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USC Lusk Center Chairman Shares Industry Survival Tips for 2012

October 31, 2011

In his 2012 real estate industry forecast, University of Southern California Lusk Center for Real Estate (www.usc.edu/lusk) Chairman of the Board Stan Ross points to debt management as the key to surviving in a highly volatile market.

"There's a massive amount of debt still outstanding, from mortgage debt to institutional debt to state debt and the federal deficit. We need to refocus on debt management and the balance sheets." Ross says. "From a strategic planning standpoint, there are a number of things all real estate companies should do before they have a problem."

Ross, a longtime real estate and investment strategist, has deep expertise in mergers, acquisitions, reorganizations, and the development of creative financial structures. As a result, his 2012 industry forecast takes the form of specific action items and survival tips:

Do an internal current checkup and analysis
Ross says: "Redevelop and update your database, match it up with current macro and micro trends, run sensitivity analyses, take inventory and rank your assets. You should do a new realistic pro forma, but don't fall too in love with results."

Increase your communication with your lenders
Ross says: "Transparency is critical during these times. You should schedule more frequent meetings with your lenders to avoid any shocks or surprises. Lenders should know what has happened and what is taking place, so that you can work together early to develop options with respect to modifications and restructuring."

Develop lender strategies that maintain cash flow
Ross says: "Individual lender strategies range from making partial payments to requests for a simple waiver of a default provision, a moratorium on interest to handing over deeds in lieu of foreclosure. Work with lenders to identify solutions that meet their needs and support liquidity and long-term cash flow."

If you are going to go for a modification, review your balance sheet
Ross says: "First, you should do a current review of your balance sheet. Look at all your assets and liabilities. Then prepare a presentation, including a cash flow, realistic current values and a sensitivity analysis."