While Emmanuel Macron won the French presidency by a very wide margin, reality is 35% voted for Marine Le Pen, an unusually large number voted to abstain completely and many did not vote at all. While the numbers have not yet been released, Macron won a much smaller number of the voting public than the vote tally would suggest. Just as important, the Parliamentary election is not for another month and he has no organized party, so his candidates are also running with no official backing. It is highly unlikely his people will obtain a majority and it is also very unlikely he will be able to cobble together a solid coalition with the establishment he just defeated. So while it is good that Le Pen and her extremist views lost, France will likely remain a mess. The Italians tried a reformist candidate, and when it came to implementing his badly needed reform plans, he ended up having to resign for lack of support for them. It is very possible the same will be the case in France now, and the result will be not dissimilar to the US, where the opposition Democrats are working to stop anything from getting accomplished, even as some of them agree with the Republican position.
So in the end what is most likely is that the EU remains weak, despite the small improved economic stats. Last quarter's 1.8% GDP annual growth rate is nothing to get excited about, and is far from what is needed to pull the EU out of its doldrums and recession situation. With France likely to be stalemated, Italy going nowhere since the reform plans were defeated, and Brexit quickly ramping up to get very ugly and be a hard Brexit, and Trump demanding they contribute their fair share to NATO, it is unlikely we will see any real change or economic strength in the EU this year.
However, there is good news for us in all this. Europe still has major issues and that will not materially change. If France is in political battles and turmoil, not a lot of the needed reforms will happen and France will continue to wallow. That will continue to drive capital to the US. More important now is that the stock market will likely rise with the French election completed. That, combined with the House passing repeal and replace, should keep the stock market at least at current levels, and possibly higher as tax reform moves ahead with more credibility of being passed. Deregulation is now beginning to happen much faster as the cabinet level people are moving their agencies to act on many issues. As time passes, and assuming no black swan event creates some new crisis, then the economy should improve.
A combination of a improving economy, a tax bill moving ahead, the EU at least not blowing up with Le Pen, and China appearing to cooperate with Trump on North Korea, it is likely that the investment climate in the US will remain positive for quite awhile. Unfortunately, Congress moves slower than a snail, and everything is contentious now, so it is likely 2018 before we see major improvements when hopefully tax reform and the replacement for Obamacare will be done, and an infrastructure public/ private structure will be in operation with the tax dollars from repatriated cash form offshore by corporations. So I believe it may now be time to begin taking more risk, although not large risk. High leverage, even if you could get it, is not worth the risk. A black swan could land at any moment in this world and the Democrats are working overtime to screw up the country to make it feasible for them to get back in the game in 2018, even though they are very possibly going to lose more and lose complete control of the Senate. They have no candidates, no policy other than to the far left of Elizabeth Warren raging on this or that, and a very bad duo running the DNC. They will be seen as the party that worked against tax reform against jobs, and against affordable healthcare. That is a sure loser.
So US CRE is looking better now, and since most people expect a hard Brexit, that should not send any real shock to the system. China is not going to let North Korea ruin their plans and economy, and they will either have Kim assassinated (very likely), or will convince him to back down (unlikely he will). One way or the other China realizes their future is far better working with us than protecting Kim. Trump, Tillerson and Mattis have already proven the disastrous Obama period of period has ended, and China is in a very different relationship with the US now, as is the rest of the world. All of this is overall good for US CRE.
The views expressed here are the author's own.
While Emmanuel Macron won the French presidency by a very wide margin, reality is 35% voted for Marine Le Pen, an unusually large number voted to abstain completely and many did not vote at all. While the numbers have not yet been released, Macron won a much smaller number of the voting public than the vote tally would suggest. Just as important, the Parliamentary election is not for another month and he has no organized party, so his candidates are also running with no official backing. It is highly unlikely his people will obtain a majority and it is also very unlikely he will be able to cobble together a solid coalition with the establishment he just defeated. So while it is good that Le Pen and her extremist views lost, France will likely remain a mess. The Italians tried a reformist candidate, and when it came to implementing his badly needed reform plans, he ended up having to resign for lack of support for them. It is very possible the same will be the case in France now, and the result will be not dissimilar to the US, where the opposition Democrats are working to stop anything from getting accomplished, even as some of them agree with the Republican position.
So in the end what is most likely is that the EU remains weak, despite the small improved economic stats. Last quarter's 1.8% GDP annual growth rate is nothing to get excited about, and is far from what is needed to pull the EU out of its doldrums and recession situation. With France likely to be stalemated, Italy going nowhere since the reform plans were defeated, and Brexit quickly ramping up to get very ugly and be a hard Brexit, and Trump demanding they contribute their fair share to NATO, it is unlikely we will see any real change or economic strength in the EU this year.
However, there is good news for us in all this. Europe still has major issues and that will not materially change. If France is in political battles and turmoil, not a lot of the needed reforms will happen and France will continue to wallow. That will continue to drive capital to the US. More important now is that the stock market will likely rise with the French election completed. That, combined with the House passing repeal and replace, should keep the stock market at least at current levels, and possibly higher as tax reform moves ahead with more credibility of being passed. Deregulation is now beginning to happen much faster as the cabinet level people are moving their agencies to act on many issues. As time passes, and assuming no black swan event creates some new crisis, then the economy should improve.
A combination of a improving economy, a tax bill moving ahead, the EU at least not blowing up with Le Pen, and China appearing to cooperate with Trump on North Korea, it is likely that the investment climate in the US will remain positive for quite awhile. Unfortunately, Congress moves slower than a snail, and everything is contentious now, so it is likely 2018 before we see major improvements when hopefully tax reform and the replacement for Obamacare will be done, and an infrastructure public/ private structure will be in operation with the tax dollars from repatriated cash form offshore by corporations. So I believe it may now be time to begin taking more risk, although not large risk. High leverage, even if you could get it, is not worth the risk. A black swan could land at any moment in this world and the Democrats are working overtime to screw up the country to make it feasible for them to get back in the game in 2018, even though they are very possibly going to lose more and lose complete control of the Senate. They have no candidates, no policy other than to the far left of Elizabeth Warren raging on this or that, and a very bad duo running the DNC. They will be seen as the party that worked against tax reform against jobs, and against affordable healthcare. That is a sure loser.
So US CRE is looking better now, and since most people expect a hard Brexit, that should not send any real shock to the system. China is not going to let North Korea ruin their plans and economy, and they will either have Kim assassinated (very likely), or will convince him to back down (unlikely he will). One way or the other China realizes their future is far better working with us than protecting Kim. Trump, Tillerson and Mattis have already proven the disastrous Obama period of period has ended, and China is in a very different relationship with the US now, as is the rest of the world. All of this is overall good for US CRE.
The views expressed here are the author's own.
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.
