Distressed Nation – The Biggest Crash Is Still Ahead Of Us
December 24, 2008
If anyone still has any doubt about how severe the problem is with the real estate market and if you are wondering how long it will take to get out of this mess please look at the attached video. This is an era that all of us will never forget for the rest of our life.
NAR statistics show that the supply of unsold homes in the U.S. has grown from 2.2 Million three years ago to over 4.5 Million homes in 2009.
South Florida has officially become the world’s worse real estate market with over 110,000 properties for sale, 55,000 foreclosures, 19,000 bank owned properties and over 68% of the existing inventory that is in some king of distress.
If this is not a total unprecedented disaster I don’t know what is !
This clip is going to make your head spin… http://www.propertytalk.com/forum/showthread.php?t=19009
On the other hand, the few of us that positioned themselves with cash and are able to put it to work in the next 12 months will be taking advantage of the biggest real estate opportunity that this country has ever seen and most likely become multi Millionaires or Billionaires in the next 5-10 years.
Home and condos that sold for $250,000 are selling for $35,000-$50,000 and producing a gross income of 25% !
Condo and single family home projects are sold by distressed developers at 50% of the replacement cost and the land is given away for free. We all know that the cost of labor, commodities and materials are not going to be cheaper 5 years from now.
Fully entitled land in good locations is selling at a price that does not even cover the infrastructure cost…
Remember, even though it may not look like that today, this is still the greatest country with the biggest economy in the world, demographics are very strong for the next 10-20 years, the Y generation, students, immigrants and baby boomers are not going anywhere and this access inventory will get cleaned out eventually.
Given the fact that no sane developer is going to start any new residential project in the near future (most are out of business and who is going to finance them anyway, the rest will take years to get out of their shock before taking another chance…), this inventory is going to get cleaned out eventually and then we will start seeing an increased demand and a low supply.
I predict that it will take this country another 5-6 years to get back to a well balanced supply and demand ratio but 5-6 years is a very short period in a man’s life… most of us will be around anyway so we might as well take advantage of this opportunity if we can.
I am not a financial expert but it seems to me that when you have a rare combination of circumstances such as this…
A. All time low real estate prices,
B. All time low interest rates,
C. Probably the worse stock market crash since the great depression,
D. Millions of people who lost 50% of their 401K plans and will not go back to the stock market any time soon,
E. A government that is getting ready to spend more money on a stimulus plan that was ever spent on all wars combined…
… it may, just may be a good time to start thinking about investing in real estate…
I would love to hear your comments and please visit me at:
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Global : www.globalgalleryusa.com
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Projects : www.themeadowsatbeavercreek.com
Happy Holidays !!!
Sean Glickman CIPS , TRC , CSP
Commercial Investments, International auctions
Stirling Sotheby’s International Realty
561-488-7766 , 407-902-6660 , F – 888-504-4170
seanglickman@gmail.com
Worldwide Auctions
December 20, 2008
Our company, Stirling Sotheby’s International Realty conducts a worldwide auction of proerties of any type at least once a month.
We do luxury and waterfront properties, Home Builders Association in Central FL , Central America and the Carabbeans, Florida commercial properties and more.
If you are connected to developers and builders that want to move a big part of their inventory in 60 days paying a fraction of a standard commission please feel free to contact me.
Our website gets 40,000 new hits per month from 25 different countries thanks to our worldwide marketing and we have over 10,000 investors and end buyers on our data base.
Please contact me for more details.
Sean Glickman
Stirling Sotheby’s International Realty
561-488-7766
U.S. Property Prices Still Plummeting
December 19, 2008
The U.S. economy is expected to stall as the recession worsens, providing no relief to the housing market as demand for homes continues to fall and prices follow accordingly. House prices continue to plummet, despite multi-billion government bail-out packages for the financial market.
