Making Lemonade
Lemons out of Lemons
By:
Jim Rounds
Senior V.P., Elliott D. Pollack & Company
Elliott D. Pollack & Company
The economy’s impact on:
 Your
job?
 Your
home?
 Your
future?
Elliott D. Pollack & Company
U.S. Summary
Elliott D. Pollack & Company
U.S. Y/Y Job Losses - Recent Recessions
Duration in Months – BLS - May
2.0%
1.0%
2001
1991
0.0%
-1.0%
1980/81
-2.0%
1974
-3.0%
-4.0%
-5.0%
-6.0%
0
3
6
9
1974 Recession
2001 Recession
Elliott D. Pollack & Company
12
15
18
21
1980/81 Recessions
Current Recession
24
27
1991 Recession
30
33
US New Job Data
Change from Prior Month (S/A)
June 2010 - June 2011
Source: Bureau Labor of Statistics
(000’s)
250
200
?
150
100
50
0
(50)
(100)
(150)
(200)
Elliott D. Pollack & Company
1Ju
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11
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(250)
Recession Indicators Summary:
Still Moving Upward
(Just Slowly)
Real GDP
 Real Income
 Employment
 Industrial Production
 Wholesale – Retail Sales

Elliott D. Pollack & Company
Household Net Worth ($$$)
1970 – 2010*
Source: Federal Reserve
($
in trillions)
Recession Periods
70
60
50
40
30
But still feel poor…
20
10
0
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
1
3
0Q 71Q 73Q 74Q 76Q 77Q 79Q 80Q 82Q 83Q 85Q 86Q 88Q 89Q 91Q 92Q 94Q 95Q 97Q 98Q 00Q 01Q 3 Q
4 Q 06 Q 07 Q 09 Q 10 Q
7
0
0
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
•Data through fourth quarter 2010.
Elliott D. Pollack & Company
Ja
nJa 78
nJa 79
nJa 80
nJa 81
nJa 82
nJa 83
nJa 84
nJa 85
nJa 86
nJa 87
nJa 88
nJa 89
nJa 90
nJa 91
nJa 92
nJa 93
nJa 94
nJa 95
nJa 96
nJa 97
nJa 98
nJa 99
nJa 00
nJa 01
nJa 02
nJa 03
nJa 04
nJa 05
nJa 06
nJa 07
nJa 08
nJa 09
nJa 10
n11
Consumer Confidence
1978 – 2011*
Source: The Dismal Scientist
Recession Periods
150
140
130
120
110
1985 Benchmark = 100
100
90
80
70
60
50
40
30
20
*Data through March 2011
Elliott D. Pollack & Company
Consumer Summary:

Jobs are being created but not quickly enough.

Those that have jobs are spending a little more but
will remain cautious.

Most of those that don’t have jobs probably won’t
anytime soon.

Wealth levels are improving but people still feel poor.

