Technology TransactionsRecession-Proof Real Estate and the National Economy: One-On-One With Dr. Krause
[Note: To follow is an excerpt of an interview with Aric Krause, PhD, a graduate faculty member at Westminster College in Salt Lake City and strategic economic analysis consultant to national and multinational corporations, [www.realsource.net]. To listen to, or download the show archive MP3, go to IncomePropertyInvestmentTalk.com.]
Peter: Will the pending federal rebate have any an impact on our national economy?
Krause: Everyone must remember that the Federal Government is borrowing in order to give you that money. That said, if everyone takes their checks and buys American-produced goods that would have a significant impact on the United States economy. If the American consumer spends on something made in a different country, or they use it to pay down their debt or save it, it"ll have zero impact.
Mosca: Our country is more mobile today, and that mobility creates job opportunities. More than 5 million men and women on average, nearly 4% of the nation"s workforce moves annually from one place to another to a new job after a layoff or to high-paying work. In 2008, what"s the outlook on a national level for jobs in this country?
Krause: Right now the US economy seems to be in a little bit of a slowdown and perhaps a recession but there are parts of the world that are operating very successfully. It"s true in the United States, too. There are communities that are doing very well, creating high-paying jobs. Our long-term ability to generate jobs is a function of how cutting edge we are in what we build.
Peter: Why are we not recognizing the energy crisis and creating tens of thousands of high-paying jobs to correct the problem?
Krause: If I were running for president right now and I were to give an honest assessment of some of the challenges our country faces I would never get elected. It"s in no one"s political best interest to point out that the economy has some very difficult corrections that need to be made. If you have a health issue and you ignore it for a longer period of time, it takes that much longer to fix whatever that health problem is. It"s the same with an economy.
Until we recognize that we have some fundamental and structural issues that need to be addressed, we are not going to see them repaired. We could generate millions of jobs instantly if we commit to upgrading our infrastructure in the United States. Our electricity capacity, our phone capacity, our roads, our bridges … they all need repair and replacement. Items needing replacement means it"s more difficult and more expensive to do business.
Mosca: If we surveyed the American public right now and said we"re going to increase your taxes by this amount of money but every single dollar would be spent on the infrastructure; most of us would be in favor of it.
Krause: I think you"re exactly right. The U.S. is still in the upper half of competitiveness in relation to the big international economies of the world but our competitiveness is a function. Our competitiveness 10 years from now is a function of the spending and the planning that we do today. So, our planning, or lack thereof, has implications 10 to 15 years down the road.
Mosca: One of the property types we focus on is multifamily and apartment rental complexes. How do you feel about multifamily right now?
Krause: There are some excellent opportunities in multifamily. There are some markets that are phenomenal; certain parts of the United States that are doing well economically, growing gangbusters, and investments in those communities will be great. At the same time, I don"t see multifamily as being bubbled across the country so due diligence in market selection is key. There"s going to be some short run fluctuation, but long term these are recession proof investments.
Mosca: Is it true that governmental policies and economic development authorities play a major role in whether or not a market is going to be successful today or in the future?
Krause: It"s an issue of demand and supply. If you can find a community that has strong job generation then you are going to find that there are positive effects on the real estate values in that particular market. Of course, that has to do with supply, as long as supply is within control. It"s the local government that"s going to determine whether or not the pursuit of jobs into that community is happening. There are some anti-growth communities, too. So, there"s a direct correlation between the two. In the bigger picture, it"s more private markets that determine the big growth of a particular community. It is a difficult, economic time but any difficult economic time leads with specific opportunities.
Mosca: Any predictions?
Krause: Any community, region or investor who takes sustainability seriously, who looks for new ways of doing business and is willing to approve capital expenditure and install new energy systems will see returns because our energy problem is not going away.