Dealing with recession – by David Kirk: NEREJ

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David Kirk

Economic trends are a starting point for any strategy. Because the weather and the current market dynamics are changing, any calculation is complicated and even difficult for short-term forecasts. The Fed has focused on inflation, which is now undeniable. The ephemeral is no longer in the vocabulary of commentary. And the prices are going up. Since commercial real estate must compete in capital markets, this choppy or dominant storm puts upward pressure on real estate rates and downward pressure on prices. However, the performance of real estate markets continues to depend on underlying demand and economic fundamentals.

Commercial real estate is both an operating business and an investment property. Wage gains erode operating margins and cash flow; inflation impacts utilities and supplies; rising rates increase capital costs and change stack and conditions. All shaking up operating performance and the feasibility of new development. Commercial real estate is a ring around the roses. Climate change has increased property insurance. Does it really matter what experts call the risks resulting from the so-called recessionary conditions. Commercial real estate transactions and investments are currently in the midst of a storm.

Underwriting income in commercial real estate has been more complicated for a decade or more especially in dynamic markets. Startups and gig workers represent a growing and significant part of the pivots that are happening and will persist. Risk increases accordingly when liquidity, durability and duration decrease. The hustle and judgment for renting and marketing pivots with shrewd empathy. More so for uncertain solvency. How long is the term. What is the height of the deposit. Wallet and mix. Market and competition. Just different, complex. To what extent and how quickly can investors and the capital stack adjust. Seamlessly, almost, so far. Prices not so easy.

Jobs – Hardly anecdotal, data for six months showed increases in employment, labor force and wages. And job offers. Layoffs are now reported alongside turnover and unfilled vacancies. The goal of full employment is spatial and changing. While measurement and reconciliation efforts are extensive and expanding, this goal of full employment is a bit dizzying. For the past six months, economists have actually been saying stop job growth. Wage and income gains. Curb inflation. Must curb inflation. Certainly not a reasoned course. Taking patterns from the past and deducing apparent algorithms and throwing them at the future. With precision expectations of three-dimensional printing. Bullshit.

Behavioral economics. Policy. Community and culture. In remains, services and events. Sectoral changes with innovation, technology and the search for pleasure. Not just millennials looking for a better balanced life with more satisfaction and time to learn. Travel and entertainment. Change behaviors accordingly. Subsistence creates new patterns for all cohorts. The aberrations are the following and evolutionary patterns. Cycles accelerate with shorter terms in technology. And so are the cost and choice alternatives. Micro-management is forced to recognize changes in behavior or risks in the markets.

Not simple and straightforward. Complex and evolving. So complex that the investigations are anecdotal and lack importance and credibility. Go with the flow and ask questions with creativity and imagination. Life is a change. Climate change. Paraphrasing W. Mitchell, a friend and motivational speaker, it’s not what happens, it’s what you make of it. The season is changing.

David Kirk is Founder, Managing Director of Kirk & Company, Real Estate Counselors, Boston, Mass.

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