Commercial Real Estate Investment & Wealth Preservation for Risk Averse Investors
We expect continued improvement for the US economy and housing market, with the economy improving steadily if slowly, and the single family home market increasingly picking up volume: new homes and resales both increasing in nearly every important market while sales prices climb steadily year-on-year. This outcome is the result of the absorption that has taken place over the last four years with the addition of almost no new product to the national base. The SFH market would in fact have been far stronger had the foreclosure pipeline not delivered so many homes to the available inventory. While we expect millions of more foreclosures in the coming years, the inexorable growth in demand that is founded in the strength of the American demographic will result in these being absorbed as well, allowing for increasing volumes and pricing. The SFH market is extremely important to the U.S. economy, and its relative weakness when compared to pre-2004 norms accounts for 3-4 million unemployed persons at this time. So, with the U.S. economy dependent on consumer demand for goods and services, every improvement in the SFH market brings strength to the broader economy as the demand for construction materials, appliances and home furnishings increases and per capita disposable income increases through the effect of broadening demand and resultant employment. One clear sign of improving economic conditions and the condition of the consumer is that U.S. auto sales are up nearly 20% from a year ago, approaching 2005 (pre-crisis) levels on an annualized basis. Beyond the consumer health signaled by auto-industry strength, the ripple effect in the economy as money moves through the industrial sector is very powerful.
The new round of Fed stimulus that will pump $40 billion a month into the mortgage markets will support the SFH and CRE markets while further decreasing the average mortgage payments of homeowners thus increasing consumer disposable income and with it, consumption, the driver of the U.S. economy. Lower energy prices stemming from reduced global demand, can be expected to boost consumer discretionary income and increase CRE and industrial profitability. U.S. consumers have another source for increasing their disposable income having significantly deleveraged during the past five years, freeing more of their earnings for discretionary spending.
A recent survey of economists by the Urban Land Institute found that commercial property transaction volumes are predicted to increase by 21% to some $250 billion in 2013 providing an increasingly liquid market for owners-sellers and opportunities for buyers. This CRE volume will be supported by the ever-increasing strength of the CMBS market which is on track to reach $60 billion annually in 2014.
Major Metros have been responsible for much of the froth in the CRE market during the past 12 months, and perhaps CAP rates in those markets have been pushed too low to be sustainable. That said, the secondary and tertiary markets across the U.S. have come alive in the past 18 months, and relative volumes are increasing with the result that overall U.S. CAP rates, which are running about 5.9% in 2012, can be expected to move upwards towards 6.2% in 2013 and 6.3% in 2014 as more transactions take place outside the top tier core markets. However, the spread between cap rates and the Treasury rate is a record right now at 4.1%, and likely to remain very attractive when compared to Treasuries as it is at this time.
Most important for owners of CRE (or lenders to such owners), is that there has been almost no new product delivered in the last four years (with the exception of the multi-family housing sector which enjoys great occupancy and increasing rents). While there are exceptions at either end of the spectrum, this dearth of new product coupled with the factors described above, explains why there has been a steady, if slow, absorption of rentable space in nearly every U.S. market across all asset classes resulting in lower vacancies and a resultant increase in rents. The pipeline for delivery of new product is very much hampered by the lack of lender support for such activity (impact of banking reforms and Basel III) and thus the forecast for an increase in the stock of rentable space in any class (again excepting multi-family), is very modest. We therefore can conclude that there will be ab inexorable march to higher rents and higher property values over the next 2-4 years.
The Euro suffers from country economic incompatibility, and the EU-ECB lacks a mechanism to deal with this. The resulting borrowings by the peripheral countries have reached a max in many countries and are approaching a max in others. These borrowings are held by European banks who borrow against them from their central banks. As we are seeing in the case of Greece, the system is so interlocked that the inability of the borrower nations to service their debt is being met with new financing from the ECB and IMF. Now, as this situation continues to progress, the ECB and the IMF are going to need to be re-capitalized. The countries that are able to do this are not going to be willing to do so without some very real progress in the balancing of expenditures and revenues in the borrower countries. The borrower countries are experiencing political resistance to such balancing measures. Ultimately, there will need to be a re-structuring of the borrower countries’ debts, as there really are limits to what any of these peripheral country governments can achieve in expenditure reduction when significant portions of their populace are already living from hand to mouth.
