Wow, has this been a crazy month or what? We started with the debt ceiling debacle on Capital Hill, followed it up with the Dow continuing its plunge from the April high, turmoil in the international financial markets with Greece, Spain and Italy leading the pack; the U.S. losing its AAA credit rating, and now this — the Bank of New York Mellon announced that in lieu of paying interest, it is going to start changing its largest customers a fee to deposit their funds with the bank! What that highlights is that the investment opportunities that exist today are either extremely risky (i.e., stock market), or are paying essentially no return — or both.
Investors are struggling to find those diamonds in the rough and are moving further and further afield from their traditional investments. A great example can be found in a recent Wall Street Journal article about institutional investors buying foreclosed houses to rent them out for a return in the 8 percent to 12 percent range. This is the historical stomping ground of the mom-and-pop investor — not corporate America.
Because everyone is looking for opportunities, here are a couple of ideas that come to mind:
- Low income housing and historic tax credits. Corporate America has excess cash and, in most cases, earned very handsome profits over the last several years as a result of corporate downsizing. Rather than putting that cash with BNY Mellon and paying it a fee to hold it for you for the mere benefit of having FDIC insurance, tax credit deals put the money to work with multiple corporate and social benefits — tax credits and a reasonable return on the investment, getting the construction industry going, and, with respect to low income housing, providing housing for low income residents.
- For about four years now, everyone has been talking about the hundreds of billions in CMBS loans coming due in 2012 and 2013. Who is going to fill that gap? At this point it does not appear that the CMBS industry will rebound quickly enough to get it done by themselves. Also, the good news is that most of those loans, if they have made it this far, are actually performing loans and just need a new lender to step up and take out their existing CMBS lender when the loan matures.
The insurance industry is starting to fill the hole —f or example, note the announcement that Northwestern Mutual Life Insurance Co. made almost a $100 million loan on Trammell Crow Center — but there is plenty of room for other participants, such as mortgage REITs, banks, and other private lenders, such as GECC. Clearly, there will be requirements for additional equity for pay-downs, lower loan-to-value ratios, reserves for lease rollover risk, etc. but equity exists and just needs to be deployed.
- Has anyone heard of a “forgiveable” loan? It’s clearly a tax-driven device, but it’s essentially a loan to a nonprofit that is matched by other funds raised by the nonprofit to fund capital programs. Once the capital program is completed, the loan is forgiven and the donor obtains a tax deduction while also maintaining greater control over the usage of its funds.
Although Dallas has plenty of examples of deep-pocket donors stepping up and funding in the traditional manner, this structure can possibly broaden the pool of potential investors for other projects on the drawing board.
Although I don’t expect to see flying toads anytime soon, I am confident that there are plenty of entrepreneurial folks out there that will find ways to take advantage of these and other opportunities. I am also hoping for some cooler weather!