Commercial Real Estate Finance

Posts Tagged ‘banking system’

“The Euro is falling!” they scream on CNBC.  Who cares!? Not me.  It’s supposed to be falling.  They’ve got too much debt and slowing growth.  EUR denominated rates should come down and there is growing risk the European Monetary Union will break up.  By themselves, these facts (assertions?) do not have a great deal to do with the US.

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Answer: LIBOR

Wikipedia’s definition of LIBOR: “The London Interbank Offered Rate (or LIBOR, pronounced /ˈlaɪbɔr/) is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank market).”

That’s pretty good for one sentence.  I’ll just add that it is calculated using a survey of banks at 11AM in London.  How, people often ask, is a daily survey of banks in London connected to funding for garden apartments in Orlando? The connection is the global demand for dollars.

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Are the markets going to flip back toward concern about deflation?

Friday’s consumer confidence print rattled markets looking for an excuse to correct. Combined with a couple recent articles about potential future trouble with the banking system, articles like this one are pointing toward a shift in sentiment. We’ve gone from myriad articles on the impending threat of inflation, to a serious mention of deflation.

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In the past few months there has been a lot of press coverage on the government sponsored recapitalization of failing banks. Many taxpayers are rightfully upset about the issue, but the government relief program took effect nonetheless, albeit forcefully in some cases. Amidst all the media coverage however, there is one issue I think analysts and industry “experts” could do a better job of providing insight on: the ownership structure of banks in the U.S. banking system. I think there needs to be a discussion in the banking industry about whether or not the corporate model is the best organizational structure for U.S. banks.

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Real Questions…

…. and Unintended Consequences

Question 1:

If you are a buyer of real estate (and actually have capital), what sort of IRR are you looking for? 20%? 30%?

Question 2:

If you are an owner of real estate, why on earth would you sell into this market unless you absolutely had to?

These questions succinctly sum up the entire commercial real estate market. Other statements examine facets of the problem, but they all revolve around this problem we’ll call, “The Bid/Offer Spread”.

Every day, the fund managers who still have jobs wake up, read the Wall Street Journal and say to themselves, “If I’m going to buy a property, I deserve a discount.” Any possible ‘green shoots’ notwithstanding, unemployment is high, the economy is in recession, global icons are getting destroyed (or taken over by the government), and the banking system as a whole is only viable because the Feds have stepped in with HUGE assistance programs. You can also throw in the fact that recent liquid market action (rally in gold, commodities and TIPS while the 10yr notes sells off ) is telling us we might even have an inflation problem in the not-so-distant future. Read the rest of this entry »