FOR IMMEDIATE RELEASE
U.S. ECONOMY LOOKS BRIGHT, BUT COMMERCIAL REAL ESTATE INDUSTRY’S APPETITE FOR RISK COULD PROVE PROBLEMATIC
Noted Economist Sam Chandan, CNBC Commentator Steve Cortes Headline Annual Tigild Lender Conference In San Diego
SAN DIEGO – A message of cautious economic optimism – with a warning to “not repeat the mistakes of the past” – underscored the presentations at the 14th Annual Trigild Lender Conference held this year at the oceanfront Hotel del Coronado.
Event headliners Steve Cortes, an author and CNBC commentator and Sam Chandan, Ph.D., founder and chief economist of Chandan Economics, focused on the U.S. economy and the state of the commercial real estate industry, while respected industry experts addressed current trends and hot button issues in the lending market.
The annual San Diego event drew a full slate of panelists and speakers – among them top executives in the special servicing/banking, non-performing loan buying, lending, investing and legal industries – with 20 educational sessions and a series of networking breaks. With a special focus on non-performing loans, the conference featured topics such as: Commercial Property Pricing and Loan Sale Trends, Capital Raising, Private Equity Lending, Equity Sources (crowd funding, EB 5 programs, funds), Insurance Trends, Receivership/Bankruptcy, Strategies for Upcoming Loan Maturities, Current Issues for Balance Sheet Lenders and Special Servicers, Asset Class Updates, Adding Value and Legal Lightning Round Table.
Appetite for Risk Characterizes CRE Climate
The consistent buzz at the event focused on uncertainty over CMBS debt maturities, said Trigild president Judy Hoffman. “With over $1 trillion in CRE loans due to mature by 2017, there is an element of uncertainty as to what will influence the market. Yields are low, and additional risk is being taken in search of higher yields.”
While there is a sense of excitement – with more lending in more places to more borrowers – that appetite for risk could prove problematic, said keynote speaker Sam Chandan, an adjunct professor of real estate at the Wharton School of Business, with an increased willingness for lenders to take and transfer risk.
“We make our worst loans when we are most confident and our best loans when most conservative,” Chandan said. “Transaction velocity and prices are highly correlated.”
Additionally he said there is still uncertainty about interest rates. “What share of mortgages being made today can withstand a rise in interest rates? We’ve become endured to the idea of interest rates remaining at historic lows.”
Meanwhile, multifamily, the “poster child for the economy” remains white hot. While rental bias will remain, Chandan said, there is an underlying problem due to the fact that “we are creating jobs, but not growing income. Wages are no higher than they would have been five to 10 years ago. This will limit apartment rental growth.”
The bottom line? “A degree of myopia exists in the market,” he said. Due to the nature of the business cycle, “the loans being made today will expire under distress.”
The current recovery is unlike anything we have ever seen, he added. “The fact that “foreign investors are buying and domestic investors are selling here should be an indicator that problems are arising in pricing. We are entering in dangerous territory in next few years.”
America’s Future is Bright
Regarding the overall economy, the message was more upbeat, with keynote speaker Cortes noting that “contrary to conventional wisdom, America’s future is bright.” The U.S., he said, will “remain exceptional, due to multiple factors, including a culture of innovation, demographic advantages, immigration, geography, the energy revolution and military dominance.” While it has been perceived that China presents a risk to the U.S. – that is not the case, said Cortes, who penned Against the Herd: 6 Contrarian Investment Strategies You Should Follow. “China went from bikes to jets in a generation, so the world thinks it is usurping the U.S., but cracks are emerging, with central planning there failing – resulting in massive corruption and overbuilding.”
Moreover, he said, American innovation is currently driving the world, “with 75 % of global venture capital happening in the U.S.”
Fueling the economy here, he said, is immigration and a high birth rate. “The U.S. will have plentiful young workers far into the future.”
Key sponsors event this year included Akerman; Burr & Forman LLP; Ballard Spahr; Key Bank Real Estate Capital; Auction.com; Mission Capital Advisors; Polsinelli; Roetzel; Commercial Asset Preservation; Koss Resource; Thompson & Knight; and Buchalter Nemer.
Headquartered in San Diego with offices throughout the country, Trigild has nearly 40 years of property management and fiduciary expertise, with a focus on managing and maximizing value for assets in an array of industries, including commercial real estate, multifamily, hospitality and more. Since its inception, Trigild has developed a full service national operating platform providing institutional quality services to private real estate investors and financial institutions. For information, visit www.trigild.com.
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