Another unanticipated impact of the pandemic and current economic uncertainty is ahead: real shifts in the commercial real estate market. As I look for landmarks, those that can offer at least a 5-year “near term” view, commercial real estate is a bit of a “canary in the coal mine.” Macroeconomic forces that include high inflation, interest rate hikes, increased regulations, and this new hybrid work environment have thrust us into uncharted territory. And the very real challenge is that both real estate leases and new commercial developments reflect decisions being made now, with tails that can extend 5, 10, or 30 years. All of which require betting on a future we don’t yet see clearly. So it’s important to pay attention to what’s happening there. I ask a lot of questions of developers, real estate brokers, property owners, and commercial tenants. How are landlords and tenants negotiating leases for office space, and where? Where are commercial developments still starting – or not? For what kind of client?
Read more… In the office leasing space: this year leases, renegotiated for a short term to get tenants through the pandemic, are being reviewed again for the next lease term commitments.
New developments: where are they starting (or not) and who’s funding them?
Traditionally, real estate investments perform well in a rising interest rate environment. But so much more is going on right now. Developers and business owners/tenants alike are needing to execute on strategy that feels like a moving target. Despite economic headwinds, the pace of change will not ease – I just don’t yet have a good sense of what that change will look like. Will keep you posted as I learn more. See you in the trenches, B
1 Comment
Today I’m going to encourage you to set aside some time to listen to someone else, on the topic of housing. In late March, The Minneapolis Fed Chair, Neel Kashkari, participated in a conversation moderated by Minnesota Housing Partnership’s Executive Director Anne Mavity. The conversation was fascinating and enlightening, as always, and I was particularly captivated by Chair Kashkari’s comments on barriers to building sufficient housing to meet the needs of Minnesotans. He describes it as, fundamentally, a supply problem: “we are simply not producing enough units, of all types, to meet the needs of families across our region.” And supply really matters for affordability. Based on research conducted with the Itasca Group, Kashkari could tell us that we need to produce 18K more units/year through 2030. That’s 30% above the current run rate. The key is to motivate private developers to do so. What gets in the way of that?
Kashkari went on to talk about extraordinary barriers, from communities resisting more people moving in, to regulations that make new development harder. The key regulatory barrier he discussed was rent control. He shared a chart comparing affordability to housing production, on which were plotted key regions within the 9th District. Key cities with rent control in place, such as San Francisco, Portland, and Boston (and MSP was in the mix as well), all reflect high cost/low supply. As Kashkari put it, rent control is SUCH an inhibitor to new supply coming online: “if we actually want to move the needle for working class families across Minnesota, we need to unleash a lot more supply. And every policy that I would look at, I would judge on, ‘is this going to help supply or not?’ And if it’s going to help supply, I’d give it serious consideration. If it’s going to be a barrier to supply, I’d be more cautious about that.” The conversation continued across a wider range of topics, but this first really got my attention. Again, I encourage you to listen in! See you in the trenches, B This past week I had a very interesting conversation with two female leaders from within the Hmong community. Among the topics we discussed was the desire and need for mentoring. Specifically, how to get more women – and more BIPOC women – into executive positions and Board rooms? How can we learn how to do it? This is not a new idea, of course, but I was captivated by the question, “What could WE do about this?” None of this is rocket science. It starts with relationship building, creating those “connections that count” which, as you know, is the cornerstone of all our work at the Chamber. More to come on this but today is a good day to reflect on this idea of mentoring. As we wrestle through big issues like systems change, policy change, economic change, we also have a most powerful opportunity for individual impact. The Power of One. One person, one moment, one conversation. And the beauty of one-on-one impact is that we can do it simply, can experience the benefits immediately, and can reap the rewards eternally.