China is a marvelous story that is mostly told by innuendo and suggestion. To this end, I would ask any individual who is a global portfolio manager of capital whether he or she would seriously consider moving capital out of UST’s to China (or India or Brazil). The answer is of course, “no”, since their UST holdings reflect the no/lowest risk portion of their investment portfolio. When country risk and currency risk are considered, there is simply no alternative to UST’s for this portion of investors’ portfolios. This is magnified by the depth and bredth of the UST market itself, which is far bigger and more liquid than any other Sovereign debt market. This of course explains why UST yields behave as they do.
It may be, that in 20-50 years time, China will have evolved to a sufficiently stable political and economic that a basket of currencies will replace the U.S. Dollar, but many things will need to change and many large problems will need to be solved before this can take place. As a reference, we remember the projection of Japan’s ascendancy to the dominant economic power during the 1980′s. Things happened, and it did not quite work out that way.
The U.S. remains the only country on the face of the earth that has all the resources it needs (should it choose to take such an approach to global integration), a political environment with demonstrated flexibility and transparency that enables growth to proceed through a free-market, capitalist economy. The U.S. enjoys a massively dominant economic, physical and military size, a highly educated populace, complete infrastructure, all-weather ports on three seas and an unequaled industrial base coupled to an enormous, well capitalized R&D flow. The sheer mass of capital assets in the U.S. is essentially unfathomable, but results in a good balance sheet when considered in relation to debt, especially in comparison to other countries.
These links below are from prior, relevant SWF Blogs.
LP Investor Hot Buttons: U.S. Southwest Fund Responds to Global Commercial Real Estate Fund Investors and Goes Beyond SEC Compliance Requirements
Following the revelation of countless frauds and deceptions of fund investors, the United State Securities and Exchange Commission (SEC) has imposed new regulations and stricter compliance requirements on the investment fund industry. We summarize some of the relevant changes below, and, while these new requirements mean increased operating costs for fund managers, we applaud them as totally appropriate.
In designing the U.S. Southwest Fund, LP, we responded to the expressed wishes of hundreds of institutional, Sovereign Wealth and family office LP investors with whom we met in 2008-2010 throughout Europe, Asia and the Middle East as well as the U.S… In fact, our U.S. Southwest Fund was designed and organized prior to the release of the new SEC requirements, and exceeds the demands of the SEC, providing investors with here-to-for unheard of transparency to fund operations and access to banking and financial information.
It is our belief, based upon input from some of the world’s most important accounting and law firms, that the structure of our fund is unique in its focus on protecting its investors, putting their interests first in all instances. Our U.S. Southwest Fund is unique because of two reasons: first, we were actively determined to be respectful and responsive to investor concerns and objectives, and, second, as a new fund manager, we were able to offer a highly restrictive and thoroughly transparent structure as we had no prior fund extant whose investors would likely become distressed upon realizing the extent to which such a prior fund had been designed to be manager centric.
Blue Sky Filing
General partners or managing members of funds also need to comply with State “Blue Sky” filing requirements.
Annual Compliance Review
SEC-registered investment advisers are required to perform a risk assessment review and update compliance policies and procedures on at least an annual basis. Covered areas include valuation, risk management and responsibilities to investors, as well as a framework of internal policies, practices and controls. Records of the annual review should be kept to verify that it took place, and who from the firm’s senior management participated with the firm’s chief compliance officer and retained counsel.
Changes to Custody Rule
The SEC’s adoption of amendments to Rule 206(4)-2 under the Investment Advisers Act of 1940 (the “Amended Custody Rule”) and related changes to Form ADV became effective on March 12, 2010.
Pooled Investment Vehicles
SEC-registered investment advisers to hedge funds and other investment vehicles are exempt from the annual surprise audit and quarterly statement delivery requirements for those clients if audited financial statements are delivered to all fund investors within 120 days or 180 days (for funds of funds) after the end of the fund’s fiscal year. The fund’s financial statements will be required to be audited by an independent accountant that is registered and subject to inspection by the Public Company Accounting Oversight Board (PCAOB) as of the commencement of the professional engagement period and as of each calendar year-end. Fund managers are now required to conduct an audit upon dissolution of the fund and promptly deliver audited financial statements after the audit is completed.
