Capital Insights with Jack Kern: It’s A Wonderful Life, Unless You’re a Banker…

"I think we will see a rebound in the economy partly because of this substantial easing that we've seen from the Fed, but I think it will be delayed. I think we are likely to see clear evidence of this emerging towards the end of the fourth quarter this year and a rebound well under way in the first quarter next year."

Actor Jimmy Stewart, 1949

Seen this movie before?

There have been a lot of questions lately about how the multi-family industry is faring against the backdrop of all of the Federal initiatives. One of the favorite holiday classics is know for this quote:

"Every time a bell rings an angel gets his wings." –ZuZu Bailey,
(c) Frank Capra's "It's a Wonderful Life" 1946

Well, I was at a meeting recently and after a while, the developers in the room suggested to me that every time a bell rings, a banker gets a pinkslip. The lack of available financing is certainly a key part of the problem facing the industry and if you need construction financing, you're really going to hope for some luck in 2009. Let's go the video tape and see where we are now after the most recent Fed announcement:

The Fed funds rate is effectively zero, which ends the bag of tricks that the Fed has, at least as far as the monetary stance goes. While there are other tools available to Ben, he has to be circumspect about what to do next. Here's why – flooding the market with additional liquidity, which might dramatically lower some costs and help inflation isn't going to boost consumer confidence. With consumers feeling dour and at the lowest levels in over 40 years, a quick Fed announcement isn't going to matter. That may explain why the Fed response, measured as it is, will continue to be targeted towards the little things that in the end make a difference. Lowering mortgage rates, pushing for lower consumer debt rates, with credit card interest being a problem, pushing banks to loan to one another again and finally cleaning up the credit default swaps, collaterized mortgage obligations and other financial instruments will be the priority going into 2009.

What does this new reality mean for the multifamily industry?

Renters will rent longer and rent increases on new leases in place will be higher, especially as the mortgage meltdown finds its way into Chapter 2.

I spoke to a banker yesterday, who for the most part wasn't happy about the economy and how it's affected traditional real estate business, but he was optimistic that a new order of sorts will replace what has proven to fail in the past. The days of cold, hard Wall Street greed have come to an end.

Nick <> : Hey look, mister – we serve hard drinks in here for men who want to get drunk fast, and we don't need any characters around to give the joint "atmosphere". Is that clear, or do I have to slip you my left for a convincer?
(c) Frank Capra's "It's a Wonderful Life" 1946
Wall Street should be a different place next year. The Fed will be certain of that.