Grubb & Ellis Montana Commercial, LLC

Big Picture

 Let’s take a moment to consider how far the financial sector has come since the credit crisis passed through its darkest period from September 2008 through March 2009.

• Analysts debated whether the government would end up owning the major banks and a good chunk of the entire financial sector, but that discussion has receded along with the likelihood of such an outcome. (From September through March, the words “nationalize” and “banks” appeared in an average of 17.5 media articles per day. From April through Thursday of this week, the two words have appeared in 5.6 articles per day.)
• Much criticism was heaped on the bank stress tests conducted by federal regulators, i.e. that the criteria were too lenient, or that the additional sums of capital required were too onerous (from the banks’ perspective), or that publicizing the results of the tests could, perversely, destabilize the banking system. Nevertheless, the stress tests laid the groundwork for banks to raise private capital. As a result, 10 of the nation’s largest financial institutions gained approval this week to repay $68 billion in TARP funds. Twenty-two smaller banks already have repaid their TARP funds.
• The TED spread, a measure of risk-aversion in the credit markets, has receded to pre-crisis levels, signaling that credit is more available. Click here to view an interactive graph of the TED spread from Bloomberg. (The TED spread is the difference between interest rates on 3-month Treasury bills, considered risk-free, and 3-month dollar Libor, a widely used index for lending between banks and for business and mortgage loans.)
• The commercial real estate industry is still in the early innings of recapitalization of both debt and equity, but publicly traded markets are giving commercial real estate a vote of confidence. So far this year, REITs have raised nearly $15 billion through 45 public equity offerings. Moreover, REIT share prices have rallied by 60 percent from their low on March 6^th.

There is much work left to do, but the financial system is in the process of righting itself, and the economy is showing signs of bottoming out. Consequently, the macro-environment in which the commercial real estate industry operates is becoming more hospitable.

Robert Bach

SVP, Chief Economist

Grubb & Ellis

This entry was posted on Friday, June 12th, 2009 at 10:27 am and is filed under Good News Friday. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.