making lemonade lemons out of lemons

Elliott D. Pollack & Company

Making Lemonade

Lemons out of Lemons

By:

Elliott D. Pollack

CEO, Elliott D. Pollack & Company


Rating Decline

AAA

AA+

“The Emperor Has No Clothes”

–S&P and the Financial Markets.


Federal Receipts as a Percent of GDPSource: FY 2012 Budget of the United States Government

12%

13%

14%

15%

16%

17%

18%

19%

20%

21%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

---- 1970 – 2007 average

---- Obama Administration proposed budget


Federal Outlays as a Percent of GDPSource: FY 2012 Budget of the United States Government

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

25%

26%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

---- 1970 – 2007 average

---- Obama Administration proposed budget


U.S. National Debt ($mil)Source: U.S. Treasury; FY 2012 U.S. Budget


The Real Numbers

• Federal spending over the next 10 years is estimated

at $46 trillion.

• That is an increase of about $9.1 trillion

(before the cuts).

• After cuts, the increase is expected to be $7.4 trillion.

**In other words, there are no cuts planned, just a

reduction in the rate of increase.


For Perspective

• Ma & Pa Kettle spend $38,200 per year

• But their income is $21,700.

• They have to put $16,500 on credit card each year.

After the long, hard talk… they cut $190 in year one

and $385 in year two.


United States Real Gross Domestic Product*Annual Growth 1970 - 2012**

Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators

0.2%

3.4%

5.3%

5.8%

-0.6%-0.2%

5.4%

4.6%

5.6%

3.1%

-0.3%

2.5%

-1.9%

4.5%

7.2%

4.1%

3.5%

3.2%

4.1%

3.6%

1.9%

-0.2%

3.4%

2.9%

4.1%

2.5%

3.7%

4.5%4.4%

4.8%

4.1%

1.1%1.8%

2.5%

3.5%3.1%

2.7%

1.9%

-0.3%

-3.5%

3.0%

1.8%2.5%

-4%

-2%

0%

2%

4%

6%

8%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

* Based on chained 2005 dollars.

** 2011 - 2012 are forecasts from the Blue Chip Economic Indicators, August 2011Recession Periods


Recession End v. 8 Quarters LaterSources: NAHB; Census, BEA, BLS

40.7%

10.7%

21.6%

10.0%

17.6% 18.7%

5.2%

7.5%8.0%

11.5%

5.0%

10.4%

6.7%

0.5%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Housing Starts Retail Sales IndustrialProduction

GDP Non-ResidentialConstruction

Nonfarm Payroll NonfarmEmployment

Average of 8 Prior Recoveries Current Recovery


US New Job Data

Change from Prior Month (S/A)

June 2010 - July 2011Source: Bureau Labor of Statistics

(250)

(200)

(150)

(100)

(50)

0

50

100

150

200

250

10-J

un

10-J

ul

10-A

ug

10-S

ep

10-O

ct

10-N

ov

10-D

ec

11-J

an

11-F

eb

11-M

ar

11-A

pr

11-M

ay

Jun-1

1

Jul-11

(000’s)


