Archive for the ‘Economy’ Category
Collateral Risk Network
Great talk Wednesday at the Collateral Risk Network conference in DC. One-hundred or so in attendance, representing a great cross-section of stakeholders in mortgage collateral valuation, including some very senior folks from most of the Federal regulators. I spoke for an hour on the impacts of the Gulf Oil Spill on loan portfolios (current and future) in the affected region.
The news, by the way, isn’t very good. For starters, the property value losses are in the billions. While much of this will be compensable to the property owners, little is being done to the holders of the mortgages (banks, mostly). For example, assume a waterfront property in Louisiana valued at $500,000 before the oil spill. Today, it’s worth half that — $250,000. The property owner turns in a claim (which may be paid, or more likely at that level will need to be litigated). Even if the claim is paid, the property is still worth only $250,000. Now, what if before the spill event, the owner had taken out an 80% loan — $400,000. The bank is now sitting on a $400,000 loan collateralized by a $250,000 property.
In most circumstances, the property owners will continue to make payments, and the loans will be paid in full. However, if history tells us anything, a significant number of these loans will end up badly.
In the immediate, the lenders in the area are basically frozen. Anecdotal evidence coming in from the region indicates lenders are not lending, and even existing loan commitments are being cancelled. This has wide-ranging economic problems, not just for borrowers and lenders, but secondarily for a whole host of market participants (builders and brokers near the top of that list).
On that theme, I’m headed for Louisiana in a few days, with meeting scheduled on a variety of issues (some of them, oil spill related). As usual, I’ll keep you all posted.
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weekend update…
Do I need to pay royalties to SNL for using that title?
Anyway, I’m headed for D.C. (among other places) this week, speaking at the meetings of the Collateral Risk Network (Hamilton Crowne Plaza, 14th @ K Street) on Wednesday. CRN is principally made up of bank lending regulators, appraisal reviewers, and others in the real estate collateral business. The primary focus of this meeting is on new appraisal regulations coming out of the recent housing finance melt-down. As a secondary issue, I’ve been asked to speak on the Gulf Oil Spill and its impact on lending, property values, and appraisals in that region.
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Gulf Oil Spill Conference
Congrats to the folks at HB Litigation Conferences for a superbly organized and run conference in Atlanta this past week. For two days, a veritable who’s who of top litigators outlined the issues, the scope of the problem, and the direction all of this is headed.
I had the pleasure of going on the first day, right after Michael Rozen (law partner to Ken Feinberg, who will administer the $20 Billion fund) and right before Robert Kennedy, the famed environmental attorney. Rozen presented an indepth Q&A on what is known today about the Fund, which frankly isn’t all that much. Big questions loom on whether BP can or will attempt to use the fund to offset their remediation costs, and how claimants will be compensated for ongoing economic disruption which may not be fully knowable today. Kennedy’s luncheon address was more forward looking — really focused on the opportunities to get the world off of its dependency on carbon-based fuel.
Naturally, my own talk was focused on the economic and valuation questions — both what we need to do and how we will go about doing those things. As I noted, much of our scope of work over the coming months won’t be knowable until the MDL panel reaches its conclusions, hopefully before the end of July. However, much can already be done, and needs to be accomplished aggressively before a judge is appointed so that in the initial meetings, the litigants will be able to show the judge that the valuation questions are actually answerable.
From a purely practical perspective, we came away from the conference realizing that we were probably the only firm of our kind in the country capable of taking on this project. Apparently, most of the attorneys in the room seemed to aggre with that assessment. We will keep you posted as this case progresses.
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and…. yet more on the Gulf Oil Spill
I gave a 30-minute talk yesterday in a conference-call setting to over 100 bankers and other folks in the lending industry (public policy types, regulators, etc.) sponsored by the Collateral Risk Network (CRN), a group which focuses on real estate in the bank lending setting. Thanks to our good friend, Joan Trice, the head of CRN, for getting us involved in this.
