O Tempora! O Mores! O Experts! O Give me a Break!

Since it is perhaps the most overused, unjustified, unquestioned, and unreliable phrase used in the press, just for kicks, I looked up the definition of "expert." I used the Oxford English Dictionary, which happens to be a lot of fun to use. Did you know that the word broker, of which I am one, came from the French “broceur” and came into existence in the 17th century? Broceurs literally stepped in between the growers of grapes and the vintners in France who, in the endless battle between pride and price, were actually killing each other, at times, in the negotiations over the price of grapes. Now we prevent landlords from killing tenants and vice versa. Sort of.

Back to “expert.” Expert is derived from the Latin "expertus" which is a past participle of "experiri" meaning to try or test. When used as a noun, it translates to a "person wise through experience". It came into common use in the 14th Century in France but fell out of common use in the 17th century, only to resurface in 1825.

“Wise through experience”. “To try or test.” How many experts, other than your grandfather or grandmother, do you really know?

This brings me back to the “horrors” of recent news articles and press releases on the state of the economy and of the real estate market in Massachusetts. First, Jay Fitzgerald, in the November 11th Herald, pens an article with the “run for the hills title of "EXPERTS SEE MASS. LAYOFFS; 65,000 MAY LINE UP FOR UNEMPLOYMENT." Of course it is the Herald, and I do love the headlines.

I delved a bit into the article to find out who the "experts" were. It turns out that The New England Economic Project, a nice little nonprofit that’s been around for about 25 years, claimed the expert mantle. On its web site, NEEP claims that they publish macroeconomic forecasts twice yearly for the six New England states. Funny but they also announce that their latest report dated November 2008, yes 2008, is now available for viewing. I guess NEEP is very slow to publish reports, as in one year behind. What is a year old, new forecast anyway? But I wanted to know who the experts were--names, numbers, pets, hobbies. Lo and behold, their experts are none other than “experts” from Economy.com, the national forecasting firm owned by that paradigm of good judgement and accurate forecasting, Moody's. We all remember how well Moody’s did in anticipating the credit swap issues of AIG –NOT!!. So NEEP pays Economy.com for its expert forecasting.

I looked for a description of the methodology used by Economy.com to make such remarkable, down to the individual, forecasts by state. No explanation available on the website. No access to the Company without buying access. I looked at their data more closely and recognized it as a reworking of figures from the Bureau of Labor Statistics. In other words, there are no experts.

So, the Herald’s article was taken from people paying for data prepared by other people who collect data from the government and sell it. Now there's some solid research for you.

Next up is the even juicier headline in today's Banker & Tradesman Online Editon, "ULI: There Will Be Blood In 2010 Commercial Market." Did they steal that tagline from the Daniel Day Lewis film? I mean, there was some definite blood in that flick, especially in the bowling alley scene. Come to think of it, Daniel Day Lewis would make an excellent landlord, particularly if he recreates his persona as William “Bill the Butcher” Cutting from Gangs of New York.

Sorry, I went astray again. I tried to find the expert behind this grim title and tale. B&T simply passed along, title and all, a press release from the "ULI". The ULI is the Urban Land Institute. I know it well. I was a member for 12 years, before it got boring. The ULI considers itself beyond reproach and frequently reminds everyone of that fact. After all, they've been around “since 1936 and they have 33,000 members.” Holy Institutional Intimidation, Batman!" They declare on their website that they are "the preeminent, multidisciplinary real estate forum. ULI facilitates the open exchange of ideas, information and experience among local, national and international industry leaders and policy makers dedicated to creating better places." Leaders and policy makers and bears, oh my. Of course, as one reads on, they are, of course, EXPERTS in almost everything they deem worthy to explore.

I was off on my chase to find the expert predicting that the commercial real estate market would "next year devolve into ‘an unavoidable bloodbath’... and Boston will not be immune”. I found that this was taken from a new report from the Urban Land Institute and PricewaterhouseCoopers--wait a minute, yet another expert, the venerable PricewaterhouseCoopers. Don't worry; I didn't bother with them because I didn’t have to. I actually found an "expert", one Jonathan Miller, the report's author.

John is the vice president, manager, and underwriting Counsel at First American National Commercial Services in Englewood, Colorado. I looked up the methodology of the report. Mr. Miller and Steve Blankand, the Senior Resident Fellow for Real Estate Finance at the ULI, assisted by staff from ULI and PWC stated that they "culled (information) from 900 interviews and surveys with industry leaders across the country" to produce their report. At least that's honest and transparent. What is it not is meaningful in any way. It's all subjective. I know. I have been one of the interviewed "leaders" in the past. It's a short phone call with a junior staffer who asks a lot of "on a scale of 1 to 10" questions.

