George Smith Partners' Steve Orchard

Conditions are ripening for commercial real estate work-outs.Most of us expected loan modification and distressed recapitalization activity to start long ago. However owners and lenders have held stubborn hope of either a bail-out, a liquidity break, or an economic recovery. That out-look may be changing.

We’re now observing increased levels of capitulation. Stakeholders are acknowledging that the real estate world has changed for the long term. Capital availability will remain tight for the foreseeable future. Rents are dropping. Vacancy is rising. Most expect fundementals to deteriorate further.

But this new paradigm is a difficult pill to swallow. Furthermore, the rules of the game are not yet fully defined. So each person’s description of “reality” varies widely, and their perspective tends to be biased.