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Stan Ross Was The Featured Speaker On May 17th At Luncheon II Of The 4 Private Briefings Of The 2000 GSP Executive Luncheon Series To Benefit The A-T Medical Research Foundation: Mr. Ross provided the 100+ attendees a positive review of the economy including a discussion on the Internet as it relates to the real estate industry: Inflation Concerns: (1) Inflation numbers are not high; April figures showed no change. Although the Index for personal consumption came in at 3.2% and labor costs rose 1.4% for the 1st Quarter, (the highest in 11 years) unemployment is 3.9% even with this level of growth. (2) Housing starts are running 1.6MM per year - an amazing stat for housing. (3) Greenspan said this week that risks are weighted mainly toward conditions that may generate heightened inflation versus an unforeseeable future. Standby for more rate increases. Not what the market wanted. Corporate Results: (1) Corporate results are amazing; as strong as I have ever seen. "I feel good". (2) Balance sheets are terrific. Debt is down but more importantly inventory is down. Inventory is very significant in terms of planning - "it's a great economy". (3) The Real Estate Industry is having trouble understanding start-ups: No revenue, no earnings or multiples. Developers are trying to reckon why their personal stock portfolios are going down every day but are still experiencing the best year ever. Continual improving cash flows, beating themselves each Quarter. The Real Estate Market has acknowledged a recent change toward growth rather than cash flow. (4) REITs are becoming more appealing, offering higher dividend yields. Pension funds are looking hard at REITs for their reallocation. High net worth individuals are also placing more emphasis on REITs. What Can Hurt Us? (1) Rates moving up resulting in fewer deals due to a tighter spread. (2) Consumer spending based on consumer wealth. The Beverly Hills Balance Sheet: A great balance sheet but can't afford to buy lunch. (3) Only half of an individual's net worth was tied up in the personal residence, previously 75%. Many stock investments are severely margined. (4) Trade deficit - American financial markets have a growing dependence on foreign capital. A weekend dollar may hurt investments. The Good News: (1) There are more tax dollars rolling in as a result of the stock market. The government can't stop the money from coming in. They never had a positive cash flow. Not to worry. They'll find a way to spend it. (2) The tightest labor market that we've ever had with incredible numbers of new jobs and a tremendous battle for talent. A recent grad student on potential job offers: "Should I auction myself off on e-Bay?"
The Real Estate Industry - Looking Good: (1) Supply & demand are in balance on a national level. (2) Pricing, rent quotes, cap rates all indicating growth. An overall 12% return for 1999: 8% income, 4% appreciation. (3) Less acquisition, more development. (4) Big movement in real estate driven by technology. Technology created an efficiency throughout the whole industry that lead to improved productivity and profitability. Productivity jumped 5% for the second half of 1999. (5) The Internet (per Bill Gates) is a tidal wave. Either launch over or drown. The real estate industry is learning to swim. (6) Technology has created new strategic opportunities, creating affiliations that share information. Competition is moving to cooperation, using their collective buying power as a group. They will compete in the morning and share in the afternoon. Savings will be realized on maintenance, operations and linking to sell new businesses and products. They will share the data, then it is every man for himself. (7) The broker will not be replaced by the Internet, but commissions will be cut. You can't eliminate the person.
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