Friday, March 6, 2020

Recessions - Ugh!

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This week, I enjoyed a group meeting featuring key note speaker Robert S. Keebler of Keebler Associates, LLP - a public accounting firm from the Midwest. Actually, he hails from Green Bay, Wisconsin. However, since I grew up a Dallas Cowboys fan - it’s tough for me to write the city name lest I harken back to the 1967 Ice Bowl - which broke my heart as well as low temperature records. But, enough of that.

The topic of Mr. Keebler’s talk was “strategies for getting the most profit to the bottom line.” Quite compelling and interesting was the subject and ensuing discussion.

Preceding the lecture was a brief outlook for 2020 by our host - Northwest Mutual. The Cliffsnotes? We should be OK through mid year when the outcome of our presidential election will permeate the air waves and suck the collective oxygen from most conversations.

Mentioned during the preamble was a check of five factors which cause bear markets - inflation, recessions, commodity shortages, crazy market valuations, and uncertainty. Since I’ve plied my trade since 1984 - I’ve experienced a number of commercial real estate bear markets - 1991-1993, 2000-2002, and 2008-2010. So, I decided to do a bit of unscientific noodling to check the five factors against my experiences with the down markets and if any of those factors might be in play today. Full disclosure - I’m not predicting a buyer’s market anytime soon.

1991-1993. Kuwait was invaded by Iraq in August of 1990. We experienced amazing growth in commercial real estate values beginning in the mid eighties and the Reagan “trickle down” policies. Savings and Loans - remember them? - were de-regulated and money was flowing freely into properties - causing a spate of new development. With the collapse of the S & Ls, Gulf war, and dramatic overbuilding - the economy plunged into recession. Global uncertainty, a shortage of capital, and unsustainable values were the culprits. Turn around didn’t hit full throttle until 1995.

2000-2002. Also known as the age - we witnessed commercial real estate investors purchase old, obsolete, warehouse buildings with proximity to phone infrastructure to house the burgeoning technology needed to power telecom - precursor to e-commerce of today. With the election year of 2000 came a burst of the bubble. No longer were the buildings needed for telecom applications. Given the obsolete nature and high prices paid - many were foreclosed. Terrorist attacks of 2001 created enormous uncertainty as the world adjusted to new travel security measures. So crazy valuations and uncertainty were villainous.

2008-2010. The Great Recession! Liberal lending policies, securitization of bad loans and government guarantees of their performance caused the housing market to crater. With the failure of Bear Stearns, Lehman Brothers, Country Wide Mortgage and others plus the ensuing government bailout - asset values plummeted, lending froze, uncertainty prevailed and those of us in the commercial real estate business reverted to survival mode. Commercial real estate went on sale in early 2009 and buying activity commenced in earnest. Mountains of investment dollars poured into industrial, retail, and office buildings. The music continues today. I’ve stopped predicting when it will stop.

Today. Recessionary fears are in our rear view mirror - or are they? Storm clouds. The Corona Virus is wreaking havoc on the Chinese economy - causing a major disruption in our supply chain. Steel production in China is down 90%, automobile purchases in China down 99%, visits to movie theatres down over 90%. Look at the resulting prices in oil - $52 dollars a barrel at last check. Silver lining. Interest rates are low - with the Fed possibly taking another cut soon. Domestic consumer confidence is high. Net, net, net - I believe we’ve another six to nine months before the uncertainty of an election year is upon us.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

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