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"Pushing down CBD office vacancy is the dearth of new building, which is broadly based as 26 of the 45 markets covered have zero construction in the pipeline, and an additional seven CBD markets are expected to see their inventories grow by less than one percent," --Patricia McDonnell, Moody's analyst and co-author of third quarter Red-Yellow-Green report.

'TRIA Fly-In' Goes Over Well
Expiring TRIA Threatens to Leave Businesses Exposed
Industry Briefs: Beige Book Reports Rising Demand

Los Angeles Tops CRE Underlying CMBS in 2Q, Moody's Says
Office Market Continues Strong in 3Q, Colliers Says

HFF Arranges More Than $60M in Cal and Tenn. Retail

MBA Commercial Advocacy Update

Abagnale to Speak at Asset Administration Conference
MBA Commercial/Multifamily NewsLink Reprint Policy

Small Market Totals Top $30 Billion in 1Q

The Flexible & The Obstinate

The delegation included representatives from the Mortgage Bankers Association, the Real Estate Roundtable, the National Association of Real Estate Investment Trusts (NAREIT), the Commercial Mortgage Securities Association (CMSA) and the Real Estate Board of New York (REBNY).

Stacey Berger, executive vice president at Midland Loan Services Inc./PNC Real Estate Finance; Kathy Marquardt , senior vice president at GMAC Commercial Holding Corporation and Joseph Franzetti , director at CitiGroup Global Markets, represented MBA.

The representatives flew in to the Nation's Capital to urge lawmakers to take immediate action on maintaining a federal backstop for terrorism insurance, less than three months until the expiration of the Terrorism Risk Insurance Act of 2002 (TRIA).

The group met with several members of Congress during the course of the day, including House members Mike Oxley, R-Ohio; Peter King, R-N.Y.; Barney Frank, D-Mass.; Paul Kanjorski, D-Pa.; Sue Kelly, R-N.Y.; David Drier, R-Calif.; and Tom Reynolds, R-N.Y. Senators included Jon Kyl, R-Ariz.; Richard Shelby, R-Ala.; Paul Sarbanes, D-Md.; Elizabeth Dole, R-N.C.; Harry Reid, D-Nev.; Robert Bennett, R-Utah; and Chuck Schumer, D-N.Y.

The group was well-received and by the end of the day, the general consensus was that, in some shape or form, an extension of TRIA will be accomplished. However, there are several significant hurdles to jump in order to do so. It has not yet been determined if Congress will support a straight forward extension of the current program or if the extension will include various changes.

TRIA legislation exists in both the House and Senate in the forms of H.R. 1153 and S.467, respectively, but Chairmen of the House Financial Services Committee and Senate Banking Committee both voiced their intent to introduce their own legislation in the coming weeks.

MBA will continue to work toward making the extension of TRIA a reality.

Increased demand for commercial space was reported by New York, Richmond, Va., St. Louis, Minneapolis, Kansas City, Mo., Dallas, and San Francisco. Cleveland and Richmond said construction was increasing for commercial buildings. Atlanta reported a surge in demand for commercial space in areas where firms relocated after the hurricanes struck the Gulf Coast. Chicago indicated that demand for commercial space was rising in many parts of the district, although not in downtown Chicago.

Office vacancy rates were dropping in New York, St. Louis, Kansas City, Mo., and Dallas while San Francisco reported rising commercial rental rates. Chicago indicated that rents rose in areas other than downtown Chicago. Dallas reported that rents were holding firm but landlords were reducing incentives.

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Collateral Mortgage Capital LLC, Birmingham, Ala., closed a $242 million dollar credit facility for CNL Retirement Properties Inc. It is Collateral’s largest single transaction to date and the largest transaction ever closed by Fannie Mae’s Seniors Housing Division. Properties in the portfolio include Newport Place in Boynton Beach Fla., Carrington Pointe in Fresno, Calif. and Heritage Palmeras in Sun City, Ariz.

Two existing credit facilities combined with different terms and conditions to add additional credit capacity. The credit facility provides the borrower with nearly $19 million in “borrow-up” on existing assets and future expansion capacity of $58 million, Collateral said. The $242 million dollar credit facility has an eight year term and initially contains $121 million of fixed-rate debt and $121 million of floating-rate debt. The floating-rate component includes interest-only floating-rate advances. Fixed-rate advances will be serviced based upon a 30-year amortization schedule.

