With the start of the new year, it is the start of the change in the euphoria of 2015 and prior in CRE values. The party ended. We are not going to have any crash, nor any serious defaults, but what we are going to experience is the classic ending of the cycle, and a slowdown in happy days of steadily rising values. As I have discussed in earlier rants, every cycle ends and it is simply how badly that happens, and what to do. Numerous of my friends in the business who I consider very smart and experienced, have been net sellers over the past several months. Prices, even in secondary markets have reached the point where people like me can't justify chasing bids any longer. We lost four deals in 2015 to what we and even sellers brokers considered to be bids that simply were ridiculous. It proved to us once again that staying disciplined is key to not being hurt in later years when the deal does not work as rates rise, rents top out, and capital sits on the sidelines waiting for the next downturn. Cap rise over time, interest rates rise as they have begun to do, and the economy stalls out. Now we even have preemptive steps by the regulators to make it very clear to all that there needs to be a material tightening of underwriting and a lowering of leverage, just as rates rise. That is a deadly combination for stalling out of rising values.

It has been the combination of almost free loan money on an after tax basis, and a flood of foreign capital into the US seeking a place to hide and to enjoy the rising dollar. While there is still the strong desire for foreigners to bring money here, the situation has changed in some places. Russian capital is pretty much disappeared and that country sinks into deep recession and the oligarch's money is either already here or is needed to shore up failing business empires back home. Japanese capital is not rushing here since that economy is somewhat stabilized and the Japanese have alternatives at home or in South Korea and other places. Additionally the US no longer offers the cash on cash yields of prior years and the whole bid process here has become distasteful; and unnerving to Japanese who like deals under control and more certain. China is in serious problems now, and many who had made good profits and had excess capital, are now in default on their shadow bank loans. In addition, the combination of the corruption crack down, and the very ramped up paperwork you need to get capital out has caused many potential Chinese investors to either not have the cash any longer or to be afraid to let it show for fear of going to jail- or as they say in China- of disappearing. It is hard to know just what the Chinese flow of capital to the US will be as there are now various things happening that will constrain it flowing here as it might otherwise have done.