FORM ADV UPDATE
SEC-registered investment advisers (and most state-registered investment advisers) are required to update their Form ADV and file Part I of Form ADV with the SEC and with individual state regulators, if applicable. The adviser must update assets under management, number of clients and potential conflicts of interest and must deliver or offer in writing to deliver an updated copy of their Form ADV Part II to clients on an annual basis.
SEC FORM D
Issuers that offer and sell interests in hedge funds, private equity funds or other investment vehicles are required to file a Form D with the SEC and amend their Form D filings on the anniversary of their last filing, if the offering is continuing.
The on-going recovery of commercial real estate in the United States is now a topic of daily reports in the media. Driven by demand, fueled by a recovering economy, occupancies, rents, property sales prices and transaction volumes are increasing across the U.S. in the larger cities.
Concurrently, the economic health of much of Europe is viewed with concern by investors as Greece, Ireland, Portugal, Spain and perhaps Italy wobble under the strains of over-leverage, high unemployment and low growth, provoking investor concern as the future of the Euro.
China and other Southeast Asian economies are enjoying strong growth and yet there is also a shadow over this story as the burdens of their large populaces with extreme concentrations of wealth leads some to question the firmness of the footing of these economies, especially when it is well understood that they need a market for the goods they make to fuel their export driven economies, and Europe seems ill positioned to fulfill their needs.
Looking at the U.S., many investors worry about the health of the Dollar, as a heavily leveraged Government continues to spend borrowed money, almost certainly creating inflation in the relatively near future.
We said so
With all of this, our predictions of the past three years are being found to be spot-on. This week’s press release (see below) from The Association of Foreign Investors in Real Estate (A.F.I.R.E.) shows that the world’s investors are now turning to the U.S. as the best place to put their capital in 2011, choosing the U.S. as offering the best probable returns by an extremely wide margin over China (2nd place) and the rest of the world’s nations.
As we pointed out over the course of the past two years when many were heard to say that the “U.S. was over”, “China is the place to make money” and other similar radical observations, it is simply not realistic to posit that the global portfolio managers of the world’s investors will, in any meaningful sense, shift their real estate investment capital (or other capital) from the U.S. to such exciting places as China because there is simply no way to achieve sufficient comfort that these new and interesting economies and political systems will in fact allow the hoped for returns (and return of capital). To the contrary, the vast majority of capital in the world is scared, having had the tar knocked out of it during the last three years. This fear drives capital allocators to act conservatively, to be concerned that they preserve wealth. Bond prices and currency prices offer very clear proofs of this. So now U.S. real estate.
Starting with a REIT model, we designed the U.S. Southwest Fund to provide investors with a conservative wealth preservation strategy for investing in U.S. commercial real estate. U.S. Southwest is a hybrid that provides current returns to investors but is legally structured as a five year closed end fund. Through its restrictive design, investors can be confident that their capital is only deployed to acquire commercial property in major U.S. international gateway cities as set forth in the Fund’s documents. This control is enforced by the unique relationship of the Fund and its third-party fund administrator who is available without restriction to answer inquiries from investors in the Fund. In keeping with our longstanding belief as managers of other people’s capital, we believe that we owe our investors 100% transparency and have thus incorporated into the U.S. Southwest Fund 24/7 real time access to all of the Fund’s books and records through a dedicated online portal. All of the above combines with our decades of hands-on operating experience in the U.S. real estate industry and resultant direct relationships with property owners to enable us to fulfill our mission with confidence and integrity.
Here follows the Press Release from the Association of Foreign Investors in Real Estate
To see the Press release on A.F.I.R.E.’s web site, go to: http://www.afire.org/
U.S. Cities Lead Way for Global Foreign Real Estate Investment
Interest in Emerging Real Estate Markets Broadens
Washington, DC, Jan. 3, 2011 – The U.S. real estate market offers a stronger investment opportunity for foreign real estate investors’ money than it has in the last 10 years, according to the results of the 19th Annual Survey, highlighting trends in international real estate investment, taken among members of the Association of Foreign Investors in Real Estate, (AFIRE). Survey respondents hold more than $627 billion of real estate globally, including $265 billion in the U.S. The survey was conducted in the fourth quarter of 2010 by James A. Graaskamp Center for Real Estate, Wisconsin School of Business.
