Weekly News & Capital Markets Perspective

This week’s Capital Market commentary is provided by Tom Powers:

I was at a ski event out west this past weekend and thought I would share some of the commentary that was bantered about by some of the 95 or so institutional investors/developers/brokers that attended:

  • Most were predominantly upbeat about the economy and about their specific business.
  • All seemed to be busier than they have been for a number of years.
  • They all seemed to have a smile on their face, whereas at the same event the last few years it was not quite as happy a group (not sure if it was the 8 inches of fresh powder, the libations or the economic times).
  • Lenders still have lots of money for core transactions but are having to look at core plus since pickings on core are becoming limited.
  • Most of the core properties seem to have traded hands over the past three years.
  • Some banks are doing large loans on a non-recourse basis – but there are usually strings attached.
  • CMBS sponsors have recently been pushing out a few very large, single-asset office buildings.  Allows for a wider swath of investors that can buy different tranches of the same asset, and since they would be underwritten very carefully as the largest asset in a pool of loans, the thought was to just use the CMBS platform on a one asset basis.
  • A number of developers/investors are focusing on adaptive re-use opportunities since they have a better chance of getting financing and there are more opportunities to consider.  With ground-up being so difficult at this stage, re-development opportunities are gaining investor interest.
  • On the other hand, new spec industrial is in the works all over the country including all the typical coastal locations as well as many mid-America second tier cities.  Office spec is still a few years away for most of the country.
  • With the Fed making a “statement of intentions” – not a pledge – that they will not raise the Fed Funds rate above 1.0% for a long time, (It is about 10 basis points now) interest rates should stay low for the remainder of 2012.   However, the Fed also set an explicit target of 2.0% inflation and with historic interest rates being about 200 basis points above inflation, it seems like rates will need to rise sometime in the not too distant future.  Lock in long term while you can.
  • Best line was that even though the Federal Deficit is at a $ Trillion plus, and is a train wreck waiting to happen if we do not do something in next 3-5 years, “the US always ends up doing the right thing, once we try everything else”.

So hope abounds and the distant future looks bright, as well as what we are currently witnessing in this USA spring.

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