Congress and the President have done little to
positively influence confidence.
Elliott D. Pollack & Company
Business
Depends on the sector…
Elliott D. Pollack & Company
Doin’ God’s Work
Elliott D. Pollack & Company
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a
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ar
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pJu 79
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a
De r -81
c
Se -81
pJu 82
n
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ar
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c
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p
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ar
De -87
c
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p
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M n-89
ar
De -90
c
Se -90
pJu 91
M n-92
ar
De -93
c
Se -93
pJu 94
M n-95
ar
De -96
c
Se -96
pJu 97
M n-98
ar
De -99
c
Se -99
pJu 00
M n-01
ar
De -02
c
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p
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c
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p
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a
De r -08
c
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n10
Corporate Profit
(Billions of Dollars, SA)
1975-2010*
Source: Freelunch.com
Elliott D. Pollack & Company
Recession Periods
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
*Data through fourth quarter 2010
Corporate Profit By Industry ($Billions)
2010 q4
Source: BEA
500
435.8
450
400
350
300
241.5
250
200
121.2
150
100
104.7
44.7
38.2
50
22.5
0
Financial
Manuf acturing
Elliott D. Pollack & Company
Retail Trade
Wholesale Trade
Inf ormation
Transp. &
Warehousing
Utilities
U.S. Real Exports
as a Percent of Real GDP
1971 – 2010*
Source: Bureau of Economic Analysis
Recession Periods
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
71
19
Q
1
73
19
Q
1
75
19
Q
1
77
19
Q
1
79
19
Q
1
81
19
Q
1
83
19
Q
1
85
19
Q
1
87
19
Q
1
89
19
Q
1
91
19
Q
1
93
19
Q
1
95
19
Q
1
97
19
Q
1
99
19
Q
1
01
20
Q
1
03
20
Q
1
05
20
Q
1
07
20
Q
1
09
20
Q
1
*Data through fourth quarter 2010
Elliott D. Pollack & Company
Hours Worked
Percent Change from Year Ago
1976 – 2010**
Source: Bureau of Labor Statistics
Recession Periods
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1 1
1
1 1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
6 Q 77 Q 78 Q 79 Q 80 Q 81 Q 82 Q 83 Q 84 Q 85 Q 86 Q 87 Q 88 Q 89 Q 90 Q 91Q 92Q 93Q 94Q 95Q 96Q 97Q 98Q 99Q 00Q 01Q 02Q 03Q 04Q 05Q 06Q 07Q 08Q 09Q 10Q
7
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
0
1
1 1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
2
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 1
**Data through fourth quarter 2010
Elliott D. Pollack & Company
Ja
n
Ja -70
n
Ja -71
n
Ja -72
n
Ja -73
n
Ja -74
n
Ja -75
n
Ja -76
n
Ja -77
n
Ja -78
n
Ja -79
n
Ja -80
n
Ja -81
n
Ja -82
n
Ja -83
n
Ja -84
n
Ja -85
n
Ja -86
n
Ja -87
n
Ja -88
n
Ja -89
n
Ja -90
n
Ja -91
n
Ja -92
n
Ja -93
n
Ja -94
n
Ja -95
n
Ja -96
n
Ja -97
n
Ja -98
n
Ja -99
n
Ja -00
n
Ja -01
n
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Ja -04
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n11
Capacity Utilization Rate
1970 – 2011*
Source: The Conference Board
Recession Periods
90
85
This is where
investment
occurs.
80
75
70
65
*Data through February 2011
Elliott D. Pollack & Company
Business Summary:

Profits are high, but…

Business spending on plant will be slow, but
getting closer to seeing some limited investment.

Hiring will still be relatively slow, but more
pressure to hire by the end of the year.

Lots of money sitting on the sidelines.
Elliott D. Pollack & Company
U.S. Summary:
Recovering but not recovered.
Lots of small shocks thus far but none
have been game changers (oil spikes,
Middle East, Japan, etc.)
Debt Ceiling???
Elliott D. Pollack & Company
ARIZONA
Elliott D. Pollack & Company
The “Lemons”
Elliott D. Pollack & Company
Job Growth 2006
Source: US BLS
Alaska
10
7
9
5
4
1
3
22
Hawaii
2
Jobs growing
15
8
11
6
Top 10
Jobs declining
Elliott D. Pollack & Company
13
Job Growth 2007
Source: US BLS
Alaska
7
8
15
5
2
28
1
36
Hawaii
22
Jobs growing
11
10
6
20
9
4
3
Top 10
Jobs declining
Elliott D. Pollack & Company
45
Job Growth 2008
Source: US BLS
Alaska
8
34
42
46
45
Hawaii
17
47
Jobs growing
15
2
1
7
11
10
9
4
14
3
6
Top 10
Jobs declining
Elliott D. Pollack & Company
50
Job Growth 2009
Alaska
2
Source: US BLS
30
47
44
50
45
Hawaii
35
49
Jobs growing
18
1
23
3
5
32
13
16
24
8
4
Top 10
Jobs declining
Elliott D. Pollack & Company
46
Job Growth 2010
Alaska
2
6
48
17
28
40
50
44
Hawaii
1
43
12
10
19
25
49
Jobs growing
Top 10
Jobs declining
Elliott D. Pollack & Company
38
9
4
47
8
7
35
42
3
37
5
Job Growth Update: Arizona Ranked 36th
May 2011 v May 2010
Alaska
11
18
34
7
33
4
46
13
23
Hawaii
5
36
Jobs growing
Top 10
Jobs declining
Elliott D. Pollack & Company
39
50
1
22
38
3
9
10
8
45
6
2
37
How did
we go
from 2nd
to 49th in
the
rankings?
Elliott D. Pollack & Company
How did AZ go from 2nd to 49th?





Financial meltdown.
Credit crunch/freeze.
Overextended consumer.
Excess single family inventory.
Housing prices decline.






