According to Mattoon, the irony of the Monday after Standard & Poor’s downgraded the United States’ credit rating from AAA to AA+ is that while the Dow Jones Industrial Average nosedived by 635 points, investors were still putting their money into Treasury notes.  Treasuries, which theoretically should have been affected by the credit downgrade, remain attractive to savvy investors.  The most significant impact of the credit downgrade is its effect on municipal bond issuances and the cost of certain kinds of credit that historically have been backed by the United States’ AAA standing.

From the Federal Reserve’s perspective, Mattoon says the central bank is going to continue making it easy for people to borrow and lend money to create the favorable conditions that will turn the economy around.  At present, he says the issue isn’t so much one of supply but demand.  A lot of people would like to take advantage of the current low interest rates, but can’t because they are not considered creditworthy due to tighter lending standards.  The Fed’s policy of quantitative easing (QE) has had some success, primarily — and until recently – the stock market rally and low interest rates.

The expression of “stall speed” is used to describe the pace of economic recovery as compared with the five percent rate of growth the country needs.  Mattoon says that this is a difficult process that has not been helped by other one-time shocks to the economy.  A case in point is March’s Japanese earthquake and tsunami, which caused supply-chain disruptions.  Another was the unanticipated spike in oil prices that dampened consumer spending.

The slow pace of job creation – just 117,000 created in July after two months of little employment growth – is also negatively impacting the economy.  The way the public sees it, job creation is currently the # 1 economic factor – particularly to the approximately 50 percent of the unemployed who have been jobless for six months or longer.

One game changer lies in the fact that Americans are currently saving more money than they did in the past – as much as six or seven percent of income when compared with a few years ago.

In terms of commercial real estate, the 1^st half of the year saw tremendous amounts of capital raised for acquisitions, primarily for core $100 million transactions.  The market’s comeback depends on job growth.  According to Mattoon, if office employment ticks up, there will be greater demand for commercial real estate, especially in gateway cities like New York.  Retail will be the most difficult sector to recover, especially in strip malls, which were significantly overbuilt.  The demise of some big-box retailers – most notably Circuit City and Borders – is opening significant retail space that often anchored shopping centers.

To listen to Rick Mattoon’s full interview on whether the economy is on the brink or on the mend, click here.

In a recent interview for the Alter NOW Podcasts, Stallard and Pankau trace U2′s  culture of connection back to the time when Bono’s mother died suddenly when he was just 14.   Because his father was so grief-stricken, he was unable to console his son, leaving Bono to grieve alone – a very difficult process for an adolescent.  When his friend and fellow band member Larry Mullen, Jr.’s mother died, Bono consoled his friend and created a lifetime bond with him.

That culture of connection has stayed with Bono throughout his adult life.  When Edge’s went through a divorce, the band members rallied around their friend to help him through a difficult time.  Later, Adam Clayton started abusing drugs and alcohol.  Instead of abandoning him, U2 decided that no one gets left behind, and the band supported his rehabilitation process.  A death threat was made against Bono because he planned to sing “Pride (In The Name Of Love)” – a song about Martin Luther King – in Arizona.  During the song, Clayton stood in front of his Bono to shield his friend.  Clayton literally was willing to take a bullet for Bono.

U2 is an extremely close band, powerfully crystallized in the fact that they and their long-time manager split all profits five equal ways, which is unusual and makes all members feel equally valued.

Stallard also talked about the connection culture that permeated the unit at Memorial Sloan Kettering Cancer Center where his wife underwent treatment several years ago.  Later – and at the Stallard’s recommendation – a friend went to Sloan Kettering but was treated in a different unit where the atmosphere was completely different.  The result was a far less pleasant experience and proof that culture emanates from the ground level.

To listen to Michael Lee Stallard’s and Jason Pankau’s full interview on how U2 represents a culture of connection, click here.  To sign up for Michael Lee Stallard’s and Jason Pankau’s newsletter and receive a free digital download of their book, click here.

Are labor unions relevant in the 21st century?  Amy Dean, an author, activist and social entrepreneur whose roots are in the American labor movement and who served 10 years as the President and CEO of the South Bay AFL-CIO Labor Council in the Silicon Valley, says the answer is a resounding “yes”.  Dean is also co-author of the new book, “A New New Deal: How Regional Activism Will Reshape the American Labor Movement.”  During her tenure with the AFL-CIO, Dean represented 90 separate unions with more than 110,000 members.

Dean points out that before President Ronald Reagan famously busted the air traffic controllers’ union in 1981, there was strong bipartisan support for organized labor.  Even Republican President Dwight D. Eisenhower acknowledged the impact of unions and said the interests of employers and employees were about mutual prosperity.  According to Dean, things have changed because the post World War II economy consisted of industries that were dedicated to building the nation’s base to assure this prosperity.  Unfortunately, that consensus started to break down by the mid-1970s until today, we have no agreement about how our economy should grow, what our obligations are to one another, and how we can compete optimally in a global economy.

