By Maria Wood
The good news is that there are plenty of dept and equity dollars for real estate. Also on the plus side is the return of secondary offerings by REITs and cheap borrowing costs. The bad news is that lenders are scrutinizing deals with amore critical eye, lending on only the highest quality assets, and equity investors are having difficulty getting the high return gained just a few years ago.
What follows are comments from lenders, equity players and researchers on the state of the capital markets for real estate. While the market has certainly been affected by the slumping economy, the news, fortunately, isn’t all bad.
Debt: Plenty Scarce
“ While there is a lot of capitol out there, it’s a bit scarce.” That seemingly contradictory statement from Stan Ross, chairman of the board at the University of Southern California Lusk Center for Real Estate in the Los Angeles and former vice chairman of Ernest and Young Real Estate Services, pretty much sums up the current state of the debt market. Yes, lenders remain committed to investing in real estate. However before doling out their cash, there are putting the fundamentals of the transactions under the magnifying glass, taking a hard look at things such as market rental trends and an asset’s cash flow.
In other words, money may be cheap, but that doesn’t mean it is easy to get.
“There is a nervousness in the market place because of general economic conditions and the event of 9/11” Ross admits. “Delinquencies and defaults are on the rise. As a result, it has created an allocation issue, not a credit crunch. Companies that do not have a strong balance sheet, strong net worth and long term relationships with their institutions are having more of a challenge with respect to their corporate credit lines. Mortgages on properties are still available, but even there we are running into issues in terms of what are the appropriate LTVs”
Donald Meyer, managing director of Cohen Financial capital markets unit, says that lenders are willing to give money to real estate. That said, they want to place their capitol only with the best deals.