By Pam Austin, McCaffery Interests

On Wednesday October 28, CREW Chicago members and guests lunched at the East Bank Club and heard Carl Tannenbaum’s  views on the economy entitled,  “The Lessons of Recession:  Reflections on Banking, the Economy and Commercial Real Estate”.   Carl has a breadth of knowledge on the topic as he has lived through four recessions and was formerly the Chief Economist and Director of Balance Sheet Management for LaSalle Bank prior to joining the Federal Reserve Bank, Risk Specialist Division. 

Carl attempted to lighten the mood with some jokes before launching into a thorough PowerPoint of economic indicators and his take on what the data says about the most challenging conditions in the last 30 years.  He believes there are some “green shoots” out there on the economic landscape but there are still some challenging quarters ahead as credit is restrained, wealth is diminished and employment lags. 

Some of the telling stats:

• Unemployment is 10%.  Jobs are not being lost at as fast a rate they were but initial claims are still in the 500,000s and nearly 6,000,000 Americans are out of work.

• The real GDP was negative the past 4 quarters but there was 3-4% positive growth in Q3 of 2009, thanks in part to government incentives like “Cash for Clunkers” and the first time homebuyers tax credit.

• Consumer sales weren’t bad for “back to school” but retailers are still unclear about how to handle Christmas inventory. 

• Household net worth declined dramatically as house values lost 10-50%.

• Consumers are starting to save again at a rate of 6-8%.  Ironically, American were spending when we should have been saving and now that the capital markets need cash flow, we aren’t making money available.

• Commercial real estate valuation is difficult right now.  Prices have decreased 20% from peak to trough.

• Commercial real estate loan delinquency rates are still increasing.

• Lending terms are still getting tighter.  There is not a lot of lending going on.  Commercial Mortgage-Backed Securities (CMBS) are at a standstill. The traditional sources of funding for commercial real estate are not available.

• More than 90 financial institutions closed this year. Many survived with help from the government.

• CMBS spreads are 350bp (10 year AAA) over swaps.

• There are a significant number of leases coming up for renewal in the next two years; leasing and absorption will be challenging.

• Home loan delinquencies are still rising and are not limited to subprime loans.  Unemployment is the reason.

• The average down payment in 2007 was only 3.5%!  Consumers do not have much equity in their homes and payments are rising.

• Total number of loans since WWII is down as banks exercise caution.

So what is being done to help?  There is $800 billion in fiscal stimulus money; TALF (Term Asset-Backed Securities Loan Facility), PPIFF (Public-Private Infrastructure Financing Facility) for banks; foreclosure mitigation programs; bigger line for the FDIC; and the Federal Reserve has added significantly to its balance sheet.

CREW Chicago President, Cindy Wozny-Carl, addressed the audience before Carl’s talk to let everyone know that the CREW Chicago Program Committee revised 2009 events midway through the year to meet the increasing numbers of members in transition, in keeping with CREW’s mission to  foster an environment for professionals to network and promote personal growth.