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Commercial Mortgage Securities Association-Europe (CMSA-Europe) introduced the CMSA European Investor Reporting Package (CMSA E-IRP) for the United Kingdom market at its first annual European conference in Brussels.

The CMSA E-IRP provides data that investors can use to compare bonds across multiple transactions. These standard reporting formats support continued growth and liquidity of the commercial mortgage real estate debt securities market in the United Kingdom.

"The CMSA E-IRP provides standard reporting formats for investors to compare bonds across transactions and will help improve the efficiency of the industry,” said CMSA-Europe Chairman Clive Bull . “It is expected that the industry will adopt this as the standard information requirement, helping fuel the already expanding market in the United Kingdom."

New CMBS issuance in the U.K. $24 billion for the first three quarters, representing 26 deals. Total European CMBS issuance for the same period at nearly $39 billion, and U.K. issuance during the same period last year was $8 billion encompassing 10 deals. New issuance in Europe is set to reach €50 billion by the end of the year.

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Property & Portfolio Research Inc. (PPR) launched its European Service, with initial coverage of 21 major European office markets. PPR's service will initially cover office markets. It will add property types in the coming year. PPR said its European Service will include market-level reports and applied research by economists located in Boston and London. The reports will be written with a United States-based investor in mind, translating traditional European real estate metrics into those typically used by U.S. investors.

"U.S. investors have significant interest in European real estate today and require apples-to-apples forecasts of market trends," said Bret Wilkerson, CEO of PPR.

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Bridger Commercial Funding completed expansion of its nationwide commercial mortgage backed securities (CMBS) loan origination platform for commercial banks by establishing a new Northeast regional office in New Jersey and recruiting more than a dozen real estate professionals throughout the country. 

The company hired CMBS underwriters, analysts and closers in its headquarters and regional offices to accommodate the firm’s growing loan volume, which is on track to almost double over last year’s volume. Bob Schonefeld, CEO of Bridger Commercial, said the firm is broadening its regional staff to reinforce its local expertise and to further support its diverse network of commercial bank clients. “So far this year we’ve originated more CMBS loans with more bank clients—both old and new—than ever before, outpacing the industry’s growth rate by more than three times."

Bridger plans to increase its presence in the northeast by opening new offices and adding staff to its New Jersey and D.C. offices. The firm will also be hiring more staff in Atlanta to service its banking clients in the southeast. It appointed Gina Mackenzie vice president, relationship manager. Mackenzie heads the firm’s New Jersey office and will be working with Bridger’s bank clients in New York, New Jersey, Connecticut and northeast Pennsylvania .

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CoStar Group Inc., Bethesda, Md., signed seven of the North Carolina Triad's commercial real estate (CRE) brokerage firms as charter subscribers. CoStar Field Research teams have been working in North Carolina's Triad since May 2004, photographing and collecting information on office, industrial and retail properties. The Triad area database includes more than 14,000 properties totaling over 22 million square feet of available space.

The company signed license agreements to provide CRE information to charter subscribers Brown Investment Properties, CB Richard Ellis, Coldwell Banker Commercial Triad Realtors, Freeman Commercial Real Estate, The Meridian Realty Group, NAI Maxwell and Triad Commercial Properties.  CoStar also signed license agreements with Commercial Carolina Corporation, Hagan Properties, Liberty Property Trust, Parthenon Realty, LLC, Ramm Commercial Properties, Starmount Company and Twin City Commercial Brokerage.

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Calkain Companies, Reston, Va., formed a new brokerage division called Calkain Institutional Advisors. The new division will assist clients in procuring transactions that typically range above $10 million.

“Institutional real estate investing has elements that are much different than transactions normally participated in by private investors through Calkain Realty Advisors,” said Jonathan Hipp, Calkain Companies president. “We felt that it was important to institute a completely separate entity in order to accommodate clients in need of attention to their precise requirements in this very exclusive investment classification."

Calkain Institutional Advisors began its operations in the Net Lease market by bringing an 11-property, six-state portfolio to the open market in September. The portfolio, tenanted by Havertys Furniture Inc., is currently being introduced to institutional clients worldwide.
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The Moody’s report, "CMBS: Red -- Yellow -- Green Update, Third Quarter 2005 Quarterly Assessment of U.S. Property Markets," showed New York, Orange County, Calif., Honolulu and Washington, D.C. following Los Angeles as the top U.S. markets. Albuquerque, Tampa, Ventura County, Calif., Miami and Dayton, Ohio all received scores in green, representing the highest category in the report.

