Little Commercial Groundbreaking Happening

 | Apr 04, 2013 | 7:05 AM EDT  | Comments
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If Ben Bernanke were listening to last night's "Mad Money" -- oh, come on, you never know -- he would not have liked what he heard.

That's because Dave Henry, the soft-spoken, terrific chief executive officer of Kimco Realty (KIM), one of the largest retail-space real estate investment trusts, the owner of the largest portfolio of neighborhood and community shopping centers, said he expects another terrific year. Why? Because rents are going higher courtesy of no new building of any consequence going on in this country.

Now Bernanke wouldn't be totally broken hearted, there is demand coming now for new stores, including from the dollar stores, where the country is opening four a day.

But the secrets to getting this economy moving beyond the residential space lies in commercial real estate, particularly office and retail construction. Neither seems to be taking off and that's a big reason why we are not getting the job surge you would expect.

We book a lot of REIT operators on "Mad Money," in part because they have beaten the averages now in every 10-, 20-, 30- and 40-year stretch, but also because these companies truly do have the pulse of the American economy. We have had on office, warehouse, hotel, shopping center and shopping mall REITs in the last year and do you know that every one of these is the same? Not one of these has any new building to speak of going on. That's a reason why they can keep raising rates and keep raising payouts. There is little to no competition from new space coming. In short, we did some serious overbuilding in this country and we are still, six years later, in the hangover phase. It doesn't seem to matter how low interest rates are. We still have too much inventory at the moment and there is still too much worry and too little confidence to start breaking ground on mega projects that might never come.

Plus, as Henry points out, the areas where there is incredibly strong demand, notably California, are very difficult to build in with not enough large tracts left to easily construct a new center. The environmental hold-ups also make it so any project takes much longer than it used to, so people don't want to commit for a project that might take five years from drawing board to completion.

Amazingly, the problem is not from the customer side. We haven't had any substantial failures or closings of major chains in several years now. There's been some cutbacks, but there has been more than enough new store demand to make up for that.

I know people keep worrying about when the Fed will stop being dovish. They look at strong home sales and strong auto sales. But there have only been a handful of auto sales jobs that have been created by the boom and we are still struggling to build slightly more than half the number of homes we built six years ago.

That means the employment picture has not yet started to brighten from these key areas.

It often seems that no one takes Bernanke at his word when he is targeting employment. It's as if people think that 6.5% unemployment number is some Disney-Land fantasy and as soon as we get a couple of good employment numbers under our belt then rates will shoot up.

From what I am hearing form David Henry and many others in the real estate investment trust arena, Bernanke's not yet started to get things rolling and we need the overhang gone and the confidence increased before anything happens.

Unless we are going to become the dollar-tree nation, don't hold your breath.

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