NEW BRUNSWICK, N.J., Oct. 6, 2009 ‚Äì If the thoughts of a trio of commercial real estate industry leaders provide a yardstick, there is considerable sleeplessness rampant in the industry in these turbulent times. The forum was the NAIOP New Jersey Chapter Meeting at the Heldrich Hotel, and the subject was “What Keeps You Awake at Night?”
 
For Peter Cocoziello, president and CEO of Advance Realty Group, sleeplessness comes from the bottom line effect of the current recession ‚Äî lost jobs. “We’ve lost 7.6 million jobs nationally,” he said. “There are also 1.8 million job seekers, so in essence, the economic environment has a deficit of 9.4 million jobs. It is estimated that it will take 7.6 years to come back. With the likelihood that it will take to 2016-17 to fully recover, I would have to term this a decade that’s lost.”
 
For New Jersey in particular, “We’ve lost 148,000 jobs in the past two years,” Cocoziello noted. “In the past, when New Jersey lost jobs, it was primarily in construction and manufacturing. This time, these are service sector jobs, which has a huge impact on a lot of office buildings.
 
“It also affects retail,” he said. “And the port is down by more than 20 percent, impacting shipping and warehousing. Looking at the total picture, I’m having trouble finding something to grab onto that this is going to turn around soon. That’s what’s keeping me up at night.”
 
“I share many of the same sentiments, but I like to be a little uplifting,” said Mitchell Hersh, president and CEO of Mack-Cali Realty Corporation. “Looking back to a year ago when we saw the potential for the next Great Depression, we’ve resolved some of the issues confronting the regulatory environment for financial services. We’ve seen the stock market reflect the expectation of a better economy, and for that I have some reason for optimism.”
 
Consolidation across all industry sectors is quickly becoming fact, the panel noted. That being said, the REIT community provides a basis for some optimism, according to Hersh. “REITs in general have the mantra of modest leverage,” he said. “The balance sheet stability of the public sector will ultimately be a healthy survivor of this difficult market and be part of the consolidation process that will confront real estate.”
 
In terms of privately held firms, which rely on private financing, “I can’t stress enough how dramatically the market has changed on the financing side,” said Ed Russo, president and CEO of Russo Development. “So few lenders that we were doing business with three or four years ago are still active in the market simply because they’ve taken so many losses. Availability of capital is the single biggest issue in our market.
 
“I don’t think the market is going to be significantly different a year from now,” Russo said. And while his firm is beginning to be approached with deals, “more than likely it is a lender saying, ‘we’re getting this building back, are you interested?’ And in terms of property values, he estimated that they’ve fallen by 20 to 30 percent.
 
“A year from now, things probably won’t have changed, and might even be a little worse than today,” Russo said. “By definition, based on GDP and the performance of the stock market, the recession might be over. But based on the number of deals, the difficulty in financing projects and assets trading at low prices, real estate will be in recession for at least another 12 months.”
 
“Within our tenant portfolio, we are still seeing cost reduction and job destruction,” Hersh noted. “So when improved earnings are based on cost reduction ‚Äî that’s one of the reasons I stay awake at night. I don’t see the fundamentals improving yet. We are a consumer-driven economy and the consumer is still in the bunker. We may not see fundamental improvement for two or three years.”
 
“Wall Street is out of touch with Main Street,” Cocoziello concluded. “Everyone we talk to is struggling. Wall Street just looks at earnings expectations, so there is a disconnect. From my point of view, any significant bounce-back is a few years away.‚Äù