Jacksonville, Fla., Hartford, Conn., Trenton, N.J., Atlanta and Las Vegas received the five lowest market scores but all markets scored no lower than yellow. Red signifies the lowest range of scores.

Patricia McDonnell, Moody’s analyst and co-author of the report, said suburban areas tend to be more volatile and softer compared to central business districts (CBDs), as the office supply side poses more risk with fewer restraints on new construction than in built-up downtown areas. The vacancy rate improved to 15.6 percent in the second quarter, from 16.3 percent a quarter earlier, but it is still higher than the 12.5 percent vacancy rate in CBD markets, according to the latest data available, from the second quarter 2005.

The suburban office market, the only property sector not in the green zone, scored a yellow 57, down from 58 in the first quarter while CBD offices remained at 68, just inside the green territory. "Pushing down CBD office vacancy is the dearth of new building, which is broadly based as 26 of the 45 markets covered have zero construction in the pipeline, and an additional seven CBD markets are expected to see their inventories grow by less than one percent," McDonnell said.

Sally Gordon, Moody’s analyst and co-author of the report, said consumer spending propped up community shopping centers as that sector turned in the strongest performance of any CMBS segment with a score of 83 out of a possible 100, a repeat of the previous quarter. “A key measure of shopping center demand, real personal income, is up 1.1 percent, while retail space per capita of 10.3 square feet is at the lowest level of the previous six quarters," Gordon said.

Multifamily housing, also strongly dependent on the consumer side of the economy, remained at 81 from the last quarter. “An impressive 54 of the 59 multifamily markets saw vacancy rates decline year-over-year," McDonnell said.

The industrial sector stayed just inside of green for the fourth consecutive quarter and also maintained a score of 68 for the third straight quarter. Vacancy remains above historical norms at 10.4 percent, but continues to inch downwards from the peak two years ago, the Moody’s analysts said.

Property fundamentals on the CMBS assets remained at an even keel despite a slight dip in hotels. Independent hotel properties were added to full and limited service hotel data as Moody's restated every hotel market score for the first quarter 2005 and incorporated independently-owned hotel data.

Long Island reported the highest share of independent hotel rooms with 69 percent of its total hotel supply, Los Angeles was at 59.5 percent, and San Francisco had 55.9 percent share of independent hotel rooms. Orlando, West Palm Beach, Fla., and Long Island, N.Y. reported the lowest share of independent hotel rooms at 40.7 percent, 35.4 percent and 35.2 percent, respectively.

The full-service sector increased its total supply as of the first quarter by 24.5 percent, based on the inclusion of independent hotels. The restatement increased first quarter full service hotel scores from 66 (yellow) to 73 (green). The current quarter score of 69, green, dropped from the first quarter score.

Independent hotel properties increased the total supply of limited-service hotels by 37.6 percent. The 74 score for limited-service hotels in the second quarter was restated to 80 with independent hotel properties.

"An unprecedented 33 markets experienced year-over-year growth in revenue per available room (RevPAR) in excess of 10 pecent versus only 13 markets last quarter, with 12 markets matching or exceeding their respective RevPAR targets, versus only nine that met their targets last quarter," Gordon said.
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Office Market Continues Strong in 3Q, Colliers Says
MBA (10/20/2005) Murray, Michael

High absorption numbers helped the national office market continue its upward trajectory after posting a strong third quarter, according to a report by Colliers International.

Third quarter absorption almost doubled Colliers' projections of 20 million square feet (msf) per quarter, made at the outset of the year. July through September absorption totaled 36.2 msf compared with 33.9 msf during the second quarter this year and 26.2 msf during the quarter one year ago.

“After adjusting for the effects of Hurricane Katrina, job creation remained remarkably strong in the third quarter. Because job creation has a direct effect on the health of the office market, it represents another major factor contributing to the strong office absorption experienced during the third quarter,” Colliers said.

Third quarter office vacancy rates measured 14.2 percent this year, versus 14.7 percent during the second quarter and 15.7 percent during the third quarter last year. The report said vacancies are now significantly below the cycle high of 16.4 percent registered at the end of 2003. “In line with this vacancy reduction, rents increased during the third quarter of 2005, with national averages showing healthy up ticks,” Colliers said.

"The United States office market is surprising almost everybody with robust growth and rapidly declining vacancies," remarked Ross Moore, vice president and director of research at Colliers USA.  "Unfortunately, however, this trend is almost certain to end, as the business sector appears poised for a slowdown, in the face of rising interest rates and escalating energy costs."

