The Massachusetts Election’s Potential Impact on Commercial Real Estate

Last week, we witnessed Scott Brown’s historic victory in Massachusetts as he captured a senate seat which had been held by Edward M. Kennedy for 46 years. Moreover, it hadn’t been since 1972 that the state last elected a Republican senator.

The people of the Bay State have spoken, but what did they say? Clearly, not all voters were saying the same thing. Some were protesting, some were fearful, some were angry, some were vacillating and some were rallying to old causes. Ted Kennedy was the U.S. senator most closely associated with the century old goal of universal “free” healthcare for every American. Astonishingly, the people who sent Kennedy to Washington for that cause 9 times rejected his legacy last Tuesday.

The people of Massachusetts, who already have a similar state program, could be the ones who defeat the present national health care reform bills that have been crafted in Washington by virtue of electing a senator who ran on the premise that he would be the 41st vote against it.

Perhaps the reason is that when Massachusetts passed their healthcare bill, it had a 70% approval rating and after just 3 years it now has a 70% disapproval rating. Perhaps the leaders in Congress antagonized some voters by working covertly to bribe a vote from Louisiana with $300 million in pork, agreeing to have the American taxpayers pick up the tab for all of Nebraska’s Medicaid expenses to win a vote there, and the consistent unfair accomodations granted to various unions.

Perhaps some of the anger had nothing at all to do with healthcare. Perhaps voters were trying to say how angry they were about the financial bailouts, banker bonuses, wars in Iraq and Afghanistan or, more likely, the continuing recession and unemployment. Yes, a recent NBC/Wall Street Journal poll indicated that 60% of the public believe the recession still has a long way to go, notwithstanding what the official definition of “recession” might be.

While the U.S. was suffering through a recession, compared frequently to the Great Depression, Congress wasted a year squabbling like unruly toddlers over healthcare reform. No on in his or her right mind could have believed a workable, efficient, cost-effective plan could have come out of the 2,000 page monstrosity that came out of the Senate after long months of shady alliances, disgraceful back-room deals, unconscionable payoffs and abject capitulation to the insurance companies and “Big Pharma”.

A year was wasted because it should have been spent working on job creation, not healthcare reform or other components of a bloated agenda making up the White House’s to-do list. Virtually everyone, even if they haven’t lost their job, knows someone who has. Nearly two-thirds of Americans say that 2009’s stock market rally has done nothing to make them feel better about things, indicates the recession is over or will make the job market better.

It’s all about jobs for our economy (and our commercial real estate market). Why Washington can’t seem to get this is beyond me. The December jobs report was yet another indication that the wasted year was, indeed, wasted. The Bureau of Labor Statistics (BLS) non-farm payroll data showed that December job losses totaled 85,000. Democratic strategists immediately point to the fact that monthly losses were significantly higher when the president took office. That is of little consolation to the 8.6 million Americans who have lost jobs since the recession began in 2007. And hardly matters to the 15.3 million people who are presently out of work or the additional 10 million who are under-employed. The idea that Congress is not spending every waking hour trying to fix the broken economic system and put suffering Americans back to work is beyond pathetic.

The BLS’s household survey, a better and more comprehensive measure of both the unemployed and underemployed, indicated a loss of 589,000 jobs in December. Small business is the normal source of new jobs in our economy and it seems that fewer than 10% added new jobs while 20% continued to cut payrolls. Those reducing jobs cut twice as many, on average, as did the growing companies add.

Is it any surprise that companies are not hiring? Corporate earnings continue to perform well but only in the face of sub-par top line revenue which indicates the relative level of consumer demand. Additionally, 2010 budget shortfalls at the state, county and city level are expected to hit an astonishing $200 billion nationally. By law, most states must operate on balanced budgets meaning we will see reductions in services, further layoffs and, the biggest problem, substantial tax increases.

Consumers and employers alike can no longer rely on home equity, rising values of stock portfolios, or borrowing as a basis for spending in lieu of savings. And what do they see on the horizon? Only two things: taxes and an anti-business perspective coming out of Washington unlike anything we have seen in a generation. To even the casual observer, it appears Washington is taking out its frustration on those who are successful by regulating them more and taxing them more. The American dream has never been to lay on your back and float as the government takes care of you.

The election in Massachusetts has provided the administration with an eye-opening opportunity to take a step back and rethink strategy and tactics.  Unless on another planet, they must be concerned about November 2010 potentially being remembered as another one of the great “wave” elections we saw occur in 1994, 1974 and 1946.

The question is whether the president will look at how President Clinton artfully moved to the center and got re-elected or will put blinders on and become another Jimmy Carter. Granted, today’s circumstances are much different than those facing President Clinton as the Democrats still have large majorities in both the House and the Senate.  Although it has only been days since the Massachusetts election, the president has, thus far, been defiant in the conviction for his continued agenda and policies without deviating form his pre-election tact.

Commercial real estate could be a beneficiary of the election results. More than anything, our market needs JOBS. The shocking results in Massachusetts could have put the spotlight on job creation. Unfortunately, the deficits that have been created must be addressed as average citizens are aware of, and are concerned about, massive and growing deficits. Deficit reduction is now the mantra in Washington which means that new large-scale investments in infrastructure and other measures to ease the employment crisis and jump-start the most promising industries of the 21st century are highly unlikely.

A rational person could have guessed that the administration’s focus would have veered away from healthcare, and other initiatives, and onto job creation based upon last Tuesday’s stunning results. Giving the benefit of the doubt, give the president time to adjust to the new reality of American’s obvious priorities. If the wake-up call takes hold, we should see a tangible shift to job creation. The more jobs that are created, the better for our real estate market. And we need a lot of jobs; 1.3 million per year just to keep up with new people who enter the workforce, forgetting about getting all of those who lost their jobs getting back to work.

