Economic conditions are going to be tougher for awhile before they improve, and the nation may even stagnate along the bottom, akin to Japan’s last recession, according to the discussion between two economists that opened CPN’s Net Lease Summit yesterday. But some benefits will come out of it, according to Craig Thomas, vice president and head of research at Citi Property Investors, and David Wyss, chief economist at Standard & Poor’s Corp., during the Economic Face-Off, which was moderated by Matthew Bruck, managing director of the Royal Institute of Chartered Surveyors Americas and partner in McDuff Capital. The pain is likely to be felt most by the investment banks, as they transition to more of a European model, with the investment bank part of a commercial bank—“a wonderful place to put your money but not very exciting,” noted Thomas. Regulation, however, was inevitable, added Wyss, while Thomas termed longstanding companies like the century-old investment banks that will cease to exist as independent entities “not majestic.” He explained, “There is a creative destruction that takes place. (As long as the talent remains) it doesn’t matter what sign is on the door.”Beyond that, the future is somewhat muddied by the upcoming election, Wyss added, since whoever wins will determine how the scenario further plays out. But Thomas cautioned that things seem far worse in New York City, home to Wall Street, than elsewhere in the country. “In New York, the world just ended,” he commented. “In Kansas City, they’re wondering what’s going on.” For the commercial real estate sector, prospects are mixed, although ultimately not dire. On the one hand, noted Wyss, with a recession under way, companies don’t need more office space, they overbuilt retail and high gas prices will deter travel to hotels. “So even without the financial problems we would’ve had a dropoff in real estate.” But, added Thomas, the harder-hit cities are those that emphasized growth through secondary-home investment, whereas cities like San Francisco, Boston and even New York have been less hurt by market fundamentals. In New York, Wyss noted, Mayor Michael Bloomberg was relatively calm in discussing the Wall Street situation over the weekend. “New York has held on remarkably well thus far,” Thomas added. Wyss predicted New York will remain as one of three financial capitals worldwide—also including Singapore and London—and both economists lauded the weak dollar as likely to keep attracting foreign tourists. They also noted that many of the layoffs that have occurred nationwide have been related to the housing crisis—now entering its third year and so no longer new—and lauded federal efforts being made to address homeowners’ difficulties. And for real estate players, their advice was encouraging: “We’ll get through this,” Wyss said. “It is a recession … but not anywhere close to the problems we had back in ’91, ’92.” And although the economy will remain at the bottom for awhile, “the bottom is not that deep,” he said, noting that the real problem is, after all, financing and not the real estate.