The Ground Floor

ULI's Real Estate Summit at the Spring Council Forum Takeaways

This post was written for The Ground Floor by Trisha Riggs, vice president of communications at the Urban Land Institute.

ULI's Real Estate Summit at the Spring Council Forum in Boston was a success not only by the numbers—the event drew a higher-than-expected attendance of more than 3,100—but in the value of the takeaways, which ranged from advice on weathering the road to recovery (don’t blindly follow others) to the outlook for financial reform (necessary to reduce credit market volatility).

The closing session, moderated and coordinated by Arthur Segal, Poorvu Family Professor of Management Practice at the Harvard School of Business, featured four top industry experts providing the week’s "last word": Alan M. Leventhal, chairman and CEO of Beacon Capital Partners, LLC; Nicolas P. Retsinas, director, Harvard University's Joint Center for Housing Studies; David Moss, John G. McLean Professor of  Business Administration, Harvard University Business School; and ULI Chairman Jeremy Newsum, executive trustee of The Grosvenor Trusts.

• Industry leadership: What is most important to remember going forward, said Newsum, is the need to be original, to avoid copying strategies of others as a path to success. "Copying what others were doing is what got us into this recession to start with," he noted. One takeaway—that CEOs need to seek the advice from a wide, diverse group of employees and from people outside their own firms is a practice that top executives should always follow, regardless of the economic booms and busts, he said.
• Financial reform: The U.S. needs to be the world frontrunner in reforming the financial industry; if it leads, other countries will follow, said Moss. His best-case scenario for reform: "To achieve broad stability within the institutions without killing innovation." This can be achieved, he said, through legislation that one) aggressively regulates the largest institutions—those that pose systemic threats, yet two) uses a "lighter touch" on smaller institutions that pose less risk to the system. If a financial reform bill is enacted by Congress, the credit markets in general will stabilize, Moss predicted; if a bill does not pass, "the market will be much more volatile," resulting in another boom-bust pattern of credit availability.
• Housing finance: Despite a "staggering" amount of intervention by the federal government, recovery in the nation’s housing market remains fragile and could easily falter with any upheaval in the current federal housing finance system, said Retsinas. As a result, the Obama administration is taking a prudent, cautious approach to restructuring home mortgage suppliers Fannie Mae and Freddie Mac (government-sponsored enterprises now controlled by the government), and is not likely to pursue reform measures this year. While the federal government's role in housing credit delivery will diminish as part of housing finance reform, the government "cannot be a spectator in housing—the industry is too important for that," Retsinas said.
• Homeownership: With home foreclosures continuing to rise, some industry analysts believe that many consumers—particularly those just entering the housing market—have become disillusioned with the notion of homeownership as the ultimate American Dream and will shun buying, resulting in a decline in the nation's homeownership rate to as low as 62 percent. (It exceeded 67 percent at the peak of the boom.) Retsinas, however, feels differently. "We will see a return to higher downpayments and stiffer credit requirements, but people will still buy and own homes," he said. "Homeownership is not a four-letter word. There will be more renters, but owning is still an important priority in this country." The nation's homeownership rate, he predicted, will stabilize at about 66 percent.
• Economic recovery in general: Trust the numbers, not sentiment, in gauging the recovery, said Leventhal. "The numbers are telling us that jobs are growing, not just in healthcare, education and technology, but in the financial sector and others…these numbers are encouraging," he said. Although the next two years are likely to remain shaky in terms of economic growth gaining strong momentum, he noted that there is "not as much (growth) to regain to get back to the same position as 2007" as is widely assumed. "I am encouraged; the indicators are more positive than any I have seen in the past 18 months."

While the signs are encouraging, Newsum cautioned against being overly optimistic, saying it's best to temper optimism with reality. "If you are in real estate, and you are investing for the long term, there is no reason to expect that real estate is going to perform differently than the overall economy; rather, you should expect it to do just that," he said.

• Advice to industry newcomers recovering from their first recession: "You will not spot the next one coming, and there will be another," Newsum said. "It's best to record what you learned during this one to help you prepare for the next one."

Added Leventhal: "If you buy high-quality real estate and you have staying power, you will weather the storm."

