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Real estate pros urged to ride out economic storm

John Golden

Nov-30-08, 07:00 PM

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Topics: Real Estate

While the credit market for commercial real estate is “dysfunctional” and nearly dead, the fallout from Wall Street has been opportune for regional community banks still active in the market, real estate professionals heard recently in White Plains from banking and real estate veterans.

“Right now you have not just a credit market but a whole economy that is gripped by fear and uncertainty,” said James J. Houlihan, a partner in Houlihan-Parnes/iCap Realty Advisors L.L.C. in Harrison. A general sense of confidence in the economy that prevailed during 15 years of prosperity “has really been stripped away in the last 18 months. You really have a dysfunctional economy in totality.”

Houlihan made his comments at a meeting of the Commercial Investment Division of the Westchester County Board of Realtors, where panelists shared their views of a “credit tsunami” that, despite the multibillion-dollar federal bailout of banks, shows no signs of ebbing. The industry experts strongly criticized federal officials for failing to require banks to use the money for loans to stimulate the moribund credit market.

“The lending community, they’re like a herd of elephants and right now they’re running full speed to go right over the cliff,” Houlihan said. If the credit situation continues until 2010, “This country is in very, very serious trouble.”

Keith Braddish, executive vice president at CB Richard Ellis Capital Markets in New York, agreed with Houlihan that there is effectively no lending market for real estate deals today. With lower loan-to-value ratios and banks now often requiring recourse and cash deposits from borrowers, “It doesn’t make sense right now really to borrow,” Braddish said. “Besides assumable debt and smaller deals, there’s really not a financing market out there. The market right now is absolutely irrational.

“Money got too cheap, got too loosely priced,” Braddish said. “We are suffering from an overheated market. I believe it’s going to take a year or two for lending to come back. I think the thing a lot of the lenders are struggling with right now is value. The whole risk-reward relationship in real estate just can’t be quantified right now.”

For prospective lenders, “More important than anything today is sponsorship” on a loan, he said. Regarding loans for new development, “Unless you have an existing relationship, unless you are a top-tier borrower, forget construction,” Braddish said.

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