Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.
In 1965, Bob Dylan penned a manuscript that struggled through a difficult adolescence.
In the studio, Dylan couldn’t find the right melody, the right pace or the right key for what eventually would become one of the most widely-heralded and influential songs of its era. As is typical with great records, the finished product was starkly different than the artist’s original concept. Thematically, the words spoke of a fall from grace with an air of provocation. Such a song couldn’t be commenced softly; yet finding the right entre was elusive.
“This song is going to put me in my grave,” Dylan would say while performing an early iteration of the tune live. After his guitar-turned-organ player Al Kooper improvised an organ riff, Dylan asked that its volume be turned higher in the mix, and, suddenly, Dylan had “Like A Rolling Stone,” which didn’t necessarily put him in a grave but in the Rock & Roll Hall of Fame.
Ahh, princess on a steeple and all the pretty people
They're all drinking, thinking that they've got it made
Exchanging all precious gifts
But you better take your diamond ring, you better pawn it, babe
Dylan rubbed the subject’s face in its reversion. Aside from the catchy melody and the infectious “How does it feel?” rhetoric, I find myself looking back on the lyrics he wrote and questioning the state of our industry. Will we soon wish we hadn’t taken our diamonds for granted? Do we think we have it made but we don’t see something more sinister lurking?
By now you are familiar with the many metrics HFF uses to dispel such notions. Recently, HFF delivered its thesis to Wall Street, and it appears they agree.
This morning in a note to clients, Goldman Sachs said “[their] biggest takeaway is that the state of U.S. commercial real estate is in line with the state of the U.S. economy. Growth is positive, but decelerating. Going forward, CRE is likely to move in line with changes in overall economic growth. There are not factors specific to CRE (excess leverage, excess supply, regulation, etc.) that would cause the asset class to significantly disconnect from underlying economic fundamentals.”
Other noteworthy takeaways include:
On Goldman’s topic of underlying fundamentals, Initial Claims for Unemployment Benefits fell to levels not reported since 1973. Covered in HFF's BLS Employment Situation report each month (the September update will be published on this blog next week), initial claims help economists understand the pace of new layoffs while continuing claims help convey the ability for out-of-work members of the labor force to reemploy themselves. Directionally, the initial claims report is accretive to confidence, and the four decades that have passed since a sub-250,000 report is pretty remarkable.
In summary, real estate much like the broader economy continues to roll along, like a rolling stone, even if in a different meaning than Mr. Dylan intended.
Source: HFF Research, Bloomberg, Bureau of Labor Statistics, Goldman Sachs
Jimmy Hinton serves as Managing Director of HFF, responsible for the firm’s national research efforts. Mr. Hinton works with the executive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.
During his tenure at HFF, Mr. Hinton has supported the execution of more than 150 commercial real estate transactions totaling more than $4.5 billion in 20 states. Mr. Hinton has experience in fixed- and adjustable-rate debt, mezzanine debt, construction loans and joint venture executions on behalf of clients engaged in the acquisition, development and recapitalization of property types including multi-housing, industrial, office, retail, medical office and storage properties.