Little commercial groundbreaking happening

We still have too much real estate inventory at the moment.

By Jim Cramer Apr 4, 2013 9:02AM

thestreet logo

Abstract structural buildings Indivision 07 Grow A Dex Image Getty ImagesIf Ben Bernanke were listening to Wednesday night's "Mad Money" -- oh, come on, you never know -- he would not have liked what he heard.


That's because Dave Henry, the soft-spoken, terrific chief executive officer of Kimco Realty (KIM), one of the largest retail-space real estate investment trusts, the owner of the largest portfolio of neighborhood and community shopping centers, said he expects another terrific year (TheStreet). Why? Because rents are going higher courtesy of no new building of any consequence going on in this country.


Now Bernanke wouldn't be totally broken hearted. There is demand coming now for new stores, including from the dollar stores, where the country is opening four a day.


But the secrets to getting this economy moving beyond the residential space lies in commercial real estate, particularly office and retail construction. Neither seems to be taking off and that's a big reason why we are not getting the job surge you would expect.


We book a lot of REIT operators on "Mad Money," in part because they have beaten the averages now in every 10-, 20-, 30- and 40-year stretch, but also because these companies truly do have the pulse of the American economy. We have had on office, warehouse, hotel, shopping center and shopping mall REITs in the last year and do you know that every one of these is the same? Not one of these has any new building to speak of going on. That's a reason why they can keep raising rates and keep raising payouts. There is little to no competition from new space coming. In short, we did some serious overbuilding in this country and we are still, six years later, in the hangover phase. It doesn't seem to matter how low interest rates are. We still have too much inventory at the moment and there is still too much worry and too little confidence to start breaking ground on mega projects that might never come.


Plus, as Henry points out, the areas where there is incredibly strong demand, notably California, are very difficult to build in with not enough large tracts left to easily construct a new center. The environmental hold-ups also make it so any project takes much longer than it used to, so people don't want to commit for a project that might take five years from drawing board to completion.

Amazingly, the problem is not from the customer side. We haven't had any substantial failures or closings of major chains in several years now. There's been some cutbacks, but there has been more than enough new store demand to make up for that.


I know people keep worrying about when the Fed will stop being dovish. They look at strong home sales and strong auto sales. But there have only been a handful of auto sales jobs that have been created by the boom and we are still struggling to build slightly more than half the number of homes we built six years ago.


That means the employment picture has not yet started to brighten from these key areas.


It often seems that no one takes Bernanke at his word when he is targeting employment. It's as if people think that 6.5% unemployment number is some Disneyland fantasy and as soon as we get a couple of good employment numbers under our belt then rates will shoot up.


From what I am hearing from David Henry and many others in the real estate investment trust arena, Bernanke's not yet started to get things rolling and we need the overhang gone and the confidence increased before anything happens.


Unless we are going to become the dollar-tree nation, don't hold your breath.

 

cramer 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in the stock mentioned.

 

 

