Proceed—With Caution
Depending on your appetite for risk, opportunities
do exist in the current market, say the experts
By Joseph Dobrian
This time last year, the inevitable complaint from the real
estate investment community was too much capital chasing
too few deals, with prices too high and leverage too cheap.
Today, it’s a very different marketplace, one in which equity play-
ers are still eager to place their dollars, but most of them are
focusing on a few cities and property types that are seen as safe
bets. Providers of senior debt are more insistent than ever that
borrowers prove they don’t really need the money, while the
legions of CMBS lenders have been reduced to a skeleton crew.
Even though the market is itching to get moving again, it is para-
lyzed by indecision and uncertainty. More bad news is that the
situation is likely to stay that way for at least the rest of this
year, say the experts.
Matthew McManus, chairman of Bluestone Real Estate Capital
in Philadelphia, suggests that the current consumer credit crisis
will go wider and deeper than the savings and loan collapse of the
early 1990s, which was also triggered in part by overinvestment in
real estate. It will also likely have a more profound effect on the
financing of commercial properties.
“The ’90s crisis was a fundamental problem of too many S&Ls
supplying too much money to an industry that was overbuilding,”
he explains. “The value of real estate really did decline. This, by
contrast, is a consumer-led recession. Consumers are scared by
what’s in the media and are further reminded of the problem when
they aren’t able to tap into their home equity as they did three
years ago. The consequences have got to hit the commercial mar-
kets as well. This is the equivalent of the S&L crisis on a global
basis because people all over the world bought CDO paper from
Wall Street.”
Overheated competition among commercial lenders is also
responsible in large part for current conditions, says Daniel S.
Levitan, managing director of investments for PNL Cos. of Dallas.