Hours Worked

Percent Change from Year Ago1976 – 2011*

Source: Bureau of Labor Statistics

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1976

Q1

1977

Q1

1978

Q1

1979

Q1

1980

Q1

1981

Q1

1982

Q1

1983

Q1

1984

Q1

1985

Q1

1986

Q1

1987

Q1

1988

Q1

1989

Q1

1990

Q1

1991Q

1

1992Q

1

1993Q

1

1994Q

1

1995Q

1

1996Q

1

1997Q

1

1998Q

1

1999Q

1

2000Q

1

2001Q

1

2002Q

1

2003Q

1

2004Q

1

2005Q

1

2006Q

1

2007Q

1

2008Q

1

2009Q

1

2010Q

1

2011Q

1

Recession Periods

*Data through second quarter 2011


Real Disposable Personal Income

Percent Change Year Ago

1971 – 2011* Source: Bureau of Economic Analysis

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1971 Q

1

1972 Q

3

1974 Q

1

1975 Q

3

1977 Q

1

1978 Q

3

1980 Q

1

1981 Q

3

1983 Q

1

1984 Q

3

1986 Q

1

1987 Q

3

1989 Q

1

1990 Q

3

1992 Q

1

1993 Q

3

1995 Q

1

1996 Q

3

1998 Q

1

1999 3

2001 Q

1

2002 Q

3

2004 Q

1

2005 Q

3

2007 Q

1

2008 Q

3

2010 Q

1

* Data through second quarter 2011

Recession Periods


Mortgage Equity Withdrawal

as a share of Disposable Income

U.S.: 1971 – 2011* Source: Bureau of Economic Analysis

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1971 Q

1

1972 Q

3

1974 Q

1

1975 Q

3

1977 Q

1

1978 Q

3

1980 Q

1

1981 Q

3

1983 Q

1

1984 Q

3

1986 Q

1

1987 Q

3

1989 Q

1

1990 Q

3

1992 Q

1

1993 Q

3

1995 Q

1

1996 Q

3

1998 Q

1

1999 3

2001 Q

1

2002 Q

3

2004 Q

1

2005 Q

3

2007 Q

1

2008 Q

3

2010Q

1

* Data through first quarter 2011

Recession Periods


Consumer Confidence

1978 – 2011* Source: The Dismal Scientist

20

30

40

50

60

70

80

90

100

110

120

130

140

150

Jan-

78

Jan-

79

Jan-

80

Jan-

81

Jan-

82

Jan-

83

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

*Data through July 2011

Recession Periods

1985 Benchmark = 100


U.S. Unemployment Rate

1980 – 2011* Source: Bureau of Labor Statistics

0%

2%

4%

6%

8%

10%

12%

Jan-

80

Jan-

81

Jan-

82

Jan-

83

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

*Data through July 2011

Recession Periods


Ratio of Unemployed People to Job Openings

2001-2011*Source: BLS

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Recession Periods

*Data through May 2011


Layoffs versus Hiring Rates

2001-2011Source: BLS, Seasonally Adjusted, 3-month moving average

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

Jan-0

1

May-

01

Sep-0

1

Jan-0

2

May-

02

Sep-0

2

Jan-0

3

May-

03

Sep-0

3

Jan-0

4

May-

04

Sep-0

4

Jan-0

5

May-

05

Sep-0

5

Jan-0

6

May-

06

Sep-0

6

Jan-0

7

May-

07

Sep-0

7

Jan-0

8

May-

08

Sep-0

8

Jan-0

9

May-

09

Sep-0

9

Jan-1

0

May-

10

Sep-1

0

Jan-1

1

May-

11

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

Layoffs (left axis) Hires (right axis)

*Data through May 2011


Wealth

Effect


In the 90sHousing prices increased moderately,

but stock market boomed.

First half of 2000’sStock market was doing poorly,

but housing prices boomed.

NowHousing prices AND stock market

down from the peak.

What Will Happen to HH Net Worth?


Household Net Worth ($$$)

1970 – 2011*Source: Federal Reserve

0

10

20

30

40

50

60

70

1970Q

1

1971Q

3

1973Q

1

1974Q

3

1976Q

1

1977Q

3

1979Q

1

1980Q

3

1982Q

1

1983Q

3

1985Q

1

1986Q

3

1988Q

1

1989Q

3

1991Q

1

1992Q

3

1994Q

1

1995Q

3

1997Q

1

1998Q

3

2000Q

1

2001Q

3

2003

Q1

2004

Q3

2006

Q1

2007

Q3

2009

Q1

2010

Q3

•Data through first quarter 2011.

Recession Periods($ in trillions)


Corporate Profit

(Billions of Dollars, SA)

1975-2011*Source: BEA

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1975

Q1

1976

Q1

1977

Q1

1978

Q1

1979

Q1

1980

Q1

1981

Q1

1982

Q1

1983

Q1

1984

Q1

1985

Q1

1986

Q1

1987

Q1

1988

Q1

1989

Q1

1990

Q1

1991

Q1

1992

Q1

1993

Q1

1994

Q1

1995

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

*Data through first quarter 2011

Recession Periods


Capacity Utilization Rate

1970 – 2011* Source: The Conference Board

65

70

75

80

85

90

Jan-

70

Jan-

71

Jan-

72

Jan-

73

Jan-

74

Jan-

75

Jan-

76

Jan-

77

Jan-

78

Jan-

79

Jan-

80

Jan-

81

Jan-

82

Jan-

83

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

*Data through June 2011

Recession Periods

This is where

investment

occurs.