More from TheStreet.com

41Comments
Apr 4, 2013 10:38AM
avatar
No "S" Sherlock ! We have to much real estate inventory ?  10 million homes in default or foreclosure ! Another 10 million home owners underwater on their loans who might decide to default ! The Banks sitting on another 10 million shadow inventory ! This is your Housing recovery as it collapses in front of our eyes ! That is more Hope and Change that you can believe in !
Apr 4, 2013 9:22AM
avatar
sure there's a lot of inventory.  tons of stores closed the past 7 years.  tons of developments simply stopped.  it's called a recession now-a-days.  years back a depression would have been the term
Apr 4, 2013 11:17AM
avatar
Real estate has no chance for recovery with Ben around. As long as Bernanke keeps printing fiat, we die a little more everyday.
Apr 4, 2013 9:47AM
avatar
Anyone with half a brain knows that if you were to establish a program of duties and tariffs on all the low labor cost crap from oversees the lights would come back on on main street over night.  Every one of the 555 electerds in D.C. are well aware of the damage being inflicted on not only the working American by these Corporate New World order Policies, but also small business owners.  Yet not one ounce of explanation. Their plan; not the citizens of this country, is to bust the present economic foundation.  What else could it be? You can't keep looking in the rear view mirror Jim and think something old school is going to work any longer.  Until the arbitrage; however long that might take, is complete and wages are lowered through high unemployment and inflation to become comparable to China, Korea, and Mexico, only then will any long range planning be even remotely appropriate.  When you have little confidence that the economics available to support a long range decision exist you expectedly are reluctant to plan for the long term.  How many anybodies feel they can understand the actions of a goverment that has pushed us this far into debt?   What are the secret long term commitments made by our US lawmakers?  All the secrecy we are seeing in this immigration reform issue alone should raise everyones eyebrows about what we don't know about the future.  We are being kept in the dark.  How many of us really believe what comes out of D.C. any longer?  And consequently normal people act accordingly and refuse to commit.  This is what centralized planning socialism is and does. This is what the majority of American voters voted for. 
Apr 4, 2013 11:19AM
Apr 4, 2013 12:30PM
avatar
As the owner of a small business I can tell you it is getting harder than ever to turn a profit. The economy has improved somewhat but competition from online merchants who have a lower overhead is killing many small businesses. I can't blame anyone for looking for the best deal but do we really have to give giant corporations like Amazon a sales tax advantage over the little guys?
Local businesses are the lifeblood of a community. They create local jobs and the money they generate goes back into the area they live in. 
Apr 4, 2013 12:30PM
avatar
Real Estate is coming back!  My house is only down $100,000 in value now.
avatar

The western economies have at best 2 years of life left perhaps just months.

 

Japan is totally bankrupt and is going the way of Germany just after W.W.I trying to print it's way out of trouble which never works.

 

Quote

TOKYO (Reuters) - The Bank of Japan unleashed the world's most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows.

End Quote

 

The Euro zone is gearing up it's money printing machine as we speak.

 

The US is also gearing up it's money printing machine with $1 trillion plus being added this year alone. Next year the Fed expects to increase QE4 to $3 trillion dollars

 

Yep the few investors the Federal Reserve gave money to a short while ago to buy houses are about ready to self destruct as they find themselves with more and more property they can not rent nor sell.

 

Things are about ready to collapse folks.

Apr 4, 2013 11:36AM
avatar

So what besides Ben Bernanke is lifting the markets today? Jobless claims are up, real estate is in the toilet, job blockades are intact and both Europe and Asia are on the ropes.

 

What's in your wallet? Wanna bet?

Apr 4, 2013 12:13PM
avatar
Apparently, it's Japan's Central Bank pumping us up today. They printed up another trillion or so of paper they can't back legitimately and stuffed it into Wall Street coffers. Did it occur to anyone that a bond backed by fiat money that is apparently funding more fiat money is-- bogus? Wouldn't our best approach today be- charging into the Federal Reserve building, flushing everyone out and holding it hostage for our REAL economy? What possible sense does it make to keep believing Kool Aid will somehow revive what the very printing of the original fiat currency- destroyed? It's idiocy!
Apr 4, 2013 10:18AM
avatar
Not sure about the retail side - seems like the rents at many of these places are so high that it's difficult for a mom-and-pop to make it.  I've seen some of these have 3-4 different businesses occupy the same space over the course of a couple years, and none of them made it.  First it was a tax place, then a cupcake shop, then a liquor store, then a frozen yogurt place, and now it's vacant.

As far as the office space goes, there's plenty of that around here - lots of it built 6-7 years ago and much of it vacant.  I see lots of newer construction 1-story buildings that hold 4-6 offices, with 3-4 of those being vacant.

There are businesses being started, probably out of sheer necessity.  But many of these are kitchen-table or basement or garage-workshop type businesses.  It would take a lot for these people to make the move into commercial office space.  Especially since much of this business is "off the record", with no separate bank accounts or phone lines or tax ID numbers.

Then you have the businesses that are already established and many of them are happy right where they are at - they aren't looking to move or expand.

The few businesses that I know of that are acquiring new office space are well-established service businesses (home appraisal, small insurance company, attorney) that are choosing to purchase rather than rent.  And they are buying older properties with the intention of doing a light remodel.

