It's not easy, but once you get past the terrorist acts which destroyed the World Trade Center and damaged the Pentagon, once you get back to "normal" as the President has suggested, you have to wonder where the economy is going and how best to invest in the near term.

Negative events often stimulate spending. The Y2K scare, which forced many companies to invest millions of dollars to update equipment. Once News Year's Eve 2000 came and went, the rush was off.

This is not to say that the Y2K concerns were not legitimate. Locally, The Portland Business Journal reports that Great Western Chemical, a multi-million dollar firm, went out of business because the new millennium scare created enough problems to hindered the firm's ability to control inventory and accounting functions.

The upgrade of more sophisticated and faster computer equipment as a result of Y2K concerns led to increased Internet usage and a demand for new and faster software and telecom services. Capital was raised in boom fashion on Wall Street; alas, the new economy fundamentals did not include making a profit, but rather, were measured by market share growth and "who got there first." The dream of the IPO and becoming a millionaire motivated many employees to jump ship to the new darlings of the industry -- the "dot com" companies being born every day.

But many "new economy" companies were created offering similar services, especially in the telecom industry, resulting in a glut of services that nobody wanted to pay for. Once the initial demands washed away, these companies went out of business or were bought up by bigger companies that needed those products. The stock market, which was instrumental in funding many of those companies, lost significant capitalization as these companies went bust. In plain language, many investors who stayed in the market lost big.

Where does that leave us today?

We are frightened and distressed by the acts of terrorism that were aimed at destroying the freedoms we enjoy. And we are depressed because of the impact it has had on our economy. Yet we are united in a cause to protect our freedoms and our economic system.

The stock market is going through an adjustment period as each American ponders the thought of a possible next attack as suggested in many media accounts. Americans are shepherding their assets to make sure that, as individuals, we are prepared to withstand any unexpected events and are able to protect our families. As we slowly feel more confident, we will be investing in the sure thing, rather than in the high risk and high return investments.

But we still have to eat, drink, and celebrate births and weddings. And America will emerge from the shell again. Medicine will still be needed and baby boomers will still be getting older and even though there will be a worker surplus due to layoffs in the near term, we will still have a lack of employees a few years from now.

Dropping interest rates will continue to motivate us to refinance our existing real estate investments and will give businesses a little more breathing room to run through this difficult time. Several shopping center Real Estate Investment Trusts (REITs) have put whole portfolios into the marketplace because they have not been able to achieve the rental increases they expected.

Oversupply of product and the "dot com" boom and bust have given way to significant vacancy factors for retail, office, and industrial spaces. Apartment construction that slowed over the last couple of years has been absorbed, making them an attractive investment.

Oregon, as one example, is facing a 6.1 percent unemployment statistic with the loss of about 18,000 manufacturing jobs. This will be followed by a slight downturn in the service industries. For the first time in ten years the word "foreclosure" is becoming common in banking circles. Poorly performing apartments, empty warehouses, and empty office buildings are making the banks nervous.

For those with capital, a nose for risk, and patience (four to five years), there are opportunities at hand to invest in troubled properties. Some developers will fall by the wayside. But bear in mind, our population keeps growing and getting older. More people immigrate to the U.S., creating additional rental demand.

In addition to foreclosure opportunities, the low vacancy rates in the apartment sector should encourage investment in apartments. Unfortunately there is not that much inventory available in the marketplace. Over the last two years, sales have been flat. Local appraisers in my area spend 75 percent of their time appraising refinances and 25 percent of their time with sales.

Finding good inventory will be the challenge over the next year. Sales will be prompted by estates coming into the market place, partnerships dissolving, and investors trying to reposition their investments. Most investors are going to repeat the mantra "if it ain't broke, don't fix it," and will keep assets that are performing well for them. Many of these investors can't sell because they would be faced with significant prepayment penalties, so they're locked into their investments for an average of five to ten years.

As confidence returns to the marketplace, rents will increase, prepayment penalties will expire, the demand for housing will increase, developers will start building more projects, jump starting our economy and encouraging real estate sellers and buyers back into the marketplace. I don't expect that to happen until late 2002 or early 2003, and then only if we are not in a full-scale war.

Now is the time to improve existing properties and work on business fundamentals.

Many clients have the funds available to buy buildings. And as some businesses fold or reposition their assets, others who have been growing strong will buy those warehouses and office buildings.

Meanwhile, I encourage you to help jump-start this economy by going out to dinner, rescheduling rather than canceling your vacation, and investing in America.

For more articles by Clifford Hockley, please press here.

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Copyright 2001 Clifford Hockley. Posted by Realty Times with permission.

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Published: October 3, 2001

Use of this article without permission is a violation of federal copyright laws.