Loss of wealth incl. home equity.
Can’t sell homes or retire.
Homebuilding crash.
Population inflows weaken in AZ.
Household formations decline.
Household size increases.

Excess commercial construction


Elliott D. Pollack & Company
Construction job losses.
All sector job loses.
How does AZ go from 49th to 2nd?



Slow recovery.
Credit frees up slowly.
Consumers more confident.



Overall US economy improves.
Stock market improves.
Limited AZ job and population growth.




Excess housing absorbed.
Smaller household size.
Housing prices rise.
Construction kicks in.


Elliott D. Pollack & Company
All sector job gains; more robust %s.
Even more people move to AZ.
In 2008, 2009, and 2010
no one showed up!
Elliott D. Pollack & Company
Greater Phoenix Population
Annual Percent Change 1976–2012*
Source: Arizona State University & Department of Commerce, Research Administration
6%
5.1%
4.7%
4.6%
4.3%
4.2%
4%
4.4%
4.2%
4.3%
3.9%
4.2%
4.3% 4.3%
4.2%
3.8%
3.7%
3.5%
3.3% 3.1%
3.0%
2.9%
?
3.2% 3.4%
3.4%
3.1% 3.3%
2.8%
2.7%
2.5%
2.5%
2.4%
2.1%
1.6%
2%
1.5%
1.3%
1.0% 0.9%
0.9%
0%
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2008 and 2009 are estimates put out by ADES and may be subject to substantial revision.
* 2011 & 2012 forecast is from Elliott D. Pollack & Co.
Elliott D. Pollack & Company
Recession Periods
*2000-2010 estimates based on 2010 Census release
Greater Phoenix Y/Y Job Losses - Recent Recessions
Duration in Months – BLS - April
2.0%
2001
1991
= Job Growth
1980/81
0.0%
-2.0%
-4.0%
-6.0%
1974
-8.0%
-10.0%
0
3
6
9
12
15
18
21
1974 Recession
1980/81 Recession
2001 Recession
Current Recession
Elliott D. Pollack & Company
24
27
1991 Recession
30
33
36
AZ New Job Data
Change from Prior Month (S/A)
May 2010 - May 2011
Source: Bureau Labor of Statistics
(000’s)
20
15
10
5
0
About
2k not
S/A
(5)
(10)
(15)
Elliott D. Pollack & Company
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(20)
Greater Phoenix Employment*
Annual Percent Change 1975–2012**
Source: Department of Commerce, Research Administration
13.3%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
8.7%
5.8%
4.9%
7.3%
7.2%
6.6%
5.4%
5.4% 4.6%
4.9%
3.5%
4.8% 5.9%
3.5% 2.5%
3.7%
3.0%
2.2%
1.1%
-0.1%
6.2%
5.4%
3.9%
1.5%
1.2%
2.0%
1.6%
1.0%
-0.1%
-0.3%
-2.5% -2.1%
-3.7%
11
20
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
19
77
-7.9%
75
19
11.2%
9.3%
10.4%
*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.
** 2011& 2012 forecast is from Elliott D. Pollack & Co.
Elliott D. Pollack & Company
Recession Periods
This is NOT a multi decade
recovery…
Think 2015 – 2016 for full
recovery, but growth before
then.
Elliott D. Pollack & Company
Employment Levels:
Greater Phoenix back to Peak in 2015?
Source: ADOC
Recession Periods
2,400.0
2,200.0
Peak
2,000.0
1,800.0
1,600.0
1,400.0
1,200.0
1,000.0
5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4 5
-9 ul-9 n-9 ul-9 n-9 ul-9 n-9 ul-9 n-9 ul-9 n-0 ul-0 n-0 ul-0 n-0 ul-0 n-0 ul-0 n-0 ul-0 n-0 ul-0 n-0 ul-0 n-0 ul-0 n-0 ul-0 n-0 ul-0 n-1 ul-1 n-1 ul-1 n-1 ul-1 n-1 ul-1 n-1 ul-1 n-1
n
Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja
Elliott D. Pollack & Company
Single Family
Housing
Elliott D. Pollack & Company
Across the US,
underproduction has been
occurring.
This helps with the
oversupply.
Elliott D. Pollack & Company
U.S. Single-Family Starts
1978–20111/
Source: Census Bureau
(Millions)
Recession Periods
2.0
1.7
1.8
1.6
1.6
1.5
1.4
Oversupply
1.5
1.4
1.4
1.2
1.2
1.2
1.2
1.1
1.1 1.1 1.1
1.3 1.3
1.1
1.1
1.0
1.0
1.2
1.1
1.2
1.3
1.1
LTA: 1.2
1.0
Undersupply
0.9
1.0
0.9
0.8
0.8
0.7
0.7
0.6
0.6
