Dr. Mark G. Dotzour, a real estate economist who was chief economist for 18 years at the Real Estate Center at Texas A&M University, remains “bullish” on commercial real estate. Dotzour was speaker at Wednesday’s virtual December breakfast of the Society of Commercial Realtors in Fort Worth. Some of his remarks:
COVID-related government restrictions on business: “We’re in a tug of war between the fear of dying from COVID and the fear of losing our freedom.” But, using an analogy of Europeans who tried to maintain their lives amid World War II bombings, he said, “the human spirit survives. That’s why I’m bullish.”
Rule of law: “America is different from most of the world because we have the rule of law and private property rights.” That’s what draws investment, he said. “I’ve just been astounded with the attack on that lately. I never thought there would be a mayor who could come out and close every business, or governors, especially when they make decisions that ruin peoples’ lives.”
On laws, for example, restricting ability of landlords to collect rents or evict: “This will affect the value of investments in this country, including real estate, if more and more people decide to take the liberty to void your contract. A lot of people think of landlords as owning 10,000 properties. But a whole bunch of people in America own one or two. I don’t ever hear that in the news. Mom and pops losing rent to pay mortgages on their duplex. What I don’t hear are the news of people that are getting crushed because of overprotectiveness.”
On President-Elect Biden’s Climate Plan: “For all of us in Texas, our long-term future is going to be maximized by welcoming the green revolution. It’s going to happen. Every day that a geezer like me dies and another young person becomes 22 years old, the geezer is going to want to protect what you’re comfortable with, and the young person is going to want to get rid of fossil fuel. The energy business is going to be more than just oil and gas going forward.” Texas energy firms already are investing in renewables, he notes. “Don’t dig in our heels and try to protect something that the world is ready to move on. If my mom and dad were in the oil and gas business or I were, I would want to maximize my future.”
On Biden’s proposed Housing Bill of Rights: “I just hope this doesn’t mean I have the right to stay in your home without paying rent. If that comes to fruition, we’ll just to evaluate the risk premiums of real estate. I think right now, people have to be re-assessing the risk premiums of being in an office building or an apartment building. The good news is that the demand for real estate is so strong that any negative pressure, the extra demand is going to offset any extra risk. I think quality commercial real estate’s going to escalate in value, especially when it comes to industrial or multifamily.”
On Biden’s greenhouse emissions plan that touches on building efficiencies: “All of this is really cool. Whether it’s economically viable or not is another matter.” On building retrofits, “If I’m a building owner, I would be interested in doing this. There’s a big competition for employees. If you retrofitted a building to fit in with this green energy movement, the tenants in your building are going to have a leg up on attracting workers to come to work in that building. I can see some real economic benefit to doing this.”
On 1031 tax exchanges and Biden’s economic plan: “I see no mention of 1031 in the entire document…I’d been looking for the 1031 tax exchange in there.”
On progressives’ “Defund the Police” movement: “You need public safety in a town to have a quality of life. I have confidence that we won’t allow this grand experiment to get away. We’ve had 20 or 30 years now of really pleasant urban core experiences…I don’t want to see these urban areas decline. We have been blessed with a fun urban environment for a long time, but it doesn’t stay there by itself.”
On President Trump’s tax returns and how little he apparently pays in income tax. “It just illustrates how beneficial it is to own real estate.”
Economic recovery: “The good news is we’re recovering. And the recovery is strong. The early recovery has been strong, but I see the second wave of layoffs coming because the Congress and president couldn’t put down their tribal positions. We need it bad.”
Demand for warehouse and industrial space with continued growth of online delivery, and retailers’ ability to use just-in-time manufacturing to minimize on-hand inventory: “There’s going to be demand for all kinds for industrial warehouse space several years ahead.”
COVID’s impact on suburban demand: “I feel like there’s going to be more demand for the suburbs. Lots of people decide I don’t want to live downtown anymore. When that demand occurs in the suburbs, it’s going to increase the demand for retail. It’s going to create the demand for industrial, the warehouse, to deliver all the boxes. I think there’s going to be demand for smaller towns that haven’t been in demand for most of my career. Forty five minutes is about as long an appetite (workers have) for commute. With work from home, I think businesses are getting more comfortable with monitoring the productivity of their workers. I think people would be more comfortable with a 60-minute commute if it was only once or twice a week.”
Consumer confidence. “The Society for Human Resource Management came out in May and said 52 percent of small businesses expect to be out of business in six months. This is the trade association. This is your HR people, and they surveyed their members. This is the magnitude of the problem we’ve got.”
Hotels: “I’m kind of bullish on hotels, because I feel like people are going to start travelling again next summer. Weekend travelers are coming out. Clearly the demand is there. (With vaccines), people are going to start travelling again.”
Office: “The office market is kind of a tossup right now. It’s hard to say what will happen here. There’s a lot of conjecture about people working at home…I haven’t bought into the idea that office is under duress yet. We’re just going to have to wait.”
Dry powder: “There’s a lot of distressed buyers (that have raised capital) out there that are ready to invest and don’t want to return (the money). They will be buying real estate.”
Single-family demand: “Not only can we not build enough multifamily to keep up with demand, all the single-family houses in this country under $300,000 are going to be targets for people who want to permanently put them in the rental pool. I don’t see any end of this in sight. I think prices for single-family homes are going to continue to escalate until they’re no longer affordable with a 2.9 % interest rate.”