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Marcus & Millichap CEO Says Trade War Could be 'Serious Economic Disaster'

But Hessam Nadji is Optimistic World Leaders Can Avoid Escalation
September 28, 2018
Hessam Nadji, chief executive of brokerage Marcus & Millichap, said a trade war could halt the near-record growth of the commercial real estate industry.

In the midst of the second-longest economic expansion the U.S. has ever experienced, Marcus & Millichap Chief Executive Hessam Nadji said he's optimistic about further growth in the commercial real estate sector and in the economy overall - but it could all be undone by a trade war.

The economy has grown by almost every measure since its last peak, before the recession in 2007, Nadji told a crowd of commercial real estate professionals at the Denver Metro Commercial Association of Realtors’ annual Colorado Commercial Real Estate Symposium.

Part of the reason the expansion has lasted as long as it has - nine years to be exact - is because it has been relatively slow and steady, Nadji said.

Gross domestic product, household formation and job creation are up, while unemployment is down, and while most companies are feeling a bit more cautious than they did earlier in the economic cycle, he said there is still reason for confidence in the economy but for one potential threat.

"If we go from a rhetoric and trade spat to a full-on trade war with our partners, it could be a very serious economic disaster," Nadji said, referencing ongoing trade disputes between President Donald Trump’s administration and various trade partners, including China, with which the U.S. has traded the addition of billions in new tariffs in the past six months.

"Global trade has exploded and is a major driver of economic growth everywhere," he said. "In the U.S., 14 percent of our economic output is dependent on exports. Fourteen percent. That’s much bigger than home building. Home building is only 4 percent. We have something like 8 or 9 percent of our job base, 12 million jobs directly related to exports. So it’s a significant part of our economy and global economy."

The interconnectedness of trade is what makes the issue so important to economic stability, he said, and is what gives him hope that officials in various countries working on the trade issue will stop short of a full-fledged trade war.

"Japan and China still hold over $2 trillion of our debt. So that interdependency gives me confidence that nobody’s crazy enough to allow a full-on trade war to rage," he said. "Because that wouldn’t be good for anybody. There are no winners in a trade war."

On the other hand, another Trump policy benefitted the commercial real estate industry, he said. The Tax Cuts and Jobs Act of 2017 boosted real estate, though it caused a wave of uncertainty when it was first introduced.

"The final law turned out to be incredibly stimulating for the economy because the corporate tax rate reduction is now showing that it’s beginning to trickle through," Nadji said.

Overall, Nadji expects that investment in real estate, on the part of high-net worth individuals, private equity, pension funds and others, will increase.

Investment in real estate is already up 16 percent, when adjusted for inflation, from the peak in 2007, and more capital is flowing to the top tier of the U.S. economy, he said.

"Commercial real estate, I believe, is going to be the beneficiary of capital," he said.

Molly Armbrister, Denver Market Reporter  CoStar Group   
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