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. There is nothing for the next nine months that will materially change the current situation no matter who is elected. It takes time to reset the Cabinet and almost a year to fill all the appointments in the agencies. Even if Trump wins, he cannot move the plodding herd overnight. He can undo executive orders and other things along those lines, but a lot is embedded in Dodd-Frank and that will take Congress with the Democrats in a strong position in the Senate to block everything good for lenders and CRE. We are the enemy to them, and they want to stop us from succeeding, either through regulation or tax increases. The good news is rates are going to be ultra-low for several more years. There is no way the EU, Japan and China are going to suddenly have a successful economic turnaround. China drove much of the world economy for the past 10 years, but that is now over and done. The situation in China is severe due to a total lack of liquidity for non-state-owned companies. They are drowning in debt and have no way out right now. The economy is riding on the subsidy of the government pushing infrastructure projects and keeping state owned companies in business so they do not have to have large labor reductions. In addition, Xi Jinping is committed to undoing a lot of the economic reforms of the past 30 years and returning to a more-strict communist doctrine. This does not facilitate economic growth and so we will not see China come roaring back for a very long time—years, even. There are well-founded rumors of plots to assassinate Xi as he has jailed and demoted many very powerful people, ending their gravy train. A lot of very angry people are in a position to potentially make bad things happen. Nobody knows what is reality and what is rumor, but my people in China say the rumors seem to have some level of reality. The result of all of this is we are in for a very constrained investment market for a long time, until after the inauguration and allowing for some time to see what happens next. If you are a seller, be patient. If you are a broker, the next 12 months may be long. If you are an investor, wait for the distressed deals that will be coming. There are a lot of maturing 2006-7 loans and there are a lot of still over-levered owners. 2017 may be the year that distressed deals reappear in size.

Instant Insights /

Why Uncertainty in the World Economy Will Continue

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