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RISING FUEL PRICES AND THE IMPACT ON THE ECONOMY IN GENERAL AND REAL ESTATE IN PARTICULAR

01/19/2012

   I last wrote about the devastating impact of sky-high oil prices in 2008.  If you recall, that was the first time that gas hit $4.00 a gallon.  Those gas prices stemmed largely from the fact that oil hit an all-time high of over $100 per barrel.  I wrote at that time that these high fuel prices were unsustainable.  Indeed, I stated that it would assist in pushing the United States into a recession.  Unfortunately, all of that came true.  The great recession of the last three years began sometime in 2008 and accelerated with the destruction of Lehman Brothers in October, 2008.

   News reports this week have focused on the fact that gasoline prices are at the highest level ever for the month of January of any year.  Usually, gasoline prices dip in the winter months because people are driving less.  That has not been the case this year.  Indeed, news reports predict that gasoline will hit an all-time high before Memorial Day weekend.

   It seems like we are facing the same scenario that we faced in 2008.  Just as we are coming out of the great recession of the past 3½ years, I am concerned that sky-high oil prices will combine with European debt problems to derail whatever minimal economic recovery the United States is currently experiencing.

   It is unrealistic to assume that a return to oil at a price point of $100-$120 per barrel will not cripple many American industries.  It certainly will affect the typical consumer.

   I am not even addressing the extremely high rate of unemployment that persists throughout the United States.  There are reportedly almost fifteen million Americans still out of work.  So it is hard to understand some economists’ statements that we are (almost) out of the recession.

   Having laid out the risk of high fuel oil and gasoline prices, what is a real estate investor (or any businessman) to do, in order to protect oneself against the coming energy crisis in pricing?  A wise businessman should take the following actions:
•    If you own commercial real estate, switch your boiler to natural gas.  Gas prices have been plummeting over the past three years.  They will continue to drop or, at worst, stay level for the foreseeable future.  If you have an oil burner, switch it to a dual burner and start using gas to fuel your equipment.
•    If you use automobiles for your business, purchase fuel efficient, alternative- powered vehicles.  Mayor Michael Bloomberg’s move to electric and other alternative powered vehicles for the entire bus fleet in New York City will provide a major savings in gasoline bills over the coming years.
•    Promote car pooling amongst your staff.  If you have 20 or 30 employees, many of them are probably coming from the same areas and towns.  While this takes some time on the part of the ride organizer, it will lower the cost that your employees incur in getting to and from work.
•    When purchasing equipment, make sure it has the highest energy-efficient ratio that you can achieve.  This applies to appliances of all types, including generators, refrigerators, HVAC equipment, boiler equipment, etc.
•    Provide MetroCards or similar transit cards to your employees as an added benefit from your firm.  Encouraging greater transit ridership, obviously, reduces the carbon footprint.
SOLAR ENERGY 
 
   In the future we will devote an entire article to the implementation of solar energy throughout New Jersey and the tri-state area.  This area has been a very hot button item throughout New Jersey for the past several years.  The benefits of creating solar energy panels on top of or adjacent to your commercial property include:
•    Qualifying for federal and state incentives that cover much of the installation cost of the solar panel system.
•    At least in New Jersey, you have a short payback period of your investment of anywhere from 3-5 years (meaning the entire cost of your installation will be repaid to you in this period of time).
•    Producing some of your own energy with your own solar equipment is appealing to landlords who are paying increasingly large percentages of their bottom line for electricity and fuel costs.
   Now, if we could only find a way to reduce water and sewer charges.  They have gone through the roof in many municipalities in the tri-state area.  If we could accomplish this, then maybe landlords can make money once again.

   If you have any thoughts about our current economic status, please contact me.  I would like to hear from you.
 
 
 

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