Suburban Housing Market Declines a Result of Demographics Shift

This post was written for The Ground Floor by Lori Hatcher, senior vice president of membership and marketing at the Urban Land Institute.

The current decline in demand for suburban “trade up” housing is more than just an economic correction; it is the result of a seismic shift in demographics and consumer behavior according to James Chung, president of Reach Advisors, speaking at the ULI Real Estate Summit at the Spring Council Forum in Boston last week.

According to Chung, the wave of the Baby Boom population passed the mid-forties—the age that buyers typically move up, and will be 30 percent of the 65-plus age group by the end of the decade. Coming along behind them is Generation X, a smaller cohort that is unwilling to pay for premium housing features and prestigious, exclusive communities, instead choosing attractive community characteristics.

The bulging Generation Y will reshape consumer markets, just as the Baby Boom did, but it will be a slow build, not a tsunami. Chung cited new gender gap statistics—1.5 times more women than men are completing college degrees, and women in their 20s in cities with a knowledge driven employment base now earn 100–120 percent of the salary of their male counterparts. The implications for homeownership and housing needs include delayed marriage and children, increased savings, and a fiscal conservatism that makes them less willing to spend for the flashy housing features that have attracted men as a signal of affluence.

Another factor is that inventory of Baby Boom “trade up” housing outstrips the size and income level of the next generation. While early Baby Boomers were able to reap income growth, everyone else has faced reduced, inflation adjusted income. Although the population is expected to grow by 17 percent—a major factor in producing robust housing markets in the past—almost all of the expected growth will be among groups with historically lower rates of homeownership: Hispanics, Asians, and mixed-race individuals.

Where are the opportunities in housing development? Chung provided this advice: Plan for development where the population is growing and tune in to the community features attractive to minorities or ethnic groups that are getting college educations.

Look for areas with job growth, identifying the companies and the employment profile of those that work there. Develop product clearly targeted at this market.

If planning to trade up product in a master-planned community, ensure the area has very limited supply or the product is superior and can command a higher share of a smaller market.

Consumer willingness to pay for green features is slim, mainly limited to those with both high educational attainment and high income. However, there are wider opportunities to use green features as selling points, such as communities with access to open space, or features that produce demonstrated savings in energy costs.

Time to Buy?

This post was written for The Ground Floor blog by Kristina Kessler, vice president and editor-in-chief Urban Land Magazine at the Urban Land Institute.

Problem deals have increased profoundly, especially in the banking and commercial mortgage-backed securities (CMBS) sectors…was the message brought home by participants at the ULI Real Estate Summit’s Investing in Distressed Commercial Real Estate Industry Roundtable, held at the Spring Council Forum in Boston.

Outstanding distress at the end of January 2010 was $163 billion of property in default, bankruptcy, foreclosure, or real estate owned (REO). Overall volume of nonperforming commercial real estate and development loans on banks’ portfolios exceeds $123 billion (7 percent of that in commercial real estate)—more than 80 percent higher than levels reached in 1991. The last few years have seen transaction based value indices decline about 40 percent peak to trough, according to Moody’s REAL CRE Index. Recovery in values is likely to be long—values in the office sector are estimated to recover to their prerecession peak in 2017, based on forecasts of investment fundamentals by CBRE Econometric Advisors. Yet while the volume of properties entering distress is increasing monthly, so are the resolutions.

This is a recession of over-pricing, not over-building, said Raymond Torto, global chief economist for CB Richard Ellis. Vacancy rates are distributed across every property type, but everyone still has tenants that are paying rent. There is a potential distress pool of some $280 billion in refinancing loans over the next two years, but banks are performing a lot of resolutions.

There are very few deals, people don’t know what the prices are, there are no comps, and no lending from banks, noted Spencer Levy, managing director, Eastern Division, CBRE Capital Markets. Lenders are resolving deals through workouts, short sells, note sales, and REOs. Banks that originated the loan and banks that bought other banks are the ones doing the REOs, which are usually larger, high-profile deals; foreign banks are more likely to take back assets REO. Workouts are by far the biggest activity. For a workout transaction, be very well organized, present and offer a solution, and have money available, Levy advised.