Business Spending on Plant

Percent Change from Prior Quarter


-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2005 Q

1

2005 Q

2

2005 Q

3

2005 Q

4

2006 Q

1

2006 Q

2

2006 Q

3

2006 Q

4

2007 Q

1

2007 Q

2

2007 Q

3

2007 Q

4

2008 Q

1

2008 Q

2

2008 Q

3

2008 Q

4

2009 Q

1

2009 Q

2

2009 Q

3

2009 Q

4

2010 Q

1

2010 Q

2

2010 Q

3

2010 Q

4

2011 Q

1

2011 Q

2

Recession Periods



Business Spending on Equipment

Percent Change from Prior Quarter


-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2005 Q

1

2005 Q

2

2005 Q

3

2005 Q

4

2006 Q

1

2006 Q

2

2006 Q

3

2006 Q

4

2007 Q

1

2007 Q

2

2007 Q

3

2007 Q

4

2008 Q

1

2008 Q

2

2008 Q

3

2008 Q

4

2009 Q

1

2009 Q

2

2009 Q

3

2009 Q

4

2010 Q

1

2010 Q

2

2010 Q

3

2010 Q

4

2011 Q

1

2011 Q

2

Recession Periods



U.S. Summary:

Recovering but not recovered.


ARIZONA


Arizona & US Move Together

(Nonfarm Employment Percent Change 1980 – June 2011)

-9%

-7%

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

Jan-

81

Jan-

82

Jan-

83

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

U.S. Arizona Recession Periods


• It took a number of unusual circumstances all

occurring simultaneously,

• Virtually all are temporary events or

conditions,

• This is still a basic ―cyclical‖ problem.

The WHY…


• Tourism and Retirement were significantly

impacted (two of our base sectors),

• ―Growth‖ also acts like a base sector in many

western states; this was similarly

impacted (both residential and

commercial) when population growth went

from 3.0% to virtually 0%. We needed

fewer doctors, car dealers, chiropractors,

etc.

• Eventually the recession spread across all

sectors.

The WHO…


• Home prices will stabilize across the US as will

wealth levels.

• Those that postponed retirement will indeed retire

and absorb AZ product.

• Those that postponed moving here will do so

as job creation continues and home prices

stabilize and grow.

• Now through about 2015 will still be slower than

normal; but 2015 through 2025 should be

strong.

The WHEN…


The problem with base

sectors is just cyclical;

the difference this time has

to do with our dependence

on growth and people’s

ability to move.


Arizona Economic

Drivers (Base Industries):(where to focus?)

• Manufacturing (focus)

• Tourism

• Advanced business services (focus)

• Federal government

• Retirement & second homes

• Others (look to where money is being imported).


• Goods or services are sold outside the

local economy;

• Money is imported into the region;

• These monies circulate;

• Leakage eventually occurs...

The Effect of Base Industries on

the Local Economy


All of these problems

are cyclical and

transitory.


The difference this

time is the population

slowdown.


SRP Residential Utility Hookup Percentage Growth

Greater Phoenix 2003 – 2011* Source: SRP

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan-

03

Apr

-03

Jul-0

3

Oct-0

3

Jan-

04

Apr

-04

Jul-0

4

Oct-0

4

Jan-

05

Apr

-05

Jul-0

5

Oct-0

5

Jan-

06

Apr

-06

Jul-0

6

Oct-0

6

Jan-

07

Apr

-07

Jul-0

7

Oct-0

7

Jan-

08

Apr

-08

Jul-0

8

Oct-0

8

Jan-

09

Apr

-09

Jul-0

9

Oct-0

9

Jan-

10

Apr

-10

Jul-1

0

Oct-1

0

Jan-

11

Apr

-11

*Data through June 2011.


APS Residential Utility Hookup Percentage Growth

Greater Phoenix 1955 – 2011* Source: APS

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

*Data through Quarter 2 2011.


Yet we are optimistic about the

long term and cautious about the

short term.

It’s all about the basics: jobs and

population growth.


2.1%

3.7%

4.2%

4.7%

3.9%

3.3%

3.0%

3.1%

4.3%

5.1%

4.2%4.4%

2.9%

2.5%

1.3%

2.4%

2.8%

3.5%

4.3%

4.6%

4.2%4.2%

3.8%

4.3% 4.3%

3.1%

3.2%3.3%

3.4%3.4%

2.7%2.5%

1.6%

1.0%0.9%

0.9%1.2%

0%

2%

4%

6%

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

Greater Phoenix Population

Annual Percent Change 1976–2012*Source: Arizona State University & Department of Commerce, Research Administration

2000-2010 estimates based on 2010 Census release.

