Then you have properties that fall in the middle (somewhat stabilized with 50% vacancies). In those cases, again, investors will look at some sort of discounted cash flow analysis where they will be very conservative on rental assumptions and renewals. They will also want to mark every transactions that’s already been done to the current market rents. They tend to be more entrepreneurial and they have good resources and bank relationships.

The financial markets are coming back if you look at the small user. So with that, it’s spurred a lot of absorption of smaller product. On the other end, with the institutional buyers, they are being very conservative on their underwriting. They are looking for dependable cash flows and their LTVs are going to be very conservative--in the 50% to 60% range--with debt coverage of 1.2% and above.

GlobeSt.com: In which of the three categories you mentioned do most investors fall?

Indvik: It depends; mainly because the distressed asset market is so prevalent right now in terms of both the banks and the CMBS and to a lesser extent the life insurance companies. If you just take the banks and the CMBS markets, there is a tremendous amount of product available. So certainly the velocity is probably more oriented toward that just because the supply is so much greater. And those lending institutions have become much more realistic about the values they have so the transaction volume has picked up significantly.

On the institutional side, there are a few things to consider. One, what are the portfolio objectives of those owners? They tend to be large, money-management companies for real estate or core assets for the pensions/insurance companies and they tend to have a strategic objective to turn part of a portfolio at certain times; so that’s part of it. And, then, there are investors who just need to liquify their balance sheets to help stabilize other assets they may have. But it wouldn’t shock me if it weren’t 80% bank/CMBS and 20% institutional. There is a strong market right now in the triple net, especially in the $1-million to $8-million market, and those are everything from drug stores to restaurants.

GlobeSt.com: Is there more stress in certain asset classes or is it starting to flatten out?

Indvik: If I had to rank them from worse to best, I would start with retail and then office, followed by industrial and multifamily, the latter of which is strong thanks to high demand and cap rates. Obviously, multifamily rents are down so values are also depressed, but with the yield as low as 4% and 5.5% to 6.5% cap rates, you’re getting good leverage. And the fundamentals of the market on the housing side are such that more and more people are looking at multifamily simply because they don’t have the capital with which to buy a home.

GlobeSt.com: What do you see in terms of rents for office going forward?

Indvik: It will all come down to employment. There are some unknowable factors out there. How is business going to respond to the demand? On the one hand, it appears the economy is stabilized and we are entering a period of moderate growth. But everybody’s talking about how many of these jobs will never come back, in part because businesses have become much more efficient. Productivity will skyrocket. Everybody is going to be much more cautious about taking on the burden of additional costs until they gain confidence as to what their business prospects are.

At the same time, we are becoming much more competitive. If you look at the cost of running a business--from what you pay an employee to the cost of your building plus your prospects internationally with the depreciated dollar--all speak well to us being more competitive on a worldwide basis and that should auger more demand both from domestic and international companies. Those elements all help in terms of the recovery.

But the time frames are up in the air. I’m not pessimistic about rents but any prudent person is probably still cautious about when they will stabilize and when we can expect to see some growth after that. Certainly, the better the market, the better the outlook for growth.

GlobeSt.com: Do you think we will see more distressed trades in the coming years?

Indvik: I do. Part of it started out with a learning process; meaning, truly understanding what the process of foreclosing means for your balance sheet. And I speak mostly to the financial institutions and their ability to then understand ultimately what values are. The gap between the ask and the bid has narrowed substantially. We’re not running into resistance on the numbers that we once were. There are still some issues associated with the ability of banks to make sure their recognition of the loss, the impact on their balance sheets, is properly managed. But I do think we’ve seen velocity and going forward we will see even more. Obviously, that will continue until we do get stabilization of rents and then some valuation issue associated with the asset itself.

The caveat is that we have very low interest rates, which is helping to an extent with the yield requirements. But what happens a year or two from now if the economy picks up--we have so much debt out there crowding out the markets. As much as we want to think everything is going to stay the same as it relates to the ability to underwrite, if we start to see inflationary pressure or see interest rates go up, then it will mute the upside on value going forward, which means we will need to look again at what the strike prices are between the bid and the ask. So I see challenges for a few years.

It really gets down to the fact that for the most part we are overleveraged both on the governmental as well as the personal side. The good thing is that most businesses have done a good job of getting their balance sheets in order but you still have two fairly significant segments--the consumer being 65% and the government accounting for another 10% to 11% of the US economy--that have serious issues related to their balance sheets. Until they can get that back in order, it will hinder the economic recovery. Overall, I’m hopeful, but still cautious.