Looking at various programs, Levy made the following observations. TARP capitalized banks so they could be patient, but this caused less deals because banks kept deals on their ledgers longer. PPIP was a failure; banks were uncertain of selling loans into the market place. TALF was positive…saving Fannie and Freddie was a good move. The FAS 157 accounting change enabled banks to mark their assets above where they traded on the open market. REMIC relief provided greater flexibility to the marker and the special servicer to negotiate troubled CMBS loans.

Though there are not a lot of sellers in today’s market since values are uncertain and—in most views—at the bottom of the market, opportunities include:

• FDIC structured sales program;
• Talk directly to the banks;
• Become a lender; new public/private mortgage vehicles have been formed;
• Buy institutional grade real estate at today’s prices;
• Be creative, focus on niche opportunities: UCC sales, 363 Bankruptcies, CDD bonds, tax liens, DIP financing; and
• Be patient.

The market is starting to stabilize, said Moshin Meghi, principal and managing director, Loughlin Meghi + Company, in his outlook of various product sectors:

• Office: Rents will remain flat for the next three years with little absorption;
• Industrial: Recovery is expected quicker than in other sectors; trade is picking up as companies rebuild inventory;
• Retail: Consumer spending is stabilizing; expect recovery in 2011, though hesitation to expand will reduce rents;
• Apartments: Rental rates fell sharply in 2009, but finished the year with signs of stabilization; and
• Hotels: Occupancies are down, rates are low, but should level out during second quarter 2010.

Recent bankruptcies and restructurings are happening at the higher end of the market, Meghi noted, while recovery will take a long time at the lower end. Expect a vast number of FDIC bank failures to come, he warned. The question facing the market, he said, is “how will maturing loans be refinanced in a market where values are down 30 to 50 percent from peak and where underwriting standards have tightened significantly?” A two-tiered debt market is emerging: capital from insurance companies and distressed deals for deeply discounted loans or troubled assets.

The investment market is improving, said Robert White, president of Real Estate Capital Analytics. Transaction activity is up 50 percent, though from a very low base; there is more price discovery, and we’re seeing more properties move. The outlook for fundamentals is still poor and will stay that way in 2010, he said, but for certain high-tier assets prices are stabilizing. Real estate investment trusts (REITs), which have the best access to the cheapest capital out there, are leading. There is a huge increase in the number of workouts and their resolution is just beginning. Debt liquidity is returning as is demand from bond buyers, which are all good signs, but we need employment growth.

Loans aren’t sitting out in limbo; they’re being handled, White said. Property sales from distressed sellers are still small. Banks are holding their largest and best assets. Eight billion dollars of real estate went into REO in the fourth quarter…not all REOs are going to be liquidated. Lots of foreign capital is looking at the U.S. because it has so much distress, White noted.

Why are sellers selling? Fatigue, don’t want to foreclose, new CEO, suggested Thomas Goodwin, executive vice president and co-founder of debtX. Most of the movement is in regional banks that want to get back into lending. Who are the buyers? They were investment banks, wholesale banks, and opportunity funds, but today, they’re entrepreneurial players, he said.

Institutional lenders believed it was an attractive time to be investing. David Twardock, president of Prudential Mortgage Capital Corporation, said capital is available, and new debt has attractive pricing. Patricia Goldstein, senior executive vice president and chief credit officer of Emigrant Bank said, banks are working out transactions, trying to do more stabilized core deals, and getting out of construction deals and bridge loans and into more cash loans. Goldstein believes the cleansing process will be faster than expected, and predicted the return of a CMBS market that yields 10 percent.

Overall, the outlook was somewhat optimistic. Expect more distress in 2010, but valuation declines are decelerating. The market is a lot more transparent with better information more readily available. Appraisals and prices are changing. If you don’t act quickly, you could miss the boat, was one observation—2010 just might be the time to buy.

Sources of Capital

This post was written for The Ground Floor blog by Kristina Kessler, vice president and editor-in-chief Urban Land Magazine at the Urban Land Institute.

A lot of capital is chasing very few deals. This was the consensus of participants at the
April 14 Town Hall Session: Sources of Capital in the New World Order at ULI’s Real Estate Summit at the Spring Council Forum in Boston.

