Where Are We Now (according to the experts at the VCU Real Estate Conference)?
On Tuesday October 12th, I was lucky enough to attend the Annual VCU Real Estate Trends Conference. Each year, the Real Estate Department at Virginia Commonwealth brings in speakers from different disciplines of real estate and from the local, regional and national perspectives and they discuss their views on the market. This program is in its 20th year and is quite informative.
This year had a decidedly different tone than the last two.
The conferences in 2008 and 2009 were about doom and gloom. They used words and phrases like "free fall" and "liquidity crisis." They also spoke of an "economic tsunami" that was upon us and "potential double dip." If we didn’t actually fall into a depression, they said, any recovery will be longer and slower and more painful than anything we have ever experienced before. Anyone in a real estate related business left the last two conferences truly imagining how it might feel to be broke and homeless and wondering how much longer before it happened.
This year was different.
The panelists, who worked for various public and private entities, including HUD and Freddy Mac along with John B Levy and Alex Brown, all seemed to be cautiously optimistic. While their reasons all were slightly different, their tune was basically the same….stabilization.
The folks who were more residentially oriented saw pricing stability in many markets (not named Las Vegas or Fill-in-the-Blank, Florida) and a decrease in the rate of decline for many of the bad statistics (mortgage delinquencies, job loss and foreclosures.) For the most part, the conclusion was the residential market is no longer in need of critical care. I would like to think that I already knew that (or at least felt that here in Richmond) but it was good to hear that what I am feeling locally is also happening in more markets than not around the country. This is a good thing.
What I felt best about, though, was the commercial folks, especially the lenders, and what they had to say. The overall theme was that of "liquidity is returning!"
While we fell, the thing that kept us from finding a bottom was the complete lack of funding. No one was able to obtain funding for any project, regardless of its merits. The credit markets were so entangled and encumbered just plain “screwed-up” and the overall environment so unsure (both from a value perspective and from a regulatory perspective) that banks and other lending institutions were incapable of acting. They do not feel that way now. Especially for Richmond Condos!
The following is occurring now:
– investment funds are attracting cash that was previously sitting on the sidelines meaning buying pools are assembling are seeking things to buy
– the rate of deals getting funded is increasing and leverage is getting better
– one of the most expensive transactions ever recorded in Washington, DC (on a per square foot basis) just closed.
– the prime rate is down almost 250 basis points from this time last year
– the commercial backed securities market is reinventing itself
– banks are writing off bad debt and electing to sell the underlying properties at values set by the market. “Extend and Pretend” has been replaced by reality.
For the most part, the deals that are getting done currently are larger deals for quality properties in bigger markets. Properties that have a quantifiable track record have value in the eyes of the market again. The market has not returned for properties that are more speculative in nature (at least in the eyes of the lenders) and has not really filtered down to the middle and smaller markets and to some of the more economically sensitive asset classes…but it is coming.
What should we take from this? We should take that the "deal flow" returning to pre-bubble levels means normal levels of activity. It means development. It means employment. It means recovery. It means that commercial recovery is upon us and residential recovery is close behind. It means that the worst is behind us and better days are ahead.
At least that is what "they" say….