Commercial Real Estate Finance

Posts Tagged ‘recession’

Okay.  Maybe they are not actually making fun of us.  But if it was in their nature, this would certainly be a good reason to.  With all of the economic turmoil facing the broader U.S. economy (think businesses closing, unemployment in double figures), the Amish seem to have resisted the burdens of the recession much like they resist the convenience of electricity. And frankly, if I were a bank headquartered in the middle of Pennsylvania, or any of the other various traditional Amish enclaves throughout the country, I would be paying attention.  A lot of attention. Read the rest of this entry »

There were 23 Fortune 500 companies in 2009 who actually posted significant profit growth in the face of one of the worst recessions of the last 50 years.  Who were they, and how did they do it?

10. O’Reilly Automotive

Last year’s big task for O’Reilly chief Gregory Henslee was integrating the 1,350 CSK stores he bought in 2008.

This year, Merck CEO Richard Clark has a bitter pill to swallow: patents on two hypertension drugs and a brain tumor treatment - which together bring in about $3 billion annually - are set to expire.

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President Obama, in his recent State of the Union Address asserted that, “the worst of the storm has passed, but the devastation remains.” Of course, Obama was referring to the economy in general, however, there are some indicators in particular real estate markets that seem to support the president’s assertion. In December, CNBC.com published a list of housing markets most likely to have hit bottom. CNBC did not rank the list, however, based on the numbers, below are what I believe to be the the top 10. The criteria for the ranking was a combination of the overall decline in prices by percent, number of months with year-over-year favorable change, last year’s overall change, and December’s month-to-month change.

10. Philadelphia, PA
Fall from peak: 10.6%
Months with YoY favorable change: 7
Current YoY change: -4.1%
Current month-to-month change: N/A

9. New Haven, CT
Fall from peak: 13.5%
Months with YoY favorable change: 8
Current YoY change: -1.3%
Current month-to-month change: 0.8%
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Every highly publicized debacle needs a scapegoat. Ask Buffalo Bills fans about Scott Norwood.  Ask NBA Commissioner David Stern about former referee Tim Donaghy. Ask Tiger Woods the golfer about Tiger Woods the philanderer.  Whether deserved or not, that is exactly what Federal Reserve Chairman Ben Bernanke is becoming…. a scapegoat.  The big difference between him and the aforementioned persons, is that when you study the facts, he’s the only one who may not deserve the amount of scrutiny being heaped upon him.
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Bernanke Supports Regulatory Power to Shrink Banks

Is Commercial Real Estate Really Near the Bottom?

The Week of October 24-30

- Capmark finally filed for Chapter 11 bankruptcy protection, but will prevail in the end.

- How many more firms could be following Capmark into bankruptcy?

- Could PPIP be the solution to more bank transparency with regard to distressed assets?

- The Great Recession may be ending, but for CRE, its more like the Great Depression beginning.

- ING will be spinning off to get ahead.
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Last week, the Wall Street Journal published an article citing a survey of 47 economists, the majority of whom said the recession is over and the economy had bottomed out. But the question remains: what does that mean?

Several key indicators must be examined in even considering whether or not a recession has ended. However, for the 247,000 additional people who lost their jobs in July, it seems more likely one could first find the bottom of a bottomless pit. This leads us to one indicator: unemployment. While the July unemployment rate dropped 10 basis points from 9.5% to 9.4%, this was due partially to a decrease in the labor force itself, as a greater number of workers have become so fed up with the job market they stopped looking for work entirely. Since then, the first two weeks of August have seen over one million Americans file for unemployment benefits. Read the rest of this entry »

There was a recent article on Bloomberg.com entitled “Bond Dealers Say Futures Traders’ Rate Bets Wrong“

Well, if the broker/dealers say that the market is wrong, then the markets must be wrong!  Right?  WRONG!

Without getting into a debate on efficient market theory, I think we can point out how silly this argument is.  Let us start by considering the source.  These i-banks, along with ratings agencies, simply cannot be trusted to accurately predict moves in the market.  Even if they did not have constituencies to consider (large companies, local governments, foreign governments, the US federal government…etc.), why should we take their prognostications as being useful?  After all, their track record is less than stellar.  What were these institutions telling us (or worse, selling us) in 2006 and 2007?  “All is well!  Can I interest you in these AA rated synthetic CDO tranches?”  No, thanks.

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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 »