In the year to end-Q3 2008 there was a 16.6 percent y-o-y drop in U.S. property prices (-20.8 percent in real terms), according to the S&P/Case-Shiller® national house price index. The ten major cities composite index (SPCS-10) plunged by a larger 18.6 percent. The broader 20-city home price index (SPCS-20) dropped 17.4 percent.
A more muted picture of the downturn comes from the purchase-only house price index of the Office of Federal Housing Enterprise Oversight (OFHEO), which reports average price of single-family homes falling only 4 percent during the year to end-Q3 2008, or 8.8 percent inflation-adjusted.
The median price of existing homes was $183,300 in October 2008, down 11.3 percent on a year earlier (the largest drop since 1968), according to the National Association of Realtors (NAR).
The subprime mortgage problems began as far back as 2006.
Since then, the crisis has spread to the financial market. As mortgage delinquencies and foreclosures rose, banks and other financial institutions wrote off substantial losses. The crisis of confidence spread to the entire economy, leading to a credit freeze, rising unemployment and low consumer confidence.
The crisis has spared very few financial institutions. American Insurance Group, the world’s largest insurer, has been partly nationalised. Mortgage giants Fannie Mae and Freddie Mac were nationalised. Several financial institutions were either allowed to collapse or sold to competitors through government-sponsored deals. Leading banks were given financial support through the Troubled Asset Relief Program (TARP). The government has also implemented economic stimulus packages, whose effects remain to be seen.
The end of the economic and financial meltdown is nowhere in sight. House prices are expected to fall until end-2010 or mid-2011.
Consensus as to the causes of the recent crisis is still lacking. Our best guess is that the crisis was caused by:
- A long period of low interest rates, stoked partly by trade imbalances encouraging massive Chinese purchases of U.S. Treasuries, and Japanese carry-trade purchases;
- A reluctance of the authorities to explicitly target house prices;
- A regulatory vacuum, at a time of rapid financial market development. Some part of the blame probably falls both on the government and the Federal Reserve, both ideologically committed to free market principles;
- Special-interest lobbying to expand the mandate of Fannie Mae and Freddie Mac to increase support for first-time homebuyers.
House price bubbles in many areas were stocked by reckless lending by banks and other mortgage companies. The eventual result was a financial meltdown, causing an economic crisis unparalleled since the Great Depression.
Change we can believe in
Unfreezing the credit market and restoring economic confidence are high on the list of the priorities of new president-elect Barack Obama.
Although Barack Obama, elected on Nov 4, will not take office until Jan. 20, 2009, he is already filling the leadership vacuum left by a lame duck president.
In addition, Obama has announced a two-year economic aid plan which includes massive spending, new tax cuts and the creation of around 2.5 million jobs (estimated to cost $1.1 trillion). He has said that if the current administration will not do it, he will pursue the plan as soon as he takes office.
“The consensus is this that we have to do whatever it takes to get this economy moving again, that we have to—we’re going to have to spend money now to stimulate the economy,” said President-elect Obama.
Recession blues
The U.S. fell into recession in December 2007, officially announced by the National Bureau of Economic Research (NBER) on December 1, 2008.
NBER defines recession as a significant decline in economic activity which lasts for more than a few months. It looks at broad economic measures (GDP, gross domestic income, real personal income, employment, real manufacturing sales, wholesale-retail sales and factory output) to determine if the economy is already in recession.
“The committee determined that the decline in economic activity in 2008 met the standard for a recession,” NBER said. “All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion,” it adds.
Real GDP contracted 0.5 percent during the year to end-Q3 2008, according to U.S. Commerce Department. The U.S. economy is expected to contract well into 2009.
“The U.S. recession is set to get worse—a lot worse—in the next couple of quarters,” writes Nariman Behravesh, chief economist at the IHS Global Insight.
- In 2008, U.S. GDP growth is expected to slow to 1.6 percent.
- In 2009, the U.S. economy is projected to grow by a negligible 0.06 percent.
Unemployment rose to 6.5 percent in October 2008, the highest level since March 1994, from 4.6 percent in 2007. Unemployment in the U.S. is expected to rise to 7.6 percent by Q3 2009.
