Clarity Moving Forward

 As we rapidly approach the end of January and seek to find some form of clarity on valuations moving forward, we continue to be faced with tight credit markets and deteriorating property fundamentals. While we are encouraged by the strong level of investor interest in a number of our property offerings and the fact that two of our deals have gone “hard” over the last two weeks, as well as the amount of equity on the sidelines, risk aversion continues to be the primary focus of many investors. Assets with any significant level of risk suffer from investors requiring disproportionately higher risk premiums similar to high yield corporate bonds. The highest quality properties with long term investment grade cash flow and stabilized properties below $25 million will likely drive the sales market in the early half of 2009 as investors seek safe yields and pursue properties that can be financed as lenders have less exposure in this price range and less equity is required from investors.

Since history promises that “this too shall pass,” we remain encouraged by the trillions of dollars that have been injected into the global financial system and the $800 to trillion economic stimulus package which is expected to be enacted this quarter. Also, we are hopeful that a large portion of the remaining $350 million of TARP will be used to purchase toxic securities on the balance sheets of many financial institutions, which should free up capital that will hopefully be used to make commercial real estate loans. 2009 will certainly be a transitional year in commercial real estate as investors continue to deleverage and strengthen their balance sheet. Those who are able to do this will emerge as market leaders and consolidators.