* 2011 & 2012 forecast is from Elliott D. Pollack & Co. Recession Periods


Greater Phoenix Employment*

Annual Percent Change 1975–2012**Source: Department of Commerce, Research Administration

-3.7%

4.9%

8.7%

13.3%

10.4%

3.7%

3.0%

-0.1%

5.8%

11.2%

9.3%

4.8%3.5%

5.9%

2.5%

2.2%

-0.3%

1.1%

4.9%

6.6%7.2%

7.3%

5.4%5.4%

4.6%

3.5%

1.2%

-0.1%

1.5%

3.9%

6.2%5.4%

1.6%

-2.5%

-7.9%

-2.1%

1.0%

2.0%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

*Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990.

** 2011& 2012 forecast is from Elliott D. Pollack & Co.Recession Periods


Arizona was one of the only two

states to be in the top 5 growth

states in terms of population,

employment and personal income

every decade since WWII.

Pre 2007


Below average performance in

many economic categories, but

this is a temporary condition and

is already improving…

Post 2007


How Arizona Ranks Among the States

in Percentage Growth

Source: U.S. Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis

PERSONAL

DECADE POPULATION EMPLOYMENT INCOME

1950 - 1960 4TH 3RD 4TH

1960 - 1970 3RD 3RD 4TH

1970 - 1980 2ND 3RD 3RD

1980 - 1990 3RD 3RD 5TH

1990 - 2000 2ND 2ND 3RD

2000 – 2006 3RD 2ND 3RD

2007—2010 44TH 49TH 46TH


The recovery

has already started.


Signs of Recovery

• Jobs

• Retail Sales

• Jobs rebound in other cities

• Fewer excess homes

• Fewer excess lots

• Population growth


Greater Phoenix -

Jobs Finally in the Black

Over last 12 months: 17,900

12 months before that: (29,100)

12 months before that: (161,400)

* As of June 2011


Employment Levels:

Greater Phoenix back to Peak in 2015?Source: ADOC

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2,000.0

2,200.0

2,400.0

Jan-

95

Jul-9

5

Jan-

96

Jul-9

6

Jan-

97

Jul-9

7

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Recession Periods

Peak


Phoenix-Mesa Employment Growth(Ranking among all metro areas greater than 1,000,000; 2011 June/June)

Source: Arizona State University, U.S. Bureau of Labor Statistics

YEAR RANK # of MSAs

1991 4 20

1992 5 20

1993 2 20

1994 1 20

1995 1 21

1996 1 23

1997 2 23

1998 1 24

1999 3 26

2000 8 26

2001 6 28

2002 5 28

2003 3 29

2004 4 29

2005 1 30

2006 1 31

2007 10 32

2008 29 32

2009 31 32

2010 31 32

2011 10 32


Maricopa County Retail Sales*

Percent Change Year Ago

1990 to 2011**Source: Arizona Department of Revenue

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

*3-month moving average

**Data through May 2011.

Recession Periods


Single Family Housing

―No significant recovery

without a recovery in

housing‖


For Housing -

This is NOT a multi decade

recovery…

Think 2015 – 2016 for full

recovery, but growth

before then.


Single Family Permits (Forecast)

Greater Phoenix 1975–2015*Source: RL BROWN

8.711.1

22.3

28.9

18.8

11.5

10.611.6

19.4 18.1

22.6

23.2

17.9

15.112.0

10.613.7

18.4

22.7

27.428.5

29.6

31.736.0

35.334.7

36.2

38.9

47.7

60.9

63.6

42.4

31.2

12.6

8.06.8

5.07.0

8.0

15.0

25.0

0

10

20

30

40

50

60

70

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

# Permits

(000)

* 2011 - 2015 forecast is from Elliott D. Pollack & Co.


Across the US, little new

building has been

occurring.

This helps reduce the

oversupply.


Excess supply

in Greater

Phoenix is

about

55-60k units as

of today, down

from about 80k

units.

SUPPLY

demand


Think of what the housing

market is going through as the

same as any manufacturer that

finds themselves with

excess inventory.

Prices are cut until the

excess is sold.

Then prices rise.


As excess is absorbed, prices will increase.

This is Economics 101


Historically, there is a one-to-one

relationship between population

growth and household growth

(meaning a 1% increase in

population growth leads to a 1%

increase in household growth).

Source: Linneman Letter


When unemployment exceeds 7%, a

1% increase in population leads to a

0.3% increase in households.

When unemployment falls below

7%, each 1% increase in population

leads to a 1.9% increase in

households.



Thus, in a weak economy,

population growth fails to

translate into household growth,

but when the economy begins to

strengthen, there is pent-up

demand for housing.