Moderator Michael Graziano, managing director of Goldman Sachs & Company, began with an overview of where we are today: $20 billion have been pumped into public equity, the stagnation period is working itself through the balance sheets, there is not a lot of trading, and cap rates have dipped. "We’re facing a huge supply and demand issue," he emphasized, yet there is strong availability of capital, and he expects the return of an active mortgage market, though not a lot of takers, because 70 percent LTV (loan-to-value) "doesn’t cut it."

Participants, asked what their firms have been going through, had mixed reactions. Prologis CEO Walter Rakowich said his company went from being leveraged 90 percent to 50 percent. They sold a lot of assets, pared down debt, refinanced, but are not doing a lot of trading. He sees no great acquisition opportunities, and doesn’t see a lot of development in the U.S. for the next 12 to 18 months. His company is trying to burn off its land banks. Given that construction prices are down 25 to 30 percent from 2007 and that companies relocating out of older facilities into new space want to lease not own, Prologis has been converting its land banks into development use, building pre-leased build-to-suits—but, Rakowich noted, it’s more a cannibalization of the market than market growth.

In speaking about his firm, Stephen Furnary, chairman and CEO of ING, said, "We had 17 good years in a row, now we’re doing maybe two deals a week, no acquisitions; rather we’re retooling the firm, moving investment people into asset management to manage portfolios. We’re trying to get the strategies right…creating new products that pension funds want to invest in, switching around the product makeup." As soon as $1.4 trillion in debt comes due, there will be an opportunity to pick up assets and rework them, Furnary said. "Cap rates aren’t going to feel good, but 89 percent occupancy will get you 11 percent vacancy for free. In one to three years, cap rates will move up and be favorable."

Fidelity Investments portfolio manager Steve Buller, in speaking about real estate investment trusts (REITs), said that even though real estate fundamentals were turning down, REITs are offering a secure dividend yield, because being stocks, they have little to do in the short term with real estate fundamentals. When fundamentals recover, he predicts REITs will continue to prosper. Though REITs are only 10 percent of the market, they have gone through a large recapitalization, and Buller predicts they will be the first to start development.

Frank Cohen, senior managing director of Blackstone Real Estate Advisors, sees the role for private equity as being in transitional assets, assets that have property, leasing, or capital issues. In 12 to 24 months, some owners will begin to sell, he said. "One would be well served by waiting."

Speaking at the afternoon General Session, Tying It All Together, Furnary noted that the CMBS market is somewhat unlocking. There is a lot of money on the sidelines ready to invest in equity, but it’s scared…and there is a need to re-price expectations. The availability of nonequity capital is still a challenge. REITs are getting a greater share of each asset class in the U.S. because of their access to the public markets. Private equity funds will be back in full force because the future for small development is good for those who know their market. Big developers and smaller companies have good prospects, but a lot of questions remain as to what happens to the middle market; this could be a recipe for consolidation.

Overall, Furnary is optimistic. "We have got the wind at our back," he said. Fundamentals will improve, pent-up equity will fit nicely into the capital stack, and he’s not concerned about rising interest rates. "It’s a great time to be in this business," he pronounced, noting that what will characterize the successful people in this industry is "developing one’s judgment."

Future Perilous for Medium-size Real Estate Firms

This post was written for The Ground Floor by Joseph Klem, vice president of Virtual ULI at the Urban Land Institute.

The future of real estate holds opportunities for the large and small real estate firms, but mid-size players are in a dangerous position, said panelists at Urban Land Institute’s Real Estate Summit at the Spring Council Forum in Boston.

Larger players, especially real estate investment trusts (REITs), are getting stronger and more specialized, noted Colin Dyer, president and chief executive officer of Jones Lang LaSalle. They have deep enough pockets to tackle international opportunities, and to hire specialists for fast-changing areas such as regulatory compliance. Consolidations will cause the "bigs" to keep getting bigger, panelists predicted.

The small firms can grab local opportunities, leveraging their relationships to get smaller deals that the top firms cannot profitably tackle, panelists said. "Big firms like mine, I worry about the little guys every day," said Michael D. Fascitelli, president and chief executive officer of Vornado Realty Trust. It’s the mid-size firms who should beware, and perhaps position themselves for acquisition, panelists said.

