What's the Federal Reserve "Beige Book" say about the state of the non-res development market and financing for non-res R.E. projects?

As many of you know, the Federal Reserve, each month, publishes what’s know as the “beige book,” which is basically a running narrative of business conditions across the 12 Districts that make up the Federal Reserve System. The October beige book contains the report on business conditions in September; the November beige book, not yet out (at least that I’m aware of), will contain the report on business conditions in October.

I spent a few minutes, this past week, to “peruse” my way through the October 2009 beige book (which, as I said, reported on business conditions as of September.)

In particular, my “perusal” was limited to scanning the “REAL ESTATE” and “FINANCE AND BANKING” sections. Below, in this blog-post, I’ve “extracted” comments from certain “Districts” about the “real estate” and “finance and banking” conditions those districts. PLEASE NOTE: I did not read all of the District reports; I only read the specific reports for 4 different districts, but I also read the “overall” (what I guess you would call the U.S.-country-wide) summary.

As you read the portions I’ve extracted (and reprinted below), also keep in mind that the District and Overall reports do talk about “residential” real estate activity and “loan” activity related to residential, but, since the lifeblood of reprographers comes from the “non-res” real estate market, I’ve extracted (and reprinted) below ONLY information that talks about “non-res” real estate activity (or, should I say, lack thereof) and commercial property financing.

One last comment: There is that old saying, “follow the money.” I’ve been saying, in many of my blog posts, that the non-res (commercial real estate) market, and the bulk of printing reprographers do, will not come back to life until the money begins to flow. Admittedly, I am a peon (would “idiot” be a better word?; maybe so) when it comes to economic research and forecasting real-estate project financing and non-res development, design and construction activity. But, the news, blog readers, is not particularly good.

One of my reprographics industry friends, Shaun Meany, President of ARC’s PEiR Group enterprise, did a very recent blog post ( just a few days ago, on his blog-site: http://peirgrouppointofview.blogspot.com/ ) about his attendance at the Eastern Regional Reprographics Association Convention. At the ERRA, he listened to speaker Robert Singerline (of McGraw-Hill) talk about the forecast for the Construction Industry in 2010. Here’s part of the article that Shaun posted about that guy’s presentation:

“I also enjoyed the Construction Industry Forecast presented by McGraw Hill’s Robert Singerline. The outlook for 2010 is expected to be better than 2009 (thank God!) and there are definite bright spots ahead in 2010.

Singerline sees an increase in construction ahead for all all areas of the country in the coming year. South Atlantic, South Central and the West are all expected to see double digit growth. It is important to keep in mind that even with so rosy an outlook the industry is down so low that these positives really do not translate into big numbers - especially when compared to 2006 when construction was at its peak. Residential construction should signal the early stages of a recovery. Next year, Singerline says, there will be continued growth in government projects along with some institutional and non-building construction.”

My opinion…… as expressed in an e-mail I sent to Shaun about his blog post:

"Dear Shaun,

Last week, I mentioned a couple of AIA articles on my blog-site (http://reprographics.blogspot.com/) and the opinions expressed in those articles - as to forward growth and the outlook for 2010 - run contrary to what Singerline evidently said at the Eastern Regional.

Certainly, everyone is entitled to their own opinion.

However, I don't see where anyone, at this point in time, can forecast an upside to construction activity in 2010. A clear signal would have to come from two different things.
1) some indication that the financial markets are (for financing projects is) unfreezing. It is still locked up.
2) a positive movement in the ABI index. It is still very negative.

Regards,

Joel"

As to the projections the guy (who spoke at the ERRA meeting) presented, I'm thinking that he must have been using, a) a weegie board, b) an abacus, c) a crystal ball, d) a palm reader, e) tarrot cards, f) tea leaves, g) a fortune teller ?????


Okay, let me now get to the information I extracted from the Fed’s Beige Book report:

SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS

OCTOBER 2009

From the “summary of all districts” section of the report:


Commercial real estate continued to weaken across the 12 Districts, although even this sector had scattered bright spots. Each District indicated that demand for private commercial real estate was weak, with New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco all characterizing activity as declining further since the last report. An inability to obtain credit was often cited as a problem for businesses that wanted to purchase or build space. High vacancy rates were noted as a key concern especially for landlords who were not offering concessions. And, while industrial real estate in the Richmond District was generally weak, renewed interest by retailers to revisit postponed expansion plans was also noted. Finally, public nonresidential construction activity funded by federal stimulus projects was a source of strength in the Cleveland, Chicago, Minneapolis, and Dallas Districts, but gains were often offset by state and local government cutbacks. Sources reported that lending by nondepository financial companies remains limited, especially for real estate and construction.

3rd District (HQ in Philadelphia)

from the “real estate” section of the report:
Nonresidential real estate firms indicated that leasing and purchase activity declined during the past few months. Vacancy rates continued to rise for apartments and office, industrial, and retail buildings. Contacts reported that tenant downsizings and business terminations were resulting in the return of space to the market. There has also been a substantial increase in sublease space coming on the market. Rents have declined, especially for older buildings. Contacts expect nonresidential real estate markets to remain soft for some time. One contact said, ―markets will struggle through the remainder of this year, and they will still face challenges in 2010.

5th District (HQ in Richmond)

from the “real estate” section of the report:
Industrial real estate activity in most areas of the District was often described as ―dead, and new construction of industrial or office buildings was further deterred by difficulty obtaining financing.

6th District (HQ in Atlanta)

from the “finance and banking” section of the report:
Commercial contractors noted that tight lending conditions had restrained commercial development.

and, from the “real estate” section of the report:
Private-sector commercial real estate activity weakened further in September. Vacancy rates continued to rise across all segments, and contacts continued to cite downward pressure on rents. Developers reported fewer backlogs, and more projects were delayed or cancelled. The outlook among contractors remained unchanged since last reported, with most anticipating activity to continue to decline into 2010. However, contractors in some parts of the District noted that federal stimulus monies were starting to help spur some public-sector activity.

12th District (HQ in San Francisco)

from the “real estate” section of the report:
Reports suggested that demand for housing continued to improve slowly, while demand for commercial real estate eroded further.Conditions continued to deteriorate in the commercial real estate market: demand for office and industrial space fell further, and financing for new development and purchases reportedly remained ―frozen.

from the finance and banking section of the report:
Lending standards remained relatively restrictive, with scattered reports of further tightening, especially for commercial real estate lending, and credit quality continued to deteriorate. However, on net bankers and other contacts noted improved *access to financial capital in recent months.

(*Joel’s comment: I’m not sure what that sentence implied. Could mean that bankers aren’t having problems getting money (Fed is giving money away, near zero interest rates for banks who want to borrow from the Fed; does not necessarily mean that investor/developers are getting improved access to loans!)