We’ve seen some interesting economic dynamics in play so far this year. Despite the big picture risks that are in play on a global basis, the level of investor confidence is actually picking up.

Case in point: The financial sector… This is an industry that has been plagued by risk over the last decade. Banks and insurance companies were hit hard with the credit / mortgage crisis beginning in 2007 and they still haven’t fully recovered.

But to add insult to injury, the sovereign debt crisis in Europe has created new risks to the equation. Even though the crisis may seem far removed from the US, our local banks still have a significant amount of exposure because of architecture of the global financial system.

Early this year, there have been a number of negative headlines that made it clear that a solution in Europe is still a long way off. But the interesting thing is that the financial stocks didn’t respond negatively. In fact, banks and insurance companies have been trading higher and it appears that sentiment is shifting to a more positive perspective for the group.

Financials Are Closely Tied to Real Estate

The welfare of our largest US banks is more closely tied to real estate than you might think. Both large money center banks as well as regional banks in our area are struggling with real estate assets that they have foreclosed on, and capital ratios that are below “safe” levels.

Whenever financial institutions see their assets drop and their liabilities increase, they must make changes to their capital structure. This usually means selling assets to reduce risk – and in this case the assets that they are trying to sell include a significant amount of real estate.

With major banks liquidating real estate as “motivated sellers,” it has been challenging (at best) for property values to increase. But now that sentiment is improving for banks, there are other options for these companies to improve their financial situation.

Rising stock prices can have a direct impact on the capital structure of these companies. Banks can actually curtail their property liquidation programs and instead sell new stock to shareholders. This allows the bank to wait for property values to increase – and results in better value for their existing shareholders.

The Trickle Down “Local” Effect

Looking at this dynamic from a local Atlanta perspective, I see the improvement in the financial sector as both a positive and a negative for us.

On the negative side, it looks like we’re entering a period where banks have more leverage at the negotiating table. If my contacts from Wells Fargo, Regions Financial, SunTrust Banks – and other financial institutions – don’t have their risk manager breathing down their neck, they may hold out on deals and demand a higher price for any new purchases.

Since we’re committed to only buying top-tier properties at a significant discount, our number of purchases may slow significantly. This means less opportunity for investors that wait for a few months before pulling the trigger.

On the positive side, if banks quit selling properties at a discount, it will give prices plenty of room to run – and likely be very beneficial for our existing investments.

Builders are beginning to break ground on new properties, gearing up for the spring selling season. There are only a limited number of attractive home sites in the Atlanta area for them to develop. Many of these sites are owned by our investors and will command a premium price as builders MUST get structures in place right away.

So far, 2012 is shaping up to be a tremendous period for real estate investments, with the risk of “missing a big move” motivating property buyers.

Time is Running Short

Looking at our own inventory of properties, Ashford Capital has just a few slots left in our existing real estate projects. These are land tracts that we have purchased and are actively marketing to local builders. Once investors claim the remaining slots for these properties (which have been purchased at a tremendous discount), the next set of opportunities will likely be at much higher prices.

I would love to take a few minutes to show you the investment programs that are still available and help you generate returns as the market turns higher. Please give me a call today so someone else doesn’t claim your spot. You don’t want to risk missing out on these tremendous opportunities.

Wishing you every success,

Matt

Matthew J. Riedemann
Founder, President, & Managing Director
Ashford Capital Partners

678-231-4579
[email protected]