The real estate peeps who think 75% LTV is "safe as houses" are another GFC repeat away from getting taken to the cleaners.
US multifamily dropped -25% around the country during the 2008/09 period. High rises dropped -30%. NYC, Phoenix, LA, Palm Beach, Miami all dropped >30%.
Not predicting a crash is around the corner, just posting the lessons of the previous downturn, which will be useful to some and a "seen it, but don't care about it" to others.
Today, CAP rates all around the world, not just in the US, are at rock bottom historical levels.
Expect...
Today isn't 2008 anymore.
There are no more rate cuts to be made like in 2008. And they have done so much QE1,2,3 & 4 already, that investors are already questioning the confidence they hold in central banks' abilities to stimulate the economy.
If you think holding 75% of the properties value in banks (senior debt) hands is safe and that the 25% equity is "as good as gold",
You might need to dust off some history books and look at the following real estate crashes (every 10-15 years):
• 1972-74
• 1988-93
• 2006-12
Will asset prices always rebound, the way they did post the GFC crash? Howard Mark's observation on the topic:
“I fear that people may look back at the decline of 2008 and the recovery that followed and conclude that declines can always be depended on to be recouped promptly...
...and easily, and thus there’s nothing to worry about from down-cycles.
But I think those are the wrong lessons from the Crisis, since the outcome that actually occurred was so much better than some of the “alternative histories” that could have occurred instead. If those...
...incorrect lessons are the ones that are learned, as I believe they may have been, then they’re likely to bring on behavior that increases the amplitude of another dramatic boom/bust cycle, maybe one with more serious & long-lasting ramifications for investors & society.”
This is an extremely useful post for LPs (investors).
I would say, be careful of promises made as CAP rates & valuations look extremely unattractive.
For most, but not all GPs, they are holding a hammer & everything looks like a nail.
That's how they earn their income.
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