SAN FRANCISCO — "Many people are saying (that) all you have to do is wait until Jan. 1, 1988, and the real estate market will be back," Stephen E. Roulac, a partner in Deloitte Haskins & Sells, told an audience of 1,000 realtors, developers, builders and bankers here.
Then he let the other shoe drop: "Well," he said, "that's not going to happen."
Roulac was one of 25 speakers and panelists offering, in various shades of uncertainty, pictures of the year ahead for the real estate industry, some of its traditional lenders and one of its most vexing challenges: the growth of the no-growth initiative.
The speakers--economists, bankers, attorneys, a newspaper columnist and developers--painted their alternately rosy and bleak landscapes at the annual real estate forecast seminar sponsored by the California Building Industry Foundation, the fund-raising arm of the statewide builders' association.
"Real estate is increasingly driven by what's happening in the (national) economy," Roulac said. He said that one indicator of a slow real estate market was that cost of business space, on a national basis, has dropped by 10% a year in the past few years.
"We have (an office) vacancy figure, in our view, more in the 25%-30% range than the high-teen figures that a lot of brokerage figures suggest," he said. "What you really want to concern yourself with here is economic occupancy, not physical occupancy" of office and other business space.
Inventory More Limited
Roulac cautioned those expecting a sudden turnaround in the soft real estate market to remember that the inventory of unused, unsold or undeveloped property is not as large as it was in previous slow-growth years for the industry--years during which miraculous turnarounds were relatively easy to accomplish because they simply involved the unloading of product, not an increase in prices and sales.
He said that most real estate companies are still operating under the concept of a "Never-never-land market" in which there is no end in sight for profits and opportunities.
"But (these companies) now have to deliver a higher level of business," he said. "Many of (their) major competitors weren't in the (real estate) business a year ago," he noted, referring to a variety of conglomerates and corporations that added personal services and property development to their mission statements in only the past five years.
"Real estate is changing during the decade of the late '80s into the '90s just the way Wall Street changed in the 1970s," he said. "During that period, 400 firms disappeared, the middle market was basically decimated; and to be effective on Wall Street, you need to (have) very large-scale resources or be extremely focused and very good at what you do.
"And basically, most real estate companies are neither."
Roulac and the other speakers continually referred to the relatively new sophistication of the consumer--and the vital need to accommodate that change in the marketplace by offering a higher level of service.
That message hasn't been lost on thrifts and savings and loan institutions, traditional but troubled real estate lenders, according to P. Joseph DeSautels, director of asset management for the Federal Asset Disposition Assn.
Of the 2,500 assets worth more than $5.1 billion that his organization oversees, DeSautels said that "80% are still in the form of loans. . . . Not good loans. (Many are in) deep default."
He said In some markets, the demand for land--despite the widely held belief that major businesses are clamoring to grab up as much as they can for future development--is questionable at best.
"One of the common threads (running through the problems that) S&L's are having is that they all invested part of their portfolios in Texas, DeSautels said."
But Michael A. Jessee, executive vice president and chief operating officer of the Federal Home Loan Bank of San Francisco, indicated that the "widely publicized problems of the thrifts business occurred mainly at a minority of institutions.
"This is very well demonstrated by looking at the California situation," he said, where "in the first half of this year, 70% of all institutions--which represent about 85% of the total assets in the state--had positive net operating income . . . almost to the record level of profitability of the late 1970s."
A panel of particular interest to the developers in attendance concerned growth limits and the relatively recent deluge of initiatives meant to safeguard or create them. Syndicated real estate columnist Bradley Inman pointed out that in the past 16 years in California, there has been "an explosion in growth-control initiatives."
Attributing his statistics to the California Assn. of Realtors, Inman said that since 1971, "there have been 143 (ballot) measures. Now, some of those have actually been pro-growth, where a developer or a citizens group will put a measure on the ballot to allow a particular development." But, he said, 113 of the initiatives have been anti-growth; and of those, 69 have been passed by voters, "about a 65% success rate.
"But interestingly, in 1986 alone, 50 of those 113 anti-growth initiatives took place (in California)."
Inman and other panelists said that traffic congestion in different parts of the state--particularly Orange County, San Francisco, Los Angeles and Sacramento--has been the impetus for what one speaker called "an explosion of control petitions."
Jonathan Kaufman, executive vice president of Solem/Loeb & Associates, advised developers to start taking public relations seriously.