So, will President Obama become Bill Clinton or Jimmy Carter? The answer to this question will have a significant impact on the speed with which the commercial real estate market recovers. And it will indeed recover;  it would just be nice to have it happen sooner rather than later.

8 Responses to “The Massachusetts Election’s Potential Impact on Commercial Real Estate”

  1. 1 Michael January 25, 2010 at 8:30 pm

    Can you give a few specific examples of how the federal government can create jobs? You mentioned a need for the shift to job creation many times in the article but I missed what the actual suggestions are.

    I’m not knocking what you’re saying about pork barrel spending and back room deals, but it’s a bit alarmist to say $300 million is a big pay off when we spend $650 billion each year on the military alone and there have always been back room deals regardless of who held the majority.

    I think the heathcare question hasn’t been resolved because of the deals between the insuarnce groups and “big pharma” and the lawyers and the unions and the doctors and and and. But I think the real problem is that the topic is way too complicated for ordinary people and most of us have insurance so, like everything else that is comlicated or controversial, we let someone else deal with it.

    The question I ask about healthcare is wouldn’t we all be better off if we had healthier people living in this country? How do we get to the point where business can employ a healthier, more creative, more energetic workforce? Where would productivity be in that idyllic place? How much more could our children learn at school? How much could companies save in reduced sick leave, absenteeism, etc?

    Why doesn’t the media talk more about where we can go instead of always harping on the problems we have trying to get there?


  2. 2 r lobel January 25, 2010 at 11:24 pm

    Bravo. Pretty much covers everything that the current administration either has not done or has done wrong. It not simply that they have to rethink strategy and tactics, but more importantly, they have to rethink policy. The do or die, at all and any costs, to the exclusion of all else Health Care Reform has been an unmitigated disaster for the country. Being mono-focused in a multi-problem, multi-system environment is a sure recipe for failure. Being wed to a badly prepared, awfully served and poorly executed and badly served noble ideal doth not make it a happy, acceptable or sustainable or affordable marriage. Additionally, the arrogance and inability to admit such failure is a sure recipe for continued failure. The President and his fellow Democrats response to the Brown victory evinces that and I fear, bodes ill for the immediate future. Invariably, the voting public know the issues, problems and challenges they face than cloistered self-centered politicians. Nero could not have fiddled any better or for that matter played the fife and drum with more gusto than Obamusician. The huge addition to the employment rolls achieved under the Bush administration in the post 9/11 years was disproportionately enjoyed by the construction and housing sectors. How the current Administration missed this obvious fact is sadly reflected in the lack of “public works and infrastructure” projects. As you correctly state, jobs, jobs jobs are what we need, not just for the recovery of the real estate industry but for the entire country. And for the long term health, well being and international competitiveness of the US, much needed infrastructure upgrades are necessary, not only in (across the board) education and medical facilities but also in roads, highways, bridges, public transportation, electric grids, alternate energy and security.
    As you know, real estate always lags the general economic recovery and, unfortunately, given this Administrations continued missteps,it will be many years before the real estate industry once again sails on an even keel.

  3. 3 dgaines January 26, 2010 at 4:59 am

    Great column as always.

  4. 4 Adam Luysterborghs January 27, 2010 at 9:43 am

    Nice column. According to a recent Bloomberg poll, 77% of investors believe the President is anti-business. Regulatory uncertainty abounds and I believe this is a key factor stifling activity (among other things).

  5. 5 rknakal January 31, 2010 at 12:26 pm

    Hi Michael, thanks for your post. The best thing the administration can do to promote job creation is to set definitive tax policy. The reason many employers have not been hiring is due to the uncertainty about future tax obligations. It is clear that recent administrations from both parties, have been unable to muster the intestinal fortitute to cut spending tangibly. If this continues, raising taxes is the only way to bridge budget gaps at the federal, state and local levels. If employers believe they will have significantly higher tax obligations in the future and do not know, within even reasonable certainty, the extent of the increases, how can they effectively plan for the future? The administration should definitely say what their position on the Bush cut sunsets is. They should also form definitive tax strategy for the next three years.

    Additionally, tax cuts for small businesses and for all businesses to hire new workers are a necessary part of the solution and, yes, more extensively than laid out by the president last week. His proposals are certainly, however, a step in the right direction.

    With regard to the health of the American people, healthcare will not do as much to make us healthier than healthier living habits. For instance, the TV commercials depicting what smoking does to the human body are a huge deterrant to potential smokers. Being able to go to a doctor on your health plan because you have cancer from smoking does not do much for that person. Not having smoked to begin with is the best way for Americans to be healthy.

    Education about eating correctly, regular exercise and taking care of yourself would do more to bring down the cost of healthcare than anything else.

  6. 6 rknakal January 31, 2010 at 12:32 pm

    Hi Robert, thanks for your post. You know I always find your ramblings amusing. You do make a lot of good points and, I think, accurately reflect the anger many Americans feel. The more that people feel that way, the more interesting the mid-terms will be.

  7. 7 rknakal January 31, 2010 at 12:33 pm

    Hi David, thanks for the post. I hope all is well in Chicago!

  8. 8 rknakal January 31, 2010 at 12:43 pm

    Hi Adam, thanks for your post. I am surprised that the percentage in the poll you referenced was not even higher. Time and time again, the president makes you feel like being economically successful is a bad thing. Why stive for economic success when a growing percentage of the extra compensation you work so hard for will be confiscated to pay for benefits to others.

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