Real gross domestic purchases by U.S. residents dropped 1.3 percent in Q3 2008, according to Bureau of Economic Analysis (BEA).
In the face of collapsing demand, consumer prices fell 1 percent in October 2008, the steepest decline since 1947, according to the U.S. Labor Department. In 2007, inflation was 2.9 percent. Inflation is expected to be around 4.2 percent in 2008 and will stabilize to 1.8 percent in 2009.
The higher they rose, the deeper they fell
Coastal and/or sunny cities have experienced the biggest property prices drops.
Of the 20 cities in the index, Dallas (-2.7 percent) and Charlotte (-3.5 percent) saw the lowest house price declines.
The Pacific Division, especially California, registered the highest house price declines, according to the purchase-only HPI from OFHEO. Average single family house prices plunged 20.5 percent in September 2008 from a year earlier.
The West South Central Division has been least affected by the crisis, with house prices rising 0.51 percent over the same period.
Areas that experienced the biggest house price gains during the past decade also registered the biggest declines when the bubble finally burst. House price growth from 1996 to 2006 was highest in Los Angeles (264 percent), San Diego (232 percent), Miami (219 percent) and San Francisco (209 percent), using the S&P/Case-Shiller® monthly house price indices.
Sales and supply are plummeting
Sales of new one-family houses dropped 33.1 percent in the year to September 2008 to 464,000 units (seasonally adjusted), according to the U.S. Census Bureau and the Department of Housing and Urban Development.
The Northeast Region registered the highest decline of -65.1 percent from a year earlier. The West Region (-37.9) and Midwest Region (37.5 percent) followed, while the South Region (-23.8 percent) had the lowest drop in home sales.
Total privately-owned housing units completed fell to 1,043,000 in October 2008; 25.6 percent down from a year earlier, according to the U.S. Central Bureau. Single-family housing completions were 760,000, 7.7 percent below the September 2008 figures.
Permits to build new homes, an indicator of future activity, fell to a 48-yr low at 708,000 in October 2008; 40.1 percent down from a year ago. Privately-owned housing starts dropped 38 percent to 791,000 (seasonally-adjusted).
Interest rates and the crisis
From a high of 16 percent in the early 1980s, mortgage rates have been below 10 percent for the entire 1990s. The Fed funds rate, the key rate used as basis for most mortgages, was at historic lows from 2002 to 2004 – notably, at 1 percent from June 2003 to May 2004. The average interest rate for 30-year fixed rate mortgages (FRM) was 5.8 percent while the average rate for 1-year adjustable rate mortgages (ARM) was 4.05 percent from 2003 to 2005.
As a direct result, from 1996 to 2006 house prices rose more than 200 percent in major cities like Los Angeles, San Diego, Miami and San Francisco, using the SPCS-20 Index.
However in early 2006, the Fed, headed by newly-appointed Chairman Ben Bernarke, raised interest rates to contain the inflationary pressures caused by higher energy and commodity prices.
- The 30-year FRM rate rose to 6.8 percent in July 2006 (from 5.7 percent in July 2005)
- The 1 year ARMs rate rose to 5.8 percent (from 4.4 percent in July 2005).
Households with ARMs were immediately affected. More than 30 percent of loans were ARMs in 2004-2005. Many households, especially subprime borrowers, defaulted on their amortization, and foreclosures rose.
In Q2 2008, there are around 739,714 properties with foreclosure filings in the U.S., up 121.4 percent from a year earlier. Nevada (146.8 percent), California (197.8 percent) and Arizona (272.3 percent) had the highest foreclosure rates, based on RealtyTrac’s reports. In 2007, around 1.3 million residential properties were subject to foreclosure, up 79 percent from 2006.