New construction totaled 8.8 msf during the third quarter, 4.2 million square feet lower than 12.6 msf during the second quarter.  Office construction completions totaled 31.8 msf at the end of the quarter versus the 31.7 msf completed by the end of the third quarter last year. Another 66.1 msf of office space is under construction, with completions expected in the next 18 months.  “Only a few office markets forecast a slowdown during the balance of 2005, with most predicting demand will stay at current levels or higher,” the report said.
 
Washington, D.C. and parts of Manhattan account for four of the five largest office markets with the lowest vacancy rates. Washington had a 7.4 percent vacancy rate while Midtown South and Midtown Manhattan was 9.4 percent. Philadelphia was the fourth largest city with a 10.7 percent rate and Downtown Manhattan rounded out the top five at a 12 percent vacancy rate.

The national average downtown vacancy rate was 13.8 percent for the third quarter and downtown asking rents increased 3.2 percent, reaching an average of $35.84 per square foot (psf), while suburban rents increased two percent to $24.35 psf. “Such sustained quarterly [rent] increases were not expected to appear until 2006,” the report said.

Suburban office markets average 14.4 percent vacancy nationwide. Northern Virginia appears to have fully recovered from the dot-com fallout from five years ago as the top suburban office market with an 11.4 percent vacancy rate, followed by Northern, N.J., Central N.J., Los Angeles and Ventura counties and the Atlanta suburban market.

The San Francisco and Boston downtown office markets ranked seventh and eighth in lowest vacancies, respectively, but their suburban office markets, also hit by the dot-bomb, did not make the top ten vacancy rate list. Atlanta, Houston, Philadelphia and Chicago made both downtown and suburban office market lists for having lowest vacancy rates.
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HFF's Los Angeles office arranged a $50 million refinancing for 555 Ninth Street, a 148,832 square-foot, Class A retail center in San Francisco on behalf of SPI Holdings LLC. 555 Ninth Street is located in the South of Market area of San Francisco. The property was built in 1991 and is 100 percent occupied by seven tenants including Bed Bath & Beyond, Nordstrom Rack, Trader Joe's and Pier 1 Imports.

HFF senior managing director Paul Brindley arranged a 10-year, interest-only, fixed-rate, securitized loan through Greenwich Capital Markets, Greenwich, Conn. SPI, a private real estate investor and developer, currently owns and controls a four-million square foot institutional quality portfolio. "The refinancing allowed the borrower to pull out some proceeds, but more importantly, lock in a long-term rate that is very attractive as long-term owners," Brindley said.

The Houston office of HFF arranged $11.23 million in financing for Parkway Town Center, a 65,840-square-foot, Publix-anchored retail center in Smyrna, Tenn.

HFF director Tucker Knight, working on behalf of Newco-Ridley LLC, secured a $10 million, 10-year, fixed-rate, securitized loan through Principal Global Investors. The loan has a 30-year amortization. In addition, a $1.23 million mezzanine loan was placed with RAIT Investment Trust. The borrower is an affiliate of PGM Properties LLC, which is a Tennessee commercial real estate development company that specializes in grocery anchored retail centers.

Parkway Town Center, completed in May, consists of one main building plus four out parcels that are 95 percent occupied by Publix, Great Clips, Pet Supermarket and Blue Coast Burrito. Phase II is under construction, due for completion in late 2006, and the retail center will add another 8,000 square-foot pad site that is not included in this financing. The nearly 14-acre retail center is located at the southeast corner of Sam Ridley Parkway and Jim Parker Drive in Smyrna, a southeast suburb of Nashville.
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Abagnale, author of Catch Me If You Can and his latest book The Art of the Steal is one of the world's most respected authorities on the subjects of forgery, embezzlement and secure documents.

The 2006 MBA Asset Administration and Technology Conference is at the Arizona Biltmore Spa & Resort in Phoenix.

Three educational program session tracks are available: servicing, technology and multifamily, which provide cutting-edge information to help you work more effectively within this globally changing market.

Commercial/multifamily loan servicing and closing personnel and technology professionals should plan to attend this conference.

If you are interested, click here to register. Stay tune for more details as the program becomes finalized.
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MBA Commercial/Multifamily NewsLink Reprint Policy
MBA (10/20/2005) MBA Staff

Articles appearing in MBA Commercial/Multifamily NewsLink are available as reprints for a nominal fee. Reprints are done on quality paper or can be sent electronically as a .pdf file. Reprints can be distributed to your employees, to illustrate presentations or for other communication purposes.

