HESSAM NADJI
Managing Director
of Research Services
Marcus & Millichap
Real Estate
Investment Services
1. Job losses will remain
elevated (200,000-plus)
for the first few months
of 2009. Job cuts will end
abruptly by mid-2009 since
they are largely concentrated in a few sectors, fol-
lowed by a period of stagnation since there are no drivers of
growth on the horizon—yet. California will be hit harder than
the nation in terms of employment contraction, unemployment
and peak-to-trough home-price corrections.
“California will be hit harder than
the nation in terms of employment
contraction, unemployment and peak-
to-trough home-price corrections.”
2. The housing market will bottom faster than most people
expect as substantial price corrections continue and buyers
will be attracted to bargains. The disparity by market will get
even wider with inland areas faring worse. However, even core
areas will show price cracks and more buying opportunities.
Worries about investors’ ability to sustain some of the foreclosed homes they are buying as rentals will begin to surface.
Once a bottom is reached by second or third quarter of 2009
in most areas, housing will be stuck at the bottom for a while,
well into 2010.
3. Retail, office and industrial vacancies will reach and may
exceed prior peaks now that the financial crisis has deepened
the recession. In retail and industrial, contracting tenant demand and overbuilding in quite a few markets will be the one-two punch while in office, the problem is mostly concentrated
on the demand side of the equation—watch for the rise in sublease space to dominate headlines for a few quarters. Apartments will be soft but should remain comparatively strong in
most markets—the exceptions will be concentrated in metros with overbuilt housing markets such as Inland Empire,
Phoenix, Las Vegas, Florida and Texas, especially Austin.
TOM SHERLOCK
Naiop Socal
2009 President
1. I predict the bottom
will be in late 2010; and
2009 will be more challenging than 2008 as the
deleveraging of the industry continues and the
credit freeze carries into
the new year. The two
major sources of debt,
banks and CMBS, which
represent a combined ownership of 80% of all commercial
real estate debt, face struggles that won’t disappear with the
changing of the calendar. Banks face balance sheet pressures
coupled with an increase in regulatory oversight, which means
very conservatively underwritten loans made to the strongest
of borrowers will be the bulk of business done. Meanwhile, the
CMBS market is essentially shut down and will need to restaff
and retool, if that market returns.
2. Despite the significant challenges facing our industry,
great investment opportunities exist. However, the beneficiaries of those opportunities will be limited to the companies
that have enough capital to act in a leverage-constrained market, have a healthy existing portfolio with a limited number of
investments acquired in the past two years, and have a reputation of expertise with a track record of success. And in 2009,
there will be more and better opportunity to invest within the
debt portion of the capital stack through senior loans and discounted note purchases as compared with the equity part of
the stack.
3. The legislative risks to the real estate development and
investment industry will be greater than ever in 2009. As local
and state governments face increasing budgetary pressures expect an assault on the industry as they look for new revenue
sources. New proposed taxes on warehouse space in local communities are already popping up. And, the split roll tax, which
Naiop SoCal has continued to fight, is like a zombie from “The
Night of the Living Dead,” it just won’t die. Expect that battle
to resurface again in 2009.
“The legislative risks to the real estate
development and investment industry will
be greater than ever in 2009.”
