The New Normal

The New Normal

All over New York we are seeing signs of an improving economy.  On the corner near the NY headquarters, a new lunch concept just started construction as well as two others that have signed leases in the past 6 months.  Many of these retailers have wanted to enter the coveted NY City retail market for some time, but have been locked out by expensive rents. Along comes a big recession and everything changes.  With retail rents down 15-50%, it's giving new concepts an option to make it here. Interestingly enough, it's great for New Yorkers also, who were growing used to the vacant corner becoming either a bank or a cell phone store. So with this activity who gets hurt?  Well the landlord that recently bought the building expecting rents at 20% higher levels obviously is going to have problems and probably the bank that lent him the money whose loan is not going to be covered by the new rents. This is going to be the trend for 2010 and the new normal is now created.

"Real estate cycles in 10 year time periods but the memory only lasts 7 yrs."  - Unknown

I saw a report over the weekend that projected an 8-10% further loss in property values of residential homes.  Interestingly commercial real estate write-downs have only been a fraction of that.  Now one point is that commercial real estate lags residential by a year or two but doesn't it seem like its time for lenders to start taking the hits now instead of waiting for another replay of September 2008?  The same dynamic that built up the residential market (easy credit, low rates) powered the commercial real estate bubble also. Now the commercial market has the same problem as the residential market (no credit available, lower demand) which is pushing values downward to the point where landlords do what homeowners did in 08/09, increasing default rates and making loans worth just pennies on the dollar.  They say memory is short term but come on, it was just 18 months ago that Bear Stearns went down because of these residential toxic assets.

At Signature Community we saw the problems coming in the multifamily market and we adjusted course accordingly.  In 06/07 we were on a search to extend our brand offerings and kept adding services like gyms, cable TV, and swimming pool access.  In late 08 we realized that the key to survival in the great recession was going to be providing a good place to live at an affordable price and the highest level of customer service possible (not a bunch of amenities). We adjusted our sails because we knew the winds of change were blowing hard.  Our strategy worked. Our resident retention rates are at an all time high and moved occupancy up to 97% (6 points higher than industry average). We did it by listening to the customer and finding out what they did and didn't want and adjusting our offerings accordingly.

Our job as a landlord is not to get the highest rent possible, it is to make the living experience the greatest possible at an affordable level. We do that everyday at Signature Community for more than 8,000 residents nationwide.

Thanks for making it happen with Signature Community.
Nick