As we prep for 2013, the watchword remains “caution,” even as the economy (and therefore commercial real estate) travels its sluggish path to recovery. This year's Emerging Trends, the annual opus of ULI and PwC, said it best: “As investors tentatively advance further along the risk spectrum in 2013 chasing yield, they suffer queasiness about the limitations of US real estate markets. There is just not enough product to get the yields they want.” Add to this slow-to-improve fundamentals and lingering concern that Europe's fiscal crisis could waft this way, and the challenges facing would-be sellers of product comes into stark relief.

It's particularly angst-inducing for minority stakeholders, the players who have just a piece of the action and are waiting on the major owners to determine their strategy. In such fractional—and sometimes fractious—ownership situations, the underlying investors, who thought their payoff was finally at hand, are being told to hold their water for another few years.

“We allow those investors to monetize or repatriate their legacy capital allocations.” So says Ronald M. Dickerman, president of Manhattan-based Madison International, a private equity firm that has made its mark in secondary capital and switching positions with antsy minority-stake players. Dickerman says he'll transact anywhere from a 5% stake up to 49%, most typically in the upper reaches of that range, only occasionally going to a larger bite.

“You have broken, tired capital structures,” Dickerman believes. “Even though cap rates have compressed and values have come back, rental rates haven't recovered to their high-watermarks in most major cities. In New York, rental rates were $85 to $90 a foot. Now, they're $50, $60, $70. Only in prime buildings have they gone back to well over $100. There's still a lot of residual effect from the credit crisis that hasn't been fully wound through the system as it relates to those capital structures and the disposition of investors.” The result is a wait-and-see, the proverbial can being kicked down the road, and Madison's strategy is to capitalize on breaking the ownership logjam…

…For the rest of this story, go to the November 2012 issue of Real Estate Forum online.