Report from Southeast Asia

I recently returned from a trip through Southeast Asia.  Some places, like Laos and Cambodia, are very different from the United States in every way, although I couldn't believe how often I saw a Lexus SUV in Siem Reap.  We also saw a floating village in Cambodia, where people lived in shacks on rafts, which moved around season by season.  During the monsoon months, the waters would pull them all to another place.  Laos had bridges across the Mekong that needed to be rebuilt every year, for the same reason.

  In Vietnam, Hanoi is growing by leaps and bounds.  It now has a population quickly approaching that of New York City!  And there are four million scooters, with traffic that also rivals NYC, making scooters a better way to go.  It was common for the first story of a building to be relatively similar to something we might see here, but with increasingly shoddy construction on each successive floor going up.  Often, the first floor was commercial, with the remaining floors looking as though they were residential.  With mild weather all year, the need for good insulation is not the same as it is here.
The Vietnamese economic growth outstrips ours, so that they seem more like a capitalistic society than a communist one, except for the propaganda spouted by the tour guides.

Hong Kong, although now a part of China, still seems like another big financial center, with people living in tiny apartments and space at a premium.  There are skyscrapers designed by almost every famous architect that you can name, and there are many high-rise residential structures perched on hillsides, but on big bases (they still look scary to me, though).  Many people who live up in the hills travel to work on big public escalators, which change direction by the commuting times.

 Buyers of property, which is all owned by the government, bid on it at auction.  Just before we went, one parcel of three-quarters of an acre, located in the prime downtown area, sold for the equivalent of $3 billion U.S. dollars!  And, bear in mind, that's cash up front. Often buyers come from the mainland, where they can't buy what they want to with their new money.

 Residential transactions take place at equally dizzying prices, with apartments in good neighborhoods transferring for sometimes more than $2000/sf, and with car owners paying $500/month to garage their cars.  No wonder the birth rate is so low there now.

It's always good to get the perspective on home that travel brings.  The world has many different market conditions, governmental structures, and customs, and I got to see a bunch of new ones this month.

Happy New Year!

I've blogged in our residential blog about reasons that we are optimistic for 2016.  There are a few commercial additions to that list. First of all, we had a great 2015 in Commercial. Properties that, in some cases, had been waiting to close for years finally did.  Investors are still definitely in the market, and some of them are coming from elsewhere, since our prices here are so low. Also, the glut of rental units coming onto the market causes demand in the commercial and retail sectors.

These trends are likely to continue next year. In addition, success begets success. As word spreads about prospering investors, others will follow. And the State's late, but seemingly heartfelt, belief that they need to start being nice to the businesses that call Connecticut home should really start to pay off in the intermediate future. Who knows?  We could become the new South Carolina, or Tennessee.  It should be our turn by now!

State Budget News

If you have not been following our State's attempt to balance its budget, you should.  Tax receipts on April 15th did not turn out to be as robust as the Governor had hoped, and now we either need to raise taxes or cut expenditures.  Either choice will result in bad press for doing business in Connecticut, and make it harder to grow our economy. 


Sometimes people don't realize how important it can be to write, call, or email your State representatives and Senators.  They receive surprisingly few communications directly from constituents, and they take them seriously.  I recently was speaking to a State Senator, who was amazed at my reporting that people were selling their properties and leaving the State because of our high estate tax.  He didn't believe me, actually, but I have the feeling that he will check it out, and find that it's true. What will he do about it?  Maybe think about it the next time tax receipts don't match expectations. 


If you have a specific suggestion, make it.  If you know what would make a difference for you, in hiring, sales, profits, or ownership, say so.  The reverse is also true-what are your biggest problems?  And read the news--you may be glad you are running a business, instead of being Governor!

New Haven area outperforming rest of the state in job recovery (From New Haven Register)

Article written by Luthoe Trumellle of the New Haven Register, click here to view on newhavenregister.com

Sometime between now and June, the New Haven area will achieve something that so far has eluded the rest of Connecticut.

The area economy will have recovered all of the jobs it lost during the last recession. Through November, New Haven and surrounding communities had recovered 94.3 percent of the jobs that were lost, said Donald Klepper-Smith, chief economist and director of research for DataCore Partners as well as the author of the New Haven Register's economic scorecard.

For the second month in a row, the scorecard for November showed six of the eight indicators headed in a positive direction. "New Haven is clearly out-performing the state as a whole," Klepper-Smith said. "This is a continuation of what started happening earlier this fall and it should continue well into 2015."

The New Haven area continued to benefit from continued growth in its labor force during November compared to the same period in 2013, he said. The biggest employment gains came from the food service and hospitality sector, which added 2,100 jobs in the past year, as well 1,700 from health care and an increase of 200 workers in education.

The only two economic indicators that negatively impacted the region's economy in November, according to Klepper-Smith, were real disposable income and consumer confidence. With a prolonged decline in gas prices and oil prices expected to continue, he said New Haven consumers will see more discretionary income available in their pockets every month.

"We currently have the price of oil at about $46 per barrel," Klepper-Smith said. "There's not one economist in the United States that would have predicted that a year ago."

The New Haven area continues to benefit from an improving housing market, he said. The 14 towns included in the new housing starts indicator in the scorecard saw a 34 percent increase in the amount of activity, Klepper-Smith said. And the median single-family housing price in November rose to $210,000, up $5,000 from where it was a year ago.

