SAN DIEGO (October 23, 2012) – A leading journalist and a noted economist addressing the 12th annual Trigild Lender Conference in San Diego last week pointed to several key factors – among them the looming “fiscal cliff” and the stubbornly persistent Eurozone crisis – which are precipitating today’s perpetually sluggish economy.
Event headliners Robert Guest, business editor for The Economist, an influential weekly focusing on international politics and business news, and Sam Chandan, Ph.D., president and chief economist for Chandan Economics, both stated that the underlying problem with today’s economy is “uncertainty.”
According to conference founder and Trigild chief operating officer Judy Hoffman, 340 participants convened to hear Chandan and Guest, as well as leading commercial real estate and finance industry leaders address topics related to the economy, finance, commercial real estate and the lending industries at the annual San Diego conference, which this year was themed “Lighting the Future.”
According to Guest, the U.S. “business cycle is frozen” largely because of what reserve chairman Ben Bernanke has labeled a “fiscal cliff.” The U.S. is facing a double whammy: “an increase in taxes and cuts in spending,” which could send the economy into another recession. The only hope is if the “Democrats and the Republicans can compromise. The cliff is so bad, hopefully they will not drive over it,” Guest said.
Added Chandan, “the potential impact of not resolving this problem presents a real risk.”
In the meantime, he said, American companies have “no idea what will happen, and are sitting on an enormous cash pile.” While corporate profits should go into growth and expansion, he said, because of uncertainty they are not. “Two years ago, it was lack of credit that was hindering the economy and growth. Today it is uncertainty.”
While corporate profits are strong, said Chandan, “the American people got left behind. Corporate profits are not being reinvested or reflected in the job market.”
Added Guest, “I’m bullish about America – if we can solve the fiscal cliff problem. There is a natural dynamism here.” But “markets need a credible, medium term, gradual plan to regain fiscal footing.”
Distortion in Commercial Real Estate Markets
Chandan, who focused on economic trends relevant to commercial real estate, underscored the inherent problem in trading risk without measuring that risk. At the onset, “everyone underestimated the nature of the problems we faced,” Chandan said. “We have made breakthroughs in the ability to understand risk, but not to measure it.”
With this in mind, the value of commercial real estate assets is rising at a faster pace than the economy is improving, he said. We are now “at risk of bidding too aggressively and paying too much.”
While the commercial real estate recovery is in full gear, it is uneven. “Bifurcation is still an apt description in too many markets,” Chandan said. “Capital is not spread evenly in asset classes, but clustered in certain parts of the market.”
Too much money is chasing too few deals – especially in top markets such as New York, Boston and Los Angeles. “Investors want to be in liquid markets where assets are tradable,” Chandan said. “Too many investors are focusing on core assets in gateway markets, as a result prices are rising because capital is flowing in with force.”
Also fueling the commercial real estate boom: historically low interest rates. “Low interest rates are our drug of choice,” Chandan said “Weaning ourselves off this drug is not painless, but necessary.”
In addition to Chandan’s presentation on the state of the commercial real estate market and Guest’s keen analysis of the global economy, dozens of industry experts – among them, Mark Jacobs, Oaktree Capital; Stacey Berger, Midland; Clark Rogers, Keybank Real Estate Capital; Steve Altman, Torchlight; Steve Evans, Principal Real Estate Investors; Michael Dalton, Goldman Sachs; and Debra Morgan, C-111 – explored compelling strategies and issues including bankruptcy, foreclosures/workouts, assumable financing, receivership, franchises, distressed loan recovery and more.
Headquartered in San Diego with regional offices throughout the country, Trigild has more than 35 years of property management, receivership/bankruptcy and consulting expertise, with a focus on managing and maximizing value for assets in an array of industries, including hospitality, multifamily, office, industrial, retail, petroleum properties and more.
For further information, visit www.trigild.com.