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HFF Research Update for March 16, 2016: Store of Value

Wednesday, March 16, 2016

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.

On this day in 2008:

  • Bear Stearns was promised a life-saving loan from the Federal Reserve Bank of New York.
  • That promise was rescinded – talk about the mother of all re-trades.
  • Bear Stearns was sold to JPMorgan for $2 per share – about 6 percent to 7 percent of the value Bear Stearns had traded for only two days prior.
The speed of the financial crisis continues to astound me. I re-read Too Big To Fail every March, not only because Andrew Ross Sorkin wrote it so well but also because it never fails to impress upon me lessons concerning misalignment of interests, wanton risk taking and hubris – or the combination of all these notions. If The Big Short is a bloated diatribe of self-righteous indignation, then Too Big To Fail is an objective autopsy providing insights more appropriately aligned to future business practices.


Analysis of Market Insights and Economic Performance


Editorials aside, in a healthy and significant departure from the era leading into the financial crisis, the world today is obsessed with risk – and the anniversary of Bear Stearns’ failure is a poignant reminder of the subject. On Monday, Bloomberg printed an article on bank appetite for construction lending. “We’re getting late in the cycle,” proclaims Mark Myers who leads real estate for Wells Fargo. “The antennas are up,” says Mack Real Estate Credit Strategies Chief Investment Officer Peter Sotoloff. The article proclaims, “the commercial-mortgage bond market is compounding problems for landlords.” Moreover, Bank of America has cut its forecast for CMBS issuance in 2015 to $55 billion, dropping their previous forecast by nearly a third. Many are concerned a decline in issuance will hurt the market’s ability to refinance the ~$110 billion of CMBS paper maturing this year. I am not entirely there; more on this topic to follow.

Then late Tuesday, Tony James, Blackstone’s president & COO, was interviewed on CNBC and espoused some wonderful opinions that someone in our Miami office would probably declare “tasty”! Among them is the opportunity in credit given banks’ lending less (sound familiar? See Real Estate Alert's supplemental sent under separate cover). He also shared some thoughts on An Bang’s Chairman Wu and his approach to investing. But perhaps most relevant to HFF, he spoke on the shift in global perception of the U.S. as an investment market. Wherein foreigners have, in the past, viewed stocks as the “store of value” in the U.S., this is now embodied by commercial real estate. So as has been the case elsewhere in the world, and, as with investors such as Chairman Wu, real estate is now the “store of value” in the U.S. And according to Mr. James, for someone with a long-term view real estate “will take care of you” if you place capital in it for the long term. Lastly, the U.S. economy, being the best, strongest and most flexible economy in the world with favorable demographics will take the lion’s share of investment going forward.

“Store of value.” There’s your new buzz word – and from a pretty reputable source.

About Jimmy Hinton

HFF Jimmy HintonMr. Hinton serves as Managing Director of Research for HFF and is responsible for the firm’s research efforts. Mr. Hinton works with the executive 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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