Studley optimistic in NACORE symposium address.
That was the wry warning Julien J. Studley delivered to the real estate executives attending the International Association of Corporate Real Estate Executive's (NACORE) Annual Symposium held in New York, September 17 to 20.
Studley, chairman of Julien J. Studley, Inc., a national commercial real estate firm headquartered in New York, participated in a panel, entitled, "The Real Estate Industry Today and Tomorrow: Better!" In his designated role as "panel philosopher," Studley offered his view of how the real estate industry of the 1980s differs from today, and what may lie ahead for the future. He also discussed the mistakes which were made during the last decade, and, what lessons, if any, have been learned.
Studley characterized the frenzied real estate activity of the 1980s as "the binge" period, explaining that developers created supply without concern for what should have been its driving force - demand. "The availability of capital and potential fees seemed to be the developers' only concerns," stated Studley. He added that the problems of that decade were exacerbated by the fact that decisions to lend or build were often based on totally unreasonable financial projections.
In fact, Studley noted that the real estate market began to decline four full years before the downturn was generally acknowledged, citing 1985 as the turning point. "Even though rental rates may have continued to rise post-1985, landlord concessions were increasing at an even faster pace, disguising the reality of the market's downslide," he said. Studley conceded, however, that it is often difficult to make accurate predictions regarding future conditions whether the market is declining, as in the mid-1980s, or improving, as is the case currently, stating, "you can only tell later, after the numbers have come in, and by that time it may be too late." He noted, quite ironically, "Just think, Bush may have been elected to a second term if only the statistics on the economy's recovery were available six months earlier."
According to Studley, a "wising-up" period followed "the binge," as owners and investors were forced to unload their real estate, and, in the process, gain a new-found respect for the traditional principles of supply and demand. However, added Studley, while the follies of the 1980s have been well-publicized, it must be acknowledged that the decade's excesses produced beneficiaries as well. "Those investors who were bold enough to take a contrarian position - buying rather than selling real estate - were able to make excellent deals," said Studley, adding, "Tenants have also benefitted tremendously by taking advantage of soft market conditions to upgrade their facilities for better rental rates and lease terms."
Furthermore, according to Studley, the "wising-up" period has resulted in a backlash against the lavish spending of the last decade, with fiscal moderation becoming the hallmark of business in the 1990s. Studley cited corporate out-sourcing as one consequence of the renewed focus on cost containment. However, Studley believes that there are still many lessons to be learned regarding outsourcing, emphasizing that we are in the relatively early stages of the learning curve. Studley said, "Paying the lowest commissions to your service providers does not necessarily mean that you will ultimately save your corporation money." Likewise, he cautioned, corporate real estate executives to be wary of transactions which seem too easy. "Often, if there is no conflict, there is no creativity," said Studley. "I don't believe that a good deal can be made when everyone is holding hands around the negotiating table, smiling at each other."
Sounding a very optimistic note, Studley said that "the strength of ow national economy is a joy to be observed, rather than a lesson to be learned," adding that productivity is up, banks are healthy once again and manufacturing is undergoing a resurgence. Furthermore, Studley noted that a very significant, yet hidden asset of our economy is that fact that managers of American corporations are finally being held fiscally accountable. "The shareholders' revolt has mandated efficiency throughout corporate America," emphasized Studley.
As a result, Studley notes that there are tremendous opportunities available in today's marketplace, stating, "foreign investors are beginning to pour money into this country, most notably the Chinese, who have a much more aggressive, bottom-line orientation than the Japanese, as well as the Germans and Dutch." Also, said Studley, a number of domestic funds have been formed, and are aggressively investing in real estate.
Although Studley professed reluctance with regard to predicting future market conditions, he did forecast that some markets will experience rent increases as high as 30 percent over the next couple of years. He also stated that despite the current shortage of large blocks of Class A space in Midtown Manhattan, activity in this marketplace will not necessarily be impeded. "One critical lesson learned since the 1980s is that supply and demand are inextricably linked," said Studley. "If credible tenants are in demand of space, new development will, in fact, take place."
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|Title Annotation:||Julien J. Studley; International Association of Corporate Real Estate Executives|
|Publication:||Real Estate Weekly|
|Date:||Oct 26, 1994|
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