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HFF Research Update for July 17, 2015: Flatline

Friday, July 17, 2015

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.

In television and film doctors often use a defibrillator to revive a flatlined patient. While the imagery invokes terrific drama, it carries little logic. I am not an expert in etymology but I believe the word "defibrillate" could be broken down into two parts: de-fibrillate, which is to remove fluttering, in this case, within muscle fiber. So a defibrillator might prove strategic when someone is suffering arrhythmia amidst a heart attack. Or, maybe when a stock market is experiencing convulsion.

Analysis of Market Insights and Economic Performance

So pardon me for grimacing a little this morning when a CNBC pundit announced the Chinese government is using CPR to fix their volatile stock market when what the patient needs, truly this time, is a defibrillator. The stock market in China isn't dead but could benefit from some external jolt to reintroduce a measured cadence.

Bloomberg is reporting the China Securities Finance Corporation, a "state-run margin trader" has "$483 billion of firepower." The organization was "founded in 2011 to provide funding to the margin-trading businesses of Chinese brokerages" and is "one of the key government vehicles to combat a 32 percent selloff in the Shanghai Composite." The Shanghai market moved more than 3 percent higher in Friday trading. This is certainly an overwhelming example of the quiver of arrows the Chinese government can leverage (pun) and further is an example of their eagerness to foster confidence.

Meanwhile, the patient in most need of CPR is actually Greece, which is dead on the operating table. The European Union has finalized a €7.16 billion bridge loan meant to provide interim financing until a third three-year bailout can be finalized.. The EU is essentially breathing continued life into the heart of Greece by increasing the flow of oxygen from the lungs into the blood stream. Cardio (heart) Pulmonary (lung) Resuscitation (revive).

Here at home, bond yields are flatlining against a spate of economic data and all the news above. Moving sideways for two days now, bond investors seem disinterested in reacting to headlines.

Meanwhile, I continue to find not-so-subtle nuggets in Fed Chair Janet Yellen's testimony from Capitol Hill. Her focus is increasingly turning to shadow banks’ participation in the commercial restate space.

“In the Federal Reserve we have hugely ramped up our attention to the shadow banking system. We are thinking about regulations that might address...some potential risks.”

U.S. private funds that target debt investments in commercial real estate raised a record $14.2 billion last year, a 67 percent jump from 2013 and up from just $1.7 billion in 2010, according to data researcher Preqin. Over the next several years, shadow lenders could pick up as much as $118 billion in commercial real estate mortgages and development loans that banks would’ve handled, taking risks that regulated institutions won’t, according to a Goldman Sachs report.

Something of which to keep watch.

About Jimmy Hinton

Mr. Hinton serves as Managing Director of HFF, responsible for the firm’s research efforts. Mr. Hinton works with the HFF Jimmy Hintonexecutive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.

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