You are on page 1of 7

Tangible vs Intangible Real estate Valuations

Underlying thesis: Hurricane Sandy is a tangible event in 2012 that will impact real estate prices and their subsequent mortgages. On the other hand, the subprime financial crisis of 2008 was both an intangible and subjective decision to cut off revolving credit. There was no tangible reason for sabotaging the financial markets and the economy. There was no nostalgic macro view driving the economy towards honest credit analysis and best practices. Simply put the racist opinion makers wanted to sabotage President Obama's legacy by poisoning the well. Evidence of this mind set can be found in the lame duck political circles on the hill. The Broken Crane in NY on October lack of confidence has had repercussions on the participation of 2012 retail investors in the financial markets.


Ramifications of Sandy on New York & New Jersey in the Financial markets:
Near term view: Real estate prices in NY & NJ will plummet, and both mortgage lenders and banks will have a margin call. This may lead to a domino effect like in the recent MF Global and Flooded NY Subway in October Lehman Brothers cases. Lets take a snapshot of the Federal, 2012 municipal, commercial, and retail perspectives. 1. Federal exposure is difficult to calculate, as it ranges from FEMA to TARP. Insurance companies are either liable or they are not liable. Scenario A. There are no hurricane or flood insurance contracts covering existing damaged properties in the North East, which is largely due to the fact that there has never been a Hurricane travesty in that region. Scenario B. Insurance companies do not have the money to pay for damages, since they have insufficient cash reserves. They are going to try to access the markets for money or the govt like in the TARP bailouts. The latter will probably be challenging due to the imminent Federal Fiscal Cliff. The overwhelming existing debt burden cap of 16.4 Trillion makes them a horrible credit risk for both lenders and the rating agencies. 2. We are forecasting a rise in both Municipal CDS rates & Interest rates, due to the high likelihood of a default municipal borrowers in this mangled property market. The rise in failed Municipal projects will be rated by Moodys, S&P, and Fitch. Keep in mind both NY & NJ were overleveraged prior to the Hurricane Sandy Incident.


3. Commercial businesses are going to suffer the initial cost of rebuilding and losing inventory. Then there is the issue of securitized payables and receivables, which means they cant pay suppliers or get financing due to their recent defaults. They also cant offer credit facilities to make sales. This is due to their local customers defaulting on them. The Banks, Mutual Funds, or Hedge Funds that held the aforementioned securitized receivables and payables will either take a loss or try to cash in on a CDS Credit Default Swap. The CDS rates will rise as a direct result. At this exact moment the cost of working capital financing will bankrupt a huge number of businesses. 4. Residential forecasts on real estate valuations are sour. The rising costs will probably drive commercial entities out of the area. The combination of the rising cost of insurance and the negative stigma of sadness, disease, rats, looting, and general depression are enough to scare all but the most resolute of investors. The fact is that most real estate investors are interested in rental yield; however, the aforementioned rising costs will be deducted from the rental revenue. On the other hand, if the commercial real estate owners try to raise the rent they will probably drive tenants out of the area. Its simply an issue of cost to benefit analysis. Each company needs to determine the cost and benefits of each location. Then they have to calculate the forecasted revenue potential of the location. Assuming that the NY & NJ Region can be cleaned up and insured, they still have to compete with the allure of other locations around the globe. 5. Long Term Allure of Location: The NYSE is rumored to go electronic, which means they are not really in NY. They are in the WWW like the Nasdaq. This will dilute the allure of the location as other electronic communication network (ECN) serve the same financial market functions.
Flooded Streets in NY in October 2012


New Federal Solution


Ex-Im Bank Extends Assistance Measures to U.S. Exporters in Federal Disaster Areas Affected by Hurricane Sandy WASHINGTON, D.C. The Export-Import Bank of the United States (Ex-Im Bank) today announced extended provisions to assist exporters and financial institutions located in those portions of the Mid-Atlantic and Northeast that have been declared federal disaster areas by the Federal Emergency Management Agency due to the impact of Hurricane Sandy. As the nation continues to respond and begins the long effort of recovery, the Ex-Im Bank stands at the ready to help, said Ex-Im Bank Chairman and President Fred P. Hochberg. We will do all we can to help those exporters in affected areas--especially small businesses get back on their feet and


resume exporting. The last thing any business owner should have to worry about after a storm is the status of a loan or a claim-filing deadline. The Bank is offering administrative relief measures to allow businesses and financial institutions that participate in Ex-Im Bank financing programs to return to their business concerns when appropriate and without penalty. The Bank provided similar measures during Hurricane Katrina and believe these same steps will help those business and banks that have suffered Flooded Taxis in NY in October economic disruptions during Sandy, added Hochberg. For a full 2012 list of measures, please visit In addition, a fact sheet can be viewed here: Ex-Im Bank Clients Affected by Hurricane Sandy. Working Capital We know that in order for you to begin exporting internationally, you'll need access to a dependable source of working capital that provides financial stability while you expand exports. Our working capital financing does that by enabling small business exporters like you to obtain loans which facilitate the exports of goods or services made by commercial lenders and backed by our guarantee. These loans provide you the liquidity and confidence to accept new international contracts, grow your export sales, and compete more effectively in the international marketplace. Supply Chain Finance Guarantee Program Increasing Capital for U.S. Businesses The Ex-Im Bank Supply Chain Finance Guarantee, offered to lenders, benefits U.S. exporters and their suppliers through accounts receivable financing. It is designed to inject liquidity in the marketplace and provide suppliers, particularly small businesses, with access to capital faster and at a lower cost.


Direct Loan Fixed-Rate Term Financing for International Buyers Ex-Im Bank's direct loans help you secure competitive financing for your international buyers. We provide fixed-rate financing-- up to 12 years in general and up to 18 years for renewable energy projects--to creditworthy international buyers in both the private and public sector, and finance your local costs up to 30%. With our direct loan, international buyers get competitive term financing NJ Coastline in October 2012 that may previously have been unavailable. Finance Lease Guarantee Competitive Financing for International Buyers Ex-Im Bank supports competitive medium-term financing structured as finance leases in addition to financing structured as installment loans. Support of lease financing is important since some foreign buyers of U.S. capital goods prefer lease financing as an alternative to traditional installment loans. Ex-Im Bank will guarantee lease financing of U.S. goods and services to creditworthy international lessees, both private and public sector, when financing is otherwise not available or applicable interest rates are not economically viable. Export Credit Insurance Increase Your Export Sales While Minimizing Risks Ex-Im Banks export credit insurance allows you to increase your export sales by limiting your international risk, offering credit to your international buyers, and enabling you to access working capital funds.


Medium and Long-Term Loan Guarantee Ex-Im Bank's guarantees help you secure competitive financing for your international buyers. We guarantee term financing-generally up to 10 years--to creditworthy international buyers in both the private and public sector, and finance your local costs up to 30%. With our guarantee, international buyers get competitive term financing--that may previously have been unavailable-- from lenders.