From fleckensteincapital.com (subscription required)
Bill,
I read your post today regarding the PPI, jobs number, and Annaly Mortgage and have some thoughts to share. Closest to home, I have been a professional real estate investor and partner in a private fund that invests in real estate for 11 years. I can tell you first hand that the real estate market has gone completely insane. The only good thing I can say is that the federally insured institutions (i.e. commercial banks and S&Ls)and the public pension funds are smarter now than they were in the go-go 1980's. However, everybody else in the market, both professionals and non-professionals, has checked their brains at the door. Some of the craziest players in this market are getting their money from insurance companies, private foundations, or raising it through sleazy broker-dealer networks. Cap rates have collapsed (i.e. earnings multiples have exploded higher). Many older properties are being purchased way above replacement cost for new properties. Leveraged speculators, many of whom are thinly capitalized and have shady reputations or little experience, are everywhere. Syndicators, who charge outrageous front-end fees, are raising and spending billions of dollars from gullible, yield hungry "investors". This is being driven by artificially low interest rates, excess liquidity, and now a "bubble" mentality that believes real estate always goes up at least 8-10% per year. Debt in the system is as large as it has been since the late 1980's, but today people think it is not a problem because rates are low. As you say, when the party's over, the hangover is going to be very ugly.
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