But not this recession.

 

The number of new U.S. business start-ups in the first two quarters of 2009, the most recent data available, declined as compared with the first halves of the previous three years, said Dana Stangler, a senior analyst with the Kauffman Foundation, a research firm that tracks entrepreneurial activity.

 

In the first half of 2009, 350,000 businesses were started compared with 400,000 during the first half of 2008, 411,000 during the first half of 2007, and 438,000 during the first half of 2006, according to statistics from the U.S. Department of Labor.

 

"This recession is special," Stangler said. "During the previous four recessions, there was not that much change in the start-up activity or the survival rate of businesses formed during a recession."

 

Not only are fewer businesses being created but fewer start-ups are thriving, as well.

 

According to a Kauffman Foundation study, businesses started during a recession were no more likely to fail than those started during periods of relative prosperity. Some of the best-known examples of this include Genetech, Microsoft and Southwest Airlines, each of which was formed during a recession.

 

"This recession was peculiar because of the severity of it combined with the credit crunch, not just for formalized credit but also for federal Small Business Administration loans," Stangler said. "For most new businesses, real start-up capital comes from the trilogy of family, friends and fools. People are not as likely to get start-up money from that trilogy, in part, because people do not have home equity to access."

 

So why aren't the people who are choosing to brave the economic vagaries created by the recession starting businesses?

 

For many, it is necessity-based, meaning that they made the decision after being laid off from a company, Stangler said.

 

Nearly all of the laid-off commercial real estate executives who Jon Torgeson, a principal at Torgeson Associates, a Pasadena-based executive search firm specializing in real estate and construction, has approached during job placement searches have "hung up a shingle" doing consultant work.

 

The goal is to show that they are still engaged in the industry and are ready to tap into the inevitable opportunities that come with a market in transition.

 

Pursuing a Vision

 

The mixed outlook for the commercial real estate industry did not stop Stan Yoshihara, "chief visionary officer" of R7 Real Estate Inc., from leaving a position in January as a managing director with CB Richard Ellis to strike out on his own and bring two colleagues with him.

 

Limited job growth appears to be prompting more entrepreneurs to start new businesses.

 

An executive survey done by Challenger, Gray & Christmas, a Chicago-based executive search firm, conducted in 2009 found the highest levels ever of people reporting that they were going to start a business, Stangler said.

 

"The indicators are mixed, generally, but there are a couple of positive signs that new business creation was steady," he said. "It has not died off."

 

Torgeson, who is skeptical about growth in new business formation, which he described as mostly people talking about it without taking the step, agrees that it will be companies that get their ducks in a row that will benefit from the recovery. He thinks, however, that when it comes to companies trying to acquire assets at a discount to build a portfolio that they should have formed a long time ago.

 

"We have been hearing for some time about all the opportunity funds that have been formed," Torgeson said. "Anyone who wants to capitalize on the availability of that money should have formed a company a few years ago."

 

Hatching a Nest Egg

 

Martin Morgenstern and Vincent Pellerito are glad they got a head start. Both left Cushman & Wakefield in 2004 to start their own businesses.

 

Morgenstern's company, Morgenstern Property Co., now owns an 800,000-square-foot portfolio of office and industrial properties in Los Angeles and Orange counties.

 

Morgenstern worked as a broker for John Cushman at Cushman Realty Co. before it merged to become Cushman & Wakefield, and had been preparing for the day he would start his own business over the course of his career.

 

"I didn't buy a new Mercedes every year," Morgenstern said. "The wife and I don't own 10 houses. Instead of buying a house every five years, we invested."

 

Morgenstern had been investing with partners in properties even before he formed his business. "I didn't go to work as a broker one day and then try to figure out how to be an owner the next day," he said.

 

His advice to others planning to form a new company: Build a nest egg and be prepared to weather three years with no income.

 

Although he has capital from both high-net-worth individuals and institutions lined up, Morgenstern said he is in hunker-down mode because he doesn't think the pricing is reflective of the decrease in rents and vacancy levels. He does not regret his decision to form his own company.

 

"When I was a broker, I always had a team and I was responsible for my team," Morgenstern said. "Now I am responsible for me. In a sense, it has taken a burden off me because I'm responsible for my family, not five families."

 

For Pellerito, it will be somewhat like he is starting a new company. Partnering with Milwaukee-based Stark Investments, the 10th-largest hedge fund in the world, and others, Pellerito built up a portfolio beginning in 2005 and sold out of it by 2007.

 

The business model for National Financial Realty, the company that Pellerito now runs as chief executive officer, was to acquire real estate owned by financial institutions and then lease it back to the institutions, he said.

 

Of the decision to exit the market in 2007, Pellerito said, "It was clear the market had become overheated and the deals were not penciling out - and we were lucky."

 

He had targeted financial institutions because they were seen at the time as being as stable as owning government buildings. His model now is to acquire office buildings on the West Coast that can be repositioned. His most recent purchase was a $24 million office property in Torrance in 2009.

 

Pellerito got lucky twice because in order to build a portfolio he sold off, he had to fly around the country and meet with the heads of the regional banks to scout sale-leaseback deals. Those same contacts most likely will be selling off the assets everyone is looking to acquire, he said.

 

"We are very lucky that we have a head start," Pellerito said. "It is not just timing. It takes time to get the infrastructure put together correctly."

 

Size Doesn't Bring Security

 

Just as owning buildings occupied by financial institutions once seemed like a safe bet, working for a large corporation is no longer seen as an assurance of job security.

 

 

Molly Hobin, formerly first vice president of marketing for Arden Realty, understands first-hand that working for a large firm isn't necessarily a guarantee of job security. When the Southern California-based office owner Arden, a subsidiary of GE Real Estate, began laying off employees in January 2009, Hobin, an 11-year employee, was one of the casualties.

 

Hobin used the opportunity to take a one-year sabbatical traveling the world, then returned to earn her commercial real estate brokerage license and restarted her family's 85-year-old company, Hobin Co., in January with her mother Joan, a Windermere Properties agent specializing in residential real estate.

 

The company handles office leasing and residential sales in Manhattan Beach and Palm Springs. It has lain fallow for 15 years although her father retained the business license.

 

"We are off to a good start," said Hobin. "It has only been since January and we are closing our third deal this week."

 

Part of the motivation for both Yoshihara and Stephanie Abel, managing director at R7, is being able to provide a more personalized touch for their clients than they could while at the world's largest commercial real estate services firm.

 

- http://www.carealestatejournal.com/crejmobile/story.cfm?eid=908895&evid=1&scid=162174

 

- http://r7re.com/