In response, the Fed frantically lowered interest rates. The key interest rate was reduced three times in 2007, from 5.25 percent in August (its level since June 2006) to 4.25 percent in December. In January 2008, the rate was slashed twice to 3 percent in response to the stock market turmoil. In March 2008, the Fed cut key rates by another 75 basis points, bringing them down to 2.25 percent. On April 13, the fed funds rate was 2 percent. In October, the Fed cut the key rate in 2 steps to 1 percent.
Despite the interest rate cuts, mortgage rates barely changed due, to the credit freeze imposed by lending institutions. Interest rates for 30-year FRMs even rose slightly to 6.2 percent in Oct 2008 from 6.1 percent in Dec 2007. One year ARMs moved from 5.5 percent in Dec 2006 to 5.21 percent in Oct 2008.
Mortgage markets and the crisis
In the early 2000s the U.S. mortgage market expanded rapidly, as mortgages were made available to individuals with low credit ratings (referred to as sub-prime mortgages), . Some were offered with little or no collateral.
Ninja loans (‘No Income, No Job, (and) No Asset’) became common during the bubble’s height. Poor lending practices allowed these loans to be approved without proper verification that the applicant was reasonably likely to adhere to the loan payment terms.
The mortgage market grew sharply from 65 percent of GDP in 1998 to 106 percent of GDP in 2007.
In Q1 2007, the estimated value of subprime mortgages was around $1.3 trillion. 2.5 percent of all mortgages were in foreclosure by Q1 2008; 50 percent of which were subprime mortgages.
About half of the total outstanding mortgages in the U.S. were owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), U.S. government-sponsored enterprises (GSEs) that function as the biggest intermediaries in the U.S. secondary mortgage market.
In the first half of 2008, it became evident that these GSEs would be unable to handle the growing delinquency rates. In September 2008, the government placed the two GSEs into conservatorship, and will infuse up to $200 billion in additional capital to Freddie Mac and Fannie Mae.
Sluggish rental market
The U.S. rental market has grown only sluggishly during the past decade. Median asking rents rose by only 48 percent from 1997 to 2007, based on the figures from the U.S. Census Bureau.
In Q3 2008, median asking rent rose by 8.45 percent to $719 from a year earlier. Vacancies for rental houses rose slightly in Q3 2008 to 9.9 percent (from 9.8 percent in Q3 2007).
Help is on the way
The U.S. government’ actions to infuse to stimulate the ailing financial and housing markets include:
- Economic Stimulus Act of 2008 (enacted February 13). This provides tax rebates (worth $152 billion) and business tax incentives (worth $44.8 billion). It also makes the mortgage market more accessible to homeowners who need to refinance to stay afloat.
- Housing and Economic Recovery Act of 2008 (enacted July 24). Designed to restore consumer confidence in Fannie Mae and Freddie Mac through nationalization of the two institutions. The Federal Housing Administration (FHA) was authorized to guarantee up to $300 billion in new 30-yr FRMs for subprime borrowers.
- Emergency Economic Stabilisation Act of 2008 (enacted October 3). Better known as the bailout of the U.S. financial system. The law authorizes the Secretary of Treasury through the Troubled Asset Relief Program (TARP) to purchase and insure MBS and other distressed assets up to $700 billion. In November 12, 2008, $290 billion of the initial $350 billion allotment funds have already been used for bank equity infusions.
- The Fed announced another stimulus package worth $800 billion in November 25, 2008. About $600 billion will be used to buy MBS while the remaining $200 billion will be spent to unfreeze consumer credit lending in the U.S..
A bleak medium-term
The U.S. housing market has not yet reached bottom. “We continue to believe that it is unlikely that we are anywhere near a bottom in nationwide home prices,” says Joshua Shapiro, chief domestic economist at the research firm MFR.
Nearly half of all home sales were foreclosed properties by October.
“Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,” says Lawrence Yun, National Association of Realtors (NAR) chief economist.
House prices will only stabilize when the inventory of unsold houses, now at 10-months supply, is brought back to normal levels.
In addition, we need an economic recovery, and the unfreezing of credit, before things return to normal.
