Today’s post is written by Michael Green, Senior Commercial Loan Originator with Counsel Mortgage Group, LLC. Mike writes monthly on the commercial mortgage market. Check back each month for his commentary.
For the answer, consider what’s in the recent headlines of industry tabloids, websites, BLOGs, social media platforms, etc.
Fed Holds Fed Funds Rate at 5 ¼-5 ½ %,
Fed Raises Specter of Rate Hike Again,
Distress Jumps While Extend-and-Pretend Continues,
Interest Rate CAP Costs Surging Again,
FDIC Lists 56 Banks on Insolvency Watch List
Top Rated CRE Bond Fund Hit with Losses.
There are more of the same, that have been more of the same for the last year or two. These stories, and many like them, appear as news in name only, i.e., they appear in news sources. The real news is that there is no new news! Data sources continue to grind new numbers to authenticate no changes. The markets continue poised and focused in six-week increments, i.e., from one FOMC meeting to the next. Market participants have become numb to the continuance of sameness.
Buyers, investors, borrowers, lenders all look at one another to see who’ll go first. Who’ll step up and break the monotony. Who’ll be the early bird that gets the worm? Why do opportunities languish with no takers?
What we know without the headlines:
Upwards of a trillion dollars of CRE property has loans maturing yet this year and next.
Hundreds of billions of fresh financing is available from non-traditional (private) sources.
It’s a buyer’s market. Reduced acquisition prices more than compensate for decreased leverage and increased interest rates.
If the Fed dropped rates ¼% tomorrow, very few players would likely activate.
If the Fed raised rates ¼% tomorrow, the CRE lending market might have a muted reaction.
What is somewhat astonishing is that 12 people – Members of the FOMC – can freeze and hold hostage multi-trillion dollar industries – CRE and CRE financing. Ivy league pedigrees notwithstanding, their DNA is largely the same as yours and mine. Yet we afford them intellect and judgment far beyond their collective capabilities. Not just my opinion. Historically, Fed policy actions have been wrong, or late, or both in guiding the economy. The fact that they make their decisions based on market data, a defense they seem most proud of, tells you they’re always looking in the rearview mirror for what’s ahead.
Participant procrastination is supported by seasonality – it’s the summer – and it’s an election year. Post-election, further procrastination will be supported by further seasonality – it’s the Christmas Season. But what will happen in January? What will be the continuing justification for postponement? Smart money consensus is that we’ll have at least 1 rate reduction this year. Will a second one show up in Feb-Mar? Possibly! When will somebody ring the bell that says it’s OK to go back into the water? They won’t!
The most reasonable window for market entry ahead of the thundering herd, we conclude, is between now and the end of October. In November someone will get elected – they always do. In December we’ll still have Christmas – we always do. In January will you be running with the herd, or will you be comfortably positioned out ahead, watching them trying to catch up?