Putting real estate crisis in perspective

Even though Arizona’s real estate recession feels painful today, it’s no worse than previous downturns. And the state will probably pull out of this one in the same ways it has done in the past, said Bill Gosnell, a Phoenix-based real estate investor, at a presentation Thursday night at the East Valley Partnership’s annual Economic Forum.

Gosnell said the greater affordability of housing and a general reduction in living expenses caused by the slowing economy should eventually attract new businesses and people to the Valley, causing its growth-based economy to perk up again. But a national economic recovery is a prerequisite to a local turnaround, he said.

Gosnell quoted from a famous article in Barron’s financial magazine during a previous downturn in the early 1990s that predicted a dire future for the region. But that was followed by unprecedented booms during the 1990s and the middle of this decade. “We are a boom-and-bust city,” Gosnell said in an interview before his presentation. “We always get bigger, then contract, then get bigger again.”

Gosnell thinks the election of Barack Obama to the presidency will cause a freeze-up in economic activity until businesses get a feel for the new chief executive’s economic policies. He said that occurs whenever the administration changes in Washington, and it could last for most of next year.

Business executives “won’t make decisions until they see what will happen,” he said. But market forces will eventually cause the real estate markets to strengthen both nationally and locally, and the Valley could be one of the top beneficiaries, he said.

“We have business cycles on steroids,” he said. “We go to extremes in both directions.”

That means once the Arizona economy does turn around, it will happen fast, he predicted.

“We are one of the top five overbuilt residential markets, which means we are becoming incredibly affordable again,” he said. “We are also substantially overbuilt in office and industrial, and we are reaching similar vacancy rates as in the late 1980s.

“What brought us back in the 1990s was the cost of living came down because of housing, and the cost of doing business came down because of the vacancies.”

The same trends could help the Valley recover from its current malaise, he said. “I don’t want to sound overly optimistic. … It’s unfortunate for people who lost their houses. But the bottom line is that it is creating opportunities for others to buy these houses.”

And Gosnell has joined a private equity group called Quantum Capital, which is buying distressed real estate.