Although recent positive trends have provided reason for guarded optimism and consumer confidence has improved, the recession persists and is likely to result in additional employment cuts and a decline in GDP this year.

Weak consumer spending, driven by job losses, a soft housing market and the propensity of Americans to save more,
will continue to suppress demand for foreign-made goods and reduce space demand from import-related businesses.

In the first quarter of 2009, GDP decreased at an annualized rate of 5.7 percent. The U.S. economy is forecast to shrink 2.9 percent this year, compared to a 1.1 percent annualized increase in 2008. In addition to the decline in U.S. GDP, a
slump in foreign economies will reduce demand for U.S. goods abroad and adversely affect warehouse space demand among export-related businesses.

Medical Office Sector Remains Healthy in Ailing Economy

Unlike other asset types, medical office properties continue to garner investor demand by exhibiting considerable resistance to the economic downturn.

Nonetheless, there are locales across the country where medical office assets are underperforming, and in many instances, there is upward pressure on vacancy.

The segment, however, is holding up better than other product types. Much of the economic resilience tempting investors can be attributed to the positive state of the health care industry. The nation spends over $2 trillion on health care annually, more than double U.S. expenditures on food, and health care spending is projected to exceed $3 trillion by 2013.

Government Intervention, Bank Stress Tests Aim to
Restore Confidence — Will Measures be Enough?

Government stimulus and financial market intervention — already at unprecedented levels — have become even more aggressive in the wake of a steeper recession and escalating credit market woes. Government loan facilities established last year are being modified, and new programs have been proposed to help jumpstart stalled credit markets.

The first round of funding for the Troubled Assets Relief Program (TARP) was originally intended to buy toxic assets from financial institutions, but the capital was instead used primarily to purchase equity shares of major banks. Therefore,
toxic assets, which include difficult-to-price mortgage-backed securities, have remained on the balance sheets of financial institutions. Uncertainty and the potential for significant write-offs associated with these assets have subsequently hindered
banks’ ability and willingness to originate new loans.

With toxic assets still a crucial hurdle to be cleared before the financial system can function effectively, the government has become more focused on the issue. In addition to the stimulus
package, new programs aimed at restarting the market for these assets have been proposed. While these measures are expected to positively impact capital markets, it likely will require at least six months for credit flows to improve measurably.

Capital Markets Developments since December 2008

The Good News:

1. Inter-bank lending continues to improve

2. LIBOR and TED spreads have stabilized

3. 10-Year Treasury Yield at 2.76% remains at a very low level

4. Delinquencies continue to be near historic lows but are rising

5. Deals are getting done –local and regional banks, life insurance companies

Despite declining construction, office vacancy is forecast to rise to the 17 percent range in 2009.

On a positive note, the combination of reduced supply and the fact that most companies did not lease significant excess space during the most recent expansion should prevent a prolonged downturn, with the onset of a recovery likely in 2010.

In order to better gauge investor sentiment in the current
climate, National Real Estate Investor, Retail Traffic
and Marcus & Millichap Real Estate Investment Services
conducted the sixth annual real estate investment survey.
Of the 1,129 respondents, private investors constitute the
largest group (47%). Respondents have been in the industry
an average of 20 years and have an average of $32
million invested in commercial real estate. Some 65% of
respondents indicate they are currently invested in multiple
property sectors.

 

Thanks to all the participants at our recent November Conference Call with the topic - 1031 Exchange: Do's and Don'ts in Today's Market.

Here you can download additional information on the topics we covered:

Partnership Issues

and

Seller Financing/Installment Sales.

Click on the links below to download.

What Does the Future Hold?

1.Commercial delinquencies will increase, but will remain within historical lows at 3-5%.
2.Treasuries in the short term will be remain range bound in the high 3% to low 4% range.
3.Treasuries will rise as the government finances Emergency Economic Stabilization Credit Act and other support systems over next 12-18 months.
4.Spreads will eventually come in as markets stabilize but will remain vulnerable to wide swings.
5.Distressed sales will increase but should be distinguished from the state of the overall market place.
6. Interest Rates will be in the 6.5% to 7.5% range