0.4 0.5 0.5
0.4
0.2
Elliott D. Pollack & Company
10
20
08
20
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
19
78
0.0
1/ Through Febuary 2011
In AZ, because of the weak
population inflows, this
underproduction only
recently started.
Elliott D. Pollack & Company
Single-Family Permits vs. Population Demand
Greater Phoenix 1975–2015
Source: PMHS / RL Brown
# Permits
Recession Periods
70,000
63,570
60,892
60,000
47,720
50,000
36,151
35,308
34,701
31,715
27,426
29,609
28,543
40,000
28,851
22,281
30,000
31,172
23,222
22,652
22,598
18,843
18,125
17,944
19,447
15,085
18,379
10,614
13,698
11,485
11,625
12,000
10,649
20,000
11,081
10,000
42,423
38,914
36,001
8,705
25,000
15,000
12,582
8,027 5,000
8,000
6,822
7,000
* 2011 - 2015 forecast is from Elliott D. Pollack & Co.
Elliott D. Pollack & Company
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
19
75
0
Single-Family Vacant Units
Maricopa County 1993–2010
Source: PMHS
120,000
106,125
101,625
100,000
80,000
60,175
51,725
60,000
40,000
20,000
23,850
20,000
14,725
15,25014,800
18,725
17,550
13,925
13,550
13,600
30,200
19,400
24,725
16,755
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
0
Elliott D. Pollack & Company
How Investors Impact the Market:
Investors temporarily
create demand.
How many of those
homes will come
back on the market
and add to the supply?
But, how many will be kept as permanent rental
units or purchased by current renters?
Elliott D. Pollack & Company
Home Prices Indices
2000 – 2011 (January)
Source: Macro Markets, LLC; AMLS
Recession Periods
250
230
210
190
170
150
Weak Pop/Emp
130
?
110
90
Investors
70
0
nJa
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1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9
0
1
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-0
-0 n-1
-1 n-1
l
l
l
l
l
l
l
l
l
l
l
u
u
u
u
u
u
u
u
u
u
u
a
a
a
a
a
a
a
a
a
a
a
J
J
J
J
J
J
J
J
J
J
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J
J
J
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J
J
MLS Index
Elliott D. Pollack & Company
Case-Shiller Index
Trendline (4.0%)
Negative Equity in Homes
Affects Ability to Sell or Buy
Source: First American Core Logic
50% of homes in
Arizona have negative
equity.
Elliott D. Pollack & Company
Persons per Household
Elliott D. Pollack & Company
Household Formations
Fewer during
recessions
(doubling up,
living at home
with mom &
dad, etc).
Elliott D. Pollack & Company
Persons per HH
Source: U.S. Census Bureau & American Community Survey
2000
2009
Single Family Owner Occupied
2.83
3.02
Single Family Renter Occupied
3.20
3.72
Apartments
2.10
2.21
Elliott D. Pollack & Company
Commercial
Elliott D. Pollack & Company
Commercial
Markets
(Not making things worse
anymore)
Elliott D. Pollack & Company
APARTMENTS
Elliott D. Pollack & Company
Multi-Family Year-End Vacancy Rates
Maricopa County 1986–2012*
Source: ASU Realty Studies
Recession Periods
18%
15%
12%
10.6%
10.1%
9%
7.7%
6.9%
6.1%
6.2%
6%
14.2%
14.1%
13.0% 13.4%
3.9%
4.1%
3.3%
2.8%
6.1%
4.4%
10.8%
10.0%
9.5%
9.6%
9.4%
8.0%
8.2%
8.5%
10.3%
9.9%
8.5%
7.9%
6.8%
5.1%
5.9%
4.8%
4.5%
4.5%
3.8%
4.0%
5.3%
5.0%
3%
19
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
2099
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
12
0%
*2011 -2012 are forecasts from the Greater Phoenix Blue Chip
Elliott D. Pollack & Company
OFFICE
Elliott D. Pollack & Company
Office Space Year-End Vacancy Rates
Maricopa County 1986–2012*
Source: CB Richard Ellis
Recession Periods
35%
30%
25%
26.7%
26.4%
26.7%
25.4%
24.0%
22.8%
26.2%
24.5%
22.7%
18.8%
18.3%
18.8%
20%
16.0%
14.8%
15%
