‘The Accidental Economist’ with Jack Kern: Capital Flies South for the Winter

Life is funny. Sometimes just when you have it figured out, you get bopped on the head and realize how wrong you can be. I’m usually in the prediction business and have been fairly successful at it. My interest is in commercial real estate sectors and multifamily is a regular guest on the circuit. One of the more interesting facets about multifamily is how popular it has become. Recently on a trip to Chicago, a taxi driver from Senegal told me he comes from a wealthy family by Senegal standards and they’re pooling their resources to buy an apartment building and rent it out to the Senegalese community. I don’t know a whole lot about Senegal, but apparently they have a pretty big community in the Chicago area and this driver was planning to corral that into a fledgling empire. I suspect he knows about as much about owning an apartment building as I do about Senegalese culture and pop music. If you must know, their favorite song is Abdou guitté Seck, a catchy little tune!

Capital runs this business and investors and lenders, many of whom responded to the CPE-MHN surveys in the past year are now seemingly becoming a little shy about putting capital out. As the economy has entered this very uncertain phase, capital availability has given way to a lack of opportunity for smaller owners and investors and substantially changed the face of deal making. I’m expecting to see more properties sold that are smaller, mostly for tax reasons and exchanges. Larger investment grade assets are now becoming even more scarce than before. It isn’t an issue of desire on the part of owners to part with their properties, it is the unspoken voice in the argument, the uncertainty about future value and market direction that has the birds flocking south to wait it out. The sunbelt may be blooming across the so called sand markets, but the dense clouds affecting the rest of the nation aren’t quick to disperse. This flight from reality isn’t a political issue, despite attempts to paint it that way, because when you have an ineffective congress, the balance of power doesn’t matter. It is more a sense of not seeking to repeat the same errors of the late 2000 decade. There is a song title, Raindrops Keep Falling on My Head. I always thought the guy should have just used an umbrella and written a song about something else. Now I’m beginning to see that the storm is following us where ever we are. Maybe taking shelter isn’t such a bad idea after all.