It was the last session in a long day, but the attendance was understandably strong at \u201cThe Outlook for Capital,\u201d the closing session of \u201cWhat Comes Next: Opportunities, Risks and Rewards,\u201d the 2008 DLA Piper Global Real Estate Summit held Tuesday in Chicago. The panel discussion was dominated, of course, by debate and speculation about the federal government\u2019s $700 billion bailout of the financial markets, also known as TARP, or the troubled assets relief program. Though he referred to \u201can excessive writedown of assets,\u201d moderator Bruce Cohen, CEO of Chicago-based Wrightwood Capital, expressed a pervasive sentiment when he said that the response to the crisis is \u201cless about filling a capital gap and more about providing confidence.\u201d Promptness on the part of the federal government is crucial, said Lawrence Gray, head of real estate financing at Wachovia Securities, and will help to prevent more \u201cshotgun marriages\u201d like that between Bear Stearns and JPMorgan Chase. Several panelists emphasized the major differences between the current situation and the savings and loan meltdown of the late 1980s. The present fundamentals of commercial real estate are \u201csubstantial,\u201d said Daniel Rubock, senior vice president & chief counsel, Moody\u2019s Investors Service, and Lonny Henry, vice chairman of investment banking at JP Morgan Securities, commented, \u201cUltimately, it wasn\u2019t commercial real estate values that undermined the CMBS market.\u201d Rubock implicated \u201cmodern McCarthyism,\u201d or guilt by association, in the crisis of confidence. In the minds of many investors, he said, if residential mortgages are so unsound, how safe can commercial mortgages be?Asked by Cohen whether the tarnishing of the rating agencies inhibits the return of investor confidence, Ruboc said that part of the problem has been that people use ratings as a proxy for value. He also noted that Moody\u2019s is undertaking numerous internal reforms, and that in fact Moody\u2019s lost market share back in April 2007 because it tightened its standards at that time and some clients moved to other rating agencies. There were some specific concerns voiced about the multi-family market in the aftermath of the current crisis. Henry noted that multi-family had essentially been subsidized by Fannie Mae\u2019s and Freddie Mac\u2019s policies and asked what could happen to multi-family values if those change. Rubock commented that the preliminary evidence is that Fannie\u2019s and Freddie\u2019s policies on multi-family will largely remain the same, though he questioned whether tax credits for affordable housing might be affected. Turning back to the core of the session\u2019s topic, the panelists discussed how capital is, or hopefully will soon be, flowing. Gray said that Wachovia\u2019s originations on construction loans are down 50 percent, but their outstandings are up 6 or 7 percent, simply because \u201cWe\u2019re just not getting taken out\u201d on existing construction loans. Before the crunch, he explained, these had been taken out primarily through the CMBS market. Responding to a question about a potentially increased role for the life insurance companies, Michael Graziano, managing director, Goldman Sachs & Co., contended that \u201cThe life companies cannot possibly handle the volume of commercial real estate loans coming due over the next two years.\u201d Henry observed that life companies had been largely priced out of commercial real estate by the investment banks and are now coming back somewhat. As to loans rolling over, Rubock guessed that 10-year loans coming due will probably be all right, because of their adequate LTVs, and that recent 3-1-1 loans might be okay if the economy turns around by 2011 or so. \u201cThere\u2019s a large amount of private equity waiting,\u201d from investors who haven\u2019t put any money out in a year or more, said Henry, though the panelists generally agreed with Graziano\u2019s comment that \u201cNo one wants to stick their hand out and catch the falling knife,\u201d especially with plenty of other investment options out there. Gray suggested that whatever federal initiative is put in charge of the bailout could play an invaluable role here: \u201cHopefully, they will be the preferred buyer as we find the bottom.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
It was the last session in a long day, but the attendance was understandably strong at \u201cThe Outlook for Capital,\u201d the closing session of \u201cWhat Comes Next: Opportunities, Risks and Rewards,\u201d the 2008 DLA Piper Global Real Estate Summit held Tuesday in Chicago. The panel discussion was dominated, of course, by debate and speculation about…<\/p>\n","protected":false},"author":1314,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37301],"tags":[],"class_list":["post-1003854839","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"\n