Here is the last thread from mid Feb. http://www.wallstreetoasis.com/forums/where-are-w…
Any change in your opinions?
Feel free to share your thoughts on one or many asset classes.
Quick touch on Wall St. I still cannot believe the Dow is hovering at 18,000.
With real estate in general I always look at luxury for sale product as an indicator. That to me is the first shoe to drop. From San Francisco to NY, it appears that Single Family product over $2mil has slowed a lot. Over time, maybe 12-18mo slower sales works its way into the middle of the market. Right now for sale housing under $1mil in CA is rocking. But I'm thinking volume of transactions is starting to slow as prices just keep going up.
You know housing has a problem coming when the neighbor you've never met comes over to tell you that they've started flipping houses.
Many more investors on the commercial/MF side are building now. Still some value-add deals getting done but it appears that a bulk of money being made is trending to development. Still looks like I've got a few good years ahead of me, I hope.
Two things I think are interesting from a debt perspective:
We're not as far as into the cycle as people think if you start the clock in 2012 when the availability of debt really started changing http://www.leveragedloan.com/when-will-leveraged-loan-default-rates-fin…
It is actually not a bad thing that I see construction lenders getting more nervous and getting pickier. This should limit new supply a little bit so that rents can keep rising. and possibly slow down construction so that hard costs are not so ridiculous (labor is outrageous at the moment)
Anyone else?
The fact that lots of 'smart people' think a harsh correction is highly imminent tells me that that is probably not true. Jobless claims just hit a 42-year low.
Whoever threw shit at this comment doesn't know a damn thing. Prospie is correct that we're only 3-4 years into the debt cycle since activity from 2009-2012 was driven by PE groups like Starwood, Colony, Rialto, etc. buying REO and NPLs from failed banks. We had essentially 4 years where NOTHING got built so there was a ton of pent up MF and SFH demand due to population growth. CRE underwriting standards are still pretty solid with reasonable leverage rates and decent amounts of equity in deals. That said, some markets are close to saturation on new MF because that's where the debt and equity providers felt most comfortable the last 2-3 years. Very little to no spec office or retail anywhere in the U.S. High end condo is still unique to NYC, Miami, SF, etc. with very little new production outside those markets. SFH production has generally been limited to growth markets and lending standards are still reasonably conservative. I don't agree that the "jobless claims" number means anything since in my opinion most numbers from the government are manufactured for political purposes these days. Unemployment and underemployment are still big problems across most of the U.S. My take is that while CRE fundamentals are still good, there is a palpable sense of unease out there and my feeling is that any slowdown or recession that impacts CRE will come from other sectors of the economy.
I have seen multiple construction lenders starting to slow down or pull out of construction lending completely. Developers on the are building in Prime areas for as low as 4.25% Return on Cost which is absurd to me. Deals that pencil are extremely few right now; land basis is way too high and construction costs are increasing monthly.
Are we in a bubble in certain markets? I think so. When will the shoe drop... who knows. My guess... 2017-2018.
To the idiots throwing monkey shit: If you have an intelligent dissenting opinion, please, make your case. Otherwise, fuck off. These people have offered up well thought out assessments of the current state of the market.
That said, I think fundamentals are still good but agree with jackstraw that any recessionary behavior will come from other sectors and eventually drag down CRE with it. Underemployment at this point is still a huge problem, and average households' incomes have not kept place with inflation over the last few decades, in essence causing the middle and lower classes to feel the squeeze all the moreso. In my area(retail) I'm seeing clients take longer and longer to make decisions and adding tighter controls to any growth. We'll see where it goes, but I think we're at this point tied directly to all of the other sectors, and there's no true consensus of any kind there right now. Shrug?
Would you still be pissed off if people threw a banana with no reason? I don't think you should be offended by some virtual point system unless you plan on gaining discounts. Just like any like/dislike webpage, there will be likes and there will be dislikes.
Pissed off? You misunderstand. This is the internet, who gets pissed off at random web forums? I could be a 16 year old girl locked in a basement in Azerbaijan for all you know, why would I get pissed off? My point was that this is a forum full of intelligent and thoughtful PROFESSIONALS(and some idiot students), and the entire idea is to engage in constructive discourse as means to both entertain ourselves and sometimes help each other solve problems. Throwing monkey shit when someone is participating in the full spirit of the forum and, you know, isn't wrong is just acting like a 5 year old. This isn't reddit where upvotes and karma matter for epeen measuring.
Sorry for hijacking.
Poo everywhere on this one, lol.
I'll try to be concise, lots of factors going on today. It's very difficult to assess given Fed intervention. From a 'normalized' perspective, we're top 7th inning. Inflation is beginning to pick up, yields rising, stocks rising more slowly, peripheral data is becoming erratic and consumer confidence is maxing out. From a textbook standpoint, that is late upswing.
However, given the 'longer lower' rate environment that may be upon us, an extended rally is certainly still possible. The other part is oil. As oil recovers, so does the financial and energy sector. Financials should benefit from rising rates as well. In terms of housing, I'm moderately bullish (generally). Rates are still low (and will not skyrocket), and when wage growth picks up, housing should become more affordable for first timers, which should kick growth back up in new home development and housing starts. I think this is enough to keep a recession off for another year or two.
Overall, we're clearly in the mature/late upswing stage, but there are forces in place that should keep a recession away for the next 12-24 months. After that, all else equal, all bets are off.
A lot of the deals I see now, compared to deals in 2012-2013, are priced to perfection. Deals in general are much tighter than they were a few years ago. A lot more people are trying to get into the game. At the same time lenders still have pretty tight underwriting and that is killing more deals than I would have expected. A lot of this is market to market as some places are starting to get overdeveloped while others still have a lot of runway left to go. I think the more conservative underwriting standards are going to protect us from any kind of harsh correction.
I am cautiously optimistic going forward. I think a lot of major markets will start to see small increases in vacancy as a lot of new projects are currently being developed. I still think the demand supports this supply. Other macro factors could put a damper on everything, but I'm not worldly enough to accurately predict that.
I can personally attest to our acquisitions having issues due to securing proper debt, even with lenders that we have a track record with. On our MF side, we are competing with more buyers than ever. Buyers that are in 1031's, are needing place capital, or will accept less than stellar returns. On our development side, our current developments have taken IRR hits due to a rise in construction costs since tying up the property. $/SF on land is out of control and everyone thinks they're sitting on a pot of gold cause their uncle's friend who's a broker told them so.
Have we had luck with markets outside of your typical LA/NYC/SF? Definitely. We were previously one of few serious buyers in those markets, and now it seems the trend has caught on and people are flocking to secondary markets in the "smile" states.
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