For reprint information on stories in MBA Commercial/Multifamily NewsLink, contact Al Esposito at 1-800-394-5157, extension 28.
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To place these sizable sums in some industry context, small loan funding has been roughly equivalent to the $32.7 billion tallied by the domestic the commercial mortgage backed securities (CMBS) market during the first quarter. CMBS production was also slightly off its fourth quarter numbers.

Some national highlights of the quarter include:

The average small balance loan size grew to $690,000 from an average of $638,000 during the first quarter of 2004. Refis now average $770,000 while purchase mortgages are $583,000.

Fixed rate loans predominate in the small market, at 72 percent of all deals. This level has remained fairly consistent over time, as retail investors and small business owners of real estate, in general, traditionally follow a buy and hold strategy.

Small commercial property sales were $13.5 billion in the first quarter, up 15.6 percent from the first quarter of 2004. Multi-family properties, at 29 percent, grabbed the largest share of sales.
 
Top banks for originations in the period included Washington Mutual, Bank of America, Wachovia and JP Morgan Chase. In the previous quarter, Wells Fargo was in this leading lenders group. The market remains very fragmented, however, as the top lender commanded only a four percent share of total originations nationwide.

The top three counties for originations included Los Angeles, Cook (Chicago) and Orange, accounting for $6 billion in loan volume, or 20 percent of the first quarter’s total production. California markets consistently appear among the top markets from period to period.
 
Based on analysis of preliminary data, Boxwood Means Inc., estimates slightly higher originations volume of $32-$34 billion in the second quarter as small property investors, consistent with their institutional counterparts, have continued to direct large sums of capital to this sector. Similarly, we see a continued upward trend by small business owners in financing purchases of owner-occupied real estate, as well as monetization of these investments through refinancings.

Boxwood’s small loan market research is based on analytics developed in concert with the firm’s joint venture partner, First American Commercial Real Estate Services.

(Randy Fuchs is a principal at Boxwood Means Inc. Boxwood is a real estate research and consulting firm focused on quantitative solutions for clients’ strategic business issues. The firm’s small loan market research and consulting services support commercial banks and lenders nationwide).
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Much of what we have seen in recent days has been the result of what has often been termed as the mis-pricing of risk, and now the apparent ebbing of that conundrum. Mind you, nothing bad has happened to the financial world, or domestic real estate for that matter. There are just inflecting trends and indications of things to come, perhaps reflecting shifting expectations.

For instance, the expansion continues, and our now tighter labor market and higher capacity utilization makes us vulnerable to exogenous shocks that affect production. Such was the case with the hurricanes. We’ve now seen runs in commodities, declining fuel stocks and a subsequent jump in inflation to the tune of 4.7 percent year over year. This is just what happens in an expansion that is maturing, and the market must price it as it sees it. Based on recent experience, the market at times may be more sensitive or less sensitive to risks such as inflation. However, the market eventually prices it correctly, particularly as information improves over time, and unique insight eventually becomes consensus.

Not surprisingly, we have seen some spreads widen, and we have watched the risk-free rate rise in recent days. These and other events are causing some strains around the edges. How many mortgages hang in the balance? How many leveraged investors are now struggling to cover their positions? I have been interested to see some rogue hedge funds find their way into the headlines in the last week or two. The capital flooding in and the limited opportunity for obvious risk-adjusted returns seem to now be colliding in some of the more shadowy recesses of that industry, with those less well run firms starting to run afoul of investor expectations and maybe even the law.

But this is all good. These are all examples of the flexibility that we often hold up as the primary factor keeping more jarring disturbances at bay. It is as much the freedom to fail, as it is the freedom to succeed. All hail flexibility! In his comments the other day, [Fed] Chairman Greenspan fawned that "In my more than eighteen years at the Federal Reserve , much has surprised me, but nothing more than the remarkable ability of our economy to absorb and recover from the shocks of stock market crashes, credit crunches, terrorism and hurricanes—blows that would have almost certainly precipitated deep recessions in decades past. This resilience, not evident except in retrospect, owes to a remarkable increase in economic flexibility.” You have to love flexible free-market capitalism. It works because it keeps us all on our toes, and leads scarce resources to their most productive uses. Unfortunately though, we still do find pockets of the economy that are not so flexible, and these pockets do pose a great risk to the commercial real estate industry.

