Richard Davis, chief executive officer of Minneapolis-based U.S. Bancorp, brought a message of hope to the attendees of Minnesota Real Estate Journal’s recent Capital Markets Conference: Banks across the United States will be OK.
That’s a simple message. But it resonated among the attendees at the April 30 conference. The commercial real estate industry is still one plagued by uncertainty. And for developers and brokers, much of that uncertainty still comes from wondering how willing banks across the country will be when it comes to providing financing for new commercial developments.
But Davis did his best to spread some optimism at the Golden Valley Country Club in Golden Valley, Minn., site of the conference and his keynote address. His message, distilled? The economy, and all that goes with that, may not be getting better as quickly as we’d like. But it is getting better. And that’s good news, he said, for the commercial real estate industry.
“We are in a cycle. And the good thing about a cycle is that you know how it works,” Davis said. “We will end up being OK. Things will be different in the future. That always happens. We have to start building for that future.”
To illustrate his point, Davis pointed to hockey star and hall-of-famer Wayne Gretzky. When he was being inducted into his sport’s hall of fame, someone asked Gretzky why he thought he’d had such a tremendous career. In response, Gretzky quoted his father’s advice: “Skate to where the puck is going, not to where it has been.”
And that, Davis says, is the best advice for commercial real estate professionals today. They need to hire people who can help them skate to where the puck is going. They have to refashion their business so that they can excel in the future, not just survive today.
Resiliency
No one is happy about the Great Recession. It sent the country into an economic spiral from which it is still trying to recover. But Davis did say that the severe recession did cause a small bit of good: It taught businesses how to operate more efficiently.
And that’s a lesson that will serve all businesses, not just those involved in commercial real estate, in the future, Davis said.
“American businesses have been unbelievable during the recession,” Davis said. “They have made the changes they needed to make. They figured it out. They have become more productive. They have become more efficient. They are now able to make the hard economic decisions that are needed.”
This doesn’t mean, of course, that businesses face an easy task as they continue to work through the economic slowdown.
As Davis told the crowed at Golden Valley, there is still much uncertainty among both consumers and businesses.
“This is the Humpty Dumpty economy,” Davis said. “All the king’s horses and all the king’s men couldn’t agree on how to put it together again.”
Davis pointed to a recent story in the Wall Street Journal. The story said that business leaders worry that the second half of 2012 won’t be as strong as the first. At the same time, they’re worried that it won’t be bad enough to spur the government to take any steps to help.
In other words, the worst case scenario, the one that business leaders fear most, is that the economy will sputter in the second half of this year but that it won’t sputter enough.
This kind of uncertainty isn’t unexpected, Davis said. It’s not just the United States that suffered through a recession. Much of the global is still suffering an economic freefall. This, Davis said, is a global downturn, not a domestic one.
“That makes a big difference,” he said. “We’ve dealt with smaller recessions on a domestic level. When you go global, though, you actually have a financial crisis. This is an all hands-on-deck crisis. It’s systemic. Because of that, it will take a while to recover.
“A lack of confidence in the economy remains,” Davis added. “Businesses aren’t sure whether they should be hiring. They are worried about tax issues and possible health care costs. Consumers don’t know what’s going to happen next. None of us know what we don’t know.”
Davis said that even Ben Bernanke, chairman of the Federal Reserve, is unsure of what to expect from this economy. Davis referred to one of Bernanke’s most famous recent quotes, when he said that the economic recovery is an “unusually uncertain” one.
“Ben Bernanke is one of the smartest people around, and even he isn’t certain,” Davis said.
Signs of hope
Davis, though, was largely optimistic during his talk in late April. And he pointed to several facts to back up this optimism.
First, construction spending is rising. Secondly, vacancy rates are falling among all commercial sectors. At the same time, banks are passing out more financing to new commercial developments. And the loans that they are making, thanks in part to the lessons lenders learned during the recession, are higher-quality ones.
That doesn’t mean that consumers or business leaders are overly confident. But the numbers do show an economy moving, if slowly, in the right directions.
Davis reserved much of his optimism for the Minneapolis/St. Paul area itself. Davis said that the Twin Cities remain well-situated to not only survive the downturn but to thrive once the country’s economic recovery gains force.
Davis cited the area’s median income, which is high, and the unemployment rate, which is low, as two examples of how strong the Twin Cities are.
“The Twin Cities are a great place to live,” he said. “This is an amazing area. Those who are natives need to be reminded of that. When it comes to our unemployment rate, our culture, the work ethic of the people here, our development, this is an amazing place. We should remember that.”
