08' Recession - How bad was it really?
As one of the lucky ones that came out of college in a bull economy, getting a job was easy even with my rockstar 2.4 GPA.
As someone that's planning on going back for a MSRED, i'm nervous about a possible slowdown and coming back out in a bad job market.
To those who actually went through it, how difficult was it really to get a job in RE development or related fields during the downturn? Coming from construction in DC, most of my peers said it actually wasn't too bad to stay employed, it only culled the bottom percentile and DC is a fairly recession resilient city as well.
Also interested in hearing stories. Next recession will be first. I am in CMBS and when I look at the conduit deals done during the last recession, it is shocking. There were literally zero conduit properties originated in 2009. We had over 2,000 properties being originated for conduit last year. I cant even imagine such a precipitous drop. This will create a ripple effect. If there are no deals to originate, then originators & underwriters have little to do (though some UW's can transition to balance sheet loans, credit and structuring people have little to do. I guess some will transition to asset management and special servicing but there would be mass layoffs. But one advice I am given by two of my bosses whom were both laid off from Credit Suisse is that we will 100% get back on our feet, it is not the end of the world. Its a hiccup and almost everybody got back on their feet.
Not too bad if you're at a BB frat, but some of the LMM and Botique houses on campus had to slash tailgate budgets 10 - 20% during the last downturn. Definitely makes it harder to get laid but if you're at a top house with a solid alcohol contribution/consumption ratio you should be able to keep your spot on the composite.
CodyParkey 2009 - 2011 was horrific. 2008 my income was off 50% from 2007 and that is a lot more money than the years that followed.
Lending was still getting done on MF, just not a lot of deals. I can't believe the deals I could barely sell. I had a 10 unit property 5 doors down from the beach for $165k a door in 2012. Seller was going to carry a 2nd so that the buyer would only come in with like 15% down. I couldn't give this deal away. Heavy hitters in SD still buy smaller complexes by the beach and they scoffed at this property because it wasn't a 5 cap on actual. Today the property is worth 400k a door and if I brought it to the same heavy hitters they would feel like they stole it at 350k a door.
I financed a nice office building on PCH in Encinitas in 2012. Everyone turned it down. Finally got Wells to do it.
Multifamily was trash in the 90's. People were feeding their buildings back then.
interesting to hear the RE side of it. got a close family member in healthcare DCM, took a big paycut and then his company got bought by another one so he was axed and the acquirer's banker took his territory, took about a year for him to get back to normal
in my first job, our division shuttered (also on the debt side), starting salaries were abysmal (grads were pleased to get $30k to start at that time in the southeast), and while PWM stayed pretty resilient, there was a lot of panic because of all of the M&A back and forth. smith barney was citi's golden goose and wondered what a MS (well, really mitsubishi) deal meant so lots of attrition, retention bonuses then followed to keep good guys put, merrill wondering what BoA was going to do (hint, BoA destroyed a wonderful culture, they really fucked it up), smaller guys start googling "counterparty risk" and more, but mostly just a lot of sleepless nights trying to keep clients from panicking at exactly the wrong time. most of the stuff PWM guys pushed wasn't caught up in the debacle, may have been a couple of bond funds that bought some shady MBS's or had a stock manager who held onto lehman too long, but from where I sit, everyone came out OK
TLDR - it was bad, but in retrospect, relatively short lived. I could not imagine going through the depression.
A family member of mine was an MD at Lehman/Bear Stearns (won't say which) and part of their fixed income group.
His stories of 2008 are honestly depressing. He had worked at the company for years and was friends with everyone he worked with.
Definitely keep it private as to which bank he was at given this huge reveal. Would be a terrible thing to out him by narrowing it down to just 1 bank.
It was pretty bad on several levels for me:
Pretty bad time!
In 08/09 my GF at the time's dad was part of the AIG team that had been peddling these now infamous products. Obviously when shit hit the fan he was let go. Managed to keep their house is suburbia, continue to go on vacation, etc. so good for him. Not the point of this post.
The afterburn was real. He was untouchable, essentially blacklisted from the financial services industry for having been part of this now stigmatized team. Couldn't get looks anywhere even when we were in recovery mode! I think he was a pretty sharp dude, although I was pretty naive at that age so who knows.
We talked about the situation once. He'd said he was just following orders from the top... that's all and now he was gutted. Pretty sobering and sad stuff honestly. Dude was a muppet and had his life derailed. Pretty sure AIG is doing fine now...
and that's when I knew, I HAD to work in high finance.