Other tips:
• "Aging start-up"” owners should take a hard look in the mirror. "I sometimes have the tough task of recommending to the founder, the entrepreneur, of an aging firm that they should step out of the way," said Honorable Mahlon "Sandy" Apgar IV, senior scholar at the Woodrow Wilson Center for Scholars.

• Apgar also suggested that real estate firms of the future should reconsider their view of teaming. "Everybody in this room knows how to team," he said. "The shift, and I think it’s a tectonic one, is to go from teaming on a deal, to teaming the enterprise."
• Know the target market, and stick to it, recommended Thomas W. Toomey, president and chief executive officer of UDR, Inc., which owns and manages residential apartment communities. "We focus on 25 specific markets, and we know our target customer: 20 to 35 years old," he said. "We focus on operations and increasing margins. Sixty-seven cents on every dollar we collect in rent goes to the bottom line."
• Overseas markets have their risks, as Jones Lang LaSalle’s Dyer noted. "We bought into an existing office building in China, based on the promise that no other office building would be built in that area," he said. "But just a few months later, a hole opened up across the street for a new office building."
• Vornado Realty Trust’s Fascitelli added that despite the overseas risks, those markets still hold great potential if firms know how to pursue them. "The Chinese are smart, entrepreneurial, they work hard and have tons of money," he said. "Get to know them."

Recession is Officially Over--But is it?

This post was written for The Ground Floor blog by Trisha Riggs, vice president of communications at the Urban Land Institute.

The recession is officially over—so says Gus Faucher, economist at Moody’s Economy.com. The expert industry analyst brought an optimistic outlook to the Urban Land Institute’s Real Estate Summit at the Spring Council Forum in Boston this week, offering several reasons for hope.

Among the positives:
• Fourth quarter GDP growth of 6 percent (2 percent attributable directly to the federal stimulus package)
• A positive employment report for March and the likelihood of continuously improving job growth (education, medical, and professional business service providers offering the most promising prospects for employment)
• The likelihood that the Federal Reserve will act aggressively to keep interest rates low.

One drawback:
• The certainty of significantly more foreclosures (7 percent of all primary residential mortgages are in foreclosure or are delinquent).As more consumers lose their homes, house prices will drop further.

Much of the United States is now either experiencing a period of either moderating recession or has entered a recovery period, Faucher said. Those places that have not yet reached the tipping point into recovery are those that saw a major run-up in home prices and substantial overbuilding of homes, he explained, noting that it will take time for the excess to be absorbed.

The places on a recovery track are those that never experienced an unsustainable housing bubble ("prices did not have as far to fall"), and which tend to have economies driven by commodities that did not suffer major price declines. Las Vegas, a market with an economy driven primarily by the home construction industry, is one of the few places that remained fully entrenched in a recession, he said. 

Faucher provided a timeline to track the progress from recovery to recession, starting with home sales bottoming out in early 2009, and the bank system stabilizing in mid 2009, ending with the economy on a sustainable growth pattern by the fourth quarter of 2010.

But…not so fast, said speaker Sam Zell, chairman of Equity Group Investments; Zell is unconvinced that the worst is over—at least for commercial real estate. While the economy in general may be rebounding, he sees a real estate rally being impeded by uncertainty over federal intervention affecting the financial community and other business sectors. Such unknowns are hampering private investment, he said.

According to Zell, investing in U.S. markets now carries a new risk, one that is tied to politics. "They (the Obama Administration) are changing the rules. We used to know the rules, but no more…what’s going on now impacts the confidence (of the investment community)."  What is keeping him optimistic, Zell said, is the belief that "we will alter the current political situation sooner rather than later."

New Research Examines Impacts of Phoenix Population Shifts

Despite speculation to the contrary, the population of metropolitan Phoenix appears to have remained unchanged or has dropped only slightly since 2007, meaning the area could be better positioned for recovery than has been widely perceived, according to new research from the Urban Land Institute’s (ULI) Center for Balanced Development in the West.

The implications of population shifts in the area, in terms of future housing needs, job growth, and economic viability, were examined today during a forum, "Real Demographics: Positioning for a Recovery in Today’s Arizona," hosted by the ULI Center for the West and ULI Arizona.

