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The Black Swans Have Landed

The black swans are on your roof and making a mess.

By Joel Ross | joelross | Updated on February 13, 2016

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.

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