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When NYC real estate royalty Richard LeFrak woke up in London yesterday, he knew the world was forever changed. Immediately following the monumental decision, Richard told Bisnow the entire financial services industry was taken by surprise, which of course sent stock markets around the world sliding and many wondering what this move would mean for our global economy. But as a man in charge of a more than century-old powerhouse, he has some concerns about what the move could mean for the US commercial real estate industry.
Richard tells us Britain’s decision to leave the EU could have some initial positive impact on the states, pushing capital to US shores as London’s finance sector flees to mainland Europe, taking European real estate values along with it.
However, there is cause for concern, as Richard says if this first step backward in European unification turns into a footrace, we could see a European recession, meaning slow growth and continued low interest rates in the US.
But we don’t know if European disintegration will come out of this or not—and that uncertainty defines how the markets are feeling, as they reel from the initial, short-term shock of Brexit. The pound sunk to historical lows on news of the referendum’s results while US Treasuries surged, as investors traded their sterling for the relative safety of the greenback.
But this initial shock is just what Georgia State University economist Rajeev Dhawan calls “first order” impact: an overreaction that tells us little about how markets will settle out in the long run. Rajeev, who is director of the Economic Forecasting Center at the university, says the market is reacting as if a company failed, like during the recent US financial crisis. “The Lehman failure was a symbol of a lack of global demand,” Rajeev tells us. “[Brexit] is just a change on paper—nothing has happened on trade or anything. Everything has to be worked out, it’s not as if tomorrow the trade is going to stop.”
Read entire Bisnow article here.