11.7%
9.5%
9.9%
10.0%
9.5% 9.2%
24.6%
22.8%
19.1%
16.4%
13.9%
12.6%
11.1%
10%
5%
19
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
94
19
9
19 5
9
19 6
9
19 7
9
19 8
99
20
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
08
20
0
20 9
1
20 0
1
20 1
12
0%
Elliott D. Pollack & Company
*2011 -2012 are forecasts from the GPBC
INDUSTRIAL
Elliott D. Pollack & Company
Industrial Space Vacancy Rates
Maricopa County 1980 – 2012*
Source: CB Richard Ellis
Recession Periods
20%
15%
10%
16.4%
15.2%
14.8%
14.6%
14.0%
13.2%
13.6%
12.8%
12.8%
11.1%
10.8%
9.4% 9.7%
8.4%
16.1%
14.7%
13.9%
12.5%
12.3%
10.3%
9.8%
9.7%
8.5%
8.4%
8.1%
7.4%
7.4%
7.1%
6.6% 7.0%
6.7%
5.7%
5.6%
5%
0%
80 981 982 983 984 985 986 987 988 989 990 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 007 008 009 010 011 012
9
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2
* 2011 - 2012 are forecasts from the GPBC
Elliott D. Pollack & Company
RETAIL
Elliott D. Pollack & Company
Retail Space Vacancy Rates
Maricopa County 1985–2012*
Source: CB Richard Ellis**
Recession Periods
20%
14.2%
13.1%
13.5%
12.7%
11.8%
15%
10.0%
10%
8.9%
12.3%
12.2%
11.4%
11.4%
11.1%
9.8% 8.7%
7.9%7.5%
6.6%
7.4%
7.5%
6.6% 7.3% 6.1%
6.3% 5.3%
6.2%
5.3%
5.5%
5.1%
5%
0%
85 986 987 988 989 990 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 007 008 009 010 011 012
9
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2
* 2011-2012 are forecasts from the GPBC
** Data prior to 1992 is from Grubb & Ellis
Elliott D. Pollack & Company
Financial Problems…
Elliott D. Pollack & Company
U.S. Problem Commercial Real Estate Loans Rise
Delinquency Rates at Commercial Banks
1991 – 2010*
Source: Federal Reserve
Recession Periods
14
12
Temporary
before flat
again?
10
8
6
4
2
0
91
19
Q
1
91
19
Q
4
92
19
Q
3
93
19
Q
2
94
19
Q
1
94
19
Q
4
95
19
Q
3
96
19
Q
2
97
19
Q
1
97
19
Q
4
98
19
Q
3
99
19
Q
2
00
20
Q
1
00
20
Q
4
01
20
Q
3
02
20
Q
2
03
20
Q
1
03
20
Q
4
04
20
Q
3
05
20
Q
2
06
20
Q
1
06
20
Q
4
07
20
Q
3
08
20
Q
2
09
20
Q
1
09
20
Q
4
10
20
Q
3
* Data through fourth quarter 2010
Elliott D. Pollack & Company
U.S. Commercial1 Mortgage Maturities
1980–2020*
Source: Foresight Analytics
Recession Periods
$250
$225.9 $226.5
$218.9
Post 2004 - Upside Down?
$197.2
$177.9
$200
$166.4
$150
$199.4
$198.0
$183.7
$177.3
$134.0
$118.3
$100
$50
$101.9
$76.7
$88.1
$79.4 $78.5
$73.1 $79.6
$65.3
$67.1
$53.6 $62.7
$60.0
$58.3
$44.6
$46.7
$39.2
$48.3
$48.4$43.7
$34.2
$23.9
$30.0
$21.2
$26.6
$17.6
$18.9
$87.1
$44.8
$34.2
Borrowed
Loan Due
$0
80 9 81 9 82 9 83 9 84 9 85 9 86 9 87 9 88 9 89 9 90 9 91 9 92 9 93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02 0 03 0 04 0 05 0 06 0 07 0 08 0 09 0 10 0 11 0 12 0 13 0 14 0 15 0 16 0 17 0 18 0 19 0 20
9
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Elliott D. Pollack & Company
1/ Includes mainly office, retail, industrial and hotels
Note: Forecast is from Foresight Analytics
Commercial Property
Values?
Elliott D. Pollack & Company
So which influence will be bigger?
• Pop/Emp related gains may be offset by new
leases adjusting for lower rents/less space,
at least in 2011/2012.
• This means the possibility of relatively flat
rental and vacancy rates in 2011/2012.
• 2012-2013 should see more improvement.
Elliott D. Pollack & Company
How does this impact commercial
property values?
Flat activity often means flat prices. But,
values through 2010 were propped up by:
- Owners depleting reserve funds (done);
- Extend and Pretend (still pretending?);
- Interest rates low (continues but small
increase);
- Multi-year leases carrying higher rents
(fewer).
