One thing I have learned in over 20 years of banking and investing experience, when the consensus thinks a business cycle will happen in predictable scripted fashion, rarely does the event follow the script. Monday morning quarterbacks and talking heads will pop up after the fact and declare the actual result was the only logical occurrence. The majority of us were just dummies.
Well, here we are again. The world is predicting doom and gloom for the commercial real estate sector. Vacancies are accelerating. Defaults have come seemingly unhitched and are running away from us. Values have plunged. Certainly, from most observers’ perspective, it is logical that when the 5 year balloons of the most egregiously inverted properties come up for renewal, starting in 2010 and running through 2012, the commercial market will experience a cataclysmic meltdown, sending the economy in to a rebound recession and knocking banks out across the country. There is no doubt, that logically, this scenario is a possibility. What this scenario does not account for, however, is the fact that markets are amazingly efficient and capitalism can sometimes really work, particularly when there is time to plan.
For more than a year, billions of dollars have been raised in funds anticipating the supposedly inevitable cornucopia of once in a lifetime deals that will fall in to investors’ laps. To date, many of these funds have been more fizzle than sizzle. Lets face it. Right now, from a deal standpoint, 2009 is not turning out to be RTC 2.0. We still may see the days of RTC circa 1991 played out with properties being purchased at 30 cents on the dollar, but something tells me that all the money that has been building in funds and on the sideline may not allow history to repeat itself. It will be interesting to see how this all unfolds. With history as my guide, though, I just can’t help but feel the reality will not play out the way most predict.
Here is an interesting article about the numbers of loans outstanding and funds on the sideline.
Commercial Real Estate to Implode?
One thing I have learned in over 20 years of banking and investing experience, when the consensus thinks a business cycle will happen in predictable scripted fashion, rarely does the event follow the script. Monday morning quarterbacks and talking heads will pop up after the fact and declare the actual result was the only logical occurrence. The majority of us were just dummies.
Well, here we are again. The world is predicting doom and gloom for the commercial real estate sector. Vacancies are accelerating. Defaults have come seemingly unhitched and are running away from us. Values have plunged. Certainly, from most observers’ perspective, it is logical that when the 5 year balloons of the most egregiously inverted properties come up for renewal, starting in 2010 and running through 2012, the commercial market will experience a cataclysmic meltdown, sending the economy in to a rebound recession and knocking banks out across the country. There is no doubt, that logically, this scenario is a possibility. What this scenario does not account for, however, is the fact that markets are amazingly efficient and capitalism can sometimes really work, particularly when there is time to plan.
For more than a year, billions of dollars have been raised in funds anticipating the supposedly inevitable cornucopia of once in a lifetime deals that will fall in to investors’ laps. To date, many of these funds have been more fizzle than sizzle. Lets face it. Right now, from a deal standpoint, 2009 is not turning out to be RTC 2.0. We still may see the days of RTC circa 1991 played out with properties being purchased at 30 cents on the dollar, but something tells me that all the money that has been building in funds and on the sideline may not allow history to repeat itself. It will be interesting to see how this all unfolds. With history as my guide, though, I just can’t help but feel the reality will not play out the way most predict.
Here is an interesting article about the numbers of loans outstanding and funds on the sideline.