Economic Crisis Explained

For a brief explanation of where this crisis came from, watch the first 10 minutes of this video from the Economic Department of Princeton University.

You will see just how "fragile" the economic structure of the failed companies are.

It is almost the corporate equivalent of living off your credit cards and using one card to pay for another cards monthly payment, using the proceeds to flip paper and hopefully make enough money for profit and paying next months payments.

This is of particular importance to the real estate market for pricing support, this type of short term credit which allowed properties to be flipped has become severely contracted, which will hurt prices (correct prices) for properties.

More than ever, debt to cash flow ratios will decide who survives in real estate.

You should be doing all that you can to improve cash flows.

BOMA Market & The Banking Crisis - What's Ahead

THE RACE FOR TENANTS

The fallout from the banking crisis is coming. For the BOMA market in the GTA it is time to take action in preparation for the consequences for owners and managers.

Quality tenants and vacancy rates are going to be an issue on profitability for the next several years.

Recent & Expected Events in the BOMA Market

• Several malls in multi-use complexes in the U.S. have seen bankruptcies by major anchor tenants. Larger retailers and food chains have simply closed up.
• Financing/refinancing for current and planned projects just got a lot tougher to get, and more expensive putting pressure on profit margins when rents will be softening.
• Insurance underwriting dollars just became more scarce and expensive which could also lead to financing difficulties (make yourself the best risk!)
  
• Consolidation in the banking and insurance industry will inevitably lead to those businesses rethinking their space and facility strategies to reduce costs. This will have a major effect in the class "A" buildings as expansion plans are stalled, reductions or terminations of leases are on the table.
  
• In the GTA new building stock is coming on line that will drive the vacancy rate from it's current rate of 3.9% to over 12%
• Renewing tenants are going to be looking for better deals, and are going to be offered better deals by the competition.

Now is a good time to start shoring up your value proposition, looking at your costs, your vendors, and your facilities for how you can attract or retain quality tenants.

Remember the Chinese word for crisis, is made up of two words......Danger & Opportunity, this will be a time for smart operators and owners to profit.