This RVP roundtable took place during the 1998 Institute of Real Estate Management National Convention in Anaheim, Calif All participants are CERTIFIED PROPERTY MANAGERS[R].
JPM: What impacts have 1998 stock market declines and global economic downturns had on the real estate industry in the United States?
Smith (Region 3): With REIT stock prices down, yield requirements are up, and the prices REITs are willing to pay for property have declined. We have seen REITs backing out of a few deals when the due diligence did not meet their new yield requirements. There is also a significantly reduced interest on the part of REITs in new development and in land.
The conduits are going to the market at huge increases in spreads. Many conduits are pulling out of deals or only agreeing to dose the loans if the rate is raised 75 to 100 basis points. The positive impact is that the market is likely to remain at equilibrium longer.
Kacirk (Region 11): The West Coast region, particularly Hawaii, have been affected by the Asian recession. Hawaii has not seen the turnaround in residential home prices that we have experienced in California. High-tech companies are seeing earnings and stock prices drop because of decreased spending in Asian countries, which may eventually result in layoffs and decreases in demand for production space.
Wilson (Region 13): The domestic stock market declines, the turmoil in Asia, as well as the new Socialist government in Germany, I believe, will have a decidedly dampening effect on the economy. In order for the Asian countries to get themselves back on a sound financial basis, they are going to have to export their way out of their problems, which means they will have to maximize exports to the United States while doing everything they can to minimize imports. I am also concerned that the new coalition government in Germany, which is heavily influenced by Socialists and the East Germans, could leave this country in a state of flux for the next 12 to 18 months. An executive of a German firm stated that German executives were moving funds out of Germany. This might be an opportunity to get increased German investment in the United States.
Murray (Region 2): On the East Coast, our economy is not as tied to the Asian market. Only 5 percent of the gross state product in New Jersey is exports to Asia, as opposed to California where it is 11 percent. Nevertheless, there is an effect, if only in attitude.
Birdie (Region 4): The Asian flu has occurred primarily because of the devaluation of Asian currencies. I think you will see some rebound soon because the underlying manufacturing fundamentals of the region are strong. When that rebound occurs, these economies will come back if their currencies can hold up.
Goss (Region 5): Typically in our region, a national or international trend takes several years to be felt. Now, the economy is good and employment is up. The stock market decline has made investors more wary, however. They are taking a wait-and-see attitude.
Monroe (moderator): Several Gulf Coast industries - oil and gas, paper and pulp, and shipping - have been affected by the Asian market declines. Louisiana in particular is becoming concerned about what the future holds.
Pollan (Region 7): Texas and Oklahoma also are impacted by oil and gas prices, and the Asian crisis has lead to a significant decrease in demand. Consequently, companies that serve these industries have had massive layoffs. As a result commercial rents have stabilized, and some concessions are being seen.
Toothaker (Region 6): Many of the markets in Kentucky, Indiana, and neighboring states are secondary or tertiary and have not attracted much attention from REITs until recently. So the REIT slowdown has not had as much affect in our area. Generally, the economies of the area are strong, with unemployment averaging 3 percent.
Baiamonte (Region 6): Our region is not very closely tied to global problems, so they have had very little impact in our area. …