Real estate CEOs favor recession if it benefits employers

CEO and Douglas Emmett, president of Santa Monica, Calif.-based real estate firm with more than $3 billion in assets, said on its Aug. 2 earnings call that the recession would be “good” for the commercial real estate business. I said it is possible. With levels of unemployment that could put employers back in the driver’s seat and all employees back into the office. “You would think the unemployment rate would go up,” said executive Jordan Kaplan.

“Furthermore, we don’t like going into recession,” Kaplan added. he said: And if tenants are feeling the effects of the recession, I can’t imagine thinking it’s a good thing. ”

Kaplan said in response to a question from Citigroup analyst Michael Griffin: Just an idea of ​​what to expect from the impact on portfolios, given that a central recessionary environment is just around the corner. ”

Stuart McElhinney, Douglas Emmett’s vice president of investor relations, told The Intercept that Kaplan was merely entertaining Griffin’s arguments, which is common on Wall Street, and that Kaplan actually said he was skeptical. The term refers to the inability of employers to enforce decisions that employees resist because of a tight labor market. Employers were very reluctant to make unpopular moves to get people to work. ”

This dynamic was also highlighted in the May earnings call of Equity Commonwealth, a commercial real estate company that rivals Douglas Emmett. Equity Commonwealth Chief Operating Officer told analysts: don’t come back to the office. …I think I will be struggling with this for a while. ”

Earnings calls are regular conference calls, usually held quarterly, between corporate executives and investors in publicly traded companies and Wall Street analysts. Given that management can face lawsuits from unhappy shareholders if they make misleading statements, discussions are often open and honest at first.

Douglas Emmett, Inc. owns both commercial and residential properties. The company’s commercial real estate portfolio consists of “71 Class A properties” of “approximately 18.2 million square feet,” according to its LinkedIn page.

The prevalence of remote work during the Covid-19 pandemic has had a negative impact on commercial real estate in general, including Douglas Emmett. Douglas Emmett’s stock price collapsed early in the pandemic and has not recovered. In February 2020, the market cap was around $8 billion, and now he’s below $4 billion.

At the beginning of the conference call, Kaplan said: Remember, we’re about 93 percent into this. Now, the company has “a healthy rise in usage above 80%,” he said.

A common concern about the unusual power employees currently wield is found throughout the business world.

In July, The Wall Street Journal ran an op-ed with the jubilant headline, “Young Employees Have a Rude Awakening: Recession Hands Bargaining Power to Bosses.” Its author, David E. Greenleaf, CEO of healthcare sector company Modivcare, began by saying: …The days of expecting employers to thank you for your application are quickly passing. ”

An unnamed Texas business executive expressed a similar view in a survey conducted by the Dallas branch of the Federal Reserve. “Inflationary wage pressures are making long-term employment difficult,” the executive reported. “I suspect the workforce will pull its head from behind when adjustments and recessions lead to job shortages and people start to feel the pain and fear of not being able to provide for their families and loved ones — with governments back in the fight.” I’m assuming it won’t happen and I’ll pay them to never do anything again.What a great lesson you taught the workforce, the politicians!”

All in all, the mood of today’s executive suite demonstrates the remarkable accuracy of the famous 1943 essay entitled “The Politics of Full Employment” by Polish economist Michal Karecki.

Observing the success of Keynesianism during World War II, most economists of the time believed that even in a capitalist system, government spending programs could ensure full employment. Kalecki wrote.

“Maintaining full employment would trigger social and political change that would give new impetus to opposition from business leaders.”

That is, rather than workers enduring economic cycles of booms and busts, governments engineered near-permanent “synthetic booms” rather than just culminating in Great Depression-like slump and full employment. can. Although now largely forgotten, Martin Luther King Jr. called on governments to exercise this power. His “I have a dream” speech was delivered in 1963 at a rally named “March on Washington for Jobs and Freedom.” A marching placard read, “Citizenship and full employment equal freedom.”

But Doesn’t Everyone Want Full Employment? No, Kalecki argued: maintenance Achieving full employment would trigger social and political change that would provide new impetus to opposition from business leaders.”

Yes, he said, “it is true that profits will be higher under a regime of full employment…and even higher wage rates as a result of workers’ greater bargaining power will produce more profits than higher prices.” It is unlikely that we will reduce it.”

However, “Under the permanent full employment system, ‘Sack’ [i.e., being fired] It no longer serves as a disciplinary measure. The social status of the boss is undermined, and the confidence and class consciousness of the working class increases. Strikes demanding higher wages and better working conditions will create political tensions. In other words, it’s exactly like the situation in the United States today, where unemployment is historically low.

“‘Factory discipline’ and ‘political stability’ are valued above profits for business leaders.”

Kalecki believed that business leaders prefer relative power to money. “‘Factory discipline’ and ‘political stability’ are valued above profit for business leaders,” he said. “Their class instinct tells them that unemployment is an integral part of the ‘normal’ capitalist system. ”

The owner of a cleaning company in Ohio lamented near the peak of the last economic cycle. … Sometimes I wish the unemployment rate was higher. ”

Thus, under long-term full employment, Kalecki argues that “strong alliances are likely to form between the interests of large firms and rentiers, prompting economists to declare the situation plainly unsound.” We will find several,” he said.

And just in time, former Treasury Secretary Lawrence Summers, one of America’s most prominent economists, said that to quell inflation, “you need to keep the unemployment rate at 7.5% for two years, or unemployment at 6% for five years.” or maintain a 10% unemployment rate for one year.” More recently, Summers said inflation would require the Federal Reserve to create “a certain amount of meaningful economic distress.”

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *