Economic Structure, Public Policy, and Private Decisions

ABSTRACT

The "headline numbers" flowing from the Bureau of Labor Statistics, the Census Bureau, the Bureau of Economic Analysis, and other agencies provide ambiguous information unless put under the microscope. [...]holding Fed-managed interest rates near the "zero bound" and keeping its balance sheet expanded at nearly $8 trillion in assets places structural pressures on monetary policy in an economy whose outlook remains unpredictable.8 Fiscal policy, meanwhile, has its own challenges, some of which are economic but most of which are political. Conversation around Federal spending has been couched in terms of "stimulus" and "recovery", but both of those terms are mistaken - reflecting the misapprehension that the pandemic disruption can be viewed as a typical recession susceptible to the usual remedies. Besides the continuing epidemiological risk, the ongoing structural problems of income inequality, technological displacement, housing insecurity, and infrastructure decay are areas where fiscal policy could and should make a lasting positive difference. According to CBRE, office net absorption in the first quarter of 2021 was negative 34.8 million square feet, and vacancy rose even more steeply than in the worst year of the Great Recession.9 With more than 111 million square feet still in the construction pipeline, office owners are braced for more bad news later this year and into 2022.10 Retail real estate was hammered long before COVID-19 arrived, as the sector has been "overstored" throughout the 21st century and was threatened by e-commerce even prior to the population being required to shelter in place in 2020. [...]cap rates ranging, on average, from 5.0 percent (for apartments) to 6.6 percent (for retail) are keeping pricing rich compared with the risk inherent in that underwriting uncertainty.12 We are observing many investors increasing their focus on property management aimed at retaining tenants and defending cash flow, while selectively seeking "value-add" properties amenable to active asset management.