Roundtable Weekly - February 22, 2019

Economic Sentiment Index

Commercial Real Estate Executives Report Positive Q1 Market Conditions; Future Clouded By Uncertainty of Economy’s Historic 10-Year Expansion Cycle

The Real Estate Roundtable's 2019 Q1 Sentiment Index released today reveals confidence from commercial real estate industry executives that today's fundamentally sound CRE markets will prove resilient when the decade-long expansion of the U.S. economy inevitably slows down. 

The Real Estate Roundtable's 2019 Q1 Sentiment Index released today reveals confidence from commercial real estate industry executives that today's fundamentally sound CRE markets will prove resilient when the decade-long expansion of the U.S. economy inevitably slows down.

  • The historically long economic expansion, stable interest rates and demand driven supply have sustained the current healthy real estate market conditions.  Unpredictability about the future longevity of the economic expansion tempers the forward looking industry outlook.  
  • "The unsettling year-end capital market turbulence caused a degree of early 2019 industry concern.  However, as the first quarter moved forward, the equity markets strengthened and positive job creation continued to fuel steady economic growth.  These conditions bolstered the already well-balanced commercial real estate markets in Q1," said Roundtable CEO and President Jeffrey D. DeBoer.  "Looking ahead, our CRE executive survey reveals the timing of a natural economic cycle slowdown is concerning, but that is moderated by fundamentally sound commercial real estate markets," DeBoer added.
  • The Roundtable's Q1 2019 Sentiment Index registered at 45 - a five point drop from the previous quarter.  [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.]  This quarter's Current-Conditions Index of 47 decreased six points from the previous quarter, while this quarter's Future-Conditions Index of 42 came in at five points lower compared to Q4 2018.

DeBoer noted, "Over the last decade, the commercial real estate industry has not overbuilt or over-leveraged, resulting in disciplined markets that could act as a resilient buffer to any potential slowdown in the U.S. economy.  Our Q1 survey shows industry executives have concerns over unpredictable influences on the economy, such as the recent government shutdown and uncertain outcome of ongoing international trade talks.  Policymakers need to focus on bipartisan pro-growth policies designed to encourage further investment, spur job creation and propel the economy forward for all." 

Economic Slowdown Forecasts  

St. Louis Fed President James Bullard told CNBC yesterday he expects the economy to slow to a 2.25% annual rate this year from 3% in 2018.  Bullard is a voting member of the Federal Reserve's Federal Open Market Committee, which meets regularly to set the direction of U.S. monetary policy and interest rates. 

St. Louis Fed President James Bullard told CNBC yesterday he expects the economy to slow to a 2.25% annual rate this year from 3% in 2018.

  • "It does seem the economy is slowing down some – not terribly – but some. That's not a terrible outcome. I don't really think we're in any trouble," Bullard said.  (CNBC full interview, Feb. 21)
  • Additionally, Fannie Mae yesterday released its February Economic Outlook, which forecasts s GDP growth of 2.2% this year, down from 3.1% in 2018.  (Fannie Mae's Economic & Strategic Research Group, Feb. 21)   
  • "We reduced first quarter growth expectation slightly, but our forecast for full-year 2019 growth remains unchanged" said Fannie Mae Chief Economist Doug Duncan. "The labor market is strong, unemployment is at a very low level historically, and wages are rising modestly, enticing workers to come off the sidelines. Uncertainty regarding terms of trade remains a downside risk, as does slowing global economic growth."

Dr. Ken Rosen (Chairman, Rosen Consulting Group) led a discussion during The Roundtable's Jan. 29 State of the Industry Meeting about recent Fed actions, stock market volatility and how signs of weakness in the Chinese economy may affect future U.S. growth.  (Roundtable Weekly, Feb. 1)

 

Back to Top
Opportunity Zones - Tax Policy

Vice President Pence Promotes Opportunity Zones Program; Wall Street Investors Focus on Opportunity Funds

Vice President Mike Pence and Sen. Tim Scott (R-SC) promoted the new Opportunity Zones (OZ) program in South Carolina yesterday as an example of how economically distressed areas can be redeveloped to benefit lower-income communities.  (WCBD video, Feb. 21)

Vice President Mike Pence and Sen. Tim Scott (R-SC), above, promoted the new Opportunity Zones (OZ) program in South Carolina yesterday as an example of how economically distressed areas can be redeveloped to benefit lower-income communities.  (WCBD video, Feb. 21)

  • "The truth is, Opportunity Zones help address unique needs by forming partnerships between the federal government with regard to tax benefits, state and local leaders, and local investors to create that incentive that makes it even more possible for people to invest at the point of the need," Pence said.  (Pence Remarks, Feb. 21)
  • Vice President Pence added, "As President Trump said just a few months ago, when he established what came to be known as the White House Opportunity and Revitalization Council – which is going to be coordinating efforts and identifying Opportunity Zones all across the country – as the President said, and I quote, 'No citizen will be forgotten, no community will be ignored…no American will be left on the sidelines.' "
  • Sen. Scott – who led the effort in Congress for enactment of the Opportunity Zones program – discussed OZ goals and incentives on Jan. 29 in a discussion with Roundtable member Geordy Johnson (CEO, Johnson Development Associates, Inc.) during The Roundtable's State of the Industry Meeting (Roundtable Weekly, Feb. 15)
  • Wall Street's interest in OZs was profiled this week in the New York Times, which reported more than 80 opportunity funds have been established since January 2018 – and that the program "has unleashed a flurry of investment activity by wealthy families, some of Wall Street's biggest investors and other investors."  (New York Times, Feb. 20)
  • The article also notes that "The National Council of State Housing Agencies, which is tracking opportunity-zone funds, found that money managers and nonprofits had so far sought to raise over $18 billion." 

A recent IRS hearing focused on how OZ regulatory guidance may affect long-term investments in certain low-income communities. The Treasury Department is expected to release its second set of OZ regulations in the coming weeks.  Another public hearing will follow before rules for the program are finalized.  (Roundtable Weekly, Feb. 15)

Back to Top