Publications

US commercial real estate appears to be emerging from the most serious crisis in decades. As the economy shows signs of improvement, ING Clarion expects 2010 to be a transition year, moving from the steep downturn of 2009 towards recovery. Despite the prospect for a slow improvement in employment and economic activity, the downward pressure on property values – especially for highest-quality assets – seems to be moderating. While risks remain, including large-scale deleveraging and limited financing options, investors are beginning to adjust their outlook regarding the risks associated with US real estate. This change suggeststhat careful attention to both economic and property market fundamentals is essential in order to take advantage of what may be unprecedented opportunities.

 

This report developed in collaboration with members of our portfolio management team discuss the impacts of the Federal Reserve’s policies on the multi-family sector. We expect the Fed’s waning support for the GSEs to impact the availability and cost of debt for multi-family properties, which will likely have a spillover effect on property valuations.

 

Our quarterly update of economic, capital markets, and property sector fundamentals.

 

The reported growth of U.S. Gross Domestic Product (GDP) in the
third quarter was a welcome sign of a tentative recovery in the
economy. 

The third quarter of 2009 marked the one year anniversary of the collapse of Lehman Brothers and the start of the financial crisis. The U.S. economy went into steep decline following the September bankruptcy announcement, with real gross domestic product (GDP) dropping by 5.4% in the fourth quarter of 2008 and 6.4% the first quarter of 2009.1 After suffering a mild decline of 0.7% in the second quarter, economic growth has swung back to positive territory. Real GDP expanded by 3.5% during the third quarter, thanks to both the successful "Cash for Clunkers" program and the partial rebound in consumer confidence.2 Many businesses have benefitted from cost-cutting and revenue growth, as seventy-five percent of public companies reported better-than-expected earnings during the third quarter.3 Investors responded to these results with optimism and the stock market surged more than 50% from the low reached in mid-March. Looking abroad, several countries, including China, India, Brazil, Canada, and Australia, have emerged strongly from the economic downturn. We believe that global growth is on track to recover in 2010.

 

Economic activity in Mexico continued to decline over Q2 2009, though potential signs of economic stabilization emerged in employment, inflation, and exchange rate data.

 

We believe the second quarter of 2009 marked a significant turning point for the US economy. It appears that the US economy has already experienced the worst of the current market cycle, though the economy continues to contract. Our interpretation of several leading indicators suggests that the economy will likely bottom out before the end of this year. Nonetheless, due to the significant challenges faced on several fronts, it is possible that the recovery process could be longer and less robust than those following previous recessions.

 

Mortgage brokers, lenders and investors are looking for signs of whether commercial property values will increase or decrease going forward. The emerging market in commercial property derivatives may hold some clues.

 

With plummeting home values playing a large role in the current recession, everyone from individual homeowners to real estate professionals has a keen interest in what might happen to home prices going forward

 

The method of private funding for U.S. pension benefits has changed dramatically over the last two decades as Defined Contribution (DC) plans have supplanted the older Defined Benefit (DB) model.