With high Federal Government spending, either if you agree with this policy or not, there is no doubt that at this pace increases in the Federal Deficit will continue to be one of the major problems of our economy. If the results of this policy will have a positive effect in the economy or not, it has to be seen. High unemployment is also a problem. Florida's unemployment rate increased to just over 11% and there is no non-government job creation which continues to be a problem. Another important factor is that commercial real estate debt since 2004 has reached 2.2 trillion dollars and almost all real estate acquired or refinanced between 2006 and 2008 has lost all the equity. 600 billion of debt will mature between 2010 and 2011 and the CMBS market continues to be absent as a source of refinancing. Banks, who hold most of the debt, are underwriting under more stringent guidelines so the ability to finance real estate in the next two years is not going to be there.
Some economists expect the economy to bottom sometime in mid 2010 and this may be an statistical recovery year but nothing else.
On the residential real estate market the financing problems still persists and even FHA has tightened its underwriting guidelines making it more difficult for Buyers to qualify for mortgage loans. This tend to lower the absorption rate on the market, therefore inventory will remain high for a longer period of time and construction will remain weak, another problem for jobs and the economy.
For the residential and commercial property owner now is the time to look for professional asset and property managers who can really improve the operation of the properties and long term value. Now is the time to implement resident and tenant retention programs and develop lease work out agreements, avoid falling into a deferred maintenance situation, decrease operating costs and increase income. Not an easy task but professional experienced asset and property managers are trained to deal with this task and every property owner should be thinking about hiring the right people and using the right amount of resources.
The idea is not to dispose of properties now in the worst market ever but to weather the storm and have an excellent asset in the next cycle. To the contrary, now is the time to purchase properties and enhance portfolios. yes, there is lack of financing, but there are opportunities out there that are too good to be missed. We are about to see institutional investors to come into the market to take advantage of these opportunities. With some financial engineering good deals can be structured. We see sectors like multifamily, medical, senior housing and services as the best areas to recover and with great future. Also, some areas in the economy are doing great and are great prospects for growth. Energy and renewal energy, waste management, senior services, medical and life sciences, green technology and environmental companies, are sectors with great growth.
In our local Florida area, we think distribution warehouses and anything having to do with logistics, medical, senior services and multifamily are the sectors we see with great possibilities.
Our summary is, get good asset and property managers to handle your portfolios and properly allocate resources, invest in new real estate opportunities to the extend of your possibilities and focus on the growing sectors. We see this as a moment in time where great fortunes are to be made again in real estate.
