2008-09-15, 09:22

Have We Hit Bottom Yet?

By: Multifamily Real Estate Industry Team
My last blog entry was entitled "Looking for Bad News" and my commentary centered around the notion that the more bad news we receive, the less bad news there would be left to disclose.

I am now rethinking that theme, as I opened the newspaper this morning to find that in the last twenty-four hours, Lehman Brothers had declared that it will file for Chapter 11 bankruptcy protection, Merrill Lynch disclosed that it will sell out to Bank of America for $50 billion (i.e., a price amounting to $25-$30 per Merrill Lynch share) and American International Group (AIG) indicated that is seeking a billion dollar rescue from the Federal Reserve.
http://www.nytimes.com/2008/09/15/business/15lehman.html?th=&adxnnl=1&emc=th&adxnnlx=1221472832-GJPAxJenkleodqcxhk7BVw

This all follows last week's announcement that the federal government had taken over the two mortgage giants, Fannie Mae and Freddie Mac, who now live in the uncertain land of conservatorship.

Perhaps my new theme should be that bad financial news propagates more really bad financial news. Whichever concept may ultimately be correct (and I am now clearer that we will only ascertain the truth by looking backwards in hindsight), there is little doubt that the topography of American finance is now being dramatically redefined.

It is hard to conceive of a financial world without Lehman Brothers and Merrill Lynch. It is difficult to envision the ramifications of the consolidation into Bank of America of such extensive brokerage and consumer banking power. The implications of the Fannie Mae and Freddie Mac conservatorship remain unclear, although reports from leaders in the multifamily industry continue to underscore that for the apartment industry, it is business as usual with Fannie Mae and Freddie Mac continuing to issue loan commitments, lock interest rates and close financings.

The current question for me (and I am sure everyone else) is what is next? Should we brace for the failure of Washington Mutual, the nation's largest savings and loan bank? How many other banks will also go down? (This weekend I was told by a banking industry expert that we should expect to see in the nature of 250 banks fail.) How will all of this impact the apartment industry? Most importantly, have we hit bottom yet? (I don't think so.)

(This entry posted by Pamela V. Rothenberg, a member of the Real Estate Development Group.)

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