So let's see. There is a bloodbath coming in commercial real estate, and Boston shall not be spared! 65,000 people are about to descend on the Division of Unemployment Insurance in Massachusetts alone to file for new benefits. THIS IS FROM EXPERTS IN THE FIELD.

Anyone who has read my posts or with whom I have had the pleasure to have done business knows that a) I believe in hard data; b) I believe that it is a broker’s responsibility, in his or her chosen market, to obtain this data firsthand through direct, daily discussions with tenants, landlords, brokers, and lenders; c) that all research be market-specific and not broad-brush data aggregation; and d) that anyone claiming expertise and making a forecast owes it to his or her audience to revisit the accuracy of their forecast after the forecast period ends.

I don't consider myself an "expert." As Groucho Marx said, “I don't care to belong to a club that accepts people like me as members." As an aside, don't you love his quote from the movie 'Animal Crackers' when asked by the actress who was his foil in a lot of films to "hold me closer", to which Groucho answered ““If I held you any closer, I'd be on the other side of you." Anyway, where was I? Oh yes, experts.

It's easy to question the forecasts, reports, and opinions of others. Cynicism is the essence of all TV news now. Yell, argue, defame, but never get of your ____ and check the facts yourself. I would not take issue with today's articles, their authors, and the absolute lack of any reasonable methodology to establish that there is any fact whatsoever in what they have said. How a “leader feels” is a bit mushy for me. Manipulating government data with no understanding of its applicability to real time and real world activity is best kept in 8th Grade social studies.

I maintain a proprietary database on the Boston office market. It is derived from direct, first hand discussions and meetings I described above. Since I issued my last market report and analysis on September 30, the end of the third quarter, in a mere 42 days the vacancy rate across all classes of space and across all submarkets in Boston has fallen by 0.2 percentage points.

Now, I am well aware that the 0.2% figure is not impressive out of context. But, in an office market of 72 million square feet, this small number translates into 140,000 square feet of net positive absorption. The level of gross demand, defined as firms seeking to acquire new space and/or to renew existing leases whether due to the need to grow, shrink, or simply due to lease expiration, has climbed from 3.6 million square feet to 4.0 million square feet in these same 42 days.

I don't think the Boston economy and its real estate market is crashing. I haven't for some time.

As to the coming "bloodbath" and mortgage meltdown, 68% of the Boston Class A market is under the control of 10 very stable landlords, listed below. The top 5 landlords control 45% of the market. None of the properties owned by these landlords has been stated to be at risk of mortgage default. The occupancy rate of the properties owned by the top 10 landlords is 92.5%, which is slightly higher than the entire Class A occupancy rate. Sales and auctions have already occurred in the normal course of real estate investment. Broadway Partners’ foolish overpayment for the Hancock Tower resulted in ownership stability at a reasonable basis when Normandy purchased the property at auction. Clarendon Street was blood-free. GE’s profitable sale of 470 Atlantic to Credit Suisse supposedly shocked the market. I don't know why. CS saw the long-term benefit of buying an existing asset in a rapidly improving market with little new construction; German pension fund GLL's purchase of 200 State and One Winthrop Square were indicative of the interest of long-term capital in Boston real estate.

Largest Landlords RSF in millions Share of Class A market
1 Equity Office 7.0 23.2%
2 Boston Properties 3.5 12.8%
3 Tishman Speyer 3.0 10.4%
4 Normandy 2.2 7.5%
5 TIAA 2.6 9.3%
6 Brookfield 2.0 7.3%
7 Beacon Capital 2.0 7.5%
8 Chiofaro 2.0 6.0%
9 Manulife 1.2 4.5%
10 Drew/Pembroke 1.0 3.8%
TOTAL: 26.5 92.4%
Class A Market rsf 40.0

Top 10 share 66.3%
Top 5 share 45.8%

I think, to use the ULI's phrase, we can comfortably "cull" about 80% of the experts responsible for irresponsible research across not only the real estate industry but across the entire news and information spectrum. In the meantime, I will return to my Latin roots by simply stating the obvious: "Caveat Emptor!" Anyone who relies on faulty second hand advice provided by unnamed or nonexistent "experts" and uses it to produce exponentially worse advice is doing a disservice to the client who is ultimately looking straight at you to make an intelligent business decision. How comfortable are you? How comfortable is your client?