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Experts Encourage Patience As Economy, Real Estate Slowly Improve

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Aired 10/20/09

Is the local economy starting to improve, or are more hard times expected in the near future? Why is housing stabilizing, while the commercial real estate market is getting worse? We speak to local experts on the economy and real estate about the latest trends they are seeing.

MAUREEN CAVANAUGH (Host): I'm Maureen Cavanaugh. You're listening to These Days on KPBS. Bailout money from the U.S. government seems to have reinvigorated Wall Street. The Dow Jones Industrial average has climbed nearly 3000 points since the beginning of this year, and many big investment firms have recently been criticized for giving out huge bonuses to employees. There are also some bits and pieces of hopeful economic news in other sectors but, on the whole, economists are not predicting a rebound for jobs or real estate like the one Wall Street is seeing anytime soon. This morning, we’ll attempt to get an update on how San Diego’s economy is doing. Is stimulus money going to boost local job growth? What about the outlook for holiday retail sales? And, of course, we’ll check the health of the local real estate market, both residential and commercial. We have a number of people here this hour to talk about the local economy. First, though, I’d like to welcome my guest Marney Cox, chief economist for the San Diego Association of Governments. Marney, welcome.

MARNEY COX (Chief Economist, San Diego Association of Governments): Good morning. Thank you.

CAVANAUGH: And we’d like to invite our listeners to join the conversation. If you have a question or a comment about job growth, real estate values, or questions about the future of our economy, give us a call. We will be taking your calls a little later in the hour. Our number is 1-888-895-5727, that’s 1-888-895-KPBS. Well, let me start by asking you sort of an overview question, if I may, Marney. What’s happening with the local economy right now? Are we starting to see things improve?

COX: You know, I don’t think the word ‘improve’ is the correct term I’d use here. We are beginning to see some stabilization bouncing along the bottom a little bit. We’re still losing jobs but we’re not losing them in nearly the rate we were losing at earlier during the recession. If you take a look at the recession overall from the beginning, December 2007 through the latest data, September 2009, we’re down about 78,000 jobs overall here in San Diego. Our unemployment rates jumped to about 10.2%, a little bit down over the last couple of months. Unfortunately, San Diego doesn’t have what they call a seasonally adjusted unemployment rate, so we’re going to get a lot of variation because of that. But it looks like we’re leveling out right around that 10, 10.2% unemployment rate, so we expect that to begin to drop a little bit because of the non-seasonally adjustment component of it as we get into the fourth quarter of the year.

CAVANAUGH: And the seasonal adjustment that I think I read about in this latest – the numbers about jobs, the – from last month, is the fact that there are some school related jobs that came on board and that may have accounted for the slight drop in the unemployment rate.

COX: That’s exactly right. In fact, the highest growth amongst all categories in employment was that government component which the school districts are counted within. And, unfort – that happens every September, right, and we lose them every June, and the seasonal adjustment would take out that variation. Unfortunately, we don’t have that available to us here in San Diego.

CAVANAUGH: Now, 39,000 jobs were lost in California last month and some people were saying that that was a good sign but I guess it’s just in comparison to what was happening earlier in the year.

COX: Yes, and California is a special case here because it’s actually worse than the nation. California’s about 10% of the nation, San Diego about 1% of the nation, so you can use those as rules of thumbs to determine whether you’re doing good or bad in a relative sense. At the national level, they lost about 260,000 or so odd jobs so with California being down 39,000 that’s greater…

CAVANAUGH: Right.

COX: …than their proportional share so things are still not stabilized within the state and it’s the – primarily the Los Angeles, the Inland Empire areas, that are the weakest within the state right now and dragging down the overall averages.

CAVANAUGH: Now, how’s the federal stimulus money that’s coming in, has it had any effect so far?

COX: Yes, it has. I think that the effect it has should be in terms of looking at maybe the jobs that haven’t been lost, right, that have been held onto rather than truly stimulating the economy and turning things around. Pretty weak economy out there…

CAVANAUGH: Can…

COX: …overall.

CAVANAUGH: Can you give us an example of perhaps some jobs that have not been lost because of this infusion of federal stimulus money?

