Real Estate Forum - April 2009

or four months that you finally get a little more realistic. We’re in the early stages of that with commercial real estate. The sellers really haven’t been willing to take the big discounts that may be necessary to move their real estate.

GRAISER: The category killers that no longer have competition. Those tenants are safe bets because there are not a lot of places to go outside of those categories. Whether it’s in electronics or linens, they’re safe bets.

GRAISER: Dave, do you think that with these balloon mortgages coming up, it’s going to start forcing these sellers to start getting more realistic with their pricing? The interest reserves on those mortgages are coming due and they’ve got to refinance, but have no place to go.

RITTER: Are there more regional or local tenants in shop-
ping centers than there were before? It seems like this
market is opening the door to opportunities for smaller,
regional names.

GRAISER: What we’re seeing, because we’re out marketing a

HENRY: That’s the slow-motion train wreck we’re all wor- lot of these leases in non-bankruptcy and bankruptcy settings, is ried about. There’s a huge wave of commercial real estate local retailers stepping up and taking over some of the vacated loan maturities facing us. There has been some anecdotal space, though not, obviously, at the rate that any of us would evidence that special servicers and others are getting realistic, and if they have a performing loan, they’ll consider extending it for 12 months or even 18 months— with, of course, a higher interest rate and fees. But why take a performing loan and force it into foreclosure or a non-earning status? We’re still very worried about all of these maturities, but perhaps some sanity will come into the securitization market Strategic insight. and it won’t just be full of bankruptcies and foreclosures.

SCHECHNER: With all the maturities, I think the special servicers—because there isn’t a robust investment sales market—do not want to take back the assets and manage the properties. That’s not what they’re set up to do. If the borrower has been performing and not stealing the cash and is a decent operator, why wouldn’t the special servicers extend the loan for 12 months at a higher rate and/or fees, and potentially a small pay down if available? We anticipate you’re going to see a lot of these type of extensions until the markets recover in some way.

GRAISER: One of the other things I’m seeing is that some of the retailers, certainly the healthier ones, are getting more realistic that this might be a really good opportunity for them to buy back some of their own real estate, especially when you’ve got some of these free-stand-ers whose leases are coming due in the next couple of years. Instead of trying to renegotiate a rent reduction, they’re now spending time with the landlord trying to buy the real estate.

RITTER: Are there any retailers out there that you can trust as a tenant? HENRY: The safest place to be as a landlord is in a ground lease position, where the retailer has actually built his building on top of your land and you’re receiving ground rent. If you have a good credit tenant and a ground lease, that’s a pretty good combination.

Value driven.

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