Among the survey results:
- More than 60% of respondents, a margin of 54 percentage points over second-ranked China, indicate that the U.S. offers the best potential for capital appreciation. This is the highest positive response to this question since it was first asked in 2000; this number is a dramatic reversal from 2006 when it reached a lowest level of 23%.
- Investors overwhelmingly chose New York and Washington, D.C. as the two top global cities for their real estate investment dollars.
- 72% of respondents say they plan to invest more capital in the U.S. in 2011 than they did in 2010.
- When ranked among countries targeted for real estate investment in 2011, the U.S. score was quadruple that of the second-ranked U.K.
“As the fear of a double-dip recession has faded, investors are becoming more enthusiastic about the prospects for the U.S. economy and are taking aim at real estate investment opportunities in the U.S.,” said James A. Fetgatter, chief executive of AFIRE. “However, their strategy is more akin to a rifle than a shotgun. Except for multi-family housing, they are not scattering their interest throughout the U.S., but rather narrowly targeting it to
New York City and Washington, D.C., to an even greater extent than in previous years.”
Other U.S. Real Estate Trends
2011 Perspective: An Improving Market
When asked about their perception of the U.S. real estate market as a conduit for their investment dollars, responses underscore a continuous improvement over the last year:
- 40% said they were more optimistic than they were at the start of 2010
- 55% said they felt about the same
- 4 % said they were more pessimistic.
Top Five U.S. Cities for Foreign Real Estate Investment
Historically, there has been a fairly even distribution of votes among the top U.S. cities. In this year’s survey, however, New York and Washington scored almost four times higher than third place Boston.
- New York (#2 in 2010)
- Washington, D.C. (#1 in 2010)
- Boston (#4 in 2010)
- San Francisco (#3 in 2010)
- Los Angeles (#5 in 2020)
Preferred U.S. Property Types for Investment in 2011
Although, as it has for the last several years, multi-family properties remain investors’ first choice, hotels have come out of three year, fourth- and fifth-place doldrums.
- Multi-Family (#1 in 2010)
- Retail (#4 in 2010)
- Hotel (#5 in 2010)
- Office (#2 in 2010)
- Industrial (#3 in 2010)
Global Real Estate Trends
“Compared to 2010, there is definitely a broadening of interest among emerging markets,” said Ian Hawksworth, AFIRE’s newly elected chairman. “For those who were risk averse last year, China seemed a safe harbor for emerging market investments. But, for now at least, investors have become more comfortable diversifying into other emerging markets. Likewise, in the last downturn, London was the first market to recover, and whilst investment in the UK Capital is still very active, it is not surprising that London has dropped to third place as investors expand their search to higher yielding markets such as U.S. gateway cities that offer attractive risk adjusted returns.”
Emerging Markets for Investment in 2011
Since 2009, when it was first ranked as an emerging market of interest, Brazil has held either the first (2009 and 2011) or second (2010) ranking. The trio of Brazil, China, and India dominate this ranking. Russia, which has been among the top five emerging markets in the last two years drops into tenth place.
- Brazil (#2, tied with India, in 2010)
- China (#1 in 2010)
- India (#2, tied with Brazil in 2010)
- Vietnam (unranked in 2010)
- Mexico (#4 in 2010)
Top Global Cities Rank for 2011
London, which held sway as one of investors’ top two cities every year since 2001, has been deposed into third place. Shanghai returns to fifth place after dropping into ninth place in 2009. Tokyo moves out of the top five into fourteenth position.
- New York (#3 in 2010)
- Washington, DC (#2 in 2010)
- London (#1 in 2010)
- Paris (#4 in 2010)
- Shanghai (#9 in 2010)
Top Countries Targeted for Real Estate Investment in 2011
Although historically, investment targeted to the U.S. earns a substantial margin over other countries, in this year’s survey it ranked nearly five times higher than second place U.K. In 2010, it ranked less than three times higher.
- US (#1 in 2010)
- UK (#2 in 2010)
- Germany (# 3 tied with France in 2010)
- China (#5 in 2010)
- France (#3 tied with Germany in 2010)
Countries Providing the Best Opportunity for Capital Appreciation in 2011
Consistent with other answers to this year’s survey, the U.S. claimed an historically disproportionate number of votes, more than six times than that for second place China.
