America must be an integral part of the global marketplace if it is to remain a superpower. Thus far, as a nation, we have done a terrible job integrating into the global market. Many of America’s largest corporations have done a masterful job, but the majority of Americans have not benefited.

To believe that these large companies will rehire Americans in significant numbers as the economy rebounds is wishful thinking. It is in the world’s emerging economies that market growth is occurring. It is also where American companies continue to hire the greatest number of employees.

A study by HSBC bank found that of the world’s forty largest international corporations, fifty-five percent of their workforces are located in foreign countries and fifty-nine percent of their earnings come from abroad. It should not be surprising that this is where their investment in new plant and equipment will take place.

During the 1990s, the U.S. averaged 183,000 net new jobs per month. During the pre-recession years of 2000 – 2007, we dropped to 75,000 per month. In 2010, we had a net loss of 67,750 jobs per month. The nation needs 150,000 net new jobs per month to keep pace with labor force growth.

It is not just the recession that has caused this decline. In past decades, we were able to replace good, well-paid jobs lost in industries like consumer electronics, automotive, and textiles, with jobs in industries developed in the U.S., such as personal computers, cell phones, and Internet and software development. As these jobs were shipped offshore, no new industries emerged to replace them.

As new energy sources are being developed to replace carbon fuels, or developments are made in other areas, the jobs that go with production are often shipped offshore. The Chinese have said that if foreign companies want to produce electric cars in China, they must give all technology rights and 51 percent of equity in their subsidiary company to a Chinese partner. U.S. companies must agree to these outrageous conditions to gain access to the world’s largest auto market.

Moving more manufacturing, research and development, and service jobs offshore has kept wages down in the U.S. and has impacted employee healthcare and pensions. With growing numbers of employees and investment located offshore, the line between domestic and foreign companies is blurring.

Take American car companies: sixty-five percent of GM’s sales were generated abroad. Early in 2009, GM outraged the United Auto Workers when it said it would produce the Chevrolet Spark in China for export to the U.S. Automotive News reported GM plans to sell 17,335 China-made vehicles in the United States in 2011 and 51,546 by 2014. The percentage of GM cars manufactured in China, Mexico, and South Korea and sold in the U.S. will rise from fifteen percent to twenty-three percent over a five-year period.

It’s not just labor costs and market access. Federal and most state governments have created a hostile business environment, while other countries create business environments considerably friendlier. Over-zealous taxation and regulation have pushed many jobs offshore. In 2009, 25 states raised taxes and in recent months many more have increased taxes again. Combine federal and state corporate taxes, and we tax our companies more than any other country.

The United States is in a global economic war, and we’re losing. China has the will and strategy to win this economic war. China’s economy is not a complementary economy, growing with the U.S., but rather to a large extent at the expense of the U.S. For Americans, this means a far different future, one in which our standard of living will be diminished and our military dominance challenged. During the pre-recession period 2000 – 2008, average annual median household income decreased .52 percent while inflation increased 3.2 percent. A Newsweek Poll in 2010 found that 63 percent of Americans said they would not be able to maintain their current standard of living.

While China has a vision to achieve economic, political, and military power, U.S. political leadership has no such effective plan. Goldman Sachs estimates that by 2027, China will surpass the United States as the largest economy. The Economist stated that based on estimates of the Economist Intelligence Unit, China’s economy could surpass America’s by 2030 in terms of Gross Domestic Product (GDP) purchasing power parity. Whether you want to use 2027 or 2030 as the target date, the fact is, America is headed for a less prominent position in the world order.

With economic power comes military power. No nation has ever been able to sustain military power without economic power. The Chinese learned this as they observed the demise of the Soviet Union. The decline of our economic status, therefore, signals a major shift, not only in our standard of living, but also in our security. The forces causing this change are coming primarily from internal political mismanagement.

Look at the housing market. Due to our political and economic policies, the nation was awash in cheap money. Americans became real estate speculators. There was little fear of buying a house with no money down, one you could barely afford. The worst thing that could happen is that you would have to sell because you could not make the payments. The longer you could hold on, the more you would make, as prices skyrocketed upward. Wall Street and Main Street had cast aside all fear of risk taking. They were both gambling with other people’s money. At the same time, millions of Americans who were no longer able to improve their earning power refinanced their homes, pulling out billions of dollars of equity to protect a lifestyle they could no longer afford.

Throughout our history, we have been dependent on federal and state government to regulate us and to protect us from our own greed and ignorance, but this didn’t happen in this situation. Our political leaders were too busy looking for contributors to their next campaign, many of whom were on Wall Street. Nothing pleased Wall Street more than deregulation. Many great fortunes were being made on Wall Street, and their lobbyists made sure Congress got a taste.

Has the U.S. suffered from its own arrogance and fallen into a complacent sleep? Has the U.S. “had its day,” and if so, how far will it slide as others push to surpass it?

This article is excerpted from Selling Out a Superpower: Where the U.S. Economy Went Wrong and How We Can Turn It Around provided with permission of Prometheus Books (352 pages). Dr. Pollina is President and Founder of Pollina Corporate Real Estate, Inc. and has been a member of Lambda Alpha, Ely Chapter since 1978. Information and opinion expressed by the author is not necessarily that of Lambda Alpha International or its officers or directors but is solely that of the author.

Ronald R. Pollina, Ph.D.

Lou Slade KeyNotes Editor

How will government investment in infrastructure impact the economy? In this month’s column I’ve focused on the hypothesis that in the case of new transportation investments, it’s more than construction jobs, it’s also economic opportunities for real estate investment and development. Also, I think that improved access to markets generates more activity by shoppers and other consumers.

Washington D.C. is currently investing in significant infrastructure projects that include implementation of a new network of light rail streetcar service throughout the city. System planning is well advanced, and the city has installed streetcar rails in one street reconstruction project that will become the first corridor for implementation. The city has purchased the initial fleet of streetcars that are in storage waiting for deployment. The first section of service will start later this year.

This is the first delivery of new streetcars for the District of Columbia being “uncrated” in our Metro rail yard after being shipped from the Czech Republic where they were manufactured.

In the U.S., streetcars are operating or are in planning or implementation stages in 45 cities. In the past two decades, new streetcar systems were implemented in 14 cities. Those 14 “new” systems were analyzed in a research project described in a 2010 report sponsored by the Federal Transit Administration. That research looked at the “Relationships between Streetcars and the Built Environment” focusing on economic impacts. It includes details of system real estate economic impacts in five case study cities. The research confirms the common wisdom that surface rail transit is more attractive to real estate development than bus transit. The apparent relative permanence of steel tracks and station stops creates a stronger sense of location than buses and bus stops. I think it’s not just the enhanced access that streetcars bring; it’s also the novelty of this mode of transportation that is being brought back to U.S. cities 60 years after the last of the U.S. systems were eliminated.

Here in Washington, the benefits of the attractiveness of streetcars are clear even though much of the system is still in the planning stage. Much like with our Metrorail subway system, tenants are expected to be willing to pay a rent premium for walking distance proximity to streetcar stations. Real estate developers in this city are working with the government to influence system routes and station locations to gain an economic advantage for the developers sites. The city is focusing the first phases of implementation to corridors where the city wishes to encourage development and the real estate investment community is moving into those corridors looking for sites.

Does the enhanced access created by a new streetcar network increase total economic activity, or does it only impact the distribution of economic activity? I have seen how new access opens up new opportunities for economic interaction by individuals that stimulates greater spending by providing consumers with more diverse alternatives. Thus, I think enhanced access generates greater overall economic activity and not just a redistribution. Today, I may eat a take-out lunch at my desk 15 times a month because I’m bored with the offerings at restaurants that are walking distance from my office. However, when the streetcar service is operating, I’ll hop on the new streetcar a few times each month because it gets me directly to the waterfront where I can meet friends, try out those new restaurants and check out some of the new shops.

I think investment in transportation infrastructure has a good potential payback equation: Infrastructure Investment yields: jobs to build and operate the infrastructure + new real estate development channeled to dormant market areas + more opportunities that stimulate consumers. Too bad those new streetcars couldn’t have been built in the U.S. for an even greater return on investment.

The new members, shown in the photo above, are (from left to right) Peter Mitchell, Hugh Carter, Jim O’Dea, Chris Corps, Richard Wozny and John Tylee.

At its meeting on January 19, 2011, the Vancouver Chapter of Lambda Alpha International inducted six new members.

At the meeting, the chapter members heard a presentation by Andy Yan and Eileen Keenan of B.T. Works, an arm of Bing Thom Architects, on the impact of rising ocean levels on Vancouver. Estimates of the level of rising could be as much as 6 meters (18 feet), which would have an impact on much of the city’s natural capital and public infrastructure. It is estimated that the cost of protecting these assets would be $CAN255 million to $CAN310 million, not including the cost of land acquisition.

The presentation sparked a lively discussion, with some members expressing incredulity at the potential increased ocean levels. The discussion highlighted the need for rising ocean levels to be taken into account in planning for infrastructure (particularly rail and air transportation facilities) and land development.

Ken Cameron, Vancouver Chapter Scribe

David Kirk Boston Chapter President and John Palmieri Director of the Boston Redevelopment Authority.

The Boston Chapter sat down with John Palmieri Director of the Boston Redevelopment Authority to discuss the current real estate challenges of the community and strategies of the BRA to guide and support development.  In his opening remarks he congratulated the group on its professional diversity and the closing questions and answers and sidebars from the group representing development, design, appraisal, planning, legal, and related professions certainly validated the diversity.  Boston has some stalled major projects that will need some time and effort by all parties, and the city continues to enjoy an extraordinary and expanding pipeline.  The luncheon meeting was characterized by candor and cautious optimism.

David Kirk, Boston Chapter President

On January 19, 2011, the Ely Chapter of Lambda Alpha hosted a luncheon featuring speaker Mary Ludgin, PhD, Director of Global Investment Research, Heitman. Ms. Ludgin’s topic was “Looking Back, Looking Ahead: A 2011 National Overview,” In a lively presentation to a large and engaged audience, she spoke on the economy and implications on the real estate world. Stating that she would not be labeling the 2011 economy with any metaphors, Ms. Ludgin did begin by stating that the economy IS strengthening even though it may not be the recovery we’d all like it to be.

Ms. Ludgin’s presented fascinating facts about the local and national economy, revealing the real estate industry trends for the past decades as well as the coming forecasts for key market sectors and how they will impact Chicago and other major U.S. cities. Some of the highlights are included as follows:

The economy is improving but choppy – there will not be a consistent upward movement. Inflation will be a hot topic but the risk is more of a mid-term than near-term issue. Regional economics matter as the level of growth depends on the region. 2011 will see continued and accelerated improvement in US property markets. Construction will start again in markets where commercial property values have rebounded sharply, like Washington DC, but will stay dormant in most markets. Capital flows were concentrated in 2010. In 2011, the next tier of metropolitan areas will participate. Transaction volume will rise sharply and the geography of these transactions will expand—for example, in office 66% of all 2010 transactions were in the top 6 cities. Distressed properties will be coming to market in greater numbers. An intensifying economic recovery will lead to interest rate increases. There is a wall of capital looking to invest, which will cause mispricing, if it exists, to disappear by mid year 2011.

Other key findings and forecasts include:

Acquisition in focused markets. For capital investment, look at areas where job growth is expected to be highest, such as Texas and some Sunbelt cities, and evaluate where demand is sufficient to absorb excess space.

Interest Rates will rise with faster growth. One of our economy’s constraints is that we have been overleveraged at government and individual levels. While the volume of consumer debt has been falling, we as a nation are still at risk as interest rates rise.

After increasing sharply, Cap Rates have come back down. Considerable capital is chasing commercial real estate investment today. That has pushed down cap rates and pushed up prices/values in favored markets.

The Mixed Picture on Debt. It was more of a liquid market, with a higher transaction volume than was expected. For properties $5 million and above, the transaction volume doubled compared to 2009. This is expected to continue to grow in 2011.

Property Markets: Variety is the Key. On the income side, having a portfolio with an array of property types is the way to survive and succeed as they all recover in different ways. Properties with short lease term like apartments and hotels recover most quickly even though they show the vacancies first.

Sector Analysis Shows Ups and Downs

• The Office and industrial sectors have begun to recover.
• Apartments have led the recovery, benefitting from migration from home ownership and from highly supportive demographic conditions, with rapid growth in the age group most likely to rent apartments.
• Student housing and senior housing, are the only property types that saw their national NOI increase during the recession. The aging of America will require us to figure out the solution for senior housing in the coming decade.
• A true opportunity for the Midwest is that as a result of the recession, the US has repriced itself in land, labor, and building, and we are more globally competitive, with China, Mexico, and other countries.
• While retail overall is severely suffering, some retailers who have survived are growing and investing in more stores. Retail forecast is showing a rebound.
• Office had a rough downturn though it has been a demand-driven downturn vs. the supply-driven downturn of the 1990’s. It’s hard to own an office building with 2006 underwriting, and 2010 vacancy rates and rents. There has been suburban office improvement: vacancy rates are come down, downtown will follow soon; but that’s not the same as rental rates increasing. Medical office is the one place that has been stable and growing as it follows the strength of the health care industry.

For the full audio broadcast and Ms. Ludgin’s PowerPoint, please visit www.ely-chicago.org.

Terri T. Haymaker, Ely Chapter Scribe

LEF GRANT PROGRAM

Ron Buss, LEF Vice President

Dr. Ronald R. Pollina is President and founder of Chicago-based Pollina Corporate Real Estate, Inc. He had written a book entitled Selling Out a Superpower: How the U.S. Economy Went Wrong and How We Can Turn It Around, Click here to read more and see praises for the book.

Lambda Alpha International (LAI) has recently created a group on Linkedin.com. Linkedin is an online professional network of more than 60 million professionals in over 150 industries. Linkedin is a great place to exchange information, ideas and opportunities. Linkedin allows you to:

• Stay informed about your contacts and industry,
• Find the people & knowledge you need to achieve your goals, and
• Control your professional identity online.

Our LAI Linkedin group will provide a means to further promote communication and networking among LAI members. Please join us at LAI’s newest place to network: www.linkedin.com.

Forgot how to login? No problem.

Please visit the LAI Website at www.LAI.org. On the left hand side click on the Members Only Tab. Here you will need to use your email and the password is lai.

Scotland Land Economics Weekend

June 1-4, 2011
Scotland

Please visit www.scotlandthebrave2011.com for all the details.

Sacramento Land Economics Weekend

October 20-22, 2011
The Citizens Hotel, Sacramento, CA