Tuesday, April 7, 2009

What Will Be Different When This Is Over


If you missed Steven Roth's annual letter to investors, you can read it here. The Vornado CEO looks ahead:

The severity of this economic crisis will affect behavior for a very long time.

Government regulation and the rule of markets will force a lower leverage, lower risk business model. Real estate businesses such as ours will require a larger equity base. The corollary of this is that capital “haves” will be advantaged.

Rebuilding balance sheets by both consumers and businesses is the order of the day. The savings rate will go from minus 2% to perhaps as high as 5-7-10%. This may reduce consumption somewhat, but will generate, say, a trillion dollars per year of incremental capital into the system, a very good thing.

No new supply of any form of real estate can or will be built for the forseeable future. This will inevitably produce, after the recession’s end, equilibrium in occupancies to be followed by increases in rents. The business cycle lives.

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