I have been writing about the black swan events that would happen and affect all of us. Most have ignored my admonitions and some have ridiculed them. Well, the big black swan landed in Paris last night and it is 9-11 all over again. While far fewer died, the impact is as great. In the words of the Pope today, WWIII is underway. We are now, and have been for several years, engaged in a world war with radical Islam, even though Obama refuses to even utter the words Islam. How can we effectively fight an enemy the president refuses to even acknowledge exists. Maybe it is because he is why we are at this point now. His weakness and his lack of a real foreign policy and defense policy has lead the world into WWIII. Create a vacuum, and the really bad guys will flow in. That is exactly what happened.
So what will all of this mean to CRE. First, nothing good. About a year ago I wrote that Europe is not a place for investment where there was not instant liquidity. It was problematic enough that the European economy and banking system were still very weak and policy makers had not done many of the things that were needed to clean up the banks. We see the result today with many of the major banks having mass layoffs. We see the Euro continuing to head to parity. Now we have the flood of Muslim refugees who will bring a few planted terrorists in their midst, and a population that does not assimilate, and does not adhere to western value systems. It will materially add to the dislocations in several countries where large Muslim populations have created areas of Sharia law and no go zones for local westerners and even the police. Adding a million or more Muslims who have no skills and no money, and are a drain on already thin budgets, is not a recipe for anything good.
Now we have the second Paris attack, and other terror incidents around Europe, with more to come. We find the attack seems to have emanated in Brussels. In Antwerp, the Jewish quarter is patrolled 24/7 by large numbers of heavily armed troops. It is now too dangerous for Jews to live a normal life in Antwerp and other cities. The result is a growing exodus of Jews from Europe. They are taking money capital and intellectual capital out of Europe. This exodus will now grow substantially after Paris.
The European economy was already at risk of deflation and recession, and this will accelerate that. There will be more attacks, more dead bodies, and more flight of capital. Draghi now has no choice but another round of QE next month. I expect the Fed now to delay raising rates due to the turmoil in Europe and the realization that the world just changed, just as happened after 9-11.
I have spent the past few years warning the US hotel industry that a black swan event such as this was going to happen, and it would negatively impact hotels in the US because it would cause travel slowdowns and a major reduction in foreign travel to the US. Nobody believed me. In fact I was ridiculed. So here we are. The black swan event of this decade. The start of WWIII. Hotels are now in for much higher risk. Travel will be affected to some degree. There will be a terror incident here at some point and then travel will really be impacted.
My black swans have landed and the result will be a rough time ahead, especially with Obama still in charge for 13 more months. As one seasoned Washington hand observed today, Obama ha become irrelevant on the world stage and Europe and the Arabs and Israel will proceed to fight Islam without him. The problem is they can't do it without us just as happened in WWI and WWII. The party is over.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
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.
