Reliable Commercial Re Cycle Forecasts?

[Michael P Jacobs MAI]

Fellow commercial appraisers, I'm looking for a reliable historical and forecasting tool for CRE cycles (office, retail, industrial and multifamily).

Three years ago I started discussing the PwC RE Barometer discussion (when relevant) in reports and began including it in a separate section with narrative links to HBU and valuation sections in about 100 appraisals last year. I'm hearing mostly positive feedback although I had to tone-down the "recession" talk since that is still a MAJOR RED BUTTON for many. After all this time I'm finding it useful for my own frame-of-reference, and I'd like to improve the section. It's far from perfect.

I don't know of another "objective" market-acceptable resource for this kind of survey or market indicator. Any ideas or suggestions?

The whole point is to justify where estimates and assumptions fall within a range. In a "contracting" market you'll find downward pressure on prices (and you'd be more conservative) while in an "expansion" market we see investors pushing prices (or OARs, or rents, etc.). You get the idea - this in part justifies our overall leaning in the various ranges. I'm not looking for a sliver bullet, just better data to improve report-readers' understanding.

 

[Howard Klahr]

Hey Mike

PPR used to be pretty good data source but they were acquired by CoStar and I have not personally checked into the data since the acquisition.

http://www.costar.com/products/costar-market-analytics

Dividend Capital published a quarterly report as well

http://mediacenter.merrillcorp.com/...ID=35&Purpose=HUMAN_VIEW&Caller=RETRIEVE_FILE

Hope that helps

 

[PL1957]

CBRE Economic Advisors (CBRE-EA), formerly Torto Wheaton, has some great predictive models.

 

[RebelNYC]

In general, I think that macroeconomics have become a joke since 2008. This is primarily because most of the people doing these models and reports are ardent believers in the Neoliberal school of economics. Most all do not understand capital flows (i.e. bank credit creation versus sovereign money creation). A sure sign that a particular report should be discarded is if they talk about fiscal deficits and the national debt as being "bad". And none have a clue about how exchange rates function, how the USD operates as the world's reserve currency, how that leads to the Triffin Dilemma, and how the world is rapidly transitioning to Keynes' Bancor. There isn't a week that goes by where there is not some article describing a return to a UN mediated exchange rate system, yet it's ignored.

You've got to hang your hat on some authority I guess, but just remember that these authorities have been pretty much wrong about everything for a decade. As far as I'm concerned, all are garbage. At the end of the day, the vast majority of people, and real estate investors included, don't really understand broad economic trends. We're supposed to report on the behavior of market participants. My opinion is that because all these reports are useless, it doesn't make any difference what you choose!

 

[Gobears81]

A sure sign that a particular report should be discarded is if they talk about fiscal deficits and the national debt as being "bad".

I understand that there are misunderstandings about debt/ deficits and have personally spoken to people that do not believe that the U.S. is running a deficit. With that said, printing more money to pay for debt does what? Stoke inflation, which in turn increases interest rates that in turn create higher debt payments for the additional interest that is already on top of the additional principal brought on by imbalanced budgets. That is somewhat of a vicious cycle that would either result in ever-increasing inflation and debt payments or considerable dampening of future real economic growth due to governments insisting on a greater portion of the budget/ higher taxes to pay down the additional debt. Perhaps there would be winners and losers, but Zimbabwe is not the economic model that I hope the U.S. pursues.

 

[RebelNYC]

I understand that there are misunderstandings about debt/ deficits and have personally spoken to people that do not believe that the U.S. is running a deficit. With that said, printing more money to pay for debt does what? Stoke inflation, which in turn increases interest rates that in turn create higher debt payments for the additional interest that is already on top of the additional principal brought on by imbalanced budgets. That is somewhat of a vicious cycle that would either result in ever-increasing inflation and debt payments or considerable dampening of future real economic growth due to governments insisting on a greater portion of the budget/ higher taxes to pay down the additional debt. Perhaps there would be winners and losers, but Zimbabwe is not the economic model that I hope the U.S. pursues.

