As the capital markets slide into disruption, everyone in CRE should be concerned where it all goes from here. While the big US banks are in very good balance sheet shape, they will be getting much more conservative as to who they loan to and how much. The big European banks are is serious financial trouble, and while they will be saved by their national central banks, they are not about to be making the sort of aggressive loans they once made. Availability of funding will become harder, and spreads are very likely to continue to widen. The good news is the Fed is not going to raise rates for a long time so index rates may stay ultra low for the rest of the year.

The equity side is going to become even more conservative and harder to get to close. Most investors are in their foxholes hunkered down, afraid to take risk now. The unknowns far exceed the knows in the world. The risk of recession has arisen and even though I believe it will not occur in the US, the growing talk of possibility will make investors more reluctant to reach for investment prices. Deals will now get retraded down, closing will become more difficult, and the bubble pricing in CRE will begin to turn into lower values as this continues. The Russians are gone. Europeans have the combined issues of the exchange rate, and the fear of a recession at home which means less available investment cash for US investing. The Chinese have a desire to get cash out before the next devaluation, but the combination of crashed stock prices, declining real estate values and serious liquidity issues at many private companies who are in default on their loans, will restrict how much capital really is available from China over the next several months. It is very hard to determine. In addition, the government is cracking down on capital flight to try to stave off another Yuan devaluation.

The black swans have landed and they are making a real mess on your rooftop. Oil may have triggered the decline, but the weakness in Europe and China and Russia , have taken a commodity crash and turned it into a potential capital markets shrinkage and maybe a world recession. Nobody knows and that is the problem. Nobody knows much of anything anymore. When uncertainty reigns, investors and banks go to the sidelines and wait to get clarity. Nobody knows where the bottom is or which black swan will land next.

All of this may be outweighed by a major geopolitical event at any time due to the total failure of the Obama Clinton foreign policy errors which has made the risk of a really bad event far more likely. Terrorists will strike again in a major way somewhere in the world, and possibly in the US. The administration is so afraid to even say Muslim terror, and to intensely surveil potential radical Islamists, that our defenses are weaker than they could be. One major attack and the capital markets or the hotel industry could be disrupted.

On top of all this we have an old, ignorant socialist, a liar who would already be in jail were she not running and protected, and a genuine slimeball on the other side who claims to be the greatest businessman ever, who make believed he is not a serial bankrupt, and who is giving the same ego maniac speeches he gave ten years ago. Reality is his father funded his business and got the mayor of New York to grant him big tax breaks on the Commodore Hotel. He has no real policies, and does have a long history of defaulting on his bank debts and accounts payable. This is what leads the packs on both sides. No wonder investors look at this and are scared. Even Asians who I deal with are worried one of these terrible people could be president. This does not encourage rushing to invest in the US.

2016 is the year of black swans, and there is no way to know what is going to happen next. The good news is major banks, corporations, and consumers are in very good relative balance sheet shape. With interest rates at still historic lows, huge cash balances sitting on the side, and ultra low energy and commodity prices, the normal pressures and risks of a major recession are not there, and if one happens it should be mild in the US since almost everyone can withstand it. Leverage has not yet gotten totally stupid, and with rates so low, the risk of a lot of defaults in real estate are low. The high probability is values will not stay high, and returns will not be achieved that were targeted. There is nothing other than a real Republican president other than Trump taking over and reversing the course Obama has set in a major way.

As the capital markets slide into disruption, everyone in CRE should be concerned where it all goes from here. While the big US banks are in very good balance sheet shape, they will be getting much more conservative as to who they loan to and how much. The big European banks are is serious financial trouble, and while they will be saved by their national central banks, they are not about to be making the sort of aggressive loans they once made. Availability of funding will become harder, and spreads are very likely to continue to widen. The good news is the Fed is not going to raise rates for a long time so index rates may stay ultra low for the rest of the year.

The equity side is going to become even more conservative and harder to get to close. Most investors are in their foxholes hunkered down, afraid to take risk now. The unknowns far exceed the knows in the world. The risk of recession has arisen and even though I believe it will not occur in the US, the growing talk of possibility will make investors more reluctant to reach for investment prices. Deals will now get retraded down, closing will become more difficult, and the bubble pricing in CRE will begin to turn into lower values as this continues. The Russians are gone. Europeans have the combined issues of the exchange rate, and the fear of a recession at home which means less available investment cash for US investing. The Chinese have a desire to get cash out before the next devaluation, but the combination of crashed stock prices, declining real estate values and serious liquidity issues at many private companies who are in default on their loans, will restrict how much capital really is available from China over the next several months. It is very hard to determine. In addition, the government is cracking down on capital flight to try to stave off another Yuan devaluation.

The black swans have landed and they are making a real mess on your rooftop. Oil may have triggered the decline, but the weakness in Europe and China and Russia , have taken a commodity crash and turned it into a potential capital markets shrinkage and maybe a world recession. Nobody knows and that is the problem. Nobody knows much of anything anymore. When uncertainty reigns, investors and banks go to the sidelines and wait to get clarity. Nobody knows where the bottom is or which black swan will land next.

All of this may be outweighed by a major geopolitical event at any time due to the total failure of the Obama Clinton foreign policy errors which has made the risk of a really bad event far more likely. Terrorists will strike again in a major way somewhere in the world, and possibly in the US. The administration is so afraid to even say Muslim terror, and to intensely surveil potential radical Islamists, that our defenses are weaker than they could be. One major attack and the capital markets or the hotel industry could be disrupted.

On top of all this we have an old, ignorant socialist, a liar who would already be in jail were she not running and protected, and a genuine slimeball on the other side who claims to be the greatest businessman ever, who make believed he is not a serial bankrupt, and who is giving the same ego maniac speeches he gave ten years ago. Reality is his father funded his business and got the mayor of New York to grant him big tax breaks on the Commodore Hotel. He has no real policies, and does have a long history of defaulting on his bank debts and accounts payable. This is what leads the packs on both sides. No wonder investors look at this and are scared. Even Asians who I deal with are worried one of these terrible people could be president. This does not encourage rushing to invest in the US.

2016 is the year of black swans, and there is no way to know what is going to happen next. The good news is major banks, corporations, and consumers are in very good relative balance sheet shape. With interest rates at still historic lows, huge cash balances sitting on the side, and ultra low energy and commodity prices, the normal pressures and risks of a major recession are not there, and if one happens it should be mild in the US since almost everyone can withstand it. Leverage has not yet gotten totally stupid, and with rates so low, the risk of a lot of defaults in real estate are low. The high probability is values will not stay high, and returns will not be achieved that were targeted. There is nothing other than a real Republican president other than Trump taking over and reversing the course Obama has set in a major way.

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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.

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