worst downturn since the Great Depression.” And, this so-called “tsunami” is so pervasive and struck so quickly that even the most seasoned commercial real estate professionals asked: “How did this happen, and how did this happen so fast?” Listen as Ken Riggs paints a sobering picture on the market and provides more insight from the Second Quarter 2009 edition of the RERC/CCIM Investment Trends Quarterly. Riggs predicts a recovery may be four quarters away, given the lag time involving commercial real estate sales and rents. But he’s optimistic that there are opportunities, and he predicts the industry will be stronger in the long-term.

My comments about this podcast:

1. Everyone is searching for a bottom. CRE is lagging the economy by 12 months. The economy/financial markets will hopefully find a bottom around the 3rd quarter 2009. CRE will find a bottom somewhere around the 2nd quarter 2o10. I completely agree with this statement. This was the same attitude when attending the 2009 ICSC ReCon.
2. Values have not declined as much as they will. In the 90’s, CRE fell about 30%. This is setting up to be the worst decline in value as a percentage since the depression for CRE.
3. There was a huge shift from CRE to cash. CRE is down over 20% on unleveraged basis. Investors are coming back—buy low/sell high. Prices are much lower today on very good properties. Going to continue over the next 6-12 months. This is a great time to start testing the waters. Identify the key assets you have always wanted to target and let’s go after them.
4. CRE may be the next safe haven–tangible value vs sitting on cash. Repricing of CRE is becoming more attractive. CRE world has been “rocked” and is going to be rocky for the next year to 18 months. Government is trying everything to stop a depression like downturn in CRE.
5. Debt restructuring is the “Achilles heel” of our market right now. “it’s always darkest before the dawn”.
6. Best opportunities for this year. All real estate is local; that determines price/vacancy. Get back to the basics. Location is key. over the next 6-12 months, Arizona/Florida are going to be targeted. Give me a call. We need to start looking now!
7. Capital is on the sideline and being patient.
8. NOI levels vs Cap Rates–reversal of cap rate compression. Investors are repricing with lower rents/higher vacancies going forward. Starting to penalize properties for over-correcting of what is happening in the market. There is conservative underwriting and then there is “over”writing. Don’t “over”write a good deal. If the idea is to own long-term, keep that in mind.
9. “This downturn has shaken everyone to the core.” Companies that have disappeared, filed bankruptcy, etc. that no one ever thought would have problems have been caught off guard in this downturn.
10. Be optimistic. Just because we don’t see an end today, it is getting closer. Amen!