Case in point, Delphi Corp.’s recent bankruptcy is riveting—and riveting in no small part due to the intrepid (if that’s the correct word for it) comments by the firm’s pull-no-punches CEO Steve Miller. Miller has turned his firm’s plight into a rallying cry against the legacy labor agreements that he and many other firms in mature industries are now struggling to finance. In recent years, we have seen similar themes play out in the steel industry and the airline industry. Essentially, a complete lack of flexibility with regard to laborforce and facility planning, combined with the crushing weight of multiplying and long-lived pensioners have left these firms unable to compete globally. While a firm like Delphi or GM or Ford may arguably be in a tough environment even without such restrictive labor agreements, one must still conclude that they are on the verge of breaking because they simply cannot be flexible.

Now, of course, there is a flip side to this. The United Auto Workers (UAW) has done an absolutely stellar job of producing steady and well-paying jobs for their constituents, as well as benefits the likes of which most workers might only dream. For their members, particularly the ones who have been with them for the long haul, the UAW has produced what from the outside appears to have been a rewarding and peaceful existence. And that is, after all, what they were created to do. Mission accomplished! Certainly, the UAW’s hard-nosed tactics have precluded their members’ sons and daughters from also entering their parents’ fields in their own hometowns (note: not too many auto-related plants are built in Michigan anymore), but that’s okay.

After all, the kids move to other job markets, typically in the Southeast or Southwest, and also enter into other industries, chiefly service or knowledge-based work. Heck, their moms and dads moved to Florida or Arizona upon retirement anyway. So, it’s all good. The family meets up at the Waffle House on Saturday mornings, and the grandkids love being close to their grandparents. Moreover, the weather is great down south! It is the new American dream. Who could ask for more?

Well, I suppose Delphi’s shareholders could have asked for more. Their company is, after all, on death’s door. Moreover, the UAW isn’t sitting too pretty these days either; I shudder to think what the average age of their membership must be. I’m guessing that the rank and file is getting a little long in the tooth. After all, we’re not making many union manufacturing jobs anymore. More to the point of our industry, these markets that are home to inflexible industries are suffering right along with the industries that they depend on. The marvelous flexibility that keeps the aggregate economy afloat through hell or high water is sadly absent in these markets, and the investment returns from their real estate assets reflect that.

Let’s compare the two extremes. Detroit, in terms of its major export industry, is the ultimate non-flexible union stronghold. What is the opposite of Detroit? How about New York? The big Apple’s dominant financial firms are notorious for throwing folks overboard at the drop of a hat. I have to chuckle when I visit clients in New York, as it seems that the lion’s share of them keep a few cardboard boxes handy in their offices, just in case. So, while I am 100 percent sure that I could find many cities with fewer union members than New York, I would say that the workers in New York’s premier industries share very little in common with their Detroit counterparts. So with that in mind, let’s consider the health of each metro area’s office market.
 
Detroit has a vacancy rate that is over twice that of New York! How do we judge what has caused the divergence in fortunes between Detroit and New York? Some might dismiss this as an unfair comparison—apples and oranges. However, I dismiss those people who dismiss this comparison (if you can follow that). After all, over the long run, every regional market is essentially a blank slate. They can be whatever they want to be. In many ways, no market is more physically disadvantaged than New York, save New Orleans. It’s an expensive, crowded, resourceless island, after all. Be that as it may, the difference between the performances of these two commercial real estate markets stems from the fact that one has come to embrace the bedrock idea of flexibility and reinvention. The other one has come to be defined by obstinance and inflexibility. By contract, Detroit’s major industry cannot redefine itself.

So, here we are today, in an expanding economy that has come to epitomize the benefits of flexibility, innovation and subsequent affluence. Interestingly, at the same time, we are watching our industrial giants such as Delphi, GM and other such firms fail to adjust via what Joseph Schumpeter termed “creative destruction.” Rather, they risk absolute destruction due to their paralysis. Even worse, they are dragging down the markets that they call home.

None of this is much more than a page in the history of our economy, which is rife with winners and losers. However, most of the people reading this have a stake in the health of commercial real estate assets, and even after the battles between labor and manufacturer play themselves out, the real estate assets in these markets will live on, dealing with both the lost opportunity costs and the direct fallout from these standoffs. Retired autoworkers and Delphi executives alike will eventually pick-up and retire. Commercial real estate investors, however, will be left with what remains. While the retirees are likely to head to where it is warm, I suggest that investors head to where the economy is flexible!

(The ideas and opinions expressed in this article do not necessarily reflect the views and policies of the Mortgage Bankers Association).
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