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Sam Chandan

Mortgage Observer

The Paradox of Frothiness

Sam Chandan

Is there a bubble in the office sector? In the market for the most visible and best-located assets, Manhattan’s current spate of trophy sales begs a more nuanced question: has pricing moved from merely aggressive to excessive? The dominant view amongst high-profile investors and lenders is that pricing remains in check. But that means very little, it turns out, since frothiness in the asset market can only persist as long as the chief stewards of capital believe we remain on an even-keel. Baudelaire could have been talking about real estate markets when he surmised, “the finest trick of the devil is to persuade you that he does not exist.” Likewise, in assessing whether trophy office prices may be prone to correction, we need something more than our basic intuition. Read More

Mortgage Observer

Retail Now—Booming Business or Looming Stagnation?

Sam Chandan

From the vantage point of New York’s most coveted retail storefronts, the recovery in property fundamentals and values is a fait accompli. Rents and price tags for buildings with flashy retail continue rising, surpassing their pre-crisis peaks with increasing regularity. Buyers on the prowl for urban street retail with trophy status—or even a loose resemblance to fixed income—are not alone, but rather are backed up by lenders vying for opportunities to line up their capital behind stable, albeit aggressively valued, properties. Read More

Mortgage Observer

Elevated Expectations in India

Sam Chandan.

Chinese President Xi Jinping travelled to India in mid-September with a stated goal of bolstering political and trade ties between the world’s two most populous nations.

The relationship between the countries has always been uneasy. In the modern era, their territorial and geo-political ambitions have rarely found alignment; as they have jockeyed for regional influence, friction over issues such as the disputed territories of Kashmir and India’s easternmost frontier with Tibet have stymied efforts at cooperation elsewhere. Even as the pomp of the latest state visit was getting underway, Indian and Chinese troops were posturing on their respective sides of the shared Himalayan border. And though there was no indication of conflict in New Delhi’s more civilized environs, the leaders did agree that the region would be well served by an updated perspective on these sources of conflict. Read More

Mortgage Observer

Investors Look Away from Multifamily Assets

Sam Chandan

With an eye to real estate’s next opportunity, cyclical investors and their lending counterparts are shifting their attention away from the apartment sector in increasing numbers. In place of multifamily, they are expanding their portfolios with an array of commercial assets, both core and value-add. As confidence in the economic expansion has grown and the appetite for risk-taking has recovered its former vigor, the allure of relatively higher yields from retail and industrial properties, in particular, has attracted a rising share of mobile capital.

The latest numbers align with cyclical investors’ updated narrative. The second quarter’s year-over-year gains in transaction volume were dominated by retail property sales, weighted to sales of small- and mid-cap properties in primary and secondary markets. Apartment trades registered more modest increases, though they remained the most traded asset overall. Read More

Mortgage Observer

A Tale of Two Europes

Sam Chandan

For global capital in search of a home, Europe in its present straits is far from the obvious choice. Not by any means a homogenous opportunity, the Continent’s economies are nonetheless regrettably undifferentiated in their current growth trajectories. Even in Germany, which has served as Europe’s principal economic and political stabilizer since the financial crisis, the economy’s current robustness anticipates a mixed long-term outlook for growth. On balance—and in spite of record valuations in top-tier markets—global capital prefers the United States.

But there is another Europe. For commercial real estate-market participants making significant ventures across the Pond, this other Continent reflects an abundance of opportunities for investment and lending, born in part of the ongoing retrenchment of bank balance sheets and a coincident shortfall in the broader financing environment. The case for these high-quality and well-located investments is made almost entirely at the level of the asset. With few exceptions, the macroeconomic environment in Europe is a qualifier of the underwriting thesis rather than a supportive premise. Read More

Mortgage Observer

The Changing Face of Retail

Sam Chandan

The way we shop is changing. The reasons are varied: our unfolding economic circumstances, the ever-increasing ease of online commerce and a shifting sense of what the retail experience should offer. For investors and lenders alike, limited foresight into the sector’s evolution implies unique risks. It also weighs heavily on the outlook for billions of dollars in legacy CMBS loans, maturing over the next several years. Those loans are overweighted to the small retail assets that have traditionally been the bread and butter of securitization. Read More

Mortgage Observer

How Bad Is Basel III?

Sam Chandan

Property lenders of all stripes will originate more debt in 2014. Measured by anecdote, survey, and by the numbers themselves, lending volume is on the rise for assets in primary and secondary markets, for core and non-core properties and for both anchored and speculative development. The uneven and deeply bifurcated commercial real estate recovery—as much a reality for debt as for equity—is a narrative on the wane. In its place, more confident lenders are expanding their field of view. Yet for all the regulatory encroachment of the post-crisis era, few have sought or seen breakthroughs in the calculus of their risk-taking. Read More

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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the lead indicator

Shock Therapy, Japanese Style

chandan silo for web

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

the lead indicator

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