Too Much Money

Too much money, too few deals. As the economy grinds forward, albeit slowly, the Fed retains its QE posture and under Yellen that is not going to change at all. It is now highly likely that low rates will continue for several more months and there will be no formal raising of rates by the Fed until 2015 possibly. At the same time the number of defaulted loans has dwindled, bankruptcy is used minimally now, and extend and pretend has seemingly solved a lot of problems. That is not to say there is no distressed property left, but the really good deals have mainly been had, and it is the more complex situation, where partners fell out, extend and pretend has expired and no new extension is going to happen, or some other circumstances create an opportunity for highly experienced workout groups to step in. Much of what is left is not worth bothering with and not what most investors seek- i.e. old roadside hotels in tertiary markets.

The result is there is a lot of capital on the sidelines looking for the few deals that remain or surface. That drives many investors to secondary markets and often paying up just to get yield. The Chinese are pouring money in to the US still in search of just owning a major asset. For example Chase Plaza, the Setai in New York, and other properties for which they are over paying. Their goal is to just get large sums to the US and deployed into a good asset in a large city to get some yield. Not too unlike the Arabs of many years ago during the oil boom, and the Japanese after them. It is likely that just as those investors learned you can’t just put in capital and go home to collect checks, the Chinese may find the same fate some day. In the meantime their money is flooding in and anxious to do deals. EB5 is just a tiny portion of that money and one of these days, that program is going to blow up as either the Chinese or the US government is going to realize there are many scams being foisted on the Chinese seeking that all important visa.