From a small northwestern observatory…

Finance and economics generally focused on real estate

Posts Tagged ‘Credit Suisse

REIT Valuations — Looking Forward

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We’re still picking thru the immense amount of information that came out of REIT week back in June.  Paul Whyte, a managing director at Credit Suisse in charge of their investment banking sector, is looking for “continued growth in valuations and operating income in the commercial real estate industry during the second half of 2012,: according to an article posted by writer Matt Bechard last week.

Whyte says investors will continue the “flight to quality” in terms targeting trophy assets, noting that “In uncertain times, capital tends to go where they see long-term opportunity.” Whyte singled out two sectors, retail and data centers, for particular attention.  In the retail arena, investors appear to be looking for higher-quality class-A mall properties rather than suburban investments.  He suggested that data centers are “intriguing,” and that with continued movement to cloud computing and social media, “there’s just enormous demand there.”

Reflecting our own sentiments here at Greenfield, Whyte has deep concerns about property investments in the Eurozone.  “I think that what Europe lacks is a comprehensive, long-range plan for fiscal unity,” Whyte said. “Without it, we’re just really putting Band-Aids on the patient.”  He also noted, “From a headline perspective, Europe is influencing the markets more so than I think anybody had ever imagined,” he said.

As for the U.S., he concurs that we are in a recovery mode, and projects investment  interest in energy, health care and technology sectors.

REITWeek was held June 12 – 14 at the New York Hilton.  It is the annual investor forum sponsored by the National Association of Real Estate Investment Trusts.


Phily Fed — Econ Forecast

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One of my favorite economic touchstones is the quarterly survey of professional economists by the Philadelphia Federal Reserve Bank. Forty-four economists are surveyed, including such notables as Mark Zandi from Moodys, John Silvia from Wells Fargo, and Neal Soss from Credit Suisse. The focus is on “practicing” economists rather than “academics”, and as such gives a great snapshot of what decision makers at major corporations are thinking.

The Phily Fed then takes a synopsis — both a mean and a distribution — of their collective thinking in several key areas, such as Real GDP growth, unemployment, monthly payroll growth, and inflation. The interesting factors include both the current thinking, the CHANGE in current thinking (from the previous projections) and the probability distribution.

Current thinking about GDP growth is a bit less optimistic than it was before. As noted in the graph below (reproduced from the Phily Fed’s report), prior consensus thinking put GDP growth in the 3.0% to 3.9% range, while the current consensus mid-point is between 2.0% and 2.9%. Good news — hardly anyone projects negative GDP growth for this year. As we get into out-years (the graphics are on the Phily Fed’s report), which you can download by clicking here ), the consensus is a bit blurry, but in general most economists still see GDP growth postiive and between 2% and 4%. Unfortuantely, this isn’t the best of news — for the U.S. economy to really get back on track, much stronger GDP growth is needed (solidly high 3% range and even above 4%).

Philadelphia FED GDP Projectsions 2Q 2011

Unemployment projections for 2011 are somewhat rosier. In the prior survey, the mean projection was in the range of 9.0% to 9.4%, with a significant number of economists projecting from 9.5% to 9.9%. Currently, the mean is 8.5% to 8.9%, and a signficant number project in the 8.0% to 8.4% range — a very real shift in the outlook for the nation’s economy as we head into the second half of the year. On the downside — projections for out-years (2012, 2013, and 2014) show a very slow restoration of “normality”, with mean unemployment projections above 7% in all years.

Philadelphia FED Unemployment Projections 2Q 2011

One piece of good news — and this may be the FED patting itself on the back a bit — is that its inflation projections have been quite accurate over the years, and they continue to forecast exceptionally low CPI changes over the next ten years. While the median forecast is up slightly from last quarter (2.4% up from 2.3%), this continues to be great news for consumers and bond-holders. Notably, as you can see from the graphic, there is a fair degree of agreement among economists surveyed — the interquartile range is less than a percentage-point.

Philadelphia FED Ten-Year Inflation Projections as of 2Q 2011

Written by johnkilpatrick

May 13, 2011 at 9:55 am

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