One of the CRN affiliates, FNC, is in the appraisal management business. Needless to say, the impact of the Gulf Oil Spill has an immediate and significant impact on they way they do business in the affected areas. They have established a web site with information about the crisis. Click here to access their site and blog directly,.
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More on BP Oil Spill
Just confirmed — I’ll be one of the speakers at the upcoming BP Oil Spill Conference in Atlanta (June 24/25). The conference is put together by HB Litigation Conferences, the successor group to Lexis/Nexis Mealey’s Conferences. I’ve spoken at their conferences before, and they do a great job (and without sounding too self-serving, they put together a great set of speakers). Other speakers will include both the plaintiff and defense bar in this case, and I’m scheduled to go on right before the luncheon key-note address by Robert F. Kennedy, Jr.
For more information about the conference, please visit HB Litigation Conference’s web site.
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Newsletter, oil spill, and such…
Just sent out the April issue of The Greenfield Advisor. We cover quite a few things, but the front-page article is about the oil spill in the Gulf of Mexico. Greenfield is already gearing up a file on this matter, and given our history in such situations, we can already see the salient issues which will need to be addressed. More on this later….
We also include info on recent meetings of the American Real Estate Society and the Real Estate Counseling Group of America, as well as our thoughts on the current state of the economy. Enjoy!
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Mortgage Fraud
I added a comment today to the “Mortgage Fraud” blog. I highly recommend reading — it’s eyeopening.
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Hospitality…. on the mend?
Following up on my previous post, Marcus & Millichap’s Hospitality report also hit my desk this week. They would posit that, “In fact, a recovery in the sector has already begun.” The projected nationwide occupancy of 51.6% in the 1st quarter topped 1Q-2009, but is still lower than the 57.7% 1st quarter average from 2005 – 2009. The primary drivers? Strengthening of the labor market and other key economic measures.
Hotel investments, however, are still waiting to mend. Sales of branded full-service hotels have declined 60% in the past 12 months, and sales of chain-affiliated, limited-service hotels are down 48%. The flight-to-quality which is evident in other sectors has yet to catch on in hospitality. Well capitalized buyers appear to be ready, but there is a gap between buyer and seller expectations. Room revenues continue to improve, but the physical condition of some assets (a result of deferred maintenance during the downturn) is problematic.
For more information, visit the Marcus and Millichap website.
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Office Markets Report
Marcus and Millichap just released their Office Markets Report and their Hospitality Report this week. I’ll comment on the former today, and the latter later.
To quote, they believe the recovery will be “…muted and choppy…”, which is a departure from prior recession recoveries. They note that in the second half of this year, the business sector will need to step up to the plate and replace the government as the primary driver of economic recovery. Is the business sector up to the challenge?
Specific to the office sector, the rise in unemployment really masked the overbuilding in the office sector. As a result, while the overall vacancy rate has not yet peaked, the rate of increase in vacancies has slowed and should turn around later this year, with gradual recovery in 2011. Above-average job growth in 2012 and 2013 should fuel the slow recovery in the office sector.
Office investment hit a near-standstill in 2009, but they now see it picking up somewhat. (At Greenfield, we’ve noted that there is a fair argument for bargain hunting, particularly among choice properties which are on the market.) However, credit markets are still tight, keeping a lid on investment activity.
For the full report — which runs 66 pages — you’ll need to visit the Marcus and Millichap website and “join” as a client.
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…and yet another Seattle-centric post
I had the real pleasure of serving as Editor of the Central Puget Sound Real Estate Report for a number of years, a job which I gladly passed off to Matthew Gardner a couple of years ago. This is the 60th year of publication for this fine report. As local real estate markets continue to roil, it serves as a great touchstone for researchers, investors, and others with an interest in this market.
For more information or to subscribe, contact Glenn Crellin at the Washington Center for Real Estate Research, Washington State University, wcrer@wsu.edu, or visit their web site, www.realestatereport.org.
From a small northwestern observatory... 