[quote=livinincali][quote=The-Shoveler]
The only mass exit I think that could occur would be caused by some economic catastrophe and it would be the leveraged players being forced most likely.
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I personally don’t think it would take a catastrophe to end up with some hedge fund players getting overleveraged and blowing up. The past 20 years have seen plenty of examples of this. Fed lowers rates, people borrow at those low rates, and speculate with the money. Since that speculation doesn’t create any real economic growth or a sustainable environment it always ends up blowing up sometime. The fed says we’ll lower rates so businesses can invest but it’s far easier to borrow and speculate than it is to actually build a real business.
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Historically, the term “hedge fund” has meant an investment group that played with other people’s money. They “hedge” their bets. They buy in a method that gives them most of the profits, but caps their losses.
These kinds of hedge funds haven’t been buying up real estate in droves. Much more traditional private equity funds have been. And they’ve been paying cash. Mostly all cash. And in doing so, they can’t be over-leveraged.
Someone suggested that these funds will eventually leverage their RE holdings. Not unlikely. But as a practical matter, they can’t do it cheaply with secured debt, because they cant get a single loan secured by thousands of properties. They would have to jump through similar hoops that small investors go through, financing each property individually. If it’s unsecured debt, then every penny of their asset value is at risk, and they have leverage, but no “hedge”.
I see no scenario where anything short of a catastrophic change in RE prices where PE investors could add to the catastrophe. They can’t create it. I’d certainly be open to suggestions of how it could happen. I just don’t see it.