Read more… I’m getting to the age at which I think about this kind of thing – is what I’m doing enough? Will I be proud of myself when I retire, when I look back at my life’s work? I submit to you that investments in one person at a time, through the Power of One, is the only way we can ASSURE ourselves of impact. Is the one thing we KNOW we can do, and we KNOW makes a difference. Who did I lift up? Can I think of at least one person’s life that is better because of me? The Power of One mindset can begin a revolution, one of connections, investments in others, helping others develop their own careers and lives. No matter your age, someone in your circle of influence needs you. Sometimes you’ll be the mentor, sometimes you’ll be the mentee. I know that’s true for me. I’ve pursued mentors with an unwavering diligence; and, as it turns out, I can add something to their lives as well. It becomes mutual. Along that same vein, our March Lunch With Leaders, “March Mavericks,” was off the charts amazing. Over 140 people gathered to listen to 4 talented professional women talk about their journeys. My comments as I introduced those women: “if you are in the room and want a mentor, you have to ask. Truly amazing leaders, with a humble spirit, rarely know they are ‘mentor-worthy.’ You have to seek them out, tell them you’d like to develop a relationship with them, and then – with great discipline – schedule regular time with them.” And then, if someone calls YOU with such a request, lean into it! Both of you will be better for it, and we have much to teach one another. On that note, if you admire a specific leader, a Power of One moment would be to nominate him or her for a HERBIE award! Nominations are open, in advance of our annual Foundation Luncheon on June 22. Don’t let a 5-minute nomination stop you from recognizing someone you admire! Link is HERE. See you in the trenches, B I’m scratching my head at the proposed budget targets released last week. Overall, the concerns I have with this budget and approach are twofold: first, that lawmakers plan to increase the state’s budget by 30 percent to total $71B in the next biennium(what?); second, that spending of the one-time surplus should be on one-time investments (not on new programs with tails). My conclusion? The Democrats are not handling their trifecta of control very strategically. If the desire is to maintain control moving forward, it would make sense to think of the long-term implications of this increased budget. I fear that when the economy slows (which it inevitably will), there will be a budgetary trainwreck. I also wish that lawmakers would recognize that individual proposals, whether tax increases or mandates, compound upon each other and will cause real hardships for businesses and families alike. And while the majority CAN push them through, it doesn’t mean they SHOULD. I would encourage a little more grace and restraint in leadership.
My thoughts:
We’ll continue to keep you updated. See you in the trenches, B You know me, I continue to pay close attention to interest rates and the economy overall. I went down a serious rabbit hole this weekend reading all about the collapse of Silicon Valley Bank and Signature Bank, which is causing serious ripples. More on that later. First I want to talk about economic indicators for what’s ahead. People are still spending, companies are still hiring. Many analysts still expect a mild recession in the middle of the year, but with the continued strength of consumer spending and business optimism/continued hiring, projections are becoming more optimistic. This despite inflation that continues, albeit at a slower pace.
Some highlights on the economy:
Together, these indicators of are strong signals that we are not through with inflation yet. So what’s happening with interest rates? The Fed raised its key interest rate again last month, the 8th time it has done so in the last year. Anticipate a few more small hikes ahead, as inflation is still so high and unemployment so low. All indications are that, at the FOMC meeting this week, the Fed will raise rates again, perhaps 0.25 – 0.5%. And so, we’re back to the banks: Silicon Valley Bank and Signature Bank both were seized by regulators earlier this month. Each collapsed for markedly different reasons than those that slammed Lehman Brothers in 2008, but they exposed the banks’ vulnerabilities both to increased interest rates and their own unbalanced investment portfolios. And just this past week 11 of the country’s largest banks together have injected over $30B in another vulnerable Bay Area Bank, First Republic Bank, in part to stabilize that institution and also to shore up confidence in the banking industry more broadly. I bring up the banks because, with the problems in the banking sector this month, there have been calls for the Fed to stop raising interest rates. But the strong February jobs report and this most recent inflation reading are sure indications – and I’m not alone in my thinking here – that the Fed will keep raising rates to tame ongoing inflation. Stay tuned for more. See you in the trenches, B |
Archives
April 2024
|