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Sam Chandan

Mortgage Observer

Banks Wade Back Into Construction Lending–For Better or For Worse

Sam Chandan

The American banking system reached another recovery milestone during the fourth quarter of last year, pushing net commercial real estate lending to its highest level on record. In keeping with recent trends, the rise in outstanding mortgage debt is broad-based, spanning both large and small markets, rather than bifurcated in favor of prime locations.  This data should give us some pause, as the increased risk does not necessarily an improvement in borrowers’ credit quality.  Read More

Mortgage Observer

The Weakening State of Underwriting

Sam Chandan

The commercial real estate finance industry has entered 2014 with a renewed sense of confidence. The incautious tone at the first quarter’s outlook conferences belies the industry’s recent history and the losses incurred on precrisis lending activities. Instead, heady predictions of higher lending volumes are being proffered as unequivocally positive signs of better days ahead.  More is better in the mundane calculus, and the next year will undoubtedly see more lenders in more places enabling investment by a wider range of borrowers. We are hard-pressed to show serious evolution in our approaches to credit risk measurement. But as long as we ignore that capital flows and the cost and capacity for leverage influence prices and risk-taking, there is no cause for a more prudent analysis.

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Mortgage Observer

The Basis Point: Banking in 2014

Sam Chandan

The United States banking system enters the new year on solid footing. While higher interest rates have weighed on residential mortgage activity, pulling bank revenues lower, other measures of performance show the sector drawing further away from the legacy of the financial crisis. Read More

Mortgage Observer

Life Companies Face Renewed Competition

Sam Chandan.

The initial recovery in commercial real estate investment activity has been rewarding for life company lenders. Absent robust competition to originate mortgages to institutional borrowers, life companies have expanded their share of the secured debt market while working to hold the line on underwriting standards. It has not been a volume game. The enhanced liquidity from life company lending has been narrowly focused, with the lion’s share of the benefits accruing to a privileged class of well-heeled borrowers. In this segment of the market, life companies offer their most competitive terms. As debt market conditions improve, they are butting up against other lenders. For life companies, this more crowded landscape is a counterweight to improving economic projections and growth in the number of qualified borrowers.

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Shock Therapy, Japanese Style

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The Bank of Japan’s campaign of shock and awe is approaching its half-year anniversary. Early results are mostly according to plan. The economy expanded at a relatively brisk pace in the first quarter. Though it’s purportedly not the goal, the yen has fallen 20 percent against the dollar. The Nikkei’s broad stock indices are up sharply, even after last Thursday’s 7 percent dive. Retail sales data due this week could get a lift from a modest wealth effect. Read More

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What Do Goldilocks And The Economy Have In Common?

chandan silo for web

The inflation hawks were sent packing again last month when reports showed prices falling. The latest Economist poll of forecasters pegs inflation below 2 percent until at least 2015. That’s not far removed from the local view. As part of its expectation-setting exercise, the Fed sees its preferred measure—the personal consumption expenditures price index—holding below 2 percent now and over the long run. Read More

Mortgage Beat

The (Improving) State of Construction Lending

Sam Chandan.

Construction lending has registered a marked improvement over the last six months, in top-rung metro areas and increasingly in secondary markets as well. During the financial crisis and for most of the period that has followed, development financing has been reserved for the most rarefied opportunities. With the exception of the apartment sector, the search for new projects has generally brought us back to New York and the other cardinal metros. Eager developers chancing upon opportunities elsewhere have found themselves hamstrung by hesitancy among potential anchors, reluctant banks and skeptical regulators. That is changing. Read More

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Tax It All or Don’t Tax at All

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The Senate has taken up the Marketplace Fairness Act, which would upend the overlong tax holiday for Internet commerce.

It’s not that online purchases have been tax-free. Unless you are in one of the few jurisdictions with no sales tax, your opportunity for a good-citizenship declaration of online purchases comes every April 15. Predictably, only a tiny share of American taxpayers seizes the chance. Read More

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A Bridge Too Far: It Isn’t a Lack of Funding Keeping Infrastructure From Being Built

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Ask someone if there’s a problem with American infrastructure and there’s a good chance he’ll point at the nearest bridge.

It needn’t be a grand structure. As a generation of Wharton alumni will confirm, crossing the Schuylkill by way of the modest South Street overpass was a risky proposition until just a few years ago. In its dying days, the bridge was closed to heavy vehicles but open to daredevil and presumably light-footed Penn students. The long-deferred move to replace the 1923 bascule bridge began in 2008, which happened to coincide with city engineers’ declaration it would not survive another winter. Read More

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Employment Remains the Weakest Link of the Recovery

chandan silo for web

It’s been clear since long before the Great Recession that something is amiss in the labor market. Unbeknownst to the most recent crop of college graduates, this is not our first “jobless recovery.” That term was introduced to the popular lexicon in the early 1990s. It was revived in 2003; more than a year into that recovery, the turnaround in employment had never been weaker. In retrospect, those were halcyon days when compared with our current run.

What’s gone wrong? Read More

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Girding for Growth in Midtown

chandan silo for web

There are good reasons to envisage a refresh of Midtown Manhattan’s office inventory.

A prolonged lull in construction has left us with an abundance of heirlooms but few modish buildings. As a global center of finance, Midtown East’s built environment compares especially poorly with its peer markets. Average rents are much higher in London, but the premium over Midtown is less pronounced when comparing our small basket of best apples with theirs. Rezoning with an eye to new construction has its winners and losers. As new properties come online over the next decade, incumbents saddled with older buildings may find their highest and best use takes them outside the office sector altogether. Read More

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Is Office Space a Thing of the Past?

chandan silo for web

Is the office obsolete?

The argument has been going on since before the Internet, when its antecedents were limited to connecting university research labs to the Department of Defense. The adoption of new technologies may afford smaller server rooms and fewer filing cabinets, but the location of people dominates everything else when it comes to office space utilization. At least on the margins, the data show we are using less office space for every employee. We cannot assume that reflects the impact of technology, but it’s not an unreasonable hypothesis. Read More