Marcus & Millichap's Petriella

When it became apparent at the beginning of the year that the debt and equity market slowdown was going to be a long-lasting one, the real estate community took some heart in the fact that alternative lending sources were stepping in. These firms – life insurers, opportunity funds, mezz sources of capital — it was assumed, would at least partially fill the gaps left by the conduit market seizure and the suddenly risk-adverse traditional lenders that shut down operations.To a certain extent, these alternative sources have done what they were expected to do — but at a great cost. That, coupled with the fact that the day-to-day reality of this market can still be difficult for some developers to navigate, has not made it much easier to close deals. “There are a lot of potential sellers out there still in denial about the market realities,” Adam Petriella, a Los Angeles-based VP of Investments/Capital Markets for Marcus & Millichap, tells GlobeSt.com. Many sellers are remaining on the sidelines as a result, content to collect rents and wait for what they believe will be a more favorable cycle, he says. Sellers willing to look beyond 2006 prices, however, are “getting good deals.”It is the borrowers, though, that are facing the most difficulty closing transactions, Petriella observes from his perch in the market.

GlobeSt.com: What happened to the funds raised in anticipation of this demand?

Petriella: There are a lot of people out there that want to make loans, but yield requirements have gone up and lenders are seeking returns anywhere from 15% to 20% IRR. The majority of deals aren’t penciling in to meet those expectations.