Juggling Dynamite

The seemingly endless party of growth in real estate supported by ever-cheaper finance has reached an end, with a protracted hangover now ahead.

This has broad implications for the many sectors that feed off real estate and is why realty-led recessions have historically been the harshest. See, Industries that rely on thriving downtowns suffer, and Office turmoil roils ground lease negotiations.

Not just in North America, either, see German commercial property deals tumble to a 5-year low, with deal volumes this year collapsing 50% from the first half of 2022.

After years of excessively easy money, the correction phase may last much longer than most imagine, see, Commerical real estate rebound may not happen until 2040. Kiran Raichura, Capital Economics Deputy Chief Property Economist, breaks down the outlook for office building values and even multi-family housing in this direct video link.

Real estate is the most highly levered asset class in the world, so when borrowing costs and vacancy rates rise sharply, free cash flow can quickly evaporate, pushing down property values and the ability or willingness of owners to hold.

Public and private equity and lender funds in this space also need cash to cover increasing redemption requests as unit holders face a spreading cash crunch of their own. Several froze withdrawal windows earlier this year, but that can’t last indefinitely. Liquidation selling is just getting started. See Blackstone REIT announces major asset liquidations as redemption requests continue:

Blackstone real estate investment trust (BREIT), which recently made news for exercising a clause that restricted owner withdrawals for several consecutive months, has not taken the news lying down. The real estate investment trust (REIT) is still trying to raise money for its shareholders and recently announced the sale of $3.1 billion worth of its commercial portfolio. It also is rumored to be considering a sale of its Las Vegas portfolio.

Some lucid assessments in this segment.

When the road ahead is uncertain, there’s no wiser choice than to listen to those with experience – who have seen enough market cycles to judge what’s most likely to happen next. Today we’re fortunate to welcome financial advisor Ted Oakley, managing partner & founder of Oxbow Advisors.

Ted has over 40 years experience helping clients, mostly high net worth families, protect and build wealth through good times and bad.

Here in mid 2023, we’ll ask him if the current powerful bull rally means the coast is clear for investors to pile back into the markets again, or if the bear market that attacked last year is simply drawing as much capital into the markets as it can before it strikes again. And we’ll find out how he’s currently positioning his client’s assets for what he sees lying ahead. Here is a direct video link.

Danielle was a guest with Jim Goddard on Talk Digital Network, talking about recent developments in the world economy and markets. Here is a direct audio link.

As fund managers massage portfolio dressing into quarter end today, it’s another good time to review the classic wisdom of Fred Schwed, Jr. from his 1940 book critiquing the investment industry, Where Are the Customers’ Yachts?  Happy Canada Day!!:

When there is a boom and everyone is scrambling for common stocks, take all your stocks and sell them. Put the proceeds in the bank [T-bills]. No doubt, the stocks you sold will go higher. Pay no attention to this—just wait for the recession which will come sooner or later.  When it gets bad enough to arouse the politicians to make speeches, take your money out of the bank [T-bills] and buy back the stocks.No doubt the stocks will go still lower. Again, pay no attention. Wait for the next boom. Continue to repeat this operation as long as you live, and you’ll have the pleasure of dying rich.