Robert Wiedenmann, president of Sunwood Development in Wallingford, said there appeared to have been a bit of a slowdown in new home sales during the holiday season. "There were a lot of people attending our open houses, but nobody was buying," Wiedenmann said. "We didn't know whether it was the typical slowdown we see around the holidays or the start of something bigger."

But new home sales in January have started with a surge of activity, he said. "We're getting people who have been on the fence for months (about buying a new home)," Wiedenmann said. "We're seeing a lot of empty nesters come in who are looking to downsize into smaller homes, but are expecting the kind of amenities that you can't get with an existing home unless you do a lot of renovation."

Slow and Steady Wins the Race?

We've now written quite a bit about the lagging state of Connecticut's economy, including its current status as dead last among the fifty states in economic growth in 2012.  However, it is important to point out that we're having a good year at Pearce Commercial, following a very good year last year.  By not being in a major metropolitan market, we may have escaped the worst of the price reductions; on the other hand, since we didn't fall as fast or as far, we are not experiencing the same rapid upturn. Those stories about the hot NYC market don't extend to greater New Haven and Hartford.  Office space is still moving slowly.  Could that be a good thing?

Everyone knows that real estate is cyclical.  Everyone knows that what goes up must come down.  By flattening that line, we may be protecting ourselves.  Meteoric rises are what produces bubbles.  That's what we don't want to see.  If our real estate market can grow slowly and steadily, so much the better.

It's not all rosy. Commercial real estate financing isn't easy.  Companies that downsized aren't rushing to lease more space; in fact, it's the reduction in overhead that is most likely producing a good deal of the increased profits in corporate America these days.  Perhaps most annoyingly, people still seem reluctant to pull the trigger.  They look and look, but stall for long periods of time, sometimes not ever making the offer.

  But there are investors out there, as well as some users, and most of them seem to realize that mortgage rates have nowhere to go but up, and that values are headed that way as well.  We don't have big backlogs of empty buildings and overbuilt space.  In short, we seem to have most of the attributes of a balanced market.  And that's a good thing.

Conn. Economy Falls Behind State Posted Negative Economic Growth for 2012.

Wall Street Journal, June 6, 2013
By JOSEPH DE AVILA

Connecticut was the only state to post negative economic growth in 2012, the latest indication of its sluggish recovery from the recession and the financial crisis.

Connecticut's gross domestic product shrank by 0.1%, the worst performance in the U.S., according to a U.S. Bureau of Economic Analysis report released Thursday. Job losses in financial services, the real-estate industry and federal, state and local government were the big reasons why.

New Jersey and New York both grew 1.3% and ranked 36th and 37th in the U.S. respectively. The rest of the country grew more rapidly. The nation's GDP expanded by 2.5%.

"The Connecticut economy is coming back inch by inch instead of yard by yard," said Don Klepper-Smith, chief economist at DataCore Partners, an economic and demographic research firm in New Haven, Conn. "The recovery has been spotty at best."

Connecticut's Democratic governor, Dannel Malloy, pointed to weakness in the European economy—an important trading partner—as one reason why the state's economic performance has been shaky. "We need to do better," he said. "I'll go with the statistic that there is general agreement on—that we created 26,000 private-sector jobs in the last two years, the fastest two-year increase in jobs since the 1990s."

Mr. Malloy has made investing in technology and engineering one of the pillars of his economic-development plan. The Legislature on Wednesday approved a $1.5 billion plan for the University of Connecticut to expand its focus on science and technology. The state also spent $291 million to lure genetics research nonprofit Jackson Laboratory from Maine.

Those are long-term projects that can't fix the state's short-term jobs slump. It has regained only 47% of the jobs it lost during the recession, the state labor department said. The state's unemployment rate is 8%, compared with 7.5% for the U.S.

Connecticut's poor GDP growth took some economists by surprise. "I wasn't expecting it to be so bad," said Steven Lanza, an economist with the University of Connecticut.

That surprise stemmed from Connecticut's high marks in 2011, when the Bureau of Economic Analysis pegged its GDP growth at 2%, among the best in the U.S. On Thursday, the 2011 number was revised to -0.1%.

The weak performance from financial-services and real-estate firms shows the financial crisis and the collapse of the housing bubble continue to drag on Connecticut's economic performance, Mr. Lanza said.

The financial-activities sector, which also includes real-estate jobs, fell by 2,200 between December 2011 and December 2012. Construction jobs fell by 1,800 during that same time.

Government layoffs also have weighed down economic growth in Connecticut, the federal report said. Only Florida, Wisconsin and Louisiana's governments shrank more. "One of the things that Connecticut has done…is shrink the size of its government faster than just about any other state," Mr. Malloy said.

The state shed 1,000 government jobs from December 2011 to December 2012.

Economists said the U.S. has begun to experience a housing rebound that Connecticut has yet to join. Median sales prices in Connecticut are still down 30% from the peak levels of the housing boom, Mr. Lanza said.

"You don't have a sustainable recovery until you have a housing recovery. And we don't have a housing recovery here yet," said Peter Gioia, an economist with the Connecticut Business and Industry Association in Hartford, Conn.

There were bright spots in the BEA report for Connecticut. Durable-goods manufacturing and management of companies—which typically reflects corporate headquarters—both posted gains in 2012.