The black swans keep coming and in bigger flocks. Egypt, Libya, and now Japan. In this world of instant communication and instant video feeds on all sorts of social media, there is no way anything gets hidden and the media exaggerate the crisis. The experts say the nuclear power plant problem is getting resolved properly, and will not create a major radiation problem even in the vicinity of the plant, yet some reporters are already talking about nuclear clouds coming to the US and the dangers that could bring. The amount of misinformation and exaggeration by the media is just fanning the flames set off by Senator Markey who claims a major crisis about anything to do with the environment or that might be good for business and the capital markets.

None of this is helpful to real estate values and the economy. Just when we were all getting to feel a lot better, Obama wallows in indecision and waits for the Arab League, the Russians on the UN Security Counsel and others to tell him if and when and how the US military should be deployed in Libya. Japan happens. The White House political machine encourages the unions to near riot in Wisconsin. The federal budget mess continues with almost no participation from the White House which is again letting Harry Reid, and Chuck Schumer rant and rave about how we can’t cut spending. The total lack of leadership by the president on all fronts is holding back the recovery and again making people cautious.

In January and February I was getting a flood of new deals and a lot of optimism in the market. In the past two weeks the optimism is being replaced again with caution. The deficit is no closer to being dealt with, and the opposition to Governor Walker by the White House does not bode well for good solutions at the state and local level for the pension and union led crisis. Unions make up only 6% of the private sector and that is declining. So now airport security is put at risk to mollify the unions by allowing security workers at TSA to be unionized. The situation in Libya is sending a horrible message to Iran that they can do anything they wish and Obama will just watch and do nothing at all.

While I believe the economy will continue to show growth, it is below where it could be if we had strong leadership out of Washington and a real effort by the White House to solve the deficit and municipal debt problems, and the geopolitical challenges, instead of exacerbating them. It is not hard to see where all of this is headed and none of it is good. Fiscal sanity is not happening at the federal level and it will take Walker and Christie and other governors to solve the mess one state at a time. The Mideast is now headed in a bad direction with the inaction and total lack of leadership by the US on Libya.

Bottom line to all of this is we continue now to be in for a long slog. The capital markets will be adversely affected by the failure to deal with the deficit. That is a long term disaster coming at us like an avalanche. The disruptions to the debt markets are coming as funding the government becomes overwhelming, and crowding out of the private sector becomes a real issue in a couple of years.

If you have an opportunity to reset your debt structure now and lock in for several years, it is probably the right things to do. You have to look out several years and prepare for higher costs of capital and more fiscal and monetary problems at the federal level. Luckily Pelosi is gone, but unfortunately harry Reid is still in charge and so solutions are not likely.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.