Flood of U.S. Debt Threatens to ‘Crowd Out’ Other Borrowers

The various programs launched by the U.S. Government aimed at increasing liquidity have many economists concerned that ultimately, there could be a steep price to pay in the months and years to come, and borrowers would likely incur the most significant impact in the form of higher costs of debt. The influx of cash that the government continues to push into the economy in the form of ongoing borrowing and printing of additional currency is expected to cause inflation, which in turn will set off a significant rise in interest rates.

As savings stagnate and unemployment continues to rise, already heavily burdened consumers and businesses may not be capable of borrowing at such elevated rates. The economic term ‘crowding out’ refers to an inflationary period whereby government cash floods the marketplace; and adverse results of such a scenario would be felt in reductions in both savings and borrowing. At present, such conditions have not yet been observed; however, credit spreads have narrowed slightly and borrowing appears to be on the rise. There is continued fear that the cure for the credit blues could be far worse than the symptoms and the disease itself.

For investors attracted to more favorable yields provided by corporate bonds, the significantly higher returns over treasuries will help to minimize the impact of forecasted inflation as the Fed continues to release money into the market. As the appetite for risk slowly grows, it is anticipated that more investors will abandon treasuries and head for higher returns. We will keep you posted…

Two Industrial Sale-Leaseback Transactions

Penstar recently arranged the purchase and leaseback of two domestically located industrial properties owned by an international corporation. The first property, located in California, was purchased for $7,250,000. The second property, located in Illinois, was purchased for $2,200,000. The tenant entered into a 15 year ‘bond net’ lease with the rent starting at 8.95%, and escalating annually at 1.75%. The tenant has four 5-year options, whereby they can control the property for a minimum of 35 years. To discuss, please contact Steven Hamermesh, CEO, Penstar Net Lease Advisors, Inc. at (818) 883-9609 or Hamer@PenstarAdvisors.com.

Penstar is working with a lender actively funding multi-family loans on stabilized properties nationwide. The lender will advance up to 75% loan to value on acquisitions at a 10-year fixed rate of 5.75% with 30-year amortizations for newer properties. The loans are non-recourse except for standard ‘bad boy’ carve outs. To discuss, please contact David Stepanchak at (818) 883-9611 or DStep@PenstarAdvisors.com.

30 Day Libor	10-Year Treasury	Prime
0.45%	2.83%	3.25%

Penstar Realty Advisors can be reached at (818) 883-8600 or at our offices located at:
21700 Oxnard Street, Suite 1870, Woodland Hills, CA 91367