Are We There Yet?
Submitted by D. Saperstone
For at least the past two years, we’ve all heard that the recovery is “just around the corner.” Pundits on both sides of the political and economic aisles continue to debate where we are on the journey to the mythical corner. Painting with the broadest of brush strokes, these purveyors of limitless statistical data (screened of course to validate their point of view) would have us believe the economy is either showing positive momentum or falling dangerously close to another recession. Are we around the economic recovery corner or is it still blocks away?
Clearly, the fate of the commercial real estate market is tied to the health of the general economy. However, not all markets felt the full sting of the Great Recession and, therefore, are farther along the path of recovery. Secondary markets rarely fall prey to the wide swings in property values caused by speculation. Stability and moderation are the hallmarks of real estate in most secondary markets. While not as sexy in the eyes of some professional real estate investors, we have found this “steady as she goes” mindset to be attractive to our investor group. It has produced solid, predictable returns on their investments, irrespective of asset class.
We do not suggest that the commercial real estate market in secondary cities has been able to fully escape the impact of the financial crisis. Nothing could be farther from the truth. Certainly, activity in these markets has slowed and pricing has been affected by the cost and availability of funding. But, that being said, our experience suggests that commercial real estate values in secondary markets did not fall precipitously even as the velocity of transactions slowed. Therefore, the recovery corner in these markets is much closer at hand as evidenced by the steady increase in closed transactions. To our delight, our phones are ringing more often than they were a year or two ago. Are we there yet? The honest answer is “no.” We’ve still got a way to go and the journey will continue to bump along in fits and starts. But for our investors, the distance to the corner is clearly in sight.