News

Landmark Links January 31 – Awash in Liquidity

Must Read: Institutional Investor went in hard on private credit this week, comparing it to Fentanyl.  IMO, this was the most interesting passage:

“Lending practices continue to deteriorate until credit losses cause lenders to pull back.

When banks provided most of the debt, pullbacks happened only if banks tightened their lending standards. In a world where institutional investors provide most of the capital, they occur when fund inflows dry up. At that point, the market resets to take account of losses that no longer seem so theoretical.

Default cycles require not just insolvency, but also a lack of external funding to give highly leveraged companies another chance. If there is no funding source to replace that which is lost, then the weakest companies default, trading and credit losses mount, and fund flows get even worse.”

II is referring to private credit being used for private equity buyouts.  However, it could just as easily be referring to the proliferation of capital in the real estate bridge lending space.  Two constants in this cycle have been timing delays and cost overruns.  This has caused construction and bridge loans to run into maturity default issues on a relatively frequent basis.  A tidal wave of capital in the bridge lending space that has allowed developers to refinance construction loans or bridge loans with another bridge has largely kept this issue from coming to the forefront.  However, once the liquidity dries up – and it always does eventually – it will be a very different story and create an opportunity for those that have remained disciplined.

Economy

Walking a Tightrope: The Federal Reserve’s first hurdle in 2020 is going to be how they deal with slowing the growth of their balance sheetSee Also: The yield curve has re-inverted.

Uneven Playing Field: At the state and local levels, effective tax rates can vary widely between income brackets.  Here’s a great illustration of the difference from Visual Capitalist.

Holding the Line: The Federal Reserve left its benchmark fed funds unchanged, though it is keeping a close eye on how the coronavirus potentially impacts the global economy.

Commercial

Staying on the Sidelines: Despite a temporary trade truce, Chinese investors are highly unlikely to return to the US CRE market in anything near previous scale thanks to stringent measures to keep capital from leaving, among other things.

Small and Nimble: Grocers trying to get closer to customers and keep costs down turn to smaller sites heavy with automation.

Tough Lesson: WeWork proved that, in the property sector, expanding too quickly can be expensive and inefficient.  Startups are taking note. See Also: WeWork is getting rid of beer kegs at their North American locations.

Ramp Up: Investors are starting to trade complex derivatives tied to the Federal Reserve’s preferred replacement for the London interbank offered rate, a sign the financial industry is coalescing around a new benchmark for short-term interest rates.

Residential

Myth Busters: When transportation and median income are taken into account, Houston is now less affordable than New York City.

Take the Bus: Multifamily developers are reducing parking counts at new projects.

Across the Board: Gains in home prices are slowing across the globe as world-wide residential investment continues to decline.

Exodus: After the new tax law made it costlier to own a house in many high-price areas, some residents are pulling up stakes.

Profiles

Big Business: Litigation financing is a growing investment sector as investors search for attractive alternatives with outsized return potential.

One of a Kind: As everyone not living under a rock is aware of by now, all-time NBA great Kobe Bryant was killed in a helicopter crash last weekend along with one of his daughters and seven others.  Here are 24 stats that help to explain his legacy on the court and why there will never be another.  RIP.

Black Market: Police had hoped that taking down online black markets like Silk Road would chase away criminals from using Bitcoin.  However, the amount of the cryptocurrency spent on illegal purposes has reached a new high even as overall interest wanes.

Charts of the Day

This is what happens when you get a Bay Area team in the Super Bowl at a time when tech is booming.

page-2-104

page-1-99

Source: TicketIQ

WTF

You Have Chosen Poorly: A man tried to carjack a vehicle that an undercover cop was driving because Florida.

Optical Illusion: A man used a lighter that looked like a gun to steal a Mercedes because Florida.

Killjoys: Doctors issue a warning to men to stop masturbating with banana peels.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarkcapitaladvisors.com