Imminent Geopolitical Events And CRE

At the moment the black swans are swarming once again. There are several unfolding events in the Mideast which can explode into war at any moment. Israel is on the verge of attacking Gaza again, and this time it may be the all out expungement of Hamas. That could bring in Hezbollah who might try to launch rockets to help Hamas. However, if Israel does wipe them out, then there is a high probability Fatah takes over Gaza again and then maybe peace has a chance between Palestinians and Israel.

The Iranian economy is collapsing fast, street protests are growing weekly, and the real sanctions on oil and banking have not yet begun. When those are in place in November, Iran cannot sustain itself.. The economy will fully collapse and neither China nor Russia will be able to bail them out. That is when the people will rise up and civil war will occur. It is very likely Iran will strike out with attacks on oil tankers, but this time the US, Israel, Saudis and UAE will attack and destroy the Iranian navy and missile bases. This will be the big war, and it will encompass much of the Mideast. Hezbollah will surely attack Israel to help its benefactor. Assad will stay out as he does not want to start a war with Israel or the US. Russia will stay out of it. They will not get into war with the US over Iran. There is a high likelihood of regime change in Iran in 2019. If Iran goes down, so does Hamas, Houthis and Hezbollah.

The war in Yemen will then end with some type of peace agreement since the Houthis cannot continue without Iranian support. Russia will also be forced to join Assad to make a deal with the US and Israel to end all warfare, and let refugees return. The political mess in Iraq also clears up as the Iranians are forced to flee. Sadar becomes the real power.

Turkey may see regime change as the economy there collapses. It seems unlikely Trump is waging this battle with Erdogan just over one pastor. Turkey has become much more Islamic and much more of a problem for the US and Israel. It would appear that the squeeze no on Turkey is meant to take down Erdogan completely, or force him to bend to US demands and better behavior. Around 50% of Turks are against him, and it will not take a lot more economic pain to bring people back into the street. The question is can the military mount a real coup and unseat or kill Erdogan. Hard to predict.

All of this will leave Russia with minimal influence and bases in the region. China and Russia are not able to intervene in all of this to prevent the collapse of Iran, even if China buys a lot of oil. Once Iran falls into civil war and collapses, then everything else gets resolved much t the benefit of the US, Israel and the Sunnis. The entire geopolitical posture of the world changes for the good. Trump becomes unbeatable in 2020.

For CRE in the US, all of this is very good news. It will again be the safe haven for capital. This will help keep rates lower than they otherwise might have been. The EU will find itself materially disrupted, and investing there will be even higher risk than it already is. EU banks will become weaker as the sovereign debt they hold in the Mideast becomes severely strained. The EU economy will take a serious hit. The price of oil will spike, but not for long as Trump will open the reserves. Israel will be attacked, but will be able to defend itself with strong US help, which it now has from Trump.

In the end, all of this will be very violent, disruptive and unsettling, but will be hugely to the US and the world's favor. Eliminating the mullahs through revolution makes everything different, and that, in my view, is what the real US administration goal and strategy has been. Now is the ideal time to do all this. The US economy is very strong, the military is being rebuilt and is under great leadership with Mattis, and Trump is willing to use military force to defend Israel and destroy Iran which is in the early stages of collapse and revolution. The Sunnis are fully on board with Trump and Israel. This is the exact opposite of the Obama policy, and will ignore any attempt by the EU or the UN to intervene in any way. The US economy will come through this fine and once things settle down, the US economy will continue to grow. If it plays out this way, Trump becomes unbeatable in 2020. CRE will thrive once this is all settled down.

The views expressed here are the author's own and not that of ALM's real estate media.

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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.