As I said, people who believe standard liberal orthodoxy are incapable of understanding macroeconomic trends. I listed several important concepts that you could spend the time googling.

I would recommend reading the following:

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf - This explains in detail why many of your commonly held misconceptions are wrong. But not only wrong, but destructive.

If you would like a more technical explanation of how money is created in the modern economy, I would read paper published by the Bank Of England. In it, you will learn how exactly most money is created by banks, and only a minority is created by the ruling sovereignty.

http://www.bankofengland.co.uk/publ...lletin/2014/qb14q1prereleasemoneycreation.pdf

Now, the big issue is Triffin's work. Using a national currency as a global reserve currency has serious drawbacks as well as some positives. We have reached the point where the drawbacks are severe enough that we are transitioning to Keynes' Bancor, as was proposed at the conference where the United Nations was founded. This will likely be in the form of International Monetary Fund Special Drawing Rights as detailed in this 2-day old article.

I don't have time to explain exactly how this affects real estate values - but you can expect the value of the US dollar to fall by upwards of 25% over the next 5 years. This is what macroecomic predictive models do not consider. It has been almost a half century since the Nixon Shock, and virtually no one producing these models has ever lived as an adult under any other regime. Hence, they cannot and do not see what is happening.

 

[Michael P Jacobs MAI]

PPR used to be pretty good data source but they were acquired by CoStar and I have not personally checked into the data since the acquisition.

Their forecasts have been too general and I don't like the presentation - it isn't intuitive as a cut-and-paste.

Dividend Capital published a quarterly report as well http://mediacenter.merrillcorp.com/...ID=35&Purpose=HUMAN_VIEW&Caller=RETRIEVE_FILE

THANKS - Oh, yes! Forgot about them. I don't like that they use the term "recession" when it's more like a small adjustment - "recession" seems to be a hot-button term that only means the black-death to some clients - but I've mitigated that in my narrative. Is there a fee for these and do you register with them for access? Couldn't find direct access.

Thanks again, Howard, as always you are a true brother-in-appraisal (BIA lol).

 

[Gobears81]

As I said, people who believe standard liberal orthodoxy are incapable of understanding macroeconomic trends. I listed several important concepts that you could spend the time googling.

I would recommend reading the following:

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf - This explains in detail why many of your commonly held misconceptions are wrong. But not only wrong, but destructive.

If you would like a more technical explanation of how money is created in the modern economy, I would read paper published by the Bank Of England. In it, you will learn how exactly most money is created by banks, and only a minority is created by the ruling sovereignty.

http://www.bankofengland.co.uk/publ...lletin/2014/qb14q1prereleasemoneycreation.pdf

Now, the big issue is Triffin's work. Using a national currency as a global reserve currency has serious drawbacks as well as some positives. We have reached the point where the drawbacks are severe enough that we are transitioning to Keynes' Bancor, as was proposed at the conference where the United Nations was founded. This will likely be in the form of International Monetary Fund Special Drawing Rights as detailed in this 2-day old article.

I don't have time to explain exactly how this affects real estate values - but you can expect the value of the US dollar to fall by upwards of 25% over the next 5 years. This is what macroecomic predictive models do not consider. It has been almost a half century since the Nixon Shock, and virtually no one producing these models has ever lived as an adult under any other regime. Hence, they cannot and do not see what is happening.

Is that the same Bank of England link that indicated that you posted in support of the assertion that foreclosures don't affect banks? If so, I can emphatically disagree, as I have seen one bank brought to its knees by a single borrower and another by a single deal gone bad. In regards to printing money causing inflation, that is precisely what led Zimbabwe to hyperinflation. Perhaps the dollar being a reserve currency has an effect on your thoughts AND I did notice that the QE measures taken after the 2008 recession didn't cause the inflation that some economists had predicted. But, the question remains, what would have happened if QE was not in place? Perhaps deflation and a more significant recession.
I appreciate your willingness to think outside of the box on economic theory and will put your links on my future reading list. With that said, your stance is a bit heavy and the scientific method may have been thrown out of the window.