Out on the road in advance of his long-awaited memoirs, The Age of Turbulence: Adventures in a New World, Alan Greenspan seemed to make waves in every press appearance he did. Much like his time as the head of the US Federal Reserve, his pronouncements were covered, devoured and endlessly dissected.
The “Maestro” was one of those few figures in Washington where anything he said, from his opinion on the stock market to his take on new fall fashions, was parsed and parsed again for some clue as to what the Fed was going to do next. So it's little surprise when, now back in private life hawking a memoir, his comments tossed off on the cable television news shows are equally examined. Discussing the US housing market, Greenspan recently said he was concerned about the bubble bursting—but stopped short of saying this would cause wider reverberations around the world.
“We, unlike the rest of the world, are showing some modest price declines,” Greenspan told CNBC Television in September, adding that the Fed unsuccessfully tried to raise mortgage rates in 2004 in an effort to cool down the overzealous market.
For a rather innocuous statement, it got plenty of press coverage. But when you've had a summer like this, everyone is going to have an opinion. From newsrooms to Wall Street, the “credit crunch” as been the topic on the tip of everyone's tongue—and firms around the globe have been eager to weigh in and strut their intellectual stuff. In an industry where everyone hopes to be perceived as a “thought leader,” economists from the big investment banks to the heads of the world's central banks to CNBC's Jim Cramer screaming about the discount window on live television, everyone had something to say about the credit crisis.
Some of the comments come off as so much bloviating, but some, especially from the real estate investment community, are worthy of further inspection.
There was certainly some measured and studious analysis that might be useful to private equity real estate investors. In a new research note released by RREEF and available on their website, two San Francisco-based directors at the firm, Alan Billingsley and Asieh Mansour, handicap the prospects for the US economy and real estate market going forward. The report looked at the impact the subprime fallout would have on property returns and real estate fundamentals, all packaged under the cheekily upbeat title “Prospects for the US Economy and Real Estate Markets: The Return of Risk Aversion … At Last!”
“The dust will settle, markets will establish pricing, and riskier debt will become marketable again,” the report concluded. “However, the unrealistically tight spreads between low and high risk investments will not narrow to their pre-July levels. Even low risk debt is likely to be more expensive than in the past, while higher risk debt will remain significantly more expensive.”
Overseas, professionals didn't have a much better assessment of the situation and—for good reason—focused on how it was going to affect the property markets of Europe. The property investment team at London-based Curzon Global Partners, for example, chipped in their two cents with a press release discussing how the troubles in the US would likely come to affect the market in Europe.
“The US commercial real estate market is shutting down and it is unlikely that Europe will be immune from the impact of the crisis as one very rarely gets this level of volatility without distress and dislocation,” Ric Lewis, the chief executive officer at Curzon, said in a statement in early September.
The firm's head of research and strategy, Simon Martin, used a bit more violent imagery. “It could be like watching a slow car crash,” he said of the possible shockwaves heading towards the continent.
Most market participants had similar takes on the situation: Cheap debt and shaky deals would no doubt fall victim, the heady days of the bubble are most certainly over and there may be some opportunities for savvy players.
Of course, it wasn't all doom and gloom. Private equity real estate investors are supposed to be an opportunistic bunch and nothing spells ‘opportunity’ like ‘crisis.’ The directors at RREEF, for one, noted that they saw some opportunities in various property sectors. Multifamily investors in cities without a glut of for-sale housing could see increasing interest as the rental pool grows. Since hotel occupancy can fall off overnight in an economic downturn, the report authors predicted that lodging development would fall out—but added that with new supply constrained, hotels could be a profitable long-term play.
If the worst is yet to come, as the chief economist at Standard and Poor's suggested in early September, there will no doubt be more opinions, proclamations and prognostications coming as well.