C.M.O. 1.19.2010
Credit Market Overview
January 20, 2010
All of the sturm and drang emanating from D.C. these days regarding “Fat Cat Bankers” has proven great camouflage for at least two realities; that Congress is as guilty as any other party for inflating the housing bubble and that those same Fat Cats support burgeoning micro-economies wherever they congregate as they tend to spend a good portion of their compensation on goods and services in the local community. It might be a fancy watch from Switzerland or a brand new car from Europe but they’re buying it down the block.
Wall St., figuratively, distributed itself away from the curb of that street, literally, and Broad St. a good while ago and is now a globally interconnected network of various geographic centers and is also dispersed more evenly within those centers.
This year’s bonuses are attracting the fury of all who believe everything that comes out of the mouths of the patriots who serve the needs of the American people selflessly from the hallowed halls in our Nation’s capital. They are also attracting something else, interest in residential real-estate.
“There’s happier feeling” is how Paul Purcell, co-founder of Charles Rutenberg Realty put it. “We’re grabbing on to anything positive”, he continued which goes a long way to sounding like someone that has just made it through a very dark night and is beginning to see the first gray light of morning on the distant horizon.
While it might seem like a slightly brighter tint is being used to paint portions of the city’s residential market, Tishman Speyer and Blackrock Inc.’s recent announcement that they wouldn’t make a full scheduled debt payment to senior lenders on Stuyvesant Town and Peter Cooper Village triggered a default on that debt and puts one of NYC’s largest apartment complexes in a state of suspended animation.
The purchases of the Fat Cats that are left are also no match for the businesses that have disappeared since July of 2007 as Reis Inc., a New York based research firm reported recently that commercial rents fell in almost each one of the 79 American cities on which they collect data. The biggest decline was in the Big Apple where “average effective rents” fell almost 20%.
The one bright spot, at least rent-wise, is that as the need for office space in New York declines, demand for it in Washington is increasing, providing some support for the commercial market there which translated into a drop of just 3% in effective rents.
“The financial crisis hit New York hard, which is why it’s down so much, whereas the government is one of the few sectors that has actually added jobs”, was how Robert Bach, chief economist for Grubb & Ellis, a Santa Ana, CA, based brokerage firm put it.
The CEC Strategy follows 21 REITs out of the 400+ names in its universe. Of that 21 the Strategy is currently long 20 which is the translation of falling CDS levels and rising stock prices.
With the Dow Jones Equity All REIT Total Return Index up 31% in 2009 it would appear the Strategy was on the right side of the move. In late December Alexander Goldfarb, an analyst with Sandler O’Neill, described 2009 by saying, “It’s been a roller-coaster ride this year. And we’re about to end this year on a high note”.
With last night close bringing the market back to levels last seen in September of 2008 let’s hope the ride keeps going for a bit longer.
Enjoy the week.
Jim Delaney