The event centered around the release of Influx/Outflux: Metropolitan Phoenix, new research that evaluates the degree to which the population of Phoenix has fluctuated since the beginning of the recession in 2007. The report notes that while the state government’s 2007 population estimate of 4.2 million is probably high, the level it actually reached--it was measured at 3.9 million in 2005--has likely not changed much, despite the housing market collapse, high number of foreclosures and precipitous job losses over the past two years. (The actual population total will not be known until the 2010 U.S. Census statistics are released.) The report was prepared to help guide plans for the area’s economic recovery and future growth.

The report emphasizes the significance of pinpointing even small variations, either up or down: "Important decisions must be made during the coming year--in both the public and private sectors--that will depend on knowing how the population has changed. The difference between positive 1 percent and negative 1 percent population growth could translate into perhaps $1.5 billion in gained, or lost, income and sales tax revenues--and billions more in revenues for private enterprises," Influx/Outflux report says. "In terms of land use, it could mean the difference between new housing demand on the order of perhaps 15,000 units or, alternatively, a 1 percent rise in total housing vacancy. The region’s decision makers cannot wait for data from Census 2010 to be released if they are to lay plans in anticipation of an economic recovery."

The report is based on a review of three types of population data: population counts (an actual tally or survey); population estimates (statistical models including some types of U.S. Census Bureau information); and population indicators (including employment, births, deaths, undocumented immigrants, school enrollment, utility customers, and available housing and household size.)

Of these three main measurements, the population indicators offer perhaps the most up-to-date look at how the population is changing, the report explains. "They stand in contrast to population estimates that show steady and positive growth, as well as news reports that suggest significant population losses. Rather, these indicators show that the size of the region’s total population has probably remained unchanged from 2007 through the present."

Among the indicators suggesting that the population has leveled:

• Employment – The jobs/population ratio at end of 2008 was 0.44, the lowest in 15 years. However, two-income families who have lost only one income are more apt to stay in the area and get by on one income than relocate.
• Births – Live births declined by 4.8 percent annually since 2007, but the birthrate is down nationwide as people adjust their plans because of the recession.
• School enrollment – Growth in student enrollment dropped to almost zero during the last two years.
• Utility customers – Virtually no growth in customer accounts has occurred since mid-2009, but no significant account cancellations have been recorded.
• Available housing/household size – While housing vacancies have risen due to economic hardship, so has the number of households “doubling up” and expanding to accommodate family members who have lost their homes.

If the 2010 Census data supports the contention that the population of metro Phoenix has leveled off, the area must adapt to a new growth dynamic vastly different from the 3 to 5 percent annual growth rate it experienced during much of the past four decades, Influx/Outflux says. "It will take sustained growth in the region’s base economy to reignite population growth, since there are already many more workers in the region that must be absorbed before the employment base can support new residents," it states. "This means taking steps to create a regional economy where a greater share of business activity is dedicated to building wealth by producing goods and services that are globally competitive."

Second Home Buyers Still Looking

This post was written by Trisha Riggs, vice president of communications for ULI.

Despite the recession, high-end second-home buyers are still in the market, willing to purchase homes that meet their needs and desires but do not display conspicuous consumption, according to resort specialists speaking at ULI’s 2009 Fall Meeting in San Francisco.

According to a recent survey of second-home purchasers conducted by American Lives, the affluent are increasingly drawn to smaller units--provided they have the same amenities as larger, luxurious homes--because the downsizing is perceived to be more “politically correct” in the current economic environment of layoffs and budget cuts. 

American Lives President Brook Warrick said second-home buyers are still viewing the purchase as a personal reward, but that many of today’s buyers are purchasing the homes not as places to escape, but as gathering places to reconnect and re-establish bonds with family members and friends.

Life stages, said Warrick, are the best predictors of when purchasers will enter this niche market: 1)immediately upon retirement; 2) just prior to retirement; and 3) empty nesters still working, but who have different housing needs. What they aren’t compromising: any feature related to health and wellness--the one area that has not experienced any decline in consumer demand. These active, upper-income baby boomers are determined to stay fit and healthy, and are not content to age in just one place, but in several places, any of which could serve as a primary residence.

