In Closing
After the Flood: Guiding Investors in a
Slow-Growth World
by Ralph Block
All but the most dour of us now believe that our space markets will bot- tom in late 2010 and that last March marked the lows for REIT
stock prices. The good ne ws
is that we have, most likely,
avoided Armageddon. The bad
news is that we still face an uncertain future and are groping to
ascertain the shape and magnitude of the recovery.
I’m a believer in the “new
normal” school of thought,
which argues that still-high
consumer debt levels, struggling
housing markets, elevated and
sticky unemployment and wage
growth, and the prospect of
higher taxes will dampen eco-
nomic growth for several years.
Employment levels, in particu-
lar, have often had a strong cor-
relation with demand for space.
Although new supply shouldn’t
be an issue, anemic demand
may cause vacancy rates to re-
main elevated for an extended
period—and rent spikes may be
nothing more than sugar-plum
fairies dancing in our heads. All
of this suggests that the eventual
rebound in REITs’ net operat-
ing income will be modest.
Some expect that FFO
growth, which should resume in
late 2011 or 2012, can neverthe-
less ramp up to higher levels due
to REITs’ access to relatively
cheap capital and their abil-
ity, as in the early years of
period—and rent spikes may be
nothing more than sugar-plum
growth, which should resume in
late 2011 or 2012, can neverthe-
less ramp up to higher levels due
s
the modern REIT era, to acquire
properties from distressed sellers
and through bank foreclosures at
bargain-basement prices.
