Apartment Finance Today

EDITOR'S LETTER

Who Are We Kidding?

APARTMENT FINANCE TODAY • July/August 2010

The so-called recovery isn’t all it’s been made out to be. In fact, it might not be a recovery at all.

BY SHABNAM MOGHARAI

I’m loathe to be a negative Nellie, but things ain’t lookin’ so good.

The “recovery” that economists were so quick to proclaim earlier this year is moving like country molasses—at least compared to previous recoveries from serious recessions. Economic growth across the country slowed significantly in the second quarter of the year, and anxiety about the U.S. economy reached all-time highs.

Don’t believe me? Let’s look at the June data. (Spoiler alert: It’s not pretty. In fact, it’s pretty dismal.)

• Consumer confidence declined significantly after several months of increases, as folks continued to worry about the security of their jobs.

• The number of workers filing new claims for unemployment rose unexpectedly, with the national unemployment rate settling in near recent highs at 9.8 percent.

• Manufacturing growth slowed, as factories reported declining output and concerns over financial problems in Europe.

• Spending on private sector construction slipped for the third month in a row, despite an increase in public spending.

• Pending sales of existing homes plummeted 30 percent after the expiration of the federal tax-credit program that had been boosting the housing market. (The impact on home sale closings remains to be seen.)

Yet, simultaneously, there were signs of positive momentum in the multifamily sector: In the first quarter of 2010, effective and actual rents rose without significant concessions; vacancy levels fell by a few basis points nationally as well as in most major markets; and oncein- a-lifetime financing and cap rates emerged on several transactions.

You may be wondering: What’s going on? Well damned if I know. But I will say this: We can’t keep telling ourselves that a recovery is underway without real economic growth to support it. In a time of shrinking budgets and expanding responsibilities, it’s too easy to sit back and believe that the positive momentum will simply continue to carry us through to better days. Our future will look nothing like our boom days.

That doesn’t mean we should cower away, however. In fact, I think truly smart companies will continue to time the market and to look for opportunities that perhaps entail some mega risks, but also pencil out to mega profits. That’s happening right now in the development sector of the business. True, developers are eternally optimistic (and sometimes egotistical)—convinced that they can outsmart and outmaneuver any market environment—but they are betting on real information such as demographic shifts, lower construction costs, and a loosening of the conventional financing purse strings to justify increasing their pipelines. Which is why, this month, we’re looking at the ins and outs of construction financing and costs, from A to Z. (The story, “Digging for Dollars,” written by senior editor Jerry Ascierto.) Our hope is that it offers a comprehensive look at the current development landscape—and the realities of breaking ground today—in a way that carefully primes us for a real recovery, one that will ideally be supported by real, sustained economic growth.

Only then might things begin to look up—for negative Nellies and optimistic Bob the Builders alike.