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2001 Is Going to Seem Like a Long Time Ago
By Anthony J. LoPinto
Fall 2001
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2001 is not quite over, but it's clear that it will go down in history as one of the most eventful years of the new century and a turning point in our society.
The year began with the inauguration of George Bush with a margin of just a handful of votes, a new president with no clear mandate from an election fought on issues that look today as if they are from another age.
It emerged with the technology sector in ruins.
The longest post war boom was clearly over, and recession looked likely (and has now been officially declared).
September 11th happened and America woke-up to a new and frightening era with an unknown future.
America declared a "war on terrorism", an elusive enemy that must always be fought, but can never be completely defeated.
Interest rates plummeted to new lows in response to the Fed's desperate attempts to buoy the economy.
And finally, closer to home, the real estate boom ended and major layoffs and cutbacks have been announced with many feeling the other shoe is going to drop.
2002 marks my 30th year in the real estate industry. I've seen three major catastrophic real estate cycles, each leaving our industry in ruins, but each was very different. The mid-70's ended the short life of the mortgage REITS with the commercial banking industry converting their REIT paper into huge unwanted equity portfolios to supplement their own bad real estate loans. Then came the early 80's and skyrocketing interest rates and oil prices that put the economics of real estate on its ear followed later in the decade by the Tax Reform Act of 1986 that certainly reformed real estate. Finally, the resulting bust of the early 90's left the real estate industry and its bankers in ruins.
Each of the cycles that I have witnessed was followed by periods of robust growth and expansion, especially during the roaring 90's. The 90's created vast new wealth, and provided exceptional career opportunities and compensation growth across all sectors of our industry. It also fueled renewed interest in real estate careers among university graduates, at least until the dot.com bubble lured them away with the promise of instant riches. On balance, the period from approximately 1995 through most of 2000 was among the most desirable periods for career professionals.
Sadly, the 90's ended and the new millennium dawned with some questions about where the world was going. The technology sector and the economy in general were showing signs of stress, and everyone was wondering, not if, but when the real estate sector would follow. The answer came not later than January 2001 when most executives quietly acknowledged that the game was changing and it was time to worry.
Does history offer any insights into what is in store for us in 2002? The answer is both yes and no.
The title of this article is "2001 is going to seem like a long time ago". I used it because I think that our current circumstances are going to cause substantial changes in 2002 and beyond, some of which we are already seeing.
First, we no longer believe that we are immune to terrorism, and this has made a huge difference to the issues that government and the people are focused on. These changes will feed through into the real estate industry, and will result in a lot more attention on how buildings are constructed and managed. In many cases we are still only making cosmetic changes; the fundamental issues will require both financial and human investment if we really want to address them.
Second, the savings boom driven by demographics continues, but has temporarily switched destinations. There is now over $2 trillion parked in money market accounts, earning ever lower rates of interest. At some point this money is going to seek higher rates of return; some of this money will make its way to the real estate industry.
Third, the technology revolution is only in its early stages and it's ready to re -emerge in a revitalized form that will create the next generation of incredible change. Although there is a perception that technology is dead, the hard work of innovation and creating real businesses is going on more than ever. Today's new technology will change the way we live and work, as has every other new technology we have invented over the centuries. However we consistently misunderstand the nature and speed of the changes, including their impact on existing businesses. Specifically, I do not believe that these changes will reduce the aggregate demand for real estate. It will almost certainly change the nature of the demand, although not necessarily in ways that we can predict today.
Finally, the real estate supply/demand situation is nowhere near the imbalance seen in other recent cycles. While there has clearly been a cooling in the real estate markets, much of this is a reaction to the over exuberance of 2000, rather than a fundamental problem.
I believe that these four factors will each contribute to, at a minimum, a year of relative stability and provide the foundation for a solid recovery.
If I am right about this, then it is certain that the talent that is easily available now will be absorbed quickly as companies recognize that the game has changed yet again. However the changed environment will mean that there will be a new focus on getting strong talent into functions like asset management and property management. There will also be a need for people who can respond quickly to opportunities wherever and whenever they occur.
Finally, something that is always true, but is easily forgotten during a boom period, is that it is always the right time to continually weed out weaker performers and recruit high performance talent. However today it is possible to do this at a more affordable cost. We are seeing well managed firms doing that today and see no signs of this letting up.
In closing, this was certainly the year that none of us expected, or would choose to relive. However the changes that will emerge will I believe be good for the country and the world in the long term. I wish you all an enjoyable holiday season, and every success in the New Year.
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