What's next for the economy?

The Graaskamp Center publishes a monthly newsletter on issues and events in the real estate industry and UW real estate community. The January 2012 issue includes this look at the year ahead by members of our faculty and executive Board of Advisors.


With 2012 upon us and a presidential election fast approaching, many of us are trying to make sense of economic news and data that alternately points to a potential stabilization and recovery or to a double-dip recession and a global debt crisis. What should the next administration do about to support economic growth? And how will the spill over from the debt crisis in Europe impact the U.S. economy now and in the future?

To get a better idea of what to expect, we asked a panel of Graaskamp Center board members and our own faculty experts to share their insights and wisdom on these important topics.

David Neithercut, President and Chief Executive Officer (CEO) and a Trustee of Equity Residential, assumed the CEO title on January 1, 2006 and has served as President since May of 2005. From January 2004 to May 2005 he served as Executive Vice President of Corporate Strategy, leading the company's Transactions, Portfolio Management, Development, Condominium and Research groups. From 1995 until August 2004, he served as Equity Residential's Chief Financial Officer. In this role he was responsible for all of the company's capital market activities and participated in debt and equity offerings as well as merger and acquisition activity with a combined value in excess of $10 billion. Mr. Neithercut is a member of the Board of Directors of General Growth Properties (NYSE: GGP), a leading owner and operator of shopping malls.

Timothy Riddiough is the E.J. Plesko Chair of Real Estate and Urban Land Economics, Director of the Applied Real Estate Investment Track (AREIT), and Professor of Real Estate at the Wisconsin School of Business. He teaches courses in Real Estate Finance, Real Estate Capital Markets, and Microeconomics and is best known for his research on real options, mortgage pricing and strategy, and land use regulation. Professor Riddiough is best known for his work on credit risk in mortgage lending, mortgage securitization, real options, REIT investment and corporate finance, and land use regulation.

Michael Robb is Executive Vice President for the Real Estate Division of Pacific Life Insurance. He joined Pacific Life in 1976 and after holding a variety of executive positions with the company, Mr. Robb was elevated to his current position of Executive Vice President of Real Estate Investments in January of 1995. He is responsible for managing a real estate portfolio of commercial mortgage loans, commercial mortgage backed securities, unsecured REIT debt, equity real estate, and servicing portfolios of over $19 billion dollars.

David Shulman is Adjunct Professor and Advisor to the Applied Real Estate Investment Track (ARIET) for the Graaskamp Center for Real Estate. He is also Managing Member of David Shulman, LLC. Shulman was formerly a REIT analyst and managing director at Lehman and was employed by Salomon Brothers, Inc. in various capacities. Professor Shulman has been widely quoted in the national media and coined the terms "Goldilocks Economy" and "New Paradigm Economy." In 1990, he won the first annual Graaskamp Award for Excellence in Real Estate Research from the Pension Real Estate Association.


Question: Since becoming President, Barack Obama and his administration have implemented many fiscal/economic programs and initiatives to jumpstart the U.S. economy. In your opinion, what were the actual results of these programs? Have they helped or hurt the economy?

Neithercut: I think that much of what took place at the onset of the financial crisis was necessary to avoid a total collapse of the global financial system. The government did what it needed to do to stop the problem. From that point forward, I think the government's programs have not harmed nor helped but have been totally ineffective and is a pretty clear example of the government impeding the market's ability to right itself.

Riddiough: At the macro level, results have been mixed at best. Let me focus on one of his particular initiatives, as it illustrates what I believe has been Obama's biggest problem with managing the economy. His whole approach to addressing the foreclosure crisis, although well intentioned, has been confusing and inconsistent. Worse, it has been ineffective and has created additional uncertainty in housing and banking markets. Ineffective and inconsistent policies have created additional uncertainty in an already very uncertain economy.

Robb: I have seen no result whatsoever. There is the Canadian shale fracking project "shovel ready" which would create thousands of jobs which he and the environmentalists won't approve. The housing fix or lack thereof is a joke and he still does nothing but blame the Republicans for the mess we are in.

Shulman: The initial stimulus marginally helped, but the whole notion of "timely, temporary and targeted," is very difficult to implement. Moreover too much of the spending represented the accumulated wish list of the House Democrats. Indeed the support for state and local government probably hurt because it delayed the ultimate restructuring that has to take place. The biggest failure is that "reform" is the enemy of economic growth in the short run. As a result the healthcare legislation likely slowed the economy along with all of the uncertainty associated with the energy bill that failed in the Senate.


Question: Given the current state of politics and the economy, what should Obama or the next administration do to improve and stabilize the economy? In other words, where do we go from here, and how do we avoid making the same mistakes in the future? Please outline three or four points that you feel are most pertinent to you as a real estate professional or to the real estate industry in general.

Neithercut: The answer to our problems can be found in economic growth. We can't tax our way out of it and we can't spend our way out of it. Growth is the answer and I think that growth has been hampered by uncertainty on tax policy, etc. Real estate needs growth to prosper--growth in jobs, growth in income and spending, etc. Economic growth is not evil but is the means by which all else is possible. We need to facilitate credit to small business and have a tax policy that is consistent and fairly applied.

Riddiough:This is a hard question to answer because there is a big difference between what should be done in theory and what will actually get done in the current political environment. Given that the U.S. economy does not slip back into another recession, I do not expect that Obama will be able to get much done until after the next election (should he be reelected). I anticipate that only the Fed will execute policy initiatives over the next year in an attempt to improve and stabilize the economy.