International Home Buyers In Florida
December 2, 2008
International Home Buyers
We live in global economy, but for the majority of REALTORS®, their clients are U.S. citizens and foreign-born permanent residents. According to the 2007 NAR Member Profile,
T
he Florida Housing Market
In 2006, the Florida housing market underwent a major housing market recession. Existing-home sales in Florida declined 27.6 percent in 2006 from the previous year. Purchases by international buyers fell drastically more with NAR estimating international sales having declined to 28,900 from 81,900, a 65 percent decline from 2005 to 2006. The sales slump was accompanied by strong deceleration in home price growth in many metro markets in the state, with some metros experiencing outright price declines. Some metro markets in the state fared better than others in terms of price appreciation. Both Orlando and Tampa markets posted positive price increases throughout 2006, although the percentage increases diminished each successive quarter.
The principal reasons for the decline in sales and accompanying price weakness were higher mortgage rates during the prime home-buying season – spring and summer of 2006 – and the exorbitant rise in property/hazard insurance costs. After the 2004 and 2005 hurricane seasons, during which an unprecedented number of destructive storms decimated parts of Florida, many insurers either significantly increased insurance premiums to offset the rising cost of insuring properties, or left the market entirely. Job growth in the state also slowed from its heated pace in 2005. The rate of job creation decelerated from four percent in 2005 to 2.6 percent in 2006.
International Home Buyers in Florida
In 2006, international home buying activity in Florida declined from its level in 2005.
Home Buyers From Around the World
Buyers of Florida residential real estate came from many different countries around the world. The majority of foreign buyers in Florida – 21 percent — were from the United Kingdom. Latin America accounted for 34 percent of foreign home buying activity in Florida, with the largest percentage of Latin American buyers coming from Venezuela (11 percent) and Colombia (4 percent). It is interesting to note that the share of buyers from the United Kingdom declined from 33% in 2004/2005, while the rest of Western Europe (excluding the U.K. but including France and Germany) increased its share slightly. Eastern European buyers increased their participation in the Florida home market – in fact, doubling from 3 percent in the previous survey to 6 percent in 2006. Canadians were also more active, accounting for 9 percent of international home buying activity during 2006, compared to 7.1 percent in 2004/2005. Latin American home buyer participation also grew significantly from that reported in the previous survey, from 29 percent to 34 percent.
Single-family detached homes or townhouses are still the number one residential property of choice for international buyers. Sixty percent of foreign buyers purchased a single-family home. That compares to 84 percent of all home buyers.
Financing the Home Purchase
In 2006, more than 90 percent of all home buyers nationally purchased their home using a mortgage loan. And while the majority of international buyers in Florida also financed their home purchase, they are less likely to have done so than were home buyers in general or than were all Florida home buyers. In Florida, 85 percent of home buyers used a mortgage to finance the purchase of their home in 2006. Well over 60 percent of international home buyers financed their Florida home purchase with a mortgage. But 29 percent of foreign buyers paid cash for their property. Interestingly, 9 percent of REALTORS® responding to the survey did not know how their international clients paid for their home. The share of foreign buyers who financed their home purchase increased slightly from that reported in the previous survey (from 58 percent to 62 percent). One possible explanation for this is that mortgage rates continued at historical lows – well below 7 percent. In addition, the increase in the percentage of foreign buyers purchasing homes costing over $500,000 could mean that those buyers who previously used cash to purchase their Florida home outright did not have sufficient cash on hand to buy those higher-priced properties. At the same time, the proportion of foreign buyers who
Where They Buy
U.S. residents have been relocating to Florida for various reasons – vacation, retirement, change of lifestyle. According to the most recent information from the U.S. Census Bureau, Florida is still among the top ten states in terms of population growth. The Census Bureau estimates that between July 1, 2005 and July 1, 2006, Florida had a population gain of 321,697 – the second highest number of people moving into a state (behind Texas). (This was the first year of the current decade when Florida lost the top position for population gain.) Florida is also one of the major gateways for immigration to the U.S. The state’s major air transportation hubs of Miami, Tampa/St. Petersburg, and Orlando, make it an attractive port of entry for foreign visitors as well. Those foreign visitors are following U.S. residents to Florida destinations and buying properties in those locations. Miami-Ft. Lauderdale accounts for the largest share of foreign home buyers in the state. The Tampa-St. Petersburg area increased its share of foreign buyers since the previous survey was conducted. The proportion of foreign buyers in Orlando, Naples-Ft. Myers, and Sarasota decreased. Nearly one quarter of foreign buyers purchased homes in “other” areas of the state. This high percentage (24 percent) of foreign home buying in these other areas reflects a growing interest in other lesser well-known destinations such as in the Florida panhandles and middle Atlantic coast localities.
