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JP Morgan and Moodys Analytics both forecast that we will likely be in recession in 2020. They base this primarily on the belief that the fiscal stimulus of the tax reform combined with the excessive 2018 budget spending, will cease to provide the stimulus we are experiencing, and the deficit and higher rates will lead to a downturn. Maybe they are correct. But maybe not. They admit in conversation, that there are so many black swans circling now, that the level of certainty of any forecast is suspect, good or bad. All of this makes it very hard for us in CRE to really have confidence in our project projections. Recall that at the end of 2016, most economists, politicians and media made fun of Trump and Mnuchin for suggesting GDP would grow at 3% or better with the tax cuts they were proposing. Most said 2%-2.5% was the best we could hope for over the next ten years. Many projected a stock market downturn of sizable amounts, and they projected bad times ahead.

Right now, it is possibly as good as it can get. It is possible GDP growth Q# will be 4% or better, and that might continue into Q4. Unemployment might go down further to be historically low. The filings for unemployment are almost at historic lows, and as a percent of the population they are at historic lows.  Consumer confidence is at peak levels, and people feel very secure in their jobs. Wages are finally rising, and productivity is rising for the first time in over 10 years. Both are key to continued strong economic growth. Capital investment is picking up as companies now have had time to implement capital plans to take advantage of the tax benefits now available. This, in many cases includes new technology installations which will materially improve productivity going forward. Consumer balance sheets are as good as they have been for possibly 15 years. Banks are stronger than they maybe have ever been with high real capital. Inflation remains low and is likely to remain within reasonable levels due to the high dollar and the Amazon effect which economists estimate reduces inflation by .5% below where it might have otherwise been. Corporate profits are extraordinarily high and should remain so for a while. The stock market continues to hit new highs, and is likely to go higher making the cost of capital low, combined with still low debt rates. All of these things bode well for the next 12-18 months at least to continue strong GDP growth.

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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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