Jun 182012

The economic headlines are grim almost everywhere you look. An item on Page 1 of today’s Financial Times sums things up succinctly:

Growth in the US is slowing, much of Europe is in recession, China’s growth outlook has weakened, the reform processes in India have stalled and other large emerging economies have slowed dramatically.

The message from global stock and bond markets following elections in France and Greece over the weekend is that the crisis in Europe remains unresolved. At best, the can has been kicked down the road for a few more days or weeks. Meanwhile, as the FT reports, the global recovery has stalled, and confidence that policy-makers can prod economies back into growth mode has slipped away.

I agree with Martin Wolf of the Financial Times that the globe seems mired in a “contained depression.” The downturn has been contained by the extraordinary fiscal and monetary policies of rich countries — including quantitative easing (QE) in the U.S. and similar efforts by other rich countries. But it is a depression in the sense that despite record low interest rates and all sorts of monetary and fiscal stimulus, most rich countries are growing very slowly if at all, have rising budget deficits and debt, and remain saddled with elevated unemployment rates.

I’ve been thinking about this as I’ve been preparing for my appearance June 20 on KUOW‘s Weekday talk show. As usual, I’ve been saving newspaper clips. Here’s where  the cognitive dissonance comes in. A lot of the business news in the local paper the past few weeks, especially real estate and housing news, has been positive. Here’s a sampling:

¶ On June 16, The Seattle Times reported that Bellevue Square has filed paperwork for an expansion that would increasse retail space by roughly 10% as well as add 375 new parking stalls. The Times quoted outside consultants as speculating that the space might be designed for a big-name retailer — Saks Fifth Avenue, Bloomingdale’s, or for a Nordstrom rack. The paperwork filed with Bellevue indicates 150-200 will work in the new space, scheduled for completion in February 2014.

¶ On June 14, The Times reported that Miami-based homebuilder Lennar is prepared to buy a large portfolio of building lots in King County. The Times report quoted the top regional executive at Lennar as saying that King County (Seattle) is “our top priority” right now. Lennar, the nation’s No. 3 homebuilder, moved into Western Washington via acquisition last winter. Since then, it has bought or optioned more than 1,000 building lots in the four-county Seattle metro area.

¶ On June 9, the Times reported that Amazon.com had disclosed in planning documents more details on its planned three-building office complex at the north edge of downtown Seattle. As many as 12,000 will work in the three 38-story towers. I haven’t seen a price tag on the project, which will include 66,000 square feet of retail and restaurant space and parking for 3,000 vehicles. Paperwork filed with the city indicates Amazon.com will break ground on the first phase next year.

¶ On June 8, The Times reported that a Canadian outfit, Bosa Development, will go ahead with a 41-story condo tower just a block away from Amazon.com’s new office complex. The first phase of a two-tower development that would total 600-700 units will be finished by late 2014. Bosa’s will be the first new condo project downtown since the crash of housing prices. A skeptical analyst told The Times that Bosa’s move was extraordinaryily bold, given that downtown has been glutted with unsold condos. I liked the quote from Nat Bosa, a 67-year-old developer active in San Francisco, Vancouver, Calgary and San Diego: “You plan to buy your summer hat in winter.” That’s analogous to Warren Buffett’s famous maxim that he gets greedy when others are fearful and fearful when others are greedy.

¶ On June 6, The Times reported that two developers are teaming up to build the second phase of Stadium Place, a high-rise project in what is now the north parking lot of CenturyLink Field. The phase includes a 23-story hotel, 16,000 sq. ft. of retail space, a health club and space for parking 376 cars. A 170,000 sq. ft. office tower will be added later. The hotel would be the first for downtown Seattle since the Great Recession. One wrinkle: Development will be financed by foreigners under a program that grants permanent residency to those who put at least $500,000 into U.S. developments that create at least 10 jobs.

¶ Everyone who lives in or visits Seattle’s Green Lake neighborhood knows that a massive tower crane has gone up the past few days at the three-acre hole in the ground on an irregular block formerly occupied by the Vitamilk Dairy. The unsightly crater was dug nearly five years ago for a mixed-use development. The Times reported June 3 that the project was restarted after PCC  Natural Markets agreed to lease half of the planned retail space. The three building project, Green Lake Village, will include 297 apartments and underground parking for 430 cars. Developer Lorig Associates is partnered with Milwaukee-based Northwestern Mutual, which just happens to own Seattle-based Frank Russell Company, among other things the king of the world of pension-fund consulting. Yes, that would be the same company that in 2009 bought a downtown office tower built by Washington Mutual for $115 million, which it sold in April for $480 million.

¶ And let’s not forget that the the “Twin Toaster” office complex hard by Interstate 5 on the edge of downtown Seattle was purchased recently by New York-based Brookfield Office Properties. The Seattle Times reported that Brookfield paid $210 million for the two towers for its first office buildings in the Seattle area. Facebook is among the tenants of the buildings, which are 85% leased.

So what accounts for this “cognitive dissonance” — wave after wave of good real-estate related news in the Seattle area midst a sea of gloomy global headlines? Part of its may be simply a matter of timing. My take is that real estate tends to lag behind the real economy. Every banker is familiar with the old axiom that “bad loans are made in good times.” Some of that phenomenon may be at work.

But it is also true that the economy of Washington state — and especially of the Seattle metropolitan area — tends to be counter-cyclical because of the overwhelming influence of aerospace employment. Boeing and its suppliers have been hiring at the rate of more than 500 a month for two years. Aerospace employment in Washington since May 2010 has risen by 12,700, almost 16%. And these are some of the highest paying jobs in Washington’s economy, with weekly pay averaging just short of $100,000 (before benefits).

Boeing is scrambling to turn out new 787s, that are more fuel efficient (by a factor of roughly 20%) than the jets they will replace. Some experts are concerned that Boeing’s backlog (and that of its fellow duopolist Airbus) are full of holes. My take is that the backlog should hold up as long as the global economy does not entirely run off the rails.

And I tend to agree with my colleague in financial journalism, Jon Talton of the Seattle Times, that Washington and the Seattle area are blessed by superior performance by iconic companies, including Microsoft, Costco, Starbucks and Nordstrom, among many others.

So the Seattle area, and to a lesser extent Washington state, shares an attribute with the children of Garrison Keillor’s mythical Lake Wobegon — their economies are “mostly above average.” But keep yours fingers crossed.  Washington’s economy also did better than average in the early months of the Great Recession. Then, only a few days before the Lehman Brothers Holdings bankrupcty, the International Association of Machinists went on strike against Boeing. Not much long after, the bottom fell out. About the only sure bet these days is volatility.

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