- U.S. (#1 in 2010)
- China (#3 in 2010)
- U.K. (#2 in 2010)
- Brazil (#4 in 2010)
- Australia (unranked in 2010)
Countries Providing the Most Stable and Secure Real Estate Investments in 2011
The U.S. continues to provide the most stable and secure real estate investment, but by a shrinking margin over other countries. None of the leading emerging markets are among the top 10.
- U.S. (#1 in 2010)
- Germany (#2 in 2010)
- Canada (#3 in 2010)
- UK (#6 tied with Australia in 2010)
- Australia (#6 tied with the UK in 2010)
AFIRE members have a common interest in preserving and promoting investment in cross-border real estate. Founded in 1988, AFIRE currently has nearly 200 members representing 21 countries. AFIRE is located at 1300 Pennsylvania Avenue, NW, Washington, D.C.; (202) 312-1400. www.afire.org
Interviews with James Fetgatter, AFIRE CEO contact: firstname.lastname@example.org.
Some voices argue that austerity is the solution to the global economic uncertainty that nearly all recognize as the current reality. Indeed, some nations have already headed down that path, and, to the extent that they are not the major players in global demand, austerity may offer them some benefits. Looking at the U.S, it is easy to say that consumers have overindulged with the aid of loose money, and now they should learn to live like “others” (a vaguely understood admonition). But what about other major economies, for example, China? It is not generally understood what the role of loose money is in China’s economy, as others enviously observe China’s strong growth in GDP and hard currency reserves. Looking back at the U.S., one might say that beginning in the late ’70s, through 2010, the U.S. national debt grew dramatically, but so also did its GDP.
Capitalism has always recognized leverage as a multiplier of profits, as long as there is growth . It is therefore arguable that it is growth that is required, not austerity, an increase in global demand for goods and services, not a reduction. Austerity offers benefits, but austerity can only succeed in a time of economic health – growth. Austerity at this time may appeal to certain Calvinist values, but will put more holes in the bottom of the economic boat.
Hordes of Cash
The hordes of cash in certain corporate and national coffers exists because of capitalist success, similar to what the U.S. experienced in the 1800s to the 1960s when our national “retained earnings” grew at an enormous rate due to the huge growth in demand for our hard and soft products (especially relative to our global competitor nations that were empires on the wane). We would all like to see this cash spent for expansion, but consumer demand must be the prime driver to provoke such spending for expansion. But what of the source of this horde of cash? The enormous growth of the U.S. was the result of brutal capitalism built, some might say, on the backs of the larger working class. One might wonder what is in store for China as it proceeds on its current path.
Enlightened capitalism (which is how we define the culture of our U.S. Southwest Fund) is what the U.S. and other nations need to strive for, and China must strive for if social upheaval and the related drain on the economies is to be avoided. However, the first job must be to re-balance the globes’ economy so that those with enormous disposable income can make the decision to buy from those who are experiencing stagnant sales growth and negative cash flow (something no business can stand for long). In our world of linked economies, each needs the demand from the other in order to prosper. So, we like a combination of possible changes to currencies, trade restrictions, and stimulus actions including QE2, although in our current economic condition, QE2 is the least exciting as the push to demand QE2 offers is merely supportive and thus like expecting an Indy 500 race car to win because more ethanol was added to it’s fuel.
Charles G. Cecil Marc Makebakken
1230 Avenue of the Americas
New York, NY 10020
Tel: (212) 366-6536
Fax: (646) 349-5078
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Stimulate Me: Accelerated Doesn’t Mean Acceleration & Why Team Obama’s Latest “Stimulus” Won’t Matter
Team Obama’s latest fix for the economy proposes that businesses be allowed to write off the cost of capital improvements-new equipment in one year rather than the IRS’s 3-20 year schedules. The theory being that the tax savings will encourage businesses to spend their $1.3 trillion+ cash hoard and stimulate demand through new orders to equipment manufacturers and their suppliers, resulting in new hiring and lowered unemployment. Look at where President Obama announced his new scheme: Cleveland, the rust belt. Again, we have politics as usual, as the President needs to show voters that he is doing something about unemployment. But this is a pretty big miss. Putting aside the possibility (probability) that companies will game the system by borrowing at currently very low rates rather than using their cash (cost of capital: interest rates are lower than return on equity), this stimulus idea is not really very stimulating, here’s why:
-Businesses do not make meaningful CAPEX decisions on the spur of the moment. Typically, they are part of the five year plan as they have large lead times from initiation to on-line functionality. Absent some big news, corporate America can only hold the view that conservation of wealth is an appropriate response for the uncertainties that are the current global economy.
