NREI asked industry experts to weigh in on the necessity of the U.S. government’s announcement this week that it will infuse $250 billion into the nation’s private banks in exchange for preferred shares. Here are some of the responses:
"Aside from the philosophical debate as to whether the rescue package itself and this most recent bank bailout move is right or not, from the standpoint of restoring the basic functioning of the financial system, it was necessary. The freezing of inter-banking lending and commercial paper market have a direct impact on U.S. companies and consumers and the longer they are dysfunctional, the more damage is done to the economy. In fact, we expect job losses to be higher as a result of the intensification of the credit problems into a crisis over the past month, which also negatively impacts demand for commercial real estate, especially retail and office space.
The first phase of restoring the financial system is restoring inter-banking confidence, followed by recapitalization of the banks to the point where they begin lending again to consumers and businesses. This latest step has put progress in motion but the final impact will take time to impact the economy and commercial real estate market. In the short-term commercial real estate financing will remain very constrained although some regional banks and the agencies are still providing acquisition loans to well-located, prime properties, albeit with extreme caution and largely on smaller transactions."
Hessam Nadji, managing director, research services Marcus & Millichap Real Estate Investment Services
“It certainly won’t hurt. I think everyone has different personal views of how government intervention should work or not. But certainly given how drastic the capital crisis has become in the last few of weeks and few months, it’s certainly a welcome action. I just think hopefully the banks will feel more confident lending to each other and their clients, which will include real estate owners, then it can’t be anything but a positive. No one knows for sure how quickly this will all be implemented, how efficiently that money will flow through to investments from the lenders. But whether it flows through immediately or in three to six months or nine months, it will be welcome when it does.”
— Steve Kohn, president, Cushman & Wakefield Sonnenblick Goldman
“I do think it was necessary. I think everything the government is doing is necessary. And I think what this $250 billion does — and you saw the reaction to it on Monday when the stock market rallied — is I think it shows the government’s willingness to be creative, aggressive and fair in providing liquidity to the marketplace in hopes of it freeing up credit. I think the government is concerned with overall credit in the marketplace — so it’s hard to differentiate commercial real estate — but I do believe that it will have that effect. It will take some time to have that effect.”
— Spencer Garfield, managing director, Hudson Realty Capital LLC
“Yes, it is going to help, but I think the second part is that this is a long-term solution — at least the effects will be felt medium- and long-term. This will take a significant amount of time to filter through to affect our world. Certainly we’re not going to see it by the end of this year. This is something that will take months — three months at a minimum.
This is all about confidence. This is nothing but good old-fashioned confidence and confidence gets built over months, not days. Everybody wants to see some signs of stability and you can’t snap your fingers — that’s just reality. So we need a period of time where things are stable. I think we’re going to see credit markets gradually improve but from what I hear and see, it’s going to be painfully slow.
To see any improvement in our world, I think you’re talking about six or nine months. There are really two worlds: the investment sales world, which has really taken it on the chin, but now we’ve seeing it on the tenant side. Everybody is sitting on their hands. I’ve never seen anything like it. And you see these lines of credit being cut and tenants are going to be very nervous to do anything. Long-term, that demand isn’t going to completely disappear. But something we thought was going to happen this year won’t happen until mid next year.”
— Ross Moore, executive vice president and director of market and economic research, Colliers USA
“It was necessary given that the other private market capital injection routes had been closed. After the nationalization of Freddie and Fannie, nobody wanted to invest in the preferred shares of the banking system. And after the limits were put on the shorting of stocks, nobody wanted to come in with their convertible bonds investment — and with the takeover of WaMu by JP Morgan where senior investors were wiped out. So these three avenues of preferred shares, convertible bonds and preferred senior debt, nobody wanted to touch these things. So to recapitalize the system, you have to come in with your own money and that’s why the government came in.”
— Rajeev Dhawan, director of the Economic Forecasting Center, Georgia State University
If you would like to comment on this issue, please email your remarks to Managing Editor Sibley Fleming, [email protected]