Robb: Approve the Canadian shale project. Spend money to retrain factory workers for 21st century job skills. Do away with ALL tax deductions, including mortgage interest , and only keep ones that actually create jobs and finally, go to a 3 or 4 simple tax rate structure, again with virtually no deductions and exempt from taxes anyone making less than $50,000, but force people off the welfare rolls by getting them the under $50,000 jobs. A lot to ask for but would stimulate both individuals and corporations.

Shulman: Policy is trapped because we probably live in world of "Ricardian Equivalence" which means that deficits today mean tax increases and/or program cuts in the future. A new administration should be supportive of domestic energy and the Keystone XL Pipeline should go forward. A real program would include a major infrastucture expansion that would waive or fast track environmental approval and waive the prevailing wage requirements of the Davis-Bacon Act.


Question: Do you think the Europe and United States are headed toward a debt crisis? If so, how will this affect the real estate markets?

Neithercut: Is there anyone who doesn't think that Europe has a debt crisis?!? And we will have one soon if we are not awfully careful. To not learn from the mistakes in western Europe would be criminal. A debt crisis will inhibit growth and that will be very bad for the real estate markets.

Riddiough: There is already a debt crisis, and it has already shut down the CMBS market after that market had reemerged over a year ago. All very bad news. Be aware of the coming crisis in refinancing a mountain of commercial real estate mortgage debt coming due over the next five to six years.

Robb: They are not headed towards a debt crisis; they are IN ONE. Will only hurt real estate if rates go way up-right now, in this artificial low rate environment, it is actually helping commercial real estate.

Shulman: Europe is in a recession. The U.S. will escape its worst effects providing the Euro crisis does not morph into a banking crisis. Obviously a banking crisis would bring back memories of the Lehman crisis in 2008.


The Graaskamp Center's newsletter The Real Estate Connection is published monthly. You can subscribe (via Constant Contact) here.

Honoring Fred Petri, tireless supporter of real estate education at Wisconsin

On Wednesday September 15, 2010, members of the Graaskamp Center Board of Advisors honored Fred Petri, President of Housing Capital Co., lifetime member of the board and long-time supporter of the real estate program at the Wisconsin School of Business. Professor François Ortalo-Magné, chairman of the department of real estate and urban land economics at the Wisconsin School of Business delivered the following remarks.

“I would like my words to convey to Fred Petri my utmost gratitude for his quiet and humble contribution to the real estate program here at the Wisconsin School of Business. In deference to his wishes, we are honoring him tonight by simply being here, around him; no roast, no toast, no lifetime achievement award. Any such award would be unfair because we cannot yet measure the full impact of his contribution.

We would not be here tonight if he had not worked tirelessly and successfully, by himself and with his friends, to convince the UW and the School of Business to stay involved in real estate education once Jim Graaskamp passed away. Fred set the foundation for the post-Graaskamp era, putting us on a path whereby today we have a legitimate claim at global leadership in real estate education.

Once the program was secure, he innovated with his friend Jim Curtis to create and fund (with additional help from E.J. Plesko) the Applied Real Estate Investment Trust (AREIT) training program, one of the distinguishing features of our real estate MBA program. This program is so valuable that last year we extended its reach to include undergraduate students – a gift that keeps on giving.

Fred Petri has done much more for us, some of it only the chairman of the department will ever get to measure and appreciate.

Personally, I want to thank you, Fred, for two things. First, a month after I started at Wisconsin, we bumped into each other at the Madison airport. You sat me down and gave me the lay of the land. I left twenty minutes later thinking: these guys are really passionate about their real estate program, I’d better do my best. Second, today I am here as chair of possibly the best real estate program in the U.S., arguably the best in the world. Through the Global Real Estate Master (GREM) partnership, we are establishing ourselves as the real estate department to the number one business schools in Asia, Latin America and Europe. Without your inspiration to my career here, without your influence on the program, I would not have the privilege today to share the evening with you and so many of your friends dedicated to training the most competent, professional and passionate real estate leaders around the world.

So on behalf of all of us, on behalf of our Dean Mike Knetter who could not be here tonight, and on behalf of the university, thank you.”

Photo by Martha Busse of Fred Petri (center) with friends and family at the fall meeting of the Graaskamp Center Board of Advisors.

Spring meeting of our Board of Advisors

Last week we were in Chicago at the Gleacher Center for the spring meeting of our Board of Advisors. The spring 2010 meeting featured a particularly compelling agenda including our keynote speaker Sam Zell and panels addressing the state of the industry, opportunistic investing and the outlook on healthcare.

Pictured: Academic Director Stephen Malpezzi, Sam Zell, Executive Director Michael Brennan

The board meets twice a year--in the fall on our hometurf in Madison and in the spring in nearby Chicago--to hear from experts on important issues facing the real estate industry and to discuss the economy and business trends. The next meeting will be September 15-16, 2010 in Madison.

The Board is a core support group for the Graaskamp Center, advising the Center on its agenda, participating in exclusive bi-annual board meetings, and contributing to the Wisconsin Real Estate Tradition as guest lecturers and mentoring students. Comprised of representatives from the professional community including the private, corporate, public, and non-profit sectors, board members work in the wide array of functional areas related to real estate and urban development such as brokerage, property management, consulting, development, appraisal, investment, asset management, law, mortgage banking, lending, corporate real estate, institutional investment, syndication, planning, regulation, and design. We're grateful to board members for their support of the Wisconsin Real Estate Program. Board membership is by invitation only.

We will have more photos and a recap of the meeting on our website very soon. To stay up to date on the Wisconsin Real Estate Program events and opportunities, sign up for our monthly newsletter.

Photos by Steve Becker © Steve Becker Media