In Arizona, the same basic

trend has occurred.


Percent of 25-34 Year Olds Living With Parents vs.

Homeownership Rate, Under 35 Years Old

U.S.: 1983 – 2010 Source: US Census Bureau

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

% L

ivin

g w

/ P

are

nts

36%

37%

38%

39%

40%

41%

42%

43%

44%

Ho

me

ow

ne

rsh

ip R

ate

% Living w/ parents Homeownership Rate


Why are households not forming?

1. Lack of jobs,

2. Inability to sell home elsewhere and

move to Greater Phoenix,

3. Lack of jobs,

4. Lack of jobs,

5. Lack of jobs.


The Real Problem:

• Too many vacant homes

(but amount of excess is declining).

• Not enough new households

(but this will change as jobs increase).


Commercial

Markets…

http://rds.yahoo.com/_ylt=A0S020w0xjZKgSkAJmajzbkF/SIG=136a389m0/EXP=1245190068/**http%3A//i183.photobucket.com/albums/x182/fantasticfantasy/silly%2520signs/funny.jpg


APARTMENTS


Multi-Family Year-End Vacancy Rates

Maricopa County 1986–2012*Source: ASU Realty Studies

6.2%

4.1%3.3%

2.8%

3.9%

6.1%

4.4%

6.1%

6.9%

7.7%

10.1%10.6%

13.0%14.1%

13.4%

10.0%9.5%

8.0%

4.0%3.8%4.5%4.5%

4.8%

5.1%5.9%

6.8%

8.2%

9.4%9.6%

7.9%

5.0%

5.3%

8.5%

10.8%

14.2%

10.3%

9.5%9.5%

0%

3%

6%

9%

12%

15%

18%

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

*2011 -2012 are forecasts from the Greater Phoenix Blue Chip

Recession Periods


Absorption Chg in Inventory*

2006 (4,653) (3,828)

2007 (5,846) 4,979

2008 (4,466) 3,234

2009 (5,319) 6,831

2010 20,743 8,493

2011q2 (1,737) 463

Multi-Family

Construction ActivitySource: PMHS

*There were 19,949 condo conversion in the Greater Phoenix area from q1 2005 through q4 2009.


There are currently

191 multi-family units under

construction (Q2 11).


OFFICE


Office Space Year-End Vacancy Rates

Maricopa County 1986–2012*Source: CB Richard Ellis

26.7%

22.8%

24.0%

26.7%26.4%

25.4%

22.7%

18.8%

14.8%

11.7%

9.5% 9.2%

9.5%10.0%

9.9%

16.0%

18.8%

18.3%

16.4%

12.6%

11.1%

13.9%

19.1%

24.5%

26.2%25.6%

23.6%

0%

5%

10%

15%

20%

25%

30%

35%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

*2011 -2012 are forecasts from CB Richard Ellis

Recession Periods


Greater Phoenix Office Market

Construction ActivitySource: CB Richard Ellis

Year Absorption (sf) Chg in Inventory (sf)

2005 3,119,293 7,987

2006 3,245,888 **2,320,302

2007 1,500,704 4,905,374

2008 (603,112) 3,402,646

2009 (677,329) 1,798,415

2010 233,670 2,011,404

2011q2 960,477 ***2,408,630*Only includes multi-tenant space greater than 10,000 SF

** A number of buildings in downtown and mid-town are being converted to office condos.

***The 2.4 million square feet in 2011 are build-to-suit FBI building and Univ. of Phoenix building


There is currently

NO multi-tenant office space under

construction (q2 11).

*Greater than 10,000 sf


No significant office

building in Greater

Phoenix for next

3-5 years.


INDUSTRIAL


Greater Phoenix Industrial Market



2005 12,339,591 7,072,477

2006 6,032,175 7,829,959

2007 8,359,835 13,914,181

2008 629,838 13,467,215

2009 (4,649,352) 4,753,218

2010

2011q2

4,455,097

2,931,634

2,451,202

580,554


There are currently

3.9 million square feet of

industrial space

under construction (q2 11).


