Based on a recent survey conducted with industry participants, many do not feel Trump has been helpful to the industry. After reading the sampling of specific comments, it is clear many are letting their personal political feelings cloud their thinking. This is not a defense of Trump, who has many defects, and who is a developer with a history of bad behavior with subs, banks and others. But all of his faults should not get in the way of objective analysis of where are we in CRE today vs where were we a year ago.
Obama was a disaster for the US and the world and lied about all sorts of major issues. He left the world a far more dangerous place, the US with the worst race relations in 30 years, a massive deficit, hundreds of thousands of dead in the mid east, a disastrous agreement with Iran and a nuclear N Korea, and the slowest growing economy coming out of a recession we have ever seen. For all his faults and major personality problems, Trump through the work of his outstanding cabinet, are fixing many of the serious problems facing the economy and the world that Obama and Hilary created. If you are objective, you can't think the last 8 years was positive for the economy or the world. Ignore Trump and his tweets, and pay attention to what the cabinet is quietly actually accomplishing.
Reality is that Trump has directed a massive deregulation effort that is ongoing, and especially impacts us through EPA, clean water rules, wetlands rules, and other rules about site development. As a land developer doing brownfield development, this is a massively beneficial change. Just stopping the Clean Water actions Obama's EPA was undertaking makes many land development projects once again feasible. Under Obama, even a dry pond or stream was an issue.
While all of the deregulation has not fully been implemented, there is no longer a inspector or regulator waiting to pounce on every little thing to make development much more costly and delayed. Outside of California, which is near impossible to deal with give their water boards, and air quality boards, most of the rest of the country is now becoming much more development friendly, at least as to federal rules. Local rules and regulations are still a major issue but hopefully with the Feds backing off, maybe local authorities will do the same.
Second, we no longer have the Labor Department passing all sorts of rules that favor unions. Labor is once again pro business and that will make it far easier to deal with unions and alleged civil rights issues. We are no longer faced with the DOJ taking on all sorts of claimed discrimination in the workplace. This will help us to a small degree to deal with the critical shortage of skilled labor and costs of that labor.
The economy is now growing at a 3% rate and when tax reform passes, which it definitely will, we should have a continuation of 3% of better. That is all good for CRE values and opportunities. Right now values are stagnant as they have been inflated by the historic low interest rates we have enjoyed for several years. However, even though rates will rise in 2018, as the economy accelerates, the stronger economy and full employment along with the high values of stocks and real estate, will in time induce increased spending by consumers and corporations with translate to more development and higher rents.
The banks are in solid shape and can withstand a downturn well, the rest of the world is finally growing again, most corporate balance sheets are solid and will remain so as they have refinanced with very low rate debt, banks are not over indulging developers thereby limiting over development so far. There is tremendous liquidity in the system and that should continue well into the next two years. For the US, the over leverage is mostly out of the system, and should not return for at least another year or more. In short, while values are stretched,, the capital markets are solid for now, and there is plenty of liquidity available to deal with problems, especially in the banks.
While there is a major valuation question, there is still debt refinancing to be had at reasonable levels, so for the most part there will not be a credit crunch like we have seen in the past. Owners have a very viable route to refinance at the moment if they have a performing property, so they are under no pressure to sell or dump assets.
With tax reform now proceeding quickly, and deregulation well underway, and lots of liquidity in the world, there is no reason to fear a sudden recession of deflation of values. Despite the nonsense in Washington, Congress inability to move quickly and smoothly, and despite the media and celebrities pouncing on everything Trump says or does, reality is, things are going very well now for CRE and should continue to do so.
The sky is not falling. There was no collusion, Trump did not break the law, the Clintons and Obama did break the law based on the new revelations about uranium, Russian bribes to Bill and the foundation, and the new revelation that it was the Clintons and DNC being the ones who financed Fusion and the infamous false dossier. The Democrats are going to be very sorry they started this Russia story, and it will turn on them very soon. Despite Trump, the Republicans will gain seats in both the Senate and possibly even the House in 2018.
As the famous line goes, “It's the economy, stupid.” Trump has a spectacular cabinet, and despite his tweets, and statements and the attacks by the press, it is the adults in the cabinet who are really running the show. US CRE should flourish over at least the next two years as the tax bill passes and the economy continues to grow at 3% or better.
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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.