COX: Well the first place to look at is, I think, in the construction sector because it’s the one that was hurt first and worst overall. Here in San Diego, we’re down about 30,000 or so construction jobs since the beginning of the recession but it has bottomed out. If you take a look from the beginning of 2009 through today, some minor losses but we’re beginning to see some bumping along growth from month to month with some losses thrown in there. And I think what’s going on there is a lot of the stimulus money that’s being spent on construction related activity, SANDAG, the agency that I come from, with CalTrans, constructs roads and we’re using a lot of that stimulus money for construction projects that otherwise wouldn’t be up and running today, putting those construction workers to work.

CAVANAUGH: And let’s talk about the retail sector of the economy, the sales sector of the economy. We saw this huge response to the Cash for Clunkers program, sponsored by the federal government. That really gave a boost to local auto dealerships but is there any residual effect now that that program is over?

COX: Yeah, unfortunately, it looks like the answer to that is no. A little perspective here. If you can take a look at monthly data and then put it in terms of annualized, before the recession started we were producing about 16 million vehicles on a annual basis nationwide. That dropped to about 10 million, so a substantial drop overall. When the Cash for Clunkers program occurred during August, we boosted back up from 10 to 14, so there was a 40% growth. Unfortunately, it was only for one month.

CAVANAUGH: I see.

COX: And September has come in weaker again. Retail sales are being impacted by a lot of things today. For example, people are feeling very vulnerable because of a loss of assets. Home equity accounts, stock markets, as well as unemployment taking potential income away from them if they’ve lost their job. So they’ve started saving again, and savings are beginning to go up into the 3, 5%, most people are expecting them to go as high to 7 to 10%. If that occurs, if they continue – if people continue to save, that means that we’re going to consume less. Retail sales will be hurt even worse, and that’s actually what people are expecting to occur. That has a lot of ripple impacts throughout the economy if that does happen. And, for example, just in the local government sector where I come from, retail sales tax is a primary source of revenue to local jurisdictions. Within the region here during 2008, we saw a 1.4% drop. Last year we saw a 9% drop. Expectations for the current year are about another 8% drop. That’s three years in a row of sales tax declines. Another good example of that, if you take a look at the cash receipts that the state government is receiving on a monthly basis, during March and April of 2009, they had 18% and 50% drops in cash receipts from retail sales during those two months, significant declines. And as we know that during April the actual tax rate went up a full percentage point, that the state receives 5%, instead today they receive 6% overall of sales tax, to date sales tax are only up 1%. So if you think about that, the sales tax rate went up 20%, the amount we’re collecting is only up 1%. We’re still not back…

CAVANAUGH: Right.

COX: …to where we were before so the state’s not getting the same revenue it would normally receive if the residents were out there spending the way they were spending before the recession started.

CAVANAUGH: We have to take a short break. When we return, we will continue to talk about the economy in San Diego, and we’ll start talking a little bit about the local real estate market, both residential and commercial. You’re listening to These Days on KPBS.

CAVANAUGH: Welcome back. I'm Maureen Cavanaugh, and you're listening to These Days on KPBS. We’re talking about how San Diego’s economy is doing and if we’ve seen any signs of recovery. We’ll be speaking primarily about real estate for the rest of the hour. I’d like to welcome back my guest Marney Cox, and welcome two new guests, Gary London, a real estate economist with the London Group Realty Advisors. Gary, good morning.

GARY LONDON (Economist, London Group Realty Advisors): Good morning, Maureen.

CAVANAUGH: And Karina Juarez, transactional attorney with Brown Law Group. Karina represents developers, landlords and tenants in the commercial real estate market. Welcome, Karina.

KARINA JUAREZ (Transactional Attorney, Brown Law Group): Good morning, Maureen.

CAVANAUGH: And I’m going to give you another phone – a number if you’d like to join our conversation. It’s 1-888-895-5727. Before we launch into real estate, I would like to round out our conversation about the local economy and you were just talking about retail sales. I’ve been hearing, Marney, some pundits talk about a jobless recovery. Is that what we’re seeing here? And is that what you expect to continue for the next little while?

COX: Yeah, I think that the – there’s enough evidence in front of us today to suggest that, you know, the jobless recovery is a good description of what we’re having here. In addition to a jobless recovery, there are some characteristics of the unemployment that are different from past recessions. For example, men have been hurt worse than women, and I think you can go in and take a look at the jobs lost in manufacturing or construction primarily dominated by the male end of the gender or have been hurt the worst. So that gives rise to it, but also a couple of other things that are kind of unique. That wealth impact that I talked about a little bit earlier, has begin (sic) to affect the kids who are in school today. A lot of parents can no longer continue to pay that amount of money for their college tuition and so some of them are beginning to have to drop out. There’s less money available to take loans out because credit is still tight. So it’s really beginning to have an impact on your labor force as each individual age group is impacted by the changes in the economy.

