Questions About The Distressed Market: 2010 And The Year Ahead (Live from NARdigras)
Thanks to the lingering economic downturn, the mood here at NAR’s annual convention in New Orleans is optimistic but cautious. As data comes in from the commercial side of the business, evidence of turnarounds in major markets is piling up. But credit stubbornly refuses to flow and the Fed’s recent $600 billion attempt at a kickstart has the commercial real estate sector wondering how best to handle distressed commercial properties.
This was the topic at the session led by Peter Mosca’s this afternoon on The Distressed Market: 2010 And The Year Ahead. A solid turnout saw Peter lead a panel including Dr. Sam Chandan, Global Chief Economist and EVP of Real Capital Analytics, and Scott Griffith of ERA Griffith Realty. (Recordings of this session can be obtained here.)
The Fed’s recent move was on the minds of attendees. One question to the panel wondered how the Fed moving inflation targets from 4% to 2% would fail to put a further clamp on the commercial RE market. Dr. Chandan replied that the Fed’s FOMC (Federal Open Market Committee) that determines policy for quantitative easing does not exhibit a consensus – that the committee itself is subject to “differing theories on the appropriate channel for US monetary policy”. While he agreed that the low inflation rate had not produced jobs – and that “nothing matters more than the ability to generate jobs”, he did point out that deflationary pressures also exist in the economy. He expected the Fed to move aggressively to control monetary policy over the next two years.
One attendee wanted to know how best to find distressed properties, given that banks aren’t exactly marketing them. Peter Griffith suggested to contact lenders and ask for the REO department, workout department or distressed asset department – and to realize that each institution has its own jargon for the asset class.
The panel was also asked if when the FDIC takes over a lender, do they also guarantee the notes? The panel responded “not all”, describing the participation agreement between the lender and the FDIC defines which assets will be managed and to what degree the federal insurer will participate.
The issue of statistical reporting bias came up during an exchange about reports in Florida that rents in multifamily properties had stabilized. Dr. Chandan counseled caution about such reports, indicating that “we have a very fragmented marketplace” and as a result, the samples that produce such “headlines” tend to be biased in favor of high quality assets.
The immigration issue as related to multifamily properties also came up. One attendee also expressed concern that owners of multi-family dwellings were, under various state efforts, going to be held to the same standard in vetting tenants that employers are in vetting the citizenship of employees. Dr. Chandan did not expect this to happen “at the federal level”.