NAR forecasts continued declines in rent for commercial real estate

The National Association of Realtors released its latest projections for commercial real estate. In this report, the NAR forecasts continued declines in rents across all segments of commercial real estate.

Here is the NAR’s breakdown for 2010 rent changes (followed by last year’s change in rent):

Office Market: -7.2% (2009: -12.7%)
Industrial Market: -9.6% (2009: -10.9%)
Retail Market: -2.4% (2009: -4.0%)
Multifamily Market: -3.4% (2009: -3.6%)

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Atlanta considers tax increases to fill growing funding gap for pensions

Unfunded pensions are a growing problem around the country for local and state governments. The Atlanta-Journal Constitution reports that the city of Atlanta in Georgia has set up a Pension Reform Panel to figure out how to solve its own funding gap. This panel is considering increasing property and/or sales taxes as part of the solution.

Atlanta faces a very large problem:

“More than 20 percent of city spending is devoted to pensions. The city is spending nearly as much money on pensions as it does for its police department. At its current pace, the mayor told reporters Monday, it will be tougher for the city to provide services such as fixing sidewalks and adding more parks and greenspace…

…The amount of money Atlanta spends on pensions has more than doubled since 2001. That year, the city spent $55 million; it is expected to spend about $125 million on pensions in the 12-month period that ends June 30. By 2015, the annual cost to the city is estimated at $160 million.”

Like so many local and state governments, Atlanta increased pensions during times of relative prosperity with no real plan for funding in the future and optimistic assumptions about returns for investments.

“Atlanta’s three pension plans covering police, firefighters and general employees have long been underfunded. In 2001 and 2005, the City Council approved several changes to increase retirement benefits. Those changes, however, were made without determining a way to pay for them.

Meanwhile, the three pension funds have not earned as much as anticipated. As a result, the plans are about 53 percent funded…The city has an unfunded liability of about $1.5 billion…In 2001, the unfunded liability was $321 million.”


Federal Reserve Surprises By Raising the Discount Rate

(A version of this post also appears on ONE-TWENTY TWO)

The Federal Reserve essentially warned us in its most recent written testimony to the House of Representatives that part of its exit strategy from emergency monetary measures is to increase the spread between the funds rate and the discount rate. This evening, the Fed did just that. In a surprise announcement, the Fed increased the discount rate from 1/2 percent to 3/4 percent and accordingly widened the spread with the funds rate.

Once again, the Federal Reserve reassured us this action does not change monetary policy:

“The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC).”

This caveat probably means we should still not expect an increase in the funds rate until November/December at the earliest. However, I think the Fed’s surprise delivery of this message puts us all on notice and forces an attitude adjustment. The Fed is serious about normalizing monetary policy and moving away from emergency measures.

The Fed’s timing is particularly odd given options expire tomorrow. Typically, such timing is executed to squeeze shorts and force a market rally. There could be a lot of churn as market participants rush to adjust in the middle of dealing with expiring options. Already, the dollar has rallied sharply in the past several hours.


401K matching is back

CNNMoney.com:

Employees who took a hit on their savings last year might finally be in for some welcome news: Companies are stepping up efforts to help them save more for retirement.

Of companies that suspended or reduced 401(k) match programs, 80% planned to restore them this year, according to a survey conducted by Hewitt Associates, a global human resources consulting firm.

This could be a precursor to wage increases.


Dollar Thrifty expects auto rental industry to maintain pricing discipline

Don’t expect rental car rates to come back down anytime soon. After reporting its fourth consecutive quarter of year-over-year growth in revenue per day (double-digit growth in the last three quarters), Dollar Thrifty Auto Group (DTG) cited “industry pricing discipline” as part of its expectation for 2-4% year-over-year revenue growth for 2010. Pricing will remain firm even though DTG does not expect a significant recovery in the rental business this year. DTG is focused on profitability:

“We continue to focus on profitability of rental transactions. If it is consistent with our strategy at times, we will lower our transaction days and utilization to maintain proper balance in price and volume.”

(For more details, click here for a transcript of the earnings conference call).

Automotive rental companies have staged an amazing comeback from the March, 2009 lows. For example, DTG traded as low as 60 cents at that time. After reporting earnings Wednesday morning, DTG soared over 8% to $30.25 – a new two-year high.

Dollar Thrifty Automotive Group Soars to Two-Year Highs

Dollar Thrifty Automotive Group Soars to Two-Year Highs


Hewlett Packard reports higher server prices

So says Reuters: “HP’s server business benefited from higher average prices. Revenue from industry standard servers surged 27 percent.”

Note also the bottleneck in components for laser printers: “Sales of laser printers, however, were hurt by supply constraints.” This presumably means higher prices down the road.


Credit Suisse raises fertilizer price forecasts

Credit Suisse says demand for fertilizer is strong. As a result, it says, prices are going to go up.