Riding the Wave of a Rebounding Economy: Secrets of the Expert Advisors

An executive seminar for corporate, real estate, design and construction professionals.

 

Over 150 corporate executives, real estate developers and design professionals attended "Riding the Wave of a Rebounding Economy: Secrets of the Expert Advisors," an executive seminar co-sponsored by Ernst & Young LLP, North Fork Bank, DSL.net and BBL&A on March 16, 2004 at the University Club in midtown Manhattan. Barry LePatner moderated a distinguished panel that included:

• Dr. Irwin Kellner, Chair of Economics at Hofstra University and Chief Economist for CBS Marketwatch;
• Richard T. Anderson, President of the New York Building Congress;
• Kenneth M. Krasnow, Senior Managing Director of the New York Metro Region for Cushman & Wakefield; and
• Mark Smith, Ph.D., Global Director for Real Estate Advisory Services at Ernst & Young LLP.

A recording of the event on CD is available for purchase. Contact Brad Cronk for more information.

 

The following is the text of Barry LePatner's opening remarks:

As economists and politicians have come to learn, the past few years have confronted us with a fascinating one-of-a-kind national economy. Over the past three years our nation has seen a federal budget surplus of $237 billion disappear until today, we face a budget deficit that continues to grow dramatically. What has buoyed our economy, as never before, is consumer spending.

Although many corporations report healthy profits, in large numbers these profits are not the result of successful operations. To the contrary, many companies report that substantial percentages of their profits are being derived from currency fluctuations as they increasingly derive more and more of their profits from business overseas.

As we now move beyond the recent recession, many corporations, investors and real estate developers are awash in cash waiting for new opportunities to arise; yet, it is the consumer that is keeping our economy afloat. From Walmart to Macy's to luxury goods purveyors such as Asprey and Gucci consumer goods at all levels are selling well. And while new housing construction remains at or near all-time highs, job recovery lags terribly. During the strong economy of the 90's the United States saw new jobs increase by 23 million - at a rate that regularly increased by 300,000 new jobs a month. Yet, today's job growth is 21,000 a month - a loss of 2.3 million jobs in the past three years. So it is that economists and politicians alike are thankful for the fact that the consumer has accounted for more than two-thirds of all spending in this country.

The yin-yang, good news/bad news of where we are in this election year looks like this.

The negatives include:

• A federal budget deficit of $530 billion (not including costs for the Iraqi rebuilding effort);
• Low interest rates that will undoubtedly rise after the November elections;
• A trade deficit of about $400 billion that has seriously lowered the value of the dollar against other currencies; and
• A jobless recovery and a 6.2% unemployment rate with little change in sight.

From a positive standpoint:

• There is little inflation for us to deal with;
• Low interest rates continue to provide incentives for new real estate investment;
• A rebirth in the technology sector after three consecutive years of sub par performance;
• A stock market rally of the past year that is likely to continue; and
• Productivity gains that are very strong averaging since 1965, about 2% a year with a projected jump of 6% for the coming year.

In the real estate and construction markets there will be pockets of positive signs overall even as new housing construction muddles along for the next year or two. If you speak to hotel executives they will point to encouraging signs while mumbling that there is a long way to go. New hotel construction still frightens most companies although Hilton Hotels expects to add 100 to 115 hotels to its portfolio in the next year. Wall Street, institutional and private investor money is ready to flood the market by purchasing existing hotels at what is perceived to be the bottom of the current market.

Dick Anderson will address us in a while on the New York Metropolitan Construction Market which totals approximately $15 billion a year. On the national level, 2003 construction contracts of $505 billion are projected to increase 1% in 2004 to $509 billion. Interest rates for fixed mortgages according to the National Association of Home Builders will rise to 6.2% this year up from 5.8% and likely climb to 6.7% in 2005. As a result, single family housing starts will drop by 4.9% in 2004 from a record year in 2003.

From the standpoint of new hot areas where our city and region will grow and develop let me cite what I believe will truly be the future. Without doubt, the most valuable and underdeveloped arena in the New York metropolitan area is our 532 miles of coastline property. City and regional planners of yore badly missed the mark when they dedicated waterfronts throughout Manhattan, Brooklyn, Queens and New Jersey with myriad roadways and railroad track. Fortunately, today the recognition of these under-resourced areas is being seen for what it is: the opportunity to recapture a prize for our region that will make the metropolitan area even more attractive and financially sound in the decades to come.

Three recent examples of this type of development with which my firm has been involved include:

• a $400 million development of the Silvercup Studios property in Long Island City adjacent to the Queensboro Bridge. Currently in design to proceed through ULURP, this project will include new housing, commercial properties and neighborhood-enhancing amenities;
• Jersey City rejuvenation led by Goldman Sachs' new tower, the Liberty Science Center and new housing projects along the shoreline; and
• A little known project of great significance is the New York City Economic Development Corporation's recent retention of two world class architectural firms: Richard Rogers Partners and SHoP/Sharples Holden Pasquarelli to prepare joint concept studies for the redevelopment of the East River shore front from the Battery to 14th Street.

As projects such as these move forward during the decade ahead, our city and region will certainly retain its luster as a world class destination for visitors and business people from around the globe. And the citizens of New York and the surrounding areas will enjoy greater amenities as well as positive growth that will address our existing shortage of housing. All of this will offer enormous opportunities to many of you who are here from the real estate, design and construction communities.

Click here to continue to the full transcript of the conference.