It's time to re-invent, go back to basics, and hunker down. The credit crisis increasingly looks like a credit crunch. The deal-o-rama is over. CDOs look down for the count (although don't we know Wall Street will resurrect them at some point in the future) and no matter how low interest rates go, credit terms will be much tighter. The sideways economy piles on more hurt -- property revenue growth slows or stalls. All the bankers, brokers and other intermediaries should expect "an off year" in 2008 as their volumes slide.
So who will make money in the New Year?
Folks with plenty of dry powder, cash will be king in an environment skittish about leverage. Players who can make deals off market with motivated sellers may do better. Some owners will want to avoid the blackmarks associated with high profile failures and will quietly take on "money" partners. Everybody is looking for cents on a dollar steals for languishing homebuilder lots.
Property and asset managers: Suddenly these folks will become appreciated again for squeezing more income out of properties or reducing expenditures. Crack leasing agents will be more in demand, although landing deals may be somewhat problematic as tenants hold back for lower rates or retrench.
Workout specialists: Over the past 15 years, workout skills have turned rusty. A generation of new real estate players has never engaged in the finer points of problem loans and fractured joint venture agreements. Complications involving special servicers and the myriad intricacies of failing loans in CMBS and CDOs should prove especially taxing and convoluted.
Attorneys: Law firms are recession proof. They charge as much for taking deals apart as putting them together. Workouts and bankruptcies can be lucrative -- plenty of billable hours. The CMBS conundrums are tailor made. Bankruptcy counsel will do better than M&A.
Investment bankers: The fix is in. Wall Street still controls the capital spigots and their fund vehicles have plenty of cash on hand. They will look for vulture plays and find some new bail out formula, which will make them ample fees along the way. But transaction volume will be way off from the recent fee fest.
Addendum: Have you noticed that the big banks continue to increase writedowns on bad loans. What happens when they move past residential real estate problem loans and take a hard look at commercial real estate and commercial paper?
© Miller Ryan LLC 2007
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
