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Commercial Real Estate Pro Network

Commercial Real Estate Professionals who work with Investors, Buyers and Sellers of Commercial Real Estate. We discuss todays opportunities, problems & solutions in Commercial Real Estate.
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Now displaying: Page 1
Jun 25, 2019

Darrin: [00:00:07] What do you see is the biggest risk that you face or that investors face. [00:00:13][5.3]

Neal: [00:00:14] OK I'm going to take that as a real estate question not necessarily as a you know overall macro question that would be another show. It's an. So firstly it's not interest rates. Read what our new Fed chairman is talking about. Read what all of the different governments governors are talking about. At this point, The Fed has turned very dovish. They think we're close to equilibrium. And recently they've started talking about also slowing down quantitative tightening which is the withdrawal of those four point three trillion dollars that they've dumped into the market after the Great Recession. So I don't think at this point interest rates are a risk or significant risks by rate caps. Keep doing what you're doing. I think I don't think that the next recession is a massive risk because I think it's a recession. Understand that either 2020 or 2021 is a recession year. You're probably not going to provide cash flow to your investors. You're probably going to suffer. You should have some operational money in your in your bank and be very careful. I would urge you that if you start seeing the economy turning. Stop giving money to your investors stop giving them cash flow and add money to your operating budget. That's all really that you have to do because it's not possible from a financial perspective for the next one to be the big one. I still think there's a big crash coming but I don't think we're there yet. I think that what we are what what is about to happen in the next recession is a normal vanilla U.S. recession two to four quarters. You get some pain. You see some decrease in occupancy, your profits dropped for a year and then life goes on beyond that point. Right. I'd much rather be in multi-family at that point than being let's say hotels which get hit a lot harder in those kinds of vanilla recessions. So I don't think that those two interest rate and the next recession are two things to worry about. The biggest thing that I'm seeing to worry about in the marketplace is one that I've never heard anybody talk about as a systemic risk. Right. So what happened in 2006 systemic risk was created by lending to people that shouldn't have loans. Correct. And I led not just to a U.S. real estate crash but a worldwide financial crash. We are now creating new systemic risk through something known as Opportunity Zones. Opportunity Zones are where part of the new Trump law trump bill the new tax reform bill. Where hundreds of billions of dollars of stock market profits are being pumped into real estate. Into distressed no growth or low growth areas around the United States, just in the name of tax benefits. What we're doing there is incredibly dangerous. We are basically here's what we're doing. You and I have been talking about how difficult the market is right now for new construction. Right now we're compounding it by saying not only am I going to do new construction instead of doing it in downtown San Jose or downtown San Francisco I'm going to go to this distressed area where there's all these low end tenants that don't have much money and I'm going to build classic buildings. And by the way instead of building a few million or tens of millions of dollars worth I'm going to build one hundred billion dollars worth every year for the next five years. That is a system crash waiting to happen. You cannot build this kind of inventory into distressed areas. In simply 2020 2021 and 2022 and not expect to have a crash related to that. I haven't heard anybody talk about this but I think to me it's obvious that the vast majority of opportunities on projects will fail. [00:00:14][0.0]

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