CAVANAUGH: Well, we hear about – you’re telling us about a chain reaction, a multi-generational chain reaction because of this recession. I want to go to Gary London and talk about how all that we’ve been talking about is impacting residential real estate. We know that that’s basically where this recession started, so what’s happening in San Diego now?

LONDON: Well, it’s quite relevant to talk about employment in the context of residential real estate. If we’re concerned about our job or if we don’t have a job or if we’re unemployed, it affects our buying and selling decisions, our ability to afford housing. Right now, I would characterize the residential market as in stalemate. Essentially, there – we haven’t seen as – I like to track sales activities. In September, we had about 3400 total housing sales. The market doesn’t really get healthy again, in my opinion, until we get into the 5000 – at least 4500 to 6000 range, which is more typical of San Diego. So as a result of that, we’re seeing more – a bigger percentage still of foreclosure activities or otherwise distressed sales. In fact, I would argue that still most of the sales that are occurring in San Diego are, for the most part, distressed, although I am seeing signs that there are people out there that are transacting on a more normalized basis but just a few of them at this point. And we’re certainly not seeing prices rise significantly although we are seeing a stabilization of pricing. And I think that what we can look forward to in the coming year is a gradual increase in pricing and that will be coupled with a gradual increase in sales activity which, ultimately, is a good thing. But we really don’t know where it’s going to take us or how long it’s going to take us to full recovery until we really have more clarity on the employment situation.

CAVANAUGH: You know, there was a report that came out today that estimated that real estate values were still going to fall nationwide 11% by the second quarter of next year. And I’m wondering, does that impact San Diego at all? I know that it’s primarily in Florida and Las Vegas and areas like that. Are we still trying to find the bottom of the market here?

LONDON: No, I think we’ve probably found the bottom at this point, and I think we have to be careful with national numbers because real estate is ultimately…

LONDON/CAVANAUGH: …local.

LONDON: Yes.

CAVANAUGH: I’ve heard that.

LONDON: Hopefully, from me. And I think it’s real important to disaggregate the numbers that we understand in San Diego from those elsewhere in the nation. In fact, and Marney alluded to California’s economy, our local real estate market has very little relationship with, for instance, what’s going on in the Inland Empire. It seems like California’s divided along the I-5 and the I-15 corridors. And so we really are different and the major difference is that we’re characterized by a much smaller standing inventory. And the prospect that we’ll get it up again in the short term is not good. It’s going to take a long time for housing to get built again when it’s ready to be built again, and that would suggest that the bid up in pricing is going to rise steeper than in most other markets in the nation.

COX: In fact, Gary brings up an excellent point. One of the things that has made San Diego relatively uncompetitive has been its high home prices over time. And here we have an opportunity in front of us where home prices, median has dropped from $500,000 to $300,000, clearly more competitive but still – still expensive but more competitive than where we were. How do we prevent, right, home prices from escalating back up to the $500,000 level? Now if you bought at $500,000, that’s exactly what you want to happen, right, you want your asset to be valued back at what it was when you purchased it. But if you’re out looking for a house, right, or you’re thinking about the next year to look for a house, that’s exactly what you don’t want to do. And, actually, I think San Diego’s region overall would do better if it was more competitive in the housing sector than it has been in the past.

CAVANAUGH: Gary, let me ask you about interest rates and lending because I know that that’s the key factor as to whether – when the real estate market is going to…

LONDON: Right.

CAVANAUGH: …bounce back.

LONDON: Yes, and I think that’s probably the other key factor in addition to the employment situation. Interest rates are low right now and they’re likely to remain low for at least the next year according to people that are, you know, selling loans or brokering loans. And I think I agree with them. The problem right now is there’s not a lot of muscle in the lending industry. They don’t want to put out loans. And we’re in a period – we’re trying to figure out who’s going to qualify for these loans in the coming years? I mean, clearly what happened in – that contributed, if not, in fact, just caused this economy debacle, is the fact that people were getting loans that really shouldn’t have gotten loans, and we’re not going to go back to that. The question is what are we going to go back to? If we go back to what we’ve mostly experienced in the latter part of the 20th century, which was for 10% down, to qualify you have to show that you actually make the – you actually earn the money that you say that you earn, if we go back to those atmospheric conditions, then we’re going to see a resustinance of the marketplace. But that’s the great unknown. If the finance sector comes back and interest rates stay relatively low, we might see that provoke or catalyze a quicker housing recovery.