- Businesses look at the probability that demand for their product will approach their capacity to deliver their product. Last time we looked, capacity utilization is a long way from tight, and very few companies are losing sleep in this regard.
- One part of the “formula” used by company planners is the trend of consumer demand and its flow-through to capacity at all points in the production-supply chain. Let’s just say that consumer demand is not signaling a goods shortage at this time.
Without going into the consumer debt overhang and how that, combined with changes in the consumer borrowing landscape , essentially cripple consumer buying power, we can see that businesses will simply not spend money, borrowed or otherwise, to build-buy to expand their capacity absent some realistic scenario for increased demand for their products (oh, and we shouldn’t hold our breath waiting for China to provide demand, they may have other plans, and Europe is seriously moribund).
So, if it’s about the Consumer, then we need to see Washington policies that will put money in consumers’ pockets, while at the same time soothing consumers’ fears that they are about to lose their jobs. This is by no means an easy task, but perhaps massive spending in the energy arena would be effective and have the additional long-term benefit of lowering operating costs for company USA going forward (think lower cost of EVERYTHING). Massive spending on infrastructure would have a good impact and also save us from the coming problems of transportation inefficiency. However, nothing might be so powerful as a solution for the imbalance in the consumer’s housing debt-equity ratio. Washington needs to go for the seemingly politically un-savory solution, which is to have the Federal Government absorb the negative equity that resides in homeowners’ balance sheets and lenders’ balance sheets. Perhaps what is needed is a very long term, very low interest rate “U.S. Recovery Bond” (and the name is key here) that could be sold to the liquid investors of the world that could be seen as a quiet tax on the profits-wealth they accumulated by the loose money lending of the past ten years. The proceeds would go to the lenders-investors holding the housing debt that is now worth 10-50% less than the value of the housing assets. The capital would be used to shore up lender-investor balance sheets, in return for writing down the value of those housing loans and forgiving homeowners the corresponding mortgage debt. The new-found wealth would allow the consumer to spend and borrow and spend (don’t mean to sound cynical here), creating real demand for goods and services, for which there is no substitute.
FORGET THE FANTASY EQUITY, THE FLUFF IN FINANCIAL INSTITUTIONS’ COMMERCIAL REAL ESTATE BALANCE SHEET ASSETS AND THE OPPORTUNITY FOR PROPERTY INVESTORS
Some quick math on CRE loan collateral and prospective future loan losses and opportunities:
The build-up of non-performing/underperforming CRE loans on the balance sheets under OCC, FDIC & Fed policies got us thinking:
Nationally, we have seen an average 250 bpt increase in CAP rates (and some would argue 300 bpt), and a resultant loss in value of CRE as follows:
There are approximately $3.5 trillion of CRE loans outstanding at this time. Assuming an average LTV of .75, the CRE collateral was valued at loan inception at $4.2 trillion. So, assuming an average CAP Rate for CRE of 6, we can derive that the implied NOI at loan underwritings was $252 billion ($252 billion/.06=$4.2 trillion). Increasing the CAP Rate by 250 bps to 8.5 results in a reduction of CRE loan collateral such that it is now worth $2.965 trillion, or, $1.235 trillion less than at loan inception underwritings. From this we see that at current values the $3.5 trillion of outstanding lender CRE loans are undercollateralized by about $535 billion. But, this of course ignores the declines in operating performance that have been experienced during the last 24 months and which continue to deteriorate with each passing month. Taking a stab at quantifying operating performance declines, we could say that broadley, NOI is down 10-30%, depending on asset class. Taking a conservative number of 15% and applying it to the $252 billion of NOI at loan inception underwriting, we find that current NOI may in fact be something like $215 billion. Using our current 8.5 CAP Rate, we get a current value of $2.529 trillion. This suggests that lender CRE loans are underwater by about $971 billion, let’s call it $1 trillion. This shows the capuital gap and the opportunity for new investorslike U.S. Southwest Fund, who buy in to CRE assets at a discount to original property value and loan value.
As an interesting side note, using our assumptions above, we can quantify the lost investor equity since the onset of the financial crisis at $1.05 trillion (25% of $4.25 trillion). So, taken together, lenders and equity investors have lost a total of $2 trillion.