Jesse
Holshouser is the Chief Financial Officer (CFO) of Silver Capital,
a real estate investment and development firm. Jesse gave us an insider
prospective on real estate capital markets from the 1970s to his outlook
on the future on the CMBS market.
In the 1970s the banking in general was much more simplistic
than present times. Banks would acquire capital from depositors buy offering
the depositor a rate at which they would earn a risk free return for keeping
their money deposited in their bank. The bank would then lend at a higher rate
to a borrower to which the bank would make the spread. The bank would hold on to
the loan they made till maturity and their for would be extremely risk adverse
as they would be the ones holding the note until maturity.
This led to what Jesse referred to as the “mortgage
revolution”, where mortgages were bundled together and sold. The process was a
mortgage broker or bank would draw up and fund the loan, then the bank would
bundle and sell the mortgages to the investment community. Government Sponsored
Entities (GSEs) such as Freddie and Fannie Mac would ultimately secure the
loans for a fee of course, making the investment community be less fearful of a
possible default.
This
practice led to banks and everyone related in the real estate and banking
industry to enter into a full fledged frenzy. The banks would write pretty much
any loan they could with out fear of default, as they would sell the loans as
soon as they would write them. This was a game all about fees.
As we
all now know this came to a halt in housing recession to which most of the
nation still feels effects of what took place seven years ago. Jesse points out
that many of the indicators are beginning to look like 2005 all over again.
The
past is always a great predictor of the future, however lets hope we learned
out lesson.
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