Evidence

I have sat through more than my share of "forecast by panel." You've all been there. Pick an industry-OK, real estate. The moderator is in mortgage finance, there's a broker, an economist, a government official, and a CEO. What I have never attended is a "let's see if I was right" post-forecast party (or confession.) In fact, when have you ever read of a follow-up to an event you paid $100.00 to attend? When have you ever read a real estate expert, one year after the fact, write a new piece in the Wall Street Journal apologizing for being off by 100% in his or her prediction of the trend in rental rate. No, you pay an additional $100.00 to hear an entirely new and also entirely safe from scrutiny panel of experts deliver yet another forecast, and then you get a 6-week free trial invite from the WSJ.

If you are going to make forecast, then you better check your accuracy and put your errors or accuracies exactly in the place in which you first stated them. If you follow my blog, you might have noticed that I kind of like making forecasts, pretty much about everything, but particularly about the Boston economy and the Boston real estate market. Check any prior posting, as you please, and make a judgement on my accuracy. It's time for my personal "check up."

I posted my first blog on August 18 ("Mutual Fund Net Inflows, ...) with the opening sentence: "If you're waiting for the Boston office market to recover, you missed the turning point. A market turns when its underlying drivers turn. And they have." Reaction in the market to my post was, let's say, questionable. The basis for my statements was the noticeable increase in net cash flows into the City's mutual funds. Interestingly the blog was first picked up by USA today and by the Boston Globe as a "reference article" to Brookfield Properties' announcement on August 19 of its readiness, with $4.9 Billion in hand to buy "distressed debt." Remember the word "debt." It is an important distinction. More on that later.

I issued my 3rd quarter market report on October 8 ("Yes, we have net absorption...".) My report showed positive absorption in the A Markets, in which mutual funds and private money management firms account for over 47% of the market. It showed a tripling of gross demand across all markets heading into 2010 and 2011. My prediction in August for net absorption in 1010 was 350,000 square feet. Although this can not be tested until the end of 2010, I will admit to an error in my estmate. I increased my net absorption forecast in 2010--yes increased it--to 560,000 square feet. No other firm or research firm or economist has made a case--numbers, dollars, vacancy rates, in other words a real case--for any positive absorption sooner than 2011. I had underestimated what I saw as the underlying strength of the economy. Everybody else was running in the wrong direction. But don't worry, I'll make a prediction of predictions. I will predict that every brokerage firm in Boston's 4th quarter market report in 2009 will, without actually stating numbers, God forbid, will state that they "expect slight positive absorption."

Back to distress. In response to property owners traipsing to Washington DC for TARP money and overhyped NY Times Journalists describing the SArmageddon of Collapse due to "distressed properties", I posted an article on October 7 ("Boston Properties $700 Million...") rebutting a)the entire concept of "distressed debt" and b) stating that there would be plenty of fresh capital waiting on the sidelines. Let's go to point A. I will accept the concept of distressed "debt" as simply loans on property over due or by prudent measure about to be. There is no such thing as a distressed property. There is no such thing as a distressed owner. They may be experiencing distress but that is due to individual decisions they made in leveraging their properties. The concept of giving money to property owners is utterly preposterous. An office building is an asset, not a functioning or malfunctioning industry. To give money to a commercial property owner would be no different than giving money to me because I lost asset value in the stock market over the past 2 years.

Let's get back to Armageddon. I will let the following facts speak for themselves as to the readiness of waiting capital.

First week in July" Vornado raises $1 B with express purpose of debt-driven opportunities in the Eastern office markets.

August 13: Hines Interests raises $3.5 B with express purpose of purchasing distressed debt in the U.S.

August 19: Brookfield's announcement of $4.9 B intended for distressed debt with focus on Boston and NYC in the US.

September 2: Inland Diversified $5 B for US distressed debt.

November 7: Boston Properties $700 Million for Boston, NYC, and Washington distressed debt.

November 14: Prudential Real Estate Investors $500 M fund distressed debt.


That's the evidence. You can hold me to it. In fact, I wouldn't have it any other way.