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Wall Street Dive Held Realty Industry Boon : Economists Say Investments in Property Now Appear to Have Greater Attraction

June 12, 1988|ED GOLDMAN | Special to The Times; Goldman is a Sacramento-based free-lance writer. and

SAN FRANCISCO — At least three economists told real estate agents, bankers, brokers and builders here that the stock market's plunge last October was probably a good thing for the real estate industry.

"People may have decided they like real estate better (as an investment)," said Thomas D. Thomson, executive vice president of the Federal Reserve Bank of San Francisco.

Thomson was one of the featured speakers at the California Building Industry Foundation's midyear real estate forecast, which attracted nearly 800 persons, according to Renee McGovern, foundation executive director.

On another topic, James Cirona, president and chief executive officer of the Federal Home Loans Bank here, said he didn't expect interest rates to "vary too widely until after the (presidential) election."

Buying Into Thrifts

Cirona suggested that developers consider the purchase of failed thrifts, indicating it's still a healthy industry.

Jeffrey E. Jackson, vice president for financial services of Smith Barney Harris Upham & Co., said investors "are looking for income and security. Real estate is still the one single asset they like: They can touch it, they can see it, they can feel it, they can walk on it, they can kick it."

But, he added, "more and more (syndicate investment) dollars are passing through the hands of fewer and fewer sponsors, partly because of the presence of Japanese and other foreign speculators. Right now, there are about $19 billion worth of syndication (deals) in registration," citing one project with "a vacancy factor of 97%," which nonetheless attracted foreign investors.

Recession Held Doubtful

David Seiders, chief economist of the National Assn. of Home Builders, predicted that "We will not have an economic recession this year, and I'd also add that we may even get through 1989 and '90 without one."

If the Fed doesn't squeeze money too tightly, he said, "we could even end up having this economic expansion last a full 8 years. I know that sounds kind of pie in the sky, but the forces that normally turn the economy downward aren't developing."

Seiders said housing is a weakening component of the overall economy. Housing starts in 1986, he said, were around 1.8 million units; in 1987, about 1.6 million. "We'll see that go under 1.5 (million) in 1988, and probably 1.4 (million) in 1989," he said.

"Beyond (1989), I expect things to start going up again, not down. I expect long-term rates to remain stable." The worst fiscal scenario he could foresee, he said, is that "in late 1989 or early 1990, we could have a very mild recession."

Traffic as Regulator

Introducing a recurring theme at real estate seminars--the stepped-up slow-growth initiative drives throughout California--Joseph W. O'Connor, president and chief executive officer of Copley Real Estate Advisors, said, "Traffic problems may become the great regulator of the real estate industry."

O'Connor, a joint-venture specialist, said supply and demand must be viewed in a new light, echoing Jackson about foreign investors. "There's still a tremendous amount of money out there," he said, but the temperamental climate for building in the state may be cutting into demand.

As Richard Kateley, executive vice president of Real Estate Research Corp., said, "Investors and developers are flush with cash--but they're finding fewer and fewer viable places to put (their projects). We have more money than product."

Kateley was optimistic about three commercial investment prospects in the state: retail in mixed-use projects, as a component of downtown "infill, especially if the stores have an ethnic slant," the resurgence of commercial strips in urban areas, and leasing activity, resorts and build-to-suit projects.

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