Landauer economist predicts soft landing for most of industry.

Using movie posters as props during his Power Point presentation, Hugh F. Kelly, chief economist for the Landauer Group, told the assembled at the monthly B'Nai B'Rith Real Estate Luncheon Feb. 7 that the economy may yet see times that are "As Good as it Gets," but that certain sectors of the industry are rife with "The Good, the Bad and the Ugly."

The threat of a recession is on everybody's minds lately, but Kelly offered his version of "Lucky Numbers" (cue Travolta/Kudrow poster for a movie you likely missed) which pointed to a strong rebound from the current case of the lags.

"I take encouragement from a speech I heard last month by the chairman of the Chicago Federal Reserve, who reminded people that there have been few recessions since World War II that the Fed itself didn't orchestrate," said Kelly. "And the Fed doesn't want one now."

Economists are important because they find value in otherwise trivial stats. He made the strong argument that the surge in granted patents -- which have doubled during the last decade -- means Americans are still in search of that better mouse trap. If one of those granted patents turns out to be the next Windows, or the next Viagara, or the next Celeron processor, you'll wish you had gotten there first.

And without getting political, Kelly predicted President Bush's plan to pay off the national debt would also benefit the economy.

"If the Social Security surplus goes to retire debt, there will be fewer treasuries outstanding, which will raise their price. And higher-priced bonds means lower interest rates."

And if you were to ask him if the current slump was predictable, his face would form the most devilish grin.

"I was absolutely not surprised by this slowdown, it's all part of [Fed chairman Alan] Greenspan's script from last spring, when he raised interest rates." And if this will indeed be a zero-growth quarter, as some have predicted, he reached deeper into his movie lore bag to re-enact Capt. Louie's speech from "Casablanca" that he was "Shocked! Schocked!" to hear of a slowdown.

"Economic growth in 1999 almost reached six percent. In the fourth quarter of 2000 it was still almost four percent. I think an average of three percent growth is good for our industry."

He then broke the real estate industry down into its sectors. In the office sector, the theme movie was "As Good as it Gets," and, mostly preaching to the choir, he reminded the lunch crowd that Grubb & Ellis's numbers still call this the lowest national vacancy rate in 20 years..

"Even the suburban market, which has seen too much expansion and development, is still nine percent vacant nationally. The average office vacancy nationally is around 8.5 percent, and on main street [Central Business Districts] it drops to around seven percent nationally."

And there is room for improvement, he added, claiming San Francisco's downtown office rents, which average around $80 per SF, still eclipse Midtown Manhattan's.

He portrayed the future of retail as a battle of bricks versus clicks -- using Woody's battle with Buzz Lightyear in "Toy Story" as a metaphor for tradition versus glitz.

"You will know E-commerce has succeeded when you see an Amazon.com store," he predicted. "Gateway has already done it. So far, Amazon has dogmatically refused to explore its best distribution option.

"But in the future you will either see an Amazon store or you will see them in Chapter 11."

His predictions for the coming year in retail would be an increased shortage in space, widening the bid-ask spread; further domination of regional malls by the REITS and increased competition among grocery-anchored shopping centers being offset by increased spending power in suburbia.

Kelly said he was often amused when he heard America described as "post-industrial."

"Last year we produced 11 billion tons of stuff last year -- computers, chips, etc. The trade deficit is a concern, of course, unless you own warehouses..."

Despite the 87,000 new patents granted last year and the continuously weak dollar, he predicted what will hurt industrial real estate will be a serious drop in research and development spending.

"Blame NASDAQ," he said. "And this doesn't bode well for telecom hotels, for the uncertain future has led to a withdrawal of capital."

Apartment investors could breath a little easier, he promised, due to the "echo-boom."

"My kids, the children of the baby boom, are graduating college and entering the housing market, and they're a potent force. And remember that immigrants accounted for 45% of U.S. population growth."

Which led him to his most radical idea, which he summed up in three words.

"Ban the INS."

"The free movement of goods is crucial to us, it's good for us. Well, surely the free movement of labor -- our most important commodity -- is also good for us. The economy always grows in the decade after strong immigration periods.

"And B'nai B'rith should know that."

Alas, the news was not so joyous for the hotel industry, he said. Profits were solid in 2000 -- $24.4 billion, up eight percent -- but there has been an industry-wide development spurt that is not mirroring demand, he said. The biggest offenders were Marriot, which is planning more than 50,000 new rooms this year, and Hilton, which will add another 10,000.

But in all, he promised, the industry, would weather whatever downturns the nation faces.

"The real estate industry is in better shape to withstand a recession than any time since the 1950s."