Industrial Space Vacancy Rates

Maricopa County 1980 – 2012*Source: CB Richard Ellis

8.4%

9.4%

11.1%

9.7%

12.8%

13.2%

16.4%15.2%

14.6%

12.8%

14.0%

14.8%

13.6%

10.8%

7.4%

6.6%

5.7%

7.0%7.1%

8.1%7.4%

9.8%10.3%

9.7%

8.5%

5.6%

6.7%

8.4%

12.5%

16.1%

14.7%

13.1%

11.5%

0%

5%

10%

15%

20%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

* 2011 - 2012 are forecasts from CB Richard Ellis

Recession Periods


RETAIL


Greater Phoenix Retail Market



2005 6,708,155 6,248,789

2006 5,244,597 4,582,618

2007 9,424,362 11,104,865

2008 3,395,986 6,229,205

2009 (1,117,100) 4,405,985

2010

2011q2

(75,352)

(648,697)

902,380

(181,048)

NOTE: 325,000 sf were deleted from inventory during

2011 due to market data updates and demolitions.


Retail Space Vacancy Rates

Maricopa County 1985–2012*Source: CB Richard Ellis**

6.6%

8.9%

10.0%

11.8%13.1%

14.2%

13.5%12.7%

11.1%

9.8% 8.7%

7.9%7.5%

6.3%5.5%

5.3%6.6%7.3%

7.4%

6.1%5.3%

5.1%

6.2%

7.5%

11.4%

12.2%12.6%

12.7%

0%

5%

10%

15%

20%

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

* 2011-2012 are forecasts from CB Richard Ellis

** Data prior to 1992 is from Grubb & Ellis

Recession Periods


Back to Normal Vacancy?

• Office = 2014 – 2015

• Industrial = 2013 – 2015

• Retail = 2014 – 2015


No new commercial

construction is needed

for years.


The long term economic

fundamentals have not really

changed.

The long term economic outlook

remains favorable.

AZ will be a national growth leader

by mid decade.


There is a BOOM for Arizona

out there somewhere.


But not in

2011, 2012 or 2013.


What does this all mean

for REVENUES?


Revenue Summary• Despite the fact that the “recovery” has reached about two years in duration, rates

of growth are still not that impressive.

• SALES TAX: For FY 2012 the pessimistic sales tax forecast has been revised

slightly upward. While this forecast is building off of a weak base (an argument for

higher rates of growth all else being equal) the additional uncertainty in the

economy dictates a more conservative approach to forecasting and budgeting

until a longer term trend develops.

• VLT: The FY 2012 pessimistic forecast remains at -1.0% to reflect weak

population growth and car sales as well as the impact from higher gasoline prices.

Since all of these things will be changing at different rates during the next year,

this forecast has an additional level of uncertainty.

• PROPERTY TAX: Overall, housing prices in the County region should stay

relatively flat for the next few months, as will commercial values.

• Net Assessed Values are not expected to start growing again until tax year 2013

(Fiscal year 2013-14). UNKNOWN: PROPOSITION 13


WHAT IS PROPOSITION 13?

• It is a property tax initiative planned for the

November 2012 ballot that rolls back

property values to 2003 values (until

property sells).

• Similar to Prop 13 in California.


Prop 13 Impact

• Impacts overall revenue streams the most when

property values start to go back up.

• UNKNOWN: how each of the taxing jurisdictions

(including the County) would receive portions of total

tax revenue.

• ALSO caps the total property tax to be only 0.5% of

the value of the residential property (1.0% of

commercial and other property). This alone would

impact assessed values by a drop of more than 50%.

Elliott D. Pollack & Company90

ELLIOTT D. POLLACK

& Company

7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251

480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / [email protected]

• Economic and Fiscal Impact Analysis/Modeling

• Real Estate Market and Feasibility Studies

• Litigation Support

• Revenue Forecasting

• Keynote Speaking

• Public Finance and Policy Development

• Land Use Economics

• Economic Development

http://rds.yahoo.com/_ylt=A2KJke7zhMhMl1AADuGJzbkF;_ylu=X3oDMTBqamdoM3Q5BHBvcwMxMgRzZWMDc3IEdnRpZAM-/SIG=1h7e18tpk/EXP=1288296051/**http%3a//images.search.yahoo.com/images/view%3fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dtwitter%2526ei%253DUTF-8%2526fr%253Dyfp-t-701%26w=1091%26h=1110%26imgurl=www.imlpblog.com%252Fstorage%252Fdesign-images%252Ftwitter_icon.jpg%253F__SQUARESPACE_CACHEVERSION%253D1277913535218%26rurl=http%253A%252F%252Fwww.imlpblog.com%252Fbios%252F%26size=285KB%26name=Twitter%26p=twitter%26oid=253c7b3e6c27443f4ded51c5969bb726%26fr2=%26no=12%26tt=103000000%26sigr=10ti6s5po%26sigi=130chh3nh%26sigb=12cqnqa9b

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