SPECIAL REPORT: Financial Meltdown Not in the Works; Capital Seekers Need to be Transparent in Tough Times, Say Speakers at NIC Seniors Housing Conference
- Sep 12, 2008
By Keat Foong, Executive EditorChicago— Most economists do not believe a financial meltdown is in the works, said Alice Rivlin, senior fellow at the Brookings Institution, in her opening plenary address to the 18th Annual National Investment Conference (NIC) held here this week. Rivlin said that a financial crash can be avoided in the U.S. And she said reasons for optimism that the U.S. will emerge from the housing and financial crises in good shape include a resilient economy, as well as the rapid and aggressive federal responses to the problems. Rivlin said the government measures taken so far, including a takeover of Fannie Mae and Freddie Mac, are only “stop gap” measures. If they are successful, there will only be a “mild recession,” she said. Rivlin said all participants were to blame for contributing to the financial and housing crisis currently threatening the economy. She said that not any one player, but a “herd mentality” that subscribed to the belief that housing prices would keep rising indefinitely led to risky behaviour on the part of homebuyers, aggressive marketing of credit cards, incentives for lenders to bring in as many loans as possible, and incentives for rating agencies to reward clients. “The main culprits,” she said, included “widespread wishful thinking” and the belief in continually rising prices “in any asset class.” The keynote speaker, Peter Linneman, principal of Linneman Associates and professor of Real Estate, Finance and Public Policy at Wharton School of Business, spoke of the need for transparency and accessibility of information in tough times. Linneman suggested that in uncertain times, there is a flight to quality and investors will back away from transactions that they do not fully understand or that do not appear to be transparent. “As soon as people do not want to throw money out, you are left in the cold” if the capital seeker does not present good information, he said. Linneman also suggested that Baby Boomer demographics is not appropriate to use in the promotion of seniors housing to investors. He said since the average age of the Boomer is 54 years, investors will have to wait 25 years before Boomers begin retiring in huge numbers. If investors use the Boomer story to sell their senior housing, investors won’t “want anything to do it,” he said. Rather, Linneman suggested, the real story seniors housing owners and operators should present to investors is increased market penetration—which can be achieved in three to five years, not 25 years, he said.