did pay cash for their homes was significantly greater than that for the general home buyer population – 29 percent vs. 8 percent. This could be due to the fact that those international home buyers would be expected to be wealthier households with ready cash on hand. The tax benefits of mortgage interest deductions may not apply depending upon the buyer’s home country’s tax code — which lowers the incentive to take out a mortgage. One positive consequence for the Florida housing market of a higher share of all-cash purchases by foreign buyers is that such purchases lower the risk of mortgage defaults. As a result, cash purchases lessen the foreclosure risk against this group of buyers. Lower foreclosure risk, in turn, lessens the possibility of a price decline.in 2006, two thirds of all
NAR estimates that total international sales fell from 81,900 to 28,900 – a decline of 65 percent. But foreign home buying activity still accounted for an important share of home sales in the state – 7.3 percent. Among the REALTORS® who participated in the survey, 65 percent reported that they brokered at least one home sale transaction with an international buyer – a decrease from the 87 percent who had at least one international transaction in the previous survey. Nearly half – 48 percent – of those REALTORS® who brokered foreign-buyer purchases noted that one to four of all their transactions were with international clients. Slightly more than half of all the REALTORS® surveyed reported home sales to international clients accounted for 1-25 percent of all transactions. Due to the weaker international sales in the past year, fewer REALTORS® indicated that over 25 percent of their business activity was with foreign home buyers. Still, for almost 8 percent of REALTORS®, more than half of their home sales transactions in 2006 was with international clients. Essentially, that means that for 12,900 active Florida REALTORS® the majority of their business was with foreign buyers. Even though international home buying slowed from that in 2004/2005, 35 percent of survey respondents reported that their foreign clientele business increased in 2006. For slightly more than half of Florida REALTORS®, their international business was about the same, and for 12 percent it decreased.
2009 Forcast For Real Estate
November 30, 2008
Forget the Quick Fix
For 2009, U.S. commercial real estate faces its worst year since the wrenching 1991–1992 industry depression.
Values will drop substantially, foreclosures and delinquency rates will increase sharply, and a limping economy
likely will crimp property cash flows. The aftershocks of rampant “over-the-top lending” that batter the entire credit
system leave property markets substantially overleveraged and vulnerable to significant depreciation. The industry’s “saving grace”—controlled development—had helped maintain reasonable equilibrium in most property sectors until recently.
But a one-two punch of the continuing housing meltdown and tight credit softens demand—consumers stop shopping and employers cut jobs. “People simply don’t have the dollars to spend anymore.” Lofty energy prices, inflation, deflated stock market portfolios, and world financial turmoil contribute to a toxic brew, potentially delaying prospects for any economic rebound and further weakening outlooks for property investments.
“People have been so focused on the credit crisis [that] no one noticed the economy sneaking up to knock their legs
out from under them.” Real estate value losses will average 15 to 20 percent off mid-2007 peaks, and could be more severe for lesser-quality commercial properties in secondary and tertiary locations, according to interviewees.