CAVANAUGH: We do have to take a short break once again. When we return, we’ll continue our discussion about San Diego’s economy and a focus right now on commercial real estate when we return on These Days here on KPBS.

CAVANAUGH: I'm Maureen Cavanaugh, and you're listening to These Days on KPBS. Our discussion about San Diego’s economy continues. My guests are Marney Cox, chief economist for the San Diego Association of Governments, Gary London, a real estate economist with the London Group Realty Advisors, and Karina Juarez, an attorney with Brown Law Group. Karina represents developers, landlords and tenants in the commercial real estate market. And, Karina, that’s exactly what we’re going to be talking about right now. What’s happening on the commercial side of the real estate market in San Diego?

JUAREZ: Well, you’ll see that in downtown, there’s a tremendous change in the leverage and the relationships between landlords and tenants. There’s excess inventory at the moment. I should say we’re at a three-to-one ratio and even though space is being leased, it’s being leased at a lower – a slower rate than it was in the past and landlords are fighting harder to attract tenants and to retain tenants, which means that they’re willing to provide them with additional perks such as additional parking per employee, free rent, additional tenant improvement dollars, and tenants really do have the upper hand in the market at this time. For example, there’s a law firm, a large law firm in downtown, Procopio, that was in a 40-year lease in its building, which is now considered a class ‘C’ building and they renegotiated – they negotiated a lease across the street in a class ‘A’ building and obtained a lot of money in tenant improvement dollars, including a meditative garden, a lot more parking space, larger floor plates, and, you know, they got to name the building.

CAVANAUGH: Wow.

JUAREZ: So that’s the kind of leverage that a tenant like Procopio, who’s in a strong economic position, has in this market. So it’s a great market for a great tenant, and that’s what I’m finding with my business clients that are viable and economically sound, is that they are able to upgrade their existing digs.

CAVANAUGH: Now let me ask you, I was hearing that downtown office space was overbuilt even before we had our recession. What’s the actual impact of that? How have prices come down for people who want to rent space?

JUAREZ: Well, there’s an excess of class ‘A’ inventory I would say. The old…

CAVANAUGH: Now what does that mean, class ‘A’ inventory?

JUAREZ: It means there’s larger floor plates, which means that you can actually have a bigger floor plan and accommodate your business in one or two floor spaces, maybe four depending on your size…

CAVANAUGH: Umm-hmm.

JUAREZ: …as opposed to four or five different floors, which changes the structure of your business and causes you to have probably more tenant improvement dollars pumped into it, and more disruptions in going up and down from different floors. So I – You know, my impression is that the class ‘A’ space, the newer space that’s out there is now – it’s having to become more competitive. The older buildings are now having to offer rock bottom prices because they don’t have the same accommodations and extras that the class ‘A’ buildings have.

CAVANAUGH: And what about in other areas aside from downtown? What are we seeing in the commercial real estate market throughout the county?

JUAREZ: I’m seeing, you know, in areas like Kearny Mesa, Mission Valley, in the retail industry, that the rates are dropping precipitously and I have a client right now who’s trying to negotiate a buyout of a lease and, you know, he bought in at five dollars a square foot and now the going rate is two dollars a square foot in his area. So it’s very difficult to sublease in this current market, to negotiate buyouts because landlords are hesitant to take such a deep discount and tenants are simply unwilling to subsidize a new sublessee.

CAVANAUGH: Marney.

COX: Yeah, I wanted to say something specifically related to local government here. One of the things that we’ve heard from the carmakers is the number of dealerships that will actually survive this recession will be substantially less than they have been in the past. If you take a look at Toyota/Nissan as an example, we could lose – they’re – They have about one dealership for every five of the GM/Ford. So the downside here is huge. And a lot of jurisdictions have chose to hang on to those vacant properties, keep them in the form of auto dealerships, hoping that they’ll come back. And the reality is, I think, that they’re not coming back. It would serve them well to think about other uses for those car dealerships. But this also sets up a position where, again, sales tax revenue being an important contributor to local governments’ budgets. Those cities that retain those dealerships will do well. Those cities that lose those dealerships will be hurt in perpetuity. This, I think, is going to set up a huge amount of competition between local jurisdictions to hang onto not only to those dealerships but also other retail outlets that seem to be shrinking overall, again, going back to the consumer actually buying less of retail goods and forcing that shrinkage to occur in the economy.

CAVANAUGH: Gary.

LONDON: Let me try to put the two together because this is a really interesting point that both of you are making. The intersection between vacant car dealerships and companies, law firms like Procopio moving across the street into…

CAVANAUGH: Better digs.

LONDON: …better digs…

CAVANAUGH: Yeah.

LONDON: …is that the buzz in the industry is adaptive reuse and infill, and how do we change the dirt and the buildings from what they once were to what they have to be in the future? Because past is not prologue. We’re going to see a shrinkage of commercial spending, as Marney has suggested. And we certainly are seeing the economic equilibrium of commercial office buildings change. As a matter of fact, it’s interesting that you called the building that they moved from a class ‘C’ to a class ‘A’ because the building was – that they moved into was a class ‘C’ that turned into a class ‘A’ because…

JUAREZ: That’s right.

LONDON: …what did they do? They retrofitted it and they made it into a sustainable building. They gave it a LEED certification so that tenants – and they modernized it so they turned it into an ‘A’ building, which is a great use of federal government TARP money that would come into – that would come in. In other words, we have 12 million square feet of office space in downtown San Diego, 20% of which is vacant, most of which, whether you call it ‘A,’ ‘B,’ or ‘C,’ needs to be retrofitted to just appeal to what the new tenant – what tenants are going to expect in the future. And by the same token, we have lots of empty commercial office space throughout the region, empty retail space, empty storefront space, and empty auto dealerships, all of which need to accommodate whatever the new demand is going to be in the future, so this is sort of a milestone point in how the real estate industry, how investors and how the commercial sector is going to sort of respond to all of this.

CAVANAUGH: Karina, I’m wondering, is that what landlords are now talking about? How to make their spaces more attractive for the future reality of commercial real estate?

JUAREZ: Yeah, absolutely. They are having to spend a lot of money to upgrade their buildings, and they will gladly give new tenants money to adapt their space to fit their needs. And whereas before they might not be willing to consider a meditative garden, these days that is an important element of the culture that business is adapting or turning into. So it’s interesting that with this economic cycle, we’ve seen a change in attitudes from both landlords and tenants and – and I suspect that in terms of pumping money into the economy, this is having a real impact. And with the retail tenants losing sales, their percentage rent to their landlords is dropping so not only is it hitting the landlord’s pocket but, as Marney has pointed out, it’s impacting our tax collection at the county level. And I think that that also changes the leverage in the tenant and landlord relationship and it’s going to change the way that we do business and negotiate leases.

CAVANAUGH: We have to take a short break. When we return, we’ll try to do what Gary did, and that is bring it all home. We’re talking about the San Diego economy. And you’re listening to These Days on KPBS.

CAVANAUGH: Welcome back. I'm Maureen Cavanaugh, and you're listening to These Days on KPBS. And we’re continuing to talk about San Diego’s economy, San Diego real estate, both residential and commercial. My guests are Marney Cox, Gary London and Karina Juarez. And the first thing I want to do because I really do want to get this in, I think most people have gotten their property tax bills lately and I think they’ve seen that number there telling them that their real estate value has gone down. And I’ve – my colleagues have been talking about it, I wonder what you’ve been hearing from your clients, Gary?

LONDON: Well, I mean, it depends who you talk to.

CAVANAUGH: Umm-hmm.

LONDON: You know, if – For those who are property owners, the idea that they’ve gone down, we – in most cases, we haven’t even asked for it.

CAVANAUGH: Right, that’s my point.

LONDON: You know, there is a county…

CAVANAUGH: Yeah, yeah.

LONDON: …which is sort of a strange way to run a taxing system but that’s Marney’s department, not mine.

CAVANAUGH: Uh-huh.

LONDON: But obviously there is some relief there but I think that it’s not significant enough relief to really impact the market or decision making in the marketplace.

COX: It may not be enough to impact the market in terms of declines of property tax revenue, however, I can tell you that it is really having – wreaking havoc inside the local governments.

LONDON: Well, that’s my point. That’s exactly what…

JUAREZ: Umm-hmm.

LONDON: In other words, wreaking havoc, the question is why? Why are we doing that when we’re not even asking for it?

COX: Yeah, and actually I think some of the – you could almost make an argument here that some of the write-downs may be inappropriate. I want to go back to a point Gary made a little bit earlier about how much of our sales today are really taking place under stress or some type of foreclosure. That’s not really a good indicator of the market value, which is what property taxes are supposed to be based on.

LONDON: Yes.

COX: If you exclude those foreclosures and distressed sales, short sales from it, probably home prices have fallen at least half what the current 40% decline shows. That’s probably more in line – if you’re ever going to adjust your property values, it’s probably in line with that as opposed to what we’re seeing. The other thing that’s happened that affects property tax revenues is you remember Prop 13 says that 2% or the CPI, Consumer Price Index chain, whichever is less, we’re actually seeing at the national level—numbers are not in for the state or locals yet—but we’re actually seeing at the national level Consumer Price Index decline. This year for the first time since 1959, we’ll actually see a decline in the general level of prices in the U.S.

CAVANAUGH: I think it really has brought it home for people. The recession becomes real, though, when you see the value of your property officially lowered on your property tax bill. You know, people who haven’t perhaps lost their jobs, people who haven’t been trying to sell their property and they’ve been hearing about the declines in real estate but now it’s official.

COX: And back to one other question we’ve been – well, not the retail sales. One of the things that has been built into retail sales has been the expenditures of home equity over time. People have used their home equity as an ATM machine, not just to build up their house and, you know, build a fence or something like that but instead they’re actually using it to travel with or buy non-durable goods. And so that’s all being wrung out of the economy and, again, forcing those retail sales consumption down because the equity that we once felt comfortable spending is no longer there.

CAVANAUGH: You know, I want to, in our remaining minutes of discussion, talk about some of the positive signs because I think that’s a nice way to leave a discussion like this. And, Marney, you were saying something about San Diego being positioned well for the upside when we start to see the economy begin to, you know, rise instead of decline. How is San Diego positioned well for that?

COX: I might point out two things. First, in the short run, one of the things that’s happened is the Department of Defense has announced a substantial amount of construction activity that will occur over the next two to four years to the extent that somewhere between $4 and $6 billion will be spent retrofitting the bases here, hospitals, facilities to house additional military uniformed personnel as well as spouses. And they’re all in preparation for a major shift, I understand, in troops from the east coast to the west coast. Today, there’s about 55% of troop strength east coast, 45% west coast. That’ll shift so that 55% will be on the west coast, 45% on the east coast. So two things, one, first the construction activity should begin, a good shot in the arm for construction here in San Diego, not only helping it stabilize but we’ll probably obviously see some growth over the next four years because $6 billion is a lot of money in the construction industry. But in the longer term, we’re likely to see an economic impact, that carries us forward, out of the uniformed military personnel that will be stationed here.

CAVANAUGH: And, Gary.

LONDON: Well, I’m surprised you didn’t say diversification as part of the answer because one of the strengths of our region which, I think, carries us forward positively for the future is that no one sector entirely dominates our economy. So whether you’re working in a sector that primarily is housed in an office building or you are in a – you’re in a car or you’re in a retail place or an industrial place, there’s a lot of different, you know, what we call economic clusters that exist in San Diego. And, essentially, as we come out of recession, we’re going to see some punch put back into some of these clusters, perhaps not all of them, and perhaps not equally, but San Diego’s very well positioned to benefit whether the comeback is on the technology side, the biotechnology side, the construction side the finance side, the tourism side, and certainly the fact that we have government as a base—and this is the point Marney was making—how do you like it when I interpret your points here? Is that, you know, it’s good to have government because the paychecks always come and they get circulated locally, and that’s what gives us – that’s what roots us as an economy.

CAVANAUGH: And, Karina, I just wanted to finish it off in some aspects of our economy, though, like commercial real estate, are going to be experiencing fundamental change.

JUAREZ: Yeah, exactly, and I think the positive message to take away from the economic downturn is that now there’s a balance of power in the landlord-tenant relationship and the way that that’s going to change and actually – is that it’s going to encourage economic activity. The tenants will be saving on overhead costs, they’ll have better accommodations, and they will pump that money back, hopefully, into employment and retention of jobs and further capital expenditures for their businesses.

CAVANAUGH: Well, we could talk about this much longer but unfortunately we’re out of time. I want to thank my guests Marney Cox, Gary London and Karina Juarez for speaking with us this morning. You have been listening to These Days here on KPBS, and stay with us for hour two coming up in just a few minutes.