From a small northwestern observatory…

Finance and economics generally focused on real estate

Posts Tagged ‘real estate appraisal

Demand & Supply

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I just read a nice piece by Deloitte’s Robert T. O’Brien, their Global and U.S. Real Estate and Construction Leader, titled Commercial Real Estate Outlook 2017.  It’s far too interesting and too packed with info to summarize here, so have a glance for yourself.  However, I’ll point out a couple of things I believe stand out in his analysis.

First, homebuilders are under pressure due to what he calls the “demand-supply dichotomy.”  I’ve been concerned about this for a while.  During the recession — which admittedly was several years ago — big chunks of the housing infrastructure collapsed, including acquisition-development-construction (ADC) finance, skilled labor, permanent finance securitization, and local government permitting capabilities.  As such, we now actually have a bit of a housing shortage in hot areas (think “Seattle”).  Mr. O’Brien worries that homebuilders’ financial projections may be dampened.  I’m a bit more concerned with the upward price pressure on houses, which could put us back in a bubble situation.  Deloitte believes interest rates hikes by the FED may temper some of the demand side.

He believes private equity fundraising will decline this year, “…as managers focus on deploying existing funds.”  He believes managers will face increasing competition looking for good investments.  I would add that new managers or managers with a new story to tell will find 2017 a bit easier for fundraising than 2016.

O’Brien also sees slowing in the commercial construction arena, and so slugging financial performance for engineering and construction firms.  REITs should do well, though, albeit with continued portfolio repositioning.

Deloitte sees GDP growing about 2.5% this year and unemployment below 5%, which is in line with metrics we see here at Greenfield.  They also see several things disrupting the economy both this year and in out years.  The “collaborative economy” will certainly have implications for the way new start-ups use and lease commercial real estate.  The internet is rapidly disintermediating brokerage and leasing services, with implications for traditional brokers.  A shortage of talent in the STEM area and other shifts in the way millennials view the workplace have implications for location strategies.  Speed and mode of retail delivery — the “last mile” disruptions of Amazon — are still being sorted out.

Gulf Oil Spill Conference

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Congrats to the folks at HB Litigation Conferences for a superbly organized and run conference in Atlanta this past week. For two days, a veritable who’s who of top litigators outlined the issues, the scope of the problem, and the direction all of this is headed.

I had the pleasure of going on the first day, right after Michael Rozen (law partner to Ken Feinberg, who will administer the $20 Billion fund) and right before Robert Kennedy, the famed environmental attorney. Rozen presented an indepth Q&A on what is known today about the Fund, which frankly isn’t all that much. Big questions loom on whether BP can or will attempt to use the fund to offset their remediation costs, and how claimants will be compensated for ongoing economic disruption which may not be fully knowable today. Kennedy’s luncheon address was more forward looking — really focused on the opportunities to get the world off of its dependency on carbon-based fuel.

Naturally, my own talk was focused on the economic and valuation questions — both what we need to do and how we will go about doing those things. As I noted, much of our scope of work over the coming months won’t be knowable until the MDL panel reaches its conclusions, hopefully before the end of July. However, much can already be done, and needs to be accomplished aggressively before a judge is appointed so that in the initial meetings, the litigants will be able to show the judge that the valuation questions are actually answerable.

From a purely practical perspective, we came away from the conference realizing that we were probably the only firm of our kind in the country capable of taking on this project. Apparently, most of the attorneys in the room seemed to aggre with that assessment. We will keep you posted as this case progresses.

Written by johnkilpatrick

June 26, 2010 at 1:52 pm

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