The sudden demise of Wall Street stalwarts and mortgage giants shatters investor confidence about remedying financial market turmoil expeditiously. Although substantial vulture capital has been raised to bottom-fish for distressed properties, possibly cushioning against severe value declines, real estate
businesses will continue “to starve” until debt sources resume funding owners and investors. “The debt world needs to be fixed,” says an interviewee. “A huge capital gap has been created, most debt has vanished, and all the available equity is not enough to fill the hole.” No one expects surviving financial institutions to ramp up lending once they finally stanch mammoth balance sheet bleeding, even with gargantuan government bailouts. Persistent risk aversion and new regulation could limit debt capital flows for the foreseeable future, muting transaction
activity. Many owners needing to roll over mortgages in the coming years can expect to face substantial refinancing hurdles, including higher lending rates, more stringent underwriting, increased equity requirements, and recourse terms.
So the industry faces “multiple disconnects”: some owners drowning in debt as values decline, lenders without money to lend, slackening property income flows, and unprecedented avoidance of risk. “Only when property financing gets restructured will pricing reconcile so we can find a floor” and “this transition period could wipe out companies and people.” The housing markets have already been especially unforgiving to homebuilders, lenders, land speculators, and late-in the-game buyers—not only did easy credit help send housing prices up to unsustainable levels, but developers also wildly overbuilt, compounding the current distress.
Taking all the bad news in stride, most real estate players, including homeowners, should uncomfortably ride out the storm. Expect financial and property markets to hit bottom in 2009 and flounder well into 2010, convalescing slowly absent an unanticipated economic jolt. Owners who locked in debt on a long-term basis or shied away from heavy leverage—like pension funds and real estate investment trusts (REITs)— should have the staying power and cash flows to cover obligations to lenders and stomach paper losses. “As long as you can sit with what you have you’ll be fine.” But those investors who overpaid and borrowed heavily, particularly in the 2005–2007 period, stand in the crosshairs, unable to meet unrealistic underwriting projections.
Some wistful Emerging Trends interviewees wonder how they ever embraced the alluring notion that secular change in the capital markets had eliminated most cyclical investment risk. In hindsight, “there was never any structural change, just a temporary surge of capital into the markets.” The ensuing leverage binge and transaction fee fest morphed suddenly into a financial market debacle, now marked by industry contraction. At the very least, cap rates and return expectations will need to recalibrate to more normal, historical levels. “It’s hunkering-down time,” where the initial winners will be companies “[that] can out-lease and out-manage their competition.”Eventually, savvy investors will be able to cash in on an inevitable recovery. Indeed, “the market always comes back,” just not in 2009.
Uncertainty and Distress
Growing Pessimism. Since summer 2006, the Emerging Trends interviewees have turned from wonderment about the staying power of ebullient pricing and skyrocketing values to growing concern over the subprime mess, and now gloomy recognition that the commercial markets will suffer through a significant correction. The downward trajectory of industry sentiment accelerated as interviewees became more anxious about the nation’s economic prospects and credit markets remained nastily gridlocked with no signs of imminent recovery. Then the rapid demise of iconic financial institutions elevated trepidation to near panic. “There’s been a lot of bravado and denial turning into hand-wringing and pain.” “Everybody had been drugged by the long bull market.” “Uncertainty” over a “minefield” of issues now beyond most investors’ control grips the industry. Enduring credit chaos upends the entire global financial system. In the wake of run-amok securitization and rampant risk offloading, “no one knows who owns what or what it is worth.” “Some of the smartest people I know are paralyzed,” says a veteran mortgage banker. Players hope that government intervention can help restore liquidity, but realize that AIG, Wachovia, Lehman, Merrill, Freddie, Fannie, and Bear represent significant distress reaching into virtually every brand name financial enterprise. “Banks are broke and many investment banks are bust from leveraging their businesses to the max. They don’t have the money to lend.”