Apr 4, 2013 11:21AM
avatar
Anybody else figure out yet that at 2.75% no fees (currently advertised) mortgage program doesn't give the lender any money for servicing? Essentially, it's a loss that just keeps getting worse the moment it leaves the closing table.
Apr 4, 2013 1:25PM
avatar

Anybody give any thought to all these bogus and shoddy real estate deals the Fed is buying from banks? Basically, banks can offer rates well below profitability and sell them a month later for the cash they originally borrowed from the Fed AND buy the Note that goes with it for a better return than the loan itself! What "we" get saddled with is-- an unsustainable mortgage that can never be sold again and has no real profit in it. A property that seems to come back like bad sushi over and over. MORE debt generated by the Fed that straps our great great great great great great grandchildren in indenture to it.

 

WHO is Ben Bernanke? WHO doesn't see this as catastrophic FAILURE?

avatar

Quote

From what I am hearing from David Henry and many others in the real estate investment trust arena, Bernanke's not yet started to get things rolling and we need the overhang gone and the confidence increased before anything happens.

End Quote

 

Read this as Bernanke printing up free money and giving it to real estate investors. Making an artifical demand for real estate is going to drive up prices and force real businesses out of retail spaces due to increasing rents.

 

The whole econimc system is a pyramid scheme and is way too top heavy and is collapsing and Bernanke is still shoving money down the thoarts of the the super rich. He totally does not understand what got us out of the Great Depression or perhaps he does and is making sure the US economy collapses as he is a commie double agent.

Apr 4, 2013 2:27PM
avatar
LOOK AT BEN GO!!!!!!!!!!!!!!! HE'S PUMPING THE MARKETS AT AN INCREDIBLE RATE. HE'S PAST THE 50 (YEARS TO RECOVER), HE'S PAST THE 100 (YEARS TO RECOVER), HE'S HEADING WELL INTO A SECOND CENTURY, FOLKS. We Are Screwed.
Apr 4, 2013 10:03AM
avatar
Bobo you're giving us all whiplash............ "house of pain"
Apr 4, 2013 4:02PM
avatar

Nevada....the market is so distorted, it is almost impossible to find price discovery. Look how inflating real estate ended. The 08 crash. The uncertainty is the problem.  Creating more bubbles will end badly. The Bond Bubble will also end badly..

Apr 4, 2013 2:40PM
avatar

We double our population every 33 years but we have maintained the college and availability to go to college at the 66 year ago level.(we need 4x the current number)  It is not possible for the economy to match the population and system demand  unless we get people educated and working here ,and then they can consume at normal levels.

 we are in survival mode now and that does not feed the system, only the asset holders have a normal life.

How to fix it?

Open factories here in the US , pay the workers enough  to raise good kids, provide activities to enrich the bodies of all(a healthy body, a healthy mind)and offer a sponsored education system and a public health care system without the 20% of trillions profit the current extortion offers.

Apr 4, 2013 1:44PM
avatar

Alisa Barry,

 

Congress does not worry about 100 billion in annual Medicare fraud, or foodstamp fraud, and now income refunds frauds.   Why would they?  It's only our money, not the congressmen's!

 

And of course Obama does not care, he will just stop tours of the White house rather than stop "waste fraud and abuse".  Even though these lying Bstards champaign on such.  Of, couse in Orwellian style they know they can say the right things and the leftist voters will translate that into "OBAMA HAS ALREADY DONE WHAT HE SIAD".  Of course they are all drunk on his gifts

Apr 4, 2013 2:45PM
avatar

BTW , this printing of money is a normal way to drive up inflation and devalue currency.

If the government owes a dollar at todays value, and the money is devalued, they are paying back less money value.   50 savings bond cost 25, return 50 purchasing power of the 50 , 25. money cost to gov for the loan =0

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

129
129 rated 1
281
281 rated 2
444
444 rated 3
732
732 rated 4
629
629 rated 5
623
623 rated 6
610
610 rated 7
440
440 rated 8
303
303 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
BBBYBED BATH & BEYOND INC10
TWXTIME WARNER Inc10
COPCONOCOPHILLIPS9
HDHOME DEPOT Inc9
VZVERIZON COMMUNICATIONS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.