Also appealing: places that include educational components, and those that offer opportunities for altruism. "Being part of the greater community is very important to these buyers," said Toni Alexander, president and creative director of InterCommunications. Rather than presuming to know what the market wants based on pre-recession activity, it’s critical to examine how those buying preferences have changed, she said. "The world has changed, and once we understand that, we can do great things in design (of second-home and resort communities)."

Business Management Tips from Leading Author

This post was written by Trisha Riggs, vice president of communications for ULI.

In a rough economic environment, forget success--pursue excellence as the goal, and success will ultimately follow. So says Tom Peters, author of the highly acclaimed 1980s management skills book, In Search of Excellence, and a keynoter at ULI’s 2009 Fall Meeting in San Francisco.

According to Peters, being the best is far more important--albeit harder--during economic downturns. "It’s easy to be smart when the market is up. It counts for a lot more in tough times," he said. Peters reminded attendees that excellence itself is more than a goal; it’s a strategy that relies on skilled, thoughtful execution.

Among the no-nonsense, tried-and-true business management tips from Peters:

• Don’t be clever--stick to simple fundamentals in determining what course to follow. The financial collapse and recession can be traced to actions by "clever people," he noted.
• Visit all the company’s offices regularly; stay in touch with what’s going on throughout the organization. It’s a practice, Peters quipped, that could be called "managing by wandering around."
• Remember that "soft is hard and hard is soft," meaning that the soft side of the company--the human aspect of managing relationships with employees, clients and customers is more challenging than creating business plans.
• Listen. Effective listening is a skill that is of the highest strategic importance, that shows others that you respect them and honor their opinions.
• Get to know people at all levels within the organization.
• Don’t be afraid to apologize when mistakes are made; it’s a sign of integrity. "The real problem is not the problem itself. A poor response to a problem is the real problem."

The true measure of successes--or failures--is about the "humanity, care, decency and thoughtfulness" with which they are handled, Peters said. "There are no greater times than tough times to illustrate who you really are…It’s not your net worth that matters, but what you see when you look in the mirror."

Light at the End of the Tunnel

This post was written by Trisha Riggs, vice president of communications for ULI.

Has the financial meltdown ended? Yes. Is the recession over? Yes. Will the employment outlook improve anytime soon? No. So, while an economic recovery may be on the horizon, it will be a largely jobless recovery, meaning there is plenty of pain forthcoming for real estate. That was the consensus of a group of leading economists and industry practitioners speaking at ULI’s 2009 Fall Meeting in San Francisco.

Kenneth T. Rosen, chairman, Fisher Center for Real Estate and Urban Economics, Haas School of Business, University of California Berkeley, pointed to several factors that will hamper the real estate recovery: 1) the likelihood that interest rates--kept artificially low during the lending crisis--will start to rise now that the financial stress has been relieved; 2) slow economic growth (despite the recent boost from sales generated by the "cash for clunkers" program; 3) very slow job growth; 4) minimal consumer spending. Rosen’s odds for a "fragile" recovery: 65 percent. Rosen’s silver lining for real estate: for-sale housing, a sector already showing positive signs, and which will continue to be buoyed by the federal government’s extension of a home buyer tax credit.

Raymond Torto, global chief economist for CB Richard Ellis, weighed in on the commercial sector with some statistics showing that higher vacancies are expected for the office, industrial, multifamily and retail sectors in the months ahead. In general, most sectors are "well on their way to hitting bottom," but growth in all property types will be stymied by the fact that some of the jobs lost in the U.S. have been permanently lost to other countries, he said.

Any significant rise in U.S. employment will not occur until around 2013, Rosen predicted. For next three years, he said, industry professionals would do well to focus either on government projects or 'build-to-suit' projects.

Still, despite the lackluster economic outlook for the nation as a whole, it pays to find the bright spots, which are mainly on the nation’s coasts, panelists said. There are vast differences in local real estate markets and business strategies should be mapped out accordingly, noted George Marcus, chairman of Marcus and Millichap and Essex Property Trust. "Now is the time to look hard at where to buy and build," he said, pointing to the San Francisco metro area as one example of a very tight housing market with promising job growth.

Torto pointed out that cities in the U.S. with economies centered on emerging technologies such as alternative energy are the ones with the most promise. "There are opportunities…there are deals to be made," he said. However, the returns will be generated by income, not necessarily property appreciation, he added.