Thursday, September 20, 2018

Disappearing Sponsors

Last summer I watched And Then There Were None, a televised version of Agatha Christie's famous novel of the same name, where guests on a weekend stay at a desolate island mansion end up murdered, one by one.  Yesterday's news that Steadfast is exiting the non-traded REIT and credit business adds to the list of sponsors that are pulling their offerings.  I feel like I am watching a non-murderous version of And Then There Were None. 

Last year Steadfast tried to rebrand as Sitra Capital Markets, but the made-up name did not resonate and Steadfast made the decision to shuttered its Apartment REIT III and its Sitra Alcentra Global Credit Fund.  The REIT raised $197 million over two-and-a-half years and the credit fund raised just $36 million in about fifteen months. 

CNL is not stopping syndication, but did announce last week that it was not extending the offering for Healthcare Properties II, which only raised about $45 million since its inception in March 2016.  Like CNL, Griffin Capital is not stopping syndication but announced in mid-August the close of its Essential REIT II offering.  According to filings, the REIT has formed a special committee to review a potential strategic alternative.  Essential Asset II started its latest offering in September 2017, but only raised $7.3 million in 2018. 

Sponsors continue to suspend their offerings and/or exit the syndication business one-by-one.  Based on industry sales, there are so many candidates that I don't even want to start to guess what sponsor will be the next to yank its slow selling program. 

Tuesday, September 18, 2018

Ten Years On

I just re-read a bunch of my posts from 2008 as the financial world collapsed.  I sure posted a lot in 2008, several posts a day.  I noted Lehman's collapse, now seen as the pivotal point in the financial crisis, with a "WOW!" But it was just one of two big deals that September weekend, and it happened alongside with the implosion and Government bailout of AIG, action which was spurred by the market's negative reaction to the non-bailout of Lehman. 

I don't want to relive that trauma.  I remember turning on Bloomberg TV late at night that fall, after everyone in house had gone to bed, and watching the Asian markets to see what dread Europe and the US could expect the following day.  Not that my fears and news addiction would have any impact, but I had to know. 

It is hard to see inflection points as significant as they happen, especially if they occur amidst other events that appear major.  But Lehman's demise was different.  It showed that the Fed and Government had to step in to save the financial system from a complete collapse, especially as much larger firms than Lehman teetered towards financial ruin.

What scares me today is that I know the lessons of 2008 have not been learned, or if learned are not being heeded.  The housing market is inflated in many parts of the country, lending standards are down, and regulations enacted after 2008 to protect the financial system have been relaxed or eliminated.   It is important to note, too, that some areas devastated in 2008, like Southern California's Victor Valley, have been slow to recover, even after ten years. These communities need a stable banking system to continue their recovery. 

I am also frightened to think that any future financial crisis will be met with much stiffer resistance to Government bailouts of banks. This thinking is wrong because letting banks fail is going to wipe out retirement accounts and the housing market, including million's of peoples' equity in their homes.  Argue your political ideas on Twitter, not with the equity I have built over many years with a conservative mortgage.