Wasn't just AIG at fault. I blame the consumer at least as much as the lenders and the folks securitizing the loans. The consumer was simply greedy. Banks made it way too easy to buy RE with no money down and with a product that was negative amortization which means unless the value of the property increases substantially, you'll owe more than the property is worth. So people just walked away from their obligations.
Never quite understood that part other than that they could. You borrow X. Just because it goes down in value doesn't mean you can't afford to pay the loan. You were going to pay it if it went up in value. The lender doesn't get to change the terms just because of appreciation so why do you get to walk when there's depreciation? I know some lost their jobs so they were unable to pay, but around here, lots just walked away even thought they could pay.
To say consumers share as much of the blame as the people who created the financial products is absurd. The banks found a way to bundle crap and model it so complexly that it was treated as gold. They sold off the loans as mortgage backed securities knowing full well that they had a high chance of failure. Rating agencies treated the securities as AAA because they had no idea how to question the models the bank supplied to them! Then many of the banks took out bets against the very loans they had sold through credit default swaps with AIG. AIG sold these without knowing what the hell they were doing. It was a very small team that ended up blowing up a huge company.
In the end banks facilitated bubble buying of sketchy borrowers because they didn't have to hold the loans. Texas was one of the markets where this didn't happen, why? Were people in Texas somehow more virtuous than people in other states? (I mean ask a Texan and they will say "Hell yeah we are!") No, they had regulations in place after the savings and loans crisis of the 80's to prevent these stupid loans. A lot of people tried to keep paying and endured hardship when they should have just walked away. Raw business says if you owe much more than an asset is worth then walk away. Don't throw good money after bad.
https://www.investopedia.com/terms/n/ninja-loan.asp https://www.thisamericanlife.org/355/the-giant-pool-of-money
My boss bought a house near Tiger Woods in Florida for 40% less during the crisis than it was listed for a year earlier. Now it is worth triple that. When his real estate billionaire father in law heard what the cap rates were in FL at that time, he flew in from the other side of the world and bought forty units for cash in a matter of a few weeks. Prices on all of those units have at least tripled.
The lesson: stay liquid my friends!
Uhhh, this is hard to imagine, even in the D.C. area--I'm a Washingtonian of that era. The most brilliant project manager at Toll Brothers (he's my brother-in-law and now is making something like $700k+ running his own construction firm) was let go. My brilliant now-former boss who makes something like $400-500k base salary running a private real estate company for a rich family was nearly put out of work after 10 years wth JLL. My best friend who today makes more than $1 million originating SF loans was terminated from his job as a loan originator. My other closest friend--my college roommate--had a 3.8 GPA as a finance major and was never able to break into the real estate biz. He works in consulting today. I was laid off from my RE job.
2007-2010 was nightmarish for persons trying to break into CRE or RE in general. I got incredibly lucky to survive despite my layof. Highly talented people had their industry careers annihilated or blown up on the runway.
my experience is from the commercial/multifamily real estate space, so all this pertains only to that area. at the time, i was an investment sales broker with a big national firm and was able to come out the other side on a team that did extraordinarily well. it was a big office, so i saw a lot of it play out in real time. i think we went from like 80+ agents to 20-30 and probably one closing per year per agent average, if that many. i saw a lot of people go under and never come back. i saw a handful crush it later on the upswing and build great businesses.
1) every deal that was either bought, recapped, or refinanced in the prior 3-5 years was at the very least worth less than it was at the time of that event and in most cases outright underwater. lesson learned: plan for downturns. they happen. real estate is cyclical. it does not "always go up" regardless what your personal experience or anecdotal evidence tells you.
2) most of the people who supply capital to the guys in #1 (ie - the LPs, lenders, etc) have deep pockets and UNLIKE the RTC days (which everybody expected) they did NOT decide to "cut their losses" but instead decided to "kick the can" and wait for values to come back up. lesson learned: it is good to have deep pockets and control your own destiny. more than you would ever imagine. not being in control means someone else is in control and that means someone else controls your destiny. you will never be in total control, but be completely aware of how much control you do or don't have at all times.