Lender Distress. Interviewees wish that financial institutions would “take their inevitable write downs and clear the market,” but understand that the potential severity of losses in a sudden re accounting could undermine more companies and crater confidence in a suddenly fragile banking system. Instead, lenders grasp for government handouts and buy time—letting buyers quietly cherry-pick nonperforming loans
and making allowances to many borrowers. “They extend pay down requirements and put off re-fis, delaying dropping the hammer.” The $700 billion bailout and other emergency programs pave the way for institutions to move bad loans off balance sheets, eventually using auctions to speed up the process. “We can’t crash the system, but we also can’t keep prices where they’ve been.” Then ugly reality sets in—taking losses, writing down values, and wiping out frothy gains from recent years. More banks and investment banks could fold, the hedge fund casualty list will grow. Continuing shockwaves emanating from the commercial market correction will erode market confidence further and discourage investing until players can be relatively certain the bloodletting is over.
Only then will meaningful transaction activity resume: Cash and low-leverage buyers will be king; Surviving banks will impose strict lending guidelines, requiring more recourse and equity; Left-for-dead commercial mortgage–backed securities (CMBS) markets will revive, but in a more regulated form; and Opportunity funds will need new investment models that can’t rely on massive leverage and cap rate compression to boost returns and promotes.
Please review our investment opportunities on www.glixus.com
and luxury homes on www.globalgalleryusa.com
Blog: www.seanglickman.wordpress.com
Best Regards,
Sean Glickman CIPS , TRC , CSP
Investment Commercial Division
Stirling Sotheby’s International Realty
561-488-7766 , 407-902-6660 , 407-992-1382 , F – 888-504-4170
ORLANDO, Fla. — Sean Glickman, an international real estate specialist who has partnered with overseas investors on real estate transactions for nearly a decade, joins Stirling Sotheby’s International Realty (www.StirlingSIR.com) in Orlando, Florida. Glickman will lead an international marketing campaign to present foreign buyers with distressed investment opportunities to enter the U.S. commercial property market.
Glickman is targeting investment groups in Europe and Israel that are looking to acquire U.S. commercial property, which offers a lower risk and better return than financial market investments, especially the distressed properties throughout Florida that present the best opportunities we have seen in decades. Stirling Sotheby’s International Realty has a diverse inventory of commercial investment opportunities for foreign buyers, including apartment complexes, condominium buildings, shopping centers, developed and undeveloped land located primarily in the southeast region of the U.S. “Many of these investment opportunities are ‘off market’ acquisitions that are not available to the brokers’ community at large,” Glickman said. “But every investment opportunity presented to our clients is sourced from carefully selected real estate providers such as banks, hedge funds, real estate investment trusts, bankruptcy courts, builders and developers.” Glickman will be part of Stirling Sotheby’s commercial property auction on December 11th. The commercial auction will include office buildings, retail and industrial facilities, development sites and raw acreage from all across Florida. It could be the largest auction ever of Central Florida commercial properties, and will get attention from around the world.
Glickman’s expertise is in bulk residential and commercial properties, land acquisitions and development. He has executed lucrative transactions for his clients in all of those areas throughout the southeast states of America, Israel and Central America. “Sean continues our desire to bring global reach to everything we do at Stirling Sotheby’s,” said Roger Soderstrom, owner and founder of Stirling Sotheby’s International Realty. “The current market conditions bring outstanding opportunity for people who are looking to build a portfolio while prices are low. Sean’s connections in Europe and Israel will bring new and exciting investment opportunities to our listings.” Glickman owns a 300-acre golf community in Louisiana, and recently brokered many transactions such as a 100-room hotel in Miami Beach , 70 ocean front acres in Nicaragua and a 100-acre land acquisition and entitlement in Israel.
About Stirling Sotheby’s International Realty
Based in Orlando, Stirling Sotheby’s International Realty is one of the largest and most active Sotheby’s International affiliates in the southeastern United States. The company offers exclusive Sotheby’s International Realty marketing, advertising and referral services designed to attract well-qualified buyers to the firm’s property listings. Stirling Sotheby’s World Marketing Center – The Global Gallery – supports builders, lenders and asset managers in marketing properties worldwide. Stirling Sotheby’s International Realty also provides a full line of auction services for both buyers and sellers.