In a recent interview for the Alter NOW Podcasts, Dean says that the building trades and entertainment industry are good models to look at for the next generation of employee organization.  In this system, as people move from job to job, they have a base wage through union membership.  Built into that base wage are healthcare insurance and a pension, again enabled by membership in a labor union.

Also, Dean asserts that unions are not the reason for outsourcing and that corporations are motivated by other issues.  In today’s economy, capital wants to locate where land-use policy is predictable, thanks to proactive regional efforts.  Companies want to be in areas that have good K-12 schools, open spaces, a high quality of life, decent affordable housing, a functional mass transit system, proximity to a world-class airport and the kind of knowledge workers that companies need to succeed.  Unfortunately, Dean says, unless Americans are prepared to deal with the issue of tax reform, there will be little conversation in America about any social agenda.

In today’s economy, capital wants to locate where land-use policy is predictable, thanks to proactive regional efforts.  Companies want to be in areas that have good K-12 schools, open spaces, a high quality of life, decent affordable housing, a functional mass transit system, proximity to a world-class airport and the kind of knowledge workers that companies need to succeed.  Unfortunately, Dean says, unless Americans are prepared to deal with the issue of tax reform, there will be little conversation in America about any social agenda,  Yet, these are the things that capital needs to be successful.

Read James Surowiecki’s take on the current state of labor unions in The NewYorker.

To listen to Amy Dean’s full interview on why unions matter, click here.

In a recent interview for the Alter NOW Podcasts, Knakal noted that the bulls like to cite the best back-to-back GDP growth since 2003 – 5.9 percent in the 4^th quarter of 2009 and 3.2 percent in the 1^st quarter of 2010.  Bears, on the other hand, believe that weak consumer spending will cause the GDP to grow at an anemic two to three percent for the rest of the year.  Knakal views this is an interesting dynamic because of the growing number of economists who back the bears’ position – numbers that are well below the trend coming out of a recessionary period.

Knakal, a graduate of the Wharton School of Business, also writes StreetWise, a nationally syndicated real estate industry blog, is concerned that many loans made by community and regional banks are five-year loans, which will mature in 2011 and 2012.  These loans raise the loudest alarms, because many are still performing thanks to very advantageous interest rates – possibly in the form of interest-only loans or with interest reserves that are carrying the property.  When these loans – which now could have an interest rate as low as two percent – mature, it will be renewed at a 5 ½ or six percent interest rate that will require a de-leveraging process.  Some $10 billion banks are carrying half of all their commercial real estate exposure in Small Business Administration (SBA) loans.

Despite the bears’ lack of confidence in the commercial real estate markets, capital is available to credit-worthy users chasing high-credit projects.  The amount of available private equity is currently estimated at approximately $173 billion.  Public REITs raised more in common stock offerings in 2009 than they did in the previous nine years.  Non-public REITs are expected to raise $10 billion this year.  Sovereign wealth funds are said to have access to an astonishing $3.5 trillion.  What Knakal cautions us to recognize is that these often represent the same pools of equity and to draw the distinction between capital that has been promised and that which is actually available.

The financial reform legislation currently undergoing reconciliation by a Senate-House conference committee is not a reinstatement of the 1933 Glass-Steagall Act – which separated investment and commercial banking — because banks will still be allowed to deal with securities.  Under the new law, banks will have to register derivatives with some type of formal exchange and maintain records on who is borrowing money and under what terms.  This marks a significant change from before the Great Recession, when derivatives were traded with virtually no oversight.

Downs believes that former Federal Reserve Chairman Alan Greenspan contributed to the financial crisis in two ways.  In 2001, when Greenspan was informed that there was fraud in the subprime housing market and that he should do something about it, he refused to take action because he didn’t believe in regulation.  According to Downs, “that was a terrible mistake and meant that all the horrible loans made in the subprime market could continue unchecked.”  Greenspan’s second error was to maintain low interest rates for as long as he did at a time when an enormous amount of capital was coming into the United States economy from overseas.  Because investors were avoiding the stock market, they put their money into real estate.  That drove the price of properties sky high and destroyed the concept of intelligent underwriting and evaluating the risk before approving the loan.

Prior to founding AgilQuest, Vivadelli was instrumental in developing IBM’s workplace management system in the 1990s to support the company’s transformational workforce mobility program, creating their “office of the future”.  This new workplace strategy resulted in reconfiguring the technology giant’s real estate footprint by shedding millions of square feet that saved hundreds of millions of dollars annually. AgilQuest provides the services and systems necessary for companies and governments to achieve similar results.

According to Vivadelli, this perfect storm is impacting both the supply and demand sides of commercial real estate.

On the supply side, the United States has approximately 12.5 billion sq. ft. of commercial office space, which carry an estimated $1.2 to $1.4 billion in loans that will come due in the next two years. Many of these loans will not qualify under new reserve requirements.  While the average base vacancy rate is currently 17 percent nationally; that statistic does not include shadow space – square feet that are paid for but not occupied – which adds another 5 to 20% to the overall vacancy rate.  Additionally, with the upcoming implementation of FASB Rule 13, both owned and leased properties will have to be reported on corporations’ balance sheets.  Off-balance-sheet leasing will no longer be an option.