3) this meant that transaction velocity screeched to an immediate halt. ANYONE who made their money off the transaction velocity (ie - investment sales, leasing, mortgage broker, CMBS guys, any intermediary essentially) all were pretty much screwed. most of these guys ended up in some other random sales-related job or got pushed out of the industry entirely. the few that remained were those that had saved enough money and built up a big enough war chest to make it through. this was a minuscule percentage. lesson learned: nothing is more painful to watch than nothing happening at all. especially when you are working WAY MORE than you were when lots of stuff was happening. and know that you can't do anything about it at all no matter how hard you try. also be acutely aware that other people can have an immense amount of control over your life just by not doing anything and that is a terrible feeling.
4) during the downturn, the few that made it through in #3 above did 10x the work and basically made zero money. spent a lot on marketing, travel, and entertaining. they especially courted the banks and special servicers, who for the most part went to big auction houses anyways when they wanted something sold but otherwise went to receivers. very few of the intermediaries got much biz from these other guys as the per-deal fees were drug down very far by price-sensitive banks and courts such that the only real option tended to be auctions for most things. lesson learned: u need a lot of faith to kill yourself for crazy hours and be confident that the market will come back. u also better love whatever it is you are doing.
5) when things started to pick back up on the other side, the guys from #4 absolutely crushed it. they were the only guys in town with the herd of guys with no track record or experience having been washed away a long time ago, now tending bar or washing cars. these are the guys who went from making like $300k/yr prior to the crisis to losing $100k/yr during the crisis to making $1mm+ just a year or so after. crazy bounce back. no competition around at all. lesson learned: it takes a lot of money and big balls to bet with the big boys.
6) lots of other people came back into the market and work for these guys who made it through. lesson learned: if you aren't the one who sticks it through, get on board with one of the guys who did.
7) the investors who never sold (b/c they didn't have to) or the banks who never sold (b/c they weren't forced to) came out fine. lesson learned: if you can afford to do it, think long term.
so to sum it all up, the only difference i saw between the guys who were totally destroyed and those who were made the new kings of the industry was staying power. lesson learned: as with most things, if you don't really need the money and have patience, the world is your oyster.
lesson learned: if you go into a downturn as an intermediary and you don't have a huge nest egg with a huge expense load, probably best to cut your losses early, switch industries and maybe come back as an investor after you make a lot of money elsewhere. sticking around as an intermediary is not worth your entire life savings, credit rating, marriage, etc. get another job and move on.
lesson learned: if you are young enough, maybe see if your parents will let you live with them for free and eat ramen noodles for 3-5 years while you work 80-100hr weeks with zero income and MAYBE you'll come out the other side with big bucks. or you will be the world's last buggy whip salesman. at this age, u can afford to swing for the fences.
note: all of this happened in most markets, but it got progressively worse as the markets got more remote. in gateway markets it was bad but if you were in some random tertiary market it was an absolute blood bath. capital fled those markets like the plague. lesson learned: the bigger the real estate market, the safer it seems to capital markets and therefore, deals will still get done there in downturns. flight to quality is your friend if you are in these markets.
another note: some people tried to capitalize on the downturn with other-peoples-money but they screwed up the timing and were too early. what they thought was the bottom was simply a pit-stop on the way to hell, like stopping at the gas station down the street from your house before you drive across the country. those people had no idea what they were getting into and got clobbered. they frequently levered up a lot expecting a huge bounce and got destroyed. the guys who were still early but not the "first ones in" did amazing. lesson learned: real estate moves down fast and up slow, you can miss the exact bottom by YEARS and still probably come out pretty good.
My best friend was originating mortgages from 2004-2009 before he was let go. He got into the business by a friend of a friend who was in MS-13. For a brief while, mortgages were so profitable that violent gang members were getting into the business.
For a year-and-half after his layoff my buddy was working at Starbucks. He encouraged me to get into the mortgage business, at which point I did, I opened up my own branch and hired him. I ultimately quit the industry (I was really good at it, but the hours were overwhelming and I didn’t enjoy the business). Today my friend does about $100 million in annual production. He told me on Monday evening that his goal for the next 3 years is to reach $330 million in annual production, at which point he wants to hire me to run his team.
I don’t know if I can do it—I just don’t know if I have it in me again, but he said, “How about $250,000/year?” and I was like, “Umm, well, I would at least listen.” [although the number would really have to start with a 3] So let’s put it this way—the industry is highly profitable for those who can produce. At $330 million in production, less some overhead costs, he’d be making something like $3 million/year. But to put that in perspective, $330 million in 2005 would equal something like $6-7 million/year in income.
Edit: to your original question, no, virtually every originator was eviscerated. Today, there are very few originals. Top producers today are dominated by young Gen Xers and Millenials.