Our 40 Years in the Economic History of Real Estate
In 1979, the federal government had loosened the reigns on funding. Real Estate started the cyclical period of demand and farming was touted by both lenders and the feds as being a strong, vital industry in need of technological reinforcement. The Federal Land Banking system with a large supply of funds, courted farmers to mortgage their lands to spend money on upgrading their systems including new barn complexes, silos and equipment. The farm business was booming, anticipating a flourishing market and sales.
In 1981-1982, a difficult inflationary interest period occurred from over-lending and inflation that resulted in interest rates hitting an all time high of 22% for a 4 month period. This rapid increase over a two-year time frame, resulted in massive farm foreclosures throughout the United States. Though the population understands the basic need for food, the banking industry terms have never been favorable to the farmer. Historically saddled with a fluctuating mortgage, with no cap, tied to prime, many farmers had no alternatives but to turn back the family farms with all the new technologies solicited only two years earlier.
In 1986-1987, the rates had come down to the historic norm about 9% and the market demand increased. The residential and commercial property prices started to rise.
In 1989-1992, the Federal Government realized that the lending requirements for the Savings and Loan Industry were not being adhered to. During the past five years, the lenders, eager to maximize their profits and hedge for the long term, realized that the commercial lending market was not fixed and there was more of a profit allocation. The purpose of the Savings and Loans was to bank local money and lend to local residents for single family homes. In many cases, banks were lending in volume to states on the other side of the country and had a 90% commercial portfolio. On the failure of a number of large banks, the FDIC came in to audit. Many of the residential loans were non-performing and the commercial mortgages were called in effort to restructure the portfolio. Many times this did not happen and banking institutions, as well as the properties and loans were taken over by Resolution Trust Company.
In 1992-1993, the Hudson Valley experiences the economic shock of having one major employer in the area. Over a two month period, IBM laid off almost 9,500 employees.
In 1994-1996, both the commercial and residential real estate industry felt the aftershocks from this downsize for the next three years. The economy was tenuous and the commercial sites suffered huge vacancy rates.
In 1997, the market slowly starts to rebound.
In 1997-2007, the market has had an extended run of real estate growth characterized by substandard interest rates, massive new construction subdivisions, rapidly rising prices, exploding land values, and overdevelopment.
In 2008-Present, we are all paying the price for indiscriminate lending on over-inflated properties, as in 1986 and 1987. The squelching of the cyclical movement by freezing the substandard interest rates, has resulted in a miniscule asset savings portfolio. Saver’s money was moved to the volatile stock market, as banks have not been an investment vehicle for savings.
Currently, the attractive long term, super low interest rates have increased the banking risk, reduced the amount of liquid cash bank assets, stagnated the market, and have caused unbridled inflation. With savings rates at 1% and below, there is little reason to bank money as an investment vehicle. Foreclosures and bank REOS still loom on the horizon. Economic stability varies on a moment-to-moment basis. Hopefully, easing the taxation on capital gains and business development programs will help to correct this problem.
What now?
The representatives of Brockton Davis Real Estate have worked through this entire period. We are not the newcomers on the block and tend to feel the trends as second nature. Therefore, we are a conservative marketing and management vehicle that inherently knows the importance of market positioning, fiscal responsibility, and maintaining for the long hold. Whether the property is commercial or residential, the advice remains the same.
Our history runs from . . .
- Sales and Marketing in all areas
- Eighteen months in Manhattan as a negotiator for Savings and Loan Bailouts
- Property Management through Resolution Trust Corporation using the FDIC guidelines and through one of the leading trust buyers, Patriot American Management and Leasing, to turn around a portfolio for REIT inclusion
- Managing Director for CB Commercial to CB Richard Ellis Hudson Valley with the portfolio for management and disposition including the Child World Building on the Stewart International Airport facility, the First Union Fishkill Bank Building and its assets, and the Bank of New York portfolio
And today, we are still a full service real estate firm tailored to institutional parameters and geared for the challenging entire market ahead.
— Susan Budai, Managing Director
