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Why Uncertainty in the World Economy Will Continue

The level of uncertainty is about as high as it can be right now. Maybe not as bad as November 2008, but at a level that has caused many investors to just…

joel-rossThe level of uncertainty is about as high as it can be right now. Maybe not as bad as November 2008, but at a level that has caused many investors to just sit it out for now. We continue to have very high asset prices, not just in the stock market, but in CRE as well, as the Fed continues its ultra-low rate policies. While there is a chance the Fed will raise rates one more time this year, it is less than 50% because the rest of the world, and now the BOE, are in negative rates or near negative. It is hard to see how they can raise much if at all which would cause the dollar to rise and US companies to pay the price of a high dollar. The Fed is sort of boxed in by external circumstances.

The major pull back has been exacerbated by even tighter restrictions on CRE lending regulations, as regulators are over-reacting to the market and are over-worried that we will have another crash on their watch. They rather crimp economic growth than have a property market downturn of major proportions. There is little likely to change for the rest of this year, and if Hillary wins, there is no chance Dodd-Frank and the over-regulation will be mitigated.  Elizabeth Warren and the far left will want even more regulations and a break up of the banks. Many think Hillary will move back to center after she is elected, but this is not the nineties and she is not Bill. The politics are vastly different now, and while Hillary takes large payoffs from Wall Street, she has political pressures from the extreme left that will keep her from moving back to the center. A Hillary election will be bad for banking and thus bad for CRE. If she is elected, getting a construction loan will be very tough, even compared to what we see today.

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Joel Ross

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.

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