Elliott D. Pollack & Company
Commercial
Summary:
Flat or only slightly improving
indicators but declining prices?
Maybe. Will vary by location
though.
Elliott D. Pollack & Company
When do we get back to
normal vacancy rates in
commercial?
Elliott D. Pollack & Company
Back to Normal Vacancy?
• Office =
2014 - 2015
• Industrial =
2013 - 2014
• Retail =
2014 - 2015
Elliott D. Pollack & Company
Tax Revenues
Elliott D. Pollack & Company
State forecast revisions in our future?
Gains Needed to Reach Previous Peak
100%
90%
Now
Required Percent
Gain
80%
Corporate Income Tax: -58% / 139%
70%
60%
Individual Income Tax: -36% / 55%
50%
?
40%
30%
Sales Tax: -23% / 30%
20%
10%
0%
1
6
11
16
21
26
Realized
Percent Loss
Elliott D. Pollack & Company
31
36
41
46
But, local revenues related
to single family and
commercial taxation will
remain weak.
Elliott D. Pollack & Company
AZ Summary:
Lagging the US in terms of full
recovery; just now starting to
expand the employment base.
Elliott D. Pollack & Company
Full Recovery:
2015-ish
Fully recovered in terms of:
1) Housing oversupply;
2) Commercial vacancy rates;
3) Retail sales activity;
4) Employment levels.
5) Tax revenues?
Elliott D. Pollack & Company
The “Lemonade”
Elliott D. Pollack & Company
Pre 2007
• A leader in population growth,
• A leader in employment growth,
• A leader in income growth.
Elliott D. Pollack & Company
Post 2007
• Below average performance in
many economic categories,
but this is a temporary
condition and is already
improving…
Elliott D. Pollack & Company
How Arizona Ranks Among the States in Percentage
Growth
Source: U.S. Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis
DECADE
POPULATION
EMPLOYMENT
PERSONAL
INCOME
1950 - 1960
4TH
3RD
4TH
1960 - 1970
3RD
3RD
4TH
1970 - 1980
2ND
3RD
3RD
1980 - 1990
3RD
3RD
5TH
1990 - 2000
2ND
2ND
3RD
2000 – 2006
3rd
2nd
3RD
2007—2010
44th
49th
46th
Elliott D. Pollack & Company
Phoenix-Mesa Employment Growth
(Ranking among all metro areas greater than 1,000,000; 2011 May/May)
Source: Arizona State University, U.S. Bureau of Labor Statistics
YEAR
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Elliott D. Pollack & Company
RANK
4
5
2
1
1
1
2
1
3
8
6
5
3
4
1
1
10
29
31
31
15
# of MSAs
20
20
20
20
21
23
23
24
26
26
28
28
29
29
30
31
32
32
32
32
32
Greater Phoenix Population
Source: U.S. Bureau of Census; Arizona Department of Economic Security
Year
1950
1960
1970
1980
1990
2000
2010
U.S. 2010
Elliott D. Pollack & Company
Population
331,770
726,183
1,039,807
1,600,093
2,238,498
3,251,876
4,192,887
308,745,538
Why are households not forming?
1. Lack of jobs,
2. Inability to sell home elsewhere and
move to Greater Phoenix,
3. Lack of jobs,
4. Lack of jobs,
5. Lack of jobs…
Elliott D. Pollack & Company
These will improve
over time.
Elliott D. Pollack & Company
Surprising Econ Fact: If
marginal household size
was still at 2000 levels,
there wouldn’t be any
excess single family
housing!
Elliott D. Pollack & Company
Properties in the Foreclosure Process
Maricopa County 2002 – 2011
Source: The Information Market
Recession Periods
55,000
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Elliott D. Pollack & Company
Ja
n11
Ju
l- 1
0
Ja
n10
Ju
l- 0
9
Ja
n09
Ju
l- 0
8
Ja
n08
Ju
l- 0
7
Ja
n07
Ju
l- 0
6
Ja
n06
Ju
l- 0
5
Ja
n05
Ju
l- 0
4
Ja
n04
Ju
l- 0
3
Ja
n03
Ju
l- 0
2
Ja
n02
0
*Data through April 2011.
Also now more competitive in
terms of housing prices (and
commercial prices).
Elliott D. Pollack & Company
Housing Affordability Index
2000 q2
Source: NAHB
80
65.5
64.4
63.5
60.7
57.1
60
51.3
45.4
34.5
40
27.5
20
0
Las Vegas
Phoenix
Albuquerque
Elliott D. Pollack & Company
Tucson
Salt Lake City
Denver
Seattle
Los Angeles
San Diego
Housing Affordability Index
2006 q2
Source: NAHB
80
58.5
60
44.5
41.6
40
31.2
29.9
27.4
16.1
20
4.6
1.9
0
Denver
Salt Lake City
Albuquerque
Elliott D. Pollack & Company
Tucson
Flagstaf f
Phoenix
Las Vegas
San Diego
Los Angeles
Housing Affordability Index
2010 q2
Source: NAHB
100
81.7
80.8
80.0
74.1
80
73.2
72.2
57.4
60
54.9
44.0
33.0
40
20
0
Las Vegas
Phoenix
Albuquerque
Elliott D. Pollack & Company
Tucson
Salt Lake
City
Denver
Seattle
Flagstaf f
San Diego Los Angeles
q1
_
q3 92
_
q1 92
_
q3 93
_
q1 93
_
q3 94
_
q1 94
_
q3 95
_
q1 95
_
q3 96
_
q1 96
_
q3 97
_
q1 97
_
q3 98
_
q1 98
_
q3 99
_
Q 99
1_
Q 00
3_
Q 00
1_
Q 01
3_
Q 01
1_
Q 02
1_
Q 04
3_
Q 04
1_
Q 05
3_
Q 05
1_
Q 06
3_
Q 06
1_
Q 07
3_
Q 07
1_
Q 08
3_
Q 08
1_
Q 09
3_
Q 09
1_
Q 10
3_
Q 10
1_
11
Housing Opportunity Index*
Greater Phoenix vs. US
1992-2011**
Source: NAHB
100
90
80
70
60
50
40
30
20
10
0
Phoenix MSA
Elliott D. Pollack & Company
U.S.
*Data through Q1 2011.
** Years 2002 & 2003 only have one data figure
Negative Equity in Homes
Affects Ability to Sell or Buy
Source: First American Core Logic
50% of homes in
Arizona have negative
equity.
(National average about 25%)
Elliott D. Pollack & Company
Benefits of the “SUNBELT”
Industrial Northwest
9
10
5
Hawaii
Alaska
Elliott D. Pollack & Company
What
about the
bad
national
press?
Yes,
SB1070
Elliott D. Pollack & Company
Between 1987 and 1992
•
•
•
•
•
•
•
•
Governor impeached
Real estate depression
Defense cutbacks
AZ Scam
Martin Luther King Holiday Crisis
Keating
Keating 5
Every S&L taken over by RTC
Elliott D. Pollack & Company
No long-term
effects in the past.
Going forward?
Elliott D. Pollack & Company
Benefiting from basic
demographic changes…
Elliott D. Pollack & Company
Retirement Home Buying Cycle
Net Change in Maricopa County Population Ages 55 to 69
1991-2030
Source: U.S. Bureau of the Census, Arizona Department of Economic Security
30,000
25,000
20,000
15,000
10,000
5,000
Elliott D. Pollack & Company
29
20
27
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
19
91
0
Trade-Up Home Buying Cycle
Net Change in Maricopa County Population Ages 34 to 44
1991-2030
Source: U.S. Bureau of the Census, Arizona Department of Economic Security
25,000
20,000
15,000
10,000
5,000
0
Elliott D. Pollack & Company
29
20
27
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
19
91
-5,000
Starter Home Buying Cycle
Net Change in Maricopa County Population Ages 25 to 34
1991-2030
Source: U.S. Bureau of the Census, Arizona Department of Economic Security
25,000
20,000
15,000
10,000
5,000
Elliott D. Pollack & Company
29
20
27
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
20
09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
93
19
19
91
0
One survey shows that over
80% of current single family
RENTERS would like to soon
own.
Some of these homes are thus
permanently absorbed.
Elliott D. Pollack & Company
Thus, we will also likely see a
permanent increase in the
percentage of all single family
homes that are maintained as
rentals.
Up from 11% to as high as 14%15% possibly(?).
Elliott D. Pollack & Company
Economic
Competitiveness
Elliott D. Pollack & Company
Arizona’s government
officials are even
getting involved…
Elliott D. Pollack & Company
Government isn’t going to
turn everything around by
itself. But, govt. can impact
the economy at the margin
(with the right policies).
Elliott D. Pollack & Company
Old Competitiveness Map –
AZ will be Moving Up!
Elliott D. Pollack & Company
Rules if NOT Competitive:

If it’s perception, fix the perception
(example: effective tax rates). Doing that!

If it’s reality, implement some strategic
reforms. Doing that!

Regarding the previous map, we now have
the tools, we just need to implement them
properly and our ranking will improve.
Elliott D. Pollack & Company
Being addressed
now…
Elliott D. Pollack & Company
2010 Corporate Real Estate Executive Survey
1
Workforce skills
2
State and local tax scheme
3
Transportation infrastructure
4
Flexibility of incentives programs
5
Availability of incentives
6
Utility infrastructure
7
Land/building costs and supply
8
State economic development strategy
9
Permitting and regulatory structure
10
Higher education resources
Source: Site Selection Magazine
Elliott D. Pollack & Company
In 2012
What We’ve Done:
Arizona Competitiveness Package

Arizona Competes Fund
•

Arizona Job Training Fund
•

Job Creation/Capital Investment - $9,000 Tax Credit per Job
Income Tax Reform (FY 2014 – FY 2017)
•
•

Grants for Customized Training - $12 - $15 Million Annually
Quality Jobs Tax Credit
•

Deal Closing Grants/Loans - $25 Million Annually
Sales Factor – 100%
Corporate Income Tax – 4.9%
Property Tax Reform
•
•
•
Accelerated Depreciation (2012)
Personal Property Exemption (2012)
Class 1 Property Assessment Ratio – 18% (2013 – 2016)
Elliott D. Pollack & Company
What about the
rest?
Elliott D. Pollack & Company
2010 Corporate Real Estate Executive Survey
1
Workforce skills
2
State and local tax scheme
3
Transportation infrastructure
4
Flexibility of incentives programs
5
Availability of incentives
6
Utility infrastructure
7
Land/building costs and supply
8
State economic development strategy
9
Permitting and regulatory structure
10
Higher education resources
Source: Site Selection Magazine
Elliott D. Pollack & Company
In 2012
Economic Development Summary:
 Policymakers
finally started to understand
how our economy functions and how to
improve our position.
 We
have the economic development “tools”
but need to see if the state can use them
properly.
 More
is to be done in terms of government
policy, but so far so good.
Elliott D. Pollack & Company
Economic Development Summary:

In terms of other business development
factors:

Competitive in terms of single family prices,

Competitive in terms of commercial rental
rates and prices,

Competitive in terms of labor and land
costs.
Elliott D. Pollack & Company
Economic Development Summary:

We will continue to grow faster than the
rest of the country over the long run.

If we do things right we might even grow
in terms of quality…hmmm…maybe.

Coordination among all of the E.D
entities will be critical.
Elliott D. Pollack & Company
Arizona Summary
Elliott D. Pollack & Company
AZ Summary:
Lagging the US in terms of full
recovery; just now starting to
expand the employment base.
Elliott D. Pollack & Company
Full Recovery:
2015-ish
Fully recovered in terms of:
1) Housing oversupply;
2) Commercial vacancy rates;
3) Retail sales activity;
4) Employment levels.
5) Tax revenues?
Elliott D. Pollack & Company
The long term economic
fundamentals have not really
changed.
The long term economic outlook
remains favorable (2015+).
AZ will be a national growth leader
by mid decade.
Elliott D. Pollack & Company
There is a BOOM for Arizona
out there somewhere.
Elliott D. Pollack & Company
But, can we also grow in terms
of quality?
Elliott D. Pollack & Company
ELLIOTT D. POLLACK
& Company
• Economic and Fiscal Impact Analysis/Modeling
• Real Estate Market and Feasibility Studies
• Litigation Support
• Revenue Forecasting
• Keynote Speaking
• Public Finance and Policy Development
• Land Use Economics
• Economic Development
7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251
480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / info@edpco.com
Elliott D. Pollack & Company
118