On the demand side, he sees a fundamental shift downward in real estate absorption.  The nation’s unemployment rate is approximately 10 percent, with an additional seven percent who have opted out of looking for a job. Some of these jobs will never return.  Add to that the number of workers who perform their jobs remotely and stay connected to the office via PDA, cell phone and laptop, and the average actual occupancy rate between 8 a.m. and 5 p.m. is between 30 and 50%.  That means over half of all office space across Corporate America is vacant on any given day.  Considering that an average of $60 is allocated per sq.ft., that adds up to $360 billion that companies are paying to landlords for office space that is empty and they don’t need.  This wastes 1.5 quads of energy and results in 40 million metric tons of unnecessary carbon released every year.  As companies recognize the scale of the problem, the real estate industry will see a profound shift in how we use space.

In a recent interview for the Alter NOW Podcasts, Robinson, who previously was President at Portman Holdings where he developed projects throughout the world, said that historically, downtowns are the heart and the brand of a city.  Downtowns should be healthy, vibrant, urban cores that are treasured and taken care of.  Under Robinson’s leadership, CAP has stressed block-by-block revitalization and community improvement districts throughout Atlanta.  In these, central neighborhoods with a commercial corridor tax themselves and use the money to fund revitalization projects within the district.  Many of these are based on the principles of New Urbanism, which stress density, walkability, sustainability and the presence of public spaces where people can gather – an unusual concept in traffic-choked Atlanta.

In terms of the highly successful 1996 Summer Olympics hosted by Atlanta, Robinson points to 60 acres that previously were an industrial wasteland and now is home to Centennial Olympic Park, a Coca Cola facility, the Georgia Aquarium and the future Center for Civil and Human Rights.  Robinson admits that Atlanta lost its momentum after the Olympics by taking a break during an up real estate market and missed some of the immediate dividends that could have been realized.

A few insights…

German open-ended real estate mutual funds are expected to invest 12 billion euros (approximately $18 billion) in Europe and the United States over the next few years.  These funds have already raised three billion euros in the first eight months of 2009, reinforcing a sense that – at least for Germany – the worst of the financial crisis is over and markets are stabilizing.  Germany is now one of the most aggressive investors in American real estate, behind only Australia.  These funds display a preference for high-quality, income-producing assets.

Levy noted that there has been dramatic tightening of credit and liquidity in Eastern Europe.  However, as he notes, the ability to adopt the euro – while an uneven and politically charged process – provides an exit from this environment – a key distinction with other emerging market crises.  Furthermore, within Eastern Europe, there are significant differences in outlook, with several regions and sectors poised for growth.  This situation, Levy argues, may present attractive entry points as broader credit and liquidity conditions lead to more favorable asset prices.

In the United Kingdom, an estimated $350 billion is needed to refinance commercial real estate loans in a market where many properties have gone into default and values have declined 44 percent since 2007.  The leasing pool in the City of London has been dramatically reduced as there is a consolidation in the banking and asset management industry.  There is a strong emerging view that the UK needs to diversify its economy away from financial services and back into manufacturing and agriculture to achieve a healthier balance.  Levy also provides some insight into the situation in the UK.

Eurasia Group is the world’s leading political risk and consulting firm that helps corporations make informed business decisions in countries around the world.

In a recent interview for the Alter NOW Podcasts, Mattoon warned that most people probably don’t feel like the nation is coming out of a recession because there are few signs of job creation or easier access to credit.  One of the major concerns economists have is that this will be a double-dip “W-shaped” recession because once the bump from the $787 billion stimulus ends, there will be scant pent-up consumer demand for products and services to take the place of government spending.

One positive sign is an uptick in hiring by temporary employment agencies, which usually is considered to be a good harbinger of what future demand will be.  Another interesting theory about this particular recession in terms of jobs is the idea that companies adjusted their employee levels much more aggressively at the beginning of this cycle.  As a result, they are operating at extremely lean levels and so may hire earlier rather than later.

One problem is that there is a skills mismatch in the economy.  Many people who have lost their jobs don’t possess the right skills to find employment in growth industries such as clean energy or healthcare.  The challenge is training these individuals to bring their skills up to par.

In a recent interview for the Alter NOW Podcasts, Hasnain said that the real problem shaking the economy is on the residential side.  At present, the $15 trillion American mortgage market is seeing 1.4 percent of loans in foreclosure, with another nine percent past due.  Hasnain, who had a front-row seat when the Resolution Trust Corporation spent $125 billion to relieve financial institutions of their distressed real estate in the 1990s, is providing a private sector solution to the housing crisis that relieves the taxpayers of that burden.

Hasnain has built one of the first institutional-scale single-family residential investment funds in the United States and created a price discovery mechanism that is an objective and sensible way to learn how much to pay for a house whose mortgage is in distress.  This way, a family in a home that has gone in default agrees to stay in the house, pay rent and maintain the property until they have the financial ability to re-purchase their home.  Lifeline